The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our historical consolidated financial statements and related notes thereto in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2013. The discussion below contains forward-looking statements that are based upon our current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to inaccurate assumptions and known or unknown risks and uncertainties, including those identified in “Cautionary Note Regarding Forward-Looking Statements” in this Item 2 and in “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2013.
Primo Water Corporation (together with its consolidated subsidiaries, “Primo,” “we,” “our,” “us”) is a leading provider of multi-gallon purified bottled water, self-service refill water and water dispensers sold through major retailers in the United States and Canada. We believe the market for purified water is growing due to evolving taste preferences, perceived health benefits and concerns regarding the quality of municipal tap water. Our products provide an environmentally friendly, economical, convenient and healthy solution for consuming purified and filtered water. We are a Delaware corporation that was founded in 2004 and is headquartered in Winston-Salem, North Carolina.
Our business is designed to generate recurring demand for our purified bottled water or self-serve filtered drinking water through the sale of innovative water dispensers. This business strategy is commonly referred to as “razor-razorblade” because the initial sale of a product creates a base of users who frequently purchase complementary consumable products. We believe dispenser owners consume an average of 35 multi-gallon bottles of water annually. Once our bottled water is consumed using a water dispenser, empty bottles are exchanged at our recycling center displays, which provide a recycling ticket that offers a discount toward the purchase of a new bottle of Primo purified water (“Exchange”) or they are refilled at a self-serve filtered drinking water location (“Refill”). Each of our multi-gallon water bottles can be sanitized and reused up to 40 times before being taken out of use, crushed and recycled, substantially reducing landfill waste compared to consumption of equivalent volumes of single-serve bottled water. As of JuneSeptember 30, 2014, our products and services were offered in each of the contiguous United States and in Canada at approximately 23,70023,500 combined retail locations, including Lowe’s Home Improvement, Walmart, Kmart, Meijer, Kroger, Food Lion, H-E-B Grocery, Sobeys and Walgreens.
We provide major retailers throughout the United States and Canada with single-vendor solutions for Exchange and Refill services, addressing a market demand that we believe was previously unmet. Our solutions are easy for retailers to implement, require minimal management supervision and store-based labor, and provide centralized billing and detailed performance reports. Our Exchange solution offers retailers attractive financial margins and the ability to optimize typically unused retail space with our displays. Our Refill solution provides filtered water through the installation and servicing of reverse osmosis water filtration systems in the back room of the retailer’s store location, which minimizes the usage of the customer’s retail space. The refill machine, which is typically accompanied by a sales display containing empty reusable bottles, is located within the retailer customer’s floor space. Additionally, due to the recurring nature of water consumption, retailers benefit from year-round customer traffic and highly predictable revenue.
We have two operating segments and two reportable segments: Primo Water (“Water”) and Primo Dispensers (“Dispensers”).
Our Water segment sales consist of the sale of multi-gallon purified bottled water (exchange services) and our self-service refill water service (refill services) offered through retailers in each of the contiguous United States and Canada. Our Water services are offered through point of purchase display racks or self-serve filtered water displays and recycling centers that are prominently located at major retailers in space that is often underutilized.
Our Dispensers segment sells water dispensers that are designed to dispense Primo and other dispenser-compatible bottled water. Our Dispensers sales are primarily generated through major U.S. retailers and are sold primarily through a direct-import model, where we recognize revenues for the sale of the water dispensers when title is transferred. We support retail sell-through with domestic inventory. We design, market and arrange for certification and inspection of our water dispensers.
We evaluate the financial results of these segments focusing primarily on segment net sales and segment income (loss) from operations before depreciation and amortization (“segment income (loss) from operations”). We utilize segment net sales and segment income (loss) from operations because we believe they provide useful information for effectively allocating our resources between business segments, evaluating the health of our business segments based on metrics that management can actively influence and gauging our investments and our ability to service, incur or pay down debt.
Cost of sales for Water consists of costs for distribution, bottles and related packaging materials for our exchange services and servicing and material costs for our refill services. Cost of sales for Dispensers consists of contract manufacturing, freight and duties.
Selling, general and administrative expenses for Water and Dispensers consist primarily of personnel costs for sales, marketing, operations support and customer service, as well as other supporting costs for operating each segment.
Expenses not specifically related to operating segments are shown separately as Corporate. Corporate expenses are comprised mainly of compensation and other related expenses for corporate support, information systems, and human resources and administration. Corporate expenses also include certain professional fees and expenses and compensation of our Board of Directors.
In this Management’s Discussion and Analysis of Financial Condition and Results of Operations, when we refer to “same-store unit growth” for our Water segment, we are comparing retail locations at which our services have been available for at least 12 months at the beginning of the relevant period. In addition, “gross margin percentage” is defined as net sales less cost of sales, as a percentage of net sales.
DS Services Strategic Alliance
On November 12, 2013, we entered into a strategic alliance agreement (the “DS Services Agreement”) with DS Services of America, Inc. (“DS Services”) pursuant to which DS Services will act as the primary bottler and distributor and provider of exchange and supply services for the Exchange business in the United States. Pursuant to the agreement, DS Services becamehas become our bottler and distributor in certain territories during the first half of 2014. DS Services will become our primary bottler and distributor in other territories as existing distributor arrangements expire or are terminated. We currentlyhave completed the transition of the bottling, distributing and supply services for our exchange business to DS Services. We expect the transition from our prior network of distributors to DS Services retail customers to Primo to be completed by December 31, 2015, with service rights to at least 90% of our annual U.S Exchange volume transitioned to DS Services.2015.
Results of Operations
The following table sets forth our results of operations:
| | Three months ended June 30, | | | Six months ended June 30, | | | Three months ended September 30, | | | Nine months ended September 30, | |
| | 2014 | | | 2013 | | | 2014 | | | 2013 | | | 2014 | | | 2013 | | | 2014 | | | 2013 | |
Consolidated statements of operations data: | | | | | | | | | | | | | | | | | | | | | | | | |
Net sales | | $ | 26,853 | | | $ | 23,849 | | | $ | 50,382 | | | $ | 46,177 | | | $ | 26,374 | | | $ | 25,519 | | | $ | 76,756 | | | $ | 71,696 | |
Operating costs and expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of sales | | | 20,091 | | | | 17,948 | | | | 37,433 | | | | 34,988 | | | | 18,777 | | | | 18,936 | | | | 56,210 | | | | 53,924 | |
Selling, general and administrative expenses | | | 4,417 | | | | 3,971 | | | | 8,258 | | | | 7,773 | | | | 4,089 | | | | 3,812 | | | | 12,348 | | | | 11,585 | |
Non-recurring costs | | | 894 | | | | 81 | | | | 2,719 | | | | 94 | | | | 54 | | | | 96 | | | | 2,773 | | | | 190 | |
Depreciation and amortization | | | 2,757 | | | | 2,765 | | | | 5,501 | | | | 5,529 | | | | 2,593 | | | | 3,050 | | | | 8,094 | | | | 8,579 | |
Loss on disposal and impairment of property and equipment | | | 889 | | | | 42 | | | | 1,024 | | | | 76 | | | | 58 | | | | 61 | | | | 1,081 | | | | 137 | |
Total operating costs and expenses | | | 29,048 | | | | 24,807 | | | | 54,935 | | | | 48,460 | | | | 25,571 | | | | 25,955 | | | | 80,506 | | | | 74,415 | |
Loss from operations | | | (2,195 | ) | | | (958 | ) | | | (4,553 | ) | | | (2,283 | ) | |
Interest expense and other, net | | | 3,977 | | | | 1,178 | | | | 5,253 | | | | 2,222 | | |
Loss from continuing operations | | | (6,172 | ) | | | (2,136 | ) | | | (9,806 | ) | | | (4,505 | ) | |
Income (loss) from operations | | | | 803 | | | | (436 | ) | | | (3,750 | ) | | | (2,719 | ) |
Interest expense | | | | 537 | | | | 1,138 | | | | 5,790 | | | | 3,359 | |
Income (loss) from continuing operations | | | | 266 | | | | (1,574 | ) | | | (9,540 | ) | | | (6,078 | ) |
Loss from discontinued operations | | | (234 | ) | | | (136 | ) | | | (353 | ) | | | (360 | ) | | | (49 | ) | | | (511 | ) | | | (401 | ) | | | (872 | ) |
Net loss | | $ | (6,406 | ) | | $ | (2,272 | ) | | $ | (10,159 | ) | | $ | (4,865 | ) | |
Net income (loss) | | | $ | 217 | | | $ | (2,085 | ) | | $ | (9,941 | ) | | $ | (6,950 | ) |
The following table sets forth our results of operations expressed as a percentage of net sales:
| | Three months ended June 30, | | | Six months ended June 30, | | | Three months ended September 30, | | | Nine months ended September 30, | |
| | 2014 | | | 2013 | | | 2014 | | | 2013 | | | 2014 | | | 2013 | | | 2014 | | | 2013 | |
Consolidated statements of operations data: | | | | | | | | | | | | | | | | | | | | | | | | |
Net sales | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % |
Operating costs and expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of sales | | | 74.8 | | | | 75.3 | | | | 74.3 | | | | 75.8 | | | | 71.2 | | | | 74.2 | | | | 73.2 | | | | 75.2 | |
Selling, general and administrative expenses | | | 16.4 | | | | 16.7 | | | | 16.4 | | | | 16.8 | | | | 15.5 | | | | 14.9 | | | | 16.1 | | | | 16.2 | |
Non-recurring costs | | | 3.3 | | | | 0.3 | | | | 5.4 | | | | 0.2 | | | | 0.2 | | | | 0.3 | | | | 3.6 | | | | 0.3 | |
Depreciation and amortization | | | 10.3 | | | | 11.6 | | | | 10.9 | | | | 12.0 | | | | 9.8 | | | | 12.0 | | | | 10.5 | | | | 12.0 | |
Loss on disposal and impairment of property and equipment | | | 3.4 | | | | 0.1 | | | | 2.0 | | | | 0.1 | | | | 0.3 | | | | 0.3 | | | | 1.5 | | | | 0.1 | |
Total operating costs and expenses | | | 108.2 | | | | 104.0 | | | | 109.0 | | | | 104.9 | | | | 97.0 | | | | 101.7 | | | | 104.9 | | | | 103.8 | |
Loss from operations | | | (8.2 | ) | | | (4.0 | ) | | | (9.0 | ) | | | (4.9 | ) | |
Interest expense and other, net | | | 14.8 | | | | 4.9 | | | | 10.5 | | | | 4.9 | | |
Loss from continuing operations | | | (23.0 | ) | | | (8.9 | ) | | | (19.5 | ) | | | (9.8 | ) | |
Income (loss) from operations | | | | 3.0 | | | | (1.7 | ) | | | (4.9 | ) | | | (3.8 | ) |
Interest expense | | | | 2.0 | | | | 4.5 | | | | 7.5 | | | | 4.7 | |
Income (loss) from continuing operations | | | | 1.0 | | | | (6.2 | ) | | | (12.4 | ) | | | (8.5 | ) |
Loss from discontinued operations | | | (0.9 | ) | | | (0.6 | ) | | | (0.7 | ) | | | (0.7 | ) | | | (0.2 | ) | | | (2.0 | ) | | | (0.6 | ) | | | (1.2 | ) |
Net loss | | | (23.9 | ) | | | (9.5 | ) | | | (20.2 | ) | | | (10.5 | ) | |
Net income (loss) | | | | 0.8 | % | | | (8.2 | )% | | | (13.0 | )% | | | (9.7 | )% |
The following table sets forth our segment net sales and segment income (loss) from operations presented on a segment basis and reconciled to our consolidated lossincome (loss) from operations.
| | Three months ended June 30, | | | Six months ended June 30, | | | Three months ended September 30, | | | Nine months ended September 30, | |
| | 2014 | | | 2013 | | | 2014 | | | 2013 | | | 2014 | | | 2013 | | | 2014 | | | 2013 | |
Segment net sales | | | | | | | | | | | | | | | | | | | | | | | | |
Water | | $ | 17,100 | | | $ | 16,232 | | | $ | 32,992 | | | $ | 31,142 | | | $ | 18,860 | | | $ | 17,544 | | | $ | 51,851 | | | $ | 48,686 | |
Dispensers | | | 9,753 | | | | 7,617 | | | | 17,390 | | | | 15,035 | | | | 7,514 | | | | 7,975 | | | | 24,905 | | | | 23,010 | |
Total net sales | | $ | 26,853 | | | $ | 23,849 | | | $ | 50,382 | | | $ | 46,177 | | | $ | 26,374 | | | $ | 25,519 | | | $ | 76,756 | | | $ | 71,696 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Segment income (loss) from operations | | | | | | | | | | | | | | | | | |
Income (loss) from operations | | | | | | | | | | | | | | | | | |
Water | | $ | 5,422 | | | $ | 4,737 | | | $ | 10,361 | | | $ | 8,804 | | | $ | 6,279 | | | $ | 4,985 | | | $ | 16,640 | | | $ | 13,789 | |
Dispensers | | | 402 | | | | 90 | | | | 731 | | | | 254 | | | | 319 | | | | 447 | | | | 1,049 | | | | 701 | |
Corporate | | | (3,479 | ) | | | (2,897 | ) | | | (6,401 | ) | | | (5,642 | ) | | | (3,090 | ) | | | (2,661 | ) | | | (9,491 | ) | | | (8,303 | ) |
Non-recurring costs | | | (894 | ) | | | (81 | ) | | | (2,719 | ) | | | (94 | ) | | | (54 | ) | | | (96 | ) | | | (2,773 | ) | | | (190 | ) |
Depreciation and amortization | | | (2,757 | ) | | | (2,765 | ) | | | (5,501 | ) | | | (5,529 | ) | | | (2,593 | ) | | | (3,050 | ) | | | (8,094 | ) | | | (8,579 | ) |
Loss on disposal and impairment of property and equipment | | | (889 | ) | | | (42 | ) | | | (1,024 | ) | | | (76 | ) | | | (58 | ) | | | (61 | ) | | | (1,081 | ) | | | (137 | ) |
Loss from operations | | $ | (2,195 | ) | | $ | (958 | ) | | $ | (4,553 | ) | | $ | (2,283 | ) | |
| | | $ | 803 | | | $ | (436 | ) | | $ | (3,750 | ) | | $ | (2,719 | ) |
Three Months Ended JuneSeptember 30, 2014 Compared to Three Months Ended JuneSeptember 30, 2013
Net Sales. Net sales increased 12.6%3.4%, or $3.1$0.9 million, to $26.9$26.4 million for the three months ended JuneSeptember 30, 2014 from $23.8$25.5 million for the three months ended JuneSeptember 30, 2013. The change was due to increasesa $1.4 million increase in Water net sales of $0.9partially offset by a $0.5 million and $2.2 million for Water anddecrease in Dispensers respectively.net sales.
Water. Water net sales increased 5.3%7.5% to $17.1$18.9 million, representing 63.7%71.5% of our total net sales, for the three months ended JuneSeptember 30, 2014. The increase in Water net sales was primarily due to an 11.1%a 10.0% increase in U.S. Exchange sales, which was driven by same-store unit growth of 9.7%10.5% compared to the secondthird quarter of 2013, partially offset byas well as a 1.7% decline5.3% increase for Refill net sales.sales driven by strong sales of empty bottles. Overall, five-gallon equivalent units for Water increased 4.5%4.8% to 7.37.9 million for the three months ended JuneSeptember 30, 2014 from 7.07.5 million for the same period of the prior year. We ended the quarter with 16,500 water16,400 Water locations or a 2.5%1.5% increase fromover the prior year.
Dispensers. Dispensers net sales increased 28.0%decreased 5.8% to $9.8$7.5 million, representing 36.3%28.5% of our total net sales, for the three months ended JuneSeptember 30, 2014. The increasedecrease was due primarily to the timing of shipments to major retailers as they are replenishingreplenished their inventory levels. levels in the prior quarter and delayed some shipments to the fourth quarter of 2014. While oOurur dispenser unit sales to retailers increased by 35.1%decreased 2.3% for the three months ended JuneSeptember 30, 2014 compared to the same period in the prior year. The dispenseryear, consumer demand for our dispensers continued to be strong; unit sales by our retail customers to consumers increased 5.6%12.7% for the three months ended JuneSeptember 30, 2014 compared to the same period in the prior year.
Gross Margin Percentage. Our overall gross margin percentage increased to 25.2%28.8% for the three months ended JuneSeptember 30, 2014 from 24.7%25.8% for the three months ended JuneSeptember 30, 2013 due to the improvement in both water and DispenserWater gross margin percentages. Thispartially offset by a slight decrease in Dispensers gross margin. The improvement was positively impacted by the fact thata favorable sales mix with the lower-margin Dispensers segment made up 36.3%representing only 28.5% of total net sales for the three months ended JuneSeptember 30, 2014 compared to only 31.9%31.3% for the three months ended June 30, 2013.same period in the prior year.
Water. Gross margin as a percentage of net sales for our Water segment increased to 35.9%37.1% for the three months ended JuneSeptember 30, 2014 from 34.1%33.7% for the three months ended JuneSeptember 30, 2013. The increase was driven primarily by lower supply chain costs associated with the DS Services Agreement as well as improvements for Refill related to replacing third-party service providers with employees in certain service territories.
Dispensers. Gross margin as a percentage of net sales for our Dispensers segment decreased slightly to 8.0% for the three months ended September 30, 2014 from 8.4% for the three months ended September 30, 2013. The decrease in gross margin percentage was primarily due to an unfavorable shift in mix compared to the prior year.
Selling, General and Administrative Expenses (“SG&A”). SG&A increased 7.3% to $4.1 million for the three months ended September 30, 2014 from $3.8 million for the three months ended September 30, 2013. As a percentage of net sales, SG&A increased to 15.5% for the three months ended September 30, 2014 from 14.9% for the three months ended September 30, 2013.
Water. SG&A for our Water segment decreased 22.6% to $0.7 million for the three months ended September 30, 2014 from $0.9 million for the three months ended September 30, 2013. Water SG&A as a percentage of Water net sales decreased to 3.8% for the three months ended September 30, 2014 from 5.3% for the three months ended September 30, 2013. This decrease was primarily a result of lower headcount and travel-related expenses for the three months ended September 30, 2014 compared to the same period in the prior year as a result of the DS Services Agreement.
Dispensers. SG&A for our Dispensers segment increased 25.2% to $0.3 million for the three months ended September 30, 2014 from $0.2 million for the three months ended September 30, 2013. SG&A as a percentage of Dispensers segment net sales increased to 3.8% for the three months ended September 30, 2014 from 2.8% for the three months ended September 30, 2013. This increase was primarily due to higher warehouse rent and marketing-related expenses for the three months ended September 30, 2014 compared to the same period in the prior year.
Corporate. Corporate SG&A increased 16.1% to $3.1 million for the three months ended September 30, 2014 from $2.7 million for the three months ended September 30, 2013. Corporate SG&A as a percentage of consolidated net sales increased to 11.7% for the three months ended September 30, 2014 from 10.4% for the three months ended September 30, 2013. The increase in Corporate SG&A expense was primarily due to higher non-cash stock compensation expense compared to the same period in the prior year.
Non-Recurring Costs. Non-recurring costs were unchanged at $0.1 million for the three months ended September 30, 2014. For the three months ended September 30, 2014, non-recurring costs consisted primarily of certain costs associated with the DS Services Agreement. For the three months ended September 30, 2013, non-recurring costs consisted primarily of certain non-recurring legal expenses.
Depreciation and Amortization. Depreciation and amortization decreased 15.0% to $2.6 million for the three months ended September 30, 2014 from $3.1 million for the three months ended September 30, 2013, primarily due to the disposal of certain Water property and equipment related to the transition in the U.S. Exchange business from our prior service network to DS Services during the second quarter of 2014.
Loss on Disposal and Impairment of Property and Equipment. Loss on disposal and impairment of property and equipment was $0.1 million for both the three months ended September 30, 2014 and the three months ended September 30, 2013.
Interest Expense. Interest expense decreased 53.0% to $0.5 million for the three months ended September 30, 2014 from $1.1 million for the three months ended September 30, 2013, due to more favorable borrowing rates under the new credit facility compared to the prior credit facility. Additionally, we incurred no supplier financing-related interest charges for the three months ended September 30, 2014 compared to $0.2 million for the three months ended September 30, 2013. During the second and third quarter of 2014, we discontinued the financing arrangement with the resumption of normal terms with the supplier.
Discontinued Operations. Loss from discontinued operations decreased to less than $0.1 million for the three months ended September 30, 2014 compared to $0.5 million for the three months ended September 30, 2013. The 2013 expense was primarily related to the write-down of inventory.
Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013
Net Sales. Net sales increased 7.1%, or $5.1 million, to $76.8 million for the nine months ended September 30, 2014 from $71.7 million for the nine months ended September 30, 2013. The change was due to increases in net sales of $3.2 million and $1.9 million for Water and Dispensers, respectively.
Water. Water net sales increased 6.5% to $51.9 million, representing 67.6% of our total net sales, for the nine months ended September 30, 2014. The increase in Water net sales was primarily due to a 10.4% increase for U.S. Exchange sales, which was driven by same-store unit growth of 11.1% compared to the first nine months of 2013. In addition, Refill net sales improved 2.3% compared to the first nine months of 2013 driven primarily by strong sales of empty bottles. Overall, five-gallon equivalent units for Water increased 4.9% to 22.1 million for the nine months ended September 30, 2014 from 21.0 million for the nine months ended September 30, 2013.
Dispensers. Dispensers net sales increased 8.2% to $24.9 million, representing 32.4% of our total net sales, for the nine months ended September 30, 2014. The increase was due primarily to the timing of shipments to major retailers as they replenished their inventory levels. Our dispenser unit sales to retailers increased by 13.0% for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013. The dispenser unit sales by our retail customers to consumers increased 7.5% for the nine months ended September 30, 2014 compared to nine months ended September 30, 2013.
Gross Margin Percentage. Our overall gross margin percentage increased to 26.8% for the nine months ended September 30, 2014 from 24.8% for the nine months ended September 30, 2013, due to the improvement in both Water and Dispenser gross margin percentages.
Water. Gross margin as a percentage of net sales for our Water segment increased to 36.2% for the nine months ended September 30, 2014 from 33.4% for the nine months ended September 30, 2013. The increase was driven by lower supply chain costs associated with the DS Services Agreement as well as improvements for Refill related to replacing third-party service providers with employees in certain service territories.
Dispensers. Gross margin as a percentage of net sales for our Dispensers segment increased to 7.1% for the nine months ended September 30, 2014 from 6.5% for the threenine months ended June 30, 2014 from 4.8% for the three months ended JuneSeptember 30, 2013. The increase in gross margin percentage was primarily due to a shift in sales mix to higher margin dispenser models.
Selling, General and Administrative Expenses (“SG&A”). SG&A increased 11.2%6.6% to $4.4$12.3 million for the threenine months ended JuneSeptember 30, 2014 from $4.0$11.6 million for the threenine months ended JuneSeptember 30, 2013. As a percentage of net sales, SG&A decreased to 16.4%16.1% for the threenine months ended JuneSeptember 30, 2014 from 16.7%16.2% for the threenine months ended JuneSeptember 30, 2013.
Water. SG&A for our Water segment decreased 11.3%13.6% to $0.7$2.1 million for the threenine months ended JuneSeptember 30, 2014 from $0.8$2.5 million for the threenine months ended JuneSeptember 30, 2013. Water SG&A as a percentage of Water net sales also decreased to 4.2%4.1% for the threenine months ended JuneSeptember 30, 2014 from 4.9%5.1% for the threenine months ended JuneSeptember 30, 2013. This decrease was primarily a result of lower headcount and travel-related expenses compared to the prior year as a result of the DS Services Agreement.
Dispensers. SG&A for our Dispensers segment decreased 16.8%10.9% to $0.2$0.7 million for the threenine months ended JuneSeptember 30, 2014 from $0.3$0.8 million for the threenine months ended JuneSeptember 30, 2013. SG&A as a percentage of Dispensers segment net sales decreased to 2.3%2.9% for the threenine months ended JuneSeptember 30, 2014 from 3.6%3.5% for the threenine months ended JuneSeptember 30, 2013. This decrease was primarily due to lower warehouse rent and professional fees for the threenine months ended JuneSeptember 30, 2014 compared to the same period in the prior year.nine months ended September 30, 2013.
Corporate. Corporate SG&A increased 20.1%14.3% to $3.5$9.5 million for the threenine months ended JuneSeptember 30, 2014 from $2.9$8.3 million for the threenine months ended JuneSeptember 30, 2013. Corporate SG&A as a percentage of consolidated net sales increased to 13.0%12.4% for the threenine months ended JuneSeptember 30, 2014 from 12.1%11.6% for the threenine months ended June 30, 2013. The increase in Corporate SG&A expense was primarily due to higher non-cash stock compensation expense compared to the same period in the prior year.
Non-Recurring Costs. Non-recurring costs were $0.9 million for the three months ended June 30, 2014 compared to $0.1 million for the three months ended June 30, 2013. For the three months ended June 30, 2014, non-recurring costs consisted primarily of expenses associated with the DS Services Agreement, including transition and other payments made to current and former distributors.
Depreciation and Amortization. Depreciation and amortization was unchanged at $2.8 million for the three months ended June 30, 2014.
Loss on Disposal and Impairment of Property and Equipment. Loss on disposal and impairment of property and equipment was $0.9 million for the three months ended June 30, 2014 compared to less than $0.1 million for the three months ended June 30, 2013. The increase was primarily attributable to: (1) the $0.5 million loss on the disposal of U.S. Exchange bottling and distribution equipment that is no longer in-service as a result of the transition from our prior network of distributors to DS Services, and (2) the $0.4 million impairment of certain Refill equipment that is not expected to generate future cash flows sufficient to recover the net book value of the equipment.
Interest Expense and Other, net. Interest expense and other, net increased to $4.0 million for the three months ended June 30, 2014 from $1.2 million for the three months ended June 30, 2013. The increase was primarily due to the refinancing of our credit facilities, with a $2.1 million non-cash write-off of deferred loan costs, debt discount and original issue discount related to the prior senior revolving credit facility and the prior term loans and the $0.7 million early payment penalty associated with the prior term loans.
Discontinued Operations. Loss from discontinued operations increased to $0.2 million for the three months ended June 30, 2014 compared to $0.1 million for the three months ended June 30, 2013.
Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013
Net Sales. Net sales increased 9.1%, or $4.2 million, to $50.4 million for the six months ended June 30, 2014 from $46.2 million for the six months ended June 30, 2013. The change was due to increases in net sales of $1.8 million and $2.4 million for Water and Dispensers, respectively.
Water. Water net sales increased 5.9% to $33.0 million, representing 65.5% of our total net sales, for the six months ended June 30, 2014. The increase in Water net sales was primarily due to a 10.6% increase for U.S. Exchange sales, which was driven by same-store unit growth of 11.1% compared to the first six months of 2013. In addition, Refill net sales improved 0.6% compared to the first six months of 2013. Overall, five-gallon equivalent units for Water increased 5.0% to 14.2 million for the six months ended June 30, 2014 from 13.5 million for the six months ended June 30, 2013.
Dispensers. Dispensers net sales increased 15.7% to $17.4 million, representing 34.5% of our total net sales, for the six months ended June 30, 2014. The increase was due primarily to the timing of shipments to major retailers as they replenished their inventory levels. Our dispenser unit sales to retailers increased by 21.5% for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The dispenser unit sales by our retail customers to consumers increased 4.8% for the six months ended June 30, 2014 compared to six months ended June 30, 2013.
Gross Margin Percentage. Our overall gross margin percentage increased to 25.7% for the six months ended June 30, 2014 from 24.2% for the six months ended June 30, 2013, due to the improvement in both water and Dispenser gross margin percentages.
Water. Gross margin as a percentage of net sales for our Water segment increased to 35.7% for the six months ended June 30, 2014 from 33.2% for the six months ended June 30, 2013. The increase was driven primarily by lower supply chain costs associated with the DS Services Agreement.
Dispensers. Gross margin as a percentage of net sales for our Dispensers segment increased to 6.7% for the six months ended June 30, 2014 from 5.6% for the six months ended June 30, 2013. The increase in gross margin percentage was primarily due to a shift in sales mix to higher margin dispenser models.
Selling, General and Administrative Expenses (“SG&A”). SG&A increased 6.2% to $8.3 million for the six months ended June 30, 2014 from $7.8 million for the six months ended June 30, 2013. As a percentage of net sales, SG&A decreased to 16.4% for the six months ended June 30, 2014 from 16.8% for the six months ended June 30, 2013.
Water. SG&A for our Water segment decreased 8.3% to $1.4 million for the six months ended June 30, 2014 from $1.6 million for the six months ended June 30, 2013. Water SG&A as a percentage of Water net sales also decreased to 4.3% for the six months ended June 30, 2014 from 5.0% for the six months ended June 30, 2013. This decrease was primarily a result of lower headcount and travel-related expenses compared to the prior year as a result of the DS Services Agreement.
Dispensers. SG&A for our Dispensers segment decreased 24.5% to $0.4 million for the six months ended June 30, 2014 from $0.6 million for the six months ended June 30, 2013. SG&A as a percentage of Dispensers segment net sales decreased to 2.5% for the six months ended June 30, 2014 from 3.9% for the six months ended June 30, 2013. This decrease was primarily due to lower rent and professional fees for the six months ended June 30, 2014 compared to the six months ended June 30, 2013.
Corporate. Corporate SG&A increased 13.4% to $6.5 million for the six months ended June 30, 2014 from $5.6 million for the six months ended June 30, 2013. Corporate SG&A as a percentage of consolidated net sales increased slightly to 12.7% for the six months ended June 30, 2014 from 12.2% for the six months ended JuneSeptember 30, 2013. The increase in Corporate SG&A expense was primarily due to higher non-cash stock compensation expense as well as other compensation-related expenses as a result of a higher headcount compared to the sixnine months ended JuneSeptember 30, 2013.
Non-Recurring Costs. Non-recurring costs were $2.7$2.8 million for the sixnine months ended JuneSeptember 30, 2014 compared to $0.1$0.2 million for the sixnine months ended JuneSeptember 30, 2013. For the sixnine months ended JuneSeptember 30, 2014, non-recurring costs consisted primarily of expenses associated with the DS Services Agreement, including transition and other payments made to current and former distributors as well as a $0.6 million non-cash charge related to the common stock warrant issued to DS Services.
Depreciation and Amortization. Depreciation and amortization was unchanged at $5.5decreased 5.7% to $8.1 million for the sixnine months ended JuneSeptember 30, 2014 from $8.6 million for the nine months ended September 30, 2013, primarily due to the disposal of certain Water property and equipment related to the transition in the U.S. Exchange business from our prior service network to DS Services during the second quarter of 2014.
Loss on Disposal and Impairment of Property and Equipment. Loss on disposal and impairment of property and equipment was $1.0$1.1 million for the sixnine months ended JuneSeptember 30, 2014 compared to $0.1 million for the sixnine months ended JuneSeptember 30, 2013. The increase was primarily attributable to: (1) the $0.5 million loss on the disposal of U.S. Exchange bottling and distribution equipment that is no longer in-service as a result of the transition from our prior network of distributors to DS Services, and (2) the $0.4 million impairment of certain Refill equipment that is not expected to generate future cash flows sufficient to recover the net book value of the equipment.
Interest Expense and Other, net.Expense. Interest expense and other, net increased to $5.3$5.8 million for the sixnine months ended JuneSeptember 30, 2014 from $2.2$3.4 million for the sixnine months ended JuneSeptember 30, 2013. The increase was primarily due to the refinancing of our credit facilities, withresulting in a $2.1 million non-cash write-off of deferred loan costs, debt discount and original issue discount related to the prior senior revolving credit facility and the prior term loans and the $0.7 million early payment penalty associated with the prior term loans.loans, partially offset by more favorable borrowing rates under the new credit facility.
Discontinued Operations. Loss from discontinued operations was unchanged atdecreased to $0.4 million for the sixnine months ended JuneSeptember 30, 2014 comparedfrom $0.9 million for the nine months ended September 30, 2013. The decrease is due primarily to the six months ended June 30, 2013.impact of inventory write-downs recorded in the prior year and the overall winding-down of our discontinued operations.
Liquidity and Capital Resources
Adequacy of Capital Resources
Since our inception, we have financed our operations primarily through the sale of stock, the issuance of debt and borrowings under credit facilities. While we had no material commitments for capital expenditures as of JuneSeptember 30, 2014, we anticipate net capital expenditures to range between $3.0$1.0 million and $4.0$2.0 million for the remainder of 2014. Anticipated capital expenditures are related primarily to growth in Water locations. In addition, we expect to incur non-recurring, transition costs ranging between $0.3 million and $0.5 million for the remainder of 2014 related to the DS Services Agreement.
At JuneSeptember 30, 2014, our cash totaled $0.4$0.7 million and we had $10.4$7.5 million in availability under the Revolving Credit Facility. We anticipate that our current cash and cash equivalents, availability under the Revolving Credit Facility and cash flow from operations will be sufficient to meet our current needs for working capital and capital expenditures.expenditures through at least the next 12 months.
Our future capital requirements may vary materially from those now anticipated and will depend on many factors including: the rate of growth in new Water locations and related display, rack and reverse osmosis filtration system costs, cost to develop new Dispenser product lines, transition costs related to our strategic alliance with DS Services, sales and marketing resources needed to further penetrate our markets, the expansion of our operations in the United States and Canada, the response of competitors to our solutions and products, as well as acquisitions of other businesses. Historically, we have experienced increases in our capital expenditures consistent with the growth in our operations and personnel, and we anticipate that our expenditures will continue to increase as we grow our business.
Our ability to satisfy our obligations or to fund planned capital expenditures will depend on our future performance, which to a certain extent is subject to general economic, financial, competitive, legislative, regulatory and other factors beyond our control. We also believe that if we pursue any material acquisitions in the foreseeable future we will need to finance this activity through the issuance of equity or additional debt financing.
Changes in Cash Flows
The following table shows the components of our cash flows for the periods presented (in millions):
| | Six months ended June 30, | | | Nine months ended September 30, | |
| | 2014 | | | 2013 | | | 2014 | | | 2013 | |
Net cash provided by operating activities | | $ | 5.0 | | | $ | 5.7 | | | $ | 3.1 | | | $ | 9.1 | |
Net cash used in investing activities | | $ | (4.6 | ) | | $ | (3.3 | ) | | $ | (5.3 | ) | | $ | (5.7 | ) |
Net cash used in financing activities | | $ | (0.2 | ) | | $ | (2.7 | ) | |
Net cash provided by (used in) financing activities | | | $ | 2.7 | | | $ | (3.5 | ) |
Net Cash Flows from Operating Activities
Net cash provided by operating activities decreased to $5.0$3.1 million for the sixnine months ended JuneSeptember 30, 2014 from $5.7$9.1 million for the sixnine months ended JuneSeptember 30, 2013. The decrease in cash flow from operations is primarily due to $1.4a $5.7 million in cash outflows related to non-recurring, transition costs associated with the DS Services Agreement, partially offset by an increasedecrease in cash provided from net working capital components. During the nine months ended September 30, 2014, we used cash provided by financing activities described below under Net Cash Flows from Financing Activities to pay certain accounts payable with a major supplier, as a result of discontinuing a financing arrangement and resuming normal payment terms with this supplier.
Net Cash Flows from Investing Activities
Net cash used in investing activities increaseddecreased to $4.6$5.3 million for the sixnine months ended JuneSeptember 30, 2014 from $3.3$5.7 million for the sixnine months ended JuneSeptember 30, 2013, primarily as a result of increased investment in capital expenditures.proceeds from the sale of certain racks and machinery of our Water business during 2014.
Our primary investing activities are typically capital expenditures for equipment and bottles and include expenditures related to the installation of our recycle centers, display racks and reverse osmosis filtration systems at new Water locations.
Net Cash Flows from Financing Activities
Net cash provided by financing activities was $2.7 million for the nine months ended September 30, 2014. Net cash used in financing activities decreased to $0.2was $3.5 million for the sixnine months ended June 30, 2014 from $2.7 million for the six months ended JuneSeptember 30, 2013. The change was primarily driven primarily by decreased borrowingsborrowing under our revolving credit facilities, for the six months ended June 30, 2014 comparedprimarily related to the six months ended June 30, 2013.increased payments to a major supplier, as described under Net Cash Flows from Operating Activities.
Credit facility
On June 20, 2014, we entered into a credit facility that provides up to $35$35.0 million in secured indebtedness and consists of a $15$15.0 million revolving credit facility (the “Revolving Credit Facility”) and $20$20.0 million in term notes (the “Term Notes”). We repaid outstanding prior term loans and borrowings outstanding on the prior senior revolving credit facility upon entering into this credit facility. The Revolving Credit Facility terminates on June 20, 2019 with all outstanding borrowings and accrued interest to be repaid on such date and the Term Notes mature on June 20, 2021 with all outstanding indebtedness and accrued interest to be repaid on such date. The credit facility is secured on a first priority basis by substantially all of our assets.
Interest on outstanding amounts owed under the Term Notes is payable quarterly beginning on September 20, 2014 at the rate of 7.8%. Principal payments under the Term Notes are payable in five annual $4.0 million installments beginning on June 20, 2017. As of JuneSeptember 30, 2014, we had $4.6$7.5 million in outstanding borrowings at a weighted-average interest rate of 4.90%4.41% and our availability was $10.4$7.5 million under the Revolving Credit Facility.
Our new credit facility contains a number of affirmative and restrictive covenants (including limitations on dissolutions, sales of assets, investments, and indebtedness and liens) and contains the following financial covenants: (i) a ratio of consolidated total indebtedness to adjusted EBITDA of no more than 3.00 to 1.00 as of the last day of each month (measured on a trailing four-quarter basis), declining to 2.75 on October 31, 2015 and thereafter, (ii) a consolidated tangible net worth requirement measured at the end of each month of no less than $11$11.0 million plus 50% of consolidated net income on a cumulative basis for each succeeding fiscal quarter, commencing with the quarter ended June 30, 2014 (net losses are disregarded), and (iii) a ratio of adjusted EBITDA to consolidated fixed charges of no less than 0.750.80 to 1.00 as of the last day of each quarter (measured on a trailing four-quarter basis), increasing to 0.80 on September 30, 2014, increasing to 0.90 on December 31, 2014, and increasing to 1.00 on March 31, 2015 and thereafter. At JuneSeptember 30, 2014 we were in compliance with all covenants with: (i) a consolidated total indebtedness to adjusted EBITDA ratio of 2.40 to 1.00, (ii) consolidated tangible net worth of $12.7$13.4 million compared to the minimum of $11$11.1 million and (iii) an adjusted EBITDA to consolidated fixed charges ratio of 0.80.0.99.
Adjusted EBITDA U.S. GAAP Reconciliation
Adjusted EBITDA is a non-U.S. GAAP financial measure that is calculated as lossincome (loss) from continuing operations before depreciation and amortization; interest expense and other, net;expense; non-cash, stock-based compensation expense; non-recurring costs; and loss on disposal and impairment of property and equipment and other. Our credit facility contains financial covenants that use Adjusted EBITDA. We believe Adjusted EBITDA provides useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations. Adjusted EBITDA is used by management to compare our performance to that of prior periods for trend analyses and planning purposes and is presented to our board of directors.
Non-U.S. GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with U.S. GAAP. Adjusted EBITDA excludes significant expenses that are required by U.S. GAAP to be recorded in our financial statements and is subject to inherent limitations. In addition, other companies in our industry may calculate this non-U.S. GAAP measure differently than we do or may not calculate it at all, limiting its usefulness as a comparative measure. The table below provides a reconciliation between lossincome (loss) from continuing operations and Adjusted EBITDA.
| | Three months ended | | | Six months ended | | | Three months ended | | | Nine months ended | |
| | June 30, | | | June 30, | | | September 30, | | | September 30, | |
| | 2014 | | | 2013 | | | 2014 | | | 2013 | | | 2014 | | | 2013 | | | 2014 | | | 2013 | |
Loss from continuing operations | | $ | (6,172 | ) | | $ | (2,136 | ) | | $ | (9,806 | ) | | $ | (4,505 | ) | |
Income (loss) from continuing operations | | | $ | 266 | | | $ | (1,574 | ) | | $ | (9,540 | ) | | $ | (6,078 | ) |
Depreciation and amortization | | | 2,757 | | | | 2,765 | | | | 5,501 | | | | 5,529 | | | | 2,593 | | | | 3,050 | | | | 8,094 | | | | 8,579 | |
Interest expense and other, net | | | 3,977 | | | | 1,178 | | | | 5,253 | | | | 2,222 | | |
Interest expense | | | | 537 | | | | 1,138 | | | | 5,790 | | | | 3,359 | |
EBITDA | | | 562 | | | | 1,807 | | | | 948 | | | | 3,246 | | | | 3,396 | | | | 2,614 | | | | 4,344 | | | | 5,860 | |
Non-cash, stock-based compensation expense | | | 609 | | | | 298 | | | | 897 | | | | 623 | | | | 467 | | | | 196 | | | | 1,364 | | | | 819 | |
Non-recurring costs | | | 894 | | | | 81 | | | | 2,719 | | | | 94 | | | | 54 | | | | 96 | | | | 2,773 | | | | 190 | |
Loss on disposal and impairment of property and equipment and other | | | 922 | | | | 122 | | | | 1,108 | | | | 238 | | | | 92 | | | | 69 | | | | 1,199 | | | | 307 | |
Adjusted EBITDA | | $ | 2,987 | | | $ | 2,308 | | | $ | 5,672 | | | $ | 4,201 | | | $ | 4,009 | | | $ | 2,975 | | | $ | 9,680 | | | $ | 7,176 | |
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, investments in special purpose entities or undisclosed borrowings or debt. Additionally, we are not a party to any derivative contracts or synthetic leases.
Inflation
During the last three years, inflation and changing prices have not had a material effect on our business and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future.
Seasonality; Fluctuations of Results
We have experienced and expect to continue to experience seasonal fluctuations in our sales and operating income. Our sales and operating income have been highest in the spring and summer and lowest in the fall and winter. Our Water segment, which generally enjoys higher margins than our Dispensers segment, experiences higher sales and operating income in the spring and summer. Our Dispensers segment had historically experienced higher sales and operating income in spring and summer; however, we believe the seasonality of this segment will be more dependent on retailer inventory management and purchasing cycles and not correlated to weather. Sustained periods of poor weather, particularly in the spring and summer, can negatively impact our sales in our higher margin Water segment. Accordingly, our results of operations in any quarter will not necessarily be indicative of the results that we may achieve for a year or any future quarter.
Critical Accounting Policies and Estimates
There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K for the year ended December 31, 2013.
Recent Accounting Pronouncements
In May 2014, the FASB issued updated guidance which supersedes existing revenue recognition requirements in U.S. GAAP. The updated guidance requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, the guidance establishes a five-step approach for the recognition of revenue. The update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. We are currently evaluating the impact of adopting this guidance on our consolidated financial statements.
In April 2014, the FASB issued updated guidance changing the requirements for reporting discontinued operations. The updated guidance requires that a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the component or components meet the criteria to be classified as held for sale, is disposed of by sale or is disposed of other than by sale. The updated guidance also requires additional disclosures about discontinued operations. The updates are effective for disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014. The updates are not applicable to a component or components that are classified as held for sale before the effective date. The amendments are not expected to have a significant impact on our consolidated financial statements.
In July 2013, the FASB issued updated guidance requiring that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented as a liability and should not be combined with deferred tax assets. We have adopted this updated guidance effective January 1, 2014. The adoption did not have a significant impact on our consolidated financial statements.
Cautionary Note Regarding Forward-Looking Statements
This document includes and other information we make public from time to time may include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about our estimates, expectations, projections, beliefs, intentions or strategies for the future, and the assumptions underlying such statements. We use the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “forecasts,” “may,” “will,” “should,” and similar expressions to identify our forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or our present expectations. Factors that could cause these differences include, but are not limited to, the factors set forth in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.
Item 3.3. | Quantitative and Qualitative Disclosure About Market Risk |
The information required by Item 3 is not required to be provided by issuers that satisfy the definition of "smaller reporting company" under SEC rules.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including the chief executive officer (“CEO”) and chief financial officer (“CFO”), of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) pursuant to Rule 13a-15(b) of the Exchange Act. Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures are effective for the purpose of providing reasonable assurance that the information required to be disclosed in the reports we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Not applicable.Prism Arbitration
On August 5, 2014, Primo Distribution, LLC (also known as Prism Distribution) initiated an arbitration proceeding against us, claiming less than $1.0 million in damages for alleged breach of contract. The arbitration was filed with the American Arbitration Association. We do not believe that the claim has any merit and plan to vigorously contest and defend against it.
Texas Regional Operator Litigation
On August 8, 2014, a lawsuit was commenced against us by our regional operators in the State of Texas, Artesia Springs, LLC, HOD Enterprises, L.P., and BBB Water, Inc. (the “ROs”). DS Services is also named as a defendant in the suit. The suit was filed in the 166th Judicial District Court of Bexar County, Texas, and was served upon us on August 25, 2014. We removed the suit to the United States District Court for the Western District of Texas on September 5, 2014. The claims alleged against us in the suit are breach of contract, conspiracy and fraud, and the ROs seek unspecified monetary damages as well as injunctive relief. We do not believe that the claim has any merit and plan to vigorously contest and defend against it. We responded to the complaint on September 24, 2014 by filing a motion to dismiss, to compel alternative dispute resolution, and to stay proceedings.
In addition to the other information set forth in this report, you should carefully consider the factors discussed under Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
On May 13, 2014 and June 23,September 12, 2014, we issued 71,962 and 74,30472,972 shares of our common stock respectively, upon a partial cashless exercisesexercise of an outstanding common stock purchase warrant with an exercise price of $1.20 per share originally issued to Comvest Capital II, L.P. on April 30, 2012. The issuances of the shares of common stock upon the partial exercisesexercise of the warrant werewas made in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, and Regulation D.
The table below provides certain information with respect to our purchases of our common stock during the three months ended June 30, 2014.
Period | | | Total Number of Shares and Units Purchased (1) | | | Average Price Paid Per Share and Unit ($) | | | Total Number of Shares Purchased as Part of a Publicly Announced Program | | | Approximate Dollar Value of Shares that May Yet be Purchased under the Program | |
April 1, 2014 through April 30, 2014 | | | – | | | $ | – | | | | – | | | | – | |
May 1, 2014 through May 31, 2014 | | | 2,619 | | | $ | 4.55 | | | | – | | | | – | |
June 1, 2014 through June 30, 2014 | | | – | | | $ | – | | | | – | | | | – | |
Total shares purchased for the three months ended June 30, 2014 | | | 2,619 | | | | | | | | | | | | | |
(1) | Represents shares of common stock withheld for income tax purposes in connection with the vesting of restricted stock units issued to certain employees. |
Item 3. | Defaults Upon Senior Securities |
Not applicable.
Not applicable.
None.
EXHIBIT INDEX
Exhibit Number | Description |
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3.1 | Sixth Amended and Restated Certificate of Incorporation of Primo Water Corporation (incorporated by reference to Exhibit 3.1 to Amendment No. 2 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-173554) filed on May 31, 2011) |
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3.2 | Amended and Restated Bylaws of Primo Water Corporation (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed November 16, 2010) |
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10.1 | Note Purchase Agreement dated June 20, 2014 (the “Note Purchase Agreement “) by and among the Company, Primo Products, LLC, Primo Direct, LLC, Primo Refill, LLC, Primo Ice, LLC, Primo Refill Canada Corporation, The Prudential Life Insurance Company of America and PICA Hartford Life Insurance Comfort Trust (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 25, 2014) |
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10.2 | Form of Senior Secured Floating Rate Revolving Note issued pursuant to the Note Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 25, 2014) |
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10.3 | Form of 7.8% Senior Secured Fixed Rate Term Note issued pursuant to the Note Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 25, 2014) |
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| Certification of Periodic Report by Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14a and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
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| Certification of Periodic Report by Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14a and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
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| Certification of Periodic Report by Chief Executive Officer and Chief Financial Officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
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101.INS | XBRL Instance Document (1, 2)(1) |
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101.SCH | XBRL Taxonomy Extension Schema Document (1, 2)(1) |
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101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document (1, 2)(1) |
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101.DEF | XBRL Taxonomy Extension Definition Linkbase Document (1, 2)(1) |
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101.LAB | XBRL Taxonomy Extension Label Linkbase Document (1, 2)(1) |
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101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document (1, 2)(1) |
(1) Included herewith
(2) These interactive data files shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| PRIMO WATER CORPORATION |
| (Registrant) |
| | |
| | |
Date: August 6,November 7, 2014 | By: | /s/ Billy D. Prim |
| | Billy D. Prim |
| | Chairman and Chief Executive Officer |
| | |
Date: August 6,November 7, 2014 | By: | /s/ Mark Castaneda |
| | Mark Castaneda |
| | Chief Financial Officer |