10-Q 1 d515130d10q.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 30, 2013

 

¨ 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 1, 2013

Common Stock, no par value per share    95,371,484 shares

 

 

 


Table of Contents
PART I – FINANCIAL INFORMATION   

Item 1.

 

Financial Statements (unaudited)

     3   
 

Consolidated Statements of Operations

     3   
 

Condensed Consolidated Statements of Comprehensive (Loss) 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

     32   
 

Liquidity and Financial Condition

     33   

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 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     39   

Item 6.

 

Exhibits

     40   
SIGNATURES      41   

 

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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 30,
2013
     March 31,
2012
 

Revenue, net

   $ 505.4       $ 523.8   

Cost of sales

     449.0         460.4   
  

 

 

    

 

 

 

Gross profit

     56.4         63.4   

Selling, general and administrative expenses

     41.3         41.8   

Loss on disposal of property, plant & equipment

     —           0.6   
  

 

 

    

 

 

 

Operating income

     15.1         21.0   

Other expense (income), net

     0.3         (0.2

Interest expense, net

     13.3         14.0   
  

 

 

    

 

 

 

Income before income taxes

     1.5         7.2   

Income tax expense

     0.5         0.4   
  

 

 

    

 

 

 

Net income

   $ 1.0       $ 6.8   

Less: Net income attributable to non-controlling interests

     1.0         0.9   
  

 

 

    

 

 

 

Net income attributed to Cott Corporation

   $ —         $ 5.9   
  

 

 

    

 

 

 

Net income per common share attributed to Cott Corporation

     

Basic

   $ —         $ 0.06   

Diluted

   $ —         $ 0.06   

Weighted average outstanding shares (thousands) attributed to Cott Corporation

     

Basic

     95,371         94,427   

Diluted

     95,801         95,702   

Dividends declared per share

   $ 0.06       $ —     

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

 

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Cott Corporation

Condensed Consolidated Statements of Comprehensive (Loss) Income

(in millions of U.S. dollars)

Unaudited

 

     For the Three Months Ended  
     March 30,
2013
    March 31,
2012
 

Net income

   $ 1.0      $ 6.8   

Other comprehensive (loss) income:

    

Currency translation adjustment

     (12.4     8.2   

Pension benefit plan, net of tax1

     0.2        (0.5

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

     0.1        (0.3
  

 

 

   

 

 

 

Total other comprehensive (loss) income

     (12.1     7.4   
  

 

 

   

 

 

 

Comprehensive (loss) income

   $ (11.1   $ 14.2   

Less: Comprehensive income attributable to non-controlling interests

     0.9        0.8   
  

 

 

   

 

 

 

Comprehensive (loss) income attributed to Cott Corporation

   $ (12.0   $ 13.4   
  

 

 

   

 

 

 

 

1 

Net of the effect of $0.1 million tax expense and no tax benefit for the three months ended March 30, 2013 and March 31, 2012, respectively.

2 

Net of the effect of $0.1 million tax expense and $0.1 million tax benefit for the three months ended March 30, 2013 and March 31, 2012, respectively.

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

 

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Cott Corporation

Consolidated Balance Sheets

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

Unaudited

 

     March 30,
2013
    December 29,
2012
 

ASSETS

    

Current assets

    

Cash & cash equivalents

   $ 93.0      $ 179.4   

Accounts receivable, net of allowance of $6.1 ($6.8 as of December 29, 2012)

     223.3        199.4   

Income taxes recoverable

     1.0        1.2   

Inventories

     235.7        224.8   

Prepaid expenses and other assets

     20.8        20.3   
  

 

 

   

 

 

 

Total current assets

     573.8        625.1   

Property, plant & equipment, net

     486.8        490.9   

Goodwill

     129.7        130.3   

Intangibles and other assets, net

     305.6        315.4   

Deferred income taxes

     3.0        3.3   

Other tax receivable

     1.2        0.9   
  

 

 

   

 

 

 

Total assets

   $ 1,500.1      $ 1,565.9   
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

    

Current liabilities

    

Current maturities of long-term debt

   $ 2.0      $ 1.9   

Accounts payable and accrued liabilities

     238.4        287.7   
  

 

 

   

 

 

 

Total current liabilities

     240.4        289.6   

Long-term debt

     601.4        601.8   

Deferred income taxes

     38.4        39.1   

Other long-term liabilities

     15.1        12.5   
  

 

 

   

 

 

 

Total liabilities

     895.3        943.0   

Equity

    

Capital stock, no par - 95,371,484 (December 29, 2012 - 95,371,484) shares issued

     397.8        397.8   

Additional paid-in-capital

     41.1        40.4   

Retained earnings

     180.4        186.0   

Accumulated other comprehensive loss

     (24.4     (12.4
  

 

 

   

 

 

 

Total Cott Corporation equity

     594.9        611.8   

Non-controlling interests

     9.9        11.1   
  

 

 

   

 

 

 

Total equity

     604.8        622.9   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 1,500.1      $ 1,565.9   
  

 

 

   

 

 

 

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

 

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Cott Corporation

Consolidated Statements of Cash Flows

(in millions of U.S. dollars)

Unaudited

 

     For the Three Months Ended  
     March 30,
2013
    March 31,
2012
 

Operating Activities

    

Net income

   $ 1.0      $ 6.8   

Depreciation & amortization

     24.7        23.8   

Amortization of financing fees

     0.7        1.2   

Share-based compensation expense

     0.7        0.8   

Loss on disposal of property, plant & equipment

     —          0.6   

Other non-cash items

     0.3        (0.4

Change in operating assets and liabilities, net of acquisition:

    

Accounts receivable

     (28.2     (20.5

Inventories

     (13.2     (16.5

Prepaid expenses and other assets

     (0.6     (1.8

Other assets

     (0.1     1.0   

Accounts payable and accrued liabilities

     (44.1     (38.4

Income taxes recoverable

     0.2        0.3   
  

 

 

   

 

 

 

Net cash used in operating activities

     (58.6     (43.1
  

 

 

   

 

 

 

Investing Activities

    

Acquisition

     —          (5.0

Additions to property, plant & equipment

     (19.9     (17.7

Additions to intangibles and other assets

     (0.2     (2.7

Proceeds from insurance recoveries

     0.4        —     
  

 

 

   

 

 

 

Net cash used in investing activities

     (19.7     (25.4
  

 

 

   

 

 

 

Financing Activities

    

Payments of long-term debt

     (0.5     (1.2

Borrowings under ABL

     —          7.0   

Payments under ABL

     —          (7.0

Distributions to non-controlling interests

     (2.1     (1.1

Common shares repurchased and cancelled

     (2.9     —     
  

 

 

   

 

 

 

Net cash used in financing activities

     (5.5     (2.3
  

 

 

   

 

 

 

Effect of exchange rate changes on cash

     (2.6     1.5   
  

 

 

   

 

 

 

Net decrease in cash & cash equivalents

     (86.4     (69.3

Cash & cash equivalents, beginning of period

     179.4        100.9   
  

 

 

   

 

 

 

Cash & cash equivalents, end of period

   $ 93.0      $ 31.6   
  

 

 

   

 

 

 

Supplemental Non-cash Financing Activities:

    

Dividend payable issued through accounts payable and accrued liabilities

   $ 5.6      $ —     

Supplemental Disclosures of Cash Flow information:

    

Cash paid for interest

   $ 15.9      $ 16.0   

Cash paid for income taxes, net

   $ 0.5      $ 0.2   

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

 

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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 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   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 29, 2012

    95,371        —        $ 397.8      $ —        $ 40.4      $ 186.0      $ (12.4   $ 11.1      $ 622.9   

Dividend

    —          —          —          —          —          (5.6     —          —          (5.6

Share-based compensation

    —          —          —          —          0.7        —          —          —          0.7   

Distributions to non-controlling interests

    —          —          —          —          —          —          —          (2.1     (2.1

Comprehensive income

                 

Currency translation adjustment

    —          —          —          —          —          —          (12.3     (0.1     (12.4

Pension benefit plan, net of tax

    —          —          —          —          —          —          0.2        —          0.2   

Unrealized gain on derivative instruments, net of tax

    —          —          —          —          —          —          0.1        —          0.1   

Net income

    —          —          —          —          —          —          —          1.0        1.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 30, 2013

    95,371        —        $ 397.8      $ —        $ 41.1      $ 180.4      $ (24.4   $ 9.9      $ 604.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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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 producers of beverages on behalf of retailers, brand owners and distributors. Our product lines include carbonated soft drinks (“CSDs”), 100% shelf stable juice and juice-based products, clear, still and sparkling flavored waters, energy products, sports products, new age beverages, and ready-to-drink teas, as well as alcoholic beverages for brand owners.

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 29, 2012. 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.

Recent Accounting Pronouncements

Update ASU 2013-02 – Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income

In February 2013, the Financial Accounting Standards Board (“FASB”) amended its guidance regarding the information provided in relation to the amounts reclassified out of accumulated other comprehensive income. The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012. Early adoption is permitted. We have adopted this guidance, and the required disclosure is set forth in Note 10.

 

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Note 2 – Acquisitions

In March of 2012, our United Kingdom (“U.K.”) reporting segment acquired a beverage and wholesale business based in Scotland for approximately $5.0 million. The business was purchased from a company in administration and is expected to provide a number of benefits to our U.K. reporting segment, including increased product offerings, logistical synergies and access to an additional production line. The acquisition has been accounted for using the purchase method of accounting for business combinations, and related operating results are included in the Consolidated Statements of Operations for the periods subsequent to the acquisition. The identified assets, which included inventory, property, plant and equipment, trade names and customer lists, were recorded at their estimated fair values, which exceeded the fair value of the purchase price of the business. Accordingly, the acquisition has been accounted for as a bargain purchase and, as a result, we recognized a gain of approximately $0.9 million associated with the acquisition during the second quarter of 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 payable in equal installments over three years and contingent consideration of up to $55.0 million (the “Cliffstar Acquisition”). The first $15.0 million of the contingent consideration was paid upon the achievement of milestones in certain expansion projects in 2010. The remainder of the contingent consideration was to be calculated based on the achievement of certain performance measures during the fiscal year ending January 1, 2011.

In 2011, the seller of Cliffstar raised certain objections to the performance measures used to calculate the contingent consideration, and the parties commenced the dispute resolution mechanism provided for in the asset purchase agreement. During 2011, Cott made interim payments to the seller equal to $29.6 million, which was net of a $4.7 million refund due to Cott and included $0.9 million in settlement of certain of the seller’s objections to the calculation of the contingent consideration. The seller’s claims for an additional $12.1 million in contingent consideration were submitted to binding arbitration pursuant to the asset purchase agreement and favorably resolved by payment by Cott in February 2013 of approximately $0.6 million.

Note 3 – Share-Based Compensation

The table below summarizes the share-based compensation expense for the three months ended March 30, 2013 and March 31, 2012. 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 30,
2013
     March 31,
2012
 

Stock options

   $ 0.1       $ 0.1   

Performance-based RSUs

     0.2         —     

Time-based RSUs

     0.4         0.7   
  

 

 

    

 

 

 

Total

   $ 0.7       $ 0.8   
  

 

 

    

 

 

 

 

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As of March 30, 2013, the unrecognized share-based compensation expense and years we expect to recognize it as future compensation expense were as follows:

 

(in millions of U.S. dollars)

   Unrecognized
share-based
compensation
expense as of
March 30,
2013
     Weighted
average years
expected to
recognize
compensation
 

Stock options

   $ 0.8         1.8   

Performance-based RSUs

     1.5         1.8   

Time-based RSUs

     2.0         1.6   
  

 

 

    

Total

   $ 4.3      
  

 

 

    

Stock option activity for the three months ended March 30, 2013 was as follows:

 

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

Balance at December 29, 2012

     468       $ 7.28   

Awarded

     —           —     

Exercised

     —           —     

Forfeited or expired

     —           —     
  

 

 

    

 

 

 

Outstanding at March 30, 2013

     468       $ 7.28   
  

 

 

    

 

 

 
     
  

 

 

    

 

 

 

Exercisable at March 30, 2013

     125       $ 9.49   
  

 

 

    

 

 

 

During the three months ended March 30, 2013 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 29, 2012

     825        529   

Awarded

     —          —     

Issued

     —          —     

Forfeited

     (5     (4
  

 

 

   

 

 

 

Outstanding at March 30, 2013

     820        525   
  

 

 

   

 

 

 

There were no stock options awarded during the three months ended March 30, 2013. Stock options awarded in 2012 were granted under the 2010 Equity Incentive Plan, while stock options awarded prior to 2012 were granted under the 1986 Option Plan. Our board of directors terminated the 1986 Option Plan, 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.

On February 14, 2013, our board of directors adopted an amendment and restatement to the 2010 Equity Incentive Plan (the “Amended and Restated Equity Plan”), pursuant to which the 2010 Equity Incentive Plan was amended and restated to, among other things, increase the number of shares that may be issued under the plan to 12,000,000 shares and to provide that the number of shares available for issuance will be reduced 2.0 shares for each share issued pursuant to a “full-value” award (i.e. an award other than an option or stock appreciation right). The Amended and Restated Equity Plan was approved by Cott’s shareowners on April 30, 2013.

 

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Average Canadian to U.S. Dollar Exchange Rate for the Three Months Ended March 30, 2013

The weighted-average exercise prices for options in this 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 30, 2013:

 

     For the
Three
Months
Ended
 
     March 30,
2013
 

Average exchange rate

   $ 0.994   

Note 4 – Income Taxes

Income tax expense was $0.5 million on pretax income of $1.5 million for the three months ended March 30, 2013, as compared to an income tax expense of $0.4 million on pretax income of $7.2 million for the three months ended March 31, 2012. The first quarter’s income tax rate was 33% in comparison to the prior year rate of 6%. This is the result of $0.2 million in discrete items that increased the current quarter’s rate relative to net income in comparison to prior year discrete items of $(0.8) million which reduced that rate.

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 30,
2013
     March 31,
2012
 

Weighted-average number of shares outstanding - basic

     95,371         94,427   

Dilutive effect of stock options

     49         30   

Dilutive effect of Performance-based RSUs

     127         114   

Dilutive effect of Time-based RSUs

     254         1,131   
  

 

 

    

 

 

 

Adjusted weighted-average number of shares outstanding - diluted

     95,801         95,702   
  

 

 

    

 

 

 

We excluded 50,000 (March 31, 2012–183,500) 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 treasury shares held in various trusts in the calculation of basic and diluted earnings per share for the three months ended March 31, 2012. We distributed the remaining shares from the trusts to satisfy certain 2010 Equity Incentive Plan obligations that vested during the fourth quarter of 2012.

 

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Note 6 – Segment Reporting

Our product lines include CSDs, 100% shelf stable juice and juice-based products, clear, still and sparkling flavored waters, energy products, sports products, new age beverages, and ready-to-drink teas, as well as alcoholic beverages for brand owners. Our business operates through five reporting segments – North America (which includes our U.S. operating segment and 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. The primary measures used in evaluating our reporting segments are revenues, operating income (loss), and additions to property, plant and equipment, which have been included as part of our segment disclosures listed below.

 

(in millions of U.S. dollars)

   North
America
     United
Kingdom
     Mexico     RCI      All
Other
     Total  

For the Three Months Ended March 30, 2013

                

External revenue1

   $ 393.2       $ 97.4       $ 7.4      $ 7.4       $ —         $ 505.4   

Depreciation and amortization

     21.0         3.2         0.5        —           —           24.7   

Operating income (loss)

     13.8         —           (0.7     2.0         —           15.1   

Additions to property, plant & equipment

     14.5         4.6         0.8        —           —           19.9   

As of March 30, 2013

                

Property, plant & equipment

   $ 382.0       $ 94.8       $ 10.0      $ —         $ —         $ 486.8   

Goodwill

     125.2         —           —          4.5         —           129.7   

Intangibles and other assets

     292.6         12.6         0.4        —           —           305.6   

Total assets2

     1,223.5         235.2         26.8        13.8         0.8         1,500.1   

 

1 

Intersegment revenue between North America and the other reporting segments was $3.8 million for the three months ended March 30, 2013.

2 

Excludes intersegment receivables, investments and notes receivable.

 

(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 December 29, 2012

                

Property, plant & equipment

   $ 382.1       $ 99.5       $ 9.3      $ —         $ —         $ 490.9   

Goodwill

     125.8         —           —          4.5         —           130.3   

Intangibles and other assets

     301.1         13.9         0.4        —           —           315.4   

Total assets2

     1,246.7         273.8         28.1        14.1         3.2         1,565.9   

 

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.

For the three months ended March 30, 2013, sales to Walmart accounted for 32.8% (March 31, 2012 – 31.6%) of our total revenues, 37.8% of our North America reporting segment revenues (March 31, 2012 – 36.0%), 16.5% of our U.K. reporting segment revenues (March 31, 2012 – 16.8%), and 13.3% of our Mexico reporting segment revenues (March 31, 2012 – 24.4%).

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.

 

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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 30,
2013
    March 31,
2012
 

United States

   $ 354.8      $ 366.2   

Canada

     47.5        53.8   

United Kingdom

     97.4        99.2   

Mexico

     7.4        9.1   

RCI

     7.4        7.4   

Elimination1

     (9.1     (11.9
  

 

 

   

 

 

 

Total

   $ 505.4      $ 523.8   
  

 

 

   

 

 

 

 

1 

Represents intersegment revenue among our operating segments, of which $3.8 million represents intersegment revenue between the North America reporting segment and our other operating segments for the three months ended March 30, 2013, and $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.

Revenues by product were as follows:

 

For the Three Months Ended March 30, 2013

 

(in millions of U.S. dollars)

   North
America
     United
Kingdom
     Mexico      RCI      Total  

Revenue

              

Carbonated soft drinks

   $ 151.4       $ 32.7       $ 3.5       $ 0.1       $ 187.7   

Juice

     135.0         3.1         —           0.5         138.6   

Concentrate

     3.1         0.6         —           6.8         10.5   

All other products

     103.7         61.0         3.9         —           168.6   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 393.2       $ 97.4       $ 7.4       $ 7.4       $ 505.4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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         0.4         137.5   

Concentrate

     2.9         0.8         —           7.0         10.7   

All other products

     107.5         61.6         3.4         —           172.5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 408.1       $ 99.2       $ 9.1       $ 7.4       $ 523.8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

Property, plant and equipment by operating segment as of March 30, 2013 and December 29, 2012 was as follows:

 

(in millions of U.S. dollars)

   March 30,
2013
     December 29,
2012
 

United States

   $ 335.1       $ 333.7   

Canada

     46.9         48.4   

United Kingdom

     94.8         99.5   

Mexico

     10.0         9.3   
  

 

 

    

 

 

 

Total

   $ 486.8       $ 490.9   
  

 

 

    

 

 

 

Note 7 – Inventories

The following table summarizes inventories as of March 30, 2013 and December 29, 2012:

 

(in millions of U.S. dollars)

   March 30,
2013
     December 29,
2012
 

Raw materials

   $ 102.1       $ 93.4   

Finished goods

     113.5         111.6   

Other

     20.1         19.8   
  

 

 

    

 

 

 

Total

   $ 235.7       $ 224.8   
  

 

 

    

 

 

 

 

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Table of Contents

Note 8 – Intangibles and Other Assets

The following table summarizes intangibles and other assets as of March 30, 2013:

 

     March 30, 2013  

(in millions of U.S. dollars)

   Cost      Accumulated
Amortization
     Net  

Intangibles

        

Not subject to amortization

        

Rights

   $ 45.0       $ —         $ 45.0   
  

 

 

    

 

 

    

 

 

 

Subject to amortization

        

Customer relationships

   $ 366.3       $ 148.0       $ 218.3   

Trademarks

     28.6         23.6         5.0   

Information technology

     65.3         51.4         13.9   

Other

     11.8         9.2         2.6   
  

 

 

    

 

 

    

 

 

 
     472.0         232.2         239.8   
  

 

 

    

 

 

    

 

 

 
     517.0         232.2         284.8   
  

 

 

    

 

 

    

 

 

 

Other Assets

        

Financing costs

   $ 24.3       $ 11.7       $ 12.6   

Deposits

     7.2         —           7.2   

Other

     1.3         0.3         1.0   
  

 

 

    

 

 

    

 

 

 
     32.8         12.0         20.8   
  

 

 

    

 

 

    

 

 

 

Total Intangibles & Other Assets

   $ 549.8       $ 244.2       $ 305.6   
  

 

 

    

 

 

    

 

 

 

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”).

Amortization expense of intangible and other assets was $8.6 million for the three months ended March 30, 2013 and $9.0 million for the three months ended March 31, 2012.

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

 

(in millions of U.S. dollars)

      

Remainder of 2013

   $ 22.7   

2014

     28.9   

2015

     26.6   

2016

     23.2   

2017

     19.9   

Thereafter

     118.5   
  

 

 

 
   $ 239.8   
  

 

 

 

 

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Note 9 – Debt

Our total debt as of March 30, 2013 and December 29, 2012 was as follows:

 

(in millions of U.S. dollars)

   March 30,
2013
    December 29,
2012
 

8.375% senior notes due in 20171

   $ 215.0      $ 215.0   

8.125% senior notes due in 2018

     375.0        375.0   

GE obligation

     9.7        9.9   

Other capital leases

     4.4        4.6   

Other debt

     1.3        1.3   
  

 

 

   

 

 

 

Total debt

     605.4        605.8   

Less: Current debt

    

GE obligation - current maturities

     0.9        0.9   

Other capital leases - current maturities

     0.8        0.8   

Other debt - current maturities

     0.3        0.2   
  

 

 

   

 

 

 

Total current debt

     2.0        1.9   

Long-term debt before discount

     603.4        603.9   

Less discount on 8.375% senior notes

     (2.0     (2.1
  

 

 

   

 

 

 

Total long-term debt

   $ 601.4      $ 601.8   
  

 

 

   

 

 

 

 

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.

On July 19, 2012, we amended the ABL facility to, among other things, extend the maturity date to either July 19, 2017 or, if we have not redeemed, repurchased or refinanced our 8.375% senior notes due 2017 (the “2017 Notes”) by May 1, 2017, May 15, 2017. We incurred $1.2 million of financing fees in connection with the amendment of the ABL facility.

The financing fees incurred in connection with the refinancing of the ABL facility on August 17, 2010, along with the financing fees incurred in connection with the amendment of the ABL facility on July 19, 2012, are being amortized using the straight line method over the duration of the amended ABL facility.

As of March 30, 2013, we had no outstanding borrowings under the ABL facility. The commitment fee was 0.375% per annum of the unused commitment, which, taking into account $11.2 million of letters of credit, was $252 million as of March 30, 2013.

8.375% Senior Notes due in 2017

On November 13, 2009, we issued the 2017 Notes. The 2017 Notes were issued at a $3.1 million discount. The issuer of the 2017 Notes is our wholly-owned U.S. subsidiary Cott Beverages Inc., 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.

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.

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 U.S. subsidiary Cott Beverages Inc., 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.

 

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Table of Contents

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.

Note 10 – Accumulated Other Comprehensive (Loss) Income

Changes in accumulated other comprehensive (loss) income by component1 for the three months ended March 30, 2013 were as follows:

 

(in millions of U.S. dollars)

   March 30, 2013  
     Gains and
Losses on
Derivative
Instruments
    Pension
Benefit
Plan

Items
    Currency
Translation
Adjustment

Items
    Total  

Beginning balance December 29, 2012

   $ 0.2      $ (9.1   $ (3.5   $ (12.4
  

 

 

   

 

 

   

 

 

   

 

 

 

OCI before reclassifications

     0.2        —          (12.3 )2      (12.1

Amounts reclassified from AOCI

     (0.1     0.2        —          0.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net current-period OCI

     0.1        0.2        (12.3     (12.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance March 30, 2013

   $ 0.3      $ (8.9   $ (15.8   $ (24.4
  

 

 

   

 

 

   

 

 

   

 

 

 

 

1 

All amounts are net of tax. Amounts in parentheses indicate debits.

2 

Excludes $0.1 million related to non-controlling interest.

Reclassifications out of accumulated other comprehensive (loss) income1 for the three months ended March 30, 2013 were as follows:

 

(in millions of U.S. dollars)

   March 30, 2013

Details About AOCI Components

   Amounts Reclassified
From AOCI
   

Affected Line Item in the Statement
Where Net Income Is Presented

Gains and losses on derivative instruments

    

Commodity contracts

   $ 0.1     

Cost of sales

  

 

 

   
   $ 0.1     

Total before taxes

     —       

Tax (expense) or benefit

  

 

 

   
   $ 0.1     

Net of tax

  

 

 

   

Amortization of pension benefit plan items

    

Prior-service costs

   $ (0.1 )2   

Actuarial adjustments

     (0.1 )2   

Actuarial gains/(losses)

     —   2   
  

 

 

   
     (0.2  

Total before tax

     —       

Tax (expense) or benefit

  

 

 

   
   $ (0.2  

Net of tax

  

 

 

   

Total reclassifications for the period

   $ (0.1  

Net of tax

  

 

 

   

 

1 

Amounts in parentheses indicate debits.

2 

These AOCI components are included in the computation of net periodic pension cost.

 

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Table of Contents

Note 11 – 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.

On August 17, 2010, we completed the Cliffstar Acquisition which included contingent consideration of up to $55.0 million. The first $15.0 million of the contingent consideration was paid upon the achievement of milestones in certain expansion projects in 2010. The remainder of the contingent consideration was to be calculated based on the achievement of certain performance measures during the fiscal year ending January 1, 2011. During 2011, Cott made interim payments to the seller equal to $29.6 million, which was net of a $4.7 million refund due to Cott and included $0.9 million in settlement of certain of the seller’s objections to the calculation of the contingent consideration.

In 2011, the seller of Cliffstar raised certain objections to the performance measures used to calculate the contingent consideration, and the parties commenced the dispute resolution mechanism provided for in the asset purchase agreement. The seller’s claims for an additional $12.1 million in contingent consideration were submitted to binding arbitration pursuant to the asset purchase agreement and favorably resolved by payment by Cott in February 2013 of approximately $0.6 million.

We had $11.2 million in standby letters of credit outstanding as of March 30, 2013 (March 31, 2012 – $11.1 million).

Note 12 – Shares Held in Trust Treated as Treasury Shares and Share Repurchase Program

In May 2008, an independent trustee acting on behalf of 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 and the Restated Executive Incentive Share Purchase Plan. During the year ended December 29, 2012, we distributed the remaining 0.7 million shares from the trust to satisfy certain 2010 Equity Incentive Plan obligations that had vested during the last quarter of 2012. As of December 29, 2012, there were no shares held in trust that were accounted for as treasury shares.

On May 1, 2012, our board of directors authorized the repurchase of up to $35.0 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 in compliance with regulatory requirements, and given market, cost and other considerations. During the second quarter of 2012, we repurchased 35,272 shares of common stock for approximately $0.3 million. No other purchases have been made under the repurchase plan. On April 30, 2013, our board of directors approved the renewal of our share repurchase program for up to 5% of Cott’s outstanding common shares over a 12-month period commencing upon the expiration of Cott’s currently effective share repurchase program on May 21, 2013. We are unable to predict the number of shares that will be repurchased under the share repurchase program or the aggregate dollar amount of the shares actually purchased. We may discontinue purchases at any time, subject to compliance with applicable regulatory requirements.

Note 13 – 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 other receivables or other payables. 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 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.

 

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Table of Contents

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 14). 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 straight-forward 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 30, 2013. 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. The total notional value of derivatives that have been designated and qualify for our foreign currency cash flow hedging program as of March 30, 2013 was approximately $9.4 million.

The fair value of the Company’s derivative instruments was $0.3 million and $0.1 million as of March 30, 2013 and December 29, 2012, respectively.

The settlement of our derivative instruments resulted in a credit to cost of sales of approximately $0.1 million for the three months ended March 30, 2013 and a charge to cost of sales of less than $0.1 million for the three months ended March 31, 2012.

Note 14 – 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.

 

   

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.

 

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Table of Contents
     March 30, 2013  

(in millions of U.S. dollars)

   Level 1      Level 2      Level 3      Fair Value
Measurements
 

Assets

           

Money market

   $ 10.0       $ —         $ —         $ 10.0   

Derivatives

     —           0.3         —           0.3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Assets

   $ 10.0       $ 0.3       $ —         $ 10.3   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 29, 2012  

(in millions of U.S. dollars)

   Level 1      Level 2      Level 3      Fair Value
Measurements
 

Assets

           

Derivatives

   $ —         $ 0.1       $ —         $ 0.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Assets

   $ —         $ 0.1       $ —         $ 0.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Fair Value of Financial Instruments

The carrying amounts reflected in the Consolidated Balance Sheets for cash and cash equivalents, 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 30, 2013 and December 29, 2012 were as follows:

 

     March 30, 2013      December 29, 2012  

(in millions of U.S. dollars)

   Carrying
Value
     Fair
Value
     Carrying
Value
     Fair
Value
 

8.375% senior notes due in 20171

   $ 215.0       $ 231.7       $ 215.0       $ 234.4   

8.125% senior notes due in 20181

     375.0         409.7         375.0         414.8   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 590.0       $ 641.4       $ 590.0       $ 649.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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.

Note 15 – Guarantor Subsidiaries

The 2017 Notes and 2018 Notes issued by our U.S. 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.

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. In the third quarter of 2012, we revised the financial statements of certain Non-guarantor Subsidiaries to properly reflect their capitalization and subsequent investment in certain Guarantor Subsidiaries resulting from a reorganization completed in connection with the Cliffstar Acquisition. These Non-guarantor Subsidiaries, which have no business operations and no operating assets, hold, directly or indirectly, our investments in substantially all of the Guarantor Subsidiaries and therefore may be viewed for purposes of this disclosure as in-substance Guarantor Subsidiaries themselves. We have therefore included these Non-guarantor Subsidiaries as Guarantor Subsidiaries in the supplemental financial information below for all periods presented.

 

20


Table of Contents

Condensed Consolidating Statements of Operations

 

(in millions of U.S. dollars)

Unaudited

 

     For the Three Months Ended March 30, 2013  
     Cott
Corporation
    Cott
Beverages
Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
     Elimination
Entries
    Consolidated  

Revenue, net

   $ 39.0      $ 195.3      $ 239.8      $ 37.1       $ (5.8   $ 505.4   

Cost of sales

     33.8        168.2        219.3        33.5         (5.8     449.0   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Gross profit

     5.2        27.1        20.5        3.6         —          56.4   

Selling, general and administrative expenses

     7.1        20.2        11.9        2.1         —          41.3   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Operating (loss) income

     (1.9     6.9        8.6        1.5         —          15.1   

Other expense, net

     0.2        —          —          0.1         —          0.3   

Intercompany interest (income) expense, net

     —          (2.9     2.9        —           —          —     

Interest (income) expense, net

     (0.1     13.3        0.1        —           —          13.3   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

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

     (2.0     (3.5     5.6        1.4         —          1.5   

Income tax expense (benefit)

     0.3        (0.1     0.2        0.1         —          0.5   

Equity income (loss)

     2.3        1.1        (2.1     —           (1.3     —     
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss)

   $ —        $ (2.3   $ 3.3      $ 1.3       $ (1.3   $ 1.0   

Less: Net income attributable to non-controlling interests

     —          —          —          1.0         —          1.0   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss) attributed to Cott Corporation

   $ —        $ (2.3   $ 3.3      $ 0.3       $ (1.3   $ 0.0   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Comprehensive (loss) income attributed to Cott Corporation

   $ (12.0   $ (34.0   $ (14.0   $ 0.6       $ 47.4      $ (12.0
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

21


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   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributed to Cott Corporation

   $ 13.4      $ 21.9      $ (75.3   $ (2.6   $ 56.0      $ 13.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

22


Table of Contents

Consolidating Balance Sheets

 

(in millions of U.S. dollars)

Unaudited

 

     As of March 30, 2013  
     Cott
Corporation
    Cott
Beverages
Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

ASSETS

            

Current assets

            

Cash & cash equivalents

   $ 38.3      $ 11.5      $ 39.5      $ 3.7      $ —        $ 93.0   

Accounts receivable, net of allowance

     18.8        115.9        144.3        16.0        (71.7     223.3   

Income taxes recoverable

     —          0.8        0.2        —          —          1.0   

Inventories

     22.2        72.9        132.3        8.3        —          235.7   

Prepaid expenses and other assets

     2.0        14.0        4.6        0.2        —          20.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     81.3        215.1        320.9        28.2        (71.7     573.8   

Property, plant & equipment, net

     49.7        193.6        233.0        10.5        —          486.8   

Goodwill

     27.0        4.5        98.2        —          —          129.7   

Intangibles and other assets, net

     0.9        98.1        193.0        13.6        —          305.6   

Deferred income taxes

     2.5        —          —          0.5        —          3.0   

Other tax receivable

     0.4        0.2        0.6        —          —          1.2   

Due from affiliates

     42.0        165.8        78.0        41.9        (327.7     —     

Investments in subsidiaries

     467.9        368.8        746.6        —          (1,583.3     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 671.7      $ 1,046.1      $ 1,670.3      $ 94.7      $ (1,982.7   $ 1,500.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

            

Current liabilities

            

Current maturities of long-term debt

   $ 0.1      $ 1.3      $ 0.2      $ 0.4      $ —        $ 2.0   

Accounts payable and accrued liabilities

     33.1        111.0        157.2        8.8        (71.7     238.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     33.2        112.3        157.4        9.2        (71.7     240.4   

Long-term debt

     0.2        598.4        1.5        1.3        —          601.4   

Deferred income taxes

     —          29.8        7.7        0.9        —          38.4   

Other long-term liabilities

     0.2        3.9        10.6        0.4        —          15.1   

Due to affiliates

     43.2        76.7        168.3        39.5        (327.7     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     76.8        821.1        345.5        51.3        (399.4     895.3   

Equity

            

Capital stock, no par

     397.8        574.5        1,674.9        81.7        (2,331.1     397.8   

Additional paid-in-capital

     41.1        —          —          —          —          41.1   

Retained earnings (deficit)

     180.4        (331.0     (342.2     (47.7     720.9        180.4   

Accumulated other comprehensive loss

     (24.4     (18.5     (7.9     (0.5     26.9        (24.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Cott Corporation equity

     594.9        225.0        1,324.8        33.5        (1,583.3     594.9   

Non-controlling interests

     —          —          —          9.9        —          9.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

     594.9        225.0        1,324.8        43.4        (1,583.3     604.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 671.7      $ 1,046.1      $ 1,670.3      $ 94.7      $ (1,982.7   $ 1,500.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

23


Table of Contents

Consolidating Balance Sheets

 

(in millions of U.S. dollars)

 

     As of December 29, 2012  
     Cott
Corporation
    Cott
Beverages
Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

ASSETS

            

Current assets

            

Cash & cash equivalents

   $ 39.8      $ 37.5      $ 96.4      $ 5.7      $ —        $ 179.4   

Accounts receivable, net of allowance

     18.4        111.5        122.3        16.2        (69.0     199.4   

Income taxes recoverable

     —          0.9        0.2        0.1        —          1.2   

Inventories

     21.1        65.9        130.8        7.0        —          224.8   

Prepaid expenses and other assets

     2.5        13.4        4.3        0.1        —          20.3   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     81.8        229.2        354.0        29.1        (69.0     625.1   

Property, plant & equipment, net

     50.7        188.4        242.0        9.8        —          490.9   

Goodwill

     27.5        4.5        98.3        —          —          130.3   

Intangibles and other assets, net

     1.0        101.4        198.4        14.6        —          315.4   

Deferred income taxes

     2.9        —          —          0.4        —          3.3   

Other tax receivable

     0.2        0.1        0.6        —          —          0.9   

Due from affiliates

     40.0        175.2        78.0        41.9        (335.1     —     

Investments in subsidiaries

     487.5        389.7        820.0        —          (1,697.2     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 691.6      $ 1,088.5      $ 1,791.3      $ 95.8      $ (2,101.3   $ 1,565.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

            

Current liabilities

            

Current maturities of long-term debt

   $ —        $ 1.3      $ 0.2      $ 0.4      $ —        $ 1.9   

Accounts payable and accrued liabilities

     36.2        119.5        193.1        7.9        (69.0     287.7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     36.2        120.8        193.3        8.3        (69.0     289.6   

Long-term debt

     0.2        598.7        1.5        1.4        —          601.8   

Deferred income taxes

     —          30.3        7.9        0.9        —          39.1   

Other long-term liabilities

     0.2        4.0        8.3        —          —          12.5   

Due to affiliates

     43.2        76.7        177.8        37.4        (335.1     —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     79.8        830.5        388.8        48.0        (404.1     943.0   

Equity

            

Capital stock, no par

     397.8        574.5        1,724.3        83.6        (2,382.4     397.8   

Additional paid-in-capital

     40.4        —          —          —          —          40.4   

Retained earnings (deficit)

     186.0        (329.7     (331.2     (46.1     707.0        186.0   

Accumulated other comprehensive (loss) income

     (12.4     13.2        9.4        (0.8     (21.8     (12.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Cott Corporation equity

     611.8        258.0        1,402.5        36.7        (1,697.2     611.8   

Non-controlling interests

     —          —          —          11.1        —          11.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

     611.8        258.0        1,402.5        47.8        (1,697.2     622.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 691.6      $ 1,088.5      $ 1,791.3      $ 95.8      $ (2,101.3   $ 1,565.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

24


Table of Contents

Consolidating Statements of Condensed Cash Flows

 

(in millions of U.S. dollars)

Unaudited

 

    For the Three Months Ended March 30, 2013  
    Cott
Corporation
    Cott
Beverages
Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

Operating activities

           

Net income (loss)

  $ —        $ (2.3   $ 3.3      $ 1.3      $ (1.3   $ 1.0   

Depreciation & amortization

    1.6        9.6        12.0        1.5        —           24.7   

Amortization of financing fees

    —           0.7        —           —           —           0.7   

Share-based compensation expense

    0.1        0.4        0.2        —           —           0.7   

Increase (decrease) in deferred income taxes

    0.4        (0.6     0.2        —           —           —     

Equity (loss) income, net of distributions

    (2.3     (1.1     2.1        —           1.3        —     

Intercompany transactions

    10.8        2.2        —           —           (13.0     —     

Other non-cash items

    —           0.2        0.1        —           —           0.3   

Net change in operating assets and liabilities

    (8.7     (22.2     (68.3     0.2        13.0        (86.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

    1.9        (13.1     (50.4     3.0        —          (58.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investing activities

           

Additions to property, plant & equipment

    (1.7     (12.8     (4.6     (0.8     —           (19.9

Proceeds from insurance recoveries

    —           0.4        —           —           —           0.4   

Advances to affiliates

    —           —           —           (2.0     2.0        —     

Additions to intangibles and other assets

    —           (0.1     —           (0.1     —           (0.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

    (1.7     (12.5     (4.6     (2.9     2.0        (19.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financing activities

           

Payments of long-term debt

    —          (0.4     —          (0.1     —          (0.5

Advances from affiliates

    2.0        —          —          —          (2.0     —     

Distributions to non-controlling interests

    —          —          —          (2.1     —          (2.1

Common shares repurchased and cancelled

    (2.9     —          —          —          —          (2.9
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

    (0.9     (0.4     —          (2.2     (2.0     (5.5

Effect of exchange rate changes on cash

    (0.8     —          (1.9     0.1        —          (2.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net decrease in cash & cash equivalents

    (1.5     (26.0     (56.9     (2.0     —          (86.4
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash & cash equivalents, beginning of period

    39.8        37.5        96.4        5.7        —          179.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash & cash equivalents, end of period

  $ 38.3      $ 11.5      $ 39.5      $ 3.7      $ —        $ 93.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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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   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Note 16 – Subsequent Event

On February 14, 2013, our board of directors adopted the Amended and Restated Equity Plan, pursuant to which the 2010 Equity Incentive Plan was amended and restated to, among other things, increase the number of shares that may be issued under the plan to 12,000,000 shares and to provide that the number of shares available for issuance will be reduced 2.0 shares for each share issued pursuant to a “full-value” award (i.e. an award other than an option or stock appreciation right). The Amended and Restated Equity Plan was approved by Cott’s shareowners on April 30, 2013.

On February 15, 2013, our board of directors declared a dividend of C$0.06 per common share, payable in cash on April 5, 2013 to shareowners of record at the close of business on March 20, 2013. The dividend payment was approximately $5.6 million in the aggregate.

On April 28, 2013, our U.K. reporting segment signed a share purchase agreement to acquire Cooke Bros Holdings Limited, which includes the subsidiary companies Calypso Soft Drinks Limited and Mr. Freeze (Europe) Limited (together, “Calypso Soft Drinks”). Calypso Soft Drinks is a privately owned soft drink and freezable products business based in Wrexham, United Kingdom with annual revenues of approximately $50 million. The purchase price is estimated to be approximately $31 million, which includes an adjustment for high seasonal working capital and approximately $5 million of deferred consideration over a 24 month period. Completion of the transaction is subject to customary conditions, including clearance from the United Kingdom’s Office for Fair Trading and is anticipated to close in June 2013.

On April 30, 2013, our board of directors declared a dividend of C$0.06 per share on common shares, payable in cash on June 12, 2013 to shareowners of record at the close of business on May 30, 2013.

On April 30, 2013, our board of directors approved the renewal of our share repurchase program for up to 5% of Cott’s outstanding common shares over a 12-month period commencing upon the expiration of Cott’s currently effective share repurchase program on May 21, 2013.

 

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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 29, 2012 (the “2012 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 2012 Annual Report.

Overview

We are one of the world’s largest producers of beverages on behalf of retailers, brand owners and distributors. Our objective of creating sustainable long-term growth in revenue and profitability is predicated on working closely with our customers 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 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. The purchases of our raw materials and related accounts payable fluctuate based upon the demand for our products as well as the timing of the fruit growing seasons. The seasonality of our sales volume combined with the seasonal nature of fruit growing causes our working capital needs to fluctuate throughout the year, with inventory levels increasing in the first half of the year in order to meet high summer demand, and with fruit inventories peaking during the last quarter of the year when purchases are made after the growing season. In addition, our accounts receivable balances decline 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 affect 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 most significant commodities are aluminum, polyethylene terephthalate (“PET”) resin, corn, sugar, fruit and fruit concentrates. We attempt to manage our exposure to fluctuations in ingredient and packaging costs by entering into fixed price commitments for a portion of our ingredient and packaging requirements and implementing price increases as needed. We have entered into fixed price commitments for a majority of our forecasted aluminum and fruit requirements for the remainder of 2013, as well as a portion of our aluminum and fruit requirements for 2014. We have entered into fixed price commitments for all of our high fructose corn syrup (“HFCS”) and sugar requirements for 2013.

In 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 payable in equal installments over three years and contingent consideration of up to $55.0 million (the “Cliffstar Acquisition”). The first $15.0 million of the contingent consideration was paid upon the achievement of milestones in certain expansion projects in 2010. The remainder of the contingent consideration was to be calculated based on the achievement of certain performance measures during the fiscal year ending January 1, 2011. In 2011, the seller of Cliffstar raised certain objections to the performance measures used to calculate the contingent consideration, and the parties commenced the dispute resolution mechanism provided for in the asset purchase agreement. During 2011, Cott made interim payments to the seller equal to $29.6 million, which was net of a $4.7 million refund due to Cott and included $0.9 million in settlement of certain of the seller’s objections to the calculation of the contingent consideration. The seller’s claims for an additional $12.1 million in contingent consideration were submitted to binding arbitration pursuant to the asset purchase agreement and favorably resolved in February 2013 by payment of $0.6 million by Cott to settle all claims.

We supply Walmart and its affiliated companies, under annual non-exclusive supply agreements, with a variety of products in the United States, Canada, the United Kingdom, and Mexico, including carbonated soft drinks (“CSDs”), 100% shelf stable juice and juice-based products, clear, still and sparkling flavored waters, energy products, sports products, new age beverages, and ready-to-drink teas. During the first three months of 2013, 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 30, 2013 and March 31, 2012 accounted for 32.8% and 31.6% of total revenue.

 

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Table of Contents

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 to separate the impact of currency exchange rate changes from our results of operations. We exclude the impact of foreign exchange to better understand trends in the business.

We also utilize EBITDA, which is GAAP earnings before interest expense, provision for income taxes, depreciation and amortization. We consider EBITDA to be an indicator of operating performance. We also use EBITDA, as do analysts, lenders, investors and others, 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.

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

Summary financial results

Our net income for the three months ended March 30, 2013 (the “first quarter”) was effectively zero or $0.00 per diluted share, compared with net income of $5.9 million or $0.06 per diluted share for the three months ended March 31, 2012.

The following items of significance impacted our financial results for the first quarter of 2013:

 

   

our revenue decreased by 3.5% from the comparable prior year period due to lower global volumes, slightly offset by an increase in average price per case in North America. Absent foreign exchange impact, revenue decreased 3.4%;

 

   

our gross profit as a percentage of revenue declined to 11.2% for the first quarter from 12.1% in the comparable prior year period due primarily to lower global volumes, which resulted in unfavorable fixed cost absorption;

 

   

our filled beverage 8-ounce equivalents (“beverage case volume”) decreased 4.9% due primarily to the residual effect of exiting low gross margin business in North America last year, a general market decline in the North American CSD category, and loss of market share for the private label segment within the overall CSD category in North America;

 

   

our selling, general and administrative (“SG&A”) expenses for the first quarter decreased to $41.3 million from $41.8 million in the comparable prior year period due primarily to a reduction in information technology costs;

 

   

other expense was $0.3 million in the first quarter compared to other income of $0.2 million in the comparable prior year period due to the recording of foreign exchange losses during the period compared to foreign exchange gains in the prior year period; and

 

   

our income tax expense was flat as compared to the prior year period.

 

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Table of Contents

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 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 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.

The following table summarizes our Consolidated Statements of Operations as a percentage of revenue for the three months ended March 30, 2013 and March 31, 2012:

 

     For the Three Months Ended  
     March 30, 2013      March 31, 2012  

(in millions of U.S. dollars)

   $      %      $     %  

Revenue, net

     505.4         100.0         523.8        100.0   

Cost of sales

     449.0         88.8         460.4        87.9   
  

 

 

    

 

 

    

 

 

   

 

 

 

Gross profit

     56.4         11.2         63.4        12.1   

Selling, general, and administrative expenses

     41.3         8.2         41.8        8.0   

Loss on disposal of property, plant & equipment

     —           —           0.6        0.1   
  

 

 

    

 

 

    

 

 

   

 

 

 

Operating income

     15.1         3.0         21.0        4.0   

Other expense (income), net

     0.3         0.1         (0.2     —     

Interest expense, net

     13.3         2.6         14.0        2.7   
  

 

 

    

 

 

    

 

 

   

 

 

 

Income before income taxes

     1.5         0.3         7.2        1.3   

Income tax expense

     0.5         0.1         0.4        0.1   
  

 

 

    

 

 

    

 

 

   

 

 

 

Net income

     1.0         0.2         6.8        1.2   
  

 

 

    

 

 

    

 

 

   

 

 

 

Less: Net income attributable to non-controlling interests

     1.0         0.2         0.9        0.2   
  

 

 

    

 

 

    

 

 

   

 

 

 

Net income attributed to Cott Corporation

     —           —           5.9        1.0   
  

 

 

    

 

 

    

 

 

   

 

 

 

Depreciation & amortization

     24.7         4.9         23.8        4.5   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents

The following table summarizes our revenue and operating income (loss) by reporting segment for the three months ended March 30, 2013 and March 31, 2012:

 

     For the Three Months Ended  

(in millions of U.S. Dollars)

   March 30, 2013     March 31, 2012  

Revenue

    

North America

   $ 393.2      $ 408.1   

United Kingdom

     97.4        99.2   

Mexico

     7.4        9.1   

RCI

     7.4        7.4   
  

 

 

   

 

 

 

Total

   $ 505.4      $ 523.8   
  

 

 

   

 

 

 

Operating income (loss)

    

North America

   $ 13.8      $ 17.3   

United Kingdom

     —          3.2   

Mexico

     (0.7     (1.3

RCI

     2.0        1.8   
  

 

 

   

 

 

 

Total

   $ 15.1      $ 21.0   
  

 

 

   

 

 

 

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

The following table summarizes our beverage case volume by reporting segment for the three months ended March 30, 2013 and March 31, 2012:

 

     For the Three Months Ended  

(in millions of cases)

   March 30, 2013      March 31, 2012  

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

     

North America

     172.6         179.6   

United Kingdom

     44.5         44.9   

Mexico

     4.9         5.9   

RCI

     63.5         71.0   
  

 

 

    

 

 

 

Total

     285.5         301.4   
  

 

 

    

 

 

 

Volume - 8 oz equivalent cases - Filled Beverage

     

North America

     148.0         156.4   

United Kingdom

     40.1         40.9   

Mexico

     4.9         5.9   

RCI

     0.2         —     
  

 

 

    

 

 

 

Total

     193.2         203.2   
  

 

 

    

 

 

 

 

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Table of Contents

The following tables summarize revenue and volume by product for the three months ended March 30, 2013 and March 31, 2012:

 

For the Three Months Ended March 30, 2013

 

(in millions of U.S. dollars)

   North
America
     United
Kingdom
     Mexico      RCI      Total  

Revenue

              

Carbonated soft drinks

   $ 151.4       $ 32.7       $ 3.5       $ 0.1       $ 187.7   

Juice

     135.0         3.1         —           0.5         138.6   

Concentrate

     3.1         0.6         —           6.8         10.5   

All other products

     103.7         61.0         3.9         —           168.6