UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019


~~FOR THE~~ ~~QUARTERLY PERIOD~~ ~~ENDED~~ ~~JUNE 30~~~~, 2019~~
OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~_____________________________~~

COMMISSION FILE NUMBER 001-34850

PRIMO WATER CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	82-1161432
(State of incorporation)	(I.R.S. Employer Identification No.)

101 North Cherry Street, Suite 501, Winston-Salem, NC 27101

(Address of principal executive office) (Zip code)

(336) 331-4000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which

registered

$0.001 Par Value Common Stock

PRMW

The NASDAQ Stock Market LLC

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 ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically, if any, 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 ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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. (Check one):

Large accelerated filer ☐ Accelerated filer ☑

Non-accelerated filer ☐ Smaller reporting company ☐

~~Emerging growth company ☐~~

Large accelerated filer ☐	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 Exchange Act). Yes ☐ No ☑

As of ~~August 2,~~November 1, 2019, there were ~~39,218,402~~39,235,209 shares of our Common Stock, par value $0.001 per share, outstanding.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)~~INCOME~~

CONDENSED CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS'~~STOCKHOLDERS’ EQUITY

Three Months Ended June 30, 2018

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Accumulated

Comprehensive

Stockholders’

Shares

Amount

Capital

Deficit

Loss

Equity

Balance, March 31, 2018
31,003 $ 31 $ 339,982 $ (272,542 ) $ (1,018 ) $ 66,453
Employee stock compensation plans
321 1 2,415 – – 2,416
Shares withheld for taxes related to net share settlement of equity awards
(3 ) – (35 ) – – (35 )
Exercise of common stock warrants
976 1 11,450 – – 11,451
Proceeds from equity offering, net of costs
5,339 5 70,786 – – 70,791
Reclassification of equity issuance costs previously capitalized
– – (171 ) – – (171 )
Net income
– – – 451 – 451
Other comprehensive loss
– – – – (253 ) (253 )
Balance, June 30, 2018
37,636 $ 38 $ 424,427 $ (272,091 ) $ (1,271 ) $ 151,103

Three Months Ended September 30, 2018
													Accumulated
							Additional						Other			Total
	Common Stock						Paid-in			Accumulated			Comprehensive			Stockholders’
	Shares			Amount			Capital			Deficit			Loss			Equity
Balance, June 30, 2018		37,636		$	38		$	424,427		$	(272,091	)	$	(1,271	)	$	151,103
Employee stock compensation plans		413			1			929			–			–			930
Shares withheld for taxes related to net share settlement of equity awards		(129	)		(1	)		(2,652	)								(2,653	)
Exercise of common stock warrants		607			1			698									699
Net loss											(58,238	)					(58,238	)
Other comprehensive income		–			–			–			–			160			160
Balance, September 30, 2018		38,527		$	39		$	423,402		$	(330,329	)	$	(1,111	)	$	92,001

	Six Months Ended June 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Cash flows from operating activities:
Net (loss) income	$	(399	)	$	1,661
Net income (loss)							$	2,224		$	(56,577	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		13,845			12,171			21,499			18,365
Loss on disposal of property and equipment and other		327			244
Impairment charges and other								109			68,184
Stock-based compensation expense		2,493			2,679			3,479			2,710
Non-cash interest expense		170			2,445			1,005			2,547
Bad debt expense		53			170			78			170
Deferred income tax benefit		–			(6,496	)		–			(8,907	)
Realized foreign currency exchange (gain) loss and other, net		(200	)		399			(364	)		338
Changes in operating assets and liabilities:
Accounts receivable		(5,426	)		(5,065	)		(7,886	)		(5,724	)
Inventories		(3,762	)		(1,638	)		(1,907	)		(3,431	)
Prepaid expenses and other current assets		215			(1,126	)		(185	)		(618	)
Operating lease right-of-use assets		560			–			862			–
Book overdraft								1,144			1,023
Accounts payable		2,624			5,248			4,832			6,523
Accrued expenses and other current liabilities		(1,117	)		(513	)		(1,004	)		(796	)
Operating lease liabilities		(518	)		–			(816	)		–
Net cash provided by operating activities		8,865			10,179			23,070			23,807

Cash flows from investing activities:
Purchases of property and equipment, net		(12,429	)		(8,208	)		(18,484	)		(14,200	)
Purchases of bottles, net of disposals		(1,767	)		(1,117	)		(3,314	)		(1,596	)
Proceeds from the sale of property and equipment		129			154			855			227
Proceeds from the sale of Ice Assets		400			–			400			–
Proceeds from redemption of investment in Glacier securities		–			3,648			–			6,277
Acquisitions, net cash acquired								(6,283	)		–
Additions to intangible assets		(25	)		(12	)		(29	)		(975	)
Net cash used in investing activities		(13,692	)		(5,535	)		(26,855	)		(10,267	)

Cash flows from financing activities:
Borrowings under Revolving Credit Facilities		29,000			29,000			44,000			29,000
Payments under Revolving Credit Facilities		(18,900	)		(22,000	)		(33,000	)		(29,000	)
Borrowings under Term loans		–			190,000			–			190,000
Payments under Term loans		(4,750	)		(184,140	)		(7,125	)		(186,515	)
Payments upon redemption of Junior Subordinated Debentures		–			(87,629	)		–			(87,629	)
Finance lease payments		(1,186	)		(818	)		(2,219	)		(1,190	)
Proceeds from common stock issuance, net of costs		–			70,791			–			70,791
Proceeds from warrant exercises, net		68			9,486			68			12,150
Stock option and employee stock purchase activity		526			1,322			762			1,589
Bank overdraft		1,032			–
Payments for taxes related to net share settlement of equity awards		(3,994	)		(8,361	)		(4,009	)		(11,013	)
Debt issuance costs and other		–			(1,640	)		–			(1,671	)
Net cash provided by (used in) financing activities		1,796			(3,989	)
Net cash used in financing activities								(1,523	)		(13,488	)

Effect of exchange rate changes on cash and cash equivalents		7			(19	)		28			(8	)
Net (decrease) increase in cash and cash equivalents		(3,024	)		636			(5,280	)		44
Cash and cash equivalents, beginning of year		7,301			5,586			7,301			5,586
Cash and cash equivalents, end of period	$	4,277		$	6,222		$	2,021		$	5,630

Supplemental cash flow information:
Promissory note received in exchange for sale of ice assets	$	3,278		$	–		$	3,294		$	–
Cash paid for interest							$	2,487		$	2,340

1.	1. Description of Business and Significant Accounting Policies

Business

Unaudited Interim Financial Information

The accompanying interim condensed consolidated financial statements and notes have been prepared in accordance with our accounting practices described in our audited consolidated financial statements as of and for the year ended December 31, 2018. In the opinion of management, the unaudited interim condensed consolidated financial statements included herein contain all adjustments necessary to present fairly our financial position, results of operations and cash flows for the periods indicated. Such adjustments, other than nonrecurring adjustments that have been separately disclosed, are of a normal, recurring nature. The operating results for interim periods are not necessarily indicative of results to be expected for a full year or future interim periods. The unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes as of and for the year ended December 31, 2018 as filed on Form 10-K (the “2018 Form 10-K”). The accompanying interim condensed consolidated financial statements are presented in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and, accordingly, do not include all the disclosures required by generally accepted accounting principles in the United States (“U.S. GAAP”) with respect to annual audited financial statements. Significant accounting policies are summarized in our 2018 Form 10-K.

Reclassifications

Certain amounts reported previously have been reclassified with no effect on stockholders’ equity or net income (loss) as previously reported. These classifications, the effect of which is not material to the prior period financial statements, relate to the reclass of bank overdraft in financing activities to book overdraft in operating activities within the condensed consolidated statements of cash flows.

Recently Issued Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40). This update aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The update is effective for fiscal years beginning after December 15, 2019, and interim periods within that reporting period. Early adoption is permitted. We are currently in the process of evaluating the impact of adopting this guidance on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements. The update is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019 and early adoption is permitted. We are currently in the process of evaluating the impact of adopting this guidance on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The updated guidance eliminates step two of the goodwill impairment test and specifies that goodwill impairment should be measured by comparing the fair value of a reporting unit with its carrying amount. Additionally, the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets should be disclosed. The update is effective for annual or interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019; early adoption is permitted. We currently anticipate that adoption of the guidance will not have a material impact on our consolidated financial statements.

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In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, along with subsequent amendments to the initial guidance in ASU 2018-19, 2019-04 and 2019-05 (collectively, Topic 326) which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ~~ASU 2016-13~~Topic 326 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. We will adopt ASU 2016-13 effective January 1, 2020 with the cumulative effect of adoption recorded as an adjustment to retained earnings. ~~The effect~~We currently anticipate that adoption of the guidance will not have a material impact on our consolidated financial ~~statements will largely depend on the composition and credit quality of our trade receivables at the time of adoption.~~statements.

Recently Adopted Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815) – Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. ASU 2018-16 is intended alleviate concerns about the sustainability of the London Inter-Bank Offered Rate (“LIBOR”), allowing SOFR to be considered eligible as a benchmark interest rate for purposes of applying hedge accounting under Topic 815. The adoption of the standard in the second quarter of 2019 did not have an impact on our consolidated financial statements as LIBOR will continue to be used until it is phased out by financial institutions.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) along with subsequent amendments to the initial guidance in ASU 2017-13, ASU 2018-10, ASU 2018-11 and ASU ~~2018-11~~2019-1 (collectively, Topic 842) requiring lessees to recognize for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (2) a right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

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We adopted Topic 842 effective January 1, 2019. The effects of adopting Topic 842 were the recognition of $4.2 million of operating lease right-of-use assets and $4.1 million of operating lease liabilities. We applied Topic 842 to all contracts conveying the right to control the use of identified property, plant, or equipment as of January 1, 2019, with comparative periods continuing to be reported under Topic 840 in accordance with the alternative transition method. In the adoption of Topic 842, we elected the package of practical expedients allowing us to carry forward the assessment from Topic 840 of whether our contracts contain or are leases, as well as, the classification and initial direct costs for any expired or existing leases. We also elected the practical expedient allowing us to use hindsight when determining the lease term and assessing impairment of right-of-use assets. For short-term leases with an initial term of 12 months or less, we have made an accounting policy election whereby a right-of-use asset and lease liability is not recognized. Lease expense for short-term leases is recognized on a straight-line basis over the lease term. A portion of our leases contain lease and non-lease components in the form of maintenance and utilities. We have elected to combine non-lease and lease components and treat them as a single lease component, which increases the amount of our lease assets and corresponding liabilities. We implemented a lease management system to assist in centralizing, maintaining and accounting for all leases to ensure compliance with Topic 842 reporting and disclosure requirements. Our accounting for finance leases remains substantially unchanged. The standard did not have a significant impact on our condensed consolidated statements of operations or our condensed consolidated statements of cash flows. See “Note 35 – Leases” for further details.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 is intended to better align the Company's risk management activities with financial reporting for hedging relationships. The standard eliminates the requirement to separately measure and report hedge ineffectiveness, expands the ability to hedge specific risk components, and generally requires the change in value of the hedge instrument and hedged item to be presented in the same income statement line. We adopted ASU 2017-12 in the second quarter of 2019 upon entering into an interest rate swap on our variable rate term loan. The new disclosure requirements were applied on a prospective basis. The adoption of the standard did not have a material impact on our consolidated financial statements.

2.	2. Revenue Recognition

Sales of Products

We earn revenue from contracts with customers, primarily through the sale of our purified, multi-gallon bottled water, self-service filtered drinking water, or through the sale of water dispensers. All revenue recognized in the current period is derived from contracts with customers. We account for these revenues under Topic 606.

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In certain arrangements, depending on the nature and scope of the contract, our customer may be identified as the end consumer as we are interacting directly with the consumer via an implied contract upon the dispensing of self-service purified ~~water.~~water or the purchase of a dispenser (either online or in a physical retail location). In other arrangements, our customer may be identified as the retailer, as we enter into contracts with retailers to resell purified multi-gallon bottled water or self-service filtered drinking water to the end consumer on our behalf. Our arrangements may also include standalone purchase orders from retailers to sell water dispensers. In such arrangements, the retailer is our customer.

Our performance obligations vary by business segment. Our performance obligations may include the delivery of purified water, the sale of the related bottle, or the sale of a water dispenser. In some instances, our sales arrangements may include multiple of the aforementioned performance obligations.

Our arrangements may include the shipping of products to our customers after the performance obligation related to that product has been satisfied. For such arrangements when shipping and handling activities are performed subsequent to the performance obligation being satisfied, we have elected to account for shipping and handling as activities to fulfill the promise to transfer goods. In such instances, we recognize shipping and handling costs at the same time as we recognize revenue.

We have no contractual obligation to accept returns nor do we guarantee sales. We may accept returns or issue credits for manufacturer defects or for items that were damaged in transit. We recognize revenue net of an estimated allowance for returns based on historical average return rates.

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Typically, the transaction price of our products is fixed as agreed upon in our contracts with customers. Our arrangements may include variable consideration in the form of volume incentive agreements or coupon programs. We provide sales incentives to certain retailers in the form of a volume rebate to promote the sale of our products. Generally, the rebates are tiered, such that as sales increase, the rebate percentage increases. We estimate the expected amount of these rebates based on historical sales volume at the time of the original sale. We update our assessment of the amount of rebates that will be earned either quarterly or annually based on our best estimate of the volume levels the customer will reach during the measurement period. We also may include a redeemable coupon for the purchase of purified, multi-gallon bottled water upon the purchase of one of our products. We account for the coupons based on historical redemption rates. The customer’s right to redeem the coupon for a free purified, multi-gallon bottle of water is exercised at or near the purchase of our products such that it does not create a material timing difference in the recognition of revenue.

Our sales arrangements may involve collecting revenue directly from the end consumer. Tax on filtered water dispensed from a vended machine is exempt in several jurisdictions. For those remaining jurisdictions in which taxes are not exempt, we have analyzed our contracts with customers, concluding that we are the primary obligor to the respective taxing authority, and as such present sales tax charged to the end consumer utilizing the gross method.

We recognize revenue on the products we sell at a point in time. The delivery of purified water and sale of the related bottle are completed via a point-of-sale transaction at which time the customer obtains control and remits payment for the product. The shipment of a water dispenser to our customer reflects the transfer of control. We may grant credit limits and terms to customers based upon traditional practices and competitive conditions. In such instances, the terms may vary, but payments are generally due in 30 days or less from the invoicing date. Due to the point-of-sale nature of our products, we have not recognized revenue in the current period for performance obligations satisfied in previous reporting periods and have no unsatisfied performance obligations as of the end of the current period.

Multiple Performance Obligations

Our sales arrangements may include multiple performance obligations. We identify each of the performance obligations in these arrangements and allocate the total transaction price to each performance obligation based on its identified relative selling price. In such arrangements, all of the performance obligations are met simultaneously as our products are concurrently delivered and have the same pattern of transfer to the customer. Thus, revenue is recognized simultaneously for each performance obligation when the customer obtains control of the product.

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Presentation of Revenue

Our arrangements may involve another party selling products to our customers. We partner with retailers to place our self-service filtered water dispensing machines in their stores. We pay retailers a commission on the amount of sales generated from our products. We evaluate whether we control the products before they are transferred to the customer. In such instances where we control our products prior to transferring them to the customer, we are the principal in the transaction and record revenue at the gross amount and record commission paid to retailers as cost of sales. If we conclude that we do not control the products, we are the agent in the transaction and record revenue net of commissions paid to retailers.

Accounts Receivable Net of Allowances

Trade accounts receivable represent amounts billed to customers and not yet collected, and are presented net of allowances. The allowance for doubtful accounts is based on a review of specifically identified accounts in addition to an overall aging analysis and is our best estimate of the amount of probable credit losses in our existing accounts receivable. Judgements are made with respect to the collectability of accounts receivable based on historical experience and current economic trends. We also maintain an allowance for sales discounts, rebates and promotions based on our arrangements with customers. Account balances are charged off against the allowance in the period in which we determine that it is probable the receivable will not be recovered. These allowances totaled ~~$1,977~~$2,515 and $1,755 at ~~June~~September 30, 2019 and December 31, 2018, respectively. Bad debt write-offs for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 were immaterial.

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Disaggregation of Revenue

The tables below present our consolidated net sales by geographic area.

									Three months ended September 30, 2019
	Three months ended June 30, 2019								Refill		Exchange		Dispensers		Total
Geographical area	Refill		Exchange		Dispensers		Total
United States	$	41,506	$	20,169	$	14,789	$	76,464	$	43,743	$	23,282	$	17,660	$	84,685
Canada		770		834		1,193		2,797		732		952		598		2,282
	$	42,276	$	21,003	$	15,982	$	79,261	$	44,475	$	24,234	$	18,258	$	86,967

3.	Impairment Charges and Other

	Three months ended September 30,					Nine months ended September 30,
	2019			2018		2019		2018
Impairment of Glacier trade name intangible	$	–		$	60,750	$	–	$	60,750
Impairment of property and equipment		–			2,363		–		2,363
Impairment of Ice assets held-for-sale		–			4,586		–		4,586
(Gain) loss on property and equipment and other		(217	)		241		109		485
Total	$	(217	)	$	67,940	$	109	$	68,184

During the third quarter ended September 30, 2018, we decided to discontinue the use of the Glacier Water Services, Inc. (“Glacier”) trade name acquired as part of the acquisition of Glacier (the “Acquisition”) in December 2016, in order to more effectively and efficiently focus our brand building and marketing efforts in Refill around the Primo brand (the “Re-branding Strategy”). In connection with the initial accounting for the Acquisition, $62,900 of the purchase price was allocated to the indefinite-lived trade name related to the Refill segment. As a result of the Re-branding Strategy, as of September 30, 2018, we recorded a pre-tax, non-cash intangible asset impairment charge of $60,750 to reduce the carrying value of the trade name to its estimated fair value, which is recorded in impairment charges and other on the condensed consolidated statements of operations. The fair value of the trade name was estimated based on the future discounted cash flows expected to be generated under the trade name prior to its complete phase-out. Based on the change in circumstances arising from the Re-branding Strategy, the Glacier trade name was determined to have a finite life and will be amortized straight line over 18 month useful life, in-line with the expected roll-out of the Re-Branding Strategy. The following table provides a rollforward of the discontinued Glacier trade name:

	Glacier
	Trade Name
	Intangible
Balance at December 31, 2018	$	2,150
Amortization		717
Balance at September 30, 2019	$	1,433

In addition, as a result of the Re-branding Strategy, during the third quarter ended September 30, 2018, we recorded a pre-tax, non-cash asset impairment charge of $2,363 to reduce the carrying value of property and equipment to its estimated fair value associated with certain Glacier-branded Refill equipment that is not expected to generate future cash flows sufficient to recover the net book value of the equipment. The fair value was estimated based on the undiscounted cash flows expected to be produced by the property and equipment. The impairment charge is recorded in impairment charges and other on the condensed consolidated statements of operations.

4.	Acquisition

On August 30, 2019, we acquired a 100% equity interest in Avant Premium Water & Ice (“Avant”), a provider of high-quality drinking water dispensed to consumers through self-service water kiosks located in parking lots at supermarkets and other retail locations. We believe that the acquisition provides expansion to new geographic locations and a complimentary business model that can be expanded in the future.

Aggregate consideration in connection with the acquisition was cash of $6,533, including approximately $35 recorded in accrued expenses and other current liabilities in our condensed consolidated balance sheet.

We have recorded the assets purchased and liabilities assumed at their estimated fair value in accordance with FASB ASC Topic 805: Business Combinations. The purchase price exceeded the fair value of the net assets acquired resulting in goodwill of $2,787, attributable to expected financial synergies, the capture of additional market share, and expanded business model. The identifiable definite-lived intangible assets consist of customer lists and Avant trade name and will be amortized over seven years and two years, respectively.

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The purchase price has been allocated to the assets acquired in the Avant acquisition as follows:

	Purchase Price Allocation
Cash and cash equivalents	$	250
Prepaid expenses and other current assets		25
Property and equipment		2,989
Intangible assets		482
Goodwill		2,787
Aggregate purchase price	$	6,533

The estimated fair values are subject to refinement during the measurement period (which is no longer than one year after the closing date of the acquisition), as additional information regarding closing date fair value becomes available. During the measurement period, the causes of any changes in cash flow estimates are considered to determine whether the change results from circumstances that existed at the acquisition date or if the change results from an event that occurred after the date of acquisition.

Leases

We determine if an arrangement is a lease or service contract at inception. Where an arrangement is a lease we determine if it is an operating lease or a finance lease. Subsequently, if the arrangement is modified we reevaluate our classification. We have entered into finance lease agreements for vehicles with lease periods expiring between 2019 and 2024. We have entered into operating lease agreements primarily for buildings and equipment expiring between 2019 and 2028. As part of the Avant acquisition, we have entered into operating lease agreements for use of space within parking lots expiring between 2019 and 2024. Our short-term leases are typically in the form of storage units with month-to-month terms located throughout the United States.

At lease commencement, we record a lease liability and corresponding right-of-use asset. Lease liabilities represent the present value of our future lease payments over the expected lease term which includes options to extend or terminate the lease when it is reasonably certain those options will be exercised. We generally use the base, non-cancellable lease term to determine lease assets and liabilities. The interest rate implicit in our leases is not readily determinable and as such, the present value of our lease liability is determined using our incremental collateralized borrowing rate under the SunTrust Revolving Facility, which approximates the interest rate on a collateralized basis under similar terms as our underlying leased assets. Operating lease assets also include prepaid lease payments and lease incentives when present.

Operating lease right-of-use assets and liabilities are included on our Condensed Consolidated Balance Sheet beginning January 1, 2019. As of ~~June~~September 30, 2019, the current portion of our operating lease liabilities of ~~$1,524~~$1,864 are presented within accrued expenses and other current liabilities. As of ~~June~~September 30, 2019, the long-term portion of our operating lease liabilities of ~~$2,134~~$3,192 is presented within operating leases.

Finance lease right-of-use assets are presented within property and equipment, net. As of ~~June~~September 30, 2019 and December 31, 2018, vehicles under finance lease with a cost basis of ~~$11,196~~$11,287 and $7,408, respectively, were included in property and equipment, net. As of ~~June~~September 30, 2019, the current portion of our finance lease liabilities of ~~$2,014 are~~$2,063 is presented within current portion of long-term debt and finance leases. As of ~~June~~September 30, 2019 the long term portion of our finance lease liabilities of ~~$4,867 are~~$5,043 is presented within long-term debt and finance leases, net of current portion and debt issuance costs.

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Components of operating lease expense recorded in cost of sales and selling, general and administrative expenses on the condensed consolidated statements of operations were as follows:

			Three months ended September 30, 2019
	Three months ended June 30, 2019
Long-term Operating	$	436	$	478
Short-term Operating		130		126
Total Operating lease expense	$	566	$	604

As of ~~June~~September 30, 2019, our operating leases had a weighted average remaining lease term of ~~3.7~~4.8 years and a weighted average discount rate of 4.76%. Future lease payments under operating leases as of ~~June~~September 30, 2019 were as follows:

Supplemental information related to amount of cash paid on operating ~~leases~~lease liability was as follows:

6.	4. Ice Assets Held-for-Sale and Promissory Note

During the quarter ended September 30, 2018, we concluded that a sale of certain assets of our Refill segment (the “Ice Assets”) was probable to take place within one year, which meets the criteria for assets held-for-sale treatment in accordance with FASB ASC Topic 360, Property, Plant, and ~~Equipment. There have been no changes to the estimated fair value of the Ice Assets since December 31, 2018.~~Equipment. The Ice Assets fair value less costs to sell at December 31, 2018 was as follows:

	December 31,
	2018
Property and equipment, net	$	4,688
Identifiable intangible assets		600
Assets held-for-sale at fair value	$	5,288

Contingent consideration	$	1,438
Liabilities held-for-sale at fair value	$	1,438
Ice Assets, net	$	3,850

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On June 28, 2019, we sold the Ice Assets to a buyer in exchange for cash consideration of $400 and a promissory note of $3,600. The note has a five-year term and requires the buyer to make quarterly principal payments of $50 and quarterly interest payments at an annual interest rate of 7%. At the end of the five-year term of the note, the entire remaining outstanding principal amount is due and payable in full. Under the terms of the note, the buyer, under certain circumstances may make elections that would allow for a reduction in the interest rate and principal amount upon the prepayment of amounts owed under the promissory note. The note was recorded at its fair value of $3,278 which was measured based upon the present value of estimated future cash flows taking into consideration the terms and non-market interest rate of the note. As of ~~June~~September 30, 2019, the current portion of the note of ~~$150~~$200 is presented within prepaid expenses and other assets, and the non-current portion of ~~$3,128~~$3,094 is presented as a promissory note on the condensed consolidated balance sheet.

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The buyer is not a related party and our continuing involvement following the sale will be minimal. The sale of the Ice Assets resulted in a loss of $580 for the ~~three and six~~nine months ended ~~June~~September 30, 2019 presented within ~~loss on disposal of property and equipment~~impairment charges and other.

On June 22, 2018, we entered into a senior secured credit facility (the “SunTrust Credit Facility”) that provides for a $190,000 senior term loan facility (the “Term Loan”) and a $30,000 senior revolving loan facility (the “Revolving Facility”). SunTrust Bank serves as the Administrative Agent, Swingline Lender and Issuing Bank under the SunTrust Credit Facility. The SunTrust Credit Facility matures on June 22, 2023. The Term Loan requires annual principal payments (payable in quarterly installments) equal to 5% per annum, or $9,500, with the remaining indebtedness due at maturity. The SunTrust Credit Facility is secured by a first priority security interest in and lien on substantially all of our assets. The SunTrust Credit Facility and related obligations are guaranteed by certain of our domestic subsidiaries.

Interest on outstanding borrowings under the SunTrust Credit Facility is calculated at our option at either (1) a base rate (which is derived from the Administrative Agent’s prime lending rate, the federal funds effective rate plus 0.5%, or a ~~London Interbank Offered Rate (“LIBOR”)~~LIBOR plus 1.0%) or (2) LIBOR plus, in each case of the foregoing (1) and (2), a margin, initially set at 2.50% per annum with respect to LIBOR loans and 1.50% per annum for base rate loans. A commitment fee, initially set at 0.30% per annum, ranging from 0.15% to 0.30% per annum, is payable quarterly on the average undrawn portion of the Revolving Facility. The margins and commitment fee fluctuate based on our consolidated leverage ratio as specified in the SunTrust Credit Facility. Total issuance costs associated with the SunTrust Credit Facility were $1,700, which have been presented either as a direct deduction from the carrying amount of the debt within long-term debt and finance leases, net of current portion and debt issuance costs, with respect to costs attributable to the Term Loan, or within other assets, with respect to costs attributable to the Revolving Facility. The costs are being amortized as part of interest expense over the term of the SunTrust Credit Facility. As of ~~June~~September 30, 2019, we had ~~$13,100~~$14,000 outstanding borrowings and ~~$16,900~~$16,000 of availability under the Revolving Facility.

The SunTrust Credit Facility contains a number of affirmative and negative covenants that use consolidated adjusted EBITDA (“Adjusted EBITDA”). Adjusted EBITDA is a non-U.S. GAAP financial measure that is calculated as net income (loss) before depreciation and amortization; interest expense, net; income taxes; change in fair value of warrant liability; non-cash stock-based compensation expense; special items; and ~~loss (gain) on disposal of property and equipment and other assets,~~impairment charges and other.

The primary operational covenants included in the SunTrust Credit Facility are as follows: (i) a minimum consolidated fixed charge coverage ratio of 1.10:1.00 beginning with the fiscal quarter ended June 30, 2018 and (ii) a maximum consolidated leverage ratio of ~~4.50:~~4.25:1.00 beginning with the fiscal quarter ended ~~June~~September 30, ~~2018~~2019 with the financial ratios tested as of the last day of each fiscal quarter. The leverage ratio steps down to ~~4.25:1.00 with respect to each fiscal quarter ending after June 30, 2019 and on or prior to June 30, 2020 and to~~ 4.00:1.00 with respect to each fiscal quarter ending after June 30, 2020. At ~~June~~September 30, 2019, we were in compliance with all operational covenants, including (i) a consolidated fixed charge coverage ratio of ~~1.23:~~1.20:1.00 and (ii) a consolidated leverage ratio of ~~3.92:~~3.91:1.00.

On December 12, 2016, to complete the acquisition by merger (the “Acquisition”) of Glacier Water Services, Inc. (“Glacier”), we entered into a senior secured credit facility with Goldman Sachs Bank USA (the “Goldman Credit Facility”) that provided for an $186,000 term loan facility and a $10,000 revolving loan facility. We repaid all outstanding borrowings and accrued interest under the Goldman Credit Facility with the proceeds from a follow-on equity offering completed in the second quarter of 2018 and the proceeds from the SunTrust Credit Facility. In connection with the repayment and termination of the Goldman Credit Facility during the second quarter of 2018, we immediately charged to interest expense, net on the condensed consolidated statements of operations the remaining $2,960 in unamortized debt issuance costs related to the Goldman Credit Facility and $3,904 related to early payment penalties.

In connection with the Acquisition, we assumed $89,529 of 9-1/16% Junior Subordinated Deferrable Interest Debentures due 2028 (the “Subordinated Debentures”) issued to Glacier Water Trust I (“the Trust”), a wholly owned subsidiary of Primo following the Acquisition. On June 29, 2018, in connection with the closing of the SunTrust Credit Facility, we paid $87,938, including accrued interest of $309, to redeem the Subordinated Debentures. In connection with the redemption of the Subordinated Debentures, we recorded a gain of $475 in interest expense, net on the condensed consolidated statements of operations resulting from the accretion of the remaining fair value adjustment allocated to the Subordinated Debentures as part of the purchase price allocation of the Acquisition.

In connection with the redemption of the Subordinated Debentures described above, the Trust issued a revocable notice of redemption of all outstanding capital securities of the Trust, and all outstanding capital securities of the Trust were redeemed on June 29, 2018. We owned a portion of such securities and received $6,277 in proceeds upon their redemption, resulting in a $161 loss on the redemption of the securities which is included in ~~loss (gain) on disposal of property~~impairment charges and ~~equipment and~~ other ~~assets~~ on the condensed consolidated statements of operations. At June 30, 2018, $2,629 of the proceeds were recorded as a receivable included in prepaid expenses and other current assets in the consolidated condensed balance sheets. These proceeds were received subsequent to the period end. Subsequent to the redemption of the Subordinated Debentures and the redemption of all outstanding capital securities of the Trust, the Trust and all related agreements were terminated and effectively dissolved.

As of ~~June~~September 30, 2019, our finance leases had a weighted average remaining lease term of ~~3.6~~3.2 years and a weighted average discount rate of 4.76%. Future finance lease obligations as of ~~June~~September 30, 2019 were as follows:

To mitigate the risks associated with future interest rate movements, we have employed an interest rate ~~swap~~swaps to fix the rate on a portion of our outstanding borrowings under the SunTrust Credit Facility. We executed anour first interest rate swap agreement in April 2019. The notional amount of the interest rate swap agreement was ~~$25 million~~$25,000 as of ~~June~~September 30, 2019. The interest rate swap matures April 2023. We did not utilize hedge accounting for this interest rate swap and the change in fair value recorded in interest expense on the condensed consolidated statements of operations for the three and nine months ended September 30, 2019 is $782 and $789, respectively.

We executed a second interest rate swap agreement in September 2019. The notional amount of the interest rate swap agreement was $25,000 as of September 30, 2019. The interest rate swap matures April 2023. The interest rate swap is deemed an effective cash flow hedge and the change in fair value recorded through other comprehensive income (loss) on the condensed consolidated statements of comprehensive income (loss) for both the three and nine months ended September 30, 2019 is $71.

An interest rate swap ~~entered into during~~liability of $858 is recorded in other long-term liabilities on the ~~current quarter was not material for the three months ended June~~condensed consolidated balance sheets at September 30, 2019.

On February 28, 2017, we established the Long-Term Performance Plan (the “LTPP”). The LTPP provides equity grants for eligible employees based on the attainment of certain performance-based targets. Our intention is that all awards under the LTPP will be in the form of equity grants.

On March 20, 2017, we granted performance based equity awards under the LTPP with vesting terms based on our attainment of certain financial targets for the period of January 1, 2017 through December 31, 2019 (the “March 2017 Grant”). The number of shares earnable under the March 2017 Grant awards vary based on achievement of the established financial targets of Adjusted EBITDA and free cash flow on a cumulative basis for fiscal years 2017 through 2019.

On March 9, 2018, we granted performance based equity awards under the LTPP with vesting terms based on our attainment of certain financial targets for the period of January 1, 2018 through December 31, 2020 (the “March 2018 Grant”). The number of shares earnable under the March 2018 Grant awards vary based on achievement of the established financial targets of Adjusted EBITDA and free cash flow on a cumulative basis for fiscal years 2018 through 2020.

On March 8, 2019, we granted performance based equity awards under the LTPP with vesting terms based on our attainment of certain financial targets for the period of January 1, 2019 through December 31, 2021 (the “March 2019 Grant”). The number of shares earnable under the March 2019 Grant awards vary based on achievement of the established financial targets of net sales and free cash flow on a cumulative basis for fiscal years 2019 through 2021.

11.	9. Income Tax (Benefit) Provision

For the three and ~~six~~nine months ended ~~June~~September 30, 2019 there was $0 income tax expense recognized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, available taxes in the carryback periods, projected future taxable income and tax planning strategies in making this assessment. Accordingly, we have provided a full valuation allowance to offset the net deferred tax assets that are not expected to be realized as of ~~June~~September 30, 2019.

~~For~~During the ~~three~~third quarter of 2018, as described in Note 3 – Impairment Charges and ~~six months ended June 30, 2018,~~Other, we recorded ~~an income tax benefit~~a $60,750 impairment for the Glacier trade name as a result of ~~$4,771 and $6,496, respectively, primarily due to~~ the ~~2017 Tax Cuts and Jobs Act.~~Re-branding Strategy. We recorded an income tax benefit of ~~$4,769 and $6,843, respectively, for~~$4,150 in the ~~three and six months ended June 30,~~third quarter of 2018 ~~related~~associated with this impairment, noting that our tax benefit is limited to the ~~federal net operating loss and interest expense limitation, which was partially offset by income~~amount of previously recorded tax ~~expense~~expense.

During the third quarter of ~~$349 related to goodwill and intangible assets.~~2018, we completed our assessment regarding the deductibility of certain performance-based compensation plans under the 2017 Tax Act, resulting in the reversal of $1,739 of tax benefit recorded in the second quarter of 2018.

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Section 382 of the U.S. Internal Revenue Code imposes an annual limitation on the amount of net operating loss carryforwards that might be used to offset taxable income when a corporation has undergone significant changes in stock ownership. We believe our prior ownership changes have created an annual limit, imposed by Section 382, on the amount of net operating loss we can utilize in a given year. Realization of the loss carryforwards is dependent upon generating sufficient taxable income prior to the expiration of the loss carryforwards, subject to the Section 382 limitation.

We have no unrecognized tax benefits and there are no uncertain tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will increase within the next 12 months. Substantially all tax years remain open by federal, state and foreign tax jurisdictions.

12.	~~10.~~ Fair Value Measurements

Fair value rules currently apply to all financial assets and liabilities and for certain nonfinancial assets and liabilities that are required to be recognized or disclosed at fair value. For this purpose, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

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U.S. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

	•	~~Level 1 — quoted prices in active markets for identical assets and liabilities.~~

	•	~~Level 2 — observable inputs other than quoted prices in active markets for identical assets and liabilities.~~

	•	~~Level 3 — unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions.~~

Level 1 — quoted prices in active markets for identical assets and liabilities.

Level 2 — observable inputs other than quoted prices in active markets for identical assets and liabilities.

Level 3 — unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions.

At ~~June~~September 30, 2019 and December 31, 2018, we held financial assets and liabilities that are required to be measured at fair value on a recurring basis. The financial assets and liabilities held by us and the fair value hierarchy used to determine their fair values are as follows:

	June 30, 2019								September 30, 2019
	Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3
Liabilities:
Interest rate swap	$	640	$	–	$	640	$	–
Interest rate swaps									$	858	$	–	$	858	$	–
Total liabilities	$	640	$	–	$	640	$	–	$	858	$	–	$	858	$	–

The carrying amounts of cash and cash equivalents, accounts receivable, net, operating ~~lease right-of-use assets and corresponding operating lease liabilities,~~ accounts payable, and accrued expenses and other current liabilities, approximate their fair values due to their short maturities. Other long-term liabilities on our condensed consolidated balance sheets are presented at their carrying value, which approximates their fair value. Operating lease right-of-use assets and corresponding operating lease liabilities approximate their fair value and recorded at the present value of future cash flows based on incremental borrowing rate. Based on borrowing rates currently available to us for loans with similar terms and the variable interest rate for borrowings under our SunTrust Credit Facility, the carrying value of debt and finance leases approximates fair value.

At ~~June~~September 30, 2019, we held financial assets in the form of a ~~$3,278~~$3,294 promissory note acquired in connection with the sale of the Ice Assets that is required to be measured at fair value on a nonrecurring basis. The note was measured based on the present value of estimated future cash flows. There were no material nonrecurring fair value measurements recorded in the ~~six~~nine months ended ~~June~~September 30, 2018.

13.	~~11.~~ Earnings Per Share

The following table sets forth the calculations of basic and diluted earnings per share:

Three months ended June 30,

Six months ended June 30,

2019

2018

2019

2018

Basic:

Net income (loss)
$ 873 $ 451 $ (399 ) $ 1,661

Weighted average shares
40,389 35,920 40,342 34,549

Basic earnings (loss) per share
$ 0.02 $ 0.01 $ (0.01 ) $ 0.05

Diluted:

Net income (loss)
$ 873 $ 451 $ (399 ) $ 1,661

Weighted average shares
40,389 35,920 40,342 34,549
Potential shares arising from stock options, restricted stock and warrants
654 1,312 – 1,287
Weighted average shares - diluted
41,043 37,232 40,342 35,836

Diluted earnings (loss) per share
$ 0.02 $ 0.01 $ (0.01 ) $ 0.05

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	Three months ended September 30,					Nine months ended September 30,
	2019		2018			2019		2018
Basic:
Net income (loss)	$	2,621	$	(58,238	)	$	2,224	$	(56,577	)

Weighted average shares		40,515		40,072			40,400		36,410

Basic (loss) earnings per share	$	0.06	$	(1.45	)	$	0.06	$	(1.55	)

Diluted:
Net income (loss)	$	2,621	$	(58,238	)	$	2,224	$	(56,577	)

Weighted average shares		40,515		40,072			40,400		36,410
Potential shares arising from stock options, restricted stock and warrants		597		–			696		–
Weighted average shares - diluted		41,112		40,072			41,096		36,410

Diluted (loss) earnings per share	$	0.06	$	(1.45	)	$	0.05	$	(1.55	)

For the three and nine months ended ~~June~~September 30, 2019, stock options, restricted stock and warrants with respect to an aggregate of ~~211~~48 and 1,463 shares have been excluded from the computation of the number of shares used in the diluted earnings per share because the exercise or grant prices of the awards were greater than the average market ~~price~~prices of the underlying common stock and the effect of their inclusion would have been anti-dilutive.

For the ~~six~~three and nine months ended ~~June~~September 30, ~~2019,~~2018, stock options, restricted stock and warrants with respect to an aggregate of ~~2,171~~2,437 and 963 shares, ~~have been~~respectively, were excluded from the computation of the number of shares used in the diluted loss per ~~share~~share. These shares have been excluded because we incurred a net loss for the ~~period~~respective periods and their inclusion would be anti-dilutive.

For the three and six months ended June 30, 2018, stock options, restricted stock and warrants with respect to an aggregate of 67 and 226 shares, respectively, have been excluded from the computation of the number of shares used in the diluted earnings per share because the exercise or grant prices of the awards were greater than the average market price of the underlying common stock and the effect of their inclusion would have been anti-dilutive.

14.	~~12.~~ Segments

We have three operating and reportable segments, Primo Refill (“Refill”), Primo Exchange (“Exchange”), and Primo Dispensers (“Dispensers”).

Our Refill segment sales consist of the sale of filtered drinking water dispensed directly to consumers through technologically advanced, self-service machines located at major retailers throughout the United States and Canada.

Our Exchange segment sales consist of the sale of multi-gallon purified bottled water offered through retailers in the United States and Canada. Our Exchange products are offered through point of purchase display racks and recycling centers that are prominently located at major retailers in space that is often underutilized.

Our Dispensers segment sells water dispensers that are designed to dispense Primo and other dispenser-compatible bottled water. Our Dispensers sales are primarily generated through major retailers in the United States and Canada, where we recognize revenues for the sale of the water dispensers when the customer obtains control. We support retail sell-through with domestic inventory.

We evaluate the financial results of these segments focusing primarily on segment net sales and segment (loss) income from operations before depreciation and amortization (“segment (loss) income from operations”). We utilize segment net sales and segment (loss) income from operations because we believe they provide useful information for effectively allocating our resources between business segments, evaluating the health of our business segments based on metrics that management can actively influence and gauging our investments and our ability to service, incur or pay down debt.

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Cost of sales for Refill consists primarily of costs associated with routine maintenance of reverse osmosis water filtration systems and filtered water displays, costs of our field service operations and commissions paid to retailers associated with revenues earned. Cost of sales for Exchange consists primarily of costs for bottling, distribution and bottles. Cost of sales for Dispensers consists of contract manufacturing, freight and duties.

Selling, general and administrative expenses for Refill, Exchange, and Dispensers consist primarily of personnel costs for operations support as well as other supporting costs for operating each segment.

Expenses not specifically related to operating segments are shown separately as Corporate. Corporate expenses are comprised mainly of compensation and other related expenses for corporate support, information systems and administration. Corporate expenses also include certain professional fees and expenses and compensation of our Board of Directors.

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The following table presents segment information for the following periods:

	Three months ended June 30,						Six months ended June 30,						Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018			2019			2018			2019			2018
Segment net sales:
Refill	$	42,276		$	44,736		$	80,601		$	86,211		$	44,475		$	48,330		$	125,076		$	134,542
Exchange		21,003			20,007			40,355			38,265			24,234			21,513			64,590			59,777
Dispensers		15,982			11,059			28,352			24,985			18,258			11,927			46,609			36,912
	$	79,261		$	75,802		$	149,308		$	149,461		$	86,967		$	81,770		$	236,275		$	231,231

Segment income from operations:
Segment income (loss) from operations:
Refill	$	11,477		$	13,894		$	21,561		$	25,478		$	12,813		$	14,565		$	34,373		$	40,043
Exchange		5,894			6,030			11,362			11,293			6,668			6,274			18,030			17,567
Dispensers		1,125			842			1,709			1,986			175			323			1,884			2,309
Corporate		(6,206	)		(7,293	)		(14,144	)		(14,246	)		(5,390	)		(5,073	)		(19,535	)		(19,319	)
Special items		(1,152	)		(410	)		(1,413	)		(487	)		(827	)		(139	)		(2,240	)		(626	)
Depreciation and amortization		(7,292	)		(6,114	)		(13,845	)		(12,171	)		(7,657	)		(6,194	)		(21,499	)		(18,365	)
Loss on disposal of property and equipment and other		(252	)		(111	)		(327	)		(244	)
Impairment charges and other														217			(67,940	)		(109	)		(68,184	)
	$	3,594		$	6,838		$	4,903		$	11,609		$	5,999		$	(58,184	)	$	10,904		$	(46,575	)


Depreciation and amortization expense:
Refill	$	4,888		$	3,879		$	9,170		$	8,054		$	5,126		$	4,651		$	14,294		$	12,705
Exchange		2,124			1,671			4,106			3,353			2,256			1,676			6,362			5,029
Dispensers		50			44			100			96			40			45			140			141
Corporate		230			520			469			668			235			(178	)		703			490
	$	7,292		$	6,114		$	13,845		$	12,171		$	7,657		$	6,194		$	21,499		$	18,365

Capital expenditures:
Refill							$	9,087		$	5,546								$	13,875		$	9,334
Exchange								4,428			3,394									7,290			5,152
Dispensers								100			–									100			94
Corporate								452			385									533			1,216
							$	14,067		$	9,325								$	21,798		$	15,796

As of ~~June~~September 30, 2019 and December 31, 2018, we had goodwill of ~~$92,015~~$94,746 and $91,814, respectively, primarily as a result of our acquisition of Glacier Water Services, Inc. in December 2016 (the “Glacier Acquisition”). All goodwill is reported within our Refill reporting segment.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our historical consolidated financial statements and related notes thereto in this Quarterly Report on Form 10-Q and with our ~~Annual~~Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2018. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and ~~Section~~Section 21E of the Securities Exchange Act of 1934, as amended, that are intended to be covered by the “safe harbor” created by those sections. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of forward-looking terms such as ~~“anticipates,~~“anticipates,” “believes,” “could,” “estimates,” “expects,” “feel,” “forecasts,” “intends,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “will,” “would,” or other comparable ~~terms.~~terms. These forward-looking statements are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to inaccurate assumptions and known or unknown risks and uncertainties, including those identified in “Cautionary Note Regarding Forward-Looking Statements” in this Item 2 and in “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2018 and in Item 1A of Part II of our subsequently filed Quarterly Reports on Form ~~10-Q.~~ 10-Q. We urge you to consider those risks and uncertainties in evaluating our forward-looking statements. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Primo Water Corporation (together with its consolidated subsidiaries, “Primo,” “we,” “our,” or “us”) is 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 in the United States and Canada. We believe the market for purified water continues to grow due to evolving taste preferences, perceived health benefits and concerns regarding the quality of municipal tap water. Our products provide an environmentally friendly, economical, convenient and healthy solution for consuming purified and filtered water. We are a Delaware corporation that was incorporated in 2017 in connection with the creation of a holding company structure. Our predecessor was founded in Delaware in 2004.

Our business is designed to generate recurring demand for our purified bottled water or self-service refill drinking water through the sale of innovative water dispensers. This business strategy is commonly referred to as “razor-razorblade” because the initial sale of a product creates a base of users who frequently purchase complementary consumable products. Once our bottled water is consumed using a water dispenser, empty bottles are exchanged at our recycling center displays, which provide a recycling ticket that offers a discount toward the purchase of a new bottle of Primo purified water or they are refilled at a self-service refill drinking water location. Each of our multi-gallon Exchange water bottles can be sanitized and reused up to 40 times before being taken out of use, crushed and recycled, substantially reducing landfill waste compared to consumption of equivalent volumes of single-serve bottled water. As of ~~June~~September 30, 2019, our products were offered in the United States and in Canada at approximately ~~45,000~~45,600 combined retail locations, including Lowe’s Home Improvement, Walmart, Sam’s Club, The Home Depot, Meijer, Kroger, Food Lion, H-E-B Grocery, Circle K, Family Dollar, Walgreens, Albertsons, Publix, and CVS. We believe the market for purified water continues to grow due to evolving taste preferences, perceived health benefits and concerns regarding the quality of municipal tap water. Our products provide an environmentally friendly, economical, convenient and healthy solution for consuming purified and refill drinking water.

We provide major retailers throughout the United States and Canada with a single-vendor solution for our three reporting segments, Primo Refill (“Refill”), Primo Exchange (“Exchange”), and Primo Dispensers (“Dispensers”), addressing a market demand that we believe was previously unmet. Our approximately ~~45,000~~45,600 locations include approximately 23,100 Refill locations, ~~12,800~~13,800 Exchange locations and 8,700 Dispenser locations. Our solutions are easy for retailers to implement, require minimal management supervision and store-based labor, and provide centralized billing and detailed performance reports. Exchange offers retailers attractive financial margins and the ability to optimize typically unused retail space with our displays. Refill provides drinking water for consumer purchase through the installation of self-service vending displays at retail locations. The Refill business model eliminates the bottling and distribution infrastructure required to deliver traditional bottled water, thereby allowing us to provide refill drinking water at a value price as compared to alternatives in the marketplace. Additionally, due to the recurring nature of water consumption, retailers benefit from year-round customer traffic, highly predictable revenue and health and wellness focused consumers.

We have three operating and ~~reportable~~reporting segments, Refill, Exchange, and Dispensers.

In this Management’s Discussion and Analysis of Financial Condition and Results of Operations, when we refer to “same-store unit growth”, we are comparing retail locations at which our products have been available for at least 12 months at the beginning of the relevant period. In addition, “gross margin percentage” is defined as net sales less cost of sales, as a percentage of net sales.

The following table sets forth our results of operations (dollars in thousands):

The following table sets forth our results of operations expressed as a percentage of net sales (percentage amounts may not add to totals due to rounding):

The following tables set forth our segment net sales in dollars and as a percent of net sales, segment (loss) income from operations presented on a segment basis and reconciled to our consolidated income from operations, and segment gross margin percentages (dollars in thousands) (percentage amounts may not add to totals due to rounding):

The following tables set forth non-GAAP adjusted net sales, which excludes sales attributable to the Company’s Ice Assets, which were sold in June 2019 (“Adjusted Net Sales”):

We believe Adjusted Net Sales, which exclude sales attributable to the Company’s Ice Assets, provides a more accurate comparison of net sales by excluding the net sales of any products that were not sold in each reporting period.

The following table sets forth non-GAAP adjusted selling, general and administrative expense as a percentage of net sales:

Three Months Ended ~~June~~September 30, 2019 Compared to Three Months Ended ~~June~~September 30, 2018

Net sales. Net sales increased ~~4.6%~~6.4%, or ~~$3.5~~$5.2 million, to ~~$79.3~~$87.0 million for the three months ended ~~June~~September 30, 2019 from ~~$75.8~~$81.8 million for the three months ended ~~June~~September 30, 2018. The change was due to increases in sales for Dispensers and Exchange of ~~$4.9~~$6.3 million and ~~$1.1~~$2.7 million, respectively, partially offset by the ~~$2.5~~$3.8 million decrease for Refill. Net sales adjusted for the June 2019 sale of the Ice Assets (“Adjusted Net Sales”) increased 10.5%, or $8.2 million, to $87.0 million for the three months ended September 30, 2019 from $78.7 million for the three months ended September 30, 2018 excluding net sales in respect of the Ice Assets from such figure. See “Note 6 – Ice Assets Held-for-Sale and Promissory Note” in the Notes to the condensed consolidated financial statements and the Adjusted Net Sales table above.

Refill. Refill net sales decreased ~~5.5%~~8.0% to ~~$42.3~~$44.5 million for the three months ended September 30, 2019 due primarily to the June ~~30, 2019.~~ 2019 sale of the Ice Assets. Adjusted Net Sales for Refill, which excludes the impact of the sale of the Ice Assets, decreased 1.8%. See the Adjusted Net Sales for Refill table above.

The decrease in Adjusted Net Sales for Refill ~~net sales~~ was due to a ~~6.2%~~3.0% decline in five-gallon equivalent units to ~~22.8~~24.8 million primarily attributable to 7% fewer ~~locations and lower same-store units. These impacts were~~locations. This impact was partially offset by the implementation of price increases.

Exchange. Exchange net sales increased ~~5.0%~~12.7% to ~~$21.0~~$24.2 million for the three months ended ~~June~~September 30, 2019. Exchange sales growth was driven by the increase in U.S. same-store units of ~~13.4% for the three months ended June 30, 2019. In addition, five-gallon~~18.3%. Five-gallon equivalent units for Exchange increased ~~7.2%~~15.1% to ~~4.4~~5.1 million units for the three months ended ~~June~~September 30, 2019 from ~~4.1~~4.5 million units for the same period in 2018. The increase in Exchange sales and units was ~~greater than~~aided by the ~~increase in sales dollars, primarily due to the impact of consumer-focused~~consumer focused promotional efforts, ~~(including the~~including instantly redeemable coupons for free water with the purchase of a ~~dispenser),~~dispenser and ~~fewer locations for the three months ended June 30, 2019 compared to the prior year.~~new display and in-store signage.

Dispensers. Dispensers net sales increased ~~44.5%~~53.1% to ~~$16.0~~$18.3 million for the three months ended ~~June~~September 30, 2019 due to growth in consumer demand ~~as well as the timing of~~and retailer orders ~~from major retailers compared~~related to ~~the same period in the prior year.~~certain fourth quarter promotional activities. Consumer demand, which we measure as the dispenser unit sales to end consumers, increased ~~11.6%~~26.3% to a record ~~218,000~~236,000 units for the three months ended ~~June~~September 30, ~~2019.~~2019 from 187,000 units for the same period in 2018.

Gross margin percentage. The overall gross margin percentage was ~~26.6%~~25.6% for the three months ended ~~June~~September 30, 2019, compared to ~~30.4%~~28.7% for the three months ended ~~June~~September 30, 2018, due to a shift in sales mix towards Dispensers and ~~the~~ lower gross margin ~~percentage for~~percentages in Refill and Exchange, as described below.

Refill. Gross margin as a percentage of net sales for our Refill segment was ~~30.7%~~32.4% for the three months ended ~~June~~September 30, 2019 compared to ~~34.6%~~33.4% for the three months ended ~~June~~September 30, 2018. The decrease inwas primarily due to lower net sales for Refill, ~~described above~~which drove a lower gross margin percentage due to the fixed nature of certain costs in our Refill ~~segment.~~segment as well as incremental operating costs related to addressing machine downtime.

Exchange. Gross margin as a percentage of net sales for our Exchange segment was ~~30.7%~~29.8% for the three months ended ~~June~~September 30, 2019, compared to ~~32.5%~~31.1% for the three months ended ~~June~~September 30, 2018. The decrease was primarily due to increased costs associated with consumer-focused promotional efforts including the instantly redeemable coupons for free water with the purchase of a ~~dispenser.~~dispenser as well as a change in product and retailer mix compared to the prior year.

Dispensers. Gross margin as a percentage of net sales for our Dispensers segment ~~increased slightly~~decreased to ~~10.2%~~3.5% for the three months ended ~~June~~September 30, 2019 from ~~9.9%~~5.2% for the three months ended ~~June~~September 30, 2018 due primarily to a shift in product and customer mix.

Selling, general and administrative expenses (“SG&A”). SG&A ~~decreased~~increased 8.7% to ~~$8.8~~$8.0 million for the three months ended ~~June~~September 30, 2019 from ~~$9.6~~$7.4 million for the three months ended ~~June~~September 30, 2018. The increase was primarily related to non-cash stock based compensation. SG&A expenses excluding non-cash stock based compensation expense (“Adjusted SG&A”) decreased 4.3% to $7.0 million or 8.1% of net sales for the three months ended September 30, 2019 from $7.3 million or 9.0% of net sales for the three months ended September 30, 2018 (see the Adjusted SG&A table above). The decrease in Adjusted SG&A ~~expense~~ was driven primarily by the reduction in employee-related ~~expenses.~~expenses and marketing spending partially offset by the increase in Dispensers warehouse rent expense associated with the growth in our e-commerce dispenser business.

Special items. Special items include expenses that we do not believe are indicative of our core operations or are significant to our current operating results warranting separate ~~classification,~~classification. Special items were ~~$1.2~~$0.8 million for the three months ended ~~June~~September 30, 2019 compared to ~~$0.4~~$0.1 million for the three months ended ~~June~~September 30, 2018. For the three months ended ~~June~~September 30, 2019, ~~Special~~special items ~~consisted of $0.9~~included $0.5 million in severance and restructuring-related expenses, $0.2 million in legal and ~~$0.3~~advisory fees related to activist investors and $0.1 million in acquisition-related costs. For the three months ended ~~June~~September 30, 2018, ~~Special~~special items consisted primarily of acquisition-related costs.

Depreciation and amortization. Depreciation and amortization increased ~~19.3%~~23.6% to ~~$7.3~~$7.7 million for the three months ended ~~June~~September 30, 2019 from ~~$6.1~~$6.2 million for the three months ended ~~June~~September 30, 2018. The increase is primarily due to depreciation on the capital investments made in our Exchange and Refill segments subsequent to the second quarter of 2018, as well as the amortization of the Glacier trade name which was impaired on September 30, 2018 and is being amortized as we focus our brand building and marketing efforts in Refill on unifying our Refill product offering around the Primo brand.

~~Loss on disposal of property~~Impairment charges and ~~equipment and other~~other.~~. Loss on disposal of property and equipment~~ Impairment charges and other ~~increased to $0.3~~consisted of income of $0.2 million for the three months ended ~~June~~September 30, 2019 compared to ~~$0.1~~an expense of $67.9 million for the three months ended ~~June~~September 30, 2018. ~~Loss on disposal of property and equipment~~Impairment charges and other for the three months ended ~~June~~September 30, 2019 consisted primarily of proceeds from the disposal of certain property and equipment.

During the three months ended September 30, 2018, we decided to discontinue the use of the Glacier trade name acquired as part of the Acquisition in order to focus our brand building and marketing efforts in Refill around the Primo brand (the “Re-branding Strategy”). As a ~~loss~~result of ~~$0.6~~the Re-branding Strategy, we recorded $63.2 million onin impairment charges to our trade name intangible and certain fixed assets.

Additionally, during the ~~sale of assets and liabilities held for sale (see~~three months ended September 30, 2018, we recorded a $4.6 million pre-tax, non-cash asset impairment charge to properly reflect the Ice Assets at their fair value less costs to sell at September 30, 2018. See “Note 46 – Ice Assets Held-for-Sale and Promissory Note” in the Notes to the condensed consolidated financial ~~statements) partially offset by $0.3 million in proceeds from the disposal of certain property and equipment. Loss on disposal of property and equipment and other~~statements for ~~the three months ended June 30, 2018 primarily related to losses on the disposal of certain investments.~~additional information.

Interest expense, net. Interest expense, net ~~decreased~~increased to ~~$2.7~~$3.4 million for the three months ended ~~June~~September 30, 2019 from ~~$11.2~~$2.5 million for the three months ended ~~June~~September 30, 2018. The ~~decrease~~increase was due primarily to ~~the June 2018 refinancing of our outstanding senior indebtedness which resulted~~$0.8 million in ~~lower outstanding indebtedness and lower~~non-cash interest ~~rates on such remaining outstanding indebtedness and also resulted in one-time charges for the three months ended June 30, 2018~~expense associated with ~~prepayment penalties and~~ the ~~write-off~~change in fair value of ~~deferred loan costs related to the prior senior credit facility.~~an interest rate swap agreement executed in April 2019. See “Note 57 - Debt and Finance Leases, net of Debt Issuance Costs” in the Notes to the condensed consolidated financial statements.

Income Tax Benefit. We recorded no income tax benefit for the three months ended ~~June~~September 30, 2019 compared to a benefit of ~~$4.8~~$2.4 million for the three months ended ~~June~~September 30, 2018. ~~During~~The income tax benefit recorded for the three months ended ~~June~~September 30, 2018 wewas primarily attributable to the trade name intangible impairment, partially offset by the reversal of a benefit recorded ~~a tax benefit to reflect~~in the ~~treatment~~second quarter of 2018 associated with the completion of our assessment regarding the deductibility of certain performance-based compensation plans under the 2017 Tax ~~Cuts and Jobs Act (the “2017 Tax Act”).~~ Act.

~~Six~~Nine Months Ended ~~June~~September 30, 2019 Compared to ~~Six~~Nine Months Ended ~~June~~September 30, 2018

Net sales. Net sales ~~decreased slightly~~increased 2.2%, or $5.0 million, to ~~$149.3~~$236.3 million for the ~~six~~nine months ended ~~June~~September 30, 2019 from ~~$149.5~~$231.2 million for the ~~six~~nine months ended ~~June~~September 30, 2018. The change was due to ~~the $5.7 million decrease~~increases in ~~net~~ sales ~~for Refill partially offset by increases~~ for Dispensers and Exchange of ~~$3.4~~$9.7 million and ~~$2.1~~$4.8 million, ~~respectively.~~respectively, partially offset by the $9.5 million decrease for Refill. Adjusted Net Sales adjusted for the June 2019 sale of the Ice Assets increased 4.0%, or $8.9 million, to $233.6 million for the nine months ended September 30, 2019 from $224.7 million for the nine months ended September 30, 2018. See “Note 6 – Ice Assets Held-for-Sale and Promissory Note” in the Notes to the condensed consolidated financial statements and the Adjusted Net Sales table above.

Refill. Refill net sales decreased ~~6.5%~~7.0% to ~~$80.6~~$125.1 million for the ~~six~~nine months ended September 30, 2019 due in part to the June ~~30, 2019.~~ 2019 sale of the Ice Assets. Adjusted Net Sales for Refill decreased 4.3%. See the Adjusted Refill Net Sales table above.

The decrease in Adjusted Net Sales for Refill ~~net sales~~ was due to a ~~10.5%~~7.9% decline in five-gallon equivalent units to ~~43.3~~68.1 million ~~units,~~ attributable to fewer ~~locations and lower same-store units.~~locations. These impacts were partially offset by the implementation of price increases.

Exchange. Exchange net sales increased ~~5.5%~~8.1% to ~~$40.4~~$64.6 million for the ~~six~~nine months ended ~~June~~September 30, 2019. Exchange sales growth was driven by the increase in U.S. same-store units of ~~13.5%~~15.2% for the ~~six~~nine months ended ~~June~~September 30, 2019. In addition, five-gallon equivalent units for Exchange increased ~~8.6%~~11.0% to ~~8.5~~13.7 million units for the ~~six~~nine months ended ~~June~~September 30, 2019 from ~~7.8~~12.4 million units for the same period in 2018. The increase in Exchange sales and units was ~~greater than~~aided by the ~~increase in sales dollars, primarily due to the impact of consumer-focused~~consumer focused promotional efforts, ~~(including the~~including instantly redeemable coupons for free water with the purchase of a ~~dispenser),~~dispenser and ~~fewer locations for the six months ended June 30, 2019 compared to the prior year.~~new display and in-store signage.

Dispensers. Dispensers net sales increased ~~13.5%~~26.3% to ~~$28.4~~$46.6 million for the ~~six~~nine months ended ~~June~~September 30, 2019 due primarily to growth in consumer demand ~~as well as~~and the timing of orders from major retailers compared to the same period in ~~the prior year.~~2018. Consumer demand, which we measure as the dispenser unit sales to end consumers, increased ~~5.9%~~12.6% to ~~403,000~~639,000 units for the ~~six~~nine months ended ~~June~~September 30, 2019.

Gross margin percentage. The overall gross margin percentage was ~~26.5%~~26.2% for the ~~six~~nine months ended ~~June~~September 30, 2019, compared to ~~29.0%~~28.9% for the ~~six~~nine months ended ~~June~~September 30, 2018, due ~~partially~~ to a shift in sales mix towards Dispensers and ~~the~~ lower gross margin ofpercentage for in Refill and Exchange, as described below.

Refill. Gross margin as a percentage of net sales for our Refill segment was ~~30.4%~~31.1% for the ~~six~~nine months ended ~~June~~September 30, 2019 compared to ~~33.1%~~33.2% for the ~~six~~nine months ended ~~June~~September 30, 2018. ~~While certain operational initiatives have driven a reduction in cost of sales, the~~The decrease inis primarily due to lower net sales for Refill, ~~described above~~which drove a lower gross margin percentage due to the fixed nature of certain costs in our Refill ~~segment.~~segment as well as incremental operating costs related to addressing machine downtime.

Exchange. Gross margin as a percentage of net sales for our Exchange segment was ~~30.8%~~30.4% for the ~~six~~nine months ended ~~June~~September 30, 2019, compared to ~~32.0%~~31.7% for the ~~six~~nine months ended ~~June~~September 30, 2018. The decrease was primarily due to increased costs associated with consumer-focused promotional efforts including the instantly redeemable coupons for free water with the purchase of a ~~dispenser.~~dispenser as well as a change in product and retailer mix compared to the prior year.

Dispensers. Gross margin as a percentage of net sales for our Dispensers segment decreased ~~slightly~~ to ~~9.4%~~7.1% for the ~~six~~nine months ended ~~June~~September 30, 2019 from ~~10.1%~~8.5% for the ~~six~~nine months ended ~~June~~September 30, 2018 due primarily to a shift towards e-commerce ~~sales.~~sales and other changes in product and customer mix.

Selling, general and administrative expenses (“SG&A”). SG&A increased ~~1.6%~~3.6% to ~~$19.1~~$27.1 million for the ~~six~~nine months ended ~~June~~September 30, 2019 from ~~$18.8~~$26.2 million for the ~~six~~nine months ended ~~June~~September 30, 2018. Adjusted SG&A excluding non-cash stock based compensation increased 0.7% to $23.6 million for the nine months ended September 30, 2019 from $23.5 million for the nine months ended September 30, 2018 (see the Adjusted SG&A table above). The increase in Adjusted SG&A ~~expense~~ was driven primarily by the increase in costs associated with ~~marketing, advertising and~~ consumer experience-related initiatives as well as an increase in Dispensers warehouse rent ~~expense.~~expense associated with the growth in our e-commerce dispenser business. These changes were partially offset by the reduction in employee-related expenses.

Special items. Special items include expenses that we do not believe are indicative of our core operations or are significant to our current operating results warranting separate ~~classification,~~classification. Special items were ~~$1.4~~$2.2 million for the ~~six~~nine months ended ~~June~~September 30, 2019 compared to ~~$0.5~~$0.6 million for the ~~six~~nine months ended ~~June~~September 30, 2018. For the ~~six~~nine months ended ~~June~~September 30, 2019, Special items consisted of $1.1 million in severance and restructuring-related expenses, $0.7 in legal and ~~$0.3~~advisory fees related to activist investors and $0.4 million in acquisition-related costs. For the ~~six~~nine months ended ~~June~~September 30, 2018, Special items consisted primarily of acquisition-related costs.

Depreciation and amortization. Depreciation and amortization increased ~~13.7%~~17.1% to ~~$13.8~~$21.5 million for the ~~six~~nine months ended ~~June~~September 30, 2019 from ~~$12.2~~$18.4 million for the ~~six~~nine months ended ~~June~~September 30, 2018. The increase is primarily due to depreciation on the capital investments made in our Exchange and Refill segments subsequent to the second quarter of 2018, as well as the amortization of the Glacier trade name which was impaired on September 30, 2018 and is being amortized as we focus our brand building and marketing efforts in Refill on unifying our Refill product offering around the Primo brand.

~~Loss on disposal of property and equipment~~Impairment charges and other. ~~Loss on disposal of property and equipment~~Impairment charges and other ~~increased~~decreased to ~~$0.3~~$0.1 million for the ~~six~~nine months ended ~~June~~September 30, 2019 compared to ~~$0.2~~$68.2 million for the ~~six~~nine months ended ~~June~~September 30, 2018. ~~Loss on disposal of property and equipment and other for~~During the ~~six~~nine months ended ~~June~~September 30, ~~2019 consisted primarily~~2018, we decided to discontinue the use of the Glacier trade name acquired as part of the Acquisition in order to focus our brand building and marketing efforts in Refill around the Primo brand (the “Re-branding Strategy”). As a ~~loss~~result of ~~$0.6~~the Re-branding Strategy, we recorded $63.2 million onin impairment charges to our trade name intangible and certain fixed assets.

Additionally, during the ~~sale of assets and liabilities held for sale (see~~nine months ended September 30, 2018, we recorded a $4.6 million pre-tax, non-cash asset impairment charge to properly reflect the Ice Assets at their fair value less costs to sell at September 30, 2018. See “Note 46 – Ice Assets Held-for-Sale and Promissory Note” in the ~~Notes~~notes to the condensed consolidated financial ~~statements) partially offset by $0.3 million in proceeds from the disposal~~statements for additional information.

Interest expense, net. Interest expense, net decreased to ~~$5.3~~$8.7 million for the ~~six~~nine months ended ~~June~~September 30, 2019 from ~~$16.4~~$18.9 million for the ~~six~~nine months ended ~~June~~September 30, 2018. The decrease was due primarily to the June 2018 refinancing of our outstanding senior indebtedness which resulted in lower outstanding indebtedness and lower interest rates on such outstanding indebtedness and also resulted in one-time charges for the ~~six~~nine months ended ~~June~~September 30, 2018 associated with prepayment penalties and the write-off of deferred loan costs related to the prior senior credit facility. The impact of these items was partially offset by $0.8 million in non-cash interest expense associated with the change in fair value of the interest rate swap agreement executed in April 2019.

See “Note 57 - Debt and Finance Leases, net of Debt Issuance Costs” in the Notes to the condensed consolidated financial statements.

Income Tax Benefit. We recorded no income tax benefit for the ~~six~~nine months ended ~~June~~September 30, 2019 compared to a benefit of ~~$6.5~~$8.9 million for the ~~six~~nine months ended ~~June~~September 30, 2018. ~~During the six months ended June 30, 2018, we recorded an~~The income tax benefit ~~of $6.8 million~~recorded for the nine months ended September 30, 2018 was primarily ~~due~~attributable to the 2017 Tax Act changes that went into effect on January 1, 2018 related to the federal net operating loss, which can be carried forward indefinitely. This income tax benefit was partially offset by income tax expense related to goodwill and certaintrade name intangible ~~assets of $0.3 million.~~impairment.

We had capital expenditures of ~~$14.2~~$21.8 million for the ~~six~~nine months ended ~~June~~September 30, 2019 and we anticipate net capital expenditures to range between ~~$10.0~~$3.0 million and ~~$12.0~~$4.0 million for the remainder of 2019. Anticipated capital expenditures are related primarily to growth and maintenance in Refill and Exchange locations.

At ~~June~~September 30, 2019, our cash and cash equivalents totaled ~~$4.3~~$2.0 million and we had ~~$16.9~~$16.0 million in availability under our Revolving Facility. We anticipate using current cash, cash flow from operations and availability under our Revolving Facility to meet our current needs for working capital and capital expenditures in the ordinary course of business for the foreseeable future. If we do require additional debt financing, such debt financing may not be available to us on terms favorable to us, if at all.

Our future capital requirements may vary materially from those now anticipated and will depend on many factors including: the rate of growth in new Refill and Exchange locations and related display, rack and reverse osmosis filtration system costs and the number of growth initiatives, including our marketing and brand activation strategies and changes implemented in our Refill business resulting from the downtime issues previously identified ~~in 2018~~ that we believe will drive same store sales, ~~and the rate of growth in new Refill and Exchange locations and related display, rack and reverse osmosis filtration system costs,~~ cost to develop new Dispenser product lines, sales and marketing resources needed to further penetrate our markets, the expansion of our operations in the United States and Canada, the response of competitors to our solutions and products, as well as the completion of future acquisitions. Historically, we have experienced increases in our capital expenditures consistent with the growth in our operations, and we anticipate that our expenditures will continue to increase as we grow our business.

Our ability to satisfy our obligations or to fund planned capital expenditures will depend on our future performance, which to a certain extent is subject to general economic, financial, competitive, legislative, regulatory and other factors beyond our control. We also believe that if we pursue any material acquisitions in the foreseeable future we will need to finance this activity through the issuance of equity or additional debt financing, and such financing may not be available to us on terms favorable to us, if at all.

The following table shows the components of our cash flows for the periods presented (in millions):

Net cash provided by operating activities decreased to ~~$8.9~~$23.1 million for the ~~six~~nine months ended ~~June~~September 30, 2019 from ~~$10.2~~$23.8 million for the same period of the prior year. The decrease was driven by changes in working capital, primarily the increase in ~~inventory on hand~~accounts receivable at ~~June~~September 30, 2019 compared to ~~June~~September 30, ~~2018.~~2018, which is a result of the timing of payments.

Net cash used in investing activities increased to ~~$13.7~~$26.9 million for the ~~six~~nine months ended ~~June~~September 30, 2019 from ~~$5.5~~$10.3 million for the same period of the prior year. The increase was primarily due to an increase in purchases of property and equipment ~~related to the growth and maintenance~~ in Refill and Exchange ~~locations.~~and the acquisition of Avant (see “Note 4 – Acquisition” in the Notes to the condensed consolidated financial statements). Additionally, the prior year use of cash in investing activities was reduced by the ~~$3.7~~$6.3 million in proceeds received from the redemption of the Trust Preferred Securities issued by Glacier Water Trust I ~~during the six months ended June 30, 2018~~ (see “Note 5 – Debt and Finance Leases, net of Debt Issuance Costs” in the Notes to the condensed consolidated financial statements).

Net cash ~~provided by~~used in financing activities was ~~$1.8~~$1.5 million for the ~~six~~nine months ended ~~June~~September 30, 2019 compared to ~~net cash used in financing activities of $4.0~~$13.5 million for the same period of the prior year. For the ~~six~~nine months ended ~~June~~September 30, 2019, our debt level increased due to borrowings under our revolving credit ~~facility. Additionally, shares purchased~~facility, partially due to ~~pay taxes associated with equity awards and proceeds received from warrant exercises decreased in~~ the ~~six~~acquisition of Avant. For the nine months ended ~~June 30, 2019. For the six months ended June~~September 30, 2018 net cash flows from finance activities were significantly impacted by the follow-on equity offering and re-financing of the Revolving Facility with SunTrust, which resulted in a net decrease in our debt level. Shares purchased to pay taxes associated with equity decreased in the nine months ended September 30, 2019, compared to the same period in the prior year.

Adjusted EBITDA is a non-U.S. GAAP financial measure that is calculated as net income (loss) ~~income~~ before depreciation and amortization; interest expense, net; income taxes; ~~change in fair value of warrant liability;~~ non-cash stock-based compensation expense; special items; and impairment charges and other. Our SunTrust Credit Facility contains financial covenants that use Adjusted EBITDA. We believe Adjusted EBITDA provides useful information to management, investors and financial analysts regarding certain financial and business trends relating to our financial condition and results of operations. Adjusted EBITDA is used by management to compare our performance to that of prior periods for trend analyses and planning purposes and is presented to our Board of Directors.

Non-U.S. GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with U.S. GAAP. Adjusted EBITDA excludes significant expenses that are required by U.S. GAAP to be recorded in our financial statements and is subject to inherent limitations. In addition, other companies in our industry may calculate this non-U.S. GAAP measure differently than we do or may not calculate it at all, limiting its usefulness as a comparative measure. The table below provides a reconciliation between net loss and Adjusted EBITDA (dollars in thousands).

We do not have any investments in special purpose entities or undisclosed borrowings or debt. We are party to a derivative contract in the form of a cash flow hedge as of ~~June~~September 30, 2019 (see “Note 5 – Debt and Finance Leases, net of Debt Issuance Costs” in the notes to the condensed consolidated financial statements).

In the three most recent fiscal years, inflation and changing prices have not had a material effect on our business and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future.

We have experienced and expect to continue to experience seasonal fluctuations in our sales and operating income. Our sales and operating income have been highest in the spring and summer and lowest in the fall and winter. Our Refill and Exchange segments, which generally enjoy higher margins than our Dispensers segment, experience higher sales and operating income in the spring and summer. We have historically experienced higher sales and operating income from our Dispensers segment in spring and summer; however, we believe the seasonality of dispenser sales are more dependent on retailer inventory management and purchasing cycles and not correlated to weather. Sustained periods of poor weather, particularly in the spring and summer, can negatively impact our sales in our higher margin Refill and Exchange segments. Accordingly, our results of operations in any quarter will not necessarily be indicative of the results that we may achieve for a fiscal year or any future quarter.

Other than the adoption of ASC 842 on January 1, 2019, as described in “Note 35 - Leases” in the condensed consolidated financial statements, there have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K for the year ended December 31, 2018.

This document includes and other information we make public from time to time may include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about our estimates, expectations, projections, beliefs, intentions or strategies for the future, and the assumptions underlying such statements. We use the words “anticipates,” “believes,” “could,” “estimates,” “expects,” “feel,” “forecasts,” “intends,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “will,” “would,” and similar expressions to identify our forward-looking statements. These forward-looking statements are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to inaccurate assumptions and known and unknown risks, including those factors set forth in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and in Item 1A of Part II of our subsequently filed Quarterly Reports on Form 10-Q. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Except as otherwise required by federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

There has been no material change in our exposure to market risk during the three and ~~six~~nine months ended ~~June~~September 30, 2019. Please refer to "Quantitative and Qualitative Disclosures about Market Risk" contained in Part II, Item 7A of our Form 10-K for the year ended December 31, 2018 for a discussion of our exposure to market risk.

As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) pursuant to Rule 13a-15(b) of the Exchange Act. Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures are effective for the purpose of providing reasonable assurance that the information required to be disclosed in the reports we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures.

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

In addition to the other information set forth in this report, you should carefully consider the factors discussed under Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018 and in subsequently filed Quarterly Reports on Form 10-Q. These factors could materially and adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report. Other than as set forth below, there have been no material changes to such risk factors.

Recently imposed tariffs, the pending imposition of tariffs, increases in the rates of previously imposed tariffs, and other potential changes in international trade relations implemented by the U.S. presidential administration could have a material adverse effect on our business, financial condition, cash flows and results of operations. Further, any suspension, revocation, expiration, non-renewal or other loss of our temporary exemption from existing tariffs (including the extension of applicable tariffs beyond the duration of our temporary exemption) could adversely affect our business, financial condition, cash flows and results of operation.

Currently, all of our Dispensers are assembled by independent manufacturers in, and imported from, China. These import operations are subject to international trade regulations, including import charges and other agreements among the United States and its trading partners, including China.

The U.S. government ~~recently increased the rate applied on previously imposed tariffs~~currently imposes a 25% tariff on specified imported products originating from ~~China. Such tariffs were originally~~China set forth on so-called List 1 (“List 1 Tariffs”), List 2 (“List 2 Tariffs”) and List 3 (“List 3 Tariffs”). The U.S. government also currently imposes a 15% tariff on specified imported products originating from China set forth on so-called List 4A (“List 4A Tariffs”). On December 15, 2019, unless the effective date is extended, the U.S. government will impose a 15% tariff on specified imported products originating from China on so-called List 4B (the “List 4B Tariffs” and, together with the List 1 Tariffs, the List 2 Tariffs, the List 3 Tariffs and the List 4A Tariffs, the “Tariffs”). The Tariffs have been imposed ~~in response~~pursuant to ~~what it characterized as~~an investigation regarding unfair trade practices ~~and China has responded~~ by ~~imposing tariffs on specified products imported from the United States. In a notice published on June 20, 2018,~~ the Office of the United States Trade Representative (the “USTR”) ~~issued a determination and request for public comment under~~pursuant to Section 301 ~~under~~of the Trade Act of 1974 (the “Notices”) concerning the imposition of an additional 25% tariff on specified products from China (the “List 1 Tariffs”). The list of products set forth in the Notice included self-contained1974. Self-contained drinking water coolers, including our Dispensers, ~~which we import from China.~~are included on List 1 and subject to the List 1 Tariffs.

In July 2018, we applied to the USTR for a ~~Request~~request for ~~Exclusion~~exclusion from the List 1 Tariffs for our ~~Dispensers (the “Request for Exclusion”).~~Dispensers. Our Request for Exclusion was granted by the USTR in ~~the fourth quarter of 2018.~~December 2018 (the “Granted Exclusion”). The ~~exclusion~~Granted Exclusion was retroactive to July 6, 2018, and any amounts we paid in respect of such June 2018 Tariffs between the time of their implementation and the ~~granting of our Request for~~Granted Exclusion have been or will be reimbursed. However, the ~~exemption granted to us by the USTR~~Granted Exclusion is temporary and expires in December 2019. ~~A significant number~~In October 2019, the USTR announced a process for requesting extension of previously granted exclusions, including our ~~Dispensers are~~Granted Exclusion (the “Extension Process”). At this time, the process is limited to exclusions granted on products subject to the List 1 Tariffs and there can be no assurances that the United States government will make available the Request for Exclusion or any similar or other relief from the List 1 Tariffs from and after the expiration of our Request for Exclusion in December ~~2019.~~ 2018, which includes the Granted Exclusion for self-contained drinking water coolers, including our Dispensers. We are currently evaluating the Extension Process.

Any suspension, revocation, expiration, non-renewal, non-extension or other loss of our temporary exemption from the List 1 Tariffs, or the extension of the ~~List 1 Tariffs~~Granted Exclusion beyond the expiration date of our temporary exemption, could adversely affect, in a potentially material manner, our business, financial condition, cash flows and results of operations. We have also worked with our suppliers and secured a reduction in the amount we pay for Dispensers, and we have worked with our customers to increase our prices to include the remaining incremental cost associated with the List 1 Tariff as implemented in the Notice. We believe the cost reduction and increased pricing are offsetting the impact of the List 1 Tariff as implemented in the Notice and would continue to offset such impact in the event our Request for Exclusion expires or is otherwise not renewed, however, if retailers increase prices to consumers, consumer demand may be reduced, and any increases in the rate of the List 1 Tariff or any additional tariffs may adversely affect us in a manner where we cannot negotiate cost reductions or price increases to offset any potential impact.

In addition, in September 2018, the USTR finalized a new list of products imported from China that are subject to a new 10% tariff, which went into effect on September 24, 2018 and which was scheduled to increase to 25% on January 1, 2019 (the “List 3 Tariffs”). On February 28, 2019, President Trump delayed the increase from 10% to 25% to provide time for further negotiations with Chinese trade representatives. In May 2019, the United States increased the List 3 Tariffs from 10% to 25%. In June 2019, the USTR made available an opportunity to allow certain parties affected by the List 3 Tariffs to apply for a request for exclusion from the List 3 Tariffs.

We import a small number of lower-priced products subject to the List 3 Tariffs, and we are continuing to monitor the U.S. government’s actions with respect to such List 3 ~~Tariffs and evaluate available options with respect thereto, including the opportunity to apply for a request for exclusion from the List 3~~ Tariffs. The List 3 Tariffs, including the rate thereof and the availability of a request for exclusion process, are subject to the discretion of the President and may change at any time without advanced notice as to the timing or magnitude of such changes. . The continued implementation of such List 3 Tariffs, and anyAny increase in the duties subject to such List 3 Tariffs or any continuing or increased uncertainty with respect to the List 3 Tariffs, may have an adverse impact on our business, financial condition, cash flows and results of operations.

~~In addition, in August 2019, President Trump announced his intention to implement a 10% tariff~~The U.S. government has established an exclusion process for products on ~~certain products imported from China that are not otherwise covered by previously-implemented tariffs (the “List 4 Tariffs” and, together with the~~ List 1 Tariffs and the List 3 Tariffs, the “Tariffs”), including the List 1 Tariffs and the List 3 Tariffs. To date, the USTR has not issued a final proposal in respect of the List 4 Tariffs, including the imported products to be covered under such List 4 Tariffs.4A. We are continuing to evaluate the scope, coverage and magnitude of the proposed List 44A Tariffs and ~~any inclusion of any products we import from China that are not otherwise covered by the~~ List ~~1 Tariffs or the List 3 Tariffs may have an adverse impact on our business, financial condition, cash flows and results of operations.~~4B Tariffs.

These Tariffs, along with any additional tariffs or other trade actions (including duties, import charges or other similar restrictions or other reductions in trade) that may be implemented, may further increase the cost of certain materials and/or products that we import from China, including our Dispensers, or any other foreign nation from which we may source any goods, thereby adversely affecting our profitability. These actions could require us to raise our prices, which could decrease demand for our products or otherwise impact the marketability of our products to retailers and consumers. The Tariffs could also force us to seek alternative suppliers for our Dispensers and other materials we import from China or force our existing suppliers to establish new manufacturing operations in other countries, and the products produced by such manufacturers may be of inferior quality, cost more than the Dispensers we currently import from China, or otherwise be sourced from suppliers with unproven operations or reliability. As a result, these actions, including potential retaliatory measures by China, may adversely impact our business. Given the uncertainty regarding the scope and duration of these trade actions by the United States or other countries, as well as the potential for additional trade actions, the impact on our operations and results remains uncertain and could be significant. To the extent that our supply chain, costs, sales or profitability are negatively affected by the Tariffs or any other trade actions (including duties, import charges or other similar restrictions or other reductions in trade), our business, financial condition and results of operations may be materially adversely affected.

If we do not successfully manage the transition associated with the termination of our former President and Chief Executive Officer and the appointment of an Interim President and Chief Executive Officer, our business may suffer.

On November 1, 2019, our Board of Directors terminated our President and Chief Executive Officer, Matthew T. Sheehan, and appointed our Executive Chairman, Billy D. Prim, to serve as Interim President and Chief Executive Officer while the Board conducts a search for a permanent President and Chief Executive Officer. The Board has an active search process underway; however, such leadership transitions can be inherently difficult to manage, and an inadequate transition to a permanent President and Chief Executive Officer may cause disruption to our business due to, among other things, diverting management’s attention away from the Company’s financial and operational goals, negatively affecting relationships with our key retail partners and employees, or causing a deterioration in morale. In addition, we may incur substantial costs in connection with the leadership transition, including third-party consulting costs, bonuses and equity awards, relocation payments and other expenses. If we are unable to attract and retain a qualified candidate to become our permanent President and Chief Executive Officer in a timely manner, our ability to meet our financial and operational goals and strategic plans may be adversely impacted and our business and financial performance may suffer.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PART 1. Financial Information	Page number

Item 1. Financial Statements (Unaudited)	3

Condensed Consolidated Balance Sheets	3

Condensed Consolidated Statements of Operations	4

Condensed Consolidated Statements of Comprehensive Income (Loss) ~~Income~~	5

Condensed Consolidated Statements of Stockholders' Equity	6

Condensed Consolidated Statements of Cash Flows	7

Notes to Condensed Consolidated Financial Statements	8

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	2022

Item 3. Quantitative and Qualitative Disclosures About Market Risk	2932

Item 4. Controls and Procedures	2933

PART II. Other Information

Item 1. Legal Proceedings	2933

Item 1A. Risk Factors	2933

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3135

Item 3. Defaults Upon Senior Securities	3135

Item 4. Mine Safety Disclosures	3135

Item 5. Other Information	3135

Item 6. Exhibits	3236

Signatures	3337

	June 30,			December 31,			September 30,			December 31,
	2019			2018			2019			2018
	(unaudited)						(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	4,277		$	7,301		$	2,021		$	7,301
Accounts receivable, net		24,634			19,179			27,026			19,179
Inventories		13,742			9,965			11,878			9,965
Prepaid expenses and other current assets		6,948			7,004			7,425			7,004
Total current assets		49,601			43,449			48,350			43,449

Bottles, net		5,405			4,618			5,738			4,618
Property and equipment, net		103,637			95,627			108,162			95,627
Operating lease right-of-use assets		3,604			–			5,006			–
Intangible assets, net		75,832			78,671			74,469			78,671
Goodwill		92,015			91,814			94,746			91,814
Note receivable		3,128			–
Note receivable, net of current portion								3,094			–
Other assets		669			661			663			661
Assets held-for-sale at fair value		–			5,288			–			5,288
Total assets	$	333,891		$	320,128		$	340,228		$	320,128

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	29,899		$	25,191		$	31,583		$	25,191
Accrued expenses and other current liabilities		8,755			8,274			9,241			8,274
Current portion of long-term debt and finance leases		11,514			11,159			11,562			11,159
Total current liabilities		50,168			44,624			52,386			44,624

Long-term debt and finance leases, net of current portion and debt issuance costs		187,860			178,966			186,638			178,966
Operating leases, net of current portion		2,134			–			3,192			–
Other long-term liabilities		1,191			607			1,157			607
Liabilities held-for-sale at fair value		–			1,438			–			1,438
Total liabilities		241,353			225,635			243,373			225,635

Commitments and contingencies

Stockholders’ equity:
Preferred stock, $0.001 par value - 10,000 shares authorized, none issued and outstanding		–			–			–			–
Common stock, $0.001 par value - 70,000 shares authorized, 39,185 and 38,567 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively		39			39
Common stock, $0.001 par value - 70,000 shares authorized, 39,228 and 38,567 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively								39			39
Additional paid-in capital		423,729			424,635			424,935			424,635
Accumulated deficit		(329,325	)		(328,599	)		(326,702	)		(328,599	)
Accumulated other comprehensive loss		(1,905	)		(1,582	)		(1,417	)		(1,582	)
Total stockholders’ equity		92,538			94,493			96,855			94,493
Total liabilities and stockholders’ equity	$	333,891		$	320,128		$	340,228		$	320,128

	Operating Leases			Operating Leases
Remainder of 2019	$	858		$	556
2020		1,567			1,971
2021		553			914
2022		456			769
2023		281			544
Thereafter		440			899
Total future lease payments		4,155			5,653
Less: imputed interest		(497	)		(597	)
Total lease liability	$	3,658		$	5,056

	June 30,			December 31,			September 30,			December 31,
	2019			2018			2019			2018

Revolving Credit Facility	$	13,100		$	3,000		$	14,000		$	3,000
Term loans		180,500			185,250			178,125			185,250
Debt issuance costs, net		(1,107	)		(1,265	)		(1,031	)		(1,265	)
Total Credit Facilities		192,493			186,985
SunTrust Credit Facility								191,094			186,985
Finance leases		6,881			3,140			7,106			3,140
		199,374			190,125			198,200			190,125
Less current portion		(11,514	)		(11,159	)		(11,562	)		(11,159	)
Long-term debt and finance leases, net of current portion and debt issuance costs	$	187,860		$	178,966		$	186,638		$	178,966

	Finance Leases			Finance Leases
Remainder of 2019	$	2,425		$	2,367
2020		1,970			2,001
2021		1,525			1,562
2022		1,061			934
2023		448			299
Thereafter		65
Total future lease obligations		7,494			7,163
Less: imputed interest		(613	)		(57	)
Total finance lease liability	$	6,881		$	7,106

	Three months ended						Six months ended						Three months ended						Nine months ended
	June 30,						June 30,						September 30,						September 30,
	2019			2018			2019			2018			2019			2018			2019			2018

Net income (loss)	$	873		$	451		$	(399	)	$	1,661		$	2,621		$	(58,238	)	$	2,224		$	(56,577	)
Other comprehensive loss:
Reclassification of gain recognized in net income on redemption of Glacier securities		–			(86	)		–			(86	)
Other comprehensive income (loss):
Reclassification of gain recognized in net loss on redemption of Glacier securities														–			–			–			(86	)
Unrealized gain on investment in Glacier securities		–			–			–			14			–			–			–			14
Interest rate swap		(640	)		–			(640	)		–
Interest rate swaps														568			–			(71	)		–
Foreign currency translation adjustments, net		142			(167	)		317			(429	)		(80	)		160			236			(269	)
Total other comprehensive loss		(498	)		(253	)		(323	)		(501	)
Total other comprehensive income (loss)														488			160			165			(341	)
Comprehensive income (loss)	$	375		$	198		$	(722	)	$	1,160		$	3,109		$	(58,078	)	$	2,389		$	(56,918	)

	Three Months Ended June 30, 2018
												Accumulated
						Additional						Other			Total
	Common Stock					Paid-in			Accumulated			Comprehensive			Stockholders’
	Shares			Amount		Capital			Deficit			Loss			Equity
Balance, March 31, 2018		31,003		$	31	$	339,982		$	(272,542	)	$	(1,018	)	$	66,453
Employee stock compensation plans		321			1		2,415			–			–			2,416
Shares withheld for taxes related to net share settlement of equity awards		(3	)		–		(35	)		–			–			(35	)
Exercise of common stock warrants		976			1		11,450			–			–			11,451
Proceeds from equity offering, net of costs		5,339			5		70,786			–			–			70,791
Reclassification of equity issuance costs previously capitalized		–			–		(171	)		–			–			(171	)
Net income		–			–		–			451			–			451
Other comprehensive loss		–			–		–			–			(253	)		(253	)
Balance, June 30, 2018		37,636		$	38	$	424,427		$	(272,091	)	$	(1,271	)	$	151,103

	Six Months Ended June 30, 2018
Nine Months Ended September 30, 2018																		Nine Months Ended September 30, 2018
												Accumulated																			Accumulated
						Additional						Other			Total										Additional						Other			Total
	Common Stock					Paid-in			Accumulated			Comprehensive			Stockholders’				Common Stock						Paid-in			Accumulated			Comprehensive			Stockholders’
	Shares			Amount		Capital			Deficit			Loss			Equity				Shares			Amount			Capital			Deficit			Loss			Equity
Balance, December 31, 2017		30,084		$	30	$	345,963		$	(273,752	)	$	(770	)	$	71,471				30,084		$	30		$	345,963		$	(273,752	)	$	(770	)	$	71,471
Employee stock compensation plans		1,905			2		4,760			–			–			4,762				2,318			3			5,689			–			–			5,692
Shares withheld for taxes related to net share settlement of equity awards		(668	)		–		(8,361	)		–			–			(8,361	)			(797	)		(1	)		(11,013	)		–			–			(11,014	)
Exercise of common stock warrants		976			1		11,450			–			–			11,451				1,583			2			12,148			–			–			12,150
Proceeds from equity offering, net of costs		5,339			5		70,786			–			–			70,791				5,339			5			70,786			–			–			70,791
Reclassification of equity issuance costs previously capitalized		–			–		(171	)		–			–			(171	)			–			–			(171	)		–			–			(171	)
Net income		–			–		–			1,661			–			1,661
Net loss																				–			–			–			(56,577	)		–			(56,577	)
Other comprehensive loss		–			–		–			–			(501	)		(501	)			–			–			–			–			(341	)		(341	)
Balance, June 30, 2018		37,636		$	38	$	424,427		$	(272,091	)	$	(1,271	)	$	151,103
Balance, September 30, 2018																				38,527		$	39		$	423,402		$	(330,329	)	$	(1,111	)	$	92,001

Three Months Ended September 30, 2019																		Three Months Ended September 30, 2019
	Three Months Ended June 30, 2019																														Accumulated
												Accumulated													Additional						Other			Total
						Additional						Other			Total				Common Stock						Paid-in			Accumulated			Comprehensive			Stockholders’
	Common Stock					Paid-in			Accumulated			Comprehensive			Stockholders’				Shares			Amount			Capital			Deficit			Loss			Equity
	Shares			Amount		Capital			Deficit			Loss			Equity
Balance, March 31, 2019		39,029		$	39	$	422,052		$	(330,198	)	$	(1,407	)	$	90,486
Balance, June 30, 2019																				39,185		$	39		$	423,729		$	(329,323	)	$	(1,905	)	$	92,540
Employee stock compensation plans		159			–		1,713			–			–			1,713				44			1			1,221			–			–			1,222
Shares withheld for taxes related to net share settlement of equity awards		(3	)		–		(36	)		–			–			(36	)			(1	)		(1	)		(15	)		–			–			(16	)
Net income		–			–		–			873			–			873				–			–			–			2,621			–			2,621
Other comprehensive loss		–			–		–			–			(498	)		(498	)
Balance, June 30, 2019		39,185		$	39	$	423,729		$	(329,325	)	$	(1,905	)	$	92,538
Other comprehensive income																				–			–			–			–			488			488
Balance, September 30, 2019																				39,228		$	39		$	424,935		$	(326,702	)	$	(1,417	)	$	96,855

	Six Months Ended June 30, 2019
Nine Months Ended September 30, 2019																			Nine Months Ended September 30, 2019
													Accumulated																			Accumulated
							Additional						Other			Total										Additional						Other			Total
	Common Stock						Paid-in			Accumulated			Comprehensive			Stockholders’				Common Stock						Paid-in			Accumulated			Comprehensive			Stockholders’
	Shares			Amount			Capital			Deficit			Loss			Equity				Shares			Amount			Capital			Deficit			Loss			Equity
Balance, December 31, 2018		38,567		$	39		$	424,635		$	(328,599	)	$	(1,582	)	$	94,493				38,567		$	39		$	424,635		$	(328,599	)	$	(1,582	)	$	94,493
Effect of ASC 842 adoption		–			–			–			(327	)		–			(327	)			–			–			–			(327	)		–			(327	)
Employee stock compensation plans		893			1			3,019			–			–			3,020				937			1			4,240			–			–			4,241
Shares withheld for taxes related to net share settlement of equity awards		(282	)		(1	)		(3,993	)		–			–			(3,994	)			(283	)		(1	)		(4,008	)		–			–			(4,009	)
Exercise of common stock warrants		7			–			68			–			–			68				7			–			68			–			–			68
Net loss		–			–			–			(399	)		–			(399	)
Other comprehensive loss		–			–			–			–			(323	)		(323	)
Balance, June 30, 2019		39,185		$	39		$	423,729		$	(329,325	)	$	(1,905	)	$	92,538
Net income																					–			–			–			2,224			–			2,224
Other comprehensive income																					–			–			–			–			165			165
Balance, September 30, 2019																					39,228		$	39		$	424,935		$	(326,702	)	$	(1,417	)	$	96,855

									Three months ended September 30, 2018
	Three months ended June 30, 2018								Refill		Exchange		Dispensers		Total
Geographical area	Refill		Exchange		Dispensers		Total
United States	$	43,496	$	19,135	$	9,536	$	72,167	$	46,884	$	20,658	$	11,053	$	78,595
Canada		1,240		872		1,523		3,635		1,446		855		874		3,175
	$	44,736	$	20,007	$	11,059	$	75,802	$	48,330	$	21,513	$	11,927	$	81,770

									Nine months ended September 30, 2019
	Six months ended June 30, 2019								Refill		Exchange		Dispensers		Total
Geographical area	Refill		Exchange		Dispensers		Total
United States	$	78,824	$	38,691	$	26,484	$	143,999	$	122,567	$	61,974	$	44,144	$	228,685
Canada		1,777		1,664		1,868		5,309		2,509		2,616		2,465		7,590
	$	80,601	$	40,355	$	28,352	$	149,308	$	125,076	$	64,590	$	46,609	$	236,275

									Nine months ended September 30, 2018
	Six months ended June 30, 2018								Refill		Exchange		Dispensers		Total
Geographical area	Refill		Exchange		Dispensers		Total
United States	$	83,641	$	36,616	$	22,469	$	142,726	$	130,526	$	57,273	$	33,522	$	221,321
Canada		2,570		1,649		2,516		6,735		4,016		2,504		3,390		9,910
	$	86,211	$	38,265	$	24,985	$	149,461	$	134,542	$	59,777	$	36,912	$	231,231

			Nine months ended September 30, 2019
	Six months ended June 30, 2019
Long-term Operating	$	873	$	1,353
Short-term Operating		246		373
Total Operating lease expense	$	1,119	$	1,726

	Nine months ended September 30, 2019

Operating cash flows used for operating leases	$	1,444

	December 31, 2018
	Fair Value		Level 1		Level 2		Level 3
Assets:
Assets held-for-sale at fair value	$	5,288	$	–	$	–	$	5,288
Total assets	$	5,288	$	–	$	–	$	5,288
Liabilities:
Liabilities held-for-sale at fair value	$	1,438	$	–	$	–	$	1,438
Total liabilities	$	1,438	$	–	$	–	$	1,438

	June 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018

Identifiable assets:
Refill	$	264,226	$	268,427	$	267,061	$	268,427
Exchange		29,418		24,444		31,035		24,444
Dispensers		28,115		20,523		30,559		20,523
Corporate		12,132		6,734		11,573		6,734
	$	333,891	$	320,128	$	340,228	$	320,128

	Three Months September 30,
	2019			2018
Segment gross margin:
Refill		32.4	%		33.4	%
Exchange		29.8	%		31.1	%
Dispensers		3.5	%		5.2	%
Total gross margin		25.6	%		28.7	%

Exhibit Number		Description

2.1		Agreement and Plan of Merger, dated May 18, 2017, by and among Primo Water Corporation, Primo Water Operations, Inc. and New PW Merger Sub, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on May 19, 2017)
3.1		Amended and Restated Certificate of Incorporation of Primo Water Corporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 19, 2017)
3.2		Certificate of Amendment to Amended and Restated Certificate of Incorporation of Primo Water Corporation (incorporated by reference to Exhibit 3.3 to Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-3 (File No. 333-200016) filed on May 19, 2017)
3.3		Bylaws of Primo Water Corporation (incorporated by reference to Exhibit 3.3 to the Registrant’s Quarterly Report on Form 10-Q filed on August 9, 2017)
4.1		Specimen Certificate representing shares of common stock of Primo Water Corporation (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on May 19, 2017)
4.2		Amendment to Sixth Amended and Restated Certificate of Incorporation of Primo Water Operations, Inc. (contained in Certificate of Merger) (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on May 19, 2017)
~~10.1~~		Second Amendment to Credit Agreement, dated as of May 1, 2019 and effective as of March 30, 2019, by and among Primo Water Corporation, the Guarantors party thereto, the Lenders party thereto and SunTrust Bank, in its capacities as Administrative Agent, Swingline Lender and Issuing Bank ⁽¹⁾
~~10.2~~		Third Amendment to Credit Agreement, dated as of July 11, 2019 and effective as of June 28, 2019, by and among Primo Water Corporation, the Guarantors party thereto, the Lenders party thereto and SunTrust Bank, in its capacities as Administrative Agent, Swingline Lender and Issuing Bank ⁽¹⁾
~~10.3~~		~~Primo Water Corporation 2019 Omnibus Long-Term Incentive Plan Form of Restricted Stock Award Agreement~~⁽¹⁾*
~~10.4~~		~~Primo Water Corporation 2019 Omnibus Long-Term Incentive Plan Form of Restricted Stock Unit Award Agreement~~⁽¹⁾*
~~10.5~~		~~Primo Water Corporation 2019 Omnibus Long-Term Incentive Plan Form of Stock Option Award Agreement~~⁽¹⁾*
31.1		Certification of Periodic Report by Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14a and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2		Certification of Periodic Report by Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14a and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.1		Certification of Periodic Report by Chief Executive Officer and Chief Financial Officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
101.INS		XBRL Instance Document ⁽¹⁾
101.SCH		XBRL Taxonomy Extension Schema Document ⁽¹⁾
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document ⁽¹⁾
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document ⁽¹⁾
101.LAB		XBRL Taxonomy Extension Label Linkbase Document ⁽¹⁾
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document ⁽¹⁾

	(1)	Included herewith


	* Indicates management contract or compensatory plan or arrangement.

	PRIMO WATER CORPORATION
	(Registrant)


~~Date: August 7, 2019~~	~~By:~~	~~/s/ Matthew T. Sheehan~~
		~~Matthew T. Sheehan~~
		~~Chief Executive Officer~~

Date: ~~August 7,~~November 6, 2019	By:	/s/ ~~David J. Mills~~ Billy D. Prim
		~~David J. Mills~~ Billy D. Prim
		Interim Chief Executive Officer

Date: November 6, 2019	By:	/s/ David J. Mills
		David J. Mills
		Chief Financial Officer