10-Q 1 d594415d10q.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: September 28, 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 October 28, 2013

Common Stock, no par value per share   94,226,045 shares

 

 

 


Table of Contents

 PART I – FINANCIAL INFORMATION

  

Item 1.

 

Financial Statements (unaudited)

     3   
 

Consolidated Statements of Operations

     3   
 

Condensed Consolidated Statements of Comprehensive Income

     4   
 

Consolidated Balance Sheets

     5   
 

Consolidated Statements of Cash Flows

     6   
 

Consolidated Statements of Equity

     7   
 

Notes to the Consolidated Financial Statements

     8   

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     34   

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

     49   

Item 4.

 

Controls and Procedures

     49   

 PART II – OTHER INFORMATION

     49   

Item 1.

 

Legal Proceedings

     49   

Item 1A.

 

Risk Factors

     49   

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

     50   

Item 6.

 

Exhibits

     51   

SIGNATURES

     52   

 

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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     For the Nine Months Ended  
    September 28, 2013     September 29, 2012     September 28, 2013     September 29, 2012  

Revenue, net

  $ 543.2      $ 583.8      $ 1,612.4      $ 1,733.4   

Cost of sales

    478.2        510.6        1,414.4        1,504.5   
 

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    65.0        73.2        198.0        228.9   

Selling, general and administrative expenses

    37.9        43.8        120.9        134.4   

Loss on disposal of property, plant & equipment

    1.1        0.8        1.4        1.7   

Restructuring

    —          —          2.0        —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    26.0        28.6        73.7        92.8   

Other income, net

    (0.7     (1.5     (0.4     (2.2

Interest expense, net

    13.3        13.1        39.4        40.6   
 

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    13.4        17.0        34.7        54.4   

Income tax expense

    0.1        1.2        2.3        5.5   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 13.3      $ 15.8      $ 32.4      $ 48.9   

Less: Net income attributable to non-controlling interests

    1.3        1.3        3.9        3.4   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributed to Cott Corporation

  $ 12.0      $ 14.5      $ 28.5      $ 45.5   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income per common share attributed to Cott Corporation

       

Basic

  $ 0.13      $ 0.15      $ 0.30      $ 0.48   

Diluted

  $ 0.13      $ 0.15      $ 0.30      $ 0.48   

Weighted average outstanding shares (thousands) attributed to Cott Corporation

       

Basic

    94,235        94,488        94,922        94,461   

Diluted

    94,772        95,598        95,755        95,591   

Dividends declared per share

  $ 0.06      $ —        $ 0.18      $ —     

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

 

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Table of Contents

Cott Corporation

Condensed Consolidated Statements of Comprehensive Income

(in millions of U.S. dollars)

Unaudited

 

    For the Three Months Ended     For the Nine Months Ended  
    September 28, 2013     September 29, 2012     September 28, 2013     September 29, 2012  

Net income

  $ 13.3      $ 15.8      $ 32.4      $ 48.9   

Other comprehensive income (loss):

       

Currency translation adjustment

    12.0        12.5        (4.8     13.5   

Pension benefit plan, net of tax1

    (0.1     0.1        0.3        (0.1

Unrealized loss on derivative instruments, net of tax2

    (0.1     —          (0.1     (0.3
 

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

    11.8        12.6        (4.6     13.1   
 

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

  $ 25.1      $ 28.4      $ 27.8      $ 62.0   

Less: Comprehensive income attributable to non-controlling interests

    1.3        1.2        3.9        3.2   
 

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributed to Cott Corporation

  $ 23.8      $ 27.2      $ 23.9      $ 58.8   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

1  Net of the effect of nil and $0.2 million tax expense for the three and nine months ended September 28, 2013, respectively, and net of the effect of $0.1 million and $0.2 million tax expense for the three and nine months ended September 29, 2012, respectively.
2  Net of the effect of nil tax benefit for the three and nine months ended September 28, 2013, respectively, and net of the effect of a nil and $0.1 million tax benefit for the three and nine months ended September 29, 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

 

    September 28, 2013     December 29, 2012  

ASSETS

   

Current assets

   

Cash & cash equivalents

  $ 125.8      $ 179.4   

Accounts receivable, net of allowance of $5.1 ($6.8 as of December 29, 2012)

    254.6        199.4   

Income taxes recoverable

    0.7        1.2   

Inventories

    215.4        224.8   

Prepaid expenses and other assets

    23.1        20.3   
 

 

 

   

 

 

 

Total current assets

    619.6        625.1   

Property, plant & equipment, net

    490.1        490.9   

Goodwill

    140.4        130.3   

Intangibles and other assets, net

    303.6        315.4   

Deferred income taxes

    5.5        3.3   

Other tax receivable

    1.2        0.9   
 

 

 

   

 

 

 

Total assets

  $ 1,560.4      $ 1,565.9   
 

 

 

   

 

 

 

LIABILITIES AND EQUITY

   

Current liabilities

   

Current maturities of long-term debt

  $ 3.9      $ 1.9   

Accounts payable and accrued liabilities

    259.7        287.7   
 

 

 

   

 

 

 

Total current liabilities

    263.6        289.6   

Long-term debt

    602.4        601.8   

Deferred income taxes

    48.1        39.1   

Other long-term liabilities

    23.7        12.5   
 

 

 

   

 

 

 

Total liabilities

    937.8        943.0   

Equity

   

Capital stock, no par - 94,226,045 (December 29, 2012 - 95,371,484) shares issued

    392.7        397.8   

Additional paid-in-capital

    43.9        40.4   

Retained earnings

    193.0        186.0   

Accumulated other comprehensive loss

    (17.0     (12.4
 

 

 

   

 

 

 

Total Cott Corporation equity

    612.6        611.8   

Non-controlling interests

    10.0        11.1   
 

 

 

   

 

 

 

Total equity

    622.6        622.9   
 

 

 

   

 

 

 

Total liabilities and equity

  $ 1,560.4      $ 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     For the Nine Months Ended  
    September 28, 2013     September 29, 2012     September 28, 2013     September 29, 2012  

Operating Activities

       

Net income

  $ 13.3      $ 15.8      $ 32.4      $ 48.9   

Depreciation & amortization

    25.1        24.7        74.7        72.2   

Amortization of financing fees

    0.7        0.8        2.2        2.9   

Share-based compensation expense

    1.1        1.3        3.6        3.5   

Increase in deferred income taxes

    0.3        0.6        1.9        4.6   

Gain on bargain purchase

    —          —          —          (0.9

Loss on disposal of property, plant & equipment

    1.1        0.8        1.4        1.7   

Other non-cash items

    —          (1.4     0.2        (0.8

Change in operating assets and liabilities, net of acquisition:

       

Accounts receivable

    19.0        15.0        (38.8     (36.8

Inventories

    26.6        17.1        15.8        (5.9

Prepaid expenses and other assets

    —          0.4        (2.0     (5.5

Other assets

    6.1        (0.2     6.0        0.7   

Accounts payable and accrued liabilities

    (6.0     (22.1     (34.9     (38.4

Income taxes recoverable

    0.1        5.2        0.4        6.8   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

    87.4        58.0        62.9        53.0   
 

 

 

   

 

 

   

 

 

   

 

 

 

Investing Activities

       

Acquisition, net of cash acquired

    (4.7     (4.7     (11.2     (9.7

Additions to property, plant & equipment

    (10.2     (13.2     (44.7     (50.6

Additions to intangibles and other assets

    (2.1     (1.0     (4.0     (4.7

Proceeds from sale of property, plant & equipment

    0.2        1.3        0.2        2.3   

Proceeds from insurance recoveries

    —          1.7        0.4        1.7   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

    (16.8     (15.9     (59.3     (61.0
 

 

 

   

 

 

   

 

 

   

 

 

 

Financing Activities

       

Payments of long-term debt

    (0.6     (0.2     (20.2     (2.8

Borrowings under ABL

    —          —          —          24.5   

Payments under ABL

    —          —          —          (24.5

Distributions to non-controlling interests

    (2.2     (1.9     (5.0     (3.3

Common shares repurchased and cancelled

    (4.5     —          (12.9     (0.3

Financing fees

    (0.1     (1.2     (0.1     (1.2

Dividends to shareholders

    (5.5     —          (16.7     —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

    (12.9     (3.3     (54.9     (7.6
 

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash

    1.3        2.2        (2.3     2.8   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash & cash equivalents

    59.0        41.0        (53.6     (12.8

Cash & cash equivalents, beginning of period

    66.8        47.1        179.4        100.9   
 

 

 

   

 

 

   

 

 

   

 

 

 

Cash & cash equivalents, end of period

  $ 125.8      $ 88.1      $ 125.8      $ 88.1   
 

 

 

   

 

 

   

 

 

   

 

 

 

Supplemental Disclosures of Cash Flow information:

       

Cash paid for interest

  $ 15.9      $ 15.8      $ 41.0      $ 41.3   

Cash (received) paid for income taxes, net

  $ (0.2   $ 0.5      $ 0.1      $ 0.9   

Supplemental Non-cash Investing and Financing Activities:

       

Deferred consideration

  $ —        $ —        $ 5.1      $ —     

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

 

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Table of Contents

Cott Corporation

Consolidated Statements of Equity

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

Unaudited

 

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

Balance at December 31, 2011

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

Common shares issued – Directors’ share award

    96        —          —          —          0.7        —          —          —          0.7   

Common shares repurchased

    (35     —          (0.2     —          —          (0.1     —          —          (0.3

Share-based compensation

    —          —          —          —          2.8        —          —          —          2.8   

Distributions to non-controlling interests

    —          —          —          —          —          —          —          (3.3     (3.3

Comprehensive income

                 

Currency translation adjustment

    —          —          —          —          —          —          13.7        (0.2     13.5   

Pension benefit plan, net of tax

    —          —          —          —          —          —          (0.1     —          (0.1

Unrealized loss on derivative instruments, net of tax

    —          —          —          —          —          —          (0.3     —          (0.3

Net income

    —          —          —          —          —          45.5        —          3.4        48.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 29, 2012

    95,162        674      $ 395.7      $ (2.1   $ 46.1      $ 189.5      $ (11.4   $ 12.3      $ 630.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 29, 2012

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

Common shares issued – Directors’ share award

    87        —          —          —          0.8        —          —          —          0.8   

Common shares repurchased and cancelled

    (1,248     —          (5.2     —          —          (4.8     —          —          (10.0

Common shares issued – Time-based RSUs

    16        —          0.1        —          (0.1     —          —          —          —     

Share-based compensation

    —          —          —          —          2.8        —          —          —          2.8   

Dividend payment

    —          —          —          —          —          (16.7     —          —          (16.7

Distributions to non-controlling interests

    —          —          —          —          —          —          —          (5.0     (5.0

Comprehensive income

                 

Currency translation adjustment

    —          —          —          —          —          —          (4.8     —          (4.8

Pension benefit plan, net of tax

    —          —          —          —          —          —          0.3        —          0.3   

Unrealized loss on derivative instruments, net of tax

    —          —          —          —          —          —          (0.1     —          (0.1

Net income

    —          —          —          —          —          28.5        —          3.9        32.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 28, 2013

    94,226        —        $ 392.7      $ —        $ 43.9      $ 193.0      $ (17.0   $ 10.0      $ 622.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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Table of Contents

Cott Corporation

Notes to the Consolidated Financial Statements

Unaudited

Note 1 – Business and Recent Accounting Pronouncements

Description of Business

Cott Corporation, together with its consolidated subsidiaries (“Cott,” “the Company,” “our Company,” “Cott Corporation,” “we,” “us,” or “our”), is one of the world’s largest 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. We have adopted this guidance, and the required disclosure is set forth in Note 11.

Note 2 – Acquisitions

During June 2013, our United Kingdom (“U.K.”) reporting segment acquired 100 percent of the share capital of 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 produces fruit juices, juice drinks, soft drinks, and freeze products in the United Kingdom. The aggregate purchase price for the acquisition of Calypso Soft Drinks (the “Calypso Soft Drinks Acquisition”) was $12.1 million, which includes approximately $7 million paid at closing, deferred payments of approximately $2.3 million and $3.0 million to be paid on the first and second anniversary of the closing date of the Calypso Soft Drinks Acquisition, respectively. The closing payment was funded from available cash.

 

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The total consideration paid by us in the Calypso Soft Drinks Acquisition, subject to final working capital adjustments, is summarized below:

 

(in millions of U.S. dollars)

      

Cash

   $ 7.0   

Deferred consideration *

     5.1   
  

 

 

 

Total consideration

   $ 12.1   
  

 

 

 

 

* Principal amount of $5.3 million discounted to be paid on the first and second anniversary of the completion date.

Our primary reasons for the Calypso Soft Drinks Acquisition were to expand Cott’s product portfolio and enhance our customer offering and growth prospects.

The Calypso Soft Drinks Acquisition is being accounted for as a business combination which, among other things, requires that assets acquired and liabilities assumed be measured at their acquisition date fair values. Identified intangible assets, goodwill and property, plant and equipment are recorded at their estimated fair values per preliminary valuations and may change based on the final valuation results including, for example, the process of physically validating fixed assets. The results of operations of Calypso Soft Drinks have been included in our operating results beginning as of the acquisition date. We allocated the purchase price of the Calypso Soft Drinks Acquisition to tangible assets, liabilities and identifiable intangible assets acquired based on their estimated fair values. The excess of the purchase price over the aggregate fair values was recorded as goodwill. The fair value assigned to identifiable intangible assets acquired was based on estimates and assumptions made by management. Intangible assets are amortized using a method that reflects the pattern in which economic benefits of the intangible asset are consumed using a straight-line amortization method.

The following table summarizes the estimated allocation of the purchase price to the fair value of the assets acquired and liabilities assumed in connection with the Calypso Soft Drinks Acquisition. The allocation of the purchase price is based on a preliminary valuation that is expected to be completed in the fourth quarter of 2013. Any adjustment may affect the total purchase price and value of goodwill.

 

(in millions of U.S. dollars)

   Acquired Value  

Cash

   $ 0.5   

Accounts receivable

     15.1   

Inventory

     7.5   

Prepaid expenses and other assets

     0.6   

Property, plant and equipment

     9.7   

Goodwill

     10.5   

Intangibles and other assets

     14.8   

Accounts payable and accrued liabilities

     (14.1

Shareholder loans

     (1.6

Deferred tax liabilities

     (4.7

Other long-term liabilities

     (26.2
  

 

 

 

Total

   $ 12.1   
  

 

 

 

The Company recognized $1.6 million of acquisition related costs associated with the Calypso Soft Drinks Acquisition that were expensed during the nine month period ended September 28, 2013. These costs are included in the selling, general, and administrative expenses of our Consolidated Statements of Operations in accordance with ASC 805, “Business Combinations.”

 

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Intangible Assets

In our preliminary determination of the fair value of the intangible assets, we considered, among other factors, the best use of acquired assets, analysis of historical financial performance and estimates of future performance of Calypso Soft Drink’s products. The estimated fair values of identified intangible assets were calculated considering market participant expectations and using an income approach and estimates and assumptions provided by Calypso Soft Drinks’ management, as well as our management. The following table sets forth the components of identified intangible assets associated with the Calypso Soft Drinks Acquisition and their estimated weighted average useful lives:

 

(in millions of U.S. dollars)

   Estimated
Fair Market
Value
     Estimated
Useful
Life

Customer relationships

   $ 10.5       15 years

Trademarks and trade names

     3.0       20 years

Non-competition agreements

     1.3       5 years
  

 

 

    

Total

   $ 14.8      
  

 

 

    

Customer relationships represent future projected revenue that will be derived from sales to existing customers of Calypso Soft Drinks.

Trademarks and trade names represent the future projected cost savings associated with the premium and brand image obtained as a result of owning the trademark or trade name as opposed to obtaining the benefit of the trademark or trade name through a royalty or rental fee.

In conjunction with the closing of the Calypso Soft Drinks Acquisition, certain key employees of Calypso Soft Drinks executed non-competition agreements, which prevent those employees from competing with us in the specified restricted territories for a period of time after the acquisition date. The value of the Calypso Soft Drinks business could be diminished without these noncompetition agreements.

Goodwill

The principal factor that resulted in recognition of goodwill was that the purchase price for the Calypso Soft Drinks Acquisition was based in part on cash flow projections assuming the reduction of administration costs and the integration of acquired customers and products into our operations, which is of greater value than on a standalone basis.

Selected Financial Data

The following unaudited financial information for the three months and sixteen weeks ended September 28, 2013 represents the activity of Calypso Soft Drinks that has been combined with our operations as of the date of acquisition.

 

(in millions of U.S. dollars)

   For the Three Months
Ended September 28, 2013
     For the Sixteen Weeks
Ended September 28, 2013
 

Revenue

   $ 15.7       $ 19.9   

Net income

     0.6         0.7   

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 ended January 1, 2011.

In 2011, the seller of Cliffstar then 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.

 

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Note 3 – Restructuring

We implement restructuring programs from time to time that are designed to improve operating effectiveness and lower costs. When we implement these programs, we incur various charges, including severance and other employment related costs. During June 2013, we implemented one such program (the “2013 Restructuring Plan”), which consisted primarily of headcount reductions. For the nine months ended September 28, 2013, we incurred charges of approximately $2.0 million related primarily to employee redundancy costs.

The following table summarizes restructuring charges for the nine-month period ended September 28, 2013:

 

(in millions of U.S. dollars)

   September 28,
2013
 

North America

   $ 1.0   

United Kingdom

     0.7   

Mexico

     0.3   
  

 

 

 

Total

   $ 2.0   
  

 

 

 

Note 4 – Share-Based Compensation

The table below summarizes the share-based compensation expense for the three and nine months ended September 28, 2013 and September 29, 2012, respectively. 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”) or Amended and Restated Equity Incentive Plan (as defined below), as the case may be, (ii) “Time-based RSUs” mean restricted share units with time-based vesting granted under the 2010 Equity Incentive Plan or Amended and Restated Equity Incentive Plan, as the case may be, (iii) “Stock options” mean non-qualified stock options granted under the Amended and Restated Equity Incentive Plan, the 2010 Equity Incentive Plan, or the Restated 1986 Common Share Option Plan (the “1986 Option Plan”), as the case may be, and (iv) “Directors’ share award” means common shares issued in consideration of the annual board retainer fee to non-management members of our board of directors under the 2010 Equity Incentive Plan or Amended and Restated Equity Incentive Plan, as the case may be.

 

    For the Three Months Ended     For the Nine Months Ended  

(in millions of U.S. dollars)

  September 28, 2013     September 29, 2012     September 28, 2013     September 29, 2012  

Stock options

  $ 0.2      $ 0.1      $ 0.6      $ 0.3   

Directors’ share award

    —          —          0.8        0.7   

Performance-based RSUs

    0.3        0.2        0.7        0.4   

Time-based RSUs

    0.6        1.0        1.5        2.1   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 1.1      $ 1.3      $ 3.6      $ 3.5   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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As of September 28, 2013, the unrecognized share-based compensation expense and years we expect to recognize the future compensation expense were as follows:

 

(in millions of U.S. dollars, except years)

  Unrecognized share-based
compensation expense as
of September  28, 2013
    Weighted average years
expected to recognize
compensation
 

Stock options

  $ 1.9        2.0   

Performance-based RSUs

    2.8        1.9   

Time-based RSUs

    4.1        1.9   
 

 

 

   

Total

  $ 8.8     
 

 

 

   

Stock option activity for the nine months ended September 28, 2013 was as follows:

 

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

Balance at December 29, 2012

    468      $ 7.28   

Awarded

    392        9.36   

Exercised

    —          —     

Forfeited or expired

    —          —     
 

 

 

   

 

 

 

Outstanding at September 28, 2013

    860      $ 8.23   
 

 

 

   

 

 

 
   
 

 

 

   

 

 

 

Exercisable at September 28, 2013

    125      $ 9.49   
 

 

 

   

 

 

 

During the nine months ended September 28, 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

    247        382   

Issued

    —          (15

Forfeited

    (26     (37
 

 

 

   

 

 

 

Outstanding at September 28, 2013

    1,046        859   
 

 

 

   

 

 

 

On February 14, 2013, our board of directors adopted an amendment and restatement of 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) after the effective date of the amendment and restatement. The Amended and Restated Equity Plan was approved by Cott’s shareowners on April 30, 2013.

Certain outstanding stock options 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.

 

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Average Canadian to U.S. Dollar Exchange Rate for the Nine Months Ended September 28, 2013

The weighted-average exercise prices for options in this Note 4 are disclosed in Canadian dollars. The table below represents the average Canadian dollar to U.S. dollar exchange rate for the nine months ended September 28, 2013:

 

     For the Nine Months Ended  
     September 28, 2013  

Average exchange rate

   $ 0.978   

Note 5 – Income Taxes

Income tax expense was $2.3 million on pretax income of $34.7 million for the nine months ended September 28, 2013, as compared to income tax expense of $5.5 million on pretax income of $54.4 million for the nine months ended September 29, 2012. The year to date income tax expense was reduced as a result of lower pretax income relative to the comparable prior year period.

Note 6 – 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      For the Nine Months Ended  

(in thousands of shares)

   September 28, 2013      September 29, 2012      September 28, 2013      September 29, 2012  

Weighted average number of shares outstanding – basic

     94,235         94,488         94,922         94,461   

Dilutive effect of Stock options

     53         32         53         32   

Dilutive effect of Performance-based RSUs

     167         51         283         43   

Dilutive effect of Time-based RSUs

     317         1,027         497         1,055   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted weighted average number of shares outstanding – diluted

     94,772         95,598         95,755         95,591   
  

 

 

    

 

 

    

 

 

    

 

 

 

At September 28, 2013, we excluded 442,131 (September 29, 2012 – 392,479) 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 nine months ended September 29, 2012.

Note 7 – 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.

 

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Table of Contents

(in millions of U.S. dollars)

   North
America
     United
Kingdom
     Mexico     RCI      All Other      Total  

For the Three Months Ended September 28, 2013

                

External revenue1

     $   383.3         $142.9         $  7.5        $  9.5         $  —           $   543.2   

Depreciation and amortization

     20.8         3.8         0.5        —             —           25.1   

Operating income (loss)

     14.6         9.5         (1.2     3.1           —           26.0   

Additions to property, plant & equipment

     9.0         1.2         —          —             —           10.2   

For the Nine Months Ended September 28, 2013

                

External revenue1

     $1,194.6         $368.2         $22.6        $27.0         $  —           $1,612.4   

Depreciation and amortization

     62.9         10.3         1.5        —             —           74.7   

Operating income (loss)

     49.3         18.6         (1.6     7.4           —           73.7   

Additions to property, plant & equipment

     33.9         9.5         1.3        —             —           44.7   

As of September 28, 2013

                

Property, plant & equipment

     $   371.5         $108.7         $  9.9        $ —           $  —           $  490.1   

Goodwill

     124.9         11.0         —          4.5           —           140.4   

Intangibles and other assets

     275.8         27.5         —          0.3           —           303.6   

Total assets2

     1,195.9         323.3         25.2        15.1           0.9         1,560.4   

 

1  Intersegment revenue between North America and the other reporting segments was $5.6 million and $14.8 million for the three and nine months ended September 28, 2013, respectively.
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 September 29, 2012

                

External revenue1

     $   439.3         $125.5         $  9.7        $  9.3         $  —           $   583.8   

Depreciation and amortization

     21.1         3.2         0.4        —             —           24.7   

Operating income (loss)

     18.9         7.8         (1.0     2.9           —           28.6   

Additions to property, plant & equipment

     10.0         1.7         1.5        —             —           13.2   

For the Nine Months Ended September 29, 2012

                

External revenue1

     $1,323.1         $356.2         $29.0        $25.1         $  —           $1,733.4   

Depreciation and amortization

     61.3         9.6         1.3        —             —           72.2   

Operating income (loss)

     67.4         21.5         (3.2     7.1           —           92.8   

Additions to property, plant & equipment

     39.0         9.8         1.8        —             —           50.6   

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 $4.9 million and $13.0 million for the three and nine months ended September 29, 2012, respectively.
2  Excludes intersegment receivables, investments and notes receivable.

A significant portion of our revenue is concentrated in a small number of customers. For the nine months ended September 28, 2013, sales to Walmart accounted for 29.9% of our total revenues (September 29, 2012 – 31.3%), 35.9% of our North America reporting segment revenues (September 29, 2012 – 36.3%), 14.1% of our U.K. reporting segment revenues (September 29, 2012 – 15.4%), and 9.5% of our Mexico reporting segment revenues (September 29, 2012 – 21.7%).

 

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Table of Contents

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.

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     For the Nine Months Ended  

(in millions of U.S. dollars)

  September 28, 2013     September 29, 2012     September 28, 2013     September 29, 2012  

United States

  $ 344.3      $ 388.0      $ 1,066.9      $ 1,169.0   

Canada

    50.2        63.2        159.8        190.3   

United Kingdom

    142.9        125.5        368.2        356.2   

Mexico

    7.5        9.7        22.6        29.0   

RCI

    9.5        9.3        27.0        25.1   

Elimination1

    (11.2     (11.9     (32.1     (36.2
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 543.2      $ 583.8      $ 1,612.4      $ 1,733.4   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

1 Represents intersegment revenue among our operating segments, of which $5.6 million and $14.8 million represents intersegment revenue between the North America reporting segment and our other operating segments for the three and nine months ended September 28, 2013, respectively, compared to $4.9 million and $13.0 million for the three and nine months ended September 29, 2012, respectively.

 

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Table of Contents

Revenues by product category were as follows:

 

For the Three Months Ended September 28, 2013

 

(in millions of U.S. dollars)

   North
America
     United
Kingdom
     Mexico      RCI      Total  

Revenue

              

Carbonated soft drinks

   $ 148.1       $ 46.7       $ 2.4       $ —         $ 197.2   

Juice

     117.4         11.2         0.1         0.5         129.2   

Concentrate

     2.9         0.5         —           7.1         10.5   

All other products

     114.9         84.5         5.0         1.9         206.3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $     383.3       $ 142.9       $ 7.5       $   9.5       $   543.2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

For the Nine Months Ended September 28, 2013

 

(in millions of U.S. dollars)

   North
America
     United
Kingdom
     Mexico      RCI      Total  

Revenue

              

Carbonated soft drinks

   $ 456.6       $ 119.4       $ 9.6       $ 0.2       $ 585.8   

Juice

     376.8         19.9         0.1         1.9         398.7   

Concentrate

     8.8         1.7         —           21.2         31.7   

All other products

     352.4         227.2         12.9         3.7         596.2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,194.6       $ 368.2       $ 22.6       $ 27.0       $ 1,612.4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

For the Three Months Ended September 29, 2012

 

(in millions of U.S. dollars)

   North
America
     United
Kingdom
     Mexico      RCI      Total  

Revenue

              

Carbonated soft drinks

   $ 182.3       $ 43.1       $ 5.1       $ 0.3       $ 230.8   

Juice

     133.7         3.7         0.3         0.4         138.1   

Concentrate

     3.3         0.5         —           8.5         12.3   

All other products

     120.0         78.2         4.3         0.1         202.6   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $     439.3       $ 125.5       $ 9.7       $   9.3       $   583.8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

For the Nine Months Ended September 29, 2012

 

(in millions of U.S. dollars)

   North
America
     United
Kingdom
     Mexico      RCI      Total  

Revenue

              

Carbonated soft drinks

   $ 533.3       $ 121.8       $ 16.4       $ 0.3       $ 671.8   

Juice

     406.9         10.5         0.7         1.1         419.2   

Concentrate

     9.6         1.8         —           23.6         35.0   

All other products

     373.3         222.1         11.9         0.1         607.4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,323.1       $ 356.2       $ 29.0       $ 25.1       $ 1,733.4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Property, plant and equipment, net by operating segment as of September 28, 2013 and December 29, 2012 was as follows:

 

(in millions of U.S. dollars)

   September 28, 2013      December 29, 2012  

United States

   $ 324.8       $ 333.7   

Canada

     46.7         48.4   

United Kingdom

     108.7         99.5   

Mexico

     9.9         9.3   
  

 

 

    

 

 

 

Total

   $ 490.1       $ 490.9   
  

 

 

    

 

 

 

Note 8 – Inventories

The following table summarizes inventories as of September 28, 2013 and December 29, 2012:

 

(in millions of U.S. dollars)

   September 28, 2013      December 29, 2012  

Raw materials

   $ 78.4       $ 93.4   

Finished goods

     115.5         111.6   

Other

     21.5         19.8   
  

 

 

    

 

 

 

Total

   $ 215.4       $ 224.8   
  

 

 

    

 

 

 

Note 9 – Intangibles and Other Assets

The following table summarizes intangibles and other assets as of September 28, 2013:

 

     September 28, 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

   $ 378.5       $ 160.8       $ 217.7   

Trademarks

     32.4         24.9         7.5   

Information technology

     49.1         32.7         16.4   

Other

     13.2         10.4         2.8   
  

 

 

    

 

 

    

 

 

 
     473.2         228.8         244.4   
  

 

 

    

 

 

    

 

 

 
     518.2         228.8         289.4   
  

 

 

    

 

 

    

 

 

 

Other Assets

        

Financing costs

   $ 25.7       $ 13.2       $ 12.5   

Deposits

     1.1         —           1.1   

Other

     0.9         0.3         0.6   
  

 

 

    

 

 

    

 

 

 
     27.7         13.5         14.2   
  

 

 

    

 

 

    

 

 

 

Total Intangibles & Other Assets

   $ 545.9       $ 242.3       $ 303.6   
  

 

 

    

 

 

    

 

 

 

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 and $25.9 million for the three and nine months ended September 28, 2013, respectively, compared to $8.8 million and $26.6 million for the comparable prior year periods.

 

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

 

(in millions of U.S. dollars)

      

Remainder of 2013

   $ 10.0   

2014

     30.8   

2015

     28.4   

2016

     25.0   

2017

     21.1   

Thereafter

     129.1   
  

 

 

 
   $ 244.4   
  

 

 

 

Note 10 – Debt

Our total debt as of September 28, 2013 and December 29, 2012 was as follows:

 

(in millions of U.S. dollars)

  September 28, 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

    10.7        9.9   

Other capital leases

    5.6        4.6   

Other debt

    1.8        1.3   
 

 

 

   

 

 

 

Total debt

    608.1        605.8   

Less: Current debt

   

GE obligation – current maturities

    1.9        0.9   

Other capital leases – current maturities

    1.4        0.8   

Other debt – current maturities

    0.6        0.2   
 

 

 

   

 

 

 

Total current debt

    3.9        1.9   

Long-term debt before discount

    604.2        603.9   

Less discount on 8.375% notes

    (1.8     (2.1
 

 

 

   

 

 

 

Total long-term debt

  $ 602.4      $ 601.8   
 

 

 

   

 

 

 

 

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

Asset-Based Lending Credit 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.

On October 22, 2013, we amended the ABL facility to, among other things, (1) provide for an increase in the lenders’ commitments under the ABL facility to $300 million, as well an increase to the accordion feature, which permits us to increase the lenders’ commitments under the ABL facility to $350 million, subject to certain conditions, (2) extend the maturity date to the earliest of (i) October 22, 2018, (ii) May 15, 2017, if we have not redeemed, repurchased or refinanced the 2017 Notes by May 1, 2017, or (iii) March 1, 2018, if we have not redeemed, repurchased or refinanced the 2018 Notes by February 15, 2018, and (3) provide for greater flexibility under certain covenants. We incurred approximately $0.6 million of financing fees in connection with the amendment of the ABL facility.

 

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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 and on October 22, 2013, are being amortized using the straight line method over the duration of the amended ABL facility.

As of September 28, 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 $7.5 million of letters of credit, was $239.0 million as of September 28, 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 we and most of our U.S., Canadian and U.K. subsidiaries guarantee the 2017 Notes. The interest on the 2017 Notes is payable semi-annually on May 15th and November 15th of each year.

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.

On September 30, 2013, Cott Beverages Inc. notified Wells Fargo Bank, National Association, as successor trustee to HSBC Bank USA, N.A. under the indenture dated as of November 13, 2009 governing the 2017 Notes (the “Indenture”), that Cott Beverages Inc. will, pursuant to the optional redemption provisions contained in the Indenture, redeem U.S. $200.0 million aggregate principal amount of the 2017 Notes on November 15, 2013 at 104.118% of par. The redemption will include approximately $8 million in premium payments as well as approximately $4 million in deferred financing fee and discount charges.

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 we and most of our U.S., Canadian and U.K. subsidiaries guarantee the 2018 Notes. The interest on the 2018 Notes is payable semi-annually on March 1st and September 1st of each year.

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

GE Term Loan

In January 2008, we entered into a capital lease finance arrangement with General Electric Capital Corporation (“GE Capital”) for the lease of equipment. In September 2013, we purchased the equipment subject to the lease for an aggregate purchase price of $10.7 million, with the financing for such purchase provided by General Electric at 5.23% interest.

Note 11 – Accumulated Other Comprehensive (Loss) Income

Changes in accumulated other comprehensive (loss) income by component1 for the nine months ended September 28, 2013 were as follows:

 

(in millions of U.S. dollars)

   September 28, 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        (0.3     (4.8     (4.9

Amounts reclassified from AOCI

     (0.3     0.6        —          0.3   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net current-period OCI

     (0.1     0.3        (4.8     (4.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance September 28, 2013

   $ 0.1      $ (8.8   $ (8.3   $ (17.0
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

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The following table summarizes the amounts reclassified from accumulated other comprehensive (loss) income1 for the three and nine months ended September 28, 2013.

 

(in millions of U.S. dollars)

  Amounts Reclassified From AOCI      

Details About AOCI Components

  For the Three
Months Ended
September 28,
2013
    For the Nine
Months Ended
September 28,
2013
   

Affected Line Item in the

Statement Where Net Income

Is Presented

Gains and losses on derivative instruments

     

Foreign currency hedges

  $ 0.1      $ 0.3     

Cost of sales

 

 

 

   

 

 

   
  $ 0.1      $ 0.3     

Total before taxes

    —          —       

Tax (expense) or benefit

 

 

 

   

 

 

   
  $ 0.1      $ 0.3     

Net of tax

 

 

 

   

 

 

   

Amortization of pension benefit plan items

     

Prior-service costs2

  $ 0.1      $ (0.2  

Actuarial adjustments2

    —          (0.1  

Actuarial gains/(losses)2

    —          (0.1  
 

 

 

   

 

 

   
    0.1        (0.4  

Total before tax

    —          (0.2  

Tax (expense) or benefit

 

 

 

   

 

 

   
  $ 0.1      $ (0.6  

Net of tax

 

 

 

   

 

 

   

Total reclassifications for the period

  $ 0.2      $ (0.3  

Net of tax

 

 

 

   

 

 

   

 

1  Amounts in parentheses indicate debits.
2  These AOCI components are included in the computation of net periodic pension cost.

Note 12 – 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 ended 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 then 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 $7.5 million in standby letters of credit outstanding as of September 28, 2013 (September 29, 2012 – $11.0 million).

Note 13 – 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.

 

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On April 30, 2013, our board of directors renewed our share repurchase program for up to 5% of Cott’s outstanding common shares over a 12-month period commencing upon the expiration of the prior share repurchase program on May 21, 2013. We repurchased 554,769 shares of common stock for approximately $4.5 million during the third quarter ended September 28, 2013 under the share repurchase program through open market transactions. We are unable to predict the number of shares that ultimately 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 14 – 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.

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 15). 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 nine months ended September 28, 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 September 28, 2013 was approximately $5.5 million.

 

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The fair value of the Company’s derivative instruments was nil and $0.1 million as of September 28, 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 and $0.5 million for the three and nine months ended September 28, 2013, respectively, compared to a charge to cost of sales of $0.3 million and $0.4 million for the comparable prior year periods.

Note 15 – 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.

 

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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.

 

    September 28, 2013  

(in millions of U.S. dollars)

  Level 1     Level 2     Level 3     Fair Value Measurements  

Assets

       

Money market

  $ 10.0      $ —        $ —        $ 10.0   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

  $ 10.0      $ —        $ —        $ 10.0   
 

 

 

   

 

 

   

 

 

   

 

 

 
    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, 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 September 28, 2013 and December 29, 2012 were as follows:

 

    September 28, 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        225.2      $ 215.0        234.4   

8.125% senior notes due in 20181

    375.0        405.9        375.0        414.8   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 590.0      $ 631.1      $ 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 16 – Guarantor Subsidiaries

The 2017 Notes and 2018 Notes issued by our 100% owned subsidiary, Cott Beverages, Inc., are unconditionally guaranteed on a senior basis pursuant to guarantees by Cott Corporation and certain other 100% 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.

 

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Table of Contents

Condensed Consolidating Statements of Operations

 

(in millions of U.S. dollars)

Unaudited

 

    For the Three Months Ended September 28, 2013  
    Cott
Corporation
    Cott
Beverages Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

Revenue, net

  $ 42.5      $ 197.6      $ 271.5      $ 37.4      $ (5.8   $ 543.2   

Cost of sales

    39.2        170.5        241.3        33.0        (5.8     478.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    3.3        27.1        30.2        4.4        —          65.0   

Selling, general and administrative expenses

    6.8        14.9        13.2        3.0        —          37.9   

Loss on disposal of property, plant & equipment

    0.1        0.4        0.6        —          —          1.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

    (3.6     11.8        16.4        1.4        —          26.0   

Other income, net

    (0.1     —          (0.6     —          —          (0.7

Intercompany interest (income) expense, net

    —          (3.0     3.0        —          —          —     

Interest (income) expense, net

    (0.1     13.1        0.2        0.1        —          13.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

    (3.4     1.7        13.8        1.3        —          13.4   

Income tax (benefit) expense

    (2.8     3.9        (1.2     0.2        —          0.1   

Equity income (loss)

    12.6        1.3        (0.3     —          (13.6     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 12.0      $ (0.9   $ 14.7      $ 1.1      $ (13.6   $ 13.3   

Less: Net income attributable to non-controlling interests

    —          —          —          1.3        —          1.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributed to Cott Corporation

  $ 12.0      $ (0.9   $ 14.7      $ (0.2   $ (13.6   $ 12.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributed to Cott Corporation

  $ 23.8      $ 28.9      $ 30.6      $ —        $ (59.5   $ 23.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Condensed Consolidating Statements of Operations

 

(in millions of U.S. dollars)

Unaudited

 

    For the Nine Months Ended September 28, 2013  
    Cott
Corporation
    Cott
Beverages Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

Revenue, net

  $ 131.9      $ 605.5      $ 777.4      $ 116.0      $ (18.4   $ 1,612.4   

Cost of sales

    114.5        520.1        695.9        102.3        (18.4     1,414.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    17.4        85.4        81.5        13.7        —          198.0   

Selling, general and administrative expenses

    22.3        53.8        37.7        7.1        —          120.9   

Loss on disposal of property, plant & equipment

    0.1        0.7        0.6        —          —          1.4   

Restructuring

    0.5        0.5        0.7        0.3        —          2.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

    (5.5     30.4        42.5        6.3        —          73.7   

Other (income), net

    (0.1     —          (0.3     —          —          (0.4

Intercompany interest (income) expense, net

    —          (8.7     8.7        —          —          —     

Interest (income) expense, net

    (0.2     39.1        0.4        0.1        —          39.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

    (5.2     —          33.7        6.2        —          34.7   

Income tax (benefit) expense

    (2.1     5.5        (1.5     0.4        —          2.3   

Equity income (loss)

    31.6        3.9        (0.9     —          (34.6     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 28.5      $ (1.6   $ 34.3      $ 5.8      $ (34.6   $ 32.4   

Less: Net income attributable to non-controlling interests

    —          —          —          3.9        —          3.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributed to Cott Corporation

  $ 28.5      $ (1.6   $ 34.3      $ 1.9      $ (34.6   $ 28.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributed to Cott Corporation

  $ 23.9      $ (2.1   $ 33.3      $ 4.1      $ (35.3   $ 23.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

25


Table of Contents

Condensed Consolidating Statements of Operations

 

(in millions of U.S. dollars)

Unaudited

 

    For the Three Months Ended September 29, 2012  
    Cott
Corporation
    Cott
Beverages Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

Revenue, net

  $ 52.6      $ 220.2      $ 271.6      $ 46.9      $ (7.5   $ 583.8   

Cost of sales

    42.1        187.2        246.7        42.1        (7.5     510.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    10.5        33.0        24.9        4.8        —          73.2   

Selling, general and administrative expenses

    8.1        18.3        15.1        2.3        —          43.8   

Loss on disposal of property, plant & equipment

    —          0.2        0.1        0.5        —          0.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    2.4        14.5        9.7        2.0        —          28.6   

Other (income) expense, net

    (0.4     (1.1     0.1        (0.1     —          (1.5

Intercompany interest (income) expense, net

    —          (3.5     3.5        —          —          —     

Interest expense, net

    —          12.8        0.2        0.1        —          13.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax expense (benefit) and equity income

    2.8        6.3        5.9        2.0        —          17.0   

Income tax expense (benefit)

    0.9        1.2        (1.0     0.1        —          1.2   

Equity income

    12.6        1.5        6.5        —          (20.6     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 14.5      $ 6.6      $ 13.4      $ 1.9      $ (20.6   $ 15.8   

Less: Net income attributable to non-controlling interests

    —          —          —          1.3        —          1.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributed to Cott Corporation

  $ 14.5      $ 6.6      $ 13.4      $ 0.6      $ (20.6   $ 14.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributed to Cott Corporation

  $ 27.2      $ 26.8      $ 24.0      $ 9.6      $ (60.4   $ 27.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

26


Table of Contents

Condensed Consolidating Statements of Operations

 

(in millions of U.S. dollars)

Unaudited

 

    For the Nine Months Ended September 29, 2012  
    Cott
Corporation
    Cott
Beverages Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

Revenue, net

  $ 157.6      $ 669.9      $ 799.1      $ 131.5      $ (24.7   $ 1,733.4   

Cost of sales

    126.7        564.4        719.4        118.7        (24.7     1,504.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    30.9        105.5        79.7        12.8        —          228.9   

Selling, general and administrative expenses

    23.4        58.0        45.1        7.9        —          134.4   

Loss on disposal of property, plant & equipment

    —          0.6        0.6        0.5        —          1.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    7.5        46.9        34.0        4.4        —          92.8   

Other expense (income), net

    0.1        (1.0     (0.8     (0.5     —          (2.2

Intercompany interest (income) expense, net

    —          (8.2     8.2        —          —          —     

Interest expense, net

    0.2        39.8        0.5        0.1        —          40.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax expense (benefit) and equity income

    7.2        16.3        26.1        4.8        —          54.4   

Income tax expense (benefit)

    4.1        1.8        (0.4     —          —          5.5   

Equity income

    42.4        3.8        18.3        —          (64.5     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 45.5      $ 18.3      $ 44.8      $ 4.8      $ (64.5   $ 48.9   

Less: Net income attributable to non-controlling interests

    —          —          —          3.4        —          3.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributed to Cott Corporation

  $ 45.5      $ 18.3      $ 44.8      $ 1.4      $ (64.5   $ 45.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributed to Cott Corporation

  $ 58.8      $ 44.2      $ (38.0   $ 55.2      $ (61.4   $ 58.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

27


Table of Contents

Consolidating Balance Sheets

 

(in millions of U.S. dollars)

Unaudited

 

    As of September 28, 2013  
    Cott
Corporation
    Cott
Beverages Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

ASSETS

           

Current assets

           

Cash & cash equivalents

  $ 23.2      $ 41.9      $ 55.4      $ 5.3      $ —        $ 125.8   

Accounts receivable, net of allowance

    22.0        123.5        206.2        14.9        (112.0     254.6   

Income taxes recoverable

    —          0.5        0.2        —          —          0.7   

Inventories

    19.0        79.2        109.6        7.6        —          215.4   

Prepaid expenses and other assets

    1.7        15.1        6.2        0.1        —          23.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    65.9        260.2        377.6        27.9        (112.0     619.6   

Property, plant & equipment, net

    50.3        191.9        237.4        10.5        —          490.1   

Goodwill

    26.6        4.5        109.3        —          —          140.4   

Intangibles and other assets, net

    1.3        90.9        199.8        11.6        —          303.6   

Deferred income taxes

    4.9        —          —          0.6        —          5.5   

Other tax receivable

    0.5        0.1        0.6        —          —          1.2   

Due from affiliates

    39.6        174.8        78.0        41.9        (334.3     —     

Investments in subsidiaries

    496.9        390.7        824.9        (0.1     (1,712.4     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 686.0      $ 1,113.1      $ 1,827.6      $ 92.4      $ (2,158.7   $ 1,560.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

           

Current liabilities

           

Current maturities of long-term debt

  $ —        $ 2.5      $ 0.5      $ 0.9      $ —        $ 3.9   

Accounts payable and accrued liabilities

    30.0        139.1        195.8        6.8        (112.0     259.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    30.0        141.6        196.3        7.7        (112.0     263.6   

Long-term debt

    0.1        598.4        2.3        1.6        —          602.4   

Deferred income taxes

    —          35.6        11.4        1.1        —          48.1   

Other long-term liabilities

    0.1        3.4        20.2        —          —          23.7   

Due to affiliates

    43.2        76.7        177.3        37.1        (334.3     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    73.4        855.7        407.5        47.5        (446.3     937.8   

Equity

           

Capital stock, no par

    392.7        574.5        1,728.9        82.5        (2,385.9     392.7   

Additional paid-in-capital

    43.9        —          —          —          —          43.9   

Retained earnings (deficit)

    193.0        (329.8     (317.2     (49.0     696.0        193.0   

Accumulated other comprehensive (loss) income

    (17.0     12.7        8.4        1.4        (22.5     (17.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Cott Corporation equity

    612.6        257.4        1,420.1        34.9        (1,712.4     612.6   

Non-controlling interests

    —          —          —          10.0        —          10.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

    612.6        257.4        1,420.1        44.9        (1,712.4     622.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

  $ 686.0      $ 1,113.1      $ 1,827.6      $ 92.4      $ (2,158.7   $ 1,560.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

28


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   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

Consolidating Statements of Condensed Cash Flows

 

(in millions of U.S. dollars)

Unaudited

 

    For the Three Months Ended September 28, 2013  
    Cott
Corporation
    Cott
Beverages Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

Operating Activities

           

Net income (loss)

  $ 12.0      $ (0.9   $ 14.7      $ 1.1      $ (13.6   $ 13.3   

Depreciation & amortization

    1.6        9.6        12.3        1.6        —          25.1   

Amortization of financing fees

    —          0.7        —          —          —          0.7   

Share-based compensation expense

    0.3        0.7        0.1        —          —          1.1   

(Decrease) increase in deferred income taxes

    (2.5     3.4        (0.5     (0.1     —          0.3   

Loss on disposal of property, plant & equipment

    0.1        0.4        0.6        —          —          1.1   

Equity (income) loss, net of distributions

    (12.6     (1.3     0.3        —          13.6        —     

Intercompany transactions

    2.2        2.4        —          —          (4.6     —     

Other non-cash items

    0.2        (0.2     —          —          —          —     

Net change in operating assets and liabilities, net of acquisition

    (0.4     28.3        15.8        (2.5     4.6        45.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

    0.9        43.1        43.3        0.1        —          87.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investing Activities

           

Acquisition, net of cash acquired

    —          (4.7     —          —          —          (4.7

Additions to property, plant & equipment

    (1.1     (7.9     (1.2     —          —          (10.2

Additions to intangibles and other assets

    —          (2.1     —          —          —          (2.1

Proceeds from sale of property, plant & equipment

    —          —          —          0.2        —          0.2   

Advances to affiliates

    —          —          —          0.3        (0.3     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by investing activities

    (1.1     (14.7     (1.2     0.5        (0.3     (16.8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financing Activities

           

Payments of long-term debt

    —          —          (0.1     (0.5     —          (0.6

Advances from affiliates

    (0.3     —          —          —          0.3        —     

Distributions to non-controlling interests

    —          —          —          (2.2     —          (2.2

Common shares repurchased and cancelled

    (4.5     —          —          —          —          (4.5

Financing fees

    (0.1     —          —          —          —          (0.1

Dividends to shareholders

    (5.5     —          —          —          —          (5.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

    (10.4     —          (0.1     (2.7     0.3        (12.9

Effect of exchange rate changes on cash

    0.5        —          0.8        —          —          1.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash & cash equivalents

    (10.1     28.4        42.8        (2.1     —          59.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash & cash equivalents, beginning of period

    33.3        13.5        12.6        7.4        —          66.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash & cash equivalents, end of period

  $ 23.2      $ 41.9      $ 55.4      $ 5.3      $ —        $ 125.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

30


Table of Contents

Consolidating Statements of Condensed Cash Flows

 

(in millions of U.S. dollars)

Unaudited

 

    For the Nine Months Ended September 28, 2013  
    Cott
Corporation
    Cott
Beverages Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

Operating Activities

           

Net income (loss)

  $ 28.5      $ (1.6   $ 34.3      $ 5.8      $ (34.6   $ 32.4   

Depreciation & amortization

    4.7        29.0        36.4        4.6        —          74.7   

Amortization of financing fees

    0.1        2.0        0.1        —          —          2.2   

Share-based compensation expense

    1.1        2.2        0.3        —          —          3.6   

(Decrease) increase in deferred income taxes

    (2.0     5.2        (1.2     (0.1     —          1.9   

Loss on disposal of property, plant & equipment

    0.1        0.7        0.6        —          —          1.4   

Equity (income) loss, net of distributions

    (31.6     (3.9     0.9        —          34.6        —     

Intercompany transactions

    24.7        5.3        —          —          (30.0     —     

Other non-cash items

    0.2        —          —          —          —          0.2   

Net change in operating assets and liabilities, net of acquisition

    (4.8     2.4        (76.9     (4.2     30.0        (53.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

    21.0        41.3        (5.5     6.1        —          62.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investing Activities

           

Acquisition, net of cash acquired

    —          (4.7     (6.5     —          —          (11.2

Additions to property, plant & equipment

    (6.0     (27.9     (9.5     (1.3     —          (44.7

Additions to intangibles and other assets

    —          (4.0     —          —          —          (4.0

Proceeds from sale of property, plant & equipment

    —          —          —          0.2        —          0.2   

Proceeds from insurance recoveries

    —          0.4        —          —          —          0.4   

Advances to affiliates

    —          —          —          0.4        (0.4     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

    (6.0     (36.2     (16.0     (0.7     (0.4     (59.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financing Activities

           

Payments of long-term debt

    (0.1     (0.7     (18.6     (0.8     —          (20.2

Advances from affiliates

    (0.4     —          —          —          0.4        —     

Distributions to non-controlling interests

    —          —          —          (5.0     —          (5.0

Common shares repurchased and cancelled

    (12.9     —          —          —          —          (12.9

Financing fees

    (0.1     —          —          —          —          (0.1

Dividends to shareholders

    (16.7     —          —          —          —          (16.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

    (30.2     (0.7     (18.6     (5.8     0.4        (54.9

Effect of exchange rate changes on cash

    (1.4     —          (0.9     —          —          (2.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash & cash equivalents

    (16.6     4.4        (41.0     (0.4     —          (53.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash & cash equivalents, beginning of period

    39.8        37.5        96.4        5.7        —          179.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash & cash equivalents, end of period

  $ 23.2      $ 41.9      $ 55.4      $ 5.3      $ —        $ 125.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

31


Table of Contents

Consolidating Statements of Condensed Cash Flows

 

(in millions of U.S. dollars)

Unaudited

 

    For the Three Months Ended September 29, 2012  
    Cott
Corporation
    Cott
Beverages Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

Operating Activities

           

Net income

  $ 14.5      $ 6.6      $ 13.4      $ 1.9      $ (20.6   $ 15.8   

Depreciation & amortization

    1.6        9.4        12.1        1.6        —          24.7   

Amortization of financing fees

    0.1        0.6        0.1        —          —          0.8   

Share-based compensation expense

    0.2        0.9        0.3        (0.1     —          1.3   

Increase (decrease) in deferred income taxes

    0.6        1.2        (1.3     0.1        —          0.6   

Loss on disposal of property, plant & equipment

    —          0.2        0.1        0.5        —          0.8   

Equity (loss) income, net of distributions

    (12.6     (1.5     (6.5     —          20.6        —     

Intercompany transactions

    2.1        2.1        —          —          (4.2     —     

Other non-cash items

    (0.4     (1.0     —          —          —          (1.4

Net change in operating assets and liabilities

    16.4        0.9        (3.4     (2.7     4.2        15.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

    22.5        19.4        14.8        1.3        —          58.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investing Activities

           

Acquisition

    —          (4.7     —          —          —          (4.7

Additions to property, plant & equipment

    (1.2     (9.0     (1.7     (1.3     —          (13.2

Additions to intangibles and other assets

    (0.5     (1.1     0.6        —          —          (1.0

Proceeds from sale of assets held for sale

    —          —          —          1.3        —          1.3   

Proceeds from insurance recoveries

    —          1.7        —          —          —          1.7   

Advances to affiliates

    —          —          —          (1.6     1.6        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

    (1.7     (13.1     (1.1     (1.6     1.6        (15.9
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financing Activities

           

Payments of long-term debt

    0.1        (0.2     —          (0.1     —          (0.2

Advances from affiliates

    1.6        —          —          —          (1.6     —     

Distributions to non-controlling interests

    —          —          —          (1.9     —          (1.9

Financing fees

    —          (1.2     —          —          —          (1.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

    1.7        (1.4     —          (2.0     (1.6     (3.3

Effect of exchange rate changes on cash

    1.2        —          0.8        0.2        —          2.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash & cash equivalents

    23.7        4.9        14.5        (2.1     —          41.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash & cash equivalents, beginning of period

    16.8        3.2        18.8        8.3        —          47.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash & cash equivalents, end of period

  $ 40.5      $ 8.1      $ 33.3      $ 6.2      $ —        $ 88.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

32


Table of Contents

Consolidating Statements of Condensed Cash Flows

 

(in millions of U.S. dollars)

Unaudited

 

    For the Nine Months Ended September 29, 2012  
    Cott
Corporation
    Cott
Beverages Inc.
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

Operating Activities

           

Net income

  $ 45.5      $ 18.3      $ 44.8      $ 4.8      $ (64.5   $ 48.9   

Depreciation & amortization

    4.7        27.1        36.0        4.4        —          72.2   

Amortization of financing fees

    0.2        2.5        0.2        —          —          2.9   

Share-based compensation expense

    1.0        1.7        0.8        —          —          3.5   

Increase (decrease) in deferred income taxes

    1.7        3.7        (0.7     (0.1     —          4.6   

Gain on bargain purchase

    —          —          (0.9     —          —          (0.9

Loss on disposal of property, plant & equipment

    —          0.6        0.6        0.5        —          1.7   

Equity (loss) income, net of distributions

    (42.4     (3.8     (18.3     —          64.5        —     

Intercompany transactions

    18.3        3.5        —          —          (21.8     —     

Other non-cash items

    —          (0.8     —          —          —          (0.8

Net change in operating assets and liabilities, net of acquisition

    (2.3     (20.1     (76.2     (2.3     21.8        (79.1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

    26.7        32.7        (13.7     7.3        —          53.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investing Activities

           

Acquisition

    —          (4.7     (5.0     —          —          (9.7

Additions to property, plant & equipment

    (5.4     (33.8     (9.8     (1.6     —          (50.6

Additions to intangibles and other assets

    (0.5     (4.7     0.5        —          —          (4.7

Proceeds from sale of property, plant & equipment

    —          —          1.0        1.3        —          2.3   

Proceeds from insurance recoveries

    —          1.7        —          —          —          1.7   

Advances to affiliates

    —          —          —          (5.1     5.1        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

    (5.9     (41.5     (13.3     (5.4     5.1        (61.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financing Activities

           

Payments of long-term debt

    0.1        (2.6     —          (0.3     —          (2.8

Borrowings under ABL

    —          24.5        —          —          —          24.5   

Payments under ABL

    —          (24.5     —          —          —          (24.5

Advances from affiliates

    5.1        —          —          —          (5.1     —     

Distributions to non-controlling interests

    —          —          —          (3.3     —          (3.3

Common share repurchase

    (0.3     —          —          —          —          (0.3

Financing Fees

    —          (1.2     —          —          —          (1.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

    4.9        (3.8     —          (3.6     (5.1     (7.6

Effect of exchange rate changes on cash

    1.1        —          1.4        0.3        —          2.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash & cash equivalents

    26.8        (12.6     (25.6     (1.4     —          (12.8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash & cash equivalents, beginning of period

    13.7        20.7        58.9        7.6        —          100.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash & cash equivalents, end of period

  $ 40.5      $ 8.1      $ 33.3      $ 6.2      $ —        $ 88.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Note 17 – Subsequent Events

On September 30, 2013, Cott Beverages Inc. notified Wells Fargo Bank, National Association, as successor trustee to HSBC Bank USA, N.A. under the Indenture, that Cott Beverages Inc. will, pursuant to the optional redemption provisions contained in the Indenture, redeem U.S. $200.0 million aggregate principal amount of the 2017 Notes on November 15, 2013 at 104.118% of par. The redemption will include approximately $8 million in premium payments as well as approximately $4 million in deferred financing fee and discount charges.

On October 22, 2013, we amended the ABL facility to, among other things, (1) provide for an increase in the lenders’ commitments under the ABL facility to $300 million, as well an increase to the accordion feature, which permits us to increase the lenders’ commitments under the ABL facility to $350 million, subject to certain conditions, (2) extend the maturity date to the earliest of (i) October 22, 2018, (ii) May 15, 2017, if we have not redeemed, repurchased or refinanced the 2017 Notes by May 1, 2017, or (iii) March 1, 2018, if we have not redeemed, repurchased or refinanced the 2018 Notes by February 15, 2018, and (3) provide for greater flexibility under certain covenants. We incurred approximately $0.6 million of financing fees in connection with the amendment of the ABL facility.

On October 29, 2013, our board of directors declared a dividend of CAD$0.06 per common share, payable in cash on December 12, 2013 to shareowners of record at the close of business on December 2, 2013.

 

33


Table of Contents

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to further the reader’s understanding of the consolidated financial condition and results of operations of our Company. It should be read in conjunction with the financial statements included in this quarterly report on Form 10-Q and our annual report on Form 10-K for the year ended December 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 our 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.

In June of 2013, our United Kingdom (“U.K.”) reporting segment acquired 100 percent of the share capital of 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 produces fruit juices, juice drinks, soft drinks, and freeze products in the United Kingdom. The aggregate purchase price for the acquisition of Calypso Soft Drinks (the “Calypso Soft Drinks Acquisition”) was $12.1 million, which includes approximately $7 million paid at closing, deferred payments of approximately $2.3 million and $3.0 million to be paid on the first and second anniversary of the closing date of the Calypso Soft Drinks Acquisition, respectively. The closing payment was funded from available cash.

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 ended 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, we made interim payments to the seller equal to $29.6 million, which was net of a $4.7 million refund due to us 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 our payment of $0.6 million 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 nine 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 nine months ended September 28, 2013 and September 29, 2012 accounted for 29.9% and 31.3% of total revenue, respectively.

 

34


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, and, in some cases, by excluding the impact of the Calypso Soft Drinks Acquisition. We exclude these items to better understand trends in the business and the impact of the Calypso Soft Drinks Acquisition.

We also utilize earnings before interest expense, taxes, depreciation and amortization (“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. We also utilize adjusted EBITDA, which is EBITDA adjusted for inventory step-up (step-down), acquisition costs, and integration costs related to the Calypso Soft Drinks Acquisition or the Cliffstar Acquisition, as the case may be (“Adjusted EBITDA”). We consider Adjusted EBITDA to be an indicator of our operating performance. Adjusted EBITDA excludes certain items to make more meaningful period-over-period comparisons of our ongoing core operations before material charges.

We also utilize adjusted net income, which is GAAP earnings (loss) excluding purchase accounting adjustments, integration expenses, restructuring expenses and asset impairments, as well as adjusted earnings per diluted share, which is adjusted net income divided by diluted weighted average outstanding shares. We consider these measures to be indicators of our operating performance. These measures exclude certain items to make period-over-period comparisons of our ongoing core operations before material charges.

Additionally, we supplement our reporting of net cash provided by operating activities determined in accordance with GAAP by excluding capital expenditures to present free cash flow, which management believes provides useful information to investors about the amount of cash generated by the business that, after the acquisition of property and equipment, can be used for strategic opportunities, including investing in our business, making strategic acquisitions, paying dividends, and strengthening the balance sheet.

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 September 28, 2013 (the “third quarter”) and the nine months ended September 28, 2013 (“first nine months of 2013” or “year to date”) was $12.0 million or $0.13 per diluted share and $28.5 million or $0.30 per diluted share, respectively, compared to net income of $14.5 million or $0.15 per diluted share and $45.5 million or $0.48 per diluted share for the three and nine months ended September 29, 2012, respectively.

The following items of significance impacted our financial results for the third quarter and first nine months of 2013:

 

    our revenue decreased 7.0% year to date from the comparable prior year period (8.1% excluding the impact of Calypso) due primarily to lower global volumes slightly offset by an increase in average price per case on a global basis. Absent foreign exchange impact, revenue decreased 6.4% year to date from the comparable prior year period;

 

    our gross profit as a percentage of revenue decreased to 12.0% and 12.3% for the third quarter and year to date, respectively, compared to 12.5% and 13.2%, respectively, from the comparable prior year period due primarily to lower volumes which resulted in unfavorable fixed cost absorption;

 

    our filled beverage 8-ounce equivalents (“beverage case volume”), which excludes concentrate sales, decreased 8.3% year to date due primarily to the general market decline in the North American CSD category and increased promotional activity from the national brands;

 

    our selling, general and administrative (“SG&A”) expenses for the first nine months decreased to $120.9 million from $134.4 million in the comparable prior year period due primarily to lower employee-related expenses and a reduction in professional fees and similar costs;

 

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    our loss on disposal of property, plant and equipment was related to the disposal of approximately $1.4 million of equipment that was either replaced or no longer being used in our U.S. operating segment;

 

    other income was $0.4 million year to date compared to other income of $2.2 million in the comparable prior year period due to insurance recoveries in excess of the loss incurred on a U.S. facility in the amount of $1.3 million and recording a bargain purchase of $0.9 million in the U.K. in the prior year compared to $0.4 million in income associated with foreign exchange effects in the current year;

 

    our interest expense decreased by $1.2 million as a result of an amendment to our ABL facility to more favorable terms;

 

    our income tax expense was $2.3 million year to date compared to $5.5 million in the comparable prior year period, due primarily to a reduction in pretax income.;

 

    our Adjusted EBITDA decreased 9.4% to $154.3 million year to date from $170.4 million in the comparable prior year period due to the items listed above; and

 

    our adjusted net income and adjusted earnings per diluted share were $33.5 million and $0.35 year to date, respectively, compared to $48.7 million and $0.51 in the prior year, respectively.

The following items of significance impacted our financial results for the third quarter and first nine months of 2012:

 

    our revenue decreased 2.9% year to date from the comparable prior year period due primarily to a decline in North America volume resulting from our exit from certain low margin business and a product mix shift into juice drinks and sports drinks from 100% shelf-stable juice. Absent foreign exchange impact, revenue decreased 1.9% year to date from the comparable prior year period;

 

    our gross profit as a percentage of revenue increased to 12.5% and 13.2% for the third quarter and year to date, respectively, compared to 11.1% and 12.6%, respectively, from the comparable prior year periods due primarily to increased pricing on products and our exit from lower margin business;

 

    our beverage case volume decreased 8.7% year to date due primarily to the exit of certain low margin business and the continuing decline in the North America CSD industry;

 

    our SG&A expenses for the first nine months of 2012 increased to $134.4 million from $128.3 million in the comparable prior year period due primarily to an increase in certain employee-related costs compared to a lowering of the annual incentive and long-term incentive accruals in the prior year;

 

    our loss on disposal of property, plant and equipment year to date was the result of the sale of a facility in each of Mexico and the U.K. and normal operational disposals;

 

    our other income was $2.2 million year to date as a result of insurance recoveries in excess of the loss incurred on a U.S. facility in the amount of $1.3 million and recording a bargain purchase of $0.9 million in the U.K. compared to other expense of $2.1 million in the comparable prior year period, which was the result of $1.2 million in foreign exchange effects and $0.9 million in adjustments to the contingent consideration associated with the Cliffstar Acquisition;

 

    our interest expense decreased by $2.8 million year to date as a result of decreased debt balances held throughout the period;

 

    our income tax expense was $5.5 million year to date compared to a $1.7 million benefit in the comparable prior year period, due primarily to the recording of $4.3 million of allowances against deferred tax assets in the U.S. that are uncertain to be realized and the lapping of a favorable tax settlement in the prior year; and

 

    our Adjusted EBITDA increased 2.8% to $170.4 million year to date from $165.8 million in the comparable prior year period.

 

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The following table summarizes our Consolidated Statements of Operations as a percentage of revenue for the three and nine months ended September 28, 2013 and September 29, 2012, respectively:

 

    For the Three Months Ended     For the Nine Months Ended  
    September 28, 2013     September 29, 2012     September 28, 2013     September 29, 2012  

(in millions of U.S. dollars)

  $     %     $     %     $     %     $     %  

Revenue

    543.2        100.0        583.8        100.0        1,612.4        100.0        1,733.4        100.0   

Cost of sales

    478.2        88.0        510.6        87.5        1,414.4        87.7        1,504.5        86.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    65.0        12.0        73.2        12.5        198.0        12.3        228.9        13.2   

Selling, general, and administrative expenses

    37.9        7.0