SEC Filings

Primo Water Corp /CN/ (Form: 10-Q, Received: 11/05/2020 13:28:57)
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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: September 26, 2020
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)
 

Canada   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 November 2, 2020
Common Shares, no par value per share   160,197,056



TABLE OF CONTENTS
 
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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 Nine Months Ended
  September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019
Revenue, net $ 517.5  $ 472.1  $ 1,448.5  $ 1,355.4 
Cost of sales 213.4  185.8  616.4  554.4 
Gross profit 304.1  286.3  832.1  801.0 
Selling, general and administrative expenses 257.2  244.2  759.0  725.7 
Loss on disposal of property, plant and equipment, net 2.3  1.1  6.2  4.7 
Acquisition and integration expenses 3.3  2.6  28.4  10.0 
Goodwill and intangible asset impairment charges   —  115.2  — 
Operating income (loss) 41.3  38.4  (76.7) 60.6 
Other (income) expense, net (4.8) 3.8  0.6  7.1 
Interest expense, net 20.4  20.2  60.8  58.3 
Income (loss) from continuing operations before income taxes 25.7  14.4  (138.1) (4.8)
Income tax expense (benefit) 3.4  7.1  (1.3) 7.9 
Net income (loss) from continuing operations $ 22.3  $ 7.3  $ (136.8) $ (12.7)
Net (loss) income from discontinued operations, net of income taxes (0.3) 2.8  26.3  7.5 
Net income (loss) $ 22.0  $ 10.1  $ (110.5) $ (5.2)
Net income (loss) per common share
Basic:
Continuing operations $ 0.14  $ 0.05  $ (0.89) $ (0.09)
Discontinued operations $   $ 0.02  $ 0.17  $ 0.05 
Net income (loss) $ 0.14  $ 0.07  $ (0.72) $ (0.04)
Diluted:
Continuing operations $ 0.14  $ 0.05  $ (0.89) $ (0.09)
Discontinued operations $   $ 0.02  $ 0.17  $ 0.05 
Net income (loss) $ 0.14  $ 0.07  $ (0.72) $ (0.04)
Weighted average common shares outstanding (in thousands)
Basic 160,101  134,667  153,723  135,395 
Diluted 161,433  136,208  153,723  135,395 

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

3

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

  For the Three Months Ended
For the Nine Months Ended
  September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019
Net income (loss) $ 22.0  $ 10.1  $ (110.5) $ (5.2)
Other comprehensive (loss) income:
    Currency translation adjustment (4.8) (0.8) (15.1) 6.3 
Income (loss) on derivative instruments, net of tax 1, 2
  (1.0) (11.2) 6.0 
Comprehensive income (loss) $ 17.2  $ 8.3  $ (136.8) $ 7.1 
______________________
1    Net of the effect of $3.0 million tax benefit for the nine months ended September 26, 2020 and $1.1 million tax benefit and $2.2 million tax expense for the three and nine months ended September 28, 2019, respectively.
2    Net of $1.3 million associated tax impact that resulted in a decrease to the gain on sale of discontinued operations for the nine months ended September 26, 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
September 26, 2020 December 28, 2019
ASSETS
Current assets
Cash and cash equivalents $ 161.9  $ 156.9 
Accounts receivable, net of allowance of $15.6 ($8.8 as of December 28, 2019)
275.1  216.7 
Inventories 79.3  62.9 
Prepaid expenses and other current assets 28.0  19.1 
Current assets of discontinued operations   186.7 
Total current assets 544.3  642.3 
Property, plant and equipment, net 669.9  558.1 
Operating lease right-of-use-assets 177.1  185.7 
Goodwill 1,258.9  1,047.5 
Intangible assets, net 982.0  597.0 
Other long-term assets, net 28.7  20.5 
Long-term assets of discontinued operations   339.8 
Total assets $ 3,660.9  $ 3,390.9 
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings $ 148.8  $ 92.4 
Current maturities of long-term debt 18.5  6.9 
Accounts payable and accrued liabilities 428.3  370.6 
Current operating lease obligations 38.3  36.5 
Current liabilities of discontinued operations   101.2 
Total current liabilities 633.9  607.6 
Long-term debt 1,306.5  1,259.1 
Operating lease obligations 144.9  155.2 
Deferred tax liabilities 140.3  90.6 
Other long-term liabilities 73.7  58.7 
Long-term liabilities of discontinued operations   53.5 
Total liabilities 2,299.3  2,224.7 
Shareholders' Equity
Common shares, no par value - 160,171,008 (December 28, 2019 - 134,803,211) shares issued
1,264.8  892.3 
Additional paid-in-capital 79.6  77.4 
Retained earnings 112.0  265.0 
Accumulated other comprehensive loss (94.8) (68.5)
Total shareholders' equity 1,361.6  1,166.2 
Total liabilities and shareholders' equity $ 3,660.9  $ 3,390.9 

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 Nine Months Ended
  September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019
Cash flows from operating activities of continuing operations:
Net income (loss) $ 22.0  $ 10.1  $ (110.5) $ (5.2)
Net (loss) income from discontinued operations, net of income taxes (0.3) 2.8  26.3  7.5 
Net income (loss) from continuing operations 22.3  7.3  (136.8) (12.7)
Adjustments to reconcile net income (loss) from continuing operations to cash flows from operating activities:
Depreciation and amortization 53.6  41.7  151.4  124.3 
Amortization of financing fees 0.9  0.9  2.7  2.6 
Share-based compensation expense 6.2  1.5  13.5  8.0 
Provision (benefit) for deferred income taxes 1.8  7.1  (2.6) 1.0 
(Gain) loss on sale of business   —  (0.6) 6.0 
Goodwill and intangible asset impairment   —  115.2  — 
Loss on disposal of property, plant and equipment, net 2.3  1.1  6.2  4.7 
Other non-cash items (2.8) 3.6  1.7  — 
Change in operating assets and liabilities, net of acquisitions:
Accounts receivable (48.6) (7.2) (38.5) (28.9)
Inventories 0.5  (2.5) 3.0  (6.8)
Prepaid expenses and other current assets (3.9) 0.3  (3.5) 0.6 
Other assets (0.3) 0.1  (0.9) 1.3 
Accounts payable and accrued liabilities and other liabilities 21.2  34.1  12.6  4.2 
Net cash provided by operating activities from continuing operations 53.2  88.0  123.4  104.3 
Cash flows from investing activities of continuing operations:
Acquisitions, net of cash received (1.2) (5.2) (435.7) (30.7)
Additions to property, plant and equipment (21.4) (32.9) (85.0) (79.2)
Additions to intangible assets (2.5) (3.1) (7.9) (5.9)
Proceeds from sale of property, plant and equipment 0.2  0.4  1.0  2.3 
Proceeds from sale of business, net of cash sold   —    50.5 
Other investing activities   0.4  1.1  0.4 
Net cash used in investing activities from continuing operations (24.9) (40.4) (526.5) (62.6)

6

Cash flows from financing activities of continuing operations:
Payments of long-term debt (2.3) (1.3) (7.6) (4.1)
Proceeds from short-term borrowings   1.2  323.9  64.1 
Payments on short-term borrowings (70.0) (1.2) (279.9) (63.1)
Issuance of common shares 1.2  0.2  2.0  0.9 
Common shares repurchased and canceled (0.2) (0.1) (32.3) (31.1)
Financing fees (0.6) —  (3.4) — 
Equity issuance fees   —  (1.1) — 
Dividends paid to common shareholders (9.6) (8.2) (29.9) (24.4)
Payment of deferred consideration for acquisitions   —  (1.2) (0.2)
Other financing activities 7.9  2.0  19.1  5.4 
Net cash used in financing activities from continuing operations (73.6) (7.4) (10.4) (52.5)
Cash flows from discontinued operations:
Operating activities of discontinued operations (0.7) (5.9) (18.7) 9.7 
Investing activities of discontinued operations (4.0) (3.0) 388.9  (26.2)
Financing activities of discontinued operations   (0.2) (0.1) (0.4)
Net cash (used in) provided by discontinued operations (4.7) (9.1) 370.1  (16.9)
Effect of exchange rate changes on cash 0.8  (0.9) (0.2) 0.5 
Net (decrease) increase in cash, cash equivalents and restricted cash (49.2) 30.2  (43.6) (27.2)
Cash and cash equivalents and restricted cash, beginning of period 211.1  113.4  205.5  170.8 
Cash and cash equivalents and restricted cash, end of period 161.9  143.6  161.9  143.6 
Cash and cash equivalents and restricted cash from discontinued operations, end of period   24.7    24.7 
Cash and cash equivalents and restricted cash from continuing operations, end of period $ 161.9  $ 118.9  $ 161.9  $ 118.9 
Supplemental Non-cash Investing and Financing Activities:
Shares issued in connection with business combination $   $ —  $ 377.6  $ — 
Dividends payable issued through accounts payable and accrued liabilities 0.1  —  0.3  0.1 
Additions to property, plant and equipment through accounts payable and accrued liabilities and other liabilities 13.1  13.3  14.7  17.0 
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest $ 16.2  $ 3.0  $ 54.8  $ 53.3 
Cash paid for income taxes, net 4.1  1.4  6.8  6.5 

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 June 27, 2020 160,019  $ 1,263.3  $ 75.2  $ 99.7  $ (90.0) $ 1,348.2 
Net income —  —  —  22.0  —  22.0 
Other comprehensive loss, net of tax —  —  —  —  (4.8) (4.8)
Common shares dividends ($0.06 per common share)
—  —  —  (9.7) —  (9.7)
Share-based compensation —  —  4.9  —  —  4.9 
Common shares repurchased and canceled (6) (0.1) —  —  —  (0.1)
Common shares issued - Equity Incentive Plan 117  1.2  (0.4) —  —  0.8 
Common shares issued - Employee Stock Purchase Plan 41  0.4  (0.1) —  —  0.3 
Balance at September 26, 2020 160,171  $ 1,264.8  $ 79.6  $ 112.0  $ (94.8) $ 1,361.6 
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 —  —  —  (110.5) —  (110.5)
Other comprehensive loss, net of tax —  —  —  —  (26.3) (26.3)
Common shares dividends ($0.18 per common share)
—  —  —  (29.2) —  (29.2)
Share-based compensation —  —  12.2  —  —  12.2 
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 (2,802) (22.6) —  (9.7) —  (32.3)
Common shares issued - Equity Incentive Plan 1,569  17.5  (12.6) —  —  4.9 
Common shares issued - Dividend Reinvestment Plan —  —  —  —  — 
Common shares issued - Employee Stock Purchase Plan 103  1.1  (0.3) —  —  0.8 
Balance at September 26, 2020 160,171  $ 1,264.8  $ 79.6  $ 112.0  $ (94.8) $ 1,361.6 


Number of
Common
Shares
(In thousands)
Common Shares Additional Paid-in-Capital Retained
Earnings
Accumulated Other Comprehensive Loss Total Shareholders' Equity
Balance at June 29, 2019 134,638  $ 890.0  $ 74.4  $ 263.1  $ (87.6) $ 1,139.9 
Net income —  —  —  10.1  —  10.1 
Other comprehensive loss, net of tax —  —  —  —  (1.8) (1.8)
Common shares dividends ($0.06 per common share)
—  —  —  (8.2) —  (8.2)
Share-based compensation —  —  1.7  —  —  1.7 
Common shares repurchased and canceled (4) (0.1) —  —  —  (0.1)
Common shares issued - Equity Incentive Plan 13  0.2  (0.2) —  —  — 
Common shares issued - Employee Stock Purchase Plan 24  0.4  (0.1) —  —  0.3 
Balance at September 28, 2019 134,671  $ 890.5  $ 75.8  $ 265.0  $ (89.4) $ 1,141.9 
Number of
Common
Shares
(In thousands)
Common Shares Additional Paid-in-Capital Retained
Earnings
Accumulated Other Comprehensive Loss Total Shareholders' Equity
Balance at December 29, 2018 136,195  $ 899.4  $ 73.9  $ 298.8  $ (101.7) $ 1,170.4 
Cumulative effect of changes in accounting principle, net of taxes —  —  —  10.5  —  10.5 
Net loss —  —  —  (5.2) —  (5.2)
Other comprehensive income, net of tax —  —  —  —  12.3  12.3 
Common shares dividends ($0.18 per common share)
—  —  —  (24.5) —  (24.5)
Share-based compensation —  —  8.5  —  —  8.5 
Common shares repurchased and canceled (2,215) (16.5) —  (14.6) —  (31.1)
Common shares issued - Equity Incentive Plan 618  6.5  (6.5) —  —  — 
Common shares issued - Dividend Reinvestment Plan —  —  —  —  — 
Common shares issued - Employee Stock Purchase Plan 70  1.1  (0.1) —  —  1.0 
Balance at September 28, 2019 134,671  $ 890.5  $ 75.8  $ 265.0  $ (89.4) $ 1,141.9 



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
    On March 2, 2020, Cott Corporation completed the acquisition of Primo Water Corporation (“Legacy Primo” and such transaction, the “Legacy Primo Acquisition”). In connection with the closing of the Legacy Primo Acquisition, Cott Corporation changed its corporate name to Primo Water Corporation and its ticker symbol on the New York Stock Exchange and Toronto Stock Exchange to “PRMW”. The Legacy Primo Acquisition is consistent with our strategy of transitioning to a pure-play water solutions provider.
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 pure-play water solutions provider in North America, Europe and Israel. Primo operates largely under a recurring razor/razorblade revenue model. The razor in Primo’s revenue model is its industry leading line-up of sleek and innovative water dispensers, which are sold through major retailers and online at various price points or leased to customers. The dispensers help increase household penetration, which drives recurring purchases of Primo’s razorblade offering. Primo’s razorblade offering is comprised of Water Direct, Water Exchange, and Water Refill. Through its Water Direct business, Primo delivers sustainable hydration solutions across its 21-country footprint direct to the customer’s door, whether at home or to commercial businesses. Through its Water Exchange and Water Refill businesses, Primo offers pre-filled and reusable containers at over 13,000 locations and water refill units at approximately 22,000 locations, respectively. Primo also offers water filtration units across its 21-country footprint representing a top five position.
Primo’s water solutions expand consumer access to purified, spring and mineral water to promote a healthier, more sustainable lifestyle while simultaneously reducing plastic waste and pollution. Primo is committed to its water stewardship standards and is proud to partner with 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. In the third quarter of 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 eight consecutive years.
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 December 28, 2019 included herein was derived from the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 28, 2019 (our “2019 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 2019 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.
9

Changes in Presentation
    On February 28, 2020, we completed the sale of our coffee, tea and extract solutions business, S. & D. Coffee, Inc. (“S&D”) for consideration of $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 the purchasers of S&D. As a result of this transaction representing a strategic shift in our operations, the Company has reclassified the financial results of our discontinued operations to net (loss) income from discontinued operations, net of income taxes in the Consolidated Statements of Operations for the three and nine months ended September 28, 2019. The assets and liabilities associated with S&D have been reflected as current and long-term assets and liabilities of discontinued operations in the Consolidated Balance Sheet as of December 28, 2019. Cash flows from our discontinued operations are presented in the Consolidated Statements of Cash Flows for the three and nine months ended September 28, 2019. The Notes to the Consolidated Financial Statements are presented on a continuing operations basis unless otherwise noted. See Note 2 to the Consolidated Financial Statements for additional information on discontinued operations.
On March 2, 2020, we completed the Legacy Primo Acquisition. This business was added to our North America reporting segment (described below).
During the second quarter of 2020, we implemented a restructuring program intended to optimize synergies from the Company’s transition to a pure-play water company following the Legacy Primo Acquisition and, as a result, reorganized into two reporting segments: North America (which includes our DS Services of America, Inc. (“DSS”), Aquaterra Corporation (“Aquaterra”), Mountain Valley Spring Company (“Mountain Valley”) and Legacy Primo businesses) and Rest of World (which includes our Eden Springs Nederland B.V. (“Eden”), Aimia Foods Limited (“Aimia”), Decantae Mineral Water Limited (“Decantae”) and John Farrer & Company Limited (“Farrers”) businesses). Our corporate oversight function and other miscellaneous expenses are aggregated and included in the All Other category. Segment reporting results have been recast to reflect these changes for all periods presented.
Impact of the COVID-19 Pandemic
The outbreak of the novel coronavirus (“COVID-19”) had a significant impact on our business, financial condition, results of operations and cash flows for the three and nine months ended September 26, 2020. In response to COVID-19, authorities in many of the markets in which we operate 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 how these measures and future measures in response to the pandemic will impact our business in the future, 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.
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 nine months ended September 26, 2020, we received wage subsidies under these programs totaling $2.6 million and $6.0 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 $3.1 million were included in accounts payable and accrued liabilities and $10.9 million were included in other long-term liabilities on our Consolidated Balance Sheet as of September 26, 2020.
During the nine months ended September 26, 2020, we recorded a total of $115.2 million of non-cash impairment charges related to goodwill and intangible assets. See goodwill and intangible asset impairment information below. The impairment charges were driven primarily by the impact of the COVID-19 pandemic and revised projections of future operating results. During the three months ended September 26, 2020, we did not identify any triggering events, and thus, there were no impairment charges recorded during the third quarter of 2020.
10

In addition, on June 11, 2020, we announced that our Board of Directors approved a plan intended to optimize synergies from the Company’s transition to a pure-play water company following the Legacy Primo Acquisition and to mitigate the negative financial and operational impacts of the COVID-19 pandemic, including implementing headcount reductions and furloughs in our North America and Rest of World reporting segments (“2020 Restructuring Plan”). When we implement these programs, we incur various charges, including severance, asset impairments, and other employment related costs. In connection with the 2020 Restructuring Plan, we expect to incur approximately $19.0 million in severance costs, all of which are expected to result in cash expenditures and are expected to be fully paid by the end of 2020. All costs incurred by the 2020 Restructuring Plan during the three and nine months ended September 26, 2020 are included in SG&A expenses on the Consolidated Statements of Operations.
The following table summarizes restructuring charges for the three and nine months ended September 26, 2020:

For the Three Months Ended For the Nine Months Ended
(in millions of U.S. dollars) September 26, 2020 September 26, 2020
North America $ 0.3  $ 2.6 
Rest of World —  6.6 
Total $ 0.3  $ 9.2 


The following table summarizes our restructuring liability as of September 26, 2020, along with charges to costs and expenses and cash payments:
Restructuring Liability
(in millions of U.S. dollars) Balance at December 28, 2019 Charges to Costs and Expenses Cash Payments Balance at September 26, 2020
North America $ —  $ 2.6  $ (2.6) $ — 
Rest of World —  6.6  (3.6) 3.0 
Total $ —  $ 9.2  $ (6.2) $ 3.0 

During the three and nine months ended September 26, 2020 we also incurred $1.3 million and $9.2 million, respectively, in other COVID-19 related costs. Other COVID-19 related costs primarily include front-line incentives paid and costs incurred for supplies.
Significant Accounting Policies
    Included in Note 1 of our 2019 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 $110.4 million and $330.2 million for the three and nine months ended September 26, 2020, respectively, and $127.2 million and $362.7 million for the three and nine months ended September 28, 2019, respectively. Finished goods inventory costs include the cost of direct labor and materials and the applicable share of overhead expense chargeable to production.
11

Allowance for Credit Losses
We estimate an allowance for credit losses based on historical loss experience, adverse situations that may affect a customer's ability to pay, current conditions, reasonable and supportable forecasts and current economic outlook. Customer demographics, such as large commercial customers as compared to small businesses or individual customers, and the customer’s geographic market are also considered when estimating credit losses. Historical loss experience was based on actual loss rates over a one year period. Additionally, we evaluate current conditions and review third-party economic forecasts on a quarterly basis to determine the impact on the allowance for credit losses. The assumptions used in determining an estimate of credit losses are inherently subjective and actual results may differ significantly from estimated reserves.
Goodwill
Goodwill represents the excess purchase price of acquired businesses over the fair value of the net assets acquired. We test goodwill for impairment at least annually on the first day of the fourth quarter, based on our reporting unit carrying values, calculated as total assets less non-interest bearing liabilities, as of the end of the third quarter, or more frequently if we determine a triggering event has occurred during the year. During the second quarter of 2020, given the general deterioration in economic and market conditions in which we operate arising from the COVID-19 pandemic, we identified a triggering event indicating possible impairment of goodwill and intangible assets, as further described below. We did not identify impairment of our property, plant and equipment, lease-related right-of-use assets, or long-lived assets.
The Company operates through two operating segments: North America and Rest of World. These two operating segments are also reportable segments. We evaluate goodwill for impairment on a reporting unit basis, which is an operating segment or a level below an operating segment, referred to as a component. A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and management regularly reviews the operating results of that component. However, two or more components of an operating segment can be aggregated and deemed a single reporting unit if the components have similar economic characteristics. Our North America operating segment was determined to have three components: DSS, Mountain Valley, and Aquaterra. We have determined that DSS and Aquaterra have similar economic characteristics and have aggregated them as a single reporting unit for the purpose of testing goodwill for impairment (“DSSAqua”). Our Rest of World operating segment was determined to have four components: Eden, Aimia, Decantae, and Farrers, none of which have similar economic characteristics. We have thus determined our reporting units are DSSAqua, Mountain Valley, Eden, Aimia, Decantae, and Farrers.
Due to the triggering event identified above arising from the impact of the COVID-19 pandemic, we first performed a qualitative assessment of goodwill to determine whether it was more likely than not that the fair value of these reporting units exceeded their respective carrying values. Based on this qualitative assessment, we determined that it was more likely than not that the fair value of our Eden, Aimia, Decantae, and Farrers reporting units did not exceed their respective carrying values. As a result, we performed an interim quantitative impairment test as of June 27, 2020 on these reporting units.
We determined the fair value of the reporting units being evaluated using a mix of the income approach (which is based on the discounted cash flows of the reporting unit) and the guideline public company approach. We weighted the income approach and the guideline public company approach at 50% each to determine the fair value of the reporting unit. We believe using a combination of these approaches provides a more accurate valuation because it incorporates the expected cash generation of the Company in addition to how a third-party market participant would value the reporting unit. As the business is assumed to continue in perpetuity, the discounted future cash flows includes a terminal value. Critical assumptions used in our valuation of the Eden reporting unit included the anticipated future cash flows, a weighted-average terminal growth rate of 1.5% and a discount rate of 9.5%. Critical assumptions used in our valuation of the Aimia, Decantae, and Farrers reporting units included a weighted-average terminal growth rate of 2.0% and a discount rate of 11.5%. The anticipated future cash flows assumption reflects projected revenue growth rates, SG&A expenses and capital expenditures. The terminal growth rate assumption incorporated into the discounted cash flow calculation reflects our long-term view of the market and industry, projected changes in the sale of our products, pricing of such products and operating profit margins. The discount rate was determined using various factors and sensitive assumptions, including bond yields, size premiums and tax rates. This rate was based on the weighted average cost of capital a market participant would use if evaluating the reporting unit as an investment. These assumptions are considered significant unobservable inputs and represent our best estimate of assumptions that market participants would use to determine the fair value of the respective reporting units. The key inputs into the discounted cash flow analysis were consistent with market data, where available, indicating that the assumptions used were in a reasonable range of observable market data.
12

Based on the quantitative assessment including consideration of the sensitivity of the assumptions made and methods used to determine fair value, industry trends and other relevant factors, we noted that the estimated fair value of the Aimia reporting unit exceeded its carrying value by approximately 23.5%. Therefore, no goodwill impairment charge was recorded for the Aimia reporting unit. Based on the quantitative assessment including consideration of the sensitivity of the assumptions made and methods used to determine fair value, industry trends and other relevant factors, we determined that goodwill was impaired for the Eden, Decantae, and Farrers reporting units and recognized impairment charges of $103.3 million, $0.3 million and $0.5 million, respectively. These impairment charges are included in goodwill and intangible asset impairment charges in the Consolidated Statement of Operations for the nine months ended September 26, 2020. During the three months ended September 26, 2020, we did not identify any triggering events, and thus, there were no impairment charges recorded during the third quarter of 2020.
The changes in the carrying amount of goodwill on a reporting segment basis for the nine months ended September 26, 2020, are as follows:
  Reporting Segment
(in millions of U.S. dollars) North America Rest of World Total
Balance at December 28, 2019
Goodwill $ 673.0  $ 374.5  $ 1,047.5 
Accumulated impairment losses —  —  — 
$ 673.0  $ 374.5  $ 1,047.5 
Goodwill acquired during the year 337.7  5.6  343.3 
Measurement period adjustments (38.8) 1.1  (37.7)
Impairment losses —  (104.1) (104.1)
Foreign exchange (0.4) 10.3  9.9 
Balance at September 26, 2020
Goodwill 971.5  391.5  1,363.0 
Accumulated impairment losses —  (104.1) (104.1)

$ 971.5  $ 287.4  $ 1,258.9 

Intangible Assets
Our intangible assets with indefinite lives relate to trademarks acquired in the acquisition of businesses, and there are no legal, regulatory, contractual, competitive, economic, or other factors that limit the useful life of these intangible assets. Our trademarks with indefinite lives are not amortized, but rather are tested for impairment at least annually or more frequently if we determine a triggering event has occurred during the year.
As a result of the triggering event described above arising from the impact of the COVID-19 pandemic, we also performed recoverability tests on our intangible assets, primarily trademarks, within each of our reporting segments as of June 27, 2020. We assessed qualitative factors to determine whether the existence of events or circumstances indicated that it was more likely than not that the fair value of our trademarks with indefinite lives were less than their respective carrying value. The qualitative factors we assessed included macroeconomic conditions, industry and market considerations, cost factors that would have a negative effect on earnings and cash flows, overall financial performance compared with forecasted projections in prior periods, and other relevant events, the impact of which are all significant judgments and estimates. Based on this qualitative assessment, we determined that impairment was more likely than not with the trademarks with indefinite lives associated with our Eden and Aquaterra businesses. As a result, we performed an interim quantitative impairment test as of June 27, 2020 on these intangible assets.
13

To determine the fair value of the trademarks with indefinite lives associated with our Eden and Aquaterra businesses, we use a relief from royalty method of the income approach, which calculates a fair value royalty rate that is applied to revenue forecasts associated with those trademarks. The resulting cash flows are discounted using a rate to reflect the risk of achieving the projected royalty savings attributable to the trademarks. The assumptions used to estimate the fair value of these trademarks are subjective and require significant management judgment, including estimated future revenues, the fair value royalty rate (which is estimated to be a reasonable market royalty charge that would be charged by a licensor of the trademarks) and the risk adjusted discount rate. Based on our impairment test, we determined the trademarks with indefinite lives associated with our Eden and Aquaterra businesses were impaired and recognized impairment charges of $9.9 million and $1.2 million, respectively. These impairment charges are included in goodwill and intangible asset impairment charges in the Consolidated Statement of Operations for the nine months ended September 26, 2020. During the three months ended September 26, 2020, we did not identify any triggering events, and thus, there were no impairment charges recorded during the third quarter of 2020.
Recently adopted accounting pronouncements
Update ASU 2016-13 – Financial Instruments—Credit Losses (Topic 326), Update ASU 2019-05 – Financial Instruments—Credit Losses—Targeted Transition Relief (Topic 326) and Update ASU 2019-11 – Codification Improvements to Financial Instruments—Credit Losses (Topic 326)
In June 2016, the Financial Accounting Standards Board (“FASB”) amended its guidance to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Entities will now use forward-looking information to better form their credit loss estimates. The amended guidance also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. In May 2019, the FASB amended the original guidance by providing an option to irrevocably elect the fair value option for certain financial instruments previously measured at amortized cost basis. In November 2019, the FASB provided additional guidance around how to report expected recoveries. For public entities, the amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted.
    Effective December 29, 2019, we adopted the guidance in this amendment using the modified retrospective transition method. The adoption of this new standard, with the impact being the increase in allowance for doubtful accounts related to our trade accounts receivable, resulted in a cumulative-effect adjustment of $3.6 million recognized to the opening balance of retained earnings. The Company will continue to actively monitor the impact of the COVID-19 pandemic on expected credit losses.
Update ASU 2018-13 – Fair Value Measurement (Topic 820)
    In August 2018, the FASB amended its guidance on disclosure requirements for fair value measurement. The update amends existing fair value measurement disclosure requirements by adding, changing, or removing certain disclosures. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The standard also allows for early adoption of any removed or modified disclosures upon issuance of this update while delaying adoption of the additional disclosures until their effective date. We adopted the guidance in this amendment effective December 29, 2019 prospectively. Adoption of the new standard did not have a material impact on our Consolidated Financial Statements.
Update ASU 2018-15 – Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40)
    In August 2018, the FASB amended its guidance on a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. This update aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This update also requires customers to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. The amendments in this update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. We adopted the guidance in this amendment effective December 29, 2019. Adoption of the new standard did not have a material impact on our Consolidated Financial Statements.
Update ASU 2019-04 – Codification Improvements to Topic 326—Financial Instruments—Credit Losses, Topic 815—Derivative and Hedging, and Topic 825—Financial Instruments
    In April 2019, the FASB amended its guidance to clarify and provide narrow-scope amendments for these three recent standards related to financial instruments accounting. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We adopted the guidance in this amendment effective December 29, 2019. Adoption of the new standard did not have a material impact on our Consolidated Financial Statements.
14

Update ASU 2019-12 – Income Taxes—Simplifying the Accounting for Income Taxes (Topic 740)
    In December 2019, the FASB amended its guidance to remove certain exceptions to the general principles in Topic 740 and improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments in this update are effective for fiscal years beginning after December 15, 2020, with early adoption permitted. We adopted the guidance in this amendment effective December 29, 2019. Adoption of the new standard did not have a material impact on our Consolidated Financial Statements.
Update ASU 2020-03 – Codification Improvements to Financial Instruments
    In March 2020, the FASB amended its guidance to clarify or improve the financial instrument topics in the existing guidance. These amendments make the guidance easier to understand and apply by eliminating inconsistencies and providing clarifications. Certain amendments in this update are effective upon issuance of this update. The remaining amendments in this update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. We adopted the guidance in this amendment effective December 29, 2019. Adoption of the new standard did not have a material impact on our Consolidated Financial Statements.
Recently issued accounting pronouncements
Update ASU 2018-14 – Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20)
In August 2018, the 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. We are currently assessing the impact of adoption of this standard on our Consolidated Financial Statements.
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 September 26, 2020, but will continue to evaluate the possible adoption of any such expedients or exceptions during the effective period as circumstances evolve.


Note 2Discontinued Operations
On February 28, 2020, the Company completed the sale of 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 Legacy Primo Acquisition. See Note 5 to the Consolidated Financial Statements for additional information on the Legacy Primo Acquisition.
15

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

For the Three Months Ended For the Nine Months Ended
(in millions of U.S. dollars) September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019
Revenue, net 1
$   $ 145.4  $ 97.1  $ 443.4 
Cost of sales   105.5  71.1  322.2 
Operating income (loss) from discontinued operations   3.2  (0.5) 9.7 
(Loss) gain on sale of discontinued operations (0.4) —  54.5  — 
Net (loss) income from discontinued operations, before income taxes (0.4) 3.2  53.9  9.6 
Income tax (benefit) expense 2
(0.1) 0.4  27.6  2.1 
Net (loss) income from discontinued operations, net of income taxes $ (0.3) $ 2.8  $ 26.3  $ 7.5 
______________________
1    Includes related party sales to continuing operations of $1.0 million for the nine months ended September 26, 2020, and $1.4 million and $4.5 million for the three and nine months ended September 28, 2019, respectively.
2    The S&D Divestiture resulted in tax expense on the gain on sale of $27.9 million and will utilize a significant portion of the existing U.S. net operating loss carry-forwards.


Note 3Leases
We have operating and finance leases for manufacturing and production facilities, branch distribution and warehouse facilities, vehicles and machinery and equipment. The remaining terms on our finance leases range from 1 year to 8 years while our operating leases range from 1 year to 21 years, some of which may include options to extend the leases generally between 1 year and 10 years, and some of which may include options to terminate the leases within 1 year.
The components of lease expense for the three and nine months ended September 26, 2020 and September 28, 2019, respectively, is shown in the table below:
For the Three Months Ended For the Nine Months Ended
(in millions of U.S. dollars) September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019
Operating lease cost $ 12.2  $ 12.9  $ 36.2  $ 35.8 
Short-term lease cost 2.6  1.4  6.6  2.7 
Finance lease cost
Amortization of right-of-use assets $ 3.1  $ 0.7  $ 7.4  $ 3.4 
Interest on lease liabilities 0.7  0.6  2.5  0.9 
Total finance lease cost $ 3.8  $ 1.3  $ 9.9  $ 4.3 
Sublease income $ 0.1  $ 0.2  $ 0.5  $ 0.7 

16

Supplemental cash flow information related to leases for the three and nine months ended September 26, 2020 and September 28, 2019, respectively, is shown in the tables below:

For the Three Months Ended
(in millions of U.S. dollars) September 26, 2020 September 28, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 11.8  $ 10.9 
Operating cash flows from finance leases 0.9  0.5 
Financing cash flows from finance leases 2.5  1.0 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases $ 4.9  $ 3.2 
Finance leases 8.5  2.6 

For the Nine Months Ended
(in millions of U.S. dollars) September 26, 2020 September 28, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 35.7  $ 35.1 
Operating cash flows from finance leases 2.6  0.8 
Financing cash flows from finance leases 6.3  2.8 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases $ 19.8  $ 11.2 
Finance leases 32.5  16.0 

    Supplemental balance sheet information related to leases as of September 26, 2020 and December 28, 2019, respectively, is shown in the table below:
(in millions of U.S. dollars, except lease term and discount rate) September 26, 2020 December 28, 2019
Operating leases
Operating lease right-of-use assets $ 177.1  $ 185.7 
Current operating lease obligations 38.3  36.5 
Operating lease obligations 144.9  155.2 
Total operating lease obligations $ 183.2  $ 191.7 
Financing leases
Property, plant and equipment, net $ 55.0  $ 30.4 
Current maturities of long-term debt 10.7  5.7 
Long-term debt 44.3  23.7 
Total finance lease obligations $ 55.0  $ 29.4 

Weighted Average Remaining Lease Term September 26, 2020 December 28, 2019
Operating leases 8.2 8.7
Finance leases 5.5 5.6
Weighted Average Discount Rate
Operating leases 6.6  % 6.2  %
Finance leases 5.3  % 6.3  %
17

    
Maturities of operating lease obligations were as follows:
(in millions of U.S. dollars) September 26, 2020 December 28, 2019
Remainder of 2020 $ 15.8  $ 47.8 
2021 43.5  38.4 
2022 33.9  29.6 
2023 29.3  25.3 
2024 23.8  20.6 
Thereafter 88.6  93.5 
Total lease payments 234.9  255.2 
Less imputed interest (51.7) (63.5)
Present value of lease obligations $ 183.2  $ 191.7 

Maturities of finance lease obligations were as follows:

(in millions of U.S. dollars) September 26, 2020 December 28, 2019
Remainder of 2020 $ 3.8  $ 6.8 
2021 12.9  6.1 
2022 11.9  5.7 
2023 10.9  5.4 
2024 9.3  4.6 
Thereafter 13.3  6.4 
Total lease payments 62.1  35.0 
Less imputed interest (7.1) (5.6)
Present value of lease obligations $ 55.0  $ 29.4 


Note 4—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 major 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 client arrangement, and revenue is recognized when the performance obligations in the client 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. Clients typically receive the benefit of our services as they are performed. Substantially all our client 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.
18

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 $8.4 million and $7.0 million at September 26, 2020 and December 28, 2019, 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 September 26, 2020 and December 28, 2019 were $20.4 million and $23.6 million, respectively. The amount of revenue recognized in the three and nine months ended September 26, 2020 that was included in the December 28, 2019 deferred revenue balance was $3.7 million and $17.5 million, respectively.
We do not have any material contract assets as of September 26, 2020.
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 Nine Months Ended
(in millions of U.S. dollars) September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019
United States $ 376.3  $ 314.8  $ 1,061.0  $ 910.0 
United Kingdom 33.7  35.9  101.8  124.2 
Canada 17.1  18.0  47.2  51.7 
All other countries 90.4  103.4  238.5  269.5 
Total
$ 517.5  $ 472.1  $ 1,448.5  $ 1,355.4 

Note 5—Acquisitions
Legacy Primo Acquisition
On March 2, 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 major retailers to the Company’s catalog of home and office bottled water delivery businesses in North America and Europe. Primo is a familiar name in sustainable water solutions that will help drive the visibility of our water businesses, moving us towards a pure-play water solutions company. The Legacy Primo Acquisition broadens our capabilities and our portfolio, creating new cross-selling opportunities and vertical integration across home and office delivery, retail, filtration, refill and exchange services. Integrating Legacy Primo with our DSS business will enable us to combine the expertise and innovation of these two growing companies with complementary business models. The integration gives us the ability to expand Legacy Primo’s products and services across our 21-country footprint.
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 Cott Corporation common shares plus cash in lieu of any fractional Cott Corporation common share, or (iii) $5.04 in cash and 0.6549 Cott Corporation 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, Cott Corporation indirectly acquired the remaining Legacy Primo shares through a merger between Legacy Primo and a wholly-owned subsidiary of Cott Corporation.
19


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 

The table below summarizes the originally reported estimated acquisition date fair values, measurement period adjustments recorded and the preliminary 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 21.9  —  21.9 
Inventory 12.7  6.0  18.7 
Prepaid expenses and other current assets 4.3  1.4  5.7 
Property, plant and equipment 119.0  (11.8) 107.2 
Operating lease right-of-use-assets 4.9  (0.9) 4.0 
Goodwill 337.4  (38.9) 298.5 
Intangible assets 361.3  60.3  421.6 
Other assets 3.9  (3.4) 0.5 
Current maturities of long-term debt (2.2) —  (2.2)
Accounts payable and accrued liabilities (41.6) (0.4) (42.0)
Current operating lease obligations (1.8) —  (1.8)
Long-term debt (5.8) 0.5  (5.3)
Operating lease obligations (3.1) 0.9  (2.2)
Deferred tax liabilities (11.7) (14.1) (25.8)
Other long-term liabilities (2.3) 0.4  (1.9)
Total $ 798.2  $ —  $ 798.2 

Measurement period adjustments recorded during the nine months ended September 26, 2020 include adjustments to property, plant and equipment and intangible assets based on results of the preliminary valuations, adjustments to operating and financing lease right-of-use assets and obligations based on a review of acquired leases, a deferred tax adjustment related to the preliminary valuation, an adjustment to a note receivable existing at the acquisition date, as well as adjustments to inventory, prepaid expenses and other current assets, other assets, accounts payable and accrued liabilities, long-term debt and other long-term liabilities based on a review of their respective fair values as of the date of the Legacy Primo Acquisition. The measurement period adjustments did not have a material effect on our results of operations in prior periods.
The assets and liabilities acquired in the Legacy Primo Acquisition are recorded at their estimated fair values per preliminary valuations and management estimates and are subject to change when formal valuations and other studies are finalized. Estimated fair values for deferred tax balances are preliminary and are also subject to change based on the final valuation results. In addition, consideration for potential loss contingencies are still under review.
20


The amount of revenues related to the Legacy Primo Acquisition included in our Consolidated Statement of Operations for the period from the date of the Legacy Primo Acquisition through September 26, 2020 was $198.7 million. We incurred $2.2 million and $23.9 million of acquisition-related costs associated with the Legacy Primo Acquisition, which are included in acquisition and integration expenses in the Consolidated Statements of Operations for the three and nine months ended September 26, 2020. During the third quarter of 2020, Legacy Primo was integrated with our DSS business, therefore it is impracticable to determine the amount of net income related to the Legacy Primo Acquisition included in our Consolidated Statement of Operations for the period from the date of the Legacy Primo Acquisition through September 26, 2020.
Intangible Assets
In our determination of the fair value of intangible assets, we consider, among other factors, the best use of acquired assets, analysis of historical financial performance and estimates of future performance of the acquired business’ products. The estimated fair values of identified intangible assets are calculated considering both market participant expectations, using an income approach, as well as estimates and assumptions provided by Primo management and management of the acquired business.
The estimated fair value of customer relationships represents future after-tax discounted cash flows that will be derived from sales to existing customers of the acquired business as of the date of acquisition. Critical assumptions used in our valuation of customer relationships include, but are not limited to, anticipated future cash flows, customer attrition rate and risk adjusted discount rate. Anticipated future cash flows assumption reflects projected revenue growth rates, EBITDA margins and synergies.
The estimated fair value of trademarks and trade names represents the future projected cost savings associated with the premium and brand image obtained as a result of owning the trademark or trade name as opposed to obtaining the benefit of the trademark or trade name through a royalty or rental fee. Critical assumptions used in our valuation of trademarks and trade names include, but are not limited to, projected revenue growth rates, weighted-average terminal growth rates, risk adjusted discount rate and fair value royalty rate.
The following table sets forth the components of identified intangible assets associated with the Legacy Primo Acquisition and their estimated weighted average useful lives:

(in millions of U.S. dollars) Estimated Fair Market Value Estimated Useful Life
Customer relationships $ 245.2  26 years
Trade names 174.9  Indefinite
Software 1.5  3 years
Total $ 421.6 

Goodwill
The principal factor that resulted in recognition of goodwill was the basis of the purchase price for the Legacy Primo Acquisition, in part, on cash flow projections assuming the reduction of administration costs and the integration of acquired customers and products into our operations, which is of greater value than on a standalone basis. The goodwill recognized as part of the Legacy Primo Acquisition was allocated to the North America reporting segment, a portion of which is expected to be tax deductible.
21


Supplemental Pro Forma Data (unaudited)
The following unaudited pro forma financial information for the three and nine months ended September 26, 2020 and September 28, 2019, respectively, 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 Nine Months Ended
(in millions of U.S. dollars, except per share amounts) September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019
Revenue $ 517.5  $ 546.0  $ 1,489.0  $ 1,556.3 
Net income (loss) from continuing operations $ 22.3  $ 12.6  $ (118.7) $ (18.3)
Net income (loss) $ 22.0  $ 15.4  $ (92.4) $ (10.8)
Net income (loss) per common share from continuing operations, diluted $ 0.14  $ 0.08  $ (0.77) $ (0.11)
Net income (loss) per common share, diluted $ 0.14  $ 0.09  $ (0.60) $ (0.07)



Note 6—Share-based Compensation
During the nine months ended September 26, 2020, we granted 118,059 common shares with an aggregate grant date fair value of approximately $1.3 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.
In the second quarter of 2020, the Human Resources and Compensation Committee of the Board of Directors (the “HRCC”) approved a bonus for a select group of associates that will be settled in fully vested common shares based on the closing share price on the date the achievement of the performance target described below is certified by the HRCC, expected to occur in early 2021. The aggregate target payout of $2.4 million is based on (1) attainment of a specified percentage target under the Company's annual cash performance bonus plan for the DSS business, and (2) attainment of a specified annualized 2020 synergy target. This bonus is being accounted for as a liability-classified award with a performance condition. The final bonus payout will be based upon the performance percentage, which can range from 0% to 200% of the target payout. For the three and nine months ended September 26, 2020, the Company recorded $1.4 million and $2.0 million of share-based compensation expense, which are included in SG&A expenses on the Consolidated Statements of Operations, respectively. A related liability associated with these awards of $2.0 million was recorded in accounts payable and accrued liabilities on the Consolidated Balance Sheet as of September 26, 2020.
On August 4, 2020, we amended each of the Amended and Restated Primo Water Corporation Equity Incentive Plan and the Primo Water Corporation 2018 Equity Incentive Plan to provide for defined criteria for a retirement along with continued vesting of equity awards upon a retirement. The total incremental compensation expense associated with the modification was $2.6 million and was included in SG&A expenses on the Consolidated Statements of Operations for the three and nine months ended September 26, 2020.


Note 7—Income Taxes
Income tax expense was $3.4 million on pre-tax income from continuing operations of $25.7 million for the three months ended September 26, 2020, as compared to income tax expense of $7.1 million on pre-tax income from continuing operations of $14.4 million in the comparable prior year period. Income tax benefit was $1.3 million on pre-tax loss from continuing operations of $138.1 million for the nine months ended September 26, 2020, as compared to income tax expense of $7.9 million on pre-tax loss from continuing operations of $4.8 million in the comparable prior year period. The effective income tax rates for the three and nine months ended September 26, 2020 were 13.2% and 0.9%, respectively, compared to 49.3% and (164.6)% in the comparable prior year periods.
The effective tax rate for the three months ended September 26, 2020 varied from the effective tax rate in the comparable prior year period due primarily to increased earnings in tax jurisdictions with lower tax rates or existing valuation allowances, combined with decreased earnings in higher tax jurisdictions. The effective tax rate for the nine months ended September 26, 2020 varied from the effective tax rate in the comparable prior year period due primarily to impairment charges incurred during the second quarter of 2020 for which minimal tax benefit is recognized.
22


    The Tax Cuts and Jobs Act enacted new Section 163(j) interest expense limitation rules on December 22, 2017. The rules were modified in March 2020 by the Coronavirus Aid, Relief, and Economic Security Act. On July 28, 2020, the U.S. Department of the Treasury released final regulations and new proposed regulations to provide interpretative guidance for the new Section 163(j) rules, with early adoption permitted. We will adopt the final regulations in our 2021 tax year and do not currently plan to early adopt the proposed regulations. We are currently assessing the final and proposed regulations. However, we do not anticipate a material impact on our Consolidated Financial Statements.


Note 8—Common Shares and Net Income (Loss) per Common Share
Common Shares
    On December 11, 2019, our Board of Directors approved a share repurchase program for up to $50.0 million of our outstanding common shares over a 12-month period commencing on December 16, 2019 (the “Repurchase Plan”). We did not repurchase any outstanding common shares under the Repurchase Plan during the third quarter of 2020. For the nine months ended September 26, 2020, we repurchased 2,316,835 common shares for $25.0 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 shares, if any, that will be repurchased under the Repurchase Plan in the future, or the aggregate dollar amount of shares to be purchased in future periods. We may discontinue purchases at any time, subject to compliance with applicable regulatory requirements.
On March 2, 2020, the Company completed the Legacy Primo Acquisition, with 26,497,015 common shares issued at $14.25 per share to holders of Legacy Primo (see Note 5 to the Consolidated Financial Statements).
23


Net Income (Loss) per Common Share
Basic net income (loss) per common share is calculated by dividing net income (loss) attributable to Primo Water Corporation by the weighted average number of common shares outstanding during the periods presented. Diluted net income (loss) per common share is calculated by dividing net income (loss) attributable to Primo Water Corporation 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 income (loss) per common share computations for the periods indicated:

  For the Three Months Ended For the Nine Months Ended
  September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019
Numerator (in millions of U.S. dollars):
Net income (loss) from continuing operations $ 22.3  $ 7.3  $ (136.8) $ (12.7)
Net (loss) income from discontinued operations (0.3) 2.8  26.3  7.5 
Net income (loss) 22.0  10.1  (110.5) (5.2)
Basic Earnings Per Share
Denominator (in thousands):
Weighted average common shares outstanding - basic 160,101  134,667  153,723  135,395 
Basic Earnings Per Share:
Continuing operations 0.14  0.05  (0.89) (0.09)
Discontinued operations   0.02  0.17  0.05 
Net income (loss) 0.14  0.07  (0.72) (0.04)
Diluted Earnings Per Share
Denominator (in thousands):
Weighted average common shares outstanding - basic 160,101  134,667  153,723  135,395 
Dilutive effect of Stock Options 916  686    — 
Dilutive effect of Performance-based RSUs 132  644    — 
Dilutive effect of Time-based RSUs 284  211    — 
Weighted average common shares outstanding - diluted 161,433  136,208  153,723  135,395 
Diluted Earnings Per Share:
Continuing operations 0.14  0.05  (0.89) (0.09)
Discontinued operations   0.02  0.17  0.05 
Net income (loss) 0.14  0.07  (0.72) (0.04)

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 Nine Months Ended
(in thousands) September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019
Stock Options 3,256  2,202  6,419  5,473 
Performance-based RSUs 1
786  527  925  1,215 
Time-based RSUs 5  490  358 
______________________
1     Performance-based RSUs represent the number of shares expected to be issued based primarily on the estimated achievement of cumulative pre-tax income targets for these awards.

24



Note 9—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, coffee, hot chocolate, soups, malt drinks, creamers/whiteners and cereals.
     During the second quarter of 2020, we implemented a restructuring program intended to optimize synergies from the Company’s transition to a pure-play water company following the Legacy Primo Acquisition and, as a result, reorganized into two reporting segments: North America (which includes our DSS, Aquaterra, Mountain Valley, and Legacy Primo businesses) and Rest of World (which includes our Eden, Aimia, Decantae, and Farrers businesses). Our corporate oversight function and other miscellaneous expenses are aggregated and included in the All Other category. Segment reporting results have been recast to reflect these changes for all periods presented.

(in millions of U.S. dollars) North America Rest of World All Other Total
For the Three Months Ended September 26, 2020
Revenue, net $ 393.2  $ 124.3  $   $ 517.5 
Depreciation and amortization 38.5  14.8  0.3  53.6 
Operating income (loss) 46.0  10.2  (14.9) 41.3 
Additions to property, plant and equipment 16.6  4.7  0.1  21.4 
For the Nine Months Ended September 26, 2020
Revenue, net $ 1,107.8  $ 340.7  $   $ 1,448.5 
Depreciation and amortization 107.1  43.4  0.9  151.4 
Operating income (loss) 94.1  (116.9) (53.9) (76.7)
Additions to property, plant and equipment 65.5  19.6  (0.1) 85.0 
As of September 26, 2020
Total assets 1
$ 2,753.2  $ 852.9  $ 54.8  $ 3,660.9 
______________________
1    Excludes inter segment receivables, investments and notes receivable.


(in millions of U.S. dollars) North America Rest of World All Other Total
For the Three Months Ended September 28, 2019
Revenue, net $ 337.6  $ 134.5  $ —  $ 472.1 
Depreciation and amortization 27.6  14.0  0.1  41.7 
Operating income (loss) 36.5  11.4  (9.5) 38.4 
Additions to property, plant and equipment 19.5  13.3  0.1  32.9 
For the Nine Months Ended September 28, 2019
Revenue, net $ 959.2  $ 389.0  $ 7.2  $ 1,355.4 
Depreciation and amortization 83.4  40.7  0.2  124.3 
Operating income (loss) 68.7  25.6  (33.7) 60.6 
Additions to property, plant and equipment 55.4  23.5  0.3  79.2 
As of December 28, 2019
Total assets 1
$ 1,874.5  $ 941.6  $ 48.3  $ 2,864.4 
______________________
1    Excludes inter segment receivables, investments and notes receivable.
25



(in millions of U.S. dollars) December 28, 2019
Segment assets 1
$ 2,864.4 
Assets of discontinued operations 1
526.5 
Total assets $ 3,390.9 
______________________
1    Excludes inter segment receivables, investments and notes receivable.

Credit risk arises from the potential default of a customer in meeting its financial obligations to us. Concentrations of credit exposure may arise with a group of customers that have similar economic characteristics or that are located in the same geographic region. The ability of such customers to meet obligations would be similarly affected by changing economic, political or other conditions.
The impact of the COVID-19 pandemic may affect the ability of such customers to meet obligations to us. The full extent to which the COVID-19 pandemic will negatively affect our results of operations, financial condition and cash flows will depend on future developments that are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in the markets in which we operate and other third parties in response to the pandemic.
Revenues by channel by reporting segment were as follows:

  For the Three Months Ended September 26, 2020
(in millions of U.S. dollars) North America Rest of World All Other Total
Revenue, net
Water Direct/Water Exchange $ 252.1  $ 60.2  $   $ 312.3 
Water Refill/Water Filtration 48.9  8.1    57.0 
Other Water 39.0  20.5    59.5 
Water Dispensers 28.5      28.5 
Other 24.7  35.5    60.2 
Total $ 393.2  $ 124.3  $   $ 517.5 


For the Nine Months Ended September 26, 2020
(in millions of U.S. dollars) North America Rest of World All Other Total
Revenue, net
Water Direct/Water Exchange $ 715.3  $ 160.3  $   $ 875.6 
Water Refill/Water Filtration 123.8  21.5    145.3 
Other Water 123.7  48.0    171.7 
Water Dispensers 55.2      55.2 
Other 89.8  110.9    200.7 
Total $ 1,107.8  $ 340.7  $   $ 1,448.5 


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For the For the Three Months Ended September 28, 2019
(in millions of U.S. dollars) North America Rest of World All Other Total
Revenue, net
Water Direct/Water Exchange $ 244.7  $ 69.5  $ —  $ 314.2 
Water Refill/Water Filtration 9.0  6.8  —  15.8 
Other Water 41.8  18.0  —  59.8 
Water Dispensers —  —  —  — 
Other 42.1  40.2  —  82.3 
Total $ 337.6  $ 134.5  $ —  $ 472.1 


For the Nine Months Ended September 28, 2019
(in millions of U.S. dollars) North America Rest of World All Other Total
Revenue, net
Water Direct/Water Exchange $ 680.9  $ 193.2  $ —  $ 874.1 
Water Refill/Water Filtration 26.7  19.7  —  46.4 
Other Water 123.1  45.6  —  168.7 
Water Dispensers —  —  —  — 
Other 128.5  130.5  7.2  266.2 
Total $ 959.2  $ 389.0  $ 7.2  $ 1,355.4 



Note 10—Inventories
The following table summarizes inventories as of September 26, 2020 and December 28, 2019:

(in millions of U.S. dollars) September 26, 2020 December 28, 2019
Raw materials $ 26.0  $ 23.8 
Finished goods 35.5  24.2 
Resale items 10.8  14.0 
Other 7.0  0.9 
Total $ 79.3  $ 62.9 



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Note 11—Property, Plant and Equipment, Net
The following table summarizes property, plant and equipment, net as of September 26, 2020 and December 28, 2019:
 
September 26, 2020 December 28, 2019
(in millions of U.S. dollars) Estimated Useful Life in Years Cost Accumulated Depreciation Net Cost Accumulated Depreciation Net
Land n/a $ 95.8  $   $ 95.8  $ 95.3  $ —  $ 95.3 
Buildings
10-40
91.6  30.5  61.1  88.9  26.9  62.0 
Machinery and equipment
5-15
87.8  21.4  66.4  146.8  66.0  80.8 
Plates, films and molds
1-10
1.7  0.8  0.9  1.5  0.6  0.9 
Vehicles and transportation equipment
3-15
92.3  65.4  26.9  90.3  59.5  30.8 
Leasehold improvements 1
19.3  11.6  7.7  19.8  10.7  9.1 
IT Systems
3-7
16.4  11.5  4.9  15.6  9.9  5.7 
Furniture and fixtures
3-10
12.0  9.5  2.5