PRIMO WATER CORPORATION This Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to further the reader's understanding of the consolidated financial condition and results of operations of our Company. It should be read in conjunction with the financial statements included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year endedDecember 28, 2019 (our "2019 Annual Report"). These historical financial statements may not be indicative of our future performance. This discussion contains a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks referred to under "Risk Factors" in Part I, Item 1A in our 2019 Annual Report and under "Risk Factors" in Part II, Item 1A in this Quarterly Report on Form 10-Q. As used herein, "Primo," "the Company," "Primo Water Corporation ," "we," "us," or "our" refers toPrimo Water Corporation , together with its consolidated subsidiaries. Overview Primo is a leading pure-play water solutions provider inNorth America ,Europe andIsrael . Primo operates largely under a recurring razor/razorblade revenue model. The razor in Primo's revenue model is its industry leading line-up of sleek and innovative water dispensers, which are sold through major retailers and online at various price points or leased to customers. The dispensers help increase household penetration which drives recurring purchases of Primo's razorblade offering. Primo's razorblade offering is comprised of Water Direct, Water Exchange, and Water Refill. Through its market leading Water Direct business, Primo delivers sustainable hydration solutions across its 21-country footprint direct to the customer's door, whether at home or to commercial businesses. Through its market leading Water Exchange and Water Refill businesses, Primo offers pre-filled and reusable containers at over 13,000 locations and water refill units at approximately 22,000 locations, respectively. Primo also offers water filtration units across its 21-country footprint representing a top five position. Primo's water solutions expand consumer access to purified, spring and mineral water to promote a healthier, more sustainable lifestyle while simultaneously reducing plastic waste and pollution. Primo is committed to its water stewardship standards and is proud to partner with theInternational Bottled Water Association inNorth America as well as with Watercoolers Europe, which ensure strict adherence to safety, quality, sanitation and regulatory standards for the benefit of consumer protection. The market in which we operate is subject to some seasonal variations. Our water delivery sales are generally higher during the warmer months. Our purchases of raw materials and related accounts payable fluctuate based upon the demand for our products. The seasonality of our sales volume causes our working capital needs to fluctuate throughout the year. We conduct operations in countries involving transactions denominated in a variety of currencies. We are subject to currency exchange risks to the extent that our costs are denominated in currencies other than those in which we earn revenues. As our financial statements are denominated inU.S. dollars, fluctuations in currency exchange rates between theU.S. dollar and other currencies have had, and will continue to have an impact on our results of operations. During the first quarter of 2020, we completed the Legacy Primo Acquisition (defined below). This business was added to our existing Route Based Services reporting segment, which was renamed "Water Solutions" to reflect our strategy of transitioning to a pure-play water solutions provider. Other than the change in name, there was no impact on prior period results for this reporting segment. COVID-19 Our global operations expose us to risks associated with the COVID-19 pandemic, which has resulted in challenging operating environments. COVID-19 has spread across the globe to all of the countries in which we operate. Authorities in many of these markets have implemented numerous measures to stall the spread of COVID-19, including travel bans and restrictions, quarantines, curfews, shelter in place orders, and business shutdowns. These measures have impacted and will further impact us, our customers, employees, distributors, suppliers and other third parties with whom we do business. There is considerable uncertainty regarding how these measures and future measures in response to the pandemic will impact our business, including whether they will result in further changes in demand for our services and products, further increases in operating costs (whether as a result of changes to our supply chain or increases in employee costs or otherwise), and how they will further impact our supply chain, each or all of which can impact our ability to make, manufacture, distribute and sell our products. In addition, measures that impact our ability to access our offices, plants, warehouses, distribution centers or other facilities, or that impact the ability of our customers, employees, distributors, suppliers and other third parties to do the same, may impact the availability of our and their employees, many of whom are not able to perform their job functions remotely. We have implemented safety protocols at our facilities and have been working and will continue to work closely with our business partners on contingency planning in an effort to maintain supply. To date, we have not experienced a material disruption to our operations or supply chain. 28 -------------------------------------------------------------------------------- While we have deployed and implemented and continue to develop and implement health and safety protocols, business continuity plans and crisis management protocols and have taken other operational actions in an effort to try to mitigate the negative impact of COVID-19 to our employees and our business, the extent of the impact of the pandemic on our business and financial results will depend on numerous evolving factors that we are not able to accurately predict and that all will vary by market, including the duration and scope of the pandemic, global economic conditions during and after the pandemic, governmental actions that have been taken, or may be taken in the future, in response to the pandemic and changes in customer behavior in response to the pandemic, some of which may be more than just temporary. As we deliver bottled water to residential and business customers across a 21-country footprint and provide multi-gallon purified bottled water, self-service refill drinking water and water dispensers to customers through major retailers inNorth America , the profile of the services we provide and the products we sell, and the amount of revenue attributable to such services and products, varies by jurisdiction and changes in demand as a result of COVID-19 will vary in scope and timing across these markets. For example, to date, we have seen an increase in volumes in our residential water direct business and a decrease in volumes in our commercial water direct business as a result of the COVID-19 pandemic. Any continued economic uncertainty can adversely affect our customers' financial condition, resulting in an inability to pay for our services or products, reduced or canceled orders of our services or products, or our business partners' inability to supply us with the items necessary for us to make, manufacture, distribute or sell our products. Such adverse changes in our customers' or business partners' financial condition may also result in our recording impairment charges for our inability to recover or collect any accounts receivable. In addition, economic uncertainty associated with COVID-19 pandemic has resulted in volatility in the global capital and credit markets, which can impair our ability to access these markets on terms commercially acceptable to us, or at all. Divestiture, Acquisition and Financing Transactions OnMarch 6, 2020 (the "Closing Date"), we entered into a credit agreement among the Company, as parent borrower,Cott Holdings Inc. andEden Springs Nederland B.V. ("Eden"), each as subsidiary borrowers, certain other subsidiaries of the Company from time to time designated as subsidiary borrowers,Bank of America, N.A ., as administrative agent and collateral agent, and the lenders from time to time party thereto (the "Credit Agreement"). The Credit Agreement provides for a senior secured revolving credit facility in an initial aggregate committed amount of$350.0 million (the "Revolving Credit Facility"), which may be increased by incremental credit extensions from time to time in the form of term loans or additional revolving credit commitments. The Revolving Credit Facility will mature five years from the Closing Date and includes letter of credit and swing line loan subfacilities. Borrowings under the Revolving Credit Facility were used on the Closing Date to refinance in full and terminate our previously existing asset-based lending credit facility. OnMarch 2, 2020 , pursuant to the terms and conditions of the Agreement and Plan of Merger entered into onJanuary 13, 2020 ,Cott Corporation completed the acquisition ofPrimo Water Corporation ("Legacy Primo" and such transaction, the "Legacy Primo Acquisition"). The aggregate consideration paid in the Legacy Primo Acquisition was approximately$798.2 million and includes$377.6 million of our common shares issued by us to holders of Legacy Primo common stock,$216.1 million paid in cash by us to holders of Legacy Primo common stock,$196.9 million of cash paid to retire outstanding indebtedness on behalf of Legacy Primo,$4.7 million to settle a pre-existing liability and$2.9 million in fair value of replacement common share options and restricted stock units for vested Legacy Primo awards. The Legacy Primo Acquisition is consistent with our strategy of transitioning to a pure-play water solutions provider. In connection with the closing of the Legacy Primo Acquisition,Cott Corporation changed its corporate name toPrimo Water Corporation and its ticker symbol on theNew York Stock Exchange andToronto Stock Exchange to "PRMW". OnFebruary 28, 2020 , we completed the sale of our coffee, tea and extract solutions business,S. & D. Coffee, Inc. ("S&D"), toWestrock Coffee Company, LLC , aDelaware limited liability company ("Westrock"), pursuant to which Westrock acquired all of the issued and outstanding equity of S&D from the Company ("S&D Divestiture"). The aggregate deal consideration was$405.0 million , paid at closing in cash, subject to adjustment for indebtedness, working capital and other customary post-closing adjustments. We used the proceeds of the transaction to finance a portion of the Legacy Primo Acquisition. As a result of the S&D Divestiture, the operating results associated with S&D have been presented as discontinued operations for all periods presented. The following discussion and analysis of financial condition and results of operations are those of our continuing operations unless otherwise indicated. For additional information regarding our discontinued operations, see Note 2 to the Consolidated Financial Statements. 29 --------------------------------------------------------------------------------
Forward-Looking Statements
In addition to historical information, this report, and any documents
incorporated in this report by reference, may contain statements relating to
future events and future results. These statements are "forward-looking" within
the meaning of the Private Securities Litigation Reform Act of 1995 and
applicable Canadian securities legislation and involve known and unknown risks,
uncertainties, future expectations and other factors that may cause actual
results, performance or achievements of Primo Water Corporation to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such statements include, but are not
limited to, statements that relate to projections of sales, cash flows, capital
expenditures or other financial items, statements regarding our intentions to
pay regular quarterly dividends on our common shares, and discussions of
estimated future revenue enhancements and cost savings. These statements also
relate to our business strategy, goals and expectations concerning our market
position, future operations, margins, profitability, liquidity and capital
resources. Generally, words such as "anticipate," "believe," "continue,"
"could," "endeavor," "estimate," "expect," "intend," "may," "will," "plan,"
"predict," "project," "should" and similar terms and phrases are used to
identify forward-looking statements in this report and any documents
incorporated in this report by reference. These forward-looking statements
reflect current expectations regarding future events and operating performance
and are made only as of the date of this report.
The forward-looking statements are not guarantees of future performance or
events and, by their nature, are based on certain estimates and assumptions
regarding interest and foreign exchange rates, expected growth, results of
operations, performance, business prospects and opportunities and effective
income tax rates, which are subject to inherent risks and uncertainties.
Material factors or assumptions that were applied in drawing a conclusion or
making an estimate set out in forward-looking statements may include, but are
not limited to, assumptions regarding management's current plans and estimates.
Although we believe the assumptions underlying these forward-looking statements
are reasonable, any of these assumptions could prove to be inaccurate and, as a
result, the forward-looking statements based on those assumptions could prove to
be incorrect. Our operations involve risks and uncertainties, many of which are
outside of our control, and any one or any combination of these risks and
uncertainties could also affect whether the forward-looking statements
ultimately prove to be correct. These risks and uncertainties include, but are
not limited to, those described in Part I, Item 1A "Risk Factors" in
our 2019 Annual Report and in Part II, Item 1A "Risk Factors" in this Quarterly
Report on Form 10-Q, and those described from time to time in our future reports
filed with the U.S. Securities and Exchange Commission ("SEC") and Canadian
securities regulatory authorities.
The following are some of the factors that could affect our financial
performance, including but not limited to, sales, earnings and cash flows, or
could cause actual results to differ materially from estimates contained in or
underlying the forward-looking statements:
•our ability to compete successfully in the markets in which we operate;
•fluctuations in commodity prices and our ability to pass on increased costs to
our customers or hedge against such rising costs, and the impact of those
increased prices on our volumes;
•our ability to manage our operations successfully;
•the impact of national, regional and global events, including those of a
political, economic, business and competitive nature;
•the impact of the spread of COVID-19 on our business, financial condition and
results of operations;
•our ability to fully realize the potential benefit of transactions (including
the Legacy Primo Acquisition and the S&D Divestiture) or other strategic
opportunities that we pursue;
•potential liabilities associated with our recent divestitures;
•our ability to realize cost synergies of our acquisitions due to integration
difficulties and other challenges;
•our limited indemnification rights in connection with the Legacy Primo
Acquisition;
•our exposure to intangible asset risk;
•currency fluctuations that adversely affect the exchange between the U.S.
dollar and the British pound sterling, the exchange between the Euro, the
Canadian dollar and other currencies and the exchange between the British pound
sterling and the Euro;
•our ability to maintain favorable arrangements and relationships with our
suppliers;
•our ability to meet our obligations under our debt agreements, and risks of
further increases to our indebtedness;
•our ability to maintain compliance with the covenants and conditions under our
debt agreements;
•fluctuations in interest rates, which could increase our borrowing costs;
30
--------------------------------------------------------------------------------
•the incurrence of substantial indebtedness to finance our acquisitions,
including the Legacy Primo Acquisition;
•the impact on our financial results from uncertainty in the financial markets
and other adverse changes in general economic conditions;
•any disruption to production at our manufacturing facilities;
•our ability to maintain access to our water sources;
•our ability to protect our intellectual property;
•compliance with product health and safety standards;
•liability for injury or illness caused by the consumption of contaminated
products;
•liability and damage to our reputation as a result of litigation or legal
proceedings;
•changes in the legal and regulatory environment in which we operate;
•the seasonal nature of our business and the effect of adverse weather
conditions;
•our ability to recruit, retain and integrate new management;
•our ability to renew our collective bargaining agreements on satisfactory
terms;
•disruptions in our information systems;
•our ability to securely maintain our customers' confidential or credit card
information, or other private data relating to our employees or our company;
•our ability to maintain our quarterly dividend;
•our ability to adequately address the challenges and risks associated with our
international operations and address difficulties in complying with laws and
regulations including the U.S. Foreign Corrupt Practices Act and the U.K.
Bribery Act of 2010;
•increased tax liabilities in the various jurisdictions in which we operate;
•our ability to utilize tax attributes to offset future taxable income;
•the impact of the 2017 Tax Cuts and Jobs Act on our tax obligations and
effective tax rate; or
•credit rating changes.
We undertake no obligation to update any information contained in this report or
to publicly release the results of any revisions to forward-looking statements
to reflect events or circumstances of which we may become aware of after the
date of this report. Undue reliance should not be placed on forward-looking
statements, and all future written and oral forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by the foregoing.
Non-GAAP Measures
In this report, we supplement our reporting of financial measures determined
in accordance with U.S. generally accepted accounting principles ("GAAP") by
utilizing certain non-GAAP financial measures that exclude certain items to make
period-over-period comparisons for our underlying operations before material
changes. We exclude these items to better understand trends in the business. We
exclude the impact of foreign exchange to separate the impact of currency
exchange rate changes from our results of operations.
We also utilize earnings (loss) before interest expense, taxes, depreciation
and amortization ("EBITDA"), which is GAAP net income (loss) from continuing
operations before interest expense, net, expense for income taxes and
depreciation and amortization. We consider EBITDA to be an indicator of
operating performance. We also use EBITDA, as do analysts, lenders, investors
and others, because it excludes certain items that can vary widely across
different industries or among companies within the same industry. These
differences can result in considerable variability in the relative costs of
productive assets and the depreciation and amortization expense among companies.
We also utilize adjusted EBITDA, which is EBITDA excluding acquisition and
integration costs, share-based compensation costs, foreign exchange and other
losses, net, loss on disposal of property, plant and equipment, net, loss on
sale of business and other adjustments, net, as the case may be ("Adjusted
EBITDA"). We consider Adjusted EBITDA to be an indicator of our operating
performance.
31
--------------------------------------------------------------------------------
Because we use these adjusted financial results in the management of our
business and to understand underlying business performance, we believe this
supplemental information is useful to investors for their independent evaluation
and understanding of our business performance and the performance of our
management. The non-GAAP financial measures described above are in addition to,
and not meant to be considered superior to, or a substitute for, our financial
statements prepared in accordance with GAAP. In addition, the non-GAAP financial
measures included in this report reflect our judgment of particular items, and
may be different from, and therefore may not be comparable to, similarly titled
measures reported by other companies.
Summary Financial Results
Net loss from continuing operations for the three months ended March 28, 2020
(the "first quarter") was $27.4 million or $0.19 per diluted common share,
compared with net loss from continuing operations of $22.7 million or $0.17 per
diluted common share for the three months ended March 30, 2019 .
The following items of significance affected our financial results for the first
three months of 2020:
•Net revenue increased $46.5 million , or 10.9%, from the prior year period due
primarily to the addition of revenues from the Legacy Primo business, pricing
initiatives, and growth in water consumption and volumes due to increased
consumer demand, partially offset by a decline in office coffee service volumes
and a decrease in revenues contributed by our Cott Beverages LLC business that
was sold during the first quarter of 2019;
•Gross profit increased to $273.3 million from $243.1 million in the prior year
period due primarily to the addition of the Legacy Primo business, pricing
initiatives and growth in water consumption and volumes due to increased
consumer demand. Gross profit as a percentage of net revenue was 57.6% compared
to 56.8% in the prior year period;
•Selling, general and administrative ("SG&A") expenses increased to $255.1
million from $235.8 million in the prior year period due primarily to the
addition of the Legacy Primo business as well as an increase in selling and
services costs due to the increase in volumes, partially offset by lower SG&A
expenses incurred by our Cott Beverages LLC business that was sold during the
first quarter of 2019. SG&A expenses as a percentage of net revenue was
53.8% compared to 55.1% in the prior year period;
•Acquisition and integration expenses increased to $20.8 million from $4.7
million in the prior year period due primarily to the addition of the Legacy
Primo business, partially offset by lower acquisition and integration expenses
related to our Mountain Valley and Crystal Rock businesses. Acquisition and
integration expenses as a percentage of revenue was 4.4% compared to 1.1% in the
prior year period;
•Other expense, net was $7.0 million compared to $5.5 million in the prior year
period due primarily to an increase of net losses on foreign currency
transactions in the first quarter, partially offset by the loss recognized on
the sale of our Cott Beverages LLC business in the prior year period;
•Income tax benefit was $3.3 million on pre-tax loss from continuing operations
of $30.7 million compared to income tax benefit of $1.4 million on pre-tax loss
from continuing operations of $24.1 million in the prior year period due
primarily to a release of uncertain tax positions in the first quarter;
•Adjusted EBITDA increased to $70.4 million compared to $53.7 million in the
prior year period due to the items listed above; and
•Cash flows provided by operating activities from continuing operations was $4.7
million compared to $15.1 million in the prior year period. The $10.4 million
decrease was due primarily to the increase in net loss from continuing
operations and the change in working capital balances relative to the prior year
period.
32
--------------------------------------------------------------------------------
Results of Operations
The following table summarizes our Consolidated Statements of Operations as a
percentage of revenue for the three months ended March 28, 2020 and March 30,
2019 :
For the Three Months Ended
March 28, 2020 March 30, 2019
(in millions of U.S. dollars) $ % $ %
Revenue, net 474.2 100.0 427.7 100.0
Cost of sales 200.9 42.4 184.6 43.2
Gross profit 273.3 57.6 243.1 56.8
Selling, general and administrative expenses 255.1 53.8 235.8 55.1
Loss on disposal of property, plant and equipment, net 1.4 0.3 1.9 0.4
Acquisition and integration expenses 20.8 4.4 4.7 1.1
Operating (loss) income (4.0) (0.8) 0.7 0.2
Other expense, net 7.0 1.5 5.5 1.3
Interest expense, net 19.7 4.2 19.3 4.5
Loss from continuing operations before income taxes (30.7) (6.5) (24.1) (5.6)
Income tax benefit (3.3) (0.7) (1.4) (0.3)
Net loss from continuing operations (27.4) (5.8) (22.7) (5.3)
Net income from discontinued operations, net of income taxes 30.9
6.5 3.0 0.7
Net income (loss) 3.5 0.7 (19.7) (4.6)
Depreciation & amortization 45.0 9.5 39.7 9.3
The following table summarizes the change in revenue by reporting segment for
the three months ended
For the Three Months Ended March 28, 2020
(in millions of U.S. dollars, except percentage All
amounts) Water Solutions Other Eliminations Total
Change in revenue $ 53.7 $ (7.2) $ - $ 46.5
Impact of foreign exchange 1 0.2 - - 0.2
Change excluding foreign exchange $ 53.9 $ (7.2) $ - $ 46.7
Percentage change in revenue 12.8 % (100.0) % - % 10.9 %
Percentage change in revenue excluding foreign
exchange 12.8 % (100.0) % - % 10.9 %
______________________
1 Impact of foreign exchange is the difference between the current period
revenue translated utilizing the current period average foreign exchange rates
less the current period revenue translated utilizing the prior period average
foreign exchange rates.
33
--------------------------------------------------------------------------------
The following table summarizes the change in gross profit by reporting segment
for the three months ended
For the Three Months Ended March 28, 2020
(in millions of U.S. dollars, except percentage All
amounts) Water Solutions Other Eliminations Total Change in gross profit $ 30.5$ (0.3) $ -$ 30.2 Impact of foreign exchange 1 0.1 - - 0.1 Change excluding foreign exchange $ 30.6$ (0.3) $ -$ 30.3 Percentage change in gross profit 12.6 % (100.0) % - % 12.4 % Percentage change in gross profit excluding foreign exchange 12.6 % (100.0) % - % 12.5 % ______________________ 1 Impact of foreign exchange is the difference between the current period gross profit translated utilizing the current period average foreign exchange rates less the current period gross profit translated utilizing the prior period average foreign exchange rates. Our corporate oversight function is not treated as a segment; it includes certain general and administrative costs that are disclosed in the All Other category.
The following table summarizes our net revenue, gross profit, SG&A expenses
and operating income (loss) by reporting segment for the three months ended
For the Three Months Ended
(in millions of U.S. dollars) March 28, 2020 March 30, 2019
Revenue, net
Water Solutions $ 474.2 $ 420.5
All Other - 7.2
Total $ 474.2 $ 427.7
Gross profit
Water Solutions $ 273.3 $ 242.8
All Other - 0.3
Total $ 273.3 $ 243.1
Selling, general and administrative expenses
Water Solutions $ 245.3 $ 224.5
All Other 9.8 11.3
Total $ 255.1 $ 235.8
Operating income (loss)
Water Solutions $ 21.5 $ 14.0
All Other (25.5) (13.3)
Total $ (4.0) $ 0.7
34--------------------------------------------------------------------------------
The following tables summarize net revenue by channel for the three months ended
For the Three Months Ended March 28, 2020
(in millions of U.S. dollars) Water Solutions All Other Total
Revenue, net
Water Direct/Water Exchange $ 295.2 $ - $ 295.2
Water Refill/Water Filtration 30.8 - 30.8
Water Retail 55.4 - 55.4
Water Dispensers 5.9 - 5.9
Other 86.9 - 86.9
Total $ 474.2 $ - $ 474.2
For the Three Months Ended March 30, 2019
(in millions of U.S. dollars) Water Solutions All Other Total
Revenue, net
Water Direct/Water Exchange $ 264.2 $ - $ 264.2
Water Refill/Water Filtration 15.3 - 15.3
Water Retail 50.8 - 50.8
Water Dispensers - - -
Other 90.2 7.2 97.4
Total $ 420.5 $ 7.2 $ 427.7
______________________
1 Revenues by channel of our Water Solutions reporting segment for the three
months ended March 30, 2019 had $15.3 million of revenues reclassified from
"other" to "water refill/water filtration" and $5.6 million of revenues
reclassified from "other" to "water direct/water exchange" in order to better
align the activities after the Legacy Primo Acquisition. In addition, we
reclassified $48.6 million of revenues from "coffee and tea services" and $20.1
million of revenues from "retail" into "other" in order to better align with our
strategy of transitioning to a pure-play water solutions provider.
The following tables summarize gross margin by channel for the three months
ended
For the Three Months Ended March 28, 2020
(in millions of U.S. dollars) Water Solutions All Other Total
Gross margin
Water Direct/Water Exchange 72.1 % - % 72.1 %
Water Refill/Water Filtration 72.1 % - % 72.1 %
Water Retail 14.6 % - % 14.6 %
Water Dispensers 3.4 % - % 3.4 %
Other 34.5 % - % 34.5 %
Total 57.6 % - % 57.6 %
35
--------------------------------------------------------------------------------
For the Three Months Ended March 30, 2019
(in millions of U.S. dollars) Water Solutions All Other Total
Gross margin
Water Direct/Water Exchange 72.8 % - % 72.8 %
Water Refill/Water Filtration 86.9 % - % 86.9 %
Water Retail 12.0 % - % 12.0 %
Water Dispensers - % - % - %
Other 34.5 % 4.2 % 32.2 %
Total 57.7 % 4.2 % 56.8 %
The following table summarizes our EBITDA and Adjusted EBITDA for the three
months ended
For the Three Months Ended
(in millions of U.S. dollars) March 28, 2020 March 30, 2019
Net loss from continuing operations $ (27.4) $ (22.7)
Interest expense, net 19.7 19.3
Income tax benefit (3.3) (1.4)
Depreciation and amortization 45.0 39.7
EBITDA $ 34.0 $ 34.9
Acquisition and integration costs 1 20.8 4.7
Share-based compensation costs 2.4 3.1
Foreign exchange and other losses, net 6.3 1.0
Loss on disposal of property, plant and equipment, net 1.4 1.9
Loss on sale of business - 5.4
Other adjustments, net 5.5 2.7
Adjusted EBITDA $ 70.4 $ 53.7
______________________
1 Includes
Three Months EndedMarch 28, 2020 Compared to Three Months EndedMarch 30, 2019 Revenue,Net Net revenue increased$46.5 million , or 10.9%, in the first quarter from the comparable prior year period. Water Solutions net revenue increased$53.7 million , or 12.8%, in the first quarter from the comparable prior year period due primarily to the addition of revenues from the Legacy Primo business, pricing initiatives, and growth in water consumption and volumes due to increased consumer demand, partially offset by a decline in office coffee service volumes. All Other net revenue decreased$7.2 million , or 100.0%, in the first quarter from the comparable prior year period due primarily to less revenue contributed by ourCott Beverages LLC business, which was sold in the first quarter of 2019. 36 -------------------------------------------------------------------------------- Gross Profit Gross profit increased to$273.3 million in the first quarter from$243.1 million in the comparable prior year period. Gross profit as a percentage of revenue was 57.6% in the first quarter compared to 56.8% in the comparable prior year period. Water Solutions gross profit increased to$273.3 million in the first quarter from$242.8 million in the comparable prior year period due primarily to the addition of the Legacy Primo business, pricing initiatives and growth in water consumption and volumes due to increased consumer demand. All Other gross profit decreased to nil in the first quarter from$0.3 million in the comparable prior year period due primarily to less gross profit contributed by ourCott Beverages LLC business, which was sold in the first quarter of 2019. Selling, General and Administrative Expenses SG&A expenses increased to$255.1 million in the first quarter from$235.8 million in the comparable prior year period. SG&A expenses as a percentage of revenue was 53.8% in the first quarter compared to 55.1% in the comparable prior year period. Water Solutions SG&A expenses increased to$245.3 million in the first quarter from$224.5 million in the comparable prior year period due primarily to the addition of the Legacy Primo business as well as an increase in selling and services costs due to the increase in volumes. All Other SG&A expenses decreased to$9.8 million in the first quarter from$11.3 million in the comparable prior year period due primarily to lower SG&A expenses incurred by ourCott Beverages LLC business, which was sold in the first quarter of 2019. Acquisition and Integration Expenses Acquisition and integration expenses increased to$20.8 million in the first quarter from$4.7 million in the comparable prior year period. Acquisition and integration expenses as a percentage of revenue was 4.4% in the first quarter compared to 1.1% in the comparable prior year period. Water Solutions acquisition and integration expenses increased to$5.2 million in the first quarter from$2.4 million in the comparable prior year period due primarily to the addition of the Legacy Primo business, partially offset by lower acquisition and integration expenses related to ourMountain Valley andCrystal Rock businesses. All Other acquisition and integration expenses increased to$15.6 million in the first quarter from$2.3 million in the comparable prior year period due primarily to the addition of the Legacy Primo business, partially offset by lower acquisition and integration expenses related to ourMountain Valley andCrystal Rock businesses. Operating (Loss) Income Operating loss was$4.0 million in the first quarter compared to operating income of$0.7 million in the comparable prior year period. Water Solutions operating income increased to$21.5 million in the first quarter from$14.0 million in the comparable prior year period due to the items discussed above. All Other operating loss increased to$25.5 million in the first quarter from$13.3 million in the comparable prior year period due to the items discussed above. Other Expense, Net Other expense, net was$7.0 million for the first quarter compared to$5.5 million in the comparable prior year period due primarily to an increase of net losses on foreign currency transactions in the first quarter, partially offset by the loss recognized on the sale of ourCott Beverages LLC business in the prior year period. Income Taxes Income tax benefit was$3.3 million in the first quarter compared to$1.4 million in the comparable prior year period. The effective tax rate for the first quarter was 10.7% compared to 5.8% in the comparable prior year period. The effective tax rate for the first quarter varied from the effective tax rate from the comparable prior year period due primarily to a release of uncertain tax positions in the first quarter. 37 -------------------------------------------------------------------------------- Liquidity and Capital Resources As ofMarch 28, 2020 , we had total debt of$1,407.8 million and$112.2 million of cash and cash equivalents compared to$1,358.4 million of debt and$156.9 million of cash and cash equivalents as ofDecember 28, 2019 . Our cash and cash equivalents balance as ofMarch 28, 2020 andDecember 28, 2019 includes$12.4 million of cash proceeds received from the sale of ourNorth America ,United Kingdom andMexico business units (including the Canadian business) and ourRoyal Crown International finished goods export business that are being held in escrow by a third party escrow agent to secure potential indemnification claims. Our cash and cash equivalents balance as ofMarch 28, 2020 andDecember 28, 2019 also includes$0.5 million of cash proceeds received from the sale of ourCott Beverages LLC business that are being held in escrow by a third party escrow agent to secure potential indemnification claims. The recent COVID-19 pandemic has disrupted our business. The extent of the impact of the COVID-19 pandemic on our business and financial results will depend on numerous evolving factors that we are not able to accurately predict and that all will vary by market, including the duration and scope of the pandemic, global economic conditions during and after the pandemic, governmental actions that have been taken, or may be taken in the future, in response to the pandemic, and changes in customer behavior in response to the pandemic, some of which may be more than just temporary. In response to the COVID-19 pandemic, we have taken certain measures to preserve our liquidity. For example, onApril 3, 2020 , we borrowed$170.0 million under the Revolving Credit Facility as a precautionary measure to increase our cash position and preserve financial flexibility considering current uncertainty in the global markets resulting from the COVID-19 pandemic. We believe that our level of resources, which includes cash on hand, borrowings under our Revolving Credit Facility and funds provided by our operations, will be adequate to meet our expenses, capital expenditures, and debt service obligations for the next twelve months. Our ability to generate cash to meet our current expenses and debt service obligations will depend on our future performance. If we do not have enough cash to pay our debt service obligations, or if the Revolving Credit Facility or our outstanding notes were to become currently due, either at maturity or as a result of a breach, we may be required to take actions such as amending our Credit Agreement or the indentures governing our outstanding notes, refinancing all or part of our existing debt, selling assets, incurring additional indebtedness or raising equity. If we need to seek additional financing, there is no assurance that this additional financing will be available on favorable terms or at all. As ofMarch 28, 2020 , our outstanding borrowings under the Revolving Credit Facility were$118.0 million and outstanding letters of credit totaled$43.3 million resulting in total utilization under the Revolving Credit Facility of$161.3 million . Accordingly, unused availability under the Revolving Credit Facility as ofMarch 28, 2020 amounted to$188.7 million . We earn a portion of our consolidated operating income in subsidiaries located outside ofCanada . We have not provided for federal, state and foreign deferred income taxes on the undistributed earnings of our non-Canadian subsidiaries. We expect that these earnings will be permanently reinvested by such subsidiaries except in certain instances where repatriation attributable to current earnings results in minimal or no tax consequences. We expect our existing cash and cash equivalents, cash flows and the issuance of debt to continue to be sufficient to fund our operating, investing and financing activities. In addition, we expect our existing cash and cash equivalents and cash flows outside ofCanada to continue to be sufficient to fund the operating activities of our subsidiaries. A future change to our assertion that foreign earnings will be permanently reinvested could result in additional income taxes and/or withholding taxes payable, where applicable. Therefore, a higher effective tax rate could occur during the period of repatriation. We may, from time to time, depending on market conditions, including without limitation whether our outstanding notes are then trading at a discount to their face amount, repurchase our outstanding notes for cash and/or in exchange for our common shares, warrants, preferred shares, debt or other consideration, in each case in open market purchases and/or privately negotiated transactions. The amounts involved in any such transactions, individually or in the aggregate, may be material. However, the covenants in our Revolving Credit Facility subject such purchases to certain limitations and conditions. A dividend of$0.06 per common share was declared during the first quarter of 2020 for an aggregate dividend payment of approximately$9.6 million . 38
--------------------------------------------------------------------------------
The following table summarizes our cash flows for the three months endedMarch 28, 2020 andMarch 30, 2019 , as reported in our Consolidated Statements of Cash Flows in the accompanying Consolidated Financial Statements:
© Edgar Online, source
