10-Q 1 d325075d10q.htm FORM 10 Q Form 10 Q
Table of Contents

 

 

United States

Securities and Exchange Commission

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: March 31, 2012

 

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from            to            

Commission File Number: 001-31410

 

 

COTT CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

CANADA   98-0154711

(State or Other Jurisdiction of

Incorporation or Organization)

 

(IRS Employer

Identification No.)

6525 VISCOUNT ROAD

MISSISSAUGA, ONTARIO

5519 WEST IDLEWILD AVE

TAMPA, FLORIDA

 

L4V 1H6

33634

(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (905) 672-1900 and (813) 313-1800

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨ (do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

  

Outstanding at May 2, 2012

Common Stock, no par value per share    95,101,230 shares

 

 

 


Table of Contents
PART I – FINANCIAL INFORMATION   
    Item 1.    Financial Statements (unaudited)      3   
   Consolidated Statements of Operations      3   
   Condensed Consolidated Statements of Comprehensive Income      4   
   Consolidated Balance Sheets      5   
   Consolidated Statements of Cash Flows      6   
   Consolidated Statements of Equity      7   
   Notes to the Consolidated Financial Statements      8   
    Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      27   
   Overview      27   
   Results of Operations      31   
   Liquidity and Financial Condition      34   
    Item 3.    Quantitative and Qualitative Disclosures about Market Risk      38   
    Item 4.    Controls and Procedures      39   
PART II – OTHER INFORMATION      39   
    Item 1.    Legal Proceedings      39   
    Item 1A.    Risk Factors      39   
    Item 6.    Exhibits      39   
    SIGNATURES      40   

 

2


Table of Contents

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

Cott Corporation

Consolidated Statements of Operations

(in millions of U.S. dollars, except share and per share amounts)

Unaudited

 

     For the Three Months Ended  
     March 31, 2012     April 2, 2011  

Revenue, net

   $ 523.8      $ 534.1   

Cost of sales

     460.4        464.5   
  

 

 

   

 

 

 

Gross profit

     63.4        69.6   

Selling, general and administrative expenses

     41.8        45.1   

Loss on disposal of property, plant & equipment

     0.6        —     
  

 

 

   

 

 

 

Operating income

     21.0        24.5   

Other (income) expense, net

     (0.2     0.8   

Interest expense, net

     14.0        14.4   
  

 

 

   

 

 

 

Income before income taxes

     7.2        9.3   

Income tax expense

     0.4        1.6   
  

 

 

   

 

 

 

Net income

   $ 6.8      $ 7.7   

Less: Net income attributable to non-controlling interests

     0.9        0.9   
  

 

 

   

 

 

 

Net income attributed to Cott Corporation

   $ 5.9      $ 6.8   
  

 

 

   

 

 

 

Net income per common share attributed to Cott Corporation

    

Basic

   $ 0.06      $ 0.07   

Diluted

   $ 0.06      $ 0.07   

Weighted average outstanding shares (thousands) attributed to Cott Corporation

    

Basic

     94,427        94,076   

Diluted

     95,702        95,328   

The accompanying notes are an integral part of these consolidated financial statements.

 

3


Table of Contents

Cott Corporation

Condensed Consolidated Statements of Comprehensive Income

(in millions of U.S. dollars)

Unaudited

 

     For the Three Months Ended  
     March 31, 2012     April 2, 2011  

Net income

   $ 6.8      $ 7.7   

Other comprehensive income (loss):

    

Currency translation adjustment

     8.2        9.5   

Pension benefit plan, net of tax1

     (0.5     0.2   

Unrealized (loss) gain on derivative instruments, net of tax2

     (0.3     0.2   
  

 

 

   

 

 

 

Total other comprehensive income

     7.4        9.9   
  

 

 

   

 

 

 

Comprehensive income

   $ 14.2      $ 17.6   

Less: Comprehensive income attributable to non-controlling interests

     0.8        0.9   
  

 

 

   

 

 

 

Comprehensive income attributed to Cott Corporation

   $ 13.4      $ 16.7   
  

 

 

   

 

 

 

 

1

Net of the effect of nil and $0.1 million tax benefit for the three months ended March 31, 2012 and April 2, 2011.

2

Net of the effect of a $0.1 million tax benefit and $0.1 million tax expense for the three months ended March 31, 2012 and April 2, 2011.

The accompanying notes are an integral part of these consolidated financial statements.

 

4


Table of Contents

Cott Corporation

Consolidated Balance Sheets

(in millions of U.S. dollars, except share amounts)

Unaudited

 

     March 31, 2012     December 31, 2011  

ASSETS

    

Current assets

    

Cash & cash equivalents

   $ 31.6      $ 100.9   

Accounts receivable, net of allowance of $5.9 ($5.7 as of December 31, 2011)

     234.6        210.8   

Income taxes recoverable

     9.4        9.9   

Inventories

     228.5        210.0   

Prepaid expenses and other assets

     21.1        19.3   
  

 

 

   

 

 

 

Total current assets

     525.2        550.9   

Property, plant & equipment

     490.6        482.2   

Goodwill

     130.3        129.6   

Intangibles and other assets

     335.8        341.1   

Deferred income taxes

     5.0        4.1   

Other tax receivable

     1.1        1.0   
  

 

 

   

 

 

 

Total assets

   $ 1,488.0      $ 1,508.9   
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

    

Current liabilities

    

Current maturities of long-term debt

   $ 2.5      $ 3.4   

Accounts payable and accrued liabilities

     245.5        281.1   
  

 

 

   

 

 

 

Total current liabilities

     248.0        284.5   

Long-term debt

     602.3        602.1   

Deferred income taxes

     35.1        34.1   

Other long-term liabilities

     20.5        20.0   
  

 

 

   

 

 

 

Total liabilities

     905.9        940.7   

Equity

    

Capital stock, no par - 95,101,230 (December 31, 2011 - 95,101,230) shares issued

     395.9        395.9   

Treasury stock

     (2.1     (2.1

Additional paid-in-capital

     43.4        42.6   

Retained earnings

     150.0        144.1   

Accumulated other comprehensive loss

     (17.2     (24.7
  

 

 

   

 

 

 

Total Cott Corporation equity

     570.0        555.8   

Non-controlling interests

     12.1        12.4   
  

 

 

   

 

 

 

Total equity

     582.1        568.2   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 1,488.0      $ 1,508.9   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5


Table of Contents

Cott Corporation

Consolidated Statements of Cash Flows

(in millions of U.S. dollars)

Unaudited

 

     For the Three Months Ended  
     March 31, 2012     April 2, 2011  

Operating Activities

    

Net income

   $ 6.8      $ 7.7   

Depreciation & amortization

     23.8        23.6   

Amortization of financing fees

     1.2        0.9   

Share-based compensation expense

     0.8        1.1   

Increase in deferred income taxes

     —          0.9   

Loss on disposal of property, plant & equipment

     0.6        —     

Other non-cash items

     (0.4     0.2   

Change in operating assets and liabilities, net of acquisition:

    

Accounts receivable

     (20.5     (29.4

Inventories

     (16.5     (6.1

Prepaid expenses and other assets

     (1.8     0.3   

Other assets

     1.0        (0.1

Accounts payable and accrued liabilities

     (38.4     (21.9

Income taxes recoverable

     0.3        (2.8
  

 

 

   

 

 

 

Net cash used in operating activities

     (43.1     (25.6
  

 

 

   

 

 

 

Investing Activities

    

Acquisition

     (5.0     —     

Additions to property, plant & equipment

     (17.7     (12.5

Additions to intangibles and other assets

     (2.7     —     

Proceeds from sale of property, plant & equipment

     —          0.1   
  

 

 

   

 

 

 

Net cash used in investing activities

     (25.4     (12.4
  

 

 

   

 

 

 

Financing Activities

    

Payments of long-term debt

     (1.2     (1.3

Borrowings under ABL

     7.0        99.8   

Payments under ABL

     (7.0     (72.5

Distributions to non-controlling interests

     (1.1     (1.6
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (2.3     24.4   
  

 

 

   

 

 

 

Effect of exchange rate changes on cash

     1.5        1.2   
  

 

 

   

 

 

 

Net decrease in cash & cash equivalents

     (69.3     (12.4

Cash & cash equivalents, beginning of period

     100.9        48.2   
  

 

 

   

 

 

 

Cash & cash equivalents, end of period

   $ 31.6      $ 35.8   
  

 

 

   

 

 

 

Supplemental Disclosures of Cash Flow information:

    

Cash paid for interest

   $ 16.0      $ 17.7   

Cash paid for income taxes, net

   $ 0.2      $ 3.4   

The accompanying notes are an integral part of these consolidated financial statements.

 

6


Table of Contents

Cott Corporation

Consolidated Statements of Equity

(in millions of U.S. dollars, except share amounts)

Unaudited

 

     Cott Corporation Equity              
     Number of
Common
Shares
(In thousands)
     Number of
Treasury
Shares
(In thousands)
    Common
Shares
     Treasury
Shares
    Additional  Paid-
in-Capital
    Retained
Earnings
     Accumulated
Other
Comprehensive
Loss
    Non-
Controlling
Interests
    Total
Equity
 

Balance at January 1, 2011

     94,750         1,051      $ 395.6       $ (3.2   $ 40.8      $ 106.5       $ (17.5   $ 13.0      $ 535.2   

Treasury shares issued - PSU Plan

     —           (181     —           0.5        (0.5     —           —          —          —     

Treasury shares issued - EISPP

     —           (196     —           0.6        (0.6     —           —          —          —     

Share-based compensation

     —           —          —           —          1.1        —           —          —          1.1   

Distributions to non-controlling interests

     —           —          —           —          —          —           —          (1.6     (1.6

Comprehensive income

                     

Currency translation adjustment

     —           —          —           —          —          —           9.5        —          9.5   

Pension benefit plan, net of tax

     —           —          —           —          —          —           0.2        —          0.2   

Unrealized gain on derivative instruments, net of tax

     —           —          —           —          —          —           0.2        —          0.2   

Net income

     —           —          —           —          —          6.8         —          0.9        7.7   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance at April 2, 2011

     94,750         674      $ 395.6       $ (2.1   $ 40.8      $ 113.3       $ (7.6   $ 12.3      $ 552.3   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011

     95,101         674      $ 395.9       $ (2.1   $ 42.6      $ 144.1       $ (24.7   $ 12.4      $ 568.2   

Share-based compensation

     —           —          —           —          0.8        —           —          —          0.8   

Distributions to non-controlling interests

     —           —          —           —          —          —           —          (1.1     (1.1

Comprehensive income

Currency translation adjustment

     —           —          —           —          —          —           8.3        (0.1     8.2   

Pension benefit plan, net of tax

     —           —          —           —          —          —           (0.5     —          (0.5

Unrealized loss on derivative instruments, net of tax

     —           —          —           —          —          —           (0.3     —          (0.3

Net income

     —           —          —           —          —          5.9         —          0.9        6.8   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance at March 31, 2012

     95,101         674      $ 395.9       $ (2.1   $ 43.4      $ 150.0       $ (17.2   $ 12.1      $ 582.1   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

7


Table of Contents

Cott Corporation

Notes to the Consolidated Financial Statements

Unaudited

Note 1 – Business and Recent Accounting Pronouncements

Description of Business

Cott Corporation, together with its consolidated subsidiaries (“Cott,” “the Company,” “our Company,” “Cott Corporation,” “we,” “us,” or “our”), is one of the world’s largest beverage companies focusing on private-label products and contract manufacturing. Our product lines include carbonated soft drinks (“CSDs”), clear, still and sparkling flavored waters, energy-related drinks, juice, juice-based products, bottled water and ready-to-drink teas.

Basis of Presentation

The accompanying interim unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting. Accordingly, they do not include all information and notes presented in the annual consolidated financial statements in conformity with U.S. GAAP. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of our results of operations for the interim periods reported and of our financial condition as of the date of the interim balance sheet have been included. This Quarterly Report on Form 10-Q should be read in conjunction with the annual audited consolidated financial statements and accompanying notes in our Annual Report on Form 10-K for the year ended December 31, 2011. The accounting policies used in these interim consolidated financial statements are consistent with those used in the annual consolidated financial statements.

The presentation of these interim consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

During the first quarter of 2012, we recorded out-of-period adjustments which increased income before income taxes by approximately $1.0 million, which related to 2011 and were associated with accounts payable and accrued liabilities. We evaluated the total out-of-period adjustments in relation to the current period, which is when the adjustments were recorded, as well as the period in which they originated and concluded that these adjustments are not material to either the consolidated quarterly or annual financial statements for all impacted periods.

Recent Accounting Pronouncements

ASU 2011-05— Comprehensive Income: Presentation of Comprehensive Income

In June 2011, the Financial Accounting Standards Board (“FASB”) amended its guidance on the presentation of comprehensive income in financial statements to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items that are recorded in other comprehensive income. The new accounting guidance requires entities to report components of comprehensive income in either (i) a continuous statement of comprehensive income or (ii) two separate but consecutive statements. The provisions of this new guidance are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We have adopted this guidance and presented the components of comprehensive income in two separate but consecutive statements. This standard impacts the presentation and does not have a financial impact on our consolidated financial statements.

ASU 2011-08— Intangibles-Goodwill and Other: Testing Goodwill for Impairment

In September 2011, the FASB amended its guidance in regards to testing goodwill for impairment to address concern raised about the cost and complexity of performing the first step of the two-step goodwill impairment test required under Accounting Standards Codification (“ASC”) Topic 350 – “Intangibles-Goodwill and Other”. The objective of this update is to simplify how entities, both public and nonpublic, test goodwill for impairment. The amendments in the update permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. We have adopted this guidance and are currently evaluating the impact on our consolidated financial statements.

Note 2 – Acquisitions

On August 17, 2010, we completed the acquisition of substantially all of the assets and liabilities of Cliffstar Corporation (“Cliffstar”) and its affiliated companies for approximately $503.0 million in cash, $14.0 million in deferred consideration to be paid over three years, of which $4.7 million was paid during the third quarter of 2011, and contingent consideration of up to $55.0 million (the “Cliffstar Acquisition”). The first $15.0 million of the contingent consideration was based upon the achievement of milestones in certain expansion projects in 2010, which were achieved in 2010. The remainder of the contingent consideration was based on the achievement of certain performance measures during the fiscal year ended January 1, 2011.

 

8


Table of Contents

We were notified on May 9, 2011 by the seller of Cliffstar of certain objections to the performance measures used to calculate the contingent consideration, and the seller asserted a claim for amounts in excess of the amounts accrued as contingent consideration at July 2, 2011. During the third and fourth quarters of 2011, Cott made interim payments to the seller equal to $21.0 million and $8.6 million, respectively. The payment of $21.0 million was net of a $4.7 million refund due to Cott as a result of the final determination of working capital, and the payment of $8.6 million included $0.9 million in settlement of certain of the seller’s objections to the calculation of the contingent consideration. The seller’s remaining objections to the calculation of the contingent consideration are subject to an ongoing binding arbitration process under the terms of the asset purchase agreement. The seller is seeking up to $12.1 million in additional contingent consideration. The final resolution of these matters may result in amounts payable to the seller that vary materially from our current estimated fair value. We are currently unable to predict the ultimate outcome of this action. Any changes in the fair value of contingent consideration will be recorded in our Consolidated Statements of Operations.

During the first quarter of 2012, our United Kingdom (“U.K.”) reporting segment acquired a beverage and wholesale business based in Scotland for $5.0 million. The identified assets, which included inventory, property, plant and equipment, and intangibles, were recorded at their estimated fair values per preliminary valuations and may change based on final valuations. The acquisition did not have a material impact on our financial statements.

Note 3 – Share-Based Compensation

The table below summarizes the share-based compensation expense for the three months ended March 31, 2012 and April 2, 2011. This share-based compensation expense was recorded in selling, general, and administrative expenses in our Consolidated Statements of Operations. As used below: (i) “Performance-based RSUs” mean restricted share units with performance-based vesting granted under the Company’s 2010 Equity Incentive Plan (the “2010 Equity Incentive Plan”), (ii) “Time-based RSUs” mean restricted share units with time-based vesting granted under the 2010 Equity Incentive Plan, and (iii) “Stock options” mean non-qualified stock options granted under the 2010 Equity Incentive Plan and the Restated 1986 Common Share Option Plan (the “1986 Option Plan”).

 

     For the Three Months Ended  

(in millions of U.S. dollars)

   March 31, 2012      April 2, 2011  

Stock options

   $ 0.1       $ —     

Performance-based RSUs

     —           0.5   

Time-based RSUs

     0.7         0.6   
  

 

 

    

 

 

 

Total

   $ 0.8       $ 1.1   
  

 

 

    

 

 

 

 

9


Table of Contents

As of March 31, 2012, the unrecognized share-based compensation expense and years we expect to recognize as future compensation expense were as follows:

 

(in millions of U.S. dollars)

   Unrecognized share-based
compensation expense as
of March 31, 2012
     Weighted average years
expected to recognize
compensation
 

Stock options

   $ 1.5         2.8   

Performance-based RSUs

     2.1         2.8   

Time-based RSUs

     5.8         1.8   
  

 

 

    

Total

   $ 9.4      
  

 

 

    

Stock option activity for the three months ended March 31, 2012 was as follows:

 

     Shares
(in  thousands)
    Weighted average
exercise price
(Canadian $)
 

Balance at December 31, 2011

     284      $ 20.47   

Awarded

     385        6.58   

Exercised

     —          —     

Forfeited or expired

     (25     29.95   
  

 

 

   

 

 

 

Outstanding at March 31, 2012

     644        10.24   
  

 

 

   

 

 

 

Exercisable at March 31, 2012

     259      $ 19.56   
  

 

 

   

 

 

 

During the three months ended March 31, 2012 Performance-based RSU and Time-based RSU activity was as follows:

 

(in thousands of shares)

   Number of
Performance-
based RSUs
    Number of
Time-based
RSUs
 

Balance at December 31, 2011

     2,319        1,548   

Awarded

     331        442   

Forfeited

     (49     (29
  

 

 

   

 

 

 

Outstanding at March 31, 2012

     2,601        1,961   
  

 

 

   

 

 

 

Stock options awarded during the three months ended March 31, 2012 were granted under the 2010 Equity Incentive Plan. Stock options outstanding at December 31, 2011 were granted under the1986 Option Plan. The board terminated the 1986 Option Plan, effective as of February 23, 2011. In connection with the termination of the 1986 Option Plan, outstanding options will continue in accordance with the terms of the 1986 Option Plan until exercised, forfeited or terminated, as applicable. No further awards will be granted under the 1986 Option Plan.

 

10


Table of Contents

Average Canadian to U.S. Dollar Exchange Rate for the Three Months Ended March 31, 2012

The weighted average exercise prices for options in Note 3 are disclosed in Canadian dollars. The table below represents the average Canadian dollar to U.S. dollar exchange rate for the three months ended March 31, 2012:

 

     For the Three Months Ended  
     March 31, 2012  

Average exchange rate

   $ 1.001   

Note 4 – Income Taxes

Income tax expense was $0.4 million on pretax income of $7.2 million for the three months ended March 31, 2012, as compared to an income tax expense of $1.6 million on pretax income of $9.3 million for the three months ended April 2, 2011. The first quarter’s income tax expense was reduced by an adjustment of $0.9 million related to an audit settlement. During the second quarter of 2011, we completed a reorganization of our legal entity structure and refinanced intercompany debt. As a result of these activities, our annual effective tax rate is expected to be lower than our statutory rate for the current year.

Note 5 – Net Income Per Common Share

Basic net income per common share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted net income per common share is calculated using the weighted-average number of common shares outstanding adjusted to include the effect, if dilutive, of the exercise of in-the-money stock options, Performance-based RSUs and Time-based RSUs.

A reconciliation of the denominators of the basic and diluted net income per common share computations is as follows:

 

     For the Three Months Ended  

(in thousands of shares)

   March 31, 2012      April 2, 2011  

Weighted average number of shares outstanding - basic

     94,427         94,076   

Dilutive effect of stock options

     30         196   

Dilutive effect of Performance-based RSUs

     114         430   

Dilutive effect of Time-based RSUs

     1,131         626   
  

 

 

    

 

 

 

Adjusted weighted average number of shares outstanding - diluted

     95,702         95,328   
  

 

 

    

 

 

 

We excluded 183,500 (April 2, 2011 – 354,000) stock options from the computation of diluted net income per share because the options’ exercise price was greater than the average market price of the common shares. Shares purchased on the open market and held by independent trusts are categorized as treasury shares under applicable accounting rules. We excluded 674,397 (April 2, 2011 – 674,397) treasury shares held in various trusts in the calculation of basic and diluted earnings per share.

 

11


Table of Contents

Note 6 – Segment Reporting

We produce, package and distribute private-label CSDs, clear, still and sparkling flavored waters, energy-related drinks, juice, juice-based products, bottled water and ready-to-drink teas to regional and national grocery, mass-merchandise and wholesale chains and customers in the dollar convenience and drug channels through five reporting segments – North America (which includes our U.S. operating segment and our Canada operating segment), U.K. (which includes our United Kingdom reporting unit and our Continental European reporting unit), Mexico, Royal Crown International (“RCI”) and All Other.

 

00000 00000 00000 00000 00000 00000

(in millions of U.S. dollars)

   North
America
     United
Kingdom
     Mexico     RCI      All Other      Total  

For the Three Months Ended

March 31, 2012

                

External revenue1

   $ 408.1       $ 99.2       $ 9.1      $ 7.4       $ —         $ 523.8   

Depreciation and amortization

     20.1         3.3         0.4        —           —           23.8   

Operating income (loss)

     17.3         3.2         (1.3     1.8         —           21.0   

Additions to property, plant & equipment

     12.6         5.0         0.1        —           —           17.7   

As of March 31, 2012

                

Property, plant & equipment

   $ 382.5       $ 98.4       $ 9.7      $ —         $ —         $ 490.6   

Goodwill

     125.8         —           —          4.5         —           130.3   

Intangibles and other assets

     321.2         14.2         0.4        —           —           335.8   

Total assets2

     1,209.5         235.0         29.5        13.3         0.7         1,488.0   

 

1 

Intersegment revenue between North America and the other reporting segments was $4.1 million for the three months ended March 31, 2012.

2 

Excludes intersegment receivables, investments and notes receivable.

 

00000 00000 00000 00000 00000 00000

(in millions of U.S. dollars)

   North
America
     United
Kingdom
     Mexico     RCI      All Other      Total  

For the Three Months Ended

April 2, 2011

                

External revenue1

   $ 428.8       $ 86.3       $ 11.4      $ 7.6       $ —         $ 534.1   

Depreciation and amortization

     19.7         3.4         0.5        —           —           23.6   

Operating income (loss)

     20.8         3.0         (1.5     2.2         —           24.5   

Additions to property, plant & equipment

     10.2         2.3         —          —           —           12.5   

As of December 31, 2011

                

Property, plant & equipment

   $ 383.1       $ 89.8       $ 9.3      $ —         $ —         $ 482.2   

Goodwill

     125.1         —           —          4.5         —           129.6   

Intangibles and other assets

     326.1         14.6         0.4        —           —           341.1   

Total assets2

     1,231.3         237.0         28.4        11.3         0.9         1,508.9   

 

1 

Intersegment revenue between North America and the other reporting segments was $4.2 million for the three months ended April 2, 2011.

2 

Excludes intersegment receivables, investments and notes receivable.

For the three months ended March 31, 2012, sales to Walmart accounted for 31.6% (April 2, 2011 – 33.0%) of our total revenues, 36.0% of our North America reporting segment revenues (April 2, 2011 – 36.7%), 16.8% of our U.K. reporting segment revenues (April 2, 2011 – 15.4%), and 24.4% of our Mexico reporting segment revenues (April 2, 2011 – 52.0%).

Credit risk arises from the potential default of a customer in meeting its financial obligations to us. Concentrations of credit exposure may arise with a group of customers that have similar economic characteristics or that are located in the same geographic region. The ability of such customers to meet obligations would be similarly affected by changing economic, political or other conditions. We are not currently aware of any facts that would create a material credit risk.

 

12


Table of Contents

Revenues are attributed to operating segments based on the location of the customer. Revenues by operating segment were as follows:

 

     For the Three Months Ended  

(in millions of U.S. dollars)

   March 31, 2012     April 2, 2011  

United States

   $ 366.2      $ 388.7   

Canada

     53.8        52.1   

United Kingdom

     99.2        86.3   

Mexico

     9.1        11.4   

RCI

     7.4        7.6   

Elimination1

     (11.9     (12.0
  

 

 

   

 

 

 
   $ 523.8      $ 534.1   
  

 

 

   

 

 

 

 

1 

Represents intersegment revenue among our operating segments, of which $4.1 million represents intersegment revenue between the North America reporting segment and our other operating segments for the three months ended March 31, 2012, and $4.2 million represents intersegment revenue between the North America reporting segment and our other operating segments for the three months ended April 2, 2011.

Revenues by product were as follows:

 

$408.1 $408.1 $408.1 $408.1 $408.1

For the Three Months Ended March 31, 2012

 

(in millions of U.S. dollars)

   North
America
     United
Kingdom
     Mexico      RCI      Total  

Revenue

              

Carbonated soft drinks

   $ 163.8       $ 33.7       $ 5.6       $ —         $ 203.1   

Juice

     133.9         3.1         0.1         —           137.1   

Concentrate

     2.9         0.8         —           7.4         11.1   

All other products

     107.5         61.6         3.4         —           172.5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 408.1       $ 99.2       $ 9.1       $ 7.4       $ 523.8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

For the Three Months Ended April 2, 2011

 

(in millions of U.S. dollars)

   North
America
     United
Kingdom
     Mexico      RCI      Total  

Revenue

              

Carbonated soft drinks

   $ 156.3       $ 42.4       $ 9.3       $ —         $ 208.0   

Juice

     160.0         2.2         0.8         —           163.0   

Concentrate

     2.3         0.2         —           7.6         10.1   

All other products

     110.2         41.5         1.3         —           153.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 428.8       $ 86.3       $ 11.4       $ 7.6       $ 534.1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

13


Table of Contents

Property, plant and equipment by operating segment as of March 31, 2012 and December 31, 2011 was as follows:

 

(in millions of U.S. dollars)

   March 31, 2012      December 31, 2011  

United States

   $ 334.8       $ 336.2   

Canada

     47.7         46.9   

United Kingdom

     98.4         89.8   

Mexico

     9.7         9.3   
  

 

 

    

 

 

 
   $ 490.6       $ 482.2   
  

 

 

    

 

 

 

Note 7 – Inventories

The following table summarizes inventories as of March 31, 2012 and December 31, 2011:

 

(in millions of U.S. dollars)

   March 31, 2012      December 31, 2011  

Raw materials

   $ 87.5       $ 87.3   

Finished goods

     120.5         102.3   

Other

     20.5         20.4   
  

 

 

    

 

 

 
   $ 228.5       $ 210.0   
  

 

 

    

 

 

 

 

14


Table of Contents

Note 8 – Intangibles and Other Assets

The following table summarizes intangibles and other assets as of March 31, 2012:

 

Amortization Amortization Amortization
     March 31, 2012  

(in millions of U.S. dollars)

   Cost      Accumulated
Amortization
     Net  

Intangibles

        

Not subject to amortization

        

Rights

   $ 45.4       $ —         $ 45.4   
  

 

 

    

 

 

    

 

 

 

Subject to amortization

        

Customer relationships

   $ 367.0       $ 124.3       $ 242.7   

Trademarks

     28.1         22.1         6.0   

Information technology

     68.9         55.3         13.6   

Other

     11.5         6.5         5.0   
  

 

 

    

 

 

    

 

 

 
     475.5         208.2         267.3   
  

 

 

    

 

 

    

 

 

 
     520.9         208.2         312.7   
  

 

 

    

 

 

    

 

 

 

Other Assets

        

Financing costs

   $ 23.2       $ 8.5       $ 14.7   

Deposits

     7.2         —           7.2   

Other

     1.4         0.2         1.2   
  

 

 

    

 

 

    

 

 

 
     31.8         8.7         23.1   
  

 

 

    

 

 

    

 

 

 

Total Intangibles & Other Assets

   $ 552.7       $ 216.9       $ 335.8   
  

 

 

    

 

 

    

 

 

 

Amortization expense of intangible and other assets was $9.0 million for the three months ended March 31, 2012 and $8.9 million for the three months ended April 2, 2011.

The estimated amortization expense for intangibles over the next five years is:

 

(in millions of U.S. dollars)

      

Remainder of 2012

   $ 24.2   

2013

     30.0   

2014

     28.1   

2015

     25.9   

2016

     22.6   

Thereafter

     136.5   
  

 

 

 
   $ 267.3   
  

 

 

 

Our only intangible asset with an indefinite life relates to the 2001 acquisition of intellectual property from Royal Crown Company, Inc. including the right to manufacture our concentrates, with all related inventions, processes, technologies, technical and manufacturing information, know-how and the use of the Royal Crown brand outside of North America and Mexico (the “Rights”). The Rights are not subject to amortization.

 

15


Table of Contents

Note 9 – Debt

Our total debt as of March 31, 2012 and December 31, 2011 was as follows:

 

(in millions of U.S. dollars)

   March 31, 2012     December 31, 2011  

8.375% senior notes due in 20171

   $ 215.0      $ 215.0   

8.125% senior notes due in 2018

     375.0        375.0   

GE obligation

     11.4        12.4   

Other capital leases

     4.3        4.1   

Other debt

     1.5        1.5   
  

 

 

   

 

 

 

Total debt

     607.2        608.0   

Less: Current debt

    

GE obligation - current maturities

     1.7        2.6   

Other capital leases - current maturities

     0.6        0.6   

Other debt - current maturities

     0.2        0.2   
  

 

 

   

 

 

 

Total current debt

     2.5        3.4   

Long-term debt before discount

     604.7        604.6   

Less discount on 8.375% notes

     (2.4     (2.5
  

 

 

   

 

 

 

Total long-term debt

   $ 602.3      $ 602.1   
  

 

 

   

 

 

 

 

1 

Our 8.375% senior notes were issued at a discount of 1.425% on November 13, 2009.

Debt

Asset Based Lending Facility

On March 31, 2008, we entered into a credit agreement with JPMorgan Chase Bank N.A. as Agent that created an asset-based lending credit facility (the “ABL facility”) to provide financing for our North America, U.K. and Mexico reporting segments. In connection with the Cliffstar Acquisition, we refinanced the ABL facility on August 17, 2010 to, among other things, provide for the Cliffstar Acquisition, the issuance of $375.0 million of 8.125% senior notes that are due on September 1, 2018 (the “2018 Notes”) and the application of net proceeds therefrom, the underwritten public offering of 13,340,000 common shares at a price of $5.67 per share and the application of net proceeds therefrom and to increase the amount available for borrowings to $275.0 million. We drew down a portion of the indebtedness under the ABL facility in order to fund the Cliffstar Acquisition. We incurred $5.4 million of financing fees in connection with the refinancing of the ABL facility. The financing fees are being amortized using the straight line method over a four-year period, which represents the duration of the ABL facility.

As of March 31, 2012, we had no outstanding borrowings under the ABL facility. The commitment fee was 0.5% per annum of the unused commitment, which was $263.9 million as of March 31, 2012.

8.125% Senior Notes due in 2018

On August 17, 2010, we issued the 2018 Notes. The issuer of the 2018 Notes is our wholly-owned subsidiary Cott Beverages Inc., but we and most of our U.S., Canadian and U.K. subsidiaries guarantee the 2018 Notes. The interest on the 2018 Notes is payable semi-annually on March 1st and September 1st of each year.

We incurred $8.6 million of financing fees in connection with the issuance of the 2018 Notes. The financing fees are being amortized using the effective interest method over an eight-year period, which represents the duration of the 2018 Notes.

8.375% Senior Notes due in 2017

On November 13, 2009, we issued $215.0 million of senior notes that are due on November 15, 2017 (the “2017 Notes”). The 2017 Notes were issued at a $3.1 million discount. The issuer of the 2017 Notes is Cott Beverages Inc., but we and most of our U.S., Canadian and U.K. subsidiaries guarantee the 2017 Notes. The interest on the 2017 Notes is payable semi-annually on May 15th and November 15th of each year.

 

16


Table of Contents

We incurred $5.1 million of financing fees in connection with the 2017 Notes. The financing fees are being amortized using the effective interest method over an eight-year period, which represents the duration of the 2017 Notes.

Note 10 – Commitments and Contingencies

We are subject to various claims and legal proceedings with respect to matters such as governmental regulations, and other actions arising out of the normal course of business. Management believes that the resolution of these matters will not have a material adverse effect on our financial position, results of operations, or cash flow.

We are currently involved in legal matters related to various contract disputes. We intend to vigorously defend against all claims in these lawsuits; however, we are presently unable to predict the ultimate outcome of these actions.

As of December 31, 2011, our accrued liability for litigation contingencies with a probable likelihood of loss was $2.9 million related to a single contingency. We settled this legal matter for an amount not materially different than our accrued liability.

On August 17, 2010, we completed the Cliffstar Acquisition. The first $15.0 million of the maximum of $55.0 million of contingent consideration was based upon the achievement of milestones in certain expansion projects in 2010, which were achieved in 2010. The remainder of the contingent consideration was based on the achievement of certain performance measures during the fiscal year ended January 1, 2011.

We were notified on May 9, 2011 by the seller of Cliffstar of certain objections to the performance measures used to calculate the contingent consideration, and the seller asserted a claim for amounts in excess of the amounts accrued as contingent consideration at July 2, 2011. The seller’s remaining objections to the calculation of the contingent consideration are subject to an ongoing binding arbitration process under the terms of the asset purchase agreement. The seller is seeking up to $12.1 million in additional contingent consideration. The final resolution of these matters may result in amounts payable to the seller that vary materially from our current estimated fair value. We are currently unable to predict the ultimate outcome of this action. Any changes in the fair value of contingent consideration will be recorded in our Consolidated Statements of Operations.

We had $11.1 million in standby letters of credit outstanding as of March 31, 2012 (April 2, 2011 – $9.1 million).

Note 11 – Shares Held in Trust treated as Treasury Shares

In May 2008, an independent trustee acting under certain of our benefit plans purchased 2.3 million of our common shares to be used to satisfy future liabilities under the Amended and Restated Performance Share Unit Plan (the “PSU Plan”) and the Restated Executive Incentive Share Purchase Plan (the “Restated EISPP”). As of March 31, 2012, 0.7 million shares were held in trust, and accounted for as treasury shares under applicable accounting rules. Treasury shares are reported at cost.

Subsequent to the adoption of the 2010 Equity Incentive Plan on May 4, 2010, the Human Resources and Compensation Committee of the Board of Directors determined that certain of Cott’s long-term incentive plans were no longer needed and terminated the PSU Plan and the Restated EISPP effective February 23, 2011. No further awards will be granted under such plans, as future awards will be made under the Company’s 2010 Equity Incentive Plan. On May 1, 2012, our Board of Directors authorized the repurchase of up to $35 million of our common shares in the open market or through privately negotiated transactions over a 12-month period through either a 10b5-1 automatic trading plan or at management’s discretion. The timing and actual number of shares purchased will depend on a variety of factors such as price, corporate and regulatory requirements, and prevailing market conditions. We may terminate or limit the share repurchase program at any time without prior notice.

Note 12 – Hedging Transactions and Derivative Financial Instruments

We are directly and indirectly affected by changes in foreign currency market conditions. These changes in market conditions may adversely impact our financial performance and are referred to as market risks. When deemed appropriate by management, we use derivatives as a risk management tool to mitigate the potential impact of foreign currency market risks.

We purchase forward contract derivative instruments. Forward contracts are agreements to buy or sell a quantity of a currency at a predetermined future date, and at a predetermined rate or price. We do not enter into derivative financial instruments for trading purposes.

All derivatives are carried at fair value in the Consolidated Balance Sheets in the line item accounts payable and accrued liabilities. The carrying values of the derivatives reflect the impact of legally enforceable agreements with the same counterparties. These allow us to net settle positive and negative positions (assets and liabilities) arising from different transactions with the same counterparty.

The accounting for gains and losses that result from changes in the fair values of derivative instruments depends on whether the derivatives have been designated and qualify as hedging instruments and the types of hedging relationships. The changes in fair values of derivatives that have been designated and qualify as cash flow hedges are recorded in accumulated

 

17


Table of Contents

other comprehensive income (loss) (“AOCI”) and are reclassified into the line item in the Consolidated Statements of Operations in which the hedged items are recorded in the same period the hedged items affect earnings. Due to the high degree of effectiveness between the hedging instruments and the underlying exposures being hedged, fluctuations in the value of the derivative instruments are generally offset by changes in the fair values or cash flows of the underlying exposures being hedged.

We formally designate and document, at inception, the financial instrument as a hedge of a specific underlying exposure, the risk management objective and the strategy for undertaking the hedge transaction. In addition, we formally assess both at the inception and at least quarterly thereafter, whether the financial instruments used in hedging transactions are effective at offsetting changes in either the fair values or cash flows of the related underlying exposures. Any ineffective portion of a financial instrument’s change in fair value is immediately recognized into earnings.

We estimate the fair values of our derivatives based on quoted market prices or pricing models using current market rates (refer to Note 13). The notional amounts of the derivative financial instruments do not necessarily represent amounts exchanged by the parties and, therefore, are not a direct measure of our exposure to the financial risks described above. The amounts exchanged are calculated by reference to the notional amounts and by other terms of the derivatives, such as interest rates, foreign currency exchange rates or other financial indices. We do not view the fair values of our derivatives in isolation, but rather in relation to the fair values or cash flows of the underlying hedged transactions. All of our derivatives are straightforward over-the-counter instruments with liquid markets.

Credit Risk Associated with Derivatives

We have established strict counterparty credit guidelines and enter into transactions only with financial institutions of investment grade or better. We mitigate pre-settlement risk by being permitted to net settle for transactions with the same counterparty.

Cash Flow Hedging Strategy

We use cash flow hedges to minimize the variability in cash flows of assets or liabilities or forecasted transactions caused by fluctuations in foreign currency exchange rates. The changes in the fair values of derivatives designated as cash flow hedges are recorded in AOCI and are reclassified into the line item in the Consolidated Statements of Operations in which the hedged items are recorded in the same period the hedged items affect earnings. The changes in fair values of hedges that are determined to be ineffective are immediately reclassified from AOCI into earnings. We did not discontinue any cash flow hedging relationships during the three months ended March 31, 2012. The maximum length of time over which we hedge our exposure to future cash flows is typically one year.

We maintain a foreign currency cash flow hedging program to reduce the risk that our procurement activities will be adversely affected by changes in foreign currency exchange rates. We enter into forward contracts to hedge certain portions of forecasted cash flows denominated in foreign currencies. When the U.S. dollar strengthens significantly against foreign currencies, the decline in the present value of future foreign currency cash flows is partially offset by gains in the fair value of the derivative instruments. Conversely, when the U.S. dollar weakens as compared to other currencies, the increase in the present value of future foreign currency cash flows is partially offset by losses in the fair value of the derivative instruments. The total notional value of derivatives that have been designated and qualify for our foreign currency cash flow hedging program as of March 31, 2012 was approximately $15.2 million.

The fair value of the Company’s derivative instrument liabilities was $0.3 million as of March 31, 2012.

The settlement of our derivative instruments resulted in a charge to cost of sales of less than $0.1 million for the three months ended March 31, 2012.

Note 13 – Fair Value Measurements

ASC No. 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Additionally, the inputs used to measure fair value are prioritized based on a three-level hierarchy. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs.

The three levels of inputs used to measure fair value are as follows:

 

   

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

18


Table of Contents
   

Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

   

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

We have certain assets and liabilities that are required to be recorded at fair value on a recurring basis in accordance with U.S. GAAP.

 

    March 31, 2012  

(in millions of U.S. dollars)

  Level 1     Level 2     Level 3     Netting Adjustment     Fair Value Measurements  

Liabilities

         

Derivatives

  $ —        $ 0.3      $ —        $ —        $ 0.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities

  $ —        $ 0.3      $ —        $ —        $ 0.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fair Value of Financial Instruments

The carrying amounts reflected in the Consolidated Balance Sheets for cash, receivables, payables, short-term borrowings and long-term debt approximate their respective fair values, except as otherwise indicated. The carrying values and estimated fair values of our significant outstanding debt as of March 31, 2012 and December 31, 2011 were as follows:

 

Carrying Value Carrying Value Carrying Value Carrying Value
     March 31, 2012      December 31, 2011  

(in millions of U.S. dollars)

   Carrying Value      Fair Value      Carrying Value      Fair Value  

8.375% senior notes due in 20171

   $ 215.0       $ 232.5       $ 215.0         231.4   

8.125% senior notes due in 20181

     375.0         405.9         375.0         404.5   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 590.0       $ 638.4       $ 590.0       $ 635.9   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

1 

The fair values are based on the trading levels and bid/offer prices observed by a market participant and are considered Level 1 inputs.

Fair value of contingent consideration

We were notified on May 9, 2011 by the seller of Cliffstar of certain objections to the performance measures used to calculate the contingent consideration, and the seller asserted a claim for amounts in excess of the amounts accrued as contingent consideration at July 2, 2011. During the third and fourth quarters of 2011, Cott made interim payments to the seller equal to $21.0 million and $8.6 million, respectively. The payment of $21.0 million was net of a $4.7 million refund due to Cott as a result of the final determination of working capital, and the payment of $8.6 million included $0.9 million in settlement of certain of the seller’s objections to the calculation of the contingent consideration. The seller’s remaining objections to the calculation of the contingent consideration are subject to an ongoing binding arbitration process under the terms of the asset purchase agreement. The seller is seeking up to $12.1 million in additional contingent consideration. The final resolution of these matters may result in amounts payable to the seller that vary materially from our current estimated fair value. We are currently unable to predict the ultimate outcome of this action. Any changes in the fair value of contingent consideration will be recorded in our Consolidated Statements of Operations.

Note 14 – Guarantor Subsidiaries

The 2017 Notes and 2018 Notes issued by our wholly-owned subsidiary, Cott Beverages, Inc., are unconditionally guaranteed on a senior basis pursuant to guarantees by Cott Corporation and certain other wholly owned subsidiaries (the “Guarantor Subsidiaries”). The guarantees of the Guarantor Subsidiaries are subject to release in limited circumstances only upon the occurrence of certain customary conditions.

 

19


Table of Contents

We have not presented separate financial statements and separate disclosures have not been provided concerning subsidiary guarantors because management has determined such information is not material to the holders of the above-mentioned notes.

The following supplemental financial information sets forth on an unconsolidated basis, our Balance Sheets, Statements of Operations and Cash Flows for Cott Corporation, Cott Beverages Inc., Guarantor Subsidiaries and our other subsidiaries (the “Non-guarantor Subsidiaries”). The supplemental financial information reflects our investments and those of Cott Beverages Inc. in their respective subsidiaries using the equity method of accounting.

 

20


Table of Contents

Condensed Consolidating Statements of Operations

 

(in millions of U.S. dollars)

Unaudited

 

     For the Three Months Ended March 31, 2012  
     Cott
Corporation
    Cott
Beverages Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

Revenue, net

   $ 43.7      $ 208.1      $ 240.5      $ 39.7      $ (8.2   $ 523.8   

Cost of sales

     37.7        176.2        218.2        36.5        (8.2     460.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     6.0        31.9        22.3        3.2        —          63.4   

Selling, general and administrative expenses

     8.7        15.6        15.0        2.5        —          41.8   

Loss on disposal of property, plant & equipment

     —          0.4        0.2        —          —          0.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (2.7     15.9        7.1        0.7        —          21.0   

Other (income) expense, net

     (0.1     0.1        —          (0.2     —          (0.2

Intercompany interest (income) expense, net

     —          (2.3     2.3        —          —          —     

Interest expense, net

     0.1        13.7        0.2        —          —          14.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income tax (benefit) expense and equity income

     (2.7     4.4        4.6        0.9        —          7.2   

Income tax (benefit) expense

     (0.5     0.7        0.1        0.1        —          0.4   

Equity income

     8.1        1.0        5.1        —          (14.2     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 5.9      $ 4.7      $ 9.6      $ 0.8      $ (14.2   $ 6.8   

Less: Net income attributable to non-controlling interests

     —          —          —          0.9        —          0.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributed to Cott Corporation

   $ 5.9      $ 4.7      $ 9.6      $ (0.1   $ (14.2   $ 5.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     7.4        17.2        (477.9     50.0        410.7        7.4   

Comprehensive income (loss) attributed to Cott Corporation

   $ 13.4      $ 21.9      $ (468.3   $ 49.9      $ 396.5      $ 13.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

21


Table of Contents

Condensed Consolidating Statements of Operations

 

(in millions of U.S. dollars)

Unaudited

 

     For the Three Months Ended April 2, 2011  
     Cott
Corporation
    Cott
Beverages
Inc.
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

Revenue, net

   $ 41.9      $ 215.0      $ 252.6      $ 33.1      $ (8.5   $ 534.1   

Cost of sales

     34.9        186.0        223.4        28.7        (8.5     464.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     7.0        29.0        29.2        4.4        —          69.6   

Selling, general and administrative expenses

     8.2        18.6        14.8        3.5        —          45.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (1.2     10.4        14.4        0.9        —          24.5   

Other expense, net

     0.4        0.4        —          —          —          0.8   

Intercompany interest (income) expense, net

     (1.7     —          1.7        —          —          —     

Interest expense, net

     —          13.8        0.5        0.1        —          14.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax expense (benefit) and equity income (loss)

     0.1        (3.8     12.2        0.8        —          9.3   

Income tax expense (benefit)

     1.1        1.3        (0.9     0.1        —          1.6   

Equity income (loss)

     7.8        1.3        (3.8     —          (5.3     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 6.8      $ (3.8   $ 9.3      $ 0.7      $ (5.3   $ 7.7   

Less: Net income attributable to non-controlling interests

     —          —          —          0.9        —          0.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributed to Cott Corporation

   $ 6.8      $ (3.8   $ 9.3      $ (0.2   $ (5.3   $ 6.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income

     9.3        19.2        104.5        31.2        (154.3     9.9   

Comprehensive income attributed to Cott Corporation

   $ 16.1      $ 15.4      $ 113.8      $ 31.0      $ (159.6   $ 16.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

22


Table of Contents

Consolidating Balance Sheets

 

(in millions of U.S. dollars)

Unaudited

 

     As of March 31, 2012  
     Cott
Corporation
    Cott
Beverages
Inc.
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

ASSETS

            

Current assets

            

Cash & cash equivalents

   $ 9.0      $ 1.7      $ 13.7      $ 7.2      $ —        $ 31.6   

Accounts receivable, net of allowance

     22.8        97.9        150.0        14.6        (50.7     234.6   

Income taxes recoverable

     —          8.6        0.8        —          —          9.4   

Inventories

     19.8        71.9        126.9        9.9        —          228.5   

Prepaid expenses and other assets

     1.6        14.2        5.2        0.1        —          21.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     53.2        194.3        296.6        31.8        (50.7     525.2   

Property, plant & equipment

     49.1        180.1        251.1        10.3        —          490.6   

Goodwill

     27.6        4.5        98.2        —          —          130.3   

Intangibles and other assets

     0.9        105.6        211.8        17.5        —          335.8   

Deferred income taxes

     4.9        —          —          0.1        —          5.0   

Other tax receivable

     0.5        —          0.6        —          —          1.1   

Due from affiliates

     33.0        171.8        78.0        41.9        (324.7     —     

Investments in subsidiaries

     468.1        385.9        (443.4     233.9        (644.5     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 637.3      $ 1,042.2      $ 492.9      $ 335.5      $ (1,019.9   $ 1,488.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

            

Current liabilities

            

Current maturities of long-term debt

   $ —        $ 2.0      $ 0.1      $ 0.4      $ —        $ 2.5   

Accounts payable and accrued liabilities

     23.6        105.7        149.8        17.1        (50.7     245.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     23.6        107.7        149.9        17.5        (50.7     248.0   

Long-term debt

     0.1        599.1        1.2        1.9        —          602.3   

Deferred income taxes

     —          27.1        7.0        1.0        —          35.1   

Other long-term liabilities

     0.2        3.9        16.4        —          —          20.5   

Due to affiliates

     43.4        76.5        174.4        30.4        (324.7     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     67.3        814.3        348.9        50.8        (375.4     905.9   

Equity

            

Capital stock, no par

     395.9        574.9        895.3        175.0        (1,645.2     395.9   

Treasury stock

     (2.1     —          —          —          —          (2.1

Additional paid-in-capital

     43.4        —          —          —          —          43.4   

Retained earnings (deficit)

     150.0        (355.0     (366.9     (44.7     766.6        150.0   

Accumulated other comprehensive (loss) income

     (17.2     8.0        (384.4     142.3        234.1        (17.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Cott Corporation equity

     570.0        227.9        144.0        272.6        (644.5     570.0   

Non-controlling interests

     —          —          —          12.1        —          12.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

     570.0        227.9        144.0        284.7        (644.5     582.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 637.3      $ 1,042.2      $ 492.9      $ 335.5      $ (1,019.9   $ 1,488.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

23


Table of Contents

Consolidating Balance Sheets

 

(in millions of U.S. dollars)

 

     As of December 31, 2011  
     Cott
Corporation
    Cott
Beverages
Inc.
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

ASSETS

            

Current assets

            

Cash & cash equivalents

   $ 13.7      $ 20.7      $ 58.9      $ 7.6      $ —        $ 100.9   

Accounts receivable, net of allowance

     22.4        97.2        136.3        14.6        (59.7     210.8   

Income taxes recoverable

     —          8.8        0.8        0.3        —          9.9   

Inventories

     18.1        60.2        124.2        7.5        —          210.0   

Prepaid expenses and other assets

     1.8        13.8        3.6        0.1        —          19.3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     56.0        200.7        323.8        30.1        (59.7     550.9   

Property, plant & equipment

     48.0        179.3        245.1        9.8        —          482.2   

Goodwill

     26.9        4.5        98.2        —          —          129.6   

Intangibles and other assets

     0.9        105.3        216.5        18.4        —          341.1   

Deferred income taxes

     4.1        —          —          —          —          4.1   

Other tax receivable

     0.5        —          0.5        —          —          1.0   

Due from affiliates

     30.3        166.4        79.1        41.9        (317.7     —     

Investments in subsidiaries

     459.8        365.5        572.3        225.3        (1,622.9     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 626.5      $ 1,021.7      $ 1,535.5      $ 325.5      $ (2,000.3   $ 1,508.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

            

Current liabilities

            

Current maturities of long-term debt

   $ —        $ 2.9      $ 0.1      $ 0.4      $ —        $ 3.4   

Accounts payable and accrued liabilities

     27.1        117.1        181.2        15.4        (59.7     281.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     27.1        120.0        181.3        15.8        (59.7     284.5   

Long-term debt

     0.2        599.0        1.2        1.7        —          602.1   

Deferred income taxes

     —          26.8        6.8        0.5        —          34.1   

Other long-term liabilities

     0.2        3.5        16.3        —          —          20.0   

Due to affiliates

     43.2        77.8        168.9        27.8        (317.7     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     70.7        827.1        374.5        45.8        (377.4     940.7   

Equity

            

Capital stock, no par

     395.9        569.3        1,396.5        218.2        (2,184.0     395.9   

Treasury stock

     (2.1     —          —          —          —          (2.1

Additional paid-in-capital

     42.6        —          —          —          —          42.6   

Retained earnings (deficit)

     144.1        (365.5     (329.0     (43.2     737.7        144.1   

Accumulated other comprehensive (loss) income

     (24.7     (9.2     93.5        92.3        (176.6     (24.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Cott Corporation equity

     555.8        194.6        1,161.0        267.3        (1,622.9     555.8   

Non-controlling interests

     —          —          —          12.4        —          12.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

     555.8        194.6        1,161.0        279.7        (1,622.9     568.2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 626.5      $ 1,021.7      $ 1,535.5      $ 325.5      $ (2,000.3   $ 1,508.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

24


Table of Contents

Consolidating Statements of Condensed Cash Flows

 

(in millions of U.S. dollars)

Unaudited

 

     For the Three Months Ended March 31, 2012  
     Cott
Corporation
    Cott
Beverages Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

Operating Activities

            

Net income

   $ 5.9      $ 4.7      $ 9.6      $ 0.8      $ (14.2   $ 6.8   

Depreciation & amortization

     1.6        8.8        12.0        1.4        —          23.8   

Amortization of financing fees

     0.1        1.0        0.1        —          —          1.2   

Share-based compensation expense

     0.1        0.5        0.2        —          —          0.8   

Increase (decrease) in deferred income taxes

     0.4        (0.7     0.2        0.1        —          —     

Loss on disposal of property, plant & equipment

     —          0.4        0.2        —          —          0.6   

Equity (loss) income, net of distributions

     (8.1     (1.0     (5.1     —          (14.2     —     

Intercompany transactions

     4.2        1.2        —          —          (5.4     —     

Other non-cash items

     (0.4     —          —          —          —          (0.4

Net change in operating assets and liabilities, net of acquisition

     (9.9     (19.5     (52.7     0.8        5.4        (75.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by operating activities

     (6.1     (4.6     (35.5     3.1        —          (43.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investing Activities

            

Acquisition

     —          —          (5.0     —          —          (5.0

Additions to property, plant & equipment

     (1.5     (11.1     (5.0     (0.1     —          (17.7

Additions to intangibles and other assets

     —          (2.2     (0.5     —          —          (2.7

Advances to affiliates

     —          —          —          (2.6     2.6        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (1.5     (13.3     (10.5     (2.7     2.6        (25.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financing Activities

            

Payments of long-term debt

     —          (1.1     —          (0.1     —          (1.2

Borrowings under ABL

     —          7.0        —          —          —          7.0   

Payments under ABL

     —          (7.0     —          —          —          (7.0

Advances from affiliates

     2.6        —          —          —          (2.6     —     

Distributions to non-controlling interests

     —          —          —          (1.1     —          (1.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     2.6        (1.1     —          (1.2     (2.6     (2.3

Effect of exchange rate changes on cash

     0.3        —          0.8        0.4        —          1.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net decrease in cash & cash equivalents

     (4.7     (19.0     (45.2     (0.4     —          (69.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash & cash equivalents, beginning of period

     13.7        20.7        58.9        7.6        —          100.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash & cash equivalents, end of period

   $ 9.0      $ 1.7      $ 13.7      $ 7.2      $ —        $ 31.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

25


Table of Contents

Consolidating Statements of Condensed Cash Flows

 

(in millions of U.S. dollars)

Unaudited

 

     For the Three Months Ended April 2, 2011  
     Cott
Corporation
    Cott
Beverages
Inc.
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

Operating activities

            

Net income (loss)

   $ 6.8      $ (3.8   $ 9.3      $ 0.7      $ (5.3   $ 7.7   

Depreciation & amortization

     1.6        8.6        11.9        1.5        —          23.6   

Amortization of financing fees

     0.1        0.7        0.1        —          —          0.9   

Share-based compensation expense

     0.1        0.7        0.3        —          —          1.1   

Increase (decrease) in deferred income taxes

     0.3        1.1        (0.5     —          —          0.9   

Equity (loss) income, net of distributions

     (7.8     (1.3     3.8        —          5.3        —     

Intercompany transactions

     4.6        1.6        —          —          (6.2     —     

Other non-cash items

     0.4        (0.2     —          —          —          0.2   

Net change in operating assets and liabilities

     (32.3     (45.2     4.8        6.5        6.2        (60.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by operating activities

     (26.2     (37.8     29.7        8.7        —          (25.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investing activities

            

Additions to property, plant & equipment

     (0.7     (8.0     (3.8     —          —          (12.5

Proceeds from sale of property, plant & equipment

     —          —          0.1        —          —          0.1   

Advances to affiliates

     19.8        —          (12.4     (6.0     (1.4     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     19.1        (8.0     (16.1     (6.0     (1.4     (12.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financing activities

            

Payments of long-term debt

     —          (1.3     —          —          —          (1.3

Borrowings under ABL

     —          99.8        —          —          —          99.8   

Payments under ABL

     —          (72.5     —          —          —          (72.5

Advances from affiliates

     6.0        12.4        (19.8     —          1.4        —     

Distributions to non-controlling interests

     —          —          —          (1.6     —          (1.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     6.0        38.4        (19.8     (1.6     1.4        24.4   

Effect of exchange rate changes on cash

     0.3        —          0.8        0.1        —          1.2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash & cash equivalents

     (0.8     (7.4     (5.4     1.2        —          (12.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash & cash equivalents, beginning of period

     7.8        9.1        26.0        5.3        —          48.2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash & cash equivalents, end of period

   $ 7.0      $ 1.7      $ 20.6      $ 6.5      $ —        $ 35.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

26


Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to further the reader’s understanding of the consolidated financial condition and results of operations of our Company. It should be read in conjunction with the financial statements included in this quarterly report on Form 10-Q and our annual report on Form 10-K for the year ended December 31, 2011 (the “2011 Annual Report”). These historical financial statements may not be indicative of our future performance. This discussion contains a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks referred to under “Risk Factors” in Item 1A in our 2011 Annual Report.

Overview

We are one of the world’s largest beverage companies focusing on private-label and contract manufacturing. Our objective of creating sustainable long-term growth in revenue and profitability is predicated on working closely with our retailer partners to provide proven profitable products. As a “fast follower” of innovative products, our goal is to identify which new products are succeeding in the marketplace and develop similar private label products to provide our retail partners and their consumers with high quality products at a better value. This objective is increasingly relevant in more difficult economic times.

The beverage market is subject to some seasonal variations. Our beverage sales are generally higher during the warmer months and also can be influenced by the timing of holidays and weather fluctuations. This seasonality also causes our working capital needs to fluctuate, with inventory being higher in the first half of the year to meet the peak summer demand and accounts receivable declining in the fall as customers pay their higher-than-average outstanding balances from the summer deliveries.

We typically operate at low margins and therefore relatively small changes in cost structures can materially impact results.

Ingredient and packaging costs represent a significant portion of our cost of sales. These costs are subject to global and regional commodity price trends. Our largest commodities are aluminum for cans and ends, resin for polyethylene terephthalate bottles, preforms and caps, corn for high fructose corn syrup (“HFCS”), fruit and fruit concentrates. We attempt to manage our exposure to fluctuations in ingredient and packaging costs of our products by implementing price increases as needed and entering into fixed price commitments for a portion of our ingredient and packaging requirements. We have entered into fixed price commitments for a majority of our forecasted aluminum and fruit requirements for the remainder of 2012, as well as a portion of our aluminum and fruit requirements for 2013. We have entered into fixed price commitments for all of our HFCS requirements for 2012.

On August 17, 2010, we completed the acquisition of substantially all of the assets and liabilities of Cliffstar Corporation (“Cliffstar”) and its affiliated companies for approximately $503.0 million in cash, $14.0 million in deferred consideration to be paid over three years, of which $4.7 million was paid during the third quarter of 2011, and contingent consideration of up to $55.0 million (the “Cliffstar Acquisition”). The first $15.0 million of the contingent consideration was based upon the achievement of milestones in certain expansion projects in 2010, which were achieved in 2010. The remainder of the contingent consideration was based on the achievement of certain performance measures during the fiscal year ended January 1, 2011. The seller of Cliffstar notified us of certain objections to the performance measures used to calculate the contingent consideration and such objections to the calculation of the contingent consideration are subject to an ongoing binding arbitration process under the terms of the asset purchase agreement. The seller is seeking up to $12.1 million in additional contingent consideration. The final resolution of these matters may result in amounts payable to the seller that vary materially from our current estimated fair value of payments previously made to the seller amounting to $34.3 million. We are currently unable to predict the ultimate outcome of this action.

We supply Walmart and its affiliated companies, under annual non-exclusive supply agreements, with a variety of products in the United States, Canada, U.K. and Mexico, including carbonated soft drinks (“CSDs”), clear, still and sparkling flavored waters, juice, juice-based products, bottled water, energy drinks and ready-to-drink teas. During the first three months of 2012, we supplied Walmart with all of its private label CSDs in the United States. In the event Walmart were to utilize additional suppliers to fulfill a portion of its requirements for such products, our operating results could be materially adversely affected. Sales to Walmart for the three months ended March 31, 2012 and April 2, 2011 accounted for 31.6% and 33.0% of total revenue.

 

27


Table of Contents

Summary financial results

Our net income for the three months ended March 31, 2012 (the “first quarter”) was $5.9 million or $0.06 per diluted share, compared with net income of $6.8 million or $0.07 per diluted share for the three months ended April 2, 2011.

The following items of significance impacted our financial results for the first quarter of 2012:

 

   

our revenue decreased 1.9% from the comparable prior year period due primarily to a decline in North America volume resulting from the exit of certain case pack water business and the continuing decline in the U.S. shelf stable juice market. Absent foreign exchange impact, revenue decreased 1.3% from the comparable prior year period;

 

   

our gross profit as a percentage of revenue declined to 12.1% for the first quarter from 13.0% in the comparable prior year period;

 

   

our filled beverage 8-ounce equivalents (“beverage case volume”) decreased 6.8% during the first quarter due primarily to the loss of certain customers resulting from the strategic implementation of price increases;

 

   

our selling, general and administrative (“SG&A”) expenses for the first quarter decreased to $41.8 million from $45.1 million in the comparable prior year period due primarily to a reduction of information technology costs and professional fees, offset in part by an increase in certain employee-related costs;

 

   

other income was $0.2 million in the first quarter compared to other expense of $0.8 million in the comparable prior year period due primarily to foreign exchange gains primarily related to intercompany transactions; and

 

   

our income tax expense was $0.4 million compared to $1.6 million in the comparable prior year period, due primarily to a favorable audit settlement of $0.9 million.

 

   

our Adjusted Earnings Before Interest Expense, Taxes, Depreciation and Amortization (“EBITDA”) for the first quarter increased 2.9% to $46.1 million from $44.8 million in the comparable prior year period.

The following items of significance impacted our financial results for the first quarter of 2011:

 

   

the Cliffstar Acquisition contributed $166.3 million to revenue in the first quarter of 2011;

 

   

our revenue increased 47.2% from the comparable prior year period. Absent foreign exchange impact, revenue increased 45.8% in the first quarter, due to the Cliffstar Acquisition. Excluding the impact of the Cliffstar Acquisition and the impact of foreign exchange, revenue was flat;

 

   

our gross profit as a percentage of revenue declined to 13.0% for the first quarter compared to 15.8% for the comparable prior year period due primarily to higher commodity and freight costs;

 

   

our beverage case volume increased 22.5% due primarily to the Cliffstar Acquisition which contributed a 30.1% increase in the North America operating segment;

 

   

our SG&A expenses increased to $45.1 million from $32.4 million in the comparable prior year period, due primarily to the Cliffstar Acquisition, information technology costs, certain employee related costs and professional fees;

 

   

our interest expense increased to $14.4 million from $6.2 million in the comparable prior year period due primarily to the issuance of $375.0 million of senior notes that are due on September 1, 2018 (the “2018 Notes”);

 

   

the decrease in other expense of $1.0 million was due primarily to the write-off of financing fees of $1.4 million in the comparable prior year period; and

 

   

our income tax expense decreased $2.8 million in the first quarter from the comparable prior year period, due primarily to lower pre-tax income.

Non-GAAP Measures

In this report, we supplement our reporting of financial measures determined in accordance with U.S. generally accepted accounting principles (“GAAP”) by utilizing certain non-GAAP financial measures. We exclude the impact of foreign exchange from GAAP revenues to separate the impact of currency exchange rate changes from Cott’s results of operations, and, in some cases, by excluding the impact of the Cliffstar Acquisition. Cott excludes these items to better understand trends in the business and the impact of the Cliffstar Acquisition.

We also utilize EBITDA, which is GAAP earnings before interest expense, provision for income taxes, depreciation and amortization (“EBITDA”). We consider EBITDA to be an indicator of operating performance because we use it to measure our ability to service debt, fund capital expenditures, and expand our business. We also use EBITDA, as do analysts, lenders, investors and others, to evaluate companies because it excludes certain items that can vary widely across different industries or among companies within the same industry. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies. We also utilize Adjusted EBITDA as an indicator of operating performance. Our Adjusted EBITDA reflects inventory step-up (step-down) adjustments and integration costs related to the Cliffstar Acquisition. Adjusted EBITDA excludes these items to make period-over-period comparisons of our ongoing core operations before material charges.

Because Cott uses these adjusted financial results in the management of its business and to understand business performance, management believes this supplemental information is useful to investors for their independent evaluation and understanding of Cott’s business performance and the performance of its management. The non-GAAP financial measures described above are in addition to, and not meant to be considered superior to, or a substitute for, Cott’s financial statements prepared in accordance with GAAP. In addition, the non-GAAP financial measures included in this report reflect management’s judgment of particular items, and may be different from, and therefore may not be comparable to, similarly titled measures reported by other companies.

 

28


Table of Contents

The following table summarizes our Consolidated Statements of Operations as a percentage of revenue for the three months ended March 31, 2012 and April 2, 2011:

 

     For the Three Months Ended  
     March 31, 2012      April 2, 2011  

(in millions of U.S. dollars)

   $     %      $      %  

Revenue

     523.8        100.0         534.1         100.0   

Cost of sales

     460.4        87.9         464.5         87.0   
  

 

 

   

 

 

    

 

 

    

 

 

 

Gross profit

     63.4        12.1         69.6         13.0   

Selling, general, and administrative expenses

     41.8        8.0         45.1         8.4   

Loss on disposal of property, plant & equipment

     0.6        0.1         —           —     

Restructuring

     —          —           —           —     
  

 

 

   

 

 

    

 

 

    

 

 

 

Operating income

     21.0        4.0         24.5         4.6   

Other (income) expense, net

     (0.2     —           0.8         0.1   

Interest expense, net

     14.0        2.7         14.4         2.8   
  

 

 

   

 

 

    

 

 

    

 

 

 

Income before income taxes

     7.2        1.3         9.3         1.7   

Income tax expense

     0.4        0.1         1.6         0.3   
  

 

 

   

 

 

    

 

 

    

 

 

 

Net income

     6.8        1.2         7.7         1.4   
  

 

 

   

 

 

    

 

 

    

 

 

 

Less: Net income attributable to non-controlling interests

     0.9        0.2         0.9         0.1   
  

 

 

   

 

 

    

 

 

    

 

 

 

Net income attributed to Cott Corporation

     5.9        1.0         6.8         1.3   
  

 

 

   

 

 

    

 

 

    

 

 

 

Depreciation & amortization

     23.8        4.5         23.6         4.4   
  

 

 

   

 

 

    

 

 

    

 

 

 

The following table summarizes our revenue and operating income (loss) by reporting segment for the three months ended March 31, 2012 and April 2, 2011:

 

     For the Three Months Ended  

(in millions of U.S. Dollars)

   March 31, 2012     April 2, 2011  

Revenue

    

North America

   $ 408.1      $ 428.8   

United Kingdom

     99.2        86.3   

Mexico

     9.1        11.4   

RCI

     7.4        7.6   
  

 

 

   

 

 

 

Total

   $ 523.8      $ 534.1   
  

 

 

   

 

 

 

Operating income (loss)

    

North America

   $ 17.3      $ 20.8   

United Kingdom

     3.2        3.0   

Mexico

     (1.3     (1.5

RCI

     1.8        2.2   
  

 

 

   

 

 

 

Total

   $ 21.0      $ 24.5   
  

 

 

   

 

 

 

Revenues are attributed to reporting segments based on the location of the customer.

 

29


Table of Contents

The following table summarizes our beverage case volume by reporting segment for the three months ended March 31, 2012 and April 2, 2011:

 

     For the Three Months Ended  

(in millions of cases)

   March 31, 2012      April 2, 2011  

Volume - 8 oz equivalent cases - Total Beverage (including concentrate)

  

North America

     179.6         195.1   

United Kingdom

     44.9         43.5   

Mexico

     5.9         8.4   

RCI

     71.0         82.5   
  

 

 

    

 

 

 

Total

     301.4         329.5   
  

 

 

    

 

 

 

Volume-8 oz equivalent cases - Filled Beverage

     

North America

     156.4         170.6   

United Kingdom

     40.9         39.1   

Mexico

     5.9         8.4   

RCI

     —           —     
  

 

 

    

 

 

 

Total

     203.2         218.1   
  

 

 

    

 

 

 

The following tables summarize revenue and volume by product for the three months ended March 31, 2012 and April 2, 2011:

 

For the Three Months Ended March 31, 2012

 

(in millions of U.S. dollars)

   North
America
     United
Kingdom
     Mexico      RCI      Total  

Revenue

              

Carbonated soft drinks

   $ 163.8       $ 33.7       $ 5.6       $ —         $ 203.1   

Juice

     133.9         3.1         0.1         —           137.1   

Concentrate

     2.9         0.8         —           7.4         11.1   

All other products

     107.5         61.6         3.4         —           172.5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 408.1       $ 99.2       $ 9.1       $ 7.4       $ 523.8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

For the Three Months Ended March 31, 2012

 

(in millions of physical cases)

   North
America
     United
Kingdom
     Mexico      RCI      Total  

Volume - 8 oz equivalent cases - Total Beverage (including concentrate)

              

Carbonated soft drinks

     74.9         18.1         4.0         —           97.0   

Juice

     30.4         0.8         0.1         —           31.3   

Concentrate

     23.2         4.0         —           71.0         98.2   

All other products

     51.1         22.0         1.8         —           74.9   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     179.6         44.9         5.9         71.0         301.4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

30


Table of Contents

For the Three Months Ended April 2, 2011

 

(in millions of U.S. dollars)

   North
America
     United
Kingdom
     Mexico      RCI      Total  

Revenue

              

Carbonated soft drinks

   $ 156.3       $ 42.4       $ 9.3       $ —         $ 208.0   

Juice

     160.0         2.2         0.8         —           163.0   

Concentrate

     2.3         0.2         —           7.6         10.1   

All other products

     110.2         41.5         1.3         —           153.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 428.8       $ 86.3       $ 11.4       $ 7.6       $ 534.1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

For the Three Months Ended April 2, 2011

 

(in millions of physical cases)

   North
America
     United
Kingdom
     Mexico      RCI      Total  

Volume - 8 oz equivalent cases - Total Beverage (including concentrate)

              

Carbonated soft drinks

     78.7         24.3         6.6         —           109.6   

Juice

     37.4         0.6         0.6