<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 September 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
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER INCORPORATION OF ORGANIZATION CODE NUMBER
<S> <C> <C>
Sparkling Spring Water Limited Nova Scotia 5149
Canadian Spring Water International Limited Nova Scotia 5149
Cool Spring Water Company Limited Nova Scotia 5149
Rocky Mountain Springs Water, Inc. 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 September 30, 2000
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999............................................. 1
Consolidated Statements of Operations for the three and nine month
periods ended September 30, 2000 and 1999......................... 2
Consolidated Statements of Cash Flows for the nine months
ended September 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) September 30, December 31,
2000 1999
------ -------
(Unaudited)
<S> <C> <C>
ASSETS
Current
Cash and cash equivalents $ 1,167 $ 567
Accounts receivable 13,459 11,491
Inventories [NOTE 3] 2,046 1,482
Prepaid expenses 1,926 1,453
--------- ---------
Total current assets 18,598 14,993
Fixed assets 38,302 36,207
Goodwill and deferred charges 48,688 50,227
Other assets 1,876 1,634
--------- ---------
Total assets $ 107,464 $ 103,061
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIENCY)
Current
Accounts payable and accrued liabilities $ 12,408 $ 10,028
Income tax payable -- 103
Customer deposits 5,997 5,466
Senior bank debt--operating line [NOTE 8] 5,120 -
Debt due within one year 1,822 2,963
--------- ---------
Total current liabilities 25,347 18,560
--------- ---------
Obligations under non-compete agreements 217 -
Obligations under capital leases and other debt 1,363 2,267
Senior bank debt [NOTE 8] 15,145 13,973
Subordinated notes payable [NOTE 4] 88,100 88,100
--------- ---------
Total long-term liabilities 104,825 104,340
--------- ---------
Shareholder's equity (deficiency)
Capital Stock
Issued and outstanding:
Class D common shares--1,383,328 5,917 6,241
Class E common shares--5,860 168 177
--------- ---------
6,085 6,418
Cumulative translation adjustment (4,145) (1,538)
Deficit (24,648) (24,719)
--------- ---------
Total shareholder's equity (deficiency) (22,708) (19,839)
--------- ---------
Total liabilities and
shareholder's equity (deficiency) $ 107,464 $ 103,061
========= =========
</TABLE>
SEE ACCOMPANYING NOTES
1
<PAGE>
SPARKLING SPRING WATER GROUP LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
9/30/00 9/30/99 9/30/00 9/30/99
------------ ------------ ----------- -----------
(in thousands of U.S. dollars)
<S> <C> <C> <C> <C>
Revenue:
Water $ 13,135 $ 11,753 $ 34,772 $ 31,458
Rental 4,317 4,059 11,900 11,268
Other 2,218 1,919 6,146 5,522
-------- -------- -------- --------
Total revenue 19,670 17,731 52,818 48,248
-------- -------- -------- --------
Cost of sales:
Water 2,966 2,679 7,208 6,815
Other 893 801 2,386 2,292
-------- -------- -------- --------
Total cost of sales 3,859 3,480 9,594 9,107
-------- -------- -------- --------
Gross profit 15,811 14,251 43,224 39,141
Expenses:
Selling, delivery and administrative 10,742 9,039 28,778 25,523
Integration and related expenses [NOTE 9] 238 -- 408 -
Depreciation and amortization 2,739 2,553 8,051 7,447
-------- -------- -------- --------
Operating profit 2,092 2,659 5,987 6,171
Interest and related expenses [NOTE 4] 748 3,637 5,493 8,776
-------- -------- -------- --------
Income (loss) before income taxes and
extraordinary item 1,344 (978) 494 (2,605)
Provision for income taxes (57) -- (423) -
-------- -------- -------- --------
Net income (loss) before extraordinary item 1,287 (978) 71 (2,605)
Extraordinary item [NOTE 5] -- -- -- 758
-------- -------- -------- --------
Net income (loss) 1,287 (978) 71 (1,847)
Other comprehensive income (loss):
Foreign currency translation adjustment (550) 1,183 (2,607) 999
-------- -------- -------- --------
Comprehensive income (loss) $ 737 $ 205 $ (2,536) $ (848)
======== ======== ======== ========
Basic earnings (loss) per share before
extraordinary item $ 0.93 $ (0.70) $ 0.05 $ (1.88)
======== ======== ======== ========
Diluted earnings per share before
extraordinary item $ 0.91 N/A $ 0.05 N/A
======== ======== ======== ========
Basic earnings (loss) per share $ 0.93 $ (0.70) $ 0.05 $ (1.33)
======== ======== ======== ========
Diluted earnings per share $ 0.91 N/A $ 0.05 N/A
======== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES
2
<PAGE>
SPARKLING SPRING WATER GROUP LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Nine
Months Ended Months Ended
(in thousands of U.S. dollars) September 30, September 30,
2000 1999
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 71 $ (1,847)
Items not requiring cash
Depreciation and amortization 8,051 7,447
Deferred taxes -- 151
Amortization of deferred financing costs 404 404
Extraordinary item -- (758)
Cross currency swap [NOTE 4] 79 (722)
-------- --------
8,605 4,675
Net change in non-cash working capital balances (1,380) 61
-------- --------
Cash provided by operating activities 7,225 4,736
-------- --------
INVESTING ACTIVITIES
Purchase of fixed assets, net (6,316) (7,764)
Acquisitions (5,253) -
-------- --------
Cash used in investing activities (11,569) (7,764)
-------- --------
FINANCING ACTIVITIES
Increase in long-term debt 6,012 4,087
Repayment of long-term debt (998) (1,229)
Repurchase of subordinated notes payable -- (8,500)
Decrease in subscription receivable -- 122
Increase in deferred charges and other assets (70) (234)
-------- --------
Cash provided by (used in) financing activities 4,944 (5,754)
-------- --------
Effect of foreign currency translation -- (325)
Increase (decrease) in cash and cash equivalents
during the period 600 (9,107)
Cash and cash equivalents, beginning of period 567 9,728
-------- --------
Cash and cash equivalents, end of period $ 1,167 $ 621
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid $ 6,620 $ 6,668
======== ========
Income taxes paid $ 528 $ 285
======== ========
</TABLE>
SEE ACCOMPANYING NOTES
3
<PAGE>
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 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 nine month periods ended September
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>
September 30, 2000 December 31, 1999
------------------ -----------------
(unaudited)
<S> <C> <C>
Packaging materials $ 467 $ 339
Coolers not yet in service 320 327
Goods for resale 605 417
Cooler parts 496 246
Other 158 153
------ ------
$2,046 $1,482
===== =====
</TABLE>
4
<PAGE>
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 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. The
Canadian dollar swap was terminated in October 1998. In September 2000, the
pounds sterling swap was terminated realizing cash proceeds of $4.1 million.
Concurrent with the termination of the pounds sterling swap, the Company entered
into a new $30 million US three year swap in Canadian dollars. The semi annual
interest payments on the Canadian dollar swap are approximately $2.4 million
Canadian dollars. At September 30, 2000, the aggregate fair market value of the
Canadian dollar swap was approximately $0.5 million in favor of the Company and
is included in other assets. The value of the pounds sterling swap as at
December 31, 1999 was $0.3 million in favor of the Company. For the nine months
ended September 30, 2000, approximately $4.0 million of the $4.3 million
increase in the pounds sterling and Canadian dollar swaps between December 31,
1999 and September 30, 2000 has been recorded as a decrease in interest expense.
For the nine months ended September 30, 1999, approximately $0.7 million of the
$0.8 decrease in the pounds sterling swap liability between December 31, 1998
and September 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 Payable 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 nine month periods ended September 30, 2000 and 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.
On July 17, 2000, the Company purchased all of the outstanding shares of
Rocky Mountain Springs Water, Inc. ("Rocky Mountain") for cash consideration of
$0.6 million including debt assumed. Rocky Mountain operates in the Edmonton,
Alberta Canada market.
On August 8, 2000, the Company purchased the operating assets of Sparta
Water, Inc. and subsidiaries ("Sparta") for cash consideration of approximately
$0.9 million including buyout of certain vehicle leases used by Sparta. Sparta
operates in the Edmonton, Calgary and Grand Prairie Alberta, Canada markets.
The following unaudited pro forma information presents a summary of
consolidated results of operations as if the acquisitions of Misty, Cool Spring,
Rocky Mountain and Sparta had occurred at January 1, 1999.
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
(thousands of dollars except Ended Ended Ended Ended
per share amounts) 9/30/00 9/30/99 9/30/00 9/30/99
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Total revenue $ 19,755 $ 19,053 $ 54,892 $ 52,027
Net income (loss) 1,263 (1,320) (379) (2,898)
Extraordinary item -- -- -- 758
Basic earnings (loss) per share 0.91 (0.95) (0.27) (2.08)
</TABLE>
5
<PAGE>
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Unaudited)
8. Senior Credit Facility
The Company has available a $38 million multi-currency credit 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. 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 credit facility rank senior to the payment of
the Company's Subordinated Notes Payable.
9. Integration and Related Expenses
As part of integrating Cool Spring, Sparta and Rocky Mountain into the
Company's existing business, non-recurring costs were incurred to reduce and
relocate staff, convert the acquired business' computer systems, close acquired
facilities and eliminate small pack production operations.
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 Nine Months Nine Months
(thousands of dollars) Ended Ended Ended Ended
9/30/00 9/30/99 9/30/00 9/30/99
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenue:
Canada $ 8,914 $ 6,907 $ 22,404 $ 19,008
United Kingdom 6,731 7,203 19,218 19,090
United States 4,025 3,621 11,196 10,150
-------- -------- -------- --------
$ 19,670 $ 17,731 $ 52,818 $ 48,248
======== ======== ======== ========
Net income before depreciation,
interest, income taxes and extraordinary item:
Canada $ 2,317 $ 1,943 $ 6,119 $ 5,257
United Kingdom 2,336 2,913 7,016 7,255
United States 848 938 2,650 2,566
Unallocated corporate overhead (670) (582) (1,747) (1,460)
-------- -------- -------- --------
$ 4,831 $ 5,212 $ 14,038 $ 13,618
======== ======== ======== ========
</TABLE>
11. Comparative Figures
Certain of the comparative figures have been reclassified to conform
with the presentation adopted in the current period.
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 as a percentage of
revenue.
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
9/30/00 9/30/99 9/30/00 9/30/99
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenue 100% 100% 100% 100%
Cost of sales 19.6 19.6 18.2 18.9
----- ----- ----- -----
Gross profit 80.4 80.4 81.8 81.1
Selling, delivery and administrative 54.7 51.0 54.5 52.9
Integration and related expenses 1.2 -- 0.8 --
----- ----- ----- -----
EBITDA 24.5 29.4 26.5 28.2
Depreciation and amortization 13.9 14.4 15.2 15.4
----- ----- ----- -----
Operating profit 10.6 15.0 11.3 12.8
Interest and related expenses 3.8 20.5 10.4 18.2
----- ----- ----- -----
Income (loss) before income taxes and
extraordinary item 6.8 (5.5) 0.9 (5.4)
Provision for income taxes (0.3) -- (0.8) --
----- ----- ----- -----
Net income (loss) before extraordinary item 6.5 (5.5) 0.1 (5.4)
Extraordinary item -- -- -- 1.6
----- ----- ----- -----
Net income (loss) before extraordinary item 6.5 (5.5) 0.1 (3.8)
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
REVENUE. Revenue increased $2.0 million or 10.9% to $19.7 million in the
three months ended September 30, 2000 compared to $17.7 million in the three
months ended September 30, 1999. Revenues from acquisitions completed during and
after the 1999 third quarter accounted for approximately $1.8 million of the
increase. Revenue was reduced by approximately $0.5 million or 2.8% due to a
decline in the Pound Sterling which was slightly offset by a small increase in
the Canadian dollar. The balance of the increase of $0.7 million was from growth
in sales from the Company's higher customer location base. The Company's
customer location base was approximately 184,000 as at September 30, 2000
compared to 160,300 as at December 31, 1999. The Company's customer base grew by
approximately 13,700 during the third quarter of 2000. The acquisitions of
Sparta and Rocky Mountain accounted for approximately 4,900 of the increase.
7
<PAGE>
COST OF SALES. The cost of sales increased by $0.4 million or 10.9% to
$3.9 million in the 2000 third quarter compared to $3.5 million in the
comparable 1999 period as a result of growth in the Company's underlying
customer base. The cost of sales as a percentage of revenue was 19.6% for the
three months ended September 30, 2000, the same as the 1999 period.
OPERATING EXPENSES. Selling, delivery, and administrative operating
expenses (excluding integration and related expenses of $0.2 million) increased
by $1.7 million or 18.8% to $10.7 million in the third quarter from $9.0 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 $0.8
million increase in distribution expenses primarily 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 51.0% in the 1999 period to 54.7% in the 2000 third quarter.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased by 7.2% or $0.2 million in the 2000 third quarter to $2.7 million from
$2.5 million in the 1999 period. This increase was the result of depreciation of
capital expenditures made since the third 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 completed in
the 2000 second and third quarters. Depreciation for the three months ended
September 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 September
30, 1999 was calculated using the declining balance method.
OPERATING PROFIT. The Company's operating profit decreased by $0.6
million to $2.1 million in the 2000 third quarter from $2.7 million in the 1999
period as a result of $0.2 million in integration expenses incurred related to
the acquisition of Sparta and Rocky Mountain, the increase in selling and
distribution expenses as noted in Operating Expenses above and increased
depreciation and amortization charges. As a percentage of revenue, operating
profit decreased to 10.6% in the 2000 third quarter from 15.0% in the 1999
period due principally to the increase in selling and delivery expenses and the
impact of a decrease in the pound sterling exchange rate. Earnings before
interest, taxes, and depreciation and amortization expense ("EBITDA") for the
three months ended September 30, 2000 was $4.8 million compared to $5.2 million
in the 1999 third quarter. As a percentage of revenue, EBITDA decreased to 24.5%
in the 2000 third quarter from 29.4% in the 1999 period primarily due to the
acquisition and integration charge of $0.2 million and higher operating expenses
as noted above.
INTEREST EXPENSE. Interest expense decreased by $2.9 million from $3.6
million in the third quarter of 1999 to $0.7 million in the 2000 quarter.
Interest expense was reduced by $2.5 million in the third quarter of 2000 and
increased by $0.6 million in the 1999 quarter as a result of interest accrued
due to the fluctuating value of the Company's cross 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 third quarter increased by $0.2 million from the
1999 period. An increase in interest expense associated with increased
borrowings under the Company's Acquisition Facility was only partially 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 in
the 1999 second and fourth quarters using Senior Debt that carries a lower
effective interest rate.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE MONTHS ENDED JUNE 30,
1999
REVENUE. Revenue increased $4.6 million or 9.5% to $52.8 million in the
nine months ended September 30, 2000 compared to $48.2 million in the nine
months ended September 30, 1999. Revenues from acquisitions completed after the
1999 third quarter accounted for approximately $3.2 million of the increase.
Revenue growth was reduced by approximately $0.7 million or 1.4% due to a
decline in the British pound sterling, which was 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 184,000 as at September 30, 2000 compared to 160,300 as at
December 31, 1999. The acquisition of Mr. Softwater Ltd., Sparta and Rocky
Mountain accounted for approximately 12,000 of the increase.
COST OF SALES. The cost of sales increased by $0.5 million or 5.3% to
$9.6 million in the nine months ended September 30, 2000 compared to $9.1
million in the comparable 1999 period as a result of 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 0.7% from 18.9% in the
1999 period to 18.2% in the 2000 period. This decrease was primarily due to $0.2
million in supplier credits and improved production efficiencies which more than
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 $0.4 million) increased
by $3.3 million or 12.8% to $28.8 million for the nine months ended September
30, 2000 compared to $25.5 million in the comparable 1999 period. This increase
is primarily due to a $1.7 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 16.5% from the year ago period. In addition,
selling expenses rose by $1.0 million primarily due to a 110% increase in net
new rental placements (an increase of 6,650 rentals) during the 2000 period.
General and administrative expenses increased by approximately $0.5 million or
4% as increases in general and administrative expenses from acquisitions were
only partially offset by lower bad debt reserves. As a percentage of revenue,
operating expenses increased from 52.9% in 1999 to 54.5% in 2000.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased by 8.1% or $0.6 million to $8.0 million in the nine months ended
September 30, 2000 from $7.4 million in the comparable 1999 period. As a
percentage of revenue, depreciation and amortization expense was 15.2% in the
2000 period compared to 15.4% in the 1999 period. Depreciation for the nine
months ended September 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 nine
months ended September 30, 2000 was calculated using the declining balance
method.
OPERATING PROFIT. The Company's operating profit decreased $0.2 million
from $6.2 million in the nine months ended September 30, 1999 to $6.0 million in
the comparable 2000 period due principally to integration and related expenses
of $0.4 million associated with the acquisitions of Cool Spring, Rocky Mountain
and Sparta. As a percentage of revenue, operating profit decreased from 12.8% in
the 1999 period to 11.3% in the nine months ended September 30, 2000 due
principally to acquisition and integration expenses associated with the three
acquisitions completed in 2000. EBITDA increased by 3.1% or $0.4 million to
$14.0 million from $13.6 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 decreased to 26.6% in the nine months ended
September 30, 2000 from 28.2% in the 1999 period due principally to increases in
selling and delivery expenses and acquisition charges.
INTEREST EXPENSE. Interest expense decreased by $3.3 million from $8.8
million in the 1999 period to $5.5 million in the 2000 period. Interest expense
was reduced by approximately $4.0 million in the nine months ended September 30,
2000 and $0.7 million in the nine months ended September 30, 1999 as a result of
interest benefits accrued due to the fluctuating value of the Company's cross
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 nine months ended September 30,
2000 was $9.5 million, the same as the 1999 period. Higher borrowing levels
incurred to fund capital expenditures and business acquisitions after the 1999
period were offset by decreased interest costs driven by lower average interest
rates on the Company's debt obligations. The lower average interest rates arose
from the redemption of $11.9 million of the Company's Subordinated Notes Payable
which were redeemed using Senior Debt that carries a lower effective interest
rate.
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 $7.2 million for the nine
months ended September 30, 2000 and $4.7 million for the nine months ended
September 30, 1999. Net cash used in investment activities was $11.6 million in
2000 and $7.8 million in 1999. The 2000 uses include $5.3 million related to the
acquisitions of Mr. Softwater Ltd., Rocky Mountain Springs Water Inc. and the
purchase of the assets of Sparta Water, Inc. The Company made net capital
expenditures of $6.3 million in the nine months ended September 30, 2000 and
$7.8 million in the nine months ended September 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 to support the
growth in the Company's customer location base. Based on the Company's existing
operations, management expects that the Company's capital expenditures will
total approximately $12.0 million in 2000 including the purchase of a new plant
in Scotland which was finalized early in the fourth quarter.
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 Payable in November of
1997.
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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 such 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 credit 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. 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 credit 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 September 30, 2000, the Company had
approximately $7.1 million outstanding under the Operating Line Facility
including $2.3 million of outstanding letters of credit, $6.3 million
outstanding under the $13 million Acquisition Facility and $9.8 million
outstanding under the Note Buyback Facility.
In November 2000, the Company borrowed an additional $3.0 million on its
Operating Line Facility in connection with the purchase of the new plant in
Scotland. Subsequently, the Company obtained financing of $2.0 million from the
Royal Bank of Scotland which is secured by the new plant.
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. Management is currently assessing the potential impact of
this statement on the consolidated financial statements.
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
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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.
Part II Other Information
Item 6. Exhibits and Reports on Form 6-K
(a) Exhibits
None
(b) Reports on 6-K (incorporated by reference)
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.
Report on Form 6-K dated August 17, 2000 covering :
- Press Release dated August 4, 2000, announcing placement by
Sparkling Spring Water Holdings Limited of $10 million in
common equity
- Press Release dated August 15, 2000 announcing record first
half revenue and EBITDA
Report on Form 6-K dated October 4, 2000 covering the Press
Release dated October 3, 2000 announcing expectation of record
revenue and customer growth in the third quarter.
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