Discontinued Operations

12 Months Ended

Dec. 28, 2019

Discontinued Operations and Disposal Groups [Abstract]

On January 30, 2018, the Company completed the sale of the Traditional Business to Refresco. The Traditional Business Disposition 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 and December 29, 2018, $12.4 million and $12.5 million of the total sale proceeds are 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 Sheets.

In connection with the Traditional Business Disposition, 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 is compensated for services rendered as set forth in the Transition Services Agreement. Each service period may be extended as set forth in the Transition Services Agreement, up to a maximum extension of 180 days. 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 and a Concentrate Supply Agreement pursuant to which the Company supplies concentrates to Refresco. Each party will be compensated for the products they supply as set forth in the applicable agreement. The Co-pack Manufacturing Agreements have a term of 36 months, and the Concentrate Supply Agreement had the same term as that of the Transition Services Agreement, which has since expired by its terms.

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.

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



	For the Year Ended
	December 28, 2019			December 29, 2018		December 30, 2017
(in millions of U.S. dollars)
Revenue, net	$	—		$	111.2	$	1,637.1
Cost of sales	—			98.4		1,428.4
Operating income from discontinued operations	—			2.0		49.9
Gain on sale of discontinued operations	—			427.9		—
Income (loss) from discontinued operations, before income taxes	—			402.5		(20.5		)
Income tax (benefit) expense ¹	(3.0		)	47.9		(31.2		)
Net income from discontinued operations, net of income taxes	3.0			354.6		10.7
Less: Net income attributable to non-controlling interests	—			0.6		8.5
Net income attributable to Cott Corporation – discontinued operations ²	$	3.0		$	354.0	$	2.2

______________________

The Traditional Business Disposition 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 is 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 Disposition resulted in a non-taxable gain on sale in the United Kingdom. No tax benefit resulted from the Traditional Business Disposition 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.


²	Net income attributable to Cott 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 (December 30, 2017 - $49.5 million).

Cash flows from discontinued operations included borrowings and payments under the ABL facility of $262.4 million and $482.8 million, respectively, for the year ended December 29, 2018, and $3,004.1 million and $2,990.7 million, respectively, for the year ended December 30, 2017.