<PAGE>
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, 2000
SPARKLING SPRING WATER GROUP LIMITED
19 FIELDING AVENUE, DARTMOUTH, NOVA SCOTIA, CANADA B3B 1C9
(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: ________________________________________
Name: David M. Arnold
Title: Vice President Finance, Treasurer
Date: ________________________
<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
PRIMARY STANDARD
INDUSTRIAL
STATE OR OTHER JURISDICTION OF CLASSIFICATION CODE
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER INCORPORATION OF ORGANIZATION NUMBER
<S> <C> <C>
Sparkling Spring Water Limited Nova Scotia 5149
Cool Spring Water Company Limited Nova Scotia 5149
Spring Water, Inc. Delaware 5149
Cullyspring Water Co., Inc. Washington 5149
Crystal Springs Acquisition, Inc. Delaware 5149
Nature Springs Water Company Limited England 5149
Krystal Fountain Water Co. Limited England 5149
Water at Work Limited Scotland 5149
Natural Water Limited Scotland 5149
</TABLE>
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, 2000
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999................................................................ 1
Consolidated Statements of Operations for the three and six month
periods ended June 30, 2000 and 1999................................................. 2
Consolidated Statements of Cash Flows for the six months
ended June 30, 2000 and 1999......................................................... 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
<TABLE>
<CAPTION>
(in thousands of U.S. dollars) June 30, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current
Cash and cash equivalents $ 435 $ 567
Accounts receivable 12,908 11,491
Inventories [NOTE 3] 2,341 1,482
Prepaid expenses 1,777 1,453
----------- ------------
Total current assets 17,461 14,993
Fixed assets 37,614 36,207
Goodwill and deferred charges 48,749 50,227
Other assets 3,175 1,634
----------- ------------
Total assets $106,999 $103,061
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIENCY)
Current
Accounts payable and accrued liabilities $9,938 $ 10,028
Income tax payable - 103
Customer deposits 5,686 5,466
Senior bank debt - operating line [NOTE 8] 9,119 -
Debt due within one year 1,860 2,963
----------- ------------
Total current liabilities 26,603 18,560
----------- ------------
Obligations under capital leases and other debt 1,747 2,267
Senior bank debt [NOTE 8] 13,853 13,973
Subordinated notes payable [NOTE 4] 88,100 88,100
----------- ------------
Total long-term liabilities 103,700 104,340
----------- ------------
Shareholder's equity (deficiency)
Capital Stock
Issued and outstanding:
Class D common shares - 1,383,328 6,054 6,241
Class E common shares - 5,860 172 177
----------- ------------
6,226 6,418
Cumulative translation adjustment (3,595) (1,538)
Deficit (25,935) (24,719)
----------- ------------
Total shareholder's equity (deficiency) (23,304) (19,839)
----------- ------------
Total liabilities and
shareholder's equity (deficiency) $106,999 $103,061
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
1
<PAGE>
SPARKLING SPRING WATER GROUP LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(in thousands of U.S. dollars)
Revenue:
Water $ 11,511 $ 10,499 $ 21,637 $ 19,705
Rental 3,981 3,826 7,583 7,209
Other 2,061 1,779 3,928 3,603
-------- -------- -------- --------
Total revenue 17,553 16,104 33,148 30,517
-------- -------- -------- --------
Cost of sales:
Water 2,204 2,141 4,242 4,136
Other 808 726 1,493 1,491
-------- -------- -------- --------
Total cost of sales 3,012 2,867 5,735 5,627
-------- -------- -------- --------
Gross profit 14,541 13,237 27,413 24,890
Expenses:
Selling, delivery and administrative 9,114 8,242 18,036 16,484
Integration and related expenses [NOTE 9] 170 - 170 -
Depreciation and amortization 2,750 2,369 5,312 4,894
-------- -------- -------- --------
Operating profit 2,507 2,626 3,895 3,512
Interest and related expenses [NOTE 4] 1,683 2,397 4,745 5,139
-------- -------- -------- --------
Income (loss) before income taxes and extraordinary item 824 229 (850) (1,627)
Recovery of (provision for) income taxes 43 - (366) -
-------- -------- -------- --------
Net income (loss) before extraordinary item 867 229 (1,216) (1,627)
Extraordinary item [NOTE 5] - 758 - 758
-------- -------- -------- --------
Net income (loss) 867 987 (1,216) (869)
Other comprehensive income (loss):
Foreign currency translation adjustment (1,449) 41 (2,057) (184)
-------- -------- -------- --------
Comprehensive income (loss) $(582) $1,028 $(3,273) $(1,053)
======== ======== ======== ========
Basic earnings (loss) per share before extraordinary item $0.62 $0.17 $(0.88) $(1.17)
======== ======== ======== ========
Diluted earnings per share before extraordinary item $0.61 $0.16 N/A N/A
======== ======== ======== ========
Basic earnings (loss) per share $0.62 $0.71 $(0.88) $(0.63)
======== ======== ======== ========
Diluted earnings per share $0.61 $0.62 N/A N/A
======== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES
2
<PAGE>
SPARKLING SPRING WATER GROUP LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Six
Months Ended Months Ended
(in thousands of U.S. dollars) June 30, June 30,
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,216) $ (869)
Items not requiring cash
Depreciation and amortization 5,312 4,894
Deferred taxes (37) -
Amortization of deferred financing costs 285 250
Extraordinary item - (758)
Cross currency swap [NOTE 4] (1,467) (1,349)
------- -------
2,877 2,168
Net change in non-cash working capital balances (2,741) (2,417)
------- -------
Cash provided by (used in) operating activities 136 (249)
------- -------
INVESTING ACTIVITIES
Purchase of fixed assets, net (4,102) (5,899)
Acquisitions (3,773) -
------- -------
Cash used in investing activities (7,875) (5,899)
------- -------
FINANCING ACTIVITIES
Increase in long-term debt 8,036 6,865
Repayment of long-term debt (875) (890)
Repurchase of subordinated notes payable - (8,500)
Decrease in subscription receivable - 122
Increase in deferred charges and other assets (71) (266)
------- -------
Cash provided by (used in) financing activities 7,090 (2,669)
------- -------
Effect of foreign currency translation on cash 517 75
Decrease in cash and cash equivalents during the period (132) (8,742)
Cash and cash equivalents, beginning of period 567 9,728
------- -------
Cash and cash equivalents, end of period $ 435 $ 986
======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid $ 6,031 $ 6,320
======= =======
Income taxes paid $ 479 $ 25
======= =======
</TABLE>
SEE ACCOMPANYING NOTES
3
<PAGE>
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(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,
Alberta and the Maritime provinces of Canada, England, Scotland and the
Pacific Northwestern United States.
The Company uses the U.S. dollar as its reporting currency. Balance
sheet accounts of all non-U.S. entities are translated into U.S. dollars at
the exchange rates in effect at the balance sheet date. Income statement
accounts of all non-U.S. entities are translated into U.S. dollars at average
exchange rates prevailing during the period. Gains and losses on translation
are included in a separate component of shareholder's equity titled
"cumulative translation adjustment".
The accompanying unaudited consolidated financial statements have been
prepared on a historical cost basis by management 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 cash flows 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, 1999 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,
2000 are not necessarily indicative of the results that may be expected for
the year ended December 31, 2000 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 (thousands of dollars):
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
(unaudited)
<S> <C> <C>
Packaging materials $ 555 $ 339
Coolers not yet in service 723 327
Goods for resale 509 417
Cooler parts 415 246
Other 139 153
------- ------
$2,341 $1,482
====== ======
</TABLE>
4
<PAGE>
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(Unaudited)
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 which was terminated in October 1998. The semi annual interest
payments on the pound sterling swap are approximately 1.1 million pounds. At
June 30, 2000, the aggregate fair market value of the pounds sterling swap
was approximately $1.9 million (December 31, 1999 - $0.3 million) in favor of
the Company and is included in other assets. For the six months ended June
30, 2000, approximately $1.5 million of the $1.6 million increase in the swap
asset between December 31, 1999 and June 30, 2000 was recorded as a decrease
in interest expense. For the six months ended June 30, 1999, approximately
$1.3 million of the decrease in the swap liability between December 31, 1998
and June 30, 1999 was recorded as a decrease in interest expense.
5. Extraordinary Item
In May 1999, the Company paid $8.5 million to repurchase $10 million
face value of its outstanding Subordinated Notes Payable. A gain of $758,000
related to the repurchase of the Subordinated Notes has been recorded, net of
applicable income taxes of $386,000 and costs of $356,000 representing a
write off of a proportionate amount of deferred charges incurred in
connection with the issuance of the Subordinated Notes in November of 1997.
6. Earnings per Share
The weighted average number of shares used to calculate basic and
diluted earnings per share is 1,389,188 and 1,436,975 respectively for the
three and six months ended June 30, 2000 and 1,389,188 and 1,636,385
respectively for the three and six months ended June 30, 1999.
7. Acquisitions
On November 27, 1999, the Company purchased the assets of the Misty
Mountain Water Division of Baxter Foods Limited ("Misty") for approximately
$1.4 million. Misty operates in the Maritime Provinces of Canada.
On May 31, 2000, the Company purchased all of the outstanding capital
stock of Mr. Softwater Ltd., operating as Cool Spring ("Cool Spring") for
approximately $3.8 million including debt assumed. Cool Spring operates
primarily in the Calgary, Alberta Canada market and focuses on the direct
delivery of both eighteen litre and smaller size packages of water to
residential and commercial customers and the rental of water coolers.
Immediately following the acquisition, Mr. Softwater Ltd. was amalgamated
with Cool Spring Water Company Limited, a company formed for the purpose of
acquiring Mr. Softwater Ltd.
The following unaudited pro forma information presents a summary of
consolidated results of operations as if the acquisitions of Misty and Cool
Spring had occurred at January 1, 1999.
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
(thousands of dollars except Ended Ended Ended Ended
per share amounts) June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Total revenue $18,209 $17,168 $34,368 $33,197
Net income (loss) 780 788 (1,374) (1,222)
Extraordinary item - 758 - 758
Basic earnings (loss) per share 0.56 0.57 (0.99) (0.88)
</TABLE>
5
<PAGE>
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(Unaudited)
8. Senior Credit Facility
The Company has available a $38 million multi-currency facility that
provides for a $15 million operating line (the "Operating Line Facility")
which is renewable annually by April 30th, a $13 million five year
acquisition line (the "Acquisition Facility") and a $10 million term note
(the "Note Buyback Facility"). The Acquisition Facility includes $3 million
of availability over which the Company has the flexibility to repurchase, at
its discretion, certain of the Company's outstanding Subordinated Notes
Payable. In March 2000, the Operating Line Facility was renewed to April 30,
2001. Amounts outstanding under the Note Buyback Facility will be repaid over
a five-year period beginning with a $1 million payment scheduled for October
31, 2000. The Acquisition Facility will be reduced by $2 million per year
beginning April 30, 2001. The Company has 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
facility rank senior to the payment of the Company's Subordinated Notes
Payable.
9. Integration and Related Expenses
On May 31, 2000, the Company completed the acquisition of Mr. Softwater
Ltd and immediately amalgamated it into its newly formed subsidiary Cool
Spring Water Company Limited. In integrating this acquisition into the
Company's operations, non-recurring costs have been accrued to provide for
reduction and relocation of staff, conversion of the acquired business'
computer systems, closing costs and other business integration costs.
10. Summary of Business Segments
The Company's business segments derive substantially all their revenues
from the sale of bottled water and the rental of water coolers. The Company
has identified three primary business segments: Canada, the United Kingdom
and the United States.
Segment detail is summarized as follows:
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
(thousands of dollars) Ended Ended Ended Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Canada $7,368 $ 6,594 $13,490 $12,101
United Kingdom 6,463 6,184 12,487 11,887
United States 3,722 3,326 7,171 6,529
------- ------- ------- -------
$17,553 $16,104 $33,148 $30,517
======= ======= ======= =======
Net income before depreciation,
interest, income taxes and extraordinary item:
Canada $2,293 $2,148 $3,802 $3,314
United Kingdom 2,647 2,348 4,680 4,342
United States 992 953 1,802 1,628
Unallocated corporate overhead (675) (454) (1,077) (878)
------- ------- ------- -------
$5,257 $4,995 $9,207 $8,406
======= ======= ======= =======
</TABLE>
11. Comparative Figures
Certain of the comparative figures have been reclassified to conform
with the presentation adopted in the current period.
12. Subsequent Events
(a) On July 17, 2000, the Company purchased all of the outstanding shares
of Rocky Mountain Springs Water, Inc. ("Rocky") for cash consideration
of $0.6 million. Rocky operates in the Edmonton, Alberta Canada market.
(b) On August 8, 2000, the Company purchased the operating assets of Sparta
Water Inc. and subsidiaries ("Sparta") for cash consideration of
approximately $1.0 million including buyout of certain vehicle leases
used by Sparta . Sparta operates in the Edmonton, Calgary and Grand
Prairie Alberta, Canada markets.
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 Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue 100% 100% 100% 100%
Cost of sales 17.2 17.8 17.3 18.4
---- ---- ---- ----
Gross profit 82.8 82.2 82.7 81.6
Selling, delivery and administrative 51.9 51.2 54.4 54.0
Integration and related expenses 1.0 - 0.5 -
---- ---- ---- ----
EBITDA 29.9 31.0 27.8 27.6
Depreciation and amortization 15.6 14.7 16.0 16.0
---- ---- ---- ----
Operating profit 14.3 16.3 11.8 11.6
Interest and related expenses 9.6 14.9 14.4 16.9
--- ---- ---- ----
Income (loss) before income taxes and
extraordinary item 4.7 1.4 (2.6) (5.3)
Recovery of (provision for) income taxes 0.2 - (1.1) -
---- ---- ---- ----
Net income (loss) before extraordinary item 4.9 1.4 (3.7) (5.3)
Extraordinary item - 4.7 - 2.5
---- ---- ---- ----
Net income (loss) before extraordinary item 4.9 6.1 (3.7) (2.8)
==== ==== ==== ====
</TABLE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1999
REVENUE. Revenue increased $1.5 million or 9.0% to $17.6 million in the
three months ended June 30, 2000 compared to $16.1 million in the three months
ended June 30, 1999. Revenues from acquisitions completed during and after the
1999 second quarter accounted for approximately $0.8 million of the increase.
Revenue was reduced by approximately $0.2 million or 1.2% due to declines in the
Pound Sterling and the Canadian Dollar. The balance of the increase was from
growth in sales from the Company's higher customer location base and increased
small pack sales. The Company's customer location
7
<PAGE>
base was approximately 171,300 as at June 30, 2000 compared to 160,300 as at
December 31, 1999. The Company's customer base grew by approximately 12,700
during the quarter. The acquisition of Mr. Softwater Ltd. on May 31, 2000
accounted for approximately 7,600 of the increase.
COST OF SALES. The cost of sales increased by $0.1 million or 5.1% to
$3.0 million in 2000 compared to $2.9 million in 1999 as a result of growth
in the company's underlying customer base. The cost of sales as a percentage
of revenue decreased by 0.6% from 17.8% in the 1999 period to 17.2% in the
2000 second quarter primarily as a result of $0.2 million of credits from a
supplier to compensate for cost overruns due to late delivery of equipment
that offset the impact of higher costs related to an increase in the
Company's revenues from lower margin small pack products.
OPERATING EXPENSES. Selling, delivery, and administrative operating
expenses (excluding integration and related expenses of $0.2 million)
increased by $0.9 million or 10.6% to $9.1 million in the 2000 second quarter
from $8.2 million in the 1999 period. This increase was due to a $0.4 million
increase in sales and marketing costs related to increased customer rental
placements and a $0.5 million increase in distribution expenses driven by
increases in bottle sales to customers and significantly higher gasoline
prices. As a percentage of revenue, selling, delivery and administrative
expenses increased from 51.2% in the 1999 period to 51.9% in the 2000 second
quarter.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased by 16.1% or $0.3 million to $2.7 million from $2.4 million in the
1999 period. This increase was the result of depreciation of capital
expenditures made since the second quarter of 1999 to support the growth in
the Company's water cooler customer base and due to the significant increase
in fixed and intangible assets acquired as a result of acquisitions
consummated after the 1999 period. Depreciation for the three months ended
June 30, 2000 reflects the change in the Company's depreciation method to the
straight line method which was adopted in the Company's 1999 year end
financial statements. Depreciation expense for the three months ended June
30, 1999 was calculated using the declining balance method.
OPERATING PROFIT. The Company's operating profit decreased by 4.5% or
$0.1 million to $2.5 million from $2.6 million in 1999 primarily as a result
of the integration and related expenses and increased depreciation charges
noted above. As a percentage of revenue, operating profit decreased to 14.3%
in the 2000 second quarter from 16.3% in the 1999 period due principally to
the increase in selling, delivery and administration, depreciation and
amortization expenses and lower currency exchange rates. Earnings before
interest, taxes, depreciation and amortization expense ("EBITDA") increased
by 5.2% or $0.3 million to $5.3 million from $5.0 million in the 1999 period.
As a percentage of revenue, EBITDA decreased to 29.9% in the 2000 quarter
from 31.0% in the 1999 period primarily due to the acquisition charge of $0.2
million or 1.0% of revenues in the second quarter of 2000.
INTEREST EXPENSE. Interest expense decreased by $0.7 million from $2.4
million in the second quarter of 1999 to $1.7 million in the 2000 quarter.
Interest expense was reduced by $1.4 million in the second quarter of 2000
and by $0.9 million in the 1999 quarter as a result of interest accrued due
to the fluctuating value of the Company's currency swap (see Note 4 of the
Notes to Consolidated Financial Statements included elsewhere in this
Report). Excluding the impact of accounting for the cross currency swap,
interest expense in the 2000 second quarter decreased by $0.2 million from
the 1999 period. An increase in interest expense associated with increased
borrowings under the Company's Senior Credit Facility was offset by lower
interest costs arising from the redemption of $11.9 million of the Company's
Subordinated Notes Payable. These Notes were redeemed at a discount during
and after the 1999 second quarter using Senior Debt that carries a lower
effective interest rate.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999
REVENUE. Revenue increased $2.6 million or 8.6% to $33.1 million in the
six months ended June 30, 2000 compared to $30.5 million in the six months
ended June 30, 1999. Revenues from acquisitions completed after the 1999
second quarter accounted for approximately $1.3 million of the increase.
Revenue growth was reduced by approximately $0.2 million or 0.6% due to
declines in Pound Sterling offset partially by an increase in the Canadian
Dollar. The balance of the increase was from growth in water sales from the
Company's higher customer location base. The Company's customer location base
was 171,300 as at June 30, 2000 compared to 160,300 as at December 31, 1999.
The acquisition of Mr. Softwater Ltd. on May 31, 2000 accounted for
approximately 7,600 of the increase.
COST OF SALES. The cost of sales increased by $0.1 million or 1.9% to
$5.7 million in 2000 compared to $5.6 million in 1999 as a result of both
acquisitions completed since the 1999 period and growth in the Company's
underlying customer base. The cost of sales as a percentage of revenue
decreased by 1.1% from 18.4% in the 1999 period to 17.3% in 2000. This
decrease was primarily due to $0.2 million in supplier credits and improved
production efficiencies which offset an increase in the mix of lower margin
small pack case production.
8
<PAGE>
OPERATING EXPENSES. Selling, delivery, and administrative operating
expenses (excluding integration and related expenses of $0.2 million)
increased by $1.5 million or 9.4% to $18.0 million for the six months ended
June 30, 2000 compared to $16.5 million in the 1999 period. This increase is
primarily due to a $0.9 million increase in distribution costs due to higher
fuel costs and additional expenses necessary to support the Company's
increased customer base that was up over 8.3% from the year ago period. In
addition, selling expenses rose by $0.6 million primarily due to a 162%
increase in net new rental placements (an increase of 2,700 rentals) during
the 2000 period. General and administrative expenses remained relatively flat
due to lower bad debt reserves. As a percentage of revenue, operating
expenses increased from 54.0% to 54.4%.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased by 8.5% or $0.4 million to $5.3 million from $4.9 million in the
1999 period. As a percentage of revenue, depreciation and amortization
expense for the six months ended June 30, 2000 was 16.0%, the same percentage
as the 1999 period. Depreciation for the six months ended June 30, 2000
reflects the change in the Company's depreciation method to the straight line
method which was adopted in the Company's 1999 year end financial statements.
Depreciation expense for the six months ended June 30, 2000 was calculated
using the declining balance method.
OPERATING PROFIT. The Company's operating profit increased by 10.9% or
$0.4 million to $3.9 million from $3.5 million as a result of the changes
noted above. As a percentage of revenue, operating profit increased from
11.6% in the 1999 period to 11.8% in the six months ended June 30, 2000.
EBITDA increased by 9.5% or $0.8 million to $9.2 million from $8.4 million in
the 1999 period as a result of sales revenue from the higher customer base
growing faster than operating expenses. As a percentage of revenues, EBITDA
increased to 27.8% in the 2000 first half from 27.6% in the 1999 period due
principally to the improvement in the Company's gross profit margin offset
partially by acquisition charges and a slight increase in selling, delivery
and administrative expenses.
INTEREST EXPENSE. Interest expense decreased by $0.4 million from $5.1
million in the 1999 period to $4.7 million in the 2000 period. Interest
expense was reduced by approximately $1.5 million in the six months ended
June 30, 2000 and $1.4 million in the six months ended June 30, 1999 as a
result of interest benefits accrued due to the fluctuating value of the
Company's currency swap (see Note 4 of the Notes to Consolidated Financial
Statements included elsewhere in this Report). Excluding the impact of
accounting for the cross currency swap, interest expense for the six months
ended June 30, 2000 decreased by approximately $0.3 million. The decreased
interest costs were driven by lower average interest rates which more than
offset higher borrowing levels incurred to fund capital expenditures and
business acquisitions after the 1999 period. The lower average interest rate
arose from the redemption of $11.9 million of the Company's Subordinated
Notes Payable which were redeemed during and after the 1999 second quarter.
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 and borrowings under the Senior Credit
Facility (see below).
Net cash provided by operating activities was $0.1 million for the six
months ended June 30, 2000 and net cash used in operating activities was $0.2
million for the six months ended June 30, 1999. Net cash used in investment
activities was $7.9 million in 2000 and $5.9 million in 1999. The 2000 uses
includes $3.8 million related to the acquisition of Mr. Softwater Ltd. The
Company made net capital expenditures of $4.1 million in the six months ended
June 30, 2000 and $5.9 million in the six months ended June 30, 1999. Capital
expenditures in the 1999 period included approximately $1.1 million related
to the purchase of production equipment for a new plant in Vancouver, Canada.
Capital expenditures in the 2000 period are primarily related to the purchase
of water bottles, water coolers, delivery trucks and computer equipment.
Based on the Company's existing operations, management expects that the
Company's capital expenditures will total approximately $8.0 million in 2000.
The Company is still evaluating expenditures related to a potential new plant
in Scotland which are not included in this total.
In May 1999, the Company paid $8.5 million to repurchase $10 million
face value of its outstanding Subordinated Notes Payable. An extraordinary
gain of $758,000 related to the repurchase of the Subordinated Notes was
recorded. This gain was net of applicable income taxes of $386,000 and costs
of $356,000 representing a write off of a proportionate amount of deferred
charges incurred in connection with the issuance of the Subordinated Notes in
November of 1997.
9
<PAGE>
The Company believes that existing cash balances together with 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 2000 as well as some small acquisitions.
However, there can be no assurance that such resources will be sufficient to
meet the Company's anticipated requirements or that capital will be available
to the Company on terms and conditions acceptable to the Company.
SENIOR CREDIT FACILITY
The Company has available a $38 million multi-currency facility that
provides for a $15 million operating line (the "Operating Line Facility")
which is renewable annually by April 30th, a $13 million five year
acquisition line (the "Acquisition Facility") and a $10 million term loan
(the "Note Buyback Facility"). The Acquisition Facility includes $3 million
of availability over which the Company has the flexibility to repurchase, at
its discretion, certain of the Company's outstanding Subordinated Notes
Payable. In March 2000, the Operating Line Facility was renewed to April 30,
2001. Amounts outstanding under the Note Buyback Facility will be repaid over
a five year period beginning on October 31, 2000 with a $1 million payment
due and the balance in annual installments of $2 million with a final payment
scheduled on October 31, 2005. The Acquisition Facility will be reduced by $2
million annually over a six-year period beginning April 30, 2001.
The Company has 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 facility rank senior to
the payment of the Company's Subordinated Notes Payable.
Amounts outstanding under the Senior Credit Facility bear interest at
specified rates based on the Canadian prime, U.S. prime, London inter-bank
market and Bankers' Acceptances rates. As of June 30, 2000, the Company had
approximately $10.9 million outstanding under the Operating Line Facility
including $2.6 million of outstanding letters of credit, $8.1 million
available under the Acquisition Facility and $10 million outstanding under
the Note Buyback Facility.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The new statement requires all
derivatives to be recorded on the balance sheet at fair value and establishes
new accounting rules for hedging instruments. The statement is effective for
years beginning after June 15, 2000. The impact of this statement on the
consolidated financial statements has not yet been determined.
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; (ix) risks associated with currency
fluctuations and (x) other risks and uncertainties indicated from time to
time in the Company's filings with the SEC.
10
<PAGE>
Part II Other Information
Item 6. Exhibits and Reports on Form 6-K
(a) Exhibits
First Amending Agreement to May 17, 1999 Credit Agreement
between Sparkling Spring Water Group Limited, Sparkling Spring
Water Limited, Nature Springs Water Company Limited and Spring
Water, Inc. as Borrowers and The Toronto-Dominion Bank, Toronto
Dominion (Texas), Inc. and The Toronto-Dominion Bank, London
Branch as Lenders.
(b) Reports on 6-K (incorporated by reference)
Report on Form 6-K dated April 7, 2000 covering the Press Release
dated March 31, 2000 announcing record 1999 revenue and EBITDA.
Report on Form 6-K dated May 19, 2000 covering
- Press Release dated May 12, 2000 announcing agreement to
acquire Mr. Softwater Ltd. and enter the Calgary, Alberta,
Canada market.
- Press Release dated May 16, 2000 announcing record first
quarter revenue and EBITDA
Report on Form 6-K dated June 19, 2000 covering the Press
Release dated June 8, 2000 announcing completion of Calgary
acquisition and Board approval of additional Bond repurchase.
Report on Form 6-K dated August 1, 2000 covering the Press
Release dated July 20, 2000 announcing further acquisitions and
entry into the Edmonton and Grand Prairie, Alberta, Canada,
markets.
11
<PAGE>
EXHIBIT
FIRST AMENDING AGREEMENT
TO
AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDING AGREEMENT is dated as of the 30th day of May, 2000
BETWEEN:
SPARKLING SPRING WATER GROUP LIMITED, a corporation
incorporated under the laws of the Province of Nova Scotia
SPARKLING SPRING WATER LIMITED, a corporation amalgamated
of the Province of Nova Scotia
NATURE SPRINGS WATER COMPANY LIMITED, a company incorporated
under the laws of England and Wales
SPRING WATER, INC., a corporation incorporated under the laws
of the State of Delaware
(collectively, the "Borrowers")
OF THE FIRST PART
AND:
THE TORONTO-DOMINION BANK, a chartered bank of Canada
TORONTO DOMINION (TEXAS), INC., a corporation incorporated
under the laws of the State of Delaware
THE TORONTO-DOMINION BANK, London Branch
(collectively, the "Lenders")
OF THE SECOND PART
WHEREAS:
A. The Borrowers and the Lenders entered into a credit agreement dated as of
April 30, 1998 (the "Original Credit Agreement") under which a credit facility
was made available to the Borrowers by the Lenders;
B. The Borrowers and the Lenders agreed to amend the credit facility made
available to the Borrowers under the Original Credit Agreement, to provide for
additional credit facilities, and to make certain other amendments to the
Original Credit Agreement, and entered into an Amended and Restated Credit
Agreement (the "Credit Agreement") dated as of May 17, 1999 to record such
amendments;
<PAGE>
-2-
C. The Lenders and the Borrowers have agreed to make certain amendments to the
Credit Agreement, and this Agreement is entered into to set out the terms of
such amendments.
THIS AGREEMENT WITNESSES THAT in consideration of the mutual covenants and
agreements contained herein, it is agreed by and between the parties hereto
as follows:
1. DEFINED TERMS. Unless otherwise defined in this Agreement, capitalized
terms used in this Agreement shall have the meanings ascribed to them in the
Credit Agreement.
2. AMENDMENTS. The Credit Agreement is hereby amended as follows:
(a) The following definition is added to Section 1.01 by the following
new paragraph:
"(w.1) "CANADIAN SPRING" means Canadian Spring Water
International Limited, a corporation incorporated
under the laws of the Province of Nova Scotia;".
(b) The definition of "ACQUISITION COMMITMENT" in paragraph (d) of
Section 1.01 is amended by deleting "U.S.$5,000,000" and
substituting "U.S.$13,000,000".
(c) The definition of "ACQUISITION MATURITY DATE" in paragraph (f) of
Section 1.01 is amended by deleting "April 30, 2004" and
substituting "April 30, 2006".
(d) The definition of "GROUP ENTITIES" in paragraph (bb) of Section
1.01 is amended by deleting "Canadian Springs Water Company
Limited" and substituting "Canadian Spring".
(e) The definition of "OPERATING MATURITY DATE" in paragraph (bw) of
Section 1.01 is amended by deleting "April 30, 2000" and
substituting "April 30, 2001".
(f) The definition of "SSW" in paragraph (cr) of Section 1.01 is
amended by deleting "incorporated" and substituting "amalgamated".
(g) The definition of "TERM COMMITMENT" in paragraph (df) of Section
1.01 is amended by adding after "reduction" the words "or increase".
(h) The definition of "TERM MATURITY DATE" in paragraph (dh) of
Section 1.01 is amended by deleting "October 31, 2004" and
substituting "October 31, 2005".
(i) Section 2.01 is amended by deleting paragraphs (b) and (c) thereof
and substituting the following:
"(b) a revolving reducing term facility (the "Acquisition
Facility") in the maximum principal amount of
U.S.$13,000,000 (or the Equivalent Amount in Canadian
Dollars or Sterling), to be made available to the
Borrowers for the acquisition of one or more Target
Companies; and
(c) a non-revolving reducing term facility (the "Term
Facility") in the maximum principal amount (subject
to increase pursuant to Section 2.23) of
U.S.$10,000,000 (or the Equivalent Amount in Canadian
Dollars), to be made available to SSWG for the
purchase of Senior Subordinated Notes."
<PAGE>
-3-
(j) Section 2.02 is amended by deleting paragraph (c) thereof and
substituting the following:
"(c) the Term Facility shall be available for drawdown commencing
on the Closing Date and terminating on the day prior to the
Term Maturity Date."
(k) Section 2.06(b) is amended:
(i) by deleting "U.S.$5,000,000" from paragraphs (i) and (ii)
thereof and substituting "U.S.$13,000,000"; and
(ii) by deleting "U.K.L2,000,000" from paragraph (iii) thereof and
substituting "U.K.L5,000,000".
(l) Sections 2.07(b) and (c) are deleted and replaced with the following:
"(b) Subject to paragraph (d), the Acquisition Commitment
shall be permanently reduced on the dates set out
below to the following amounts:
<TABLE>'
<CAPTION>
Date Acquisition Commitment (U.S.$)
-------------- ------------------------------
<S> <C>
April 30, 2001 $11,000,000
April 30, 2002 $9,000,000
April 30, 2003 $7,000,000
April 30, 2004 $5,000,000
April 30, 2005 $3,000,000
</TABLE>
and the Borrowers shall on such dates permanently
repay the Outstandings under the Acquisition Facility
to the extent necessary to reduce the Outstandings to
an amount that is not greater than the Acquisition
Commitment (as reduced pursuant to this paragraph
(b)). All remaining Outstandings under the
Acquisition Facility shall be repaid in full on the
Acquisition Maturity Date.
(c) Subject to paragraph (d), the Term Commitment shall
be permanently reduced on the dates set out below to
the following amounts:
<TABLE>
<CAPTION>
Date Term Commitment (U.S.$)
---------------- -----------------------
<S> <C>
October 31, 2000 $9,000,000
October 31, 2001 $7,000,000
October 31, 2002 $5,000,000
October 31, 2003 $3,000,000
October 31, 2004 $1,000,000
</TABLE>
and the Borrowers shall on such dates permanently
repay the Outstandings under the Term Facility to the
extent necessary to reduce the Outstandings
<PAGE>
-4-
to an amount that is not greater than the Term
Commitment (as reduced pursuant to this paragraph (c)).
All remaining Outstandings under the Term Facility shall
be repaid in full on the Term Maturity Date.
(d) In the event of a transfer of a portion of the unused
Acquisition Commitment to the Term Commitment
pursuant to Section 2.23, the Acquisition Commitment
amounts set out in paragraph (b) shall be reduced,
and the Term Commitment amounts set out in paragraph
(c) shall be increased, in each case pro rata in
accordance with the amount of such transferred
Commitment."
(m) Section 2.20 is amended by deleting the first sentence thereof and
substituting the following:
"SSW shall pay to TD Bank a fee (the "Commitment Fee") at the
rate of 0.50% per annum calculated on the amount of the
Commitment for each of the Credit Facilities not utilized by
the Borrowers, provided that, in the case of the Term
Facility, such Commitment Fee shall be calculated and payable
only in respect of any transferred Commitment in the event
that the Borrowers transfer a portion of the unused
Acquisition Commitment to the Term Commitment pursuant to
Section 2.23."
(n) The following is added as new Section 2.23:
"2.23 TRANSFER OF UNUSED COMMITMENT FROM ACQUISITION FACILITY TO
TERM FACILITY. The Borrowers may at any time prior to the
earlier of the Acquisition Maturity Date and the Term Maturity
Date, reduce the then unused Acquisition Commitment by up to
U.S.$3,000,000 and increase the Term Commitment by the amount
of such reduction in the Acquisition Commitment upon delivery
to the Lenders of notice to that effect not less than two
Business Days prior to the proposed date of such transfer,
provided that any subsequent utilization by SSWG of the Term
Commitment, as so increased, shall be subject to satisfaction
of the conditions set out in Sections 5.03 and 5.04."
(o) Section 13.03(a) is amended by deleting the address and facsimile
number of CF Capital Corporation therein and substituting the
following:
"P.O. Box 1415
1060 June Creek Road
Edwards, Colorado
U.S.A. 81632
Fax: (970) 926-4827".
<PAGE>
-5-
3. CONDITIONS TO EFFECTIVENESS. This Agreement shall not become
effective until each of the following conditions have been fulfilled to the
reasonable satisfaction of the Lenders:
(a) a Subsidiary Guarantee, Debenture/Security Agreement and General
Assignment of Book Debts (collectively, the "Canadian Spring
Documents") shall have been executed and delivered to the Lenders
by Canadian Spring and all registrations, filings and recordings
necessary or desirable to preserve, protect or perfect the
enforceability of the security created by the Canadian Spring
Documents shall have been completed;
(b) the Lenders shall have received a certificate of an Authorized
Officer of SSWG listing all direct and indirect Subsidiaries of
SSWG;
(c) a Guarantors' Consent and Acknowledgement, in a form satisfactory
to the Lenders, shall have been executed and delivered to the
Lenders by each of the Group Entities;
(d) all of the representations and warranties in respect of the
Borrowers in the Credit Agreement remain true and correct in all
material respects, and the Borrowers shall have delivered to the
Lenders a certificate executed by an Authorized Officer of each of
the Borrowers to that effect;
(e) no event has occurred and is continuing which constitutes a Default
or an Event of Default, and the Borrowers shall have delivered to
the Lenders a certificate executed by an Authorized Officer of each
of the Borrowers to that effect;
(f) the Lenders shall have received copies certified by the Secretary
or an Assistant Secretary of each of the Borrowers of the charter
documents of such Borrower, or confirmation that there have been no
amendments to such charter documents since May 17, 1999,
resolutions of the board of directors of such Borrower approving
this Agreement and all documents evidencing any other necessary
corporate action of such Borrower with respect to this Agreement;
(g) the Lenders shall have received copies certified by the Secretary
or an Assistant Secretary of Canadian Spring of the charter
documents of Canadian Spring, resolutions of the board of directors
of Canadian Spring approving the Canadian Spring Documents and all
documents evidencing any other necessary corporate action of such
Borrower with respect to the Canadian Spring Documents;
(h) the Lenders shall have received a certificate of the Secretary or
an Assistant Secretary of each Borrower and of Canadian Spring
certifying the names and true signatures of its officers authorized
to sign this Agreement or the Canadian Spring Documents, as the
case may be, and any other documents to be delivered by it
hereunder or thereunder;
(i) the Lenders shall have received a recently-dated certificate of
good standing or like certificate for each of the Borrowers and
Canadian Spring issued by appropriate government officials of the
jurisdiction of formation of such Borrower or Canadian Spring;
<PAGE>
-6-
(j) the Lenders shall have received favourable opinions of local counsel
for each of the Borrowers and Canadian Spring as to:
(i) the due incorporation and valid corporate existence of each
of the Borrowers and of Canadian Spring;
(ii) the corporate authority and legal right of each of the
Borrowers to execute, deliver and comply with the terms of
this Agreement;
(iii) the due authorization, execution and delivery of this
Agreement by each of the Borrowers and the legal,
valid, binding nature and enforceability of this
Agreement;
(iv) the corporate authority and legal right of Canadian
Spring to execute and deliver the Canadian Spring
Documents, the due authorization, execution and
delivery of the Canadian Spring Documents, the legal,
valid, binding nature and enforceability of the
Canadian Spring Documents, and the completion of all
registrations, filings and recordings necessary or
desirable to preserve, protect or perfect the
enforceability of the security thereby created;
(v) such other matters as the Lenders may reasonably require;
(k) the Borrowers shall have paid to the Lenders an application fee in
the amount of U.S.$30,000; and
(l) the Lenders shall have received a certificate of the Borrowers,
executed by an Authorized Officer of each of the Borrowers,
confirming that all conditions precedent to the effectiveness of
this Agreement have been satisfied.
4. CONFIRMATION OF CREDIT AGREEMENT. The Credit Agreement, as amended by
this Agreement, is hereby confirmed.
5. GOVERNING LAW. This Agreement shall be construed in accordance with and
governed by the laws of the Province of British Columbia and the laws of Canada
applicable therein.
<PAGE>
-7-
6. SUCCESSORS AND ASSIGNS. This Agreement shall enure to the benefit of and
be binding upon the parties to this Agreement and their respective successors
and permitted assigns.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be duly
executed as of the date first written above.
SPARKLING SPRING WATER GROUP
LIMITED
Per: ___________________________________
Authorized Signatory
SPARKLING SPRING WATER LIMITED
Per: ___________________________________
Authorized Signatory
NATURE SPRINGS WATER COMPANY LIMITED
Per: ___________________________________
Authorized Signatory
SPRING WATER, INC.
Per: ___________________________________
Authorized Signatory
THE TORONTO-DOMINION BANK
Per: ___________________________________
Authorized Signatory
TORONTO DOMINION (TEXAS), INC.
Per: ___________________________________
Authorized Signatory
<PAGE>
-8-
THE TORONTO-DOMINION BANK, LONDON BRANCH
Per: ___________________________________
Authorized Signatory
