SEC Filings

Primo Water Corp /CN/ (Form: 10-Q, Received: 08/06/2021 10:30:24)
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United States
Securities and Exchange Commission
Washington, D.C. 20549

FORM 10-Q
 
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: July 3, 2021
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                       to                      l

Commission File Number: 001-31410

PRIMO WATER CORPORATION
(Exact name of registrant as specified in its charter)
Ontario   98-0154711
(State or Other Jurisdiction of
Incorporation or Organization)
  (IRS Employer
Identification No.)
4221 West Boy Scout Boulevard  
Suite 400
Tampa, Florida 33607
United States
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (813) 313-1732
 

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Shares, no par value per share PRMW New York Stock Exchange
Toronto Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ý   Accelerated filer
Non-accelerated filer Smaller reporting company
  Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes      No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class   Outstanding at August 4, 2021
Common Shares, no par value per share   160,371,811



TABLE OF CONTENTS
 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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2

PART I – FINANCIAL INFORMATION
 
Item 1. Financial Statements (unaudited)

Primo Water Corporation
Consolidated Statements of Operations
(in millions of U.S. dollars, except share and per share amounts)
Unaudited

  For the Three Months Ended For the Six Months Ended
  July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020
Revenue, net $ 526.1  $ 456.8  $ 1,004.5  $ 931.0 
Cost of sales 228.9  202.1  442.8  403.0 
Gross profit 297.2  254.7  561.7  528.0 
Selling, general and administrative expenses 259.9  246.7  507.9  501.8 
Loss on disposal of property, plant and equipment, net 3.3  2.5  5.4  3.9 
Acquisition and integration expenses 2.4  4.3  3.7  25.1 
Goodwill and intangible asset impairment charges   115.2    115.2 
Operating income (loss) 31.6  (114.0) 44.7  (118.0)
Other expense (income), net 25.6  (1.6) 25.2  5.4 
Interest expense, net 17.7  20.7  36.7  40.4 
Loss from continuing operations before income taxes (11.7) (133.1) (17.2) (163.8)
Income tax (benefit) expense (3.4) (1.4) 1.3  (4.7)
Net loss from continuing operations $ (8.3) $ (131.7) $ (18.5) $ (159.1)
Net (loss) income from discontinued operations, net of income taxes   (4.3)   26.6 
Net loss $ (8.3) $ (136.0) $ (18.5) $ (132.5)
Net (loss) income per common share
Basic:
Continuing operations $ (0.05) $ (0.82) $ (0.11) $ (1.06)
Discontinued operations $   $ (0.03) $   $ 0.18 
Net loss $ (0.05) $ (0.85) $ (0.11) $ (0.88)
Diluted:
Continuing operations $ (0.05) $ (0.82) $ (0.11) $ (1.06)
Discontinued operations $   $ (0.03) $   $ 0.18 
Net loss $ (0.05) $ (0.85) $ (0.11) $ (0.88)
Weighted average common shares outstanding (in thousands)
Basic 161,561  159,931  161,097  150,535 
Diluted 161,561  159,931  161,097  150,535 

The accompanying notes are an integral part of these consolidated financial statements.

3

Primo Water Corporation
Condensed Consolidated Statements of Comprehensive Loss
(in millions of U.S. dollars)
Unaudited

  For the Three Months Ended
For the Six Months Ended
  July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020
Net loss $ (8.3) $ (136.0) $ (18.5) $ (132.5)
Other comprehensive income (loss):
    Currency translation adjustment 2.0  8.4  8.5  (10.3)
Loss on derivative instruments, net of tax 1
  —    (11.2)
Comprehensive loss $ (6.3) $ (127.6) $ (10.0) $ (154.0)
______________________
1    Net of the effect of $3.0 million tax benefit and of $1.3 million associated tax impact that resulted in a decrease to the gain on sale of discontinued operations for the six months ended June 27, 2020.


The accompanying notes are an integral part of these consolidated financial statements.
4

Primo Water Corporation
Consolidated Balance Sheets
(in millions of U.S. dollars, except share amounts)
Unaudited

July 3, 2021 January 2, 2021
ASSETS
Current assets
Cash and cash equivalents $ 114.2  $ 115.1 
Accounts receivable, net of allowance of $23.1 ($20.7 as of January 2, 2021)
287.2  222.3 
Inventories 86.3  83.8 
Prepaid expenses and other current assets 24.8  21.3 
Total current assets 512.5  442.5 
Property, plant and equipment, net 678.4  685.6 
Operating lease right-of-use-assets 179.3  180.6 
Goodwill 1,279.9  1,284.3 
Intangible assets, net 958.2  987.6 
Other long-term assets, net 23.6  24.1 
Total assets $ 3,631.9  $ 3,604.7 
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings $ 151.6  $ 107.7 
Current maturities of long-term debt 13.8  17.9 
Accounts payable and accrued liabilities 420.3  387.7 
Current operating lease obligations 35.1  35.5 
Total current liabilities 620.8  548.8 
Long-term debt 1,321.5  1,345.1 
Operating lease obligations 147.4  148.0 
Deferred tax liabilities 148.3  148.1 
Other long-term liabilities 67.9  67.8 
Total liabilities 2,305.9  2,257.8 
Shareholders' Equity
Common shares, no par value - 161,604,393 (January 2, 2021 - 160,406,464) shares issued
1,287.7  1,268.0 
Additional paid-in-capital 80.1  84.5 
Retained earnings 36.4  81.1 
Accumulated other comprehensive loss (78.2) (86.7)
Total shareholders' equity 1,326.0  1,346.9 
Total liabilities and shareholders' equity $ 3,631.9  $ 3,604.7 

The accompanying notes are an integral part of these consolidated financial statements.
5

Primo Water Corporation
Consolidated Statements of Cash Flows
(in millions of U.S. dollars)
Unaudited

  For the Three Months Ended For the Six Months Ended
  July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020
Cash flows from operating activities of continuing operations:
Net loss $ (8.3) $ (136.0) $ (18.5) $ (132.5)
Net (loss) income from discontinued operations, net of income taxes   (4.3)   26.6 
Net loss from continuing operations (8.3) (131.7) (18.5) (159.1)
Adjustments to reconcile net loss from continuing operations to cash flows from operating activities:
Depreciation and amortization 52.0  52.8  105.1  97.8 
Amortization of financing fees 0.9  0.9  1.7  1.8 
Share-based compensation expense 3.8  4.9  6.2  7.3 
Benefit for deferred income taxes (4.2) (0.9) (0.6) (4.4)
Loss on extinguishment of debt 27.2  —  27.2  — 
Gain on sale of business   (0.6)   (0.6)
Goodwill and intangible asset impairment charges   115.2    115.2 
Loss on disposal of property, plant and equipment, net 3.3  2.5  5.4  3.9 
Other non-cash items (1.2) (1.5) (1.0) 4.5 
Change in operating assets and liabilities, net of acquisitions:
Accounts receivable (52.2) 39.0  (61.9) 10.1 
Inventories (6.3) 3.1  (3.1) 2.5 
Prepaid expenses and other current assets (2.0) 1.9  (4.2) 0.4 
Other assets 0.2  (1.3) 0.3  (0.6)
Accounts payable and accrued liabilities and other liabilities 46.4  (18.8) 31.7  (8.6)
Net cash provided by operating activities from continuing operations 59.6  65.5  88.3  70.2 
Cash flows from investing activities of continuing operations:
Acquisitions, net of cash received (0.3) (11.9) (0.3) (434.5)
Additions to property, plant and equipment (34.8) (28.7) (61.8) (63.6)
Additions to intangible assets (1.8) (2.4) (4.1) (5.4)
Proceeds from sale of property, plant and equipment 0.6  0.5  0.7  0.8 
Other investing activities   1.1    1.1 
Net cash used in investing activities from continuing operations (36.3) (41.4) (65.5) (501.6)
6

Cash flows from financing activities of continuing operations:
Payments of long-term debt (753.6) (2.6) (757.0) (5.3)
Issuance of long-term debt 750.0  —  750.0  — 
Proceeds from short-term borrowings 45.0  188.0  45.0  323.9 
Payments on short-term borrowings (10.0) (100.0) (10.0) (209.9)
Premiums and costs paid upon extinguishment of long-term debt (20.6) —  (20.6) — 
Issuance of common shares 14.7  0.2  15.7  0.8 
Common shares repurchased and canceled (13.2) (0.2) (16.3) (32.1)
Financing fees (10.6) (0.3) (11.3) (2.8)
Equity issuance fees   —    (1.1)
Dividends paid to common shareholders (9.9) (10.5) (19.6) (20.3)
Payment of deferred consideration for acquisitions (0.1) (1.0) (1.8) (1.2)
Other financing activities (0.9) 2.4  4.3  11.2 
Net cash (used in) provided by financing activities from continuing operations (9.2) 76.0  (21.6) 63.2 
Cash flows from discontinued operations:
Operating activities of discontinued operations (2.6) (0.7) (1.8) (18.0)
Investing activities of discontinued operations   (1.6)   392.9 
Financing activities of discontinued operations   —    (0.1)
Net cash (used in) provided by discontinued operations (2.6) (2.3) (1.8) 374.8 
Effect of exchange rate changes on cash 0.5  1.1  (0.3) (1.0)
Net increase (decrease) in cash, cash equivalents and restricted cash 12.0  98.9  (0.9) 5.6 
Cash and cash equivalents and restricted cash, beginning of period 102.2  112.2  115.1  205.5 
Cash and cash equivalents and restricted cash, end of period $ 114.2  $ 211.1  114.2  211.1 
Supplemental Non-cash Investing and Financing Activities:
Shares issued in connection with business combination $   $ —  $   $ 377.6 
Accrued deferred financing fees   —    0.6 
Dividends payable issued through accounts payable and accrued liabilities   —  0.1  0.2 
Additions to property, plant and equipment through accounts payable and accrued liabilities and other liabilities 11.9  9.0  19.4  12.7 
Financing lease right-of-use assets obtained in exchange for lease obligations 3.3  2.3  5.9  24.0 
Operating lease right-of-use assets obtained in exchange for lease obligations 11.5  7.6  18.2  14.9 
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest $ 16.9  $ 23.0  $ 40.2  $ 38.6 
Cash paid for income taxes, net 4.3  0.3  6.2  2.7 

The accompanying notes are an integral part of these consolidated financial statements.

7

Primo Water Corporation
Consolidated Statements of Equity
(in millions of U.S. dollars, except share and per share amounts)
Unaudited
Number of
Common
Shares
(In thousands)
Common Shares Additional Paid-in-Capital Retained
Earnings
Accumulated Other Comprehensive Loss Total Shareholders' Equity
Balance at April 3, 2021 160,818  $ 1,274.2  $ 81.6  $ 61.1  $ (80.2) $ 1,336.7 
Net loss —  —  —  (8.3) —  (8.3)
Other comprehensive income, net of tax —  —  —  —  2.0  2.0 
Common shares dividends ($0.06 per common share)
—  —  —  (9.7) —  (9.7)
Share-based compensation —  —  3.8  —  —  3.8 
Common shares repurchased and canceled (803) (6.5) —  (6.7) —  (13.2)
Common shares issued - Equity Incentive Plan 1,554  19.4  (5.2) —  —  14.2 
Common shares issued - Dividend Reinvestment Plan —  —  —  —  — 
Common shares issued - Employee Stock Purchase Plan 34  0.6  (0.1) —  —  0.5 
Balance at July 3, 2021 161,604  $ 1,287.7  $ 80.1  $ 36.4  $ (78.2) $ 1,326.0 
Number of
Common
Shares
(In thousands)
Common Shares Additional Paid-in-Capital Retained
Earnings
Accumulated Other Comprehensive Loss Total Shareholders' Equity
Balance at January 2, 2021 160,406  $ 1,268.0  $ 84.5  $ 81.1  $ (86.7) $ 1,346.9 
Net loss —  —  —  (18.5) —  (18.5)
Other comprehensive income, net of tax —  —  —  —  8.5  8.5 
Common shares dividends ($0.12 per common share)
—  —  —  (19.5) —  (19.5)
Share-based compensation —  —  6.2  —  —  6.2 
Common shares repurchased and canceled (982) (9.6) —  (6.7) —  (16.3)
Common shares issued - Equity Incentive Plan 2,119  28.3  (10.5) —  —  17.8 
Common shares issued - Dividend Reinvestment Plan —  —  —  —  — 
Common shares issued - Employee Stock Purchase Plan 60  1.0  (0.1) —  —  0.9 
Balance at July 3, 2021 161,604  $ 1,287.7  $ 80.1  $ 36.4  $ (78.2) $ 1,326.0 

Number of Common Shares (In thousands) Common Shares Additional Paid-in-Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shareholder's Equity
Balance at March 28, 2020 159,826  $ 1,262.7  $ 71.5  $ 244.9  $ (98.4) $ 1,480.7 
Cumulative effect of changes in accounting principle, net of taxes —  —  —  0.7  —  0.7 
Net loss —  —  —  (136.0) —  (136.0)
Other comprehensive income, net of tax —  —  —  —  8.4  8.4 
Common shares dividends ($0.06 per common share)
—  —  —  (9.9) —  (9.9)
Share-based compensation —  —  4.2  —  —  4.2 
Common shares repurchased and canceled (20) (0.3) —  —  —  (0.3)
Common shares issued - Equity Incentive Plan 175  0.6  (0.4) —  —  0.2 
Common shares issued - Dividend Reinvestment Plan —  —  —  —  — 
Common shares issued - Employee Stock Purchase Plan 37  0.3  (0.1) —  —  0.2 
Balance at June 27, 2020 160,019  $ 1,263.3  $ 75.2  $ 99.7  $ (90.0) $ 1,348.2 
Number of
Common
Shares
(In thousands)
Common Shares Additional Paid-in-Capital Retained
Earnings
Accumulated Other Comprehensive Loss Total Shareholders' Equity
Balance at December 28, 2019 134,803  $ 892.3  $ 77.4  $ 265.0  $ (68.5) $ 1,166.2 
Cumulative effect of changes in accounting principle, net of taxes —  —  —  (3.6) —  (3.6)
Net loss —  —  —  (132.5) —  (132.5)
Other comprehensive loss, net of tax —  —  —  —  (21.5) (21.5)
Common shares dividends $0.12 per common share)
—  —  —  (19.5) —  (19.5)
Share-based compensation —  —  7.3  —  —  7.3 
Common shares issued in connection with business combination and assumed vested awards, net of equity issuance costs of $1.1 million
26,497  376.5  2.9  —  —  379.4 
Common shares repurchased and canceled (2,796) (22.5) —  (9.7) —  (32.2)
Common shares issued - Equity Incentive Plan 1,452  16.3  (12.2) —  —  4.1 
Common shares issued - Dividend Reinvestment Plan —  —  —  —  — 
Common shares issued - Employee Stock Purchase Plan 62  0.7  (0.2) —  —  0.5 
Balance at June 27, 2020 160,019  $ 1,263.3  $ 75.2  $ 99.7  $ (90.0) $ 1,348.2 

The accompanying notes are an integral part of these consolidated financial statements.
8

Primo Water Corporation
Notes to the Consolidated Financial Statements
Unaudited

Note 1—Business and Recent Accounting Pronouncements
Description of Business
As used herein, “Primo,” “the Company,” “our Company,” “Primo Water Corporation,” “we,” “us,” or “our” refers to Primo Water Corporation, together with its consolidated subsidiaries. Primo is a leading provider of sustainable drinking water solutions direct to customers in North America and Europe. 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 retailers and online at various price points. 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 Water Direct business, Primo delivers sustainable hydration solutions across its 22-country footprint direct to the customer’s door, whether at home or to commercial businesses. Through its 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.
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 the International Bottled Water Association in North America as well as with Watercoolers Europe, which ensure strict adherence to safety, quality, sanitation and regulatory standards for the benefit of consumer protection. During 2020, our U.S. operations achieved a carbon neutral certification under the CarbonNeutral Protocol, an international standard administered by Natural Capital Partners. This certification is in addition to the certifications in our European operations where we have maintained carbon neutrality for the past nine consecutive years in many of our markets.
Basis of Presentation
The accompanying interim unaudited Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of our results of operations for the interim periods reported and of our financial condition as of the date of the interim balance sheet have been included. The Consolidated Balance Sheet as of January 2, 2021 included herein was derived from the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended January 2, 2021 (our “2020 Annual Report”). This Quarterly Report on Form 10-Q should be read in conjunction with the annual audited Consolidated Financial Statements and accompanying notes in our 2020 Annual Report. The accounting policies used in these interim Consolidated Financial Statements are consistent with those used in the annual Consolidated Financial Statements.
The presentation of these interim Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes.
COVID-19 Pandemic
In response to the novel coronavirus (“COVID-19”) pandemic, certain government authorities have enacted programs which provide various economic stimulus measures, including several tax provisions. Among the business tax provisions is the deferral of certain payroll and other tax remittances to future years and wage subsidies as reimbursement for a portion of certain furloughed employees’ salaries. During the three and six months ended July 3, 2021, we received wage subsidies under these programs totaling $0.8 million and $2.2 million, respectively. We review our eligibility for these programs for each qualifying period and account for such wage subsidies on an accrual basis when the conditions for eligibility are met. We have adopted an accounting policy to present wage subsidies as a reduction of selling, general and administrative (“SG&A”) expenses. In addition, deferred payroll and other taxes totaling $8.1 million and $9.0 million were included in accounts payable and accrued liabilities and $7.5 million was included in other long-term liabilities on our Consolidated Balance Sheets as of July 3, 2021 and January 2, 2021, respectively.




9


Significant Accounting Policies
Included in Note 1 of our 2020 Annual Report is a summary of the Company’s significant accounting policies. Provided below is a summary of additional accounting policies that are significant to the financial results of the Company.
Cost of sales
We record costs associated with the manufacturing of our products in cost of sales. Shipping and handling costs incurred to store, prepare and move products between production facilities or from production facilities to branch locations or storage facilities are recorded in cost of sales. Shipping and handling costs incurred to deliver products from our North America and Rest of World reporting segment branch locations to the end-user consumer of those products are recorded in SG&A expenses. All other costs incurred in the shipment of products from our production facilities to customer locations are reflected in cost of sales. Shipping and handling costs included in SG&A expenses were $118.6 million and $228.7 million for the three and six months ended July 3, 2021, respectively, and $99.8 million and $219.8 million for the three and six months ended June 27, 2020, respectively. Finished goods inventory costs include the cost of direct labor and materials and the applicable share of overhead expense chargeable to production.
Recently adopted accounting pronouncements
Update ASU 2018-14 – Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20)
In August 2018, the Financial Accounting Standards Board (“FASB”) amended its guidance on disclosure requirements for defined benefit plans. The update amends existing annual disclosure requirements applicable to all employers that sponsor defined benefit pension and other postretirement plans by adding, removing, and clarifying certain disclosures. The amendments in this update are effective for fiscal years beginning after December 15, 2020, with early adoption permitted, and are to be applied on a retrospective basis to all periods presented. Adoption of the new standard did not have a material impact on our Consolidated Financial Statements.
Recently issued accounting pronouncements
Update ASU 2020-04 – Reference Rate Reform (Topic 848)
In March 2020, the FASB issued guidance which provides optional expedients and exceptions to account for contracts, hedging relationships and other transactions that reference LIBOR or any other reference rates expected to be discontinued because of reference rate reform. This guidance is effective as of March 12, 2020 through December 31, 2022 and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company has not adopted any of the optional expedients or exceptions through July 3, 2021 but will continue to evaluate the possible adoption of any such expedients or exceptions during the effective period as circumstances evolve.

Note 2Discontinued Operations
In February 2020, the Company completed the sale of our coffee, tea and extract solutions business, S. & D. Coffee, Inc. (“S&D”) to Westrock Coffee Company, LLC, a Delaware 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 consideration was $405.0 million paid at closing in cash, with customary post-closing working capital adjustments, which were resolved in June 2020 by payment of $1.5 million from the Company to Westrock.
The Company used the proceeds of the S&D Divestiture to finance a portion of the acquisition of Primo Water Corporation (“Legacy Primo” and such transaction, the “Legacy Primo Acquisition”). See Note 4 to the Consolidated Financial Statements for additional information on the Legacy Primo Acquisition.
10

The major components of net (loss) income from discontinued operations, net of income taxes in the accompanying Consolidated Statement of Operations include the following:

For the Three Months Ended For the Six Months Ended
(in millions of U.S. dollars) June 27, 2020 June 27, 2020
Revenue, net 1
$ —  $ 97.1 
Cost of sales —  71.1 
Operating loss from discontinued operations —  (0.5)
(Loss) gain on sale of discontinued operations (5.6) 54.9 
Net (loss) income from discontinued operations, before income taxes (5.5) 54.3 
Income tax (benefit) expense 2
(1.2) 27.7 
Net (loss) income from discontinued operations, net of income taxes $ (4.3) $ 26.6 
______________________
1    Includes $1.0 million of related party sales to continuing operations for the six months ended June 27, 2020.
2    The S&D Divestiture resulted in tax expense on the gain on sale of $28.0 million and utilized a significant portion of the existing U.S. net operating loss carry-forwards.

Note 3—Revenue
Our principal sources of revenue are from bottled water delivery direct to consumers primarily in North America and Europe and from providing multi-gallon purified bottled water, self-service refill drinking water and water dispensers through retailers in North America. Revenue is recognized, net of sales returns, when a customer obtains control of promised goods or services in an amount that reflects the consideration we expect to receive in exchange for those goods or services. We measure revenue based on the consideration specified in the customer arrangement, and revenue is recognized when the performance obligations in the customer arrangement are satisfied. A performance obligation is a contractual promise to transfer a distinct service to the customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when the customer receives the benefit of the performance obligation. Customers typically receive the benefit of our services as they are performed. Substantially all our customer contracts require that we be compensated for services performed to date. This may be upon shipment of goods or upon delivery to the customer, depending on contractual terms. Shipping and handling costs paid by the customer to us are included in revenue and costs incurred by us for shipping and handling activities that are performed after a customer obtains control of the product are accounted for as fulfillment costs. In addition, we exclude from net revenue and cost of sales taxes assessed by governmental authorities on revenue-producing transactions. Although we occasionally accept returns of products from our customers, historically returns have not been material.
Contract Estimates
The nature of certain of our contracts give rise to variable consideration including cash discounts, volume-based rebates, point of sale promotions, and other promotional discounts to certain customers. For all promotional programs and discounts, we estimate the rebate or discount that will be granted to the customer and record an accrual upon invoicing. These estimated rebates or discounts are included in the transaction price of our contracts with customers as a reduction to net revenues and are included as accrued sales incentives in accounts payable and accrued liabilities in the Consolidated Balance Sheets. Accrued sales incentives were $10.9 million and $9.9 million on July 3, 2021 and January 2, 2021, respectively.
We do not disclose the value of unsatisfied performance obligations for contracts (i) with an original expected length of one year or less or (ii) for which we recognize revenue at the amount in which it has the right to invoice as the product is delivered.
Contract Balances
Contract liabilities relate primarily to advances received from our customers before revenue is recognized. These amounts are recorded as deferred revenue and are included in accounts payable and accrued liabilities in the Consolidated Balance Sheets. The advances are expected to be earned as revenue within one year of receipt. Deferred revenues at July 3, 2021 and January 2, 2021 were $14.6 million and $11.7 million, respectively. The amount of revenue recognized in the three and six months ended July 3, 2021 that was included in the January 2, 2021 deferred revenue balance was $1.5 million and $9.6 million, respectively.
11

The Company does not have any material contract assets as of July 3, 2021 and January 2, 2021.
Disaggregated Revenue
In general, our business segmentation is aligned according to the nature and economic characteristics of our products and customer relationships and provides meaningful disaggregation of each business segment’s results of operations.
Further disaggregation of net revenue to external customers by geographic area based on customer location is as follows:

  For the Three Months Ended For the Six Months Ended
(in millions of U.S. dollars) July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020
United States $ 378.1  $ 350.1  $ 728.0  $ 684.7 
United Kingdom 38.2  25.6  74.9  68.1 
Canada 18.6  14.0  34.5  30.1 
All other countries 91.2  67.1  167.1  148.1 
Total $ 526.1  $ 456.8  $ 1,004.5  $ 931.0 

Note 4—Acquisitions
Legacy Primo Acquisition
In March 2020, the Company completed the Legacy Primo Acquisition, adding North America’s leading single source provider of multi-gallon purified bottled water, self-service refill drinking water and water dispensers sold through retailers to the Company’s catalog of residential and commercial bottled water delivery businesses in North America and Europe. The Legacy Primo Acquisition was structured as an exchange offer to purchase all of the outstanding shares of common stock of Legacy Primo for per-share consideration of (i) $14.00 in cash, (ii) 1.0229 common shares plus cash in lieu of any fractional common share, or (iii) $5.04 in cash and 0.6549 common shares, at the election of Legacy Primo’s stockholders, subject to the proration procedures set forth in the merger agreement. Immediately following the consummation of the exchange offer, we indirectly acquired the remaining Legacy Primo shares through a merger between Legacy Primo and one of our wholly-owned subsidiaries.
The total cash and stock consideration paid by us in the Legacy Primo Acquisition is summarized below:
(in millions of U.S. dollars, except share and per share amounts)
Fair value of common shares issued to holders of Legacy Primo common stock (26,497,015 shares issued at $14.25 per share)
$ 377.6 
Cash to holders of Legacy Primo common stock 216.1 
Cash paid to retire outstanding indebtedness on behalf of Legacy Primo 196.9 
Settlement of pre-existing relationship 4.7 
Fair value of replacement common share options and restricted stock units for Legacy Primo awards 2.9 
Total consideration $ 798.2 
12



The table below summarizes the previously reported estimated acquisition date fair values, measurement period adjustments recorded, and the final purchase price allocation of the assets acquired and the liabilities assumed:

(in millions of U.S. dollars) Originally Reported Measurement Period Adjustments Acquired Value
Cash and cash equivalents $ 1.3  $ —  $ 1.3 
Accounts receivable 21.6  —  21.6 
Inventory 18.4  —  18.4 
Prepaid expenses and other current assets 5.3  —  5.3 
Property, plant and equipment 107.8  —  107.8 
Operating lease right-of-use-assets 4.3  —  4.3 
Goodwill 301.2  1.3  302.5 
Intangible assets 421.6  —  421.6 
Other assets 0.4  —  0.4 
Current maturities of long-term debt (2.3) —  (2.3)
Accounts payable and accrued liabilities (42.0) (0.2) (42.2)
Current operating lease obligations (1.4) —  (1.4)
Long-term debt (5.6) —  (5.6)
Operating lease obligations (3.0) —  (3.0)
Deferred tax liabilities (27.6) (1.1) (28.7)
Other long-term liabilities (1.8) —  (1.8)
Total $ 798.2  $ —  $ 798.2 

Measurement period adjustments recorded during the six months ended July 3, 2021 include a deferred tax adjustment related to the final valuation and an adjustment to accounts payable and accrued liabilities based on a review of the respective fair value as of the date of the Legacy Primo Acquisition. The measurement period adjustment did not have a material effect on our results of operations in prior periods.

Supplemental Pro Forma Data (unaudited)
The following unaudited pro forma financial information for the three and six months ended June 27, 2020, represent the combined results of our operations as if the Legacy Primo Acquisition had occurred on December 30, 2018.

  For the Three Months Ended For the Six Months Ended
(in millions of U.S. dollars, except per share amounts) June 27, 2020 June 27, 2020
Revenue $ 456.8  $ 971.5 
Net loss from continuing operations $ (131.7) $ (144.7)
Net loss $ (136.0) $ (118.1)
Net loss per common share from continuing operations, diluted $ (0.82) $ (0.96)
Net loss per common share, diluted $ (0.85) $ (0.78)


13


Note 5—Share-based Compensation
In the second quarter of 2021, we granted 70,920 common shares with an aggregate grant date fair value of approximately $1.2 million to the non-management members of our Board of Directors under the Amended and Restated Primo Water Corporation Equity Incentive Plan. The common shares were issued in consideration of the directors’ annual board retainer fee and are fully vested upon issuance.

Note 6—Income Taxes
Income tax benefit was $3.4 million on pre-tax loss from continuing operations of $11.7 million for the three months ended July 3, 2021, as compared to income tax benefit of $1.4 million on pre-tax loss from continuing operations of $133.1 million in the comparable prior year period. Income tax expense was $1.3 on pre-tax loss from continuing operations of $17.2 million for the six months ended July 3, 2021, as compared to income tax benefit of $4.7 million on pre-tax loss of continuing operations of $163.8 million in the comparable prior year period. The effective income tax rates for the three and six months ended July 3, 2021 were 29.1% and (7.6)%, respectively, compared to 1.1% and 2.9% in the comparable prior year periods.
The effective tax rate for the three and six months ended July 3, 2021 varied from the effective tax rate in the comparable prior year period due primarily to increased earnings in taxable jurisdictions and impairment charges incurred in the prior year period for which minimal tax benefit was recognized.
The effective tax rate for the three and six months ended July 3, 2021 varied from the statutory tax rate primarily due to losses in tax jurisdictions for which no tax benefit is recognized due to existing valuation allowances, as well as income in tax jurisdictions with tax rates lower than the Canadian statutory tax rate.

Note 7—Common Shares and Net (Loss) Income per Common Share
Common Shares
On May 4, 2021, our Board of Directors approved a new share repurchase program for up to $50.0 million of our outstanding common shares over a 12-month period commencing on May 10, 2021 (the “Repurchase Plan”). For the three and six months ended July 3, 2021, we repurchased 786,017 common shares for approximately $13.0 million through open market transactions under the Repurchase Plan. Shares purchased under the Repurchase Plan were subsequently canceled. There can be no assurance as to the precise number of common shares, if any, that will be repurchased under the Repurchase Plan in the future, or the aggregate dollar amount of common shares to be purchased in future periods. We may discontinue purchases at any time, subject to compliance with applicable regulatory requirements.
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Net (Loss) Income per Common Share
Basic net (loss) income per common share is calculated by dividing net (loss) income by the weighted average number of common shares outstanding during the periods presented. Diluted net (loss) income per common share is calculated by dividing net (loss) income by the weighted average number of common shares outstanding adjusted to include the effect, if dilutive, of the exercise of in-the-money stock options, performance-based RSUs, and time-based RSUs during the periods presented. Set forth below is a reconciliation of the numerator and denominator for the diluted net (loss) income per common share computations for the periods indicated:

  For the Three Months Ended For the Six Months Ended
  July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020
Numerator (in millions of U.S. dollars):
Net (loss) income from continuing operations $ (8.3) $ (131.7) $ (18.5) $ (159.1)
Net (loss) income from discontinued operations   (4.3)   26.6 
Net loss (8.3) (136.0) (18.5) (132.5)
Basic Earnings Per Share
Denominator (in thousands):
Weighted average common shares outstanding - basic 161,561  159,931  161,097  150,535 
Basic Earnings Per Share:
Continuing operations (0.05) (0.82) (0.11) (1.06)
Discontinued operations   (0.03)   0.18 
Net loss (0.05) (0.85) (0.11) (0.88)
Diluted Earnings Per Share
Denominator (in thousands):
Weighted average common shares outstanding - basic 161,561  159,931  161,097  150,535 
Dilutive effect of Stock Options   —    — 
Dilutive effect of Performance-based RSUs   —    — 
Dilutive effect of Time-based RSUs   —    — 
Weighted average common shares outstanding - diluted 161,561  159,931  161,097  150,535 
Diluted Earnings Per Share:
Continuing operations (0.05) (0.82) (0.11) (1.06)
Discontinued operations   (0.03)   0.18 
Net loss (0.05) (0.85) (0.11) (0.88)

The following table summarizes anti-dilutive securities excluded from the computation of diluted net income (loss) per common share for the periods indicated:

  For the Three Months Ended For the Six Months Ended
(in thousands) July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020
Stock Options 5,719  6,510  5,719  6,510 
Performance-based RSUs 1
836  924  836  924 
Time-based RSUs 481  511  481  511 
______________________
1     Performance-based RSUs represent the number of shares expected to be issued based primarily on the estimated achievement of performance targets for these awards.

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Note 8—Segment Reporting
Our broad portfolio of products includes bottled water, water dispensers, purified bottled water, self-service refill drinking water, premium spring, sparkling and flavored water, mineral water, filtration equipment, and coffee.

(in millions of U.S. dollars) North America Rest of World All Other Total
For the Three Months Ended July 3, 2021
Revenue, net $ 396.7  $ 129.4  $   $ 526.1 
Depreciation and amortization 36.5  15.2  0.3  52.0 
Operating income (loss) 40.1  1.6  (10.1) 31.6 
Additions to property, plant and equipment 24.1  10.7    34.8 
For the Six Months Ended July 3, 2021
Revenue, net $ 762.2  $ 242.3  $   $ 1,004.5 
Depreciation and amortization 74.3  30.1  0.7  105.1 
Operating income (loss) 66.2  (2.0) (19.5) 44.7 
Additions to property, plant and equipment 44.3  17.4  0.1  61.8 

(in millions of U.S. dollars) North America Rest of World All Other Total
For the Three Months Ended June 27, 2020
Revenue, net $ 363.9  $ 92.9  $ —  $ 456.8 
Depreciation and amortization 38.0  14.3  0.5  52.8 
Operating income (loss) 1
24.0  (128.1) (9.9) (114.0)
Additions to property, plant and equipment 25.2  3.7  (0.2) 28.7 
For the Six Months Ended June 27, 2020
Revenue, net $ 714.6  $ 216.4  $ —  $ 931.0 
Depreciation and amortization 68.6  28.6  0.6  97.8 
Operating income (loss) 1
47.1  (130.5) (34.6) (118.0)
Additions to property, plant and equipment 48.9  14.9  (0.2) 63.6 
______________________
1    We revised the allocation of information technology costs from the All Other category to our North America and Rest of World reporting segments to reflect how the Chief Executive Officer, who is our chief operating decision maker, measures the performance of our segments. As a result of the change, operating income (loss) for the prior periods have been recast to decrease operating income in our North America reporting segment by $0.4 million, increase operating loss in our Rest of World reporting segment by $1.5 million, and decrease operating loss in the All Other category by $1.9 million for the three months ended June 27, 2020. Operating income (loss) for the six months ended June 27, 2020 has been recast to decrease operating income in our North America reporting segment by $1.0 million, increase operating loss in our Rest of World reporting segment by $3.4 million, and decrease operating loss in the All Other category by $4.4 million.

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Revenues by channel by reporting segment were as follows:

  For the Three Months Ended July 3, 2021
(in millions of U.S. dollars) North America Rest of World All Other Total
Revenue, net
Water Direct/Water Exchange $ 264.9  $ 58.1  $   $ 323.0 
Water Refill/Water Filtration 45.1  8.0    53.1 
Other Water 42.2  22.4    64.6 
Water Dispensers 17.6      17.6 
Other 26.9  40.9    67.8 
Total $ 396.7  $ 129.4  $   $ 526.1 

  For the Six Months Ended July 3, 2021
(in millions of U.S. dollars) North America Rest of World All Other Total
Revenue, net
Water Direct/Water Exchange $ 503.7  $ 106.9  $   $ 610.6 
Water Refill/Water Filtration 90.2  15.9    106.1 
Other Water 83.1  37.8    120.9 
Water Dispensers 32.6      32.6 
Other 52.6  81.7    134.3 
Total $ 762.2  $ 242.3  $   $ 1,004.5 

For the Three Months Ended June 27, 2020
(in millions of U.S. dollars) North America Rest of World All Other Total
Revenue, net
Water Direct/Water Exchange $ 225.8  $ 42.3  $ —  $ 268.1 
Water Refill/Water Filtration 51.2  6.3  —  57.5 
Other Water 42.5  14.3  —  56.8 
Water Dispensers 20.8  —  —  20.8 
Other 23.6  30.0  —  53.6 
Total $ 363.9  $ 92.9  $ —  $ 456.8 

For the Six Months Ended June 27, 2020
(in millions of U.S. dollars) North America Rest of World All Other Total
Revenue, net
Water Direct/Water Exchange $ 463.2  $ 100.1  $ —  $ 563.3 
Water Refill/Water Filtration 74.9  13.4  —  88.3 
Other Water 84.7  27.5  —  112.2 
Water Dispensers 26.7  —  —  26.7 
Other 65.1  75.4  —  140.5 
Total $ 714.6  $ 216.4  $ —  $ 931.0 

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Note 9—Inventories
The following table summarizes inventories as of July 3, 2021 and January 2, 2021:
(in millions of U.S. dollars) July 3, 2021 January 2, 2021
Raw materials $ 49.4  $ 43.6 
Finished goods 26.0  28.0 
Resale items 10.0  11.1 
Other 0.9  1.1 
Total $ 86.3  $ 83.8 

Note 10—Debt
Our total debt as of July 3, 2021 and January 2, 2021 was as follows:
July 3, 2021 January 2, 2021
(in millions of U.S. dollars) Principal Unamortized Debt Costs Net Principal Unamortized Debt Costs Net
5.500% senior notes due in 2025
      750.0  7.0  743.0 
3.875% senior notes due in 2028
533.4  7.7  525.7  551.9  8.3  543.6 
4.375% senior notes due in 2029
750.0  10.4  739.6  —  —  — 
Revolving Credit Facility 139.8    139.8  104.8  —  104.8 
Short-term borrowings 11.8    11.8  2.9  —  2.9 
Finance leases 69.8    69.8  71.5  —  71.5 
Other debt financing 0.2    0.2  4.9  —  4.9 
Total debt 1,505.0  18.1  1,486.9  1,486.0  15.3  1,470.7 
Less: Short-term borrowings and current debt:
Revolving Credit Facility 139.8    139.8  104.8    104.8 
Short-term borrowings 11.8    11.8  2.9    2.9 
Finance leases - current maturities 13.7    13.7  13.2    13.2 
Other debt financing 0.1    0.1  4.7    4.7 
Total current debt 165.4    165.4  125.6  —  125.6 
Total long-term debt $ 1,339.6  $ 18.1  $ 1,321.5  $ 1,360.4  $ 15.3  $ 1,345.1 

4.375% Senior Notes due in 2029
On April 30, 2021, we issued $750.0 million of 4.375% senior notes due April 30, 2029 (“2029 Notes”) to qualified purchasers in a private placement offering under Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States to non-U.S. purchasers pursuant to Regulation S under the Securities Act and other applicable laws. The 2029 Notes were issued by our wholly-owned subsidiary Primo Water Holdings Inc. The 2029 Notes are guaranteed by the Company and certain subsidiaries that are currently obligors under the $350.0 million senior secured revolving credit facility and the €450.0 million of 3.875% senior notes due October 31, 2028. The 2029 Notes will mature on April 30, 2029 and interest is payable semi-annually on April 30th and October 31st of each year commencing on October 31, 2021. The proceeds of the 2029 Notes, along with available cash on hand, were used to redeem in full the the $750.0 million of 5.500% senior notes due April 1, 2025 (“2025 Notes”) and pay related premiums, fees and expenses.
We incurred approximately $11.2 million of financing fees for the issuance of the 2029 Notes. The financing fees are being amortized using the effective interest method over an eight-year period, which represents the term to maturity of the 2029 Notes.
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The redemption of the 2025 Notes included $20.6 million in premium payments, accrued interest of $3.6 million, and the write-off of $6.6 million in deferred financing fees.

Note 11—Accumulated Other Comprehensive (Loss) Income
Changes in accumulated other comprehensive (loss) income (“AOCI”) by component for the three and six months ended July 3, 2021 and June 27, 2020 were as follows:

(in millions of U.S. dollars) 1
Gains and Losses
on Derivative
Instruments
Pension
Benefit
Plan Items
Currency
Translation
Adjustment Items
Total
Beginning balance April 3, 2021 $ —  $ (1.1) $ (79.1) $ (80.2)
OCI before reclassifications —  —  2.0  2.0 
Amounts reclassified from AOCI —  —  —  — 
Net current-period OCI —  —  2.0  2.0 
Ending Balance July 3, 2021 $ —  $ (1.1) $ (77.1) $ (78.2)
Beginning balance January 2, 2021 $ —  $ (1.1) $ (85.6) $ (86.7)
OCI before reclassifications —  —  8.5  8.5 
Amounts reclassified from AOCI —  —  —  — 
Net current-period OCI —  —  8.5  8.5 
Ending Balance July 3, 2021 $ —  $ (1.1) $ (77.1) $ (78.2)
Beginning balance March 28, 2020 $ —  $ (1.0) $ (97.4) $ (98.4)
OCI before reclassifications —  —  8.4  8.4 
Amounts reclassified from AOCI —  —  —  — 
Net current-period OCI —  —  8.4  8.4 
Ending balance June 27, 2020 $ —  $ (1.0) $ (89.0) $ (90.0)
Beginning balance December 28, 2019 $ 11.2  $ (1.0) $ (78.7) $ (68.5)
OCI before reclassifications (8.7) —  (10.3) (19.0)
Amounts reclassified from AOCI (2.5) —  —  (2.5)
Net current-period OCI (11.2) —  (10.3) (21.5)
Ending balance June 27, 2020 $ —  $ (1.0) $ (89.0) $ (90.0)
______________________
1     All amounts are net of tax. Amounts in parentheses indicate debits.

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The following table summarizes the amounts reclassified from AOCI for the three and six months ended July 3, 2021 and June 27, 2020, respectively:

(in millions of U.S. dollars) For the Three Months Ended For the Six Months Ended Affected Line Item in the Statement Where Net Income Is Presented
Details About AOCI Components 1
July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020
Gains and losses on derivative instruments
Foreign currency and commodity hedges $ —  $ —  $ —  $ 0.1  Cost of sales
Commodity hedges 2
—  —  —  2.4  Gain on sale of discontinued operations
—  —  —  2.5  Total before taxes
—  —  —  —  Tax expense or (benefit)
$ —  $ —  $ —  $ 2.5  Net of tax
Amortization of pension benefit plan items
Actuarial (losses)/gains 3
$ —  $ —  $ —  $ — 
Prior service costs 3
—  —  —  — 
—  —  —  —  Total before taxes
—  —  —  —  Tax expense or (benefit)
$ —  $ —  $ —  $ —  Net of tax
Total reclassifications for the period $ —  $ —  $ —  $ 2.5  Net of tax
______________________
1     Amounts in parentheses indicate debits.
2    Net of $1.3 million of associated tax impact that resulted in a decrease to the gain on the sale of discontinued operations for the six months ended June 27, 2020.
3    These AOCI components are included in the computation of net periodic pension cost.

Note 12—Commitments and Contingencies
We are subject to various claims and legal proceedings with respect to matters such as governmental regulations and other actions arising out of the normal course of business. Management believes that the resolution of these matters will not have a material adverse effect on our financial position, results of operations, or cash flow.
We had $51.5 million in standby letters of credit outstanding as of July 3, 2021 ($50.6 million as of January 2, 2021).
Guarantees
After the sale of our legacy carbonated soft drink and juice business in January 2018, we have continued to provide contractual payment guarantees to two third-party lessors of certain real property used in these businesses. The leases were conveyed to the buyer as part of the sale, but our guarantee was not released by the landlord. The two lease agreements mature in 2027 and 2028. The maximum potential amount of undiscounted future payments under the guarantee is approximately $17.8 million as of July 3, 2021, which was calculated based on the minimum lease payments of the leases over the remaining term of the agreements. The sale documents require the buyer to pay all post-closing obligations under these conveyed leases, and to reimburse us if the landlord calls on a guarantee. The buyer has also agreed to a covenant to negotiate with the landlords for a release of our guarantees. Discussions with the landlords are ongoing. We currently do not believe it is probable we would be required to perform under any of these guarantees or any of the underlying obligations.

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Note 13—Fair Value Measurements
FASB Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Additionally, the inputs used to measure fair value are prioritized based on a three-level hierarchy. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs.
The three levels of inputs used to measure fair value are as follows:
 
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

Fair Value of Financial Instruments
The carrying amounts reflected in the Consolidated Balance Sheets for cash and cash equivalents, receivables, payables, short-term borrowings and long-term debt approximate their respective fair values, except as otherwise indicated. The carrying values and estimated fair values of our significant outstanding debt as of July 3, 2021 and January 2, 2021 were as follows:

  July 3, 2021 January 2, 2021
(in millions of U.S. dollars) Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
5.500% senior notes due in 2025 1, 2
    743.0  767.2 
3.875% senior notes due in 2028 1, 2
525.7  535.9  543.6  559.9 
4.375% senior notes due in 2029 1,2
739.6  740.5  —  — 
Total $ 1,265.3  $ 1,276.4  $ 1,286.6  $ 1,327.1 
______________________
1     The fair values were based on the trading levels and bid/offer prices observed by a market participant and are considered Level 2 financial instruments.
2    Carrying value of our significant outstanding debt is net of unamortized debt issuance costs as of July 3, 2021 and January 2, 2021 (see Note 10 to the Consolidated Financial Statements).

Note 14—Subsequent Events
Subsequent to July 3, 2021, we repurchased 1,417,725 common shares for approximately $23.2 million through open market transactions under the Repurchase Plan. Shares purchased under the Repurchase Plan were subsequently canceled.
On August 4, 2021, our Board of Directors declared a dividend of $0.06 per share on common shares, payable in cash on September 2, 2021 to shareowners of record at the close of business on August 19, 2021.
21


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
    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 ended January 2, 2021 (our “2020 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 2020 Annual Report. As used herein, “Primo,” “the Company,” “Primo Water Corporation,” “we,” “us,” or “our” refers to Primo Water Corporation, together with its consolidated subsidiaries.
Overview
    Primo is a leading provider of sustainable drinking water solutions direct to customers in North America and Europe. 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 retailers and online at various price points. 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 Water Direct business, Primo delivers sustainable hydration solutions across its 22-country footprint direct to the customer’s door, whether at home or to commercial businesses. Through its 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.
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 the International Bottled Water Association in North America as well as with Watercoolers Europe, which ensure strict adherence to safety, quality, sanitation and regulatory standards for the benefit of consumer protection. During 2020, our U.S. operations achieved a carbon neutral certification under the CarbonNeutral Protocol, an international standard administered by Natural Capital Partners. This certification is in addition to the certifications in our European operations where we have maintained carbon neutrality for the past nine consecutive years in many of our markets.
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 in U.S. dollars, fluctuations in currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have an impact on our results of operations.
Impact of the COVID-19 Pandemic
Our global operations expose us to risks associated with the coronavirus (“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 continue to impact us, our customers, employees, distributors, suppliers and other third parties with whom we do business. There is considerable uncertainty regarding the extent and duration of any impact that these measures and future measures in response to the pandemic may have on 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.
For our associates we have implemented safety protocols, including implementing social distancing guidelines, staggering employee shifts, providing our associates with personal protective equipment, and continuing to allow members of our team to work from home where possible. We 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.
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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, the emergence and spread of new disease variants, 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, successful distribution and efficacy of COVID-19 vaccines 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 22-country footprint and provide multi-gallon purified bottled water, self-service refill drinking water and water dispensers to customers through retailers in North 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. 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. 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. The full extent of the COVID outbreak and its impact on the markets served by the Company's operations continues to be highly uncertain as conditions continue to fluctuate around the world, with vaccine administration rising in certain regions and spikes in infections (including the spread of variants) also being experienced.
In response to COVID-19, certain government authorities have enacted programs which provide various economic stimulus measures, including several tax provisions. Among the business tax provisions is the deferral of certain payroll and other tax remittances to future years and wage subsidies as reimbursement for a portion of certain furloughed employees’ salaries. During the three and six months ended July 3, 2021, we received wage subsidies under these programs totaling $0.8 million and $2.2 million, respectively. We review our eligibility for these programs for each qualifying period and account for such wage subsidies on an accrual basis when the conditions for eligibility are met. The Company has adopted an accounting policy to present wage subsidies as a reduction of selling, general and administrative (“SG&A”) expenses. In addition, deferred payroll and other taxes totaling $8.1 million and $9.0 million were included in accounts payable and accrued liabilities and $7.5 million were included in other long-term liabilities on our Consolidated Balance Sheet as of July 3, 2021 and January 2, 2021, respectively.
Divestiture, Acquisition and Financing Transactions
    In February 2020, we completed the sale of our coffee, tea and extract solutions business, S. & D. Coffee, Inc. (“S&D”), to Westrock Coffee Company, LLC, a Delaware 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 consideration was $405.0 million paid at closing in cash, with customary post-closing working capital adjustments, which were resolved in June 2020 by payment of $1.5 million from the Company to Westrock. We used the proceeds of the transaction to finance a portion of the Legacy Primo Acquisition, as described below.
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.
In March 2020, we completed the acquisition of Primo 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, we changed our corporate name to Primo Water Corporation and our ticker symbol on the New York Stock Exchange and Toronto Stock Exchange to “PRMW”.
In March 2020, we entered into a credit agreement among the Company, as parent borrower, Primo Water Holdings Inc. and Eden Springs Nederland B.V., 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”).
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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 has a five year maturity date and includes letter of credit and swing line loan sub facilities. Borrowings under the Revolving Credit Facility were used to refinance in full and terminate our previously existing asset-based lending credit facility.
On October 22, 2020, we issued €450.0 million ($533.5 million at exchange rates in effect on October 22, 2020) of 3.875% senior notes due October 31, 2028 (“2028 Notes”) to qualified purchasers in a private placement offering under Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States to non-U.S. purchasers pursuant to Regulation S under the Securities Act and other applicable laws. The 2028 Notes were issued by our wholly-owned subsidiary Primo Water Holdings Inc. The 2028 Notes are guaranteed by the Company and certain subsidiaries that are currently obligors under the Revolving Credit Facility and the $750.0 million of 5.500% senior notes due April 1, 2025. The 2028 Notes will mature on October 31, 2028 and interest is payable semi-annually on April 30th and October 31st of each year commencing on April 30, 2021. The proceeds of the 2028 Notes, along with borrowings from the Revolving Credit Facility, were used to redeem in full €450.0 million of 5.500% senior notes due July 1, 2024 (“2024 Notes") and pay related premiums, fees and expenses.
We incurred approximately $8.0 million of financing fees for the issuance of the 2028 Notes. The financing fees are being amortized using the effective interest method over an eight-year period, which represents the term to maturity of the 2028 Notes. The redemption of the 2024 Notes included $14.6 million in premium payments and accrued interest of $9.0 million.
On April 30, 2021, we issued $750.0 million of 4.375% senior notes due April 30, 2029 (“2029 Notes”) to qualified purchasers in a private placement offering under the Securities Act, and outside the United States to non-U.S. purchasers pursuant to Regulation S under the Securities Act and other applicable laws. The 2029 Notes were issued by our wholly-owned subsidiary Primo Water Holdings Inc. The 2029 Notes are guaranteed by the Company and certain subsidiaries that are currently obligors under the Revolving Credit Facility and the €450.0 million of 3.875% senior notes due October 31, 2028. The 2029 Notes will mature on April 30, 2029 and interest is payable semi-annually on April 30th and October 31st of each year commencing on October 31, 2021. The proceeds of the 2029 Notes, along with available cash on hand, were used to redeem in full the $750.0 million of 5.500% senior notes due April 1, 2025 ("2025 Notes") and pay related premiums, fees and expenses.
We incurred approximately $11.2 million of financing fees for the issuance of the 2029 Notes. The financing fees are being amortized using the effective interest method over an eight-year period, which represents the term to maturity of the 2029 Notes.
The redemption of the 2025 Notes included $20.6 million in premium payments, accrued interest of $3.6 million, and the write-off of $6.6 million in deferred financing fees.
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.
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    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 2020 Annual Report 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;
our exposure to intangible asset risk;
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, related government actions and the Company's strategy in response thereto 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;
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;
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;
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;
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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;
the impact on our tax obligations and effective tax rate arising from changes in local tax laws or countries adopting more aggressive interpretations of tax laws;
our ability to utilize tax attributes to offset future taxable income; 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 s