Share-Based Compensation

12 Months Ended

Dec. 28, 2019

Share-based Payment Arrangement [Abstract]

Our shareowners approved our Amended and Restated Cott Corporation Equity Incentive Plan (the “Amended and Restated Equity Plan”) in its current form in May 2016, and approved the Cott Corporation 2018 Equity Incentive Plan (“2018 Equity Plan” and together with the Amended and Restated Equity Plan, the “Equity Plans”) in May 2018. Awards under the Equity Plans may be in the form of incentive stock options, non-qualified stock options, restricted shares, restricted share units, performance shares, performance units, stock appreciation rights, and stock payments to employees, directors and outside consultants. The Equity Plans are administered by the Human Resources and Compensation Committee (“HRCC”) of the Board of Directors or any other board committee as may be designated by the Board of Directors from time to time. Under the Amended and Restated Equity Plan, 20,000,000 shares are reserved for future issuance, and under the 2018 Equity Plan, 8,000,000 shares are reserved for future issuance, subject to adjustment upon a share split, share dividend, recapitalization, and other similar transactions and events. Shares that are issued under the Equity Plans are applied to reduce the maximum number of shares remaining available for issuance under the Equity Plans; provided that the total number of shares available for issuance under the Equity Plans are reduced two shares for each share issued pursuant to a “full-value” award (i.e., an award other than an option or stock appreciation right).

Shares to be issued pursuant to Time-based RSUs, Performance-based RSUs, or stock options that are forfeited, expired, or are canceled or settled without the issuance of shares return to the pool of shares available for issuance under the Equity Plans. As of December 28, 2019, there were 670,280 shares available for future issuance under the Amended and Restated Equity Plan, and 8,000,000 shares available for future issuance under the 2018 Equity Plan.

The table below summarizes the share-based compensation expense for the years ended December 28, 2019, December 29, 2018, and December 30, 2017. Share-based compensation expense is recorded in SG&A expenses in the Consolidated Statements of Operations. As referenced below: (i) “Performance-based RSUs” represent restricted share units with performance-based vesting, (ii) “Time-based RSUs” represent restricted share units with time-based vesting, (iii) “Stock options” represent non-qualified stock options, (iv) “Director share awards” represent common shares issued in consideration of the annual board retainer fee to non-management members of our Board of Directors, and (v) the “ESPP” represents the Cott Corporation Employee Share Purchase Plan, under which common shares are issued to eligible employees at a discount through payroll deductions.



	For the Year Ended
(in millions of U.S. dollars)	December 28, 2019		December 29, 2018		December 30, 2017
Stock options	$	3.3	$	5.3	$	5.5
Performance-based RSUs	5.7		7.0		12.0
Time-based RSUs	2.1		3.8		4.2
Director share awards	1.1		1.0		1.1
Employee Share Purchase Plan	0.2		0.3		0.1
Total ¹	$	12.4	$	17.4	$	22.9

______________________


¹	Includes $0.1 million and $5.4 million of share-based compensation expense from our discontinued operations, which were included in net income (loss) from discontinued operations, net of income taxes on the Consolidated Statements of Operations for the years ended December 29, 2018 and December 30, 2017, respectively.

On August 1, 2018, in connection with the appointment of the Company’s chief executive officer to executive chairman of the Board effective December 30, 2018, the Board approved the modification of certain outstanding awards issued to the chief executive officer. The modified awards will continue to vest in accordance with their normal applicable vesting schedules regardless of continued service. The total incremental compensation expense associated with the modification was $5.5 million for the year ended December 29, 2018.

During the third quarter of 2017, in connection with the sale of the Traditional Business and upon a determination by the HRCC, outstanding awards granted to Traditional Business employees vested as follows: outstanding time-based RSUs vested in full, outstanding unvested stock options vested in full (and remain exercisable for three years from the date of closing of the Traditional Business Disposition), and outstanding performance-based RSUs vested in full, assuming achievement of the applicable pre-tax income level at the “target” level. As a result, an additional $1.2 million of expense was recorded for the year ended December 30, 2017 and included in net income (loss) from discontinued operations, net of income taxes on the Consolidated Statement of Operations.

The tax benefit recognized related to share-based compensation expense for the fiscal year ended December 28, 2019 was $0.6 million (December 29, 2018 - $0.9 million; December 30, 2017 - $0.5 million).

As of December 28, 2019, the unrecognized share-based compensation expense and weighted average years over which we expect to recognize it as compensation expense were as follows:



(in millions of U.S. dollars, except years)	Unrecognized share-based compensation expense as of December 28, 2019		Weighted average years expected to recognize compensation
Stock options	$	5.3	2.1
Performance-based RSUs	6.9		2.4
Time-based RSUs	3.9		2.1
Total	$	16.1

Stock Options

During 2019, 2018 and 2017 approximately 1,138,000, 1,182,400, and 734,500 options were granted to certain employees under the Amended and Restated Equity Plan at a weighted-average exercise price of $13.68, $14.67, and $17.50 per share, respectively. The weighted-average grant date fair value of the options was estimated to be $3.42, $3.87, and $4.82 per share in 2019, 2018 and 2017, respectively, using the Black-Scholes option pricing model. The contractual term of an option granted is fixed by the Amended and Restated Equity Plan and cannot exceed ten years from the grant date.

The grant date fair value of each option granted during 2019, 2018 and 2017 was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:



	For the Year Ended
	December 28, 2019		December 29, 2018		December 30, 2017
Risk-free interest rate	1.8	%	2.8	%	2.3	%
Average expected life (years)	6.0		5.6		6.0
Expected volatility	29.0	%	28.8	%	29.2	%
Expected dividend yield	1.8	%	1.6	%	1.4	%

The following table summarizes the activity for Company stock options:



	Stock Options (in thousands)		Weighted average exercise price		Weighted average contractual term (years)	Aggregate intrinsic value (in thousands)
Outstanding at December 31, 2016	4,474		$	10.32	8.8	$	5,623.3
Granted	734		17.50
Exercised	(169	)	9.21			1,092.9
Forfeited or expired	(33	)	10.28
Outstanding at December 30, 2017	5,006		$	11.41	8.1	$	26,952.3
Granted	1,182		14.67
Exercised	(734	)	10.04			4,408.1
Forfeited or expired	(8	)	10.64
Outstanding at December 29, 2018	5,446		$	12.30	7.3	$	11,993.0
Granted	1,138		13.68
Exercised	(91	)	10.47			389.1
Forfeited or expired	—		—
Outstanding at December 28, 2019	6,493		$	12.57	6.9	$	11,045.4
Exercisable at December 28, 2019	4,336		$	11.64	5.8	$	11,018.6
Vested or expected to vest at December 28, 2019	6,493		$	12.57	6.9	$	11,045.4

The aggregate intrinsic value amounts in the table above represent the difference between the closing price of our common shares on the New York Stock Exchange on December 27, 2019, which was $13.45 (December 28, 2018—$13.66; December 29, 2017—$16.66), and the exercise price, multiplied by the number of in-the-money stock options as of the same date.

Stock options granted during the year ended December 28, 2019 vest in three equal annual installments on the first, second and third anniversaries of the date of grant.

The total amount of cash received from the exercise of stock options was not material during the fiscal year ended December 28, 2019. The total amount of cash received from the exercise of stock options was $5.0 million during the fiscal year ended December 29, 2018 with an associated tax benefit of $0.2 million realized. The total amount of cash received from the exercise of stock options was $1.6 million during the fiscal year ended December 30, 2017 with no associated tax benefit realized. The total fair value of options that vested during the year ended December 28, 2019 was $19.0 million (December 29, 2018 — $16.8 million; December 30, 2017 — $16.4 million).

Other Awards

In 2019, we granted 74,238 common shares to the non-management members of our Board of Directors under the Amended and Restated Equity Plan with a grant date fair value of approximately $1.1 million. The common shares were issued in consideration of the directors’ annual board retainer fee and were vested upon issuance.

Additionally, in 2019, we granted 284,591 Performance-based RSUs, which vest on the last day of our 2022 fiscal year. The number of shares ultimately awarded will be based upon the performance percentage, which can range from 0% to 200% of the awards granted. The Performance-based RSUs vest primarily on the Company’s achievement of a specified level of cumulative pre-tax income for the applicable performance period. The number of Performance-based RSUs that may vest and the related unrecognized compensation cost is subject to change based on the level of targeted pre-tax income that is achieved during the vesting period. The Company also granted 216,057 Time-based RSUs, which vest over three years in equal annual installments on the first, second and third anniversaries of the date of grant and include a service condition.



	Number of Performance-based RSUs (in thousands)		Weighted Average Grant-Date Fair Value		Number of Time-based RSUs (in thousands)		Weighted Average Grant-Date Fair Value
Balance at December 31, 2016	3,063		$	9.89	800		$	11.10
Awarded	235		17.06		135		17.50
Awarded in connection with modification	64		11.32		—		—
Issued	(320	)	8.00		(409	)	10.55
Forfeited	(143	)	15.18		(24	)	12.28
Balance at December 30, 2017	2,899		$	9.15	502		$	13.14
Awarded	312		14.67		208		14.67
Awarded in connection with modification	246		9.21		—		—
Issued	(686	)	9.32		(269	)	13.07
Forfeited	(1,106	)	6.55		(14	)	13.24
Outstanding at December 29, 2018	1,665		$	13.90	427		$	14.23
Awarded	285		13.69		216		13.69
Awarded in connection with modification	190		11.22		—		—
Issued	(441	)	11.30		(239	)	13.38
Forfeited	(100	)	12.33		(7	)	14.89
Outstanding at December 28, 2019	1,599		$	14.36	397		$	14.43
Vested or expected to vest at December 28, 2019	1,594		$	13.30	397		$	14.43

The total fair value of Performance-based RSUs vested and issued during the years ended December 28, 2019, December 29, 2018 and December 30, 2017 were $5.0 million, $6.4 million and $2.6 million. The total fair value of Time-based RSUs vested and issued during the years ended December 28, 2019, December 29, 2018, and December 30, 2017 were $3.2 million, $3.5 million, and $4.3 million.

Employee Share Purchase Plan

The Company has maintained the Cott Corporation Employee Share Purchase Plan (the “ESPP”) since 2015. The ESPP qualifies as an “employee share purchase plan” under Section 423 of the Internal Revenue Code of 1986 (“IRC”), as amended. Substantially all employees are eligible to participate in the ESPP and may elect to participate at the beginning of any quarterly offering period. The ESPP authorizes the issuance, and the purchase by eligible employees, of up to 3,000,000 shares of Cott common shares through payroll deductions. Eligible employees who choose to participate may purchase Cott common shares at 90% of market value on the first or last day of the quarterly offering period, whichever is lower. The minimum contribution which an eligible employee may make under the ESPP is 1% of the employee’s eligible compensation, with the maximum contribution limited to 15% of the employee’s eligible compensation. At the end of each quarterly offering period for which the employee participates, the total amount of each employee’s payroll deduction for that offering period will be used to purchase Cott common shares. The Company recognized $0.2 million, $0.3 million and $0.1 million of share-based compensation expense in SG&A expenses in the Consolidated Statement of Operations for 2019, 2018 and 2017, respectively. At December 28, 2019, 2,581,340 shares remained available for issuance under the ESPP.