Discontinued Operations

12 Months Ended

Jan. 02, 2021

Discontinued Operations and Disposal Groups [Abstract]

On February 28, 2020, the Company completed the sale of S&D to Westrock Coffee Company, LLC, a Delaware limited liability company (“Westrock”), pursuant to which Westrock acquired all of the issued and outstanding equity of S&D from the Company (S&D Divestiture”). The consideration was $405.0 million paid at closing in cash, with customary post-closing working capital adjustments, which were resolved in June 2020 by payment of $1.5 million from the Company to Westrock. The Company used the proceeds of the S&D Divestiture to finance a portion of the Legacy Primo Acquisition. See Note 5 to the Consolidated Financial Statements for additional information on the Legacy Primo Acquisition.

On January 30, 2018, the Company completed the sale of the Traditional Business to Refresco. The Traditional Business Divestiture was structured as a sale of the assets of the Canadian business and a sale of the stock of the operating subsidiaries engaged in the Traditional Business in the other jurisdictions after the Company completed an internal reorganization. The aggregate deal consideration was $1.25 billion, paid at closing in cash, with customary post-closing adjustments, resolved in December 2018 by the payment of $7.9 million from the Company to Refresco. As of December 28, 2019, $12.4 million of the total sale proceeds were being held in escrow by a third-party escrow agent to secure potential indemnification claims. These funds are included in cash and cash equivalents on the Consolidated Balance Sheet. In July 2020, a settlement agreement was reached with Refresco. In exchange for a settlement of pending and future claims, $4.0 million of the escrow funds were released to Refresco and the remaining $8.4 million were released to us.

In connection with the Traditional Business Divestiture, the Company and Refresco entered into a Transition Services Agreement pursuant to which the Company and Refresco provide certain services to each other for various service periods, with the longest service period being 18 months, including tax and accounting services, certain human resources services, communications systems and support, and insurance/risk management. Each party was compensated for services rendered as set forth in the Transition Services Agreement. All service periods under the Transition Services Agreement have expired.

In addition, the Company and Refresco entered into certain Co-pack Manufacturing Agreements pursuant to which the Company and Refresco manufacture and supply certain beverage products for each other. Each party will be compensated for the products they supply as set forth in the Co-pack Manufacturing Agreements. The Co-pack Manufacturing Agreements have a term of 36 months.

For the year ended December 28, 2019, the Company paid Refresco $0.7 million for the contract manufacture of beverage products and reimbursed Refresco $0.7 million for various operational expenses that were paid by Refresco on its behalf. For the year ended December 28, 2019, Refresco paid the Company $7.2 million for the contract manufacture of beverage products. For the year ended December 29, 2018, the Company paid Refresco $8.7 million for the contract manufacture of beverage products and reimbursed Refresco $47.2 million for various operational expenses that were paid by Refresco on its behalf. For the year ended December 29, 2018, Refresco paid the Company $45.5 million for the contract manufacture of beverage products.

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


	For the Year Ended
(in millions of U.S. dollars)	January 2, 2021		December 28, 2019		December 29, 2018
Revenue, net 1	$	97.1	$	605.0	$	698.8
Cost of sales	71.1		438.4		534.0
Operating (loss) income from discontinued operations	(0.5)		15.4		18.1
Gain on sale of discontinued operations	53.7		—		427.9
Income from discontinued operations, before income taxes	53.1		15.7		419.5
Income tax expense 2, 3	28.0		2.0		51.4
Net income from discontinued operations, net of income taxes	25.1		13.7		368.1
Less: Net income attributable to non-controlling interests	—		—		0.6
Net income attributable to Primo Water Corporation – discontinued operations 4	$	25.1	$	13.7	$	367.5

______________________

1 Includes related party sales to continuing operations of $1.0 million, $5.9 million and $5.7 million for the years ended January 2, 2021, December 28, 2019 and December 29, 2018, respectively.

2 The Traditional Business Divestiture resulted in a taxable gain on sale in the U.S., which utilized a significant portion of the existing U.S. net operating loss carryforwards. As a result, the Company was in a net deferred tax liability position in the U.S. and thus a tax benefit of approximately $35.1 million related to a release of the U.S. valuation allowance was recorded in 2018 and is offsetting the overall income tax expense related to discontinued operations. The Traditional Business Divestiture resulted in a non-taxable gain on sale in the United Kingdom. No tax benefit resulted from the Traditional Business Divestiture related to the taxable loss on sale in Canada due to the Company's valuation allowance position. During 2019, $3.0 million of tax benefit was recorded related to the finalization of the U.S. tax gain calculation.

3 The S&D Divestiture resulted in tax expense of $28.5 million on the gain on sale in 2020 and utilized a significant portion of the existing U.S. net operating loss carryforwards.

4 Net income attributable to Primo Water Corporation - discontinued operations is inclusive of interest expense on short-term borrowings and debt required to be repaid or extinguished as part of divestiture of $3.4 million for the year ended December 29, 2018.

Assets and liabilities of discontinued operations presented in the accompanying Consolidated Balance Sheet as of December 28, 2019 include the following:


(in millions of U.S. dollars)	December 28, 2019
ASSETS
Cash and cash equivalents	$	48.6
Accounts receivable, net	62.6
Inventories	59.6
Prepaid expenses and other current assets	15.9
Current assets of discontinued operations	186.7
Property, plant and equipment, net	89.7
Operating lease right-of-use assets	17.5
Goodwill	128.2
Intangible assets, net	104.4
Long-term assets of discontinued operations	$	339.8
LIABILITIES
Current maturities of long-term debt	$	0.5
Accounts payable and accrued liabilities	95.5
Current operating lease obligations	5.2
Current liabilities of discontinued operations	101.2
Long-term debt	1.1
Operating lease obligations	12.6
Deferred tax liabilities	36.8
Other long-term liabilities	3.0
Long-term liabilities of discontinued operations	$	53.5

Cash flows from discontinued operations included borrowings and payments under our previously existing asset-based lending credit facility of $262.4 million and $482.8 million, respectively, for the year ended December 29, 2018.