##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010
 OR
 o
    
    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
    
    30-0278688(State of incorporation)
    
    (I.R.S. Employer Identification No.)104 Cambridge Plaza Drive, Winston-Salem, NC
    
    27104(Address of principal executive office)
    
    (Zip code)
 (336) 331-4000
 (Registrants telephone number, including area code)
 o þ
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if smaller reporting company)
 o þ




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##### 



PRIMO WATER CORPORATION
FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010

INDEX
 Page numberPart I. Financial InformationItem 1. Financial Statements (Unaudited)
    
    
    3Consolidated Balance Sheets
    
    
    3Consolidated Statements of Operations
    
    
    4Consolidated Statements of Cash Flows
    
    
    5Notes to Unaudited Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    29Item 4. Controls and Procedures
    
    
    29Part II. Other InformationItem 1. Legal Proceedings
    
    
    30Item 1A. Risk Factors
    
    
    30Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 3. Defaults Upon Senior Secutities
    
    
    31Item 5. Other Information
    
    
    31Item 6. Exhibits
    
    
    31Exhibit 31.1Exhibit 31.2Exhibit 32.1
   2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 PRIMO WATER CORPORATION
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands, except par value information)
 December 31
    
    
    September 30,2009
    
    
    2010(Unaudited)AssetsCurrent assets:Cash
    
    $
    
    
    
    $
    325Accounts receivable, net
    
    
    1,888
    
    
    
    3,406Inventories
    
    
    1,849
    
    
    
    3,067Prepaid expenses and other current assets
    
    
    1,083
    
    
    
    1,125Total current assets
    
    
    4,820
    
    
    
    7,923Bottles, net
    
    
    1,997
    
    
    
    2,373Property and equipment, net
    
    
    14,321
    
    
    
    15,848Intangible assets, net
    
    
    1,077
    
    
    
    889Other assets
    
    
    153
    
    
    
    1,996Total assets
    
    $
    22,368
    
    
    $
    29,029Liabilities and stockholders equity (deficit)Current liabilities:Accounts payable
    
    $
    2,756
    
    
    $
    6,658Accrued expenses and other current liabilities
    
    
    4,144
    
    
    
    5,629Current portion of long-term debt, capital leases and notes payable
    
    
    426
    
    
    
    25,048Total current liabilities
    
    
    7,326
    
    
    
    37,335Long-term debt, capital leases and notes payable, net of current portion
    
    
    14,403
    
    
    
    35Other long-term liabilities
    
    
    1,048
    
    
    
    1,301Total liabilities
    
    
    22,777
    
    
    
    38,671Commitments and contingenciesStockholders equity (deficit)Common stock, $0.001 par value  200,000 shares authorized, 1,453 and
1,458 shares issued and outstanding at December 31, 2009 and September 30, 2010, respectively
    
    
    1
    
    
    
    1Preferred stock, $0.001 par value  100,000 shares authorizedSeries A preferred stock, 18,755 shares issued and outstanding
    
    
    19
    
    
    
    19Series B preferred stock, 23,280 shares issued and outstanding
    
    
    23
    
    
    
    23Series C preferred stock, 12,520 shares issued and outstanding
    
    
    13
    
    
    
    13Additional paid-in capital
    
    
    86,737
    
    
    
    84,881Common stock warrants
    
    
    3,797
    
    
    
    6,112Accumulated deficit
    
    
    (90,999
    )
    
    
    (100,691
    )Total stockholders equity (deficit)
    
    
    (409
    )
    
    
    (9,642
    )Total liabilities and stockholders equity (deficit)
    
    $
    22,368
    
    
    $
    29,029
   3




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##### Table of Contents



PRIMO WATER CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
(In thousands, except per share amounts)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2010
    
    
    2009
    
    
    2010Net sales
    
    $
    14,595
    
    
    $
    10,899
    
    
    $
    39,095
    
    
    $
    31,901Operating costs and expenses:Cost of sales
    
    
    12,279
    
    
    
    8,591
    
    
    
    32,647
    
    
    
    25,263Selling, general and administrative expenses
    
    
    2,365
    
    
    
    3,292
    
    
    
    7,406
    
    
    
    9,106Depreciation and amortization
    
    
    1,063
    
    
    
    1,103
    
    
    
    3,141
    
    
    
    3,113Total operating costs and expenses
    
    
    15,707
    
    
    
    12,986
    
    
    
    43,194
    
    
    
    37,482Loss from operations
    
    
    (1,112
    )
    
    
    (2,087
    )
    
    
    (4,099
    )
    
    
    (5,581
    )Interest expense
    
    
    (571
    )
    
    
    (936
    )
    
    
    (1,608
    )
    
    
    (2,400
    )Other income, net
    
    
    
    
    
    
    33
    
    
    
    
    
    
    
    33Loss from continuing operations before income taxes
    
    
    (1,683
    )
    
    
    (2,990
    )
    
    
    (5,707
    )
    
    
    (7,948
    )Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss from continuing operations
    
    
    (1,683
    )
    
    
    (2,990
    )
    
    
    (5,707
    )
    
    
    (7,948
    )Loss from discontinued operations, net of income taxes
    
    
    (380
    )
    
    
    
    
    
    
    (737
    )
    
    
    Net loss
    
    
    (2,063
    )
    
    
    (2,990
    )
    
    
    (6,444
    )
    
    
    (7,948
    )Preferred dividends and warrant modification charge
    
    
    (761
    )
    
    
    (2,896
    )
    
    
    (2,282
    )
    
    
    (4,060
    )Net loss attributable to common shareholders
    
    $
    (2,824
    )
    
    $
    (5,886
    )
    
    $
    (8,726
    )
    
    $
    (12,008
    )Basic and diluted loss per common share:Loss from continuing operations attributable to common shareholders
    
    $
    (1.68
    )
    
    $
    (4.04
    )
    
    $
    (5.50
    )
    
    $
    (8.25
    )Loss from discontinued operations attributable to common shareholders
    
    
    (0.26
    )
    
    
    
    
    
    
    (0.51
    )
    
    
    Net loss attributable to common shareholders
    
    $
    (1.94
    )
    
    $
    (4.04
    )
    
    $
    (6.01
    )
    
    $
    (8.25
    )Basic and diluted weighted average common shares outstanding
    
    
    1,453
    
    
    
    1,458
    
    
    
    1,453
    
    
    
    1,456
   4




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PRIMO WATER CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
(In thousands)
 Nine Months Ended September 302009
    
    
    2010Operating activitiesNet loss
    
    $
    (6,444
    )
    
    $
    (7,948
    )Less: Loss from discontinued operations
    
    
    (737
    )
    
    
    Loss from continuing operations
    
    
    (5,707
    )
    
    
    (7,948
    )Adjustments to reconcile net loss from continuing
operations to net cash used in operating activities:Depreciation and amortization
    
    
    3,141
    
    
    
    3,113Stock-based compensation expense
    
    
    224
    
    
    
    394Non-cash interest expense
    
    
    503
    
    
    
    530Bad debt expense
    
    
    38
    
    
    
    35Other
    
    
    10
    
    
    
    (33
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    444
    
    
    
    (1,552
    )Inventories
    
    
    193
    
    
    
    (1,219
    )Prepaid expenses and other assets
    
    
    (374
    )
    
    
    (42
    )Accounts payable
    
    
    400
    
    
    
    3,403Accrued expenses and other liabilities
    
    
    (491
    )
    
    
    (36
    )Net cash used in operating activities
    
    
    (1,619
    )
    
    
    (3,355
    )Investing activitiesPurchases of property and equipment
    
    
    (1,294
    )
    
    
    (3,048
    )Purchases of bottles, net of disposals
    
    
    (682
    )
    
    
    (1,085
    )Proceeds from the sale of property and equipment
    
    
    23
    
    
    
    1Additions to and acquisition of intangible assets
    
    
    (39
    )
    
    
    (37
    )Net cash used in investing activities
    
    
    (1,992
    )
    
    
    (4,169
    )Financing activitiesNet (payments) borrowings from revolving line of credit
    
    
    (2,812
    )
    
    
    6,572Issuance of long term debt
    
    
    10,000
    
    
    
    3,418Note payable and capital lease payments
    
    
    (2
    )
    
    
    (5
    )Debt issuance costs
    
    
    (589
    )
    
    
    (150
    )Prepaid equity issuance costs
    
    
    
    
    
    
    (1,713
    )Net change in book overdraft
    
    
    (263
    )
    
    
    (113
    )Proceeds from issuance of common stock
    
    
    2
    
    
    
    65Dividends paid
    
    
    (1,032
    )
    
    
    (225
    )Net cash provided by financing activities
    
    
    5,304
    
    
    
    7,849Net increase in cash from continuing operations
    
    
    1,693
    
    
    
    325Cash, beginning of period
    
    
    516
    
    
    
    Cash used in discontinued operations from:Operating Activities
    
    
    (1,107
    )
    
    
    Investing Activities
    
    
    (26
    )
    
    
    Financing Activities
    
    
    (680
    )
    
    
    Cash used in discontinued operations
    
    
    (1,813
    )
    
    
    Cash, end of period
    
    $
    396
    
    
    $
    325
   5




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##### Table of Contents



PRIMO WATER CORPORATION
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 (In thousands, except per share amounts)
 1. Description of Business and Significant Accounting Policies
 Business
  Initial Public Offering and Acquisition
    Unaudited Interim Financial Information
   6




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Revenue Recognition
    Fair Value Measurements
 Fair
Value Measurements and Disclosures
  
    
    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.
  Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Common stock warrants
    
    $
    703
    
    
    
    
    
    
    
    
    
    
    $
    703
  7




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##### Table of Contents



Balance at December 31, 2009
    
    $
    600Total (gains) losses recognized
    
    
    (34
    )Initial fair value
    
    
    137Balance at September 30, 2010
    
    $
    703
  Concentrations of Risk
   Basic and Diluted Net loss Per Share
    8




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##### Table of Contents



2. Accrued expenses and other current liabilities
  December 31,
    
    
    September 30,2009
    
    
    2010Dividends payable
    
    $
    2,367
    
    
    $
    3,888Accrued payroll and related items
    
    
    184
    
    
    
    166Accrued professional and other expenses
    
    
    580
    
    
    
    383Accrued interest
    
    
    107
    
    
    
    104Accrued sales tax payable
    
    
    534
    
    
    
    450Accrued receipts not invoiced
    
    
    182
    
    
    
    632Other
    
    
    190
    
    
    
    6$
    4,144
    
    
    $
    5,629
 3. Long-Term Debt, Capital Leases and Notes Payable
  December 31,
    
    
    September 30,2009
    
    
    2010Senior loan agreement
    
    $
    423
    
    
    $
    6,995Subordinated convertible notes payable,
net of original issue discount
    
    
    14,400
    
    
    
    18,041Notes payable and capital leases
    
    
    6
    
    
    
    4714,829
    
    
    
    25,083Less current portion
    
    
    (426
    )
    
    
    (25,048
    )Long-term debt, notes payable and
capital leases, net of current portion
    
    $
    14,403
    
    
    $
    35
  9




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4. Stockholders Equity
   10




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##### Table of Contents



Preferred Stock
        11




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##### Table of Contents



5. Stock-Based Compensation
 2004 Stock Plan
  2010 Omnibus Long-Term Incentive Plan
  Stock Option Activity
  Expected life of options in years
    
    
    6.3Risk-free interest rate
    
    
    2.8
    %Expected volatility
    
    
    45.5
    %Dividend yield
    
    
    0.0
    %
  WeightedWeighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Price per
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Share
    
    
    Life (Years)
    
    
    ValueOutstanding at December 31, 2009
    
    
    280
    
    
    $
    13.15Granted
    
    
    31
    
    
    
    12.84Exercised
    
    
    (6
    )
    
    
    11.51Forfeited
    
    
    (1
    )
    
    
    17.89Outstanding at September 30, 2010
    
    
    304
    
    
    
    13.14
    
    
    
    6.21
    
    
    $
    210Exercisable at September 30, 2010
    
    
    255
    
    
    $
    12.86
    
    
    
    5.85
    
    
    $
    210
  12




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##### Table of Contents



Restricted Stock Award Activity
   Weighed AverageGrant Date FairNumber of Shares
    
    
    ValueUnvested at December 31, 2009
    
    
    
    
    
    $
    Granted
    
    
    106
    
    
    
    12.84Vested
    
    
    
    
    
    
    Forfeited
    
    
    (3
    )
    
    
    12.84Unvested at September 30, 2010
    
    
    103
    
    
    $
    12.84
  Employee Stock Purchase Plan
   13




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##### Table of Contents



6. Commitments and Contingencies
  7. Income Taxes
  8. Segments
      14




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##### Table of Contents



Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2010
    
    
    2009
    
    
    2010Segment Net RevenuesExchange
    
    $
    6,287
    
    
    $
    7,052
    
    
    $
    17,408
    
    
    $
    19,074Products
    
    
    7,884
    
    
    
    3,386
    
    
    
    20,526
    
    
    
    11,563Other
    
    
    427
    
    
    
    462
    
    
    
    1,247
    
    
    
    1,273Inter-company elimination
    
    
    (3
    )
    
    
    (1
    )
    
    
    (86
    )
    
    
    (9
    )Total net revenues
    
    $
    14,595
    
    
    $
    10,899
    
    
    $
    39,095
    
    
    $
    31,901Segment income (loss) from operationsExchange
    
    $
    1,086
    
    
    $
    1,002
    
    
    $
    2,603
    
    
    $
    2,734Products
    
    
    (54
    )
    
    
    (393
    )
    
    
    6
    
    
    
    (367
    )Other
    
    
    24
    
    
    
    67
    
    
    
    (6
    )
    
    
    129Inter-company elimination
    
    
    3
    
    
    
    (2
    )
    
    
    8
    
    
    
    (6
    )Corporate
    
    
    (1,108
    )
    
    
    (1,658
    )
    
    
    (3,569
    )
    
    
    (4,958
    )Depreciation and amortization
    
    
    (1,063
    )
    
    
    (1,103
    )
    
    
    (3,141
    )
    
    
    (3,113
    )Loss from operations
    
    $
    (1,112
    )
    
    $
    (2,087
    )
    
    $
    (4,099
    )
    
    $
    (5,581
    )Depreciation and amortization expense:Exchange
    
    $
    786
    
    
    $
    868
    
    
    $
    2,336
    
    
    $
    2,396Products
    
    
    34
    
    
    
    34
    
    
    
    100
    
    
    
    102Other
    
    
    123
    
    
    
    104
    
    
    
    366
    
    
    
    305Corporate
    
    
    120
    
    
    
    97
    
    
    
    339
    
    
    
    310$
    1,063
    
    
    $
    1,103
    
    
    $
    3,141
    
    
    $
    3,113Capital expenditures:Exchange
    
    $
    447
    
    
    $
    2,263
    
    
    $
    1,576
    
    
    $
    3,728Products
    
    
    
    
    
    
    13
    
    
    
    50
    
    
    
    13Other
    
    
    73
    
    
    
    31
    
    
    
    98
    
    
    
    142Corporate
    
    
    135
    
    
    
    123
    
    
    
    252
    
    
    
    250$
    655
    
    
    $
    2,430
    
    
    $
    1,976
    
    
    $
    4,133Identifiable assets:Exchange
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    19,401Products
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,839Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,544Corporate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,245$
    29,029
  15




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9. Discontinued Operations
   Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2009
    
    
    2009Net sales
    
    $
    126
    
    
    $
    446Cost of sales
    
    
    229
    
    
    
    220Gross profit
    
    
    (103
    )
    
    
    226Selling, general and administrative expenses
    
    
    265
    
    
    
    905Operating loss
    
    
    (368
    )
    
    
    (679
    )Interest (expense) income, net
    
    
    (12
    )
    
    
    (58
    )Loss from discontinued operations, before income taxes
    
    
    (380
    )
    
    
    (737
    )Provision for income taxes
    
    
    
    
    
    
    Loss from discontinued operations
    
    $
    (380
    )
    
    $
    (737
    )
 10. Initial Public Offering
   11. Acquisition
   16




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##### Table of Contents



Aggregate purchase price:Cash consideration
    
    $
    74,311Common stock to be issued
    
    
    31,050Purchase price
    
    $
    105,361Purchase price allocation:Net assets acquiredNet current assets
    
    $
    3,896Property and equipment
    
    
    13,099Identifiable intangible assets
    
    
    17,000Goodwill
    
    
    73,545Liabilities assumed
    
    
    (2,179
    )Aggregate purchase price
    
    $
    105,361
  Nine Months Ended September 30,2009
    
    
    2010Net Sales
    
    $
    59,082
    
    
    $
    51,586Net loss from continuing operations
    
    $
    (1,859
    )
    
    $
    (3,858
    )Basic and diluted loss per common share:Net loss attributable to common shareholders
    
    $
    (0.14
    )
    
    $
    (0.20
    )Basic and diluted weighted average common shares outstanding
    
    
    19,003
    
    
    
    19,006
  17




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion of the Companys financial condition and results of operations should
be read in conjunction with the consolidated financial statements and notes thereto included
elsewhere in this report and within our Prospectus filed with the Securities and Exchange
Commission on November 5, 2010. In addition, certain statements contained herein are not based on
historical fact and are forward-looking statements within the meaning of the applicable
securities laws and regulations. Generally, these statements can be identified by the use of words
such as anticipate, believe, could, estimate, expect, feel, forecast, intend,
may, plan, potential, project, should, would, and similar expressions intended to
identify forward-looking statements, although not all forward-looking statements contain these
identifying words. Owing to the uncertainties inherent in forward-looking statements, actual
results could differ materially from those stated here. Factors that could cause actual results to
differ materially from those in the forward-looking statements include, but are not limited to, the
loss of major retail customers of the Company or the reduction in volume of purchases by major
retail customers, lower than anticipated consumer and retailer acceptance of the Companys water
bottle exchange and water bottle refill services and its water dispensers, changes in the Companys
relationships with its independent bottlers, distributors and suppliers, the entry of a competitor
with greater resources into the marketplace and competition and other business conditions in the
water and water dispenser industry in general, the Company experiencing product liability, product
recall and higher than anticipated rates of warranty expense or sales returns associated with a
product quality or safety issue, the loss of key Company personnel, changes in the regulatory
framework governing the Companys business, the Companys inability to efficiently and effectively
integrate the Culligan Refill Business with the Companys historical business, the Companys
inability to efficiently expand operations and capacity to meet growth, the Companys inability to
introduce and produce new product offerings, and the failure of lenders to honor their commitments
under the Companys credit facility, as well as other risks described more fully in the Companys
Prospectus filed with the Securities and Exchange Commission on November 5, 2010. Forward-looking
statements reflect managements analysis as of the date of this report. Except as required by law,
the Company undertakes no obligation to update publicly or revise any forward-looking statement,
whether as a result of new information, future events or otherwise.
 Overview
   Business Segments
    18




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Recent Transactions
     19




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##### Table of Contents



Results of Operations
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2010
    
    
    2009
    
    
    2010Net sales
    
    $
    14,595
    
    
    $
    10,899
    
    
    $
    39,095
    
    
    $
    31,901Operating costs and expenses:Cost of sales
    
    
    12,279
    
    
    
    8,591
    
    
    
    32,647
    
    
    
    25,263Selling, general and administrative expenses
    
    
    2,365
    
    
    
    3,292
    
    
    
    7,406
    
    
    
    9,106Depreciation and amortization
    
    
    1,063
    
    
    
    1,103
    
    
    
    3,141
    
    
    
    3,113Total operating costs and expenses
    
    
    15,707
    
    
    
    12,986
    
    
    
    43,194
    
    
    
    37,482Loss from operations
    
    
    (1,112
    )
    
    
    (2,087
    )
    
    
    (4,099
    )
    
    
    (5,581
    )Interest expense and other, net
    
    
    (571
    )
    
    
    (903
    )
    
    
    (1,608
    )
    
    
    (2,367
    )Loss from continuing operations before income taxes
    
    
    (1,683
    )
    
    
    (2,990
    )
    
    
    (5,707
    )
    
    
    (7,948
    )Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss from continuing operations
    
    
    (1,683
    )
    
    
    (2,990
    )
    
    
    (5,707
    )
    
    
    (7,948
    )Loss from discontinued operations, net of income taxes
    
    
    (380
    )
    
    
    
    
    
    
    (737
    )
    
    
    Net loss
    
    
    (2,063
    )
    
    
    (2,990
    )
    
    
    (6,444
    )
    
    
    (7,948
    )Preferred dividends
    
    
    (761
    )
    
    
    (2,896
    )
    
    
    (2,282
    )
    
    
    (4,060
    )Net loss attributable to common shareholders
    
    $
    (2,824
    )
    
    $
    (5,886
    )
    
    $
    (8,726
    )
    
    $
    (12,008
    )
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2010
    
    
    2009
    
    
    2010Consolidated statements of operations data:Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Operating costs and expenses:Cost of sales
    
    
    84.1
    %
    
    
    78.8
    %
    
    
    83.5
    %
    
    
    79.2
    %Selling, general and administrative expenses
    
    
    16.2
    %
    
    
    30.2
    %
    
    
    19.0
    %
    
    
    28.5
    %Depreciation and amortization
    
    
    7.3
    %
    
    
    10.1
    %
    
    
    8.0
    %
    
    
    9.8
    %Total operating costs and expenses
    
    
    107.6
    %
    
    
    119.1
    %
    
    
    110.5
    %
    
    
    117.5
    %Operating loss
    
    
    (7.6
    %)
    
    
    (19.1
    %)
    
    
    (10.5
    %)
    
    
    (17.5
    %)Interest expense and other, net
    
    
    (3.9
    %)
    
    
    (8.3
    %)
    
    
    (4.1
    %)
    
    
    (7.4
    %)Loss from continuing operations before income taxes
    
    
    (11.5
    %)
    
    
    (27.4
    %)
    
    
    (14.6
    %)
    
    
    (24.9
    %)Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss from continuing operations
    
    
    (11.5
    %)
    
    
    (27.4
    %)
    
    
    (14.6
    %)
    
    
    (24.9
    %)Loss from discontinued operations, net of income taxes
    
    
    (2.6
    %)
    
    
    
    
    
    
    (1.9
    %)
    
    
    Net loss
    
    
    (14.1
    %)
    
    
    (27.4
    %)
    
    
    (16.5
    %)
    
    
    (24.9
    %)
  20




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##### Table of Contents



Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2009
    
    
    2010
    
    
    2009
    
    
    2010Segment Net RevenuesExchange
    
    $
    6,287
    
    
    $
    7,052
    
    
    $
    17,408
    
    
    $
    19,074Products
    
    
    7,884
    
    
    
    3,386
    
    
    
    20,526
    
    
    
    11,563Other
    
    
    427
    
    
    
    462
    
    
    
    1,247
    
    
    
    1,273Inter-company elimination
    
    
    (3
    )
    
    
    (1
    )
    
    
    (86
    )
    
    
    (9
    )Total net revenues
    
    $
    14,595
    
    
    $
    10,899
    
    
    $
    39,095
    
    
    $
    31,901Segment income (loss) from operationsExchange
    
    $
    1,086
    
    
    $
    1,002
    
    
    $
    2,603
    
    
    $
    2,734Products
    
    
    (54
    )
    
    
    (393
    )
    
    
    6
    
    
    
    (367
    )Other
    
    
    24
    
    
    
    67
    
    
    
    (6
    )
    
    
    129Inter-company elimination
    
    
    3
    
    
    
    (2
    )
    
    
    8
    
    
    
    (6
    )Corporate
    
    
    (1,108
    )
    
    
    (1,658
    )
    
    
    (3,569
    )
    
    
    (4,958
    )Depreciation and amortization
    
    
    (1,063
    )
    
    
    (1,103
    )
    
    
    (3,141
    )
    
    
    (3,113
    )Loss from operations
    
    $
    (1,112
    )
    
    $
    (2,087
    )
    
    $
    (4,099
    )
    
    $
    (5,581
    )
 Three and Nine Months Ended September 30, 2010 Compared to Three and Nine months Ended
September 30, 2009
 Net Sales.
 Exchange.
    21




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##### Table of Contents



Products.
 Gross Margin.
 Exchange.
 Products.
 Selling, General and Administrative Expenses.
 Exchange.
 Products.
   22




---



##### Table of Contents



Other.
 Depreciation and Amortization.
 Interest (Expense) and Other Income, Net.
 Preferred Dividends and Other Charges.
   23




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##### Table of Contents



Liquidity and Capital Resources
  Nine months endedSeptember 30,2009
    
    
    2010Net cash provided by (used in):Operating activities:
    
    $
    (1,619
    )
    
    $
    (3,355
    )Investing activities:
    
    
    (1,992
    )
    
    
    (4,169
    )Financing activities:
    
    
    5,304
    
    
    
    7,849
   Net Cash Flows from Operating Activities
  Net Cash Flows from Investing Activities
  Net Cash Flows from Financing Activities
   24




---



##### Table of Contents



New Senior Revolving Credit Facility
   Adequacy of Capital Resources
       25




---



##### Table of Contents



Legal Proceedings
  Off-Balance Sheet Arrangements
    Seasonality; Fluctuations of Results
  Critical Accounting Policies and Estimates
  Revenue Recognition
  26




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##### Table of Contents



Allowance for Doubtful Accounts
 Long-Lived Assets
 Income Taxes
 Income Taxes
 Stock-Based Compensation Compensation-Stock Compensation
  Nine Months EndedSeptember 30, 2010Risk-free interest rate
    
    
    2.8
    %Expected life of options in years
    
    
    6.3Estimated volatility
    
    
    45.5
    %Dividend yield
    
    
    
  27




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##### Table of Contents



Significant Factors Used in Determining Fair Value of Our Common Stock
   28




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
   29




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Unregistered Sales of Equity Securities
  Use of Proceeds
   
    
    $74.3 million to pay the cash portion of the purchase price for the Culligan Refill
Acquisition (including the preliminary working capital adjustment);
 
    
    $18.7 million to repay our 14% subordinated convertible notes due March 31, 2011 and to pay
accrued and unpaid interest;
 
    
    $15.8 million to redeem 50% of the outstanding shares of our Series B preferred stock and
to pay accrued and unpaid dividends on all outstanding shares of our Series B preferred stock;
 
    
    $7.9 million to repay borrowings under our prior senior revolving credit facility and to
pay accrued and unpaid interest; and
 
    
    $5.2 million to pay fees and expenses in connection with all of the foregoing items.
   30




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##### Table of Contents



Item 3. Defaults Upon Senior Securities
  
 Item 5. Other Information
  
 Item 6. Exhibits
 Exhibit
    
    Description31.1
    
    
    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)
  31




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##### Table of Contents



SIGNATURES
  PRIMO WATER CORPORATION
(Registrant)Date: December 7, 2010
    By:
    /s/ Billy D. PrimBilly D. PrimChairman, Chief Executive Officer and PresidentDate: December 7, 2010
    By:
    /s/ Mark CastanedaMark CastanedaChief Financial Officer  32