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		Page number
PART 1.   Financial Information
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive Income (Loss)	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24
PART II.  Other Information
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	26
Signatures		27

		March 31, 2016				December 31, 2015
ASSETS
Current assets:
Cash and cash equivalents		$	1,143			$	1,826
Accounts receivable, net			14,301				11,098
Inventories			4,882				7,092
Prepaid expenses and other current assets			1,276				529
Total current assets			21,602				20,545
Bottles, net			3,715				3,688
Property and equipment, net			33,391				31,997
Intangible assets, net			8,014				8,074
Other assets			184				183
Total assets		$	66,906			$	64,487
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	13,058			$	11,994
Accrued expenses and other current liabilities			2,600				3,748
Current portion of capital leases and notes payable			231				172
Total current liabilities			15,889				15,914
Long-term debt and capital leases, net of current portion and debt issuance costs			21,492				19,903
Liabilities of disposal group, net of current portion, and other long-term liabilities			2,524				2,535
Total liabilities			39,905				38,352
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value - 10,000 shares authorized, none issued and outstanding			–				–
Common stock, $0.001 par value - 70,000 shares authorized, 25,895 and 25,810 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively			26				26
Additional paid-in capital			281,126				281,476
Common stock warrants			7,492				7,492
Accumulated deficit			(260,416	)			(261,447	)
Accumulated other comprehensive loss			(1,227	)			(1,412	)
Total stockholders’ equity			27,001				26,135
Total liabilities and stockholders’ equity		$	66,906			$	64,487

		Three months ended March 31,
		2016				2015
Net sales		$	32,296			$	29,213
Operating costs and expenses:
Cost of sales			22,947				21,557
Selling, general and administrative expenses			5,028				4,665
Non-recurring costs			207				22
Depreciation and amortization			2,408				2,585
Loss on disposal of property and equipment			193				64
Total operating costs and expenses			30,783				28,893
Income from operations			1,513				320
Interest expense, net			471				519
Income (loss) from continuing operations			1,042				(199	)
Loss from discontinued operations			(11	)			(38	)
Net income (loss)		$	1,031			$	(237	)
Basic earnings (loss) per common share:
Income (loss) from continuing operations		$	0.04			$	(0.01	)
Loss from discontinued operations			(0.00	)			(0.00	)
Net income (loss)		$	0.04			$	(0.01	)
Diluted earnings (loss) per common share:
Income (loss) from continuing operations		$	0.04			$	(0.01	)
Loss from discontinued operations			(0.00	)			(0.00	)
Net income (loss)		$	0.04			$	(0.01	)
Weighted average shares used in computing earnings (loss) per share:
Basic			26,462				24,683
Diluted			29,211				24,683

		Three months ended March 31,
		2016				2015
Net income (loss)		$	1,031			$	(237	)
Other comprehensive income (loss):
Foreign currency translation adjustments, net			185				(318	)
Comprehensive income (loss)		$	1,216			$	(555	)

		Three Months Ended March 31,
		2016				2015
Cash flows from operating activities:
Net income (loss)		$	1,031			$	(237	)
Less: Loss from discontinued operations			(11	)			(38	)
Income (loss) from continuing operations			1,042				(199	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization			2,408				2,585
Loss on disposal of property and equipment			193				64
Stock-based compensation expense			560				635
Non-cash interest expense			28				28
Realized foreign currency exchange loss and other, net			(161	)			195
Changes in operating assets and liabilities:
Accounts receivable			(3,129	)			(1,861	)
Inventories			2,237				974
Prepaid expenses and other assets			(743	)			(284	)
Accounts payable			1,031				101
Accrued expenses and other liabilities			(751	)			(355	)
Net cash provided by operating activities			2,715				1,883
Cash flows from investing activities:
Purchases of property and equipment			(2,938	)			(1,474	)
Purchases of bottles, net of disposals			(571	)			(706	)
Proceeds from the sale of property and equipment			3				5
Additions to and acquisitions of intangible assets			(16	)			(3	)
Net cash used in investing activities			(3,522	)			(2,178	)
Cash flows from financing activities:
Borrowings under Revolving Credit Facility			8,600				7,500
Payments under Revolving Credit Facility			(7,100	)			(6,800	)
Note payable and capital lease payments			(74	)			(27	)
Stock option and employee stock purchase activity, net			(1,351	)			27
Debt issuance costs and other			–				(6	)
Net cash provided by financing activities			75				694
Cash used in operating activities of discontinued operations			(32	)			(56	)
Effect of exchange rate changes on cash and cash equivalents			81				(51	)
Net increase (decrease) in cash and cash equivalents			(683	)			292
Cash and cash equivalents, beginning of year			1,826				495
Cash and cash equivalents, end of period		$	1,143			$	787

		March 31, 2016				December 31, 2015
Revolving Credit Facility, net of debt issuance costs		$	1,361			$	(149	)
Term Notes, net of debt issuance costs			19,780				19,763
Capital leases			582				461
			21,723				20,075
Less current portion			(231	)			(172	)
Long-term debt and capital leases, net of current portion and debt issuance costs		$	21,492			$	19,903

		Three months ended March 31,
		2016				2015
Stock options		$	147			$	111
Restricted stock			146				197
Value Creation Plan			254				315
Employee Stock Purchase Plan			13				12
		$	560			$	635

		$24,000 Adjusted EBITDA Target Award
Total fair value		$	7,730
Assumptions:
March 11, 2016 closing stock price		$	9.39
Expected life of awards in years			1.7
Risk-free interest rate			0.7	%
Expected volatility			37.5	%
Dividend yield			0.0	%

		Total Fair Value				Fair Value Measurement Using Level 1
Current assets:
Cash equivalents		$	695			$	695
Total		$	695			$	695

		Three months ended March 31,
		2016				2015
Basic:
Income (loss) from continuing operations		$	1,042			$	(199	)
Loss from discontinued operations			(11	)			(38	)
Net income (loss)		$	1,031			$	(237	)
Weighted average shares			26,462				24,683
Basic earnings (loss) per share from continuing operations		$	0.04			$	(0.01	)
Basic loss per share from discontinued operations			(0.00	)			(0.00	)
Basic earnings (loss) per share		$	0.04			$	(0.01	)
Diluted:
Income (loss) from continuing operations		$	1,042			$	(199	)
Loss from discontinued operations			(11	)			(38	)
Net income (loss)		$	1,031			$	(237	)
Weighted average shares			26,462				24,683
Potential shares arising from stock options, restricted stock, warrants and contingently issuable shares under the VCP			2,749				–
Weighted average shares - diluted			29,211				24,683
Diluted earnings (loss) per share from continuing operations		$	0.04			$	(0.01	)
Diluted loss per share from discontinued operations			(0.00	)			(0.00	)
Diluted earnings (loss) per share		$	0.04			$	(0.01	)

The following table presents segment information for the following periods:

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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, 2015. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, that are intended to be covered by the “safe harbor” created by those sections. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of forward-looking terms such as “believe,” “expect,” “may,” “will,” “should,” “could,” “seek,” “intend,” “plan,” “estimate,” “anticipate” or other comparable terms. These forward-looking statements 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, 2015. We urge you to consider those risks and uncertainties in evaluating our forward-looking statements. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Overview

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 continues to grow 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-service 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. 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-service filtered drinking water location (“Refill”). Each of our multi-gallon Exchange 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 March 31, 2016, our products were offered in each of the United States and in Canada at approximately 26,000 combined retail locations, including Lowe’s Home Improvement, Walmart, The Home Depot, Kmart, Meijer, Kroger, Food Lion, H-E-B Grocery, Sobeys and Walgreens.

We provide major retailers throughout the United States and Canada with a single-vendor solution for Dispensers and Water, 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. Exchange offers retailers attractive financial margins and the ability to optimize typically unused retail space with our displays.  Refill 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 self-service filtered water display, 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.

Business Segments

We have two operating segments and two reportable segments: Primo Water (“Water”) and Primo Dispensers (“Dispensers”).

Our Water segment sales consist of our Exchange and Refill products, which are offered through retailers in each of the contiguous United States and Canada. Our Water products are offered through point of purchase display racks or self-service 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 retailers in the U.S. and Canada, where we recognize revenues for the sale of the water dispensers when title is transferred. We support retail sell-through with domestic inventory.

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 Exchange consists primarily of costs for bottling, distribution and bottles. Cost of sales for Refill consists primarily of costs associated with routine maintenance of reverse osmosis water filtration systems and filtered water displays as well as costs associated with obtaining meter readings to determine water usage. 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 operations support 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 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 products 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.

Results of Operations

The following table sets forth our results of operations:

 

The following table sets forth our results of operations expressed as a percentage of net sales:

 

The following table sets forth our segment net sales and segment income from operations presented on a segment basis and reconciled to our consolidated income from operations.

Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015

Net Sales.  Net sales increased 10.6%, or $3.1 million, to $32.3 million for the three months ended March 31, 2016 from $29.2 million for the three months ended March 31, 2015. The change was due to increases of $1.7 million and $1.4 million for Water and Dispensers net sales, respectively.

Water. Water net sales increased 8.3% to $22.4 million, representing 69.3% of our total net sales for the three months ended March 31, 2016. The increase was primarily due to the 11.9% increase in U.S. Exchange sales attributable to the addition of retail exchange locations and same-store unit growth of approximately 9.3%. Additionally, U.S. Refill net sales increased 5.2% due to same-store unit growth, the addition of retail locations and growth in sales of empty bottles. Overall, five-gallon equivalent units for Water increased 6.2% to 8.7 million for the three months ended March 31, 2016 from 8.2 million for the same period of the prior year.

 

Dispensers. Dispensers net sales increased 15.9% to $9.9 million, representing 30.7% of our total net sales for the three months ended March 31, 2016.  The increase in Dispensers net sales was primarily due to the timing of orders from major retailers compared to the prior year and increased consumer demand. Consumer demand, which we measure as the dispenser unit sales by our retail customers to consumers, was 146,000, or an increase of 22.0% for the three months ended March 31, 2016 compared to the same period in 2015. Driven primarily by the increased consumer demand, our dispenser unit sales to retailers increased by 24.2% for the three months ended March 31, 2016 compared to the same period in 2015. The increase in sales units was greater than the increase in sales dollars primarily due to a shift in customer and item mix.

 

Water. Gross margin as a percentage of net sales for our Water segment increased to 37.4% for the three months ended March 31, 2016 from 34.2% for the three months ended March 31, 2015 due to improvements for both Exchange and Refill. Gross margin as a percentage of net sales for Refill improved to 52.0% for the three months ended March 31, 2016 compared to 50.1% for the same period in 2015, due primarily to the reduction in reusable empty bottle supply chain costs. Gross margin as a percentage of net sales for Exchange improved to 31.2% for the three months ended March 31, 2016 compared to 26.9% for the same period in 2015, due primarily to improved supply chain costs.

Dispensers. Gross margin as a percentage of net sales for our Dispensers segment increased to 9.8% for the three months ended March 31, 2016 from 6.8% for the three months ended March 31, 2015. The increase in gross margin percentage was primarily due to a favorable change in sales mix towards higher margin products and improved supply chain costs.

Selling, General and Administrative Expenses (“SG&A”). SG&A increased 7.8% to $5.0 million for the three months ended March 31, 2016 from $4.7 million for the three months ended March 31, 2015. As a percentage of net sales, SG&A decreased to 15.6% for the three months ended March 31, 2016 from 16.0% for the three months ended March 31, 2015. The increase in SG&A expense was primarily due to the $0.8 million increase in employee-related costs driven primarily by an increase in compensation expenses related to performance-based incentives. This change was partially offset by the $0.3 million decrease in realized foreign currency loss due to the weakening of the U.S. dollar relative to the Canadian dollar during the three months ended March 31, 2016, compared to the strengthening of the U.S. dollar relative to the Canadian dollar during the same period in 2015.

Non-Recurring Costs. Non-recurring costs were $0.2 million for the three months ended March 31, 2016 compared to less than $0.1 million for the same period in 2015. For both periods, non-recurring costs consisted primarily of legal and other expenses associated with the Texas regional operators litigation/arbitration.

Depreciation and Amortization. Depreciation and amortization decreased 6.8% to $2.4 million for the three months ended March 31, 2016 from $2.6 million for the three months ended March 31, 2015.

Loss on Disposal of Property and Equipment. Loss on disposal of property and equipment was $0.2 million for the three months ended March 31, 2016 compared to $0.1 million for the three months ended March 31, 2015.

Interest Expense, net. Interest expense decreased 9.3% to $0.5 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015. The decrease was primarily attributable to lower debt levels compared to the prior year.

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, borrowings under credit facilities and cash provided by operations. While we had no material commitments for capital expenditures as of March 31, 2016, we anticipate net capital expenditures to range between $7.0 million and $9.0 million for the remainder of 2016. Anticipated capital expenditures are related primarily to growth in Water locations.

 

At March 31, 2016, our cash and cash equivalents totaled $1.1 million and we had $13.5 million available under our $15.0 million revolving credit facility. We anticipate that our current cash, availability under our revolving credit facility and cash flow from operations will be sufficient to meet our current needs for working capital and capital expenditures in the ordinary course of business for the foreseeable future.

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, 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):

Net Cash Flows from Operating Activities

Net cash provided by operating activities increased to $2.7 million for the three months ended March 31, 2016 from $1.9 million for the three months ended March 31, 2015, driven primarily by the increase in income from continuing operations.

Net Cash Flows from Investing Activities

Net cash used in investing activities increased to $3.5 million for the three months ended March 31, 2016 from $2.2 million for the three months ended March 31, 2015, primarily as a result of the timing of investment in capital expenditures. 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 decreased to $0.1 million for the three months ended March 31, 2016 from $0.7 million for the three months ended March 31, 2015, primarily due to an increase in shares purchased to pay taxes associated with certain incentive stock award payouts. This change was partially offset by an increase in net borrowings under the Revolving Credit Facility.

Credit facility

On June 20, 2014, we entered into a note purchase agreement (the “Credit Agreement”), which was subsequently amended on March 7, 2016, that provides up to $35.0 million in secured indebtedness and consists of a $15.0 million revolving credit facility (the “Revolving Credit Facility”) and $20.0 million in term notes (the “Term Notes”). The Revolving Credit Facility matures 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 Revolving Credit Facility and Term Notes are secured on a first priority basis by substantially all of our assets.

 

Interest on outstanding amounts owed under the Term Notes is payable quarterly 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 March 31, 2016, we had $1.5 million in outstanding borrowings at a weighted-average interest rate of 5.38% and $13.5 million available under the Revolving Credit Facility.

The Credit Agreement contains a number of affirmative and restrictive financial 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 2.75 to 1.00 as of the last day of each month (measured on a trailing four-quarter basis), (ii) a consolidated tangible net worth requirement measured at the end of each month of no less than $11 million plus 50% of consolidated net income on a cumulative basis for each fiscal quarter beginning 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 1.00 to 1.00 as of the last day of each quarter (measured on a trailing four-quarter basis). At March 31, 2016 we were in compliance with all covenants with: (i) a consolidated total indebtedness to adjusted EBITDA ratio of 1.14 to 1.00, (ii) consolidated tangible net worth of $19.0 million compared to the adjusted minimum of $12.7 million and (iii) an adjusted EBITDA to consolidated fixed charges ratio of 1.70 to 1.00.

Adjusted EBITDA U.S. GAAP Reconciliation

Adjusted EBITDA is a non-U.S. GAAP financial measure that is calculated as income (loss) from continuing operations before depreciation and amortization; interest expense, net; non-cash, stock-based compensation expense; non-recurring costs; and loss on disposal of property and equipment and other. Our Credit Agreement 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 income (loss) from continuing operations and Adjusted EBITDA.

 

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 and Changing Prices

In the three most recent fiscal 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. We have historically experienced higher sales and operating income from our water dispensers in spring and summer; however, we believe the seasonality of dispenser sales are 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, 2015.

Recent Accounting Pronouncements

In April 2015, the FASB issued updated guidance requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with the presentation of debt discounts. We have adopted the amendments of this updated guidance effective January 1, 2016 and retrospectively applied to all periods presented. The adoption resulted in the $0.4 million reclassification of debt issuance costs, net from other assets to long-term debt and capital leases, net of current portion and debt issuance costs on the condensed consolidated balance sheets as of December 31, 2015.

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. In March and April 2016, the FASB issued further guidance to provide clarity regarding principal versus agent considerations, the identification of performance obligations and certain other matters. The updates are currently effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. We are currently evaluating the impact of adopting this guidance on our consolidated financial statements.

In August 2014, the FASB issued updated guidance clarifying management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The updated guidance requires that an entity’s management evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The update is effective for annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter. The amendment is not expected to have an impact on our consolidated financial statements.

In July 2015, the FASB issued updated guidance requiring the measurement of certain inventory at the lower of cost and net realizable value. The update is effective for fiscal years beginning after December 15, 2016, including interim periods within that reporting period. We do not expect the adoption of this updated guidance to have a significant impact on our consolidated financial statements.

In February 2016, the FASB issued updated guidance requiring lessees to recognize for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The update is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. We are currently evaluating the impact of adopting this guidance on our consolidated financial statements.

 

In March 2016, the FASB issued updated guidance to provide for the simplification of aspects of accounting for stock compensation, specifically focusing on certain tax-related matters, the accounting for forfeitures, classification of certain items on the statement of cash flows and other matters. The update is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. We are currently evaluating the impact of adopting this guidance 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, 2015.

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

There has been no material change in our exposure to market risk during the three months ended March 31, 2016. Please refer to "Quantitative and Qualitative Disclosures about Market Risk" contained in Part II, Item 7A of our Form 10-K for the year ended December 31, 2015 for a discussion of our exposure to market risk.

Item 4.

Controls and Procedures

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 Rules 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

Item 1.

Legal Proceedings

Not applicable.

Item 1A.

Risk Factors

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, 2015. 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

Not applicable.

Item 3.

Defaults Upon Senior Securities

Not applicable.

Item 4.

Mine Safety Disclosures.

Not applicable.

Item 5.

Other Information

None.

Item 6.

Exhibits

EXHIBIT INDEX

 

 * Indicates management contract or compensatory plan or arrangement.

 

(1)	Included herewith

 

SIGNATURES

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.

 

 

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