Note 2—Acquisitions

S&D Acquisition

On August 11, 2016 (the “S&D Acquisition Date”), the Company acquired 100% of the outstanding stock of S&D Coffee Holding Company (“Holdings”) and 100% of the outstanding membership interests of Arabica, L.L.C. (“Arabica”) pursuant to a Stock and Membership Interest Purchase Agreement dated August 3, 2016 (the “S&D Acquisition”). Holdings is the parent company of S. & D. Coffee, Inc. (“S&D”), a premium coffee roaster and provider of customized coffee, tea and extract solutions, and Arabica owns real estate that it leases to S&D. The initial purchase price paid by the Company in the S&D Acquisition was $354.1 million on a debt- and cash-free basis. Customary post-closing working capital adjustments were resolved in January 2017 by the payment of $0.5 million from the former owners of S&D to the Company. The S&D Acquisition was funded through a combination of incremental borrowings under the Company’s asset-based lending facility (“ABL facility”) and proceeds from our June 2016 Offering (defined below).

The total consideration paid by Cott in the S&D Acquisition is summarized below:


(in millions of U.S. dollars)
Cash paid to sellers	$	232.1
Cash paid on behalf of sellers for sellers’ transaction expenses		84.2
Cash paid to retire outstanding debt on behalf of sellers		37.8
Working capital settlement		(0.5	)

Total consideration	$	353.6

The S&D Acquisition supports the Company’s strategy to become a more diversified beverage provider across multiple channels and geographies, as well as expanding the Company’s existing coffee and tea categories. The Company has accounted for this transaction as a business combination which requires that assets acquired and liabilities assumed be measured at their acquisition date fair values.

The adjusted purchase price of $353.6 million was allocated to the assets acquired and liabilities assumed based on management’s estimates of their fair values as of the S&D Acquisition Date. The excess of the adjusted purchase price over the aggregate fair values was recorded as goodwill. Measurement period adjustments were recorded during the year ended December 31, 2016, primarily for adjustments per preliminary valuations to certain assets and liabilities existing at the S&D Acquisition Date. These measurement period adjustments did not have a material effect on our results of operations in prior periods. The results of operations of S&D have been included in our operating results since the S&D Acquisition Date.

The table below summarizes the allocation of the purchase price to the fair value of the assets acquired and liabilities assumed in connection with the S&D Acquisition:


(in millions of U.S. dollars)	Acquired Value			Adjustments			As reported at December 31, 2016
Cash	$	1.7		$	—		$	1.7
Accounts receivable		49.8			1.6			51.4
Inventory		61.0			1.5			62.5
Prepaid expenses and other assets		2.3			—			2.3
Property, plant & equipment		94.6			(1.7	)		92.9
Goodwill		127.5			(10.4	)		117.1
Intangible assets		111.9			7.1			119.0
Other assets		2.2			—			2.2
Accounts payable and accrued liabilities		(44.9	)		(1.8	)		(46.7	)
Deferred tax liabilities		(51.5	)		8.2			(43.3	)
Other long-term liabilities		(0.5	)		(5.0	)		(5.5	)

Total	$	354.1		$	(0.5	)	$	353.6

The fair values of acquired property, plant & equipment and deferred taxes are provisional pending validation and receipt of the final valuations for those assets. In addition, consideration for potential loss contingencies, including uncertain tax positions, are still under review.

The amount of revenues and net loss related to the S&D Acquisition included in the Company’s Consolidated Statements of Operations for the period from the S&D Acquisition Date through December 31, 2016 were $228.0 million and $2.8 million, respectively. During the year ended December 31, 2016, the Company incurred $3.5 million of acquisition-related costs associated with the S&D Acquisition, which are included in acquisition and integration expenses in the Consolidated Statements of Operations. In connection with the S&D Acquisition, the Company granted 416,951 common shares to certain S&D employees which were fully vested upon issuance and had an aggregate grant date fair value of approximately $7.1 million.

Eden Acquisition

On August 2, 2016 (the “Eden Acquisition Date”), the Company acquired the sole issued and outstanding share capital of Hydra Dutch Holdings 1 B.V., the indirect parent company of Eden Springs Europe B.V., a leading provider of water and coffee solutions in Europe (“Eden”), pursuant to a Share Purchase Agreement dated June 7, 2016 (the “Eden Acquisition”). The initial purchase price paid by the Company was €517.9 million (U.S. $578.5 million at the exchange rate in effect on the Eden Acquisition Date), which represented the €470.0 million stated purchase price, €17.5 million of cash on hand, estimated working capital of €15.4 million, and other items of €15.0 million, paid at closing in cash. The initial purchase price was subject to adjustments upon the determination of actual working capital, net indebtedness and certain transaction related expenses, and these adjustment were resolved in January 2017 by the payment of €2.0 million (U.S. $2.2 million at the exchange rate in effect on the date of payment) made by the former owners of Eden to the Company. The Eden Acquisition was ultimately funded through a combination of proceeds from the issuance of €450 million (U.S. $474.1 million at the exchange rate in effect on December 31, 2016) of 5.50% senior notes due July 1, 2024 (“2024 Notes”) and cash on hand.

The total consideration paid by Cott in the Eden Acquisition is summarized below:


(in millions of U.S. dollars)
Cash paid to sellers	$	86.5
Cash paid on behalf of sellers to retire outstanding indebtedness		420.2
Cash paid to retire sellers financing payables, net		71.8
Working capital settlement		(2.2	)

Total consideration	$	576.3

The Eden Acquisition supports the Company’s strategy to become a more diversified beverage provider across multiple channels and geographies, as well as the Company’s continuing strategy to acquire higher margin HOD bottled water and coffee and tea categories. The Company has accounted for this transaction as a business combination in accordance with authoritative accounting guidance.

The adjusted purchase price of $576.3 million was allocated to the assets acquired and liabilities assumed based on management’s estimates of their fair values as of the Eden Acquisition Date. The excess of the adjusted purchase price over the aggregate fair values was recorded as goodwill. Measurement period adjustments were recorded during the year ended December 31, 2016, primarily for adjustments per preliminary valuations to certain assets and liabilities existing at the Eden Acquisition Date. These measurement period adjustments did not have a material effect on our results of operations in prior periods. The results of operations of Eden have been included in our operating results since the Eden Acquisition Date.

The table below presents the preliminary purchase price allocation of the estimated acquisition date fair values of the assets acquired and the liabilities assumed:


							As reported at
(in millions of U.S. dollars)	Acquired Value			Adjustments			December 31, 2016
Cash & cash equivalents	$	19.6		$	—		$	19.6
Accounts receivable		104.3			(8.9	)		95.4
Inventories		23.7			(6.0	)		17.7
Prepaid expenses and other current assets		7.3			(1.1	)		6.2
Property, plant & equipment		98.4			8.7			107.1
Goodwill		277.2			22.5			299.7
Intangible assets		219.2			(6.0	)		213.2
Other assets		8.0			(5.2	)		2.8
Deferred tax assets		18.2			1.3			19.5
Current maturities of long-term debt		(2.7	)		—			(2.7	)
Accounts payable and accrued liabilities		(129.5	)		1.2			(128.3	)
Long-term debt		(3.1	)		—			(3.1	)
Deferred tax liabilities		(55.1	)		5.6			(49.5	)
Other long-term liabilities		(7.0	)		(14.3	)		(21.3	)

Total	$	578.5		$	(2.2	)	$	576.3

The fair values of acquired property, plant & equipment, customer relationships, and deferred taxes are provisional pending validation and receipt of the final valuations for those assets. In addition, consideration for potential loss contingencies, including uncertain tax positions, are still under review.

The amount of revenues and net loss related to the Eden Acquisition included in the Company’s Consolidated Statements of Operations for the period from the Eden Acquisition Date through December 31, 2016 were $156.9 million and $14.4 million, respectively. During the year ended December 31, 2016, the Company incurred $13.5 million of acquisition-related costs associated with the Eden Acquisition, which are included in acquisition and integration expenses in the Consolidated Statements of Operations.

Aquaterra Acquisition

On January 4, 2016 (the “Aquaterra Acquisition Date”), the Company acquired 100% of the share capital of Aquaterra Corporation (“Aquaterra”) pursuant to a Share Purchase Agreement dated December 7, 2015 (the “Aquaterra Acquisition”). Aquaterra operates a Canadian direct-to-consumer HOD bottled water and office coffee services business. The aggregate purchase price paid by the Company in the Aquaterra Acquisition was C$61.2 million (U.S. $44.0 million at the exchange rate in effect on the Aquaterra Acquisition Date). The purchase price was paid at closing in cash and was subject to a customary post-closing working capital adjustment. The post-closing adjustment was completed in May 2016 and resulted in the payment of $0.5 million by the former owners of Aquaterra to the Company.

This acquisition supports the Company’s strategy to become a more diversified beverage provider across multiple channels and geographies, as well as the Company’s strategy to acquire higher margin HOD bottled water and coffee and tea services categories. The Company has accounted for this transaction as a business combination in accordance with authoritative accounting guidance.

The adjusted purchase consideration of $44.0 million was allocated to the assets acquired and liabilities assumed based on their fair values as of the Aquaterra Acquisition Date. An allocation of the purchase price has been made to major categories of assets and liabilities based on management’s estimates of their fair values as of the Aquaterra Acquisition Date.

The table below presents the purchase price allocation of the Aquaterra Acquisition Date fair values of the assets acquired and the liabilities assumed and shows the allocation after the post-closing adjustment:


							As reported at
(in millions of U.S. dollars)	Acquired Value			Adjustments			December 31, 2016
Cash	$	1.3		$	—		$	1.3
Accounts receivable		6.2			0.9			7.1
Inventories		2.1			—			2.1
Prepaid expenses and other current assets		1.3			(0.9	)		0.4
Property, plant & equipment		13.4			(1.1	)		12.3
Goodwill		19.2			2.0			21.2
Intangible assets		16.6			(0.8	)		15.8
Other assets		0.8			—			0.8
Accounts payable and accrued liabilities		(15.8	)		(0.5	)		(16.3	)
Long-term debt		(0.3	)		(0.1	)		(0.4	)
Other long-term liabilities		(0.3	)		—			(0.3	)

Total	$	44.5		$	(0.5	)	$	44.0

The amount of revenues and net income related to the Aquaterra Acquisition included in the Company’s Consolidated Statements of Operations for the period from the Aquaterra Acquisition Date through December 31, 2016 were $61.2 million and $1.1 million, respectively. During the year ended December 31, 2016, the Company incurred $1.3 million of acquisition-related costs associated with the Aquaterra Acquisition, which are included in acquisition and integration expenses in the Consolidated Statements of Operations.

DSS Acquisition

On December 12, 2014 (the “DSS Acquisition Date”), the Company completed the acquisition of DSS Group, Inc. (“DSS Group”), parent company to DS Services of America, Inc., a leading bottled water and coffee direct-to-consumer services provider in the United States (the “DSS Acquisition”). The DSS Acquisition was consummated pursuant to an Agreement and Plan of Merger (the “DSS Merger Agreement”) dated November 6, 2014. Aggregate consideration was approximately $1.246 billion paid through a combination of incremental borrowings under the ABL facility of $180.0 million, the issuance of $625.0 million of our 6.75% senior notes due January 1, 2020, assumption of existing $350.0 million senior notes due 2021 originally issued by DSS, the issuance of Series A Convertible First Preferred Shares (the “Convertible Preferred Shares”), having an aggregate value of approximately $116.1 million and Series B Non-Convertible First Preferred Shares (the “Non-Convertible Preferred Shares” and together with the Convertible Preferred Shares, the “Preferred Shares”), having an aggregate value of approximately $32.7 million. Pursuant to the terms and conditions set forth in the Merger Agreement, a portion of the aggregate consideration was held in escrow to secure the indemnification obligations of DSS’s former security holders under the Merger Agreement. The Company amended its existing ABL facility in connection with the acquisition to increase the amount of borrowings available thereunder.

The total cash and stock consideration paid by us in the DSS Acquisition is summarized below:


(in millions of U.S. dollars)
Cash paid to sellers	$	449.7
Working capital adjustment		11.4
Cash paid on behalf of sellers for sellers expenses		25.3
Cash paid to retire term loan on behalf of sellers		317.3
Convertible Preferred Shares		116.1
Non-Convertible Preferred Shares		32.7

Total cash and stock consideration	$	952.5

The estimated merger consideration was subject to adjustment upon the determination of actual working capital, net indebtedness and certain transaction related expenses, which adjustment was resolved in July 2015 by the payment by the Company of $11.4 million to the former security holders of DSS.

Our primary strategic reasons for the DSS Acquisition were to accelerate Cott’s acquisition based diversification outside of CSDs and shelf stable juices, broaden our distribution platform by adding a national direct-to-consumer distribution channel and extend our beverage portfolio into new and growing markets, including home and office bottled water delivery services, office coffee services and filtration services, while creating opportunities for revenue, cost synergies and growth prospects.

The Company has accounted for this transaction as a business combination in accordance with authoritative accounting guidance. The purchase price consideration of $952.5 million was allocated to the assets acquired and liabilities assumed based on management’s estimates of their fair values as of the DSS Acquisition Date. The excess of the purchase price over the aggregate fair values was recorded as goodwill. Measurement period adjustments were recorded during the year ended January 2, 2016, primarily for provisional adjustments to certain assets and liabilities existing at the DSS Acquisition Date. Included as part of these adjustments to the initial purchase price allocation is the correction of $6.2 million of certain balance sheet classification errors previously identified at January 3, 2015. The results of operations of DSS have been included in our operating results beginning as of the DSS Acquisition Date.

The following table summarizes the allocation of the purchase price to the fair value of the assets acquired and liabilities assumed in connection with the DSS Acquisition.


(in millions of U.S. dollars)	Acquired Value
Cash and cash equivalents	$	74.5
Accounts receivable		102.6
Inventories		46.4
Prepaid expenses and other current assets		8.8
Deferred income taxes		3.7
Property, plant & equipment		390.0
Goodwill		574.4
Intangible assets		409.0
Other assets		25.0
Accounts payable and accrued liabilities		(118.5	)
Long-term debt		(406.0	)
Deferred income tax liabilities		(127.9	)
Other long-term liabilities		(29.5	)

Total	$	952.5

The amount of revenues and net loss related to the DSS Acquisition included in the Company’s Consolidated Statements of Operations for the period from the DSS Acquisition Date through January 3, 2015 were $28.7 million and $2.8 million, respectively. The Company recognized $35.9 million of acquisition related costs associated with the DSS Acquisition that were expensed during 2014. These costs are included in acquisition and integration expenses on the Consolidated Statements of Operations. These costs do not include financing fees related to the Preferred Shares financing, which were approximately $0.4 million. The Preferred Shares issuance costs were adjusted to retained earnings.

Aimia Acquisition

On May 30, 2014 (the “Aimia Acquisition Date”), our Cott U.K. reporting segment acquired 100% of the share capital of Aimia Foods Holdings Limited (the “Aimia Acquisition”), which includes its operating subsidiary company, Aimia Foods Limited (together referred to as “Aimia”) pursuant to a Share Purchase Agreement dated May 30, 2014. Aimia produces and distributes hot chocolate, coffee and powdered beverages primarily through food service, vending and retail channels, and produces hot and cold cereal products on a contract manufacturing basis. The aggregate purchase price for the Aimia Acquisition was £52.1 million (U.S. $87.6 million) paid in cash, which included a payment for estimated closing balance sheet working capital, £19.9 million (U.S. $33.5 million) in deferred consideration paid in September 2014, and aggregate contingent consideration of up to £16.0 million, which was payable upon the achievement of certain measures related to Aimia’s performance during the twelve months ended July 1, 2016. The aggregate contingent consideration was £12.0 million, offset by an existing receivable of £3.9 million due to the Company from the former owners of Aimia, for a final total cash payment of £8.1 million (U.S. $10.8 million at the exchange rate in effect on the date of payment) that was paid during the third quarter of 2016. The closing payment, deferred consideration payment and contingent consideration payment were funded from ABL borrowings and available cash.

The total consideration paid by us for the Aimia Acquisition is summarized below:


(in millions of U.S. dollars)
Cash paid to sellers	$	80.4
Deferred consideration		33.5
Contingent consideration ¹		17.9
Working capital payment		7.2

Total consideration	$	139.0

^1.	Represents the estimated present value of the contingent consideration based on probability of achievement of performance targets recorded at fair value.

The Aimia Acquisition supports the Company’s strategy to diversify Cott’s product portfolio, packaging formats, channel mix, and enhance our customer offering and growth prospects.

The Company has accounted for this transaction as a business combination in accordance with authoritative accounting guidance. The purchase price consideration of $139.0 million was allocated to the assets acquired and liabilities assumed based on management’s estimates of their fair values as of the Aimia Acquisition Date. Identified intangible assets, goodwill and property, plant and equipment were recorded at their estimated fair values. The results of operations of Aimia have been included in our operating results beginning as of the Aimia Acquisition Date. We allocated the total purchase price 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 following table summarizes the allocation of the purchase price to the fair value of the assets acquired and liabilities assumed in connection with the Aimia Acquisition.


(in millions of U.S. dollars)	Acquired Value
Cash	$	9.5
Accounts receivable		11.0
Inventories		9.6
Prepaid expenses and other assets		1.9
Property, plant & equipment		10.9
Goodwill		54.5
Intangible assets		80.9
Other assets		5.3
Accounts payable and accrued liabilities		(27.4	)
Deferred tax liabilities		(17.2	)

Total	$	139.0

The amount of revenues and net income related to the Aimia Acquisition included in the Company’s Consolidated Statements of Operations for the period from the Aimia Acquisition Date through January 3, 2015 were $62.3 million and $2.3 million, respectively. The Company recognized $2.2 million of acquisition related costs associated with the Aimia Acquisition that were expensed during the fiscal year 2014. These costs are included in the acquisition and integration expenses on the Consolidated Statements of Operations.

Intangible Assets

In our determination of the estimated fair value of intangible assets, we consider, among other factors, the best use of acquired assets, analysis of historical financial performance and estimates of future performance of the acquired business’ products. The estimated fair values of identified intangible assets are calculated considering both market participant assumptions, using an income approach as well as estimates and assumptions provided by Cott management and management of the acquired business.

The estimated fair value of customer relationships represent future after-tax discounted cash flows that will be derived from sales to existing customers of the acquired business as of the date of acquisition.

The estimated fair value of 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.

The estimated fair value of non-competition agreements represent the future after-tax discounted cash flows that are expected to be retained by the acquired business as a result of preventing certain employees or prior owners from competing with us in the specified restricted territories for a period of time subsequent to the date of acquisition or the date of termination of their employment with Cott, as the case may be.

S&D Acquisition

The following table sets forth the components of identified intangible assets associated with the S&D Acquisition and their estimated weighted average useful lives:


			Weighted Average
	Estimated Fair		Estimated
(in millions of U.S. dollars)	Market Value		Useful Life
Customer relationships	$	113.7		17 years
Non-competition agreements		3.0		3 years
Software		2.3		2 years

Total	$	119.0

Eden Acquisition

The following table sets forth the components of identified intangible assets associated with the Eden Acquisition and their estimated weighted average useful lives:


	Estimated Fair		Estimated
(in millions of U.S. dollars)	Market Value		Useful Life
Customer relationships	$	134.1		15 years
Trade names		72.7		Indefinite
Software		6.4		3-5 years

Total	$	213.2

Aquaterra Acquisition

The following table sets forth the components of identified intangible assets associated with the Aquaterra Acquisition and their estimated weighted average useful lives:


	Estimated Fair		Estimated
(in millions of U.S. dollars)	Market Value		Useful Life
Customer relationships	$	11.4		12 years
Trademarks and trade names		4.4		Indefinite

Total	$	15.8

DSS Acquisition

The following table sets forth the components of identified intangible assets associated with the DSS Acquisition and their estimated weighted average useful lives:


	As Reported at January 3, 2015
	Estimated Fair		Estimated
(in millions of U.S. dollars)	Market Value		Useful Life
Customer relationships	$	219.8		16 years
Trademarks and trade names		183.1		Indefinite
Non-competition agreements		0.4		5 years
Software		5.7		3 years

Total	$	409.0

Aimia Acquisition

The following table sets forth the components of identified intangible assets associated with the Aimia Acquisition and their estimated weighted average useful lives:


	As Reported at January 3, 2015
	Estimated Fair		Estimated
(in millions of U.S. dollars)	Market Value		Useful Life
Customer relationships	$	76.5		15 years
Trademarks and trade names		1.5		20 years
Non-competition agreements		2.9		5 years

Total	$	80.9

Goodwill

S&D Acquisition

The principal factor that resulted in recognition of goodwill in the S&D Acquisition was that the purchase price 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. The goodwill recognized as part of the S&D Acquisition was allocated to the Water & Coffee Solutions reporting segment, none of which is expected to be tax deductible.

Eden Acquisition

The principal factor that resulted in recognition of goodwill in the Eden Acquisition was that the purchase price 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. The goodwill recognized as part of the Eden Acquisition was allocated to the Water & Coffee Solutions reporting segment, a portion of which is expected to be tax deductible.

Aquaterra Acquisition

The principal factor that resulted in recognition of goodwill in the Aquaterra Acquisition was that the purchase price 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. The goodwill recognized as part of the Aquaterra Acquisition was allocated to the Water & Coffee Solutions reporting segment, none of which is expected to be tax deductible.

DSS Acquisition

The principal factor that resulted in recognition of goodwill in the DSS Acquisition was that the purchase price 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. The goodwill recognized as part of the DSS Acquisition was allocated to the Water & Coffee Solutions reporting segment, a portion of which is expected to be tax deductible.

Aimia Acquisition

The principal factor that resulted in recognition of goodwill in the Aimia Acquisition was that the purchase price 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. The goodwill recognized as part of the Aimia Acquisition was allocated to the Cott U.K. reporting segment, none of which is expected to be tax deductible.

Supplemental Pro Forma Data (unaudited)

The following unaudited pro forma financial information for the years ended December 31, 2016, January 2, 2016 and January 3, 2015, represent the combined results of operations as if the S&D Acquisition and Eden Acquisition had occurred on January 4, 2015 and the DSS Acquisition and Aimia Acquisition on December 30, 2012. Unaudited pro forma consolidated results of operations for the Aquaterra Acquisition were not included in the combined results of our operations for the years ended December 31, 2016 and January 2, 2016 as the Company determined they were immaterial. The unaudited pro forma financial information results reflect certain adjustments related to these acquisitions such as increased amortization expense on acquired intangible assets resulting from the preliminary fair valuation of assets acquired. The unaudited pro forma financial information does not necessarily reflect the results of operations that would have occurred had we operated as a single entity during such periods.


	For the Year Ended
(in millions of U.S. dollars, except per share amounts)	December 31, 2016			January 2, 2016			January 3, 2015
Revenue	$	3,798.0		$	3,914.1		$	3,099.1
Net loss attributed to Cott Corporation		(58.2	)		(47.8	)		(8.1	)
Net loss per common share attributed to Cott Corporation, diluted	$	(0.43	)	$	(0.40	)	$	(0.08	)