Segments

At June 30, 2011, we had two operating segments and two reportable segments: Primo Water (“Water”) and Primo Products (“Products”). The Water segment includes our historical business of bottled water exchange services (“Exchange”), the Refill Business (“Refill”) acquired in November 2010, the Canada Exchange Business acquired in March 2011 and the operations of a unit that previously was an operating segment, but did not meet quantitative threshold for reporting purposes. Historically, we have disclosed Exchange, Refill and Products as reportable segments. However in 2011, we integrated the Exchange and Refill operations to take advantage of synergies and to eliminate duplicate operations and costs. In integrating the businesses we have changed our internal management and reporting structure such that Exchange and Refill no longer meet the requirements of operating segments on a stand-alone basis.

Our Water segment sales consist of the sale of multi-gallon purified bottled water (exchange services) and our self-serve filtered drinking water vending service (refill services) through retailers in each of the contiguous United States and Canada. Our Water services are offered through point of purchase display racks or self-serve filtered water vending displays and recycling centers that are prominently located at major retailers in space that is often underutilized. As of June 30, 2011, we offered our Water services at approximately 15,900 locations.

Our Products segment sells water dispensers that are designed to dispense Primo and other dispenser-compatible bottled water. The Products segment will include future appliance sales related to the Omnifrio Single-Serve Beverage Business acquired in April 2011. Our Products sales are primarily generated through major U.S. retailers. Our water dispensers are sold primarily through a direct-import model, where we recognize revenues for the sale of the water dispensers when title is transferred to our retailer customers. We support retail sell-through with domestic inventory. We design, market and arrange for certification and inspection of our products.

We evaluate the financial results of these segments focusing primarily on segment net sales and segment income (loss) from operations before depreciation and amortization (“segment income (loss) from operations”). We utilize segment net sales and segment income (loss) 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.

Cost of sales for Water consists of costs for bottling and related packaging materials and distribution costs for our bottled water for our exchange services and servicing and material costs for our refill services. Cost of sales for Products consists of contract manufacturing, freight, duties and warehousing costs of our water dispensers.

Selling, general and administrative expenses for all segments consist primarily of personnel costs for sales, marketing, operations support and customer service, 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 human resources and administration. Corporate expenses also include certain professional fees and expenses and compensation of our Board of Directors.

The following table presents segment information for the three and six months ended June 30:

	Three months ended June 30,						Six months ended June 30,
	2011			2010			2011			2010
Segment net sales
Water	$	14,848		$	6,905		$	27,995		$	12,825
Products		5,853			5,268			9,845			8,177
Total net sales	$	20,701		$	12,173		$	37,840		$	21,002

Segment income (loss) from operations
Water	$	3,294		$	999		$	6,702		$	1,790
Products		160			87			(327	)		26
Corporate		(2,323	)		(1,465	)		(4,277	)		(3,022	)
Acquisition-related costs		(216	)		(278	)		(919	)		(278	)
Depreciation and amortization		(2,259	)		(1,015	)		(4,160	)		(2,010	)
Loss from operations	$	(1,344	)	$	(1,672	)	$	(2,981	)	$	(3,494	)

Depreciation and amortization expense:
Water	$	1,945		$	875		$	3,647		$	1,729
Products		206			34			299			68
Corporate		108			106			214			213
	$	2,259		$	1,015		$	4,160		$	2,010

Capital expenditures:
Water							$	8,821		$	1,577
Products								146			–
Corporate								78			127
							$	9,045		$	1,704

	At June 30,
Identifiable assets:	2011
Water	$	167,863
Products		14,778
Corporate		2,661
	$	185,302


Goodwill:
Water	$	79,482
Products		4,203
	$	83,686