10-Q 1 d415101d10q.htm 10-Q 10-Q
Table of Contents

 

 

United States

Securities and Exchange Commission

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended: July 1, 2017

 

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, CANADA

  L4V 1H6

4221 WEST BOY SCOUT BOULEVARD

TAMPA, FLORIDA, UNITED STATES

  33607
(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  ☒    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  ☒    No  ☐

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

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☐  (Do not check if a smaller reporting company)    Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

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

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 August 3, 2017

Common Shares, no par value per share   139,067,623 shares

 

 

 


Table of Contents

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION

     3  

Item 1. Financial Statements (unaudited)

     3  

Consolidated Statements of Operations

     3  

Condensed Consolidated Statements of Comprehensive Loss

     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

     47  

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     61  

Item 4. Controls and Procedures

     61  

PART II. OTHER INFORMATION

     61  

Item 1. Legal Proceedings

     61  

Item 1A. Risk Factors

     61  

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     62  

Item 6. Exhibits

     62  

SIGNATURES

     63  

 

2


Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

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 Six Months Ended  
     July 1, 2017     July 2, 2016     July 1, 2017     July 2, 2016  

Revenue, net

   $ 1,014.1     $ 765.0     $ 1,910.5     $ 1,463.4  

Cost of sales

     671.8       512.4       1,257.6       996.8  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     342.3       252.6       652.9       466.6  

Selling, general and administrative expenses

     299.7       202.1       590.8       399.1  

Loss on disposal of property, plant & equipment, net

     4.0       2.2       5.4       3.1  

Acquisition and integration expenses

     8.0       11.7       15.3       13.1  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     30.6       36.6       41.4       51.3  

Other expense, net

     18.2       3.0       26.6       0.8  

Interest expense, net

     33.3       27.0       69.0       54.8  
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

     (20.9     6.6       (54.2     (4.3

Income tax expense (benefit)

     1.4       (2.3     2.5       (11.8
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   $ (22.3   $ 8.9     $ (56.7   $ 7.5  

Less: Net income attributable to non-controlling interests

     2.3       1.5       4.3       2.9  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributed to Cott Corporation

   $ (24.6   $ 7.4     $ (61.0   $ 4.6  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income per common share attributed to Cott Corporation

        

Basic

   $ (0.18   $ 0.06     $ (0.44   $ 0.04  

Diluted

   $ (0.18   $ 0.06     $ (0.44   $ 0.04  

Weighted average common shares outstanding (in thousands)

        

Basic

     139,000       123,239       138,867       118,253  

Diluted

     139,000       124,180       138,867       119,038  

Dividends declared per common share

   $ 0.06     $ 0.06     $ 0.12     $ 0.12  

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

 

3


Table of Contents

Cott Corporation

Condensed Consolidated Statements of Comprehensive Loss

(in millions of U.S. dollars)

Unaudited

 

     For the Three Months Ended     For the Six Months Ended  
     July 1, 2017     July 2, 2016     July 1, 2017     July 2, 2016  

Net (loss) income

   $ (22.3   $ 8.9     $ (56.7   $ 7.5  

Other comprehensive income (loss):

        

Currency translation adjustment

     12.5       (14.7     22.2       (17.9

Pension benefit plan, net of tax1

     (0.3     0.1       (0.2     0.2  

(Loss) gain on derivative instruments, net of tax2

     (3.4     2.6       (1.0     3.1  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     8.8       (12.0     21.0       (14.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

   $ (13.5   $ (3.1   $ (35.7   $ (7.1

Less: Comprehensive income attributable to non-controlling interests

     2.3       1.5       4.3       2.9  
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss attributed to Cott Corporation

   $ (15.8   $ (4.6   $ (40.0   $ (10.0
  

 

 

   

 

 

   

 

 

   

 

 

 

  

 

1.  Net of the effect of $0.2 million and $0.3 million tax expense for the three and six months ended July 1, 2017, respectively, and $0.1 million and $0.2 million tax benefit for the three and six months ended July 2, 2016, respectively.
2.  Net of the effect of $1.2 million and $1.4 million tax benefit for the three and six months ended July 2, 2016, respectively.

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

 

4


Table of Contents

Cott Corporation

Consolidated Balance Sheets

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

Unaudited

 

     July 1, 2017     December 31, 2016  

ASSETS

    

Current assets

    

Cash & cash equivalents

   $ 123.2     $ 118.1  

Accounts receivable, net of allowance of $9.3 ($8.8 as of December 31, 2016)

     486.7       403.9  

Inventories

     324.6       301.4  

Prepaid expenses and other current assets

     37.6       29.8  
  

 

 

   

 

 

 

Total current assets

     972.1       853.2  

Property, plant & equipment, net

     935.8       929.9  

Goodwill

     1,217.6       1,175.4  

Intangible assets, net

     951.3       939.7  

Deferred tax assets

     1.5       0.2  

Other long-term assets, net

     39.3       41.3  
  

 

 

   

 

 

 

Total assets

   $ 4,117.6     $ 3,939.7  
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

    

Current liabilities

    

Short-term borrowings

   $ 255.0     $ 207.0  

Current maturities of long-term debt

     6.6       5.7  

Accounts payable and accrued liabilities

     711.3       597.4  
  

 

 

   

 

 

 

Total current liabilities

     972.9       810.1  

Long-term debt

     2,038.2       1,988.0  

Deferred tax liabilities

     164.1       157.8  

Other long-term liabilities

     112.9       110.0  
  

 

 

   

 

 

 

Total liabilities

     3,288.1       3,065.9  

Equity

    

Common shares, no par - 139,031,856 (December 31, 2016 - 138,591,100) shares issued

     912.0       909.3  

Additional paid-in-capital

     61.4       54.2  

(Accumulated deficit) retained earnings

     (54.8     22.9  

Accumulated other comprehensive loss

     (96.9     (117.9
  

 

 

   

 

 

 

Total Cott Corporation equity

     821.7       868.5  

Non-controlling interests

     7.8       5.3  
  

 

 

   

 

 

 

Total equity

     829.5       873.8  
  

 

 

   

 

 

 

Total liabilities and equity

   $ 4,117.6     $ 3,939.7  
  

 

 

   

 

 

 

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

 

5


Table of Contents

Cott Corporation

Consolidated Statements of Cash Flows

(in millions of U.S. dollars)

Unaudited

 

     For the Three Months Ended     For the Six Months Ended  
     July 1, 2017     July 2, 2016     July 1, 2017     July 2, 2016  

Operating Activities

        

Net (loss) income

   $ (22.3   $ 8.9     $ (56.7   $ 7.5  

Depreciation & amortization

     69.7       53.5       134.1       106.0  

Amortization of financing fees

     1.3       1.3       2.9       2.5  

Amortization of senior notes premium

     (1.2     (1.5     (2.8     (2.9

Share-based compensation expense

     6.1       3.8       10.9       6.2  

Benefit for deferred income taxes

     (0.2     (2.1     (0.7     (13.4

Unrealized commodity hedging loss (gain), net

     0.4       —         (1.5     —    

Loss on extinguishment of debt, net

     18.6       —         28.7       —    

Loss on disposal of property, plant & equipment, net

     4.0       2.2       5.4       3.1  

Other non-cash items

     (2.8     2.6       (4.8     0.9  

Change in operating assets liabilities, net of acquisitions:

        

Accounts receivable

     (49.4     (25.7     (63.4     (47.4

Inventories

     8.9       4.6       (17.7     1.3  

Prepaid expenses and other current assets

     3.1       (3.4     (5.7     (7.2

Other assets

     4.0       (1.2     4.5       1.2  

Accounts payable and accrued liabilities and other liabilities

     64.7       44.6       68.0       11.1  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     104.9       87.6       101.2       68.9  
  

 

 

   

 

 

   

 

 

   

 

 

 

Investing Activities

        

Acquisitions, net of cash received

     (39.2     (1.8     (44.2     (46.2

Additions to property, plant & equipment

     (40.4     (33.2     (81.0     (62.7

Additions to intangible assets

     (3.0     (1.0     (5.8     (3.3

Proceeds from sale of property, plant & equipment and sale-leasebacks

     14.9       0.2       19.0       2.9  

Other investing activities

     0.2       (2.8     0.4       (2.8
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (67.5     (38.6     (111.6     (112.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Financing Activities

        

Payments of long-term debt

     (524.5     (0.4     (727.8     (1.5

Issuance of long-term debt

     —         —         750.0       —    

Borrowings under ABL

     685.7       123.9       1,458.6       621.1  

Payments under ABL

     (576.6     (187.7     (1,410.8     (746.0

Premiums and costs paid upon extinguishment of long-term debt

     (22.0     —         (29.2     —    

Financing fees

     (1.7     —         (11.1     —    

Distributions to non-controlling interests

     (0.9     (1.0     (1.8     (3.3

Issuance of common shares

     0.3       220.1       0.8       364.2  

Common shares repurchased and cancelled

     —         —         (1.8     (1.1

Dividends paid to common shareowners

     (8.3     (7.4     (16.7     (14.7

Other financing activities

     0.4       —         0.9       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (447.6     147.5       11.1       218.7  
  

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash

     2.9       (2.1     4.4       (3.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash & cash equivalents

     (407.3     194.4       5.1       172.4  

Cash & cash equivalents, beginning of period

     530.5       55.1       118.1       77.1  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash & cash equivalents, end of period

   $ 123.2     $ 249.5     $ 123.2     $ 249.5  
  

 

 

   

 

 

   

 

 

   

 

 

 

Supplemental Non-cash Investing and Financing Activities:

        

Long-term debt funded to escrow

   $ —       $ 498.7     $ —       $ 498.7  

Accrued deferred financing fees

     —         9.8       0.6       9.8  

Additions to property, plant & equipment through accounts payable and accrued liabilities

     11.2       10.2       11.5       11.4  

Supplemental Disclosures of Cash Flow Information:

        

Cash paid for interest

   $ 24.5     $ 36.1     $ 46.7     $ 55.3  

Cash paid (received) for income taxes, net

     1.6       (0.1     2.3       4.1  

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                 Retained     Accumulated              
     Common           Additional     Earnings     Other     Non-        
     Shares     Common     Paid-in-     (Accumulated     Comprehensive     Controlling     Total  
     (In thousands)     Shares     Capital     Deficit)     (Loss) Income     Interests     Equity  

Balance at January 2, 2016

     109,695     $ 534.7     $ 51.2     $ 129.6     $ (76.2   $ 6.6     $ 645.9  

Cumulative effect adjustment

     —         —         —         2.8       —         —         2.8  

Common shares repurchased and cancelled

     (101     (1.1     —         —         —         —         (1.1

Common shares issued—Equity Incentive Plan

     353       2.7       (2.7     —         —         —         —    

Common shares issued—Equity issuance

     27,853       368.0       —         —         —         —         368.0  

Common shares issued—Dividend Reinvestment Plan

     9       0.1       —         —         —         —         0.1  

Common shares issued—Employee Stock Purchase Plan

     52       0.5       (0.1     —         —         —         0.4  

Share-based compensation

     —         —         6.2       —         —         —         6.2  

Common shares dividends

     —         —         —         (14.7     —         —         (14.7

Distributions to non-controlling interests

     —         —         —         —         —         (3.3     (3.3

Comprehensive (loss) income

              

Currency translation adjustment

     —         —         —         —         (17.9     —         (17.9

Pension benefit plan, net of tax

     —         —         —         —         0.2       —         0.2  

Unrealized gain on derivative instruments, net of tax

     —         —         —         —         3.1       —         3.1  

Net income

     —         —         —         4.6       —         2.9       7.5  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at July 2, 2016

     137,861     $ 904.9     $ 54.6     $ 122.3     $ (90.8   $ 6.2     $ 997.2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2016

     138,591     $ 909.3     $ 54.2     $ 22.9     $ (117.9   $ 5.3     $ 873.8  

Common shares repurchased and cancelled

     (151     (1.8     —         —         —         —         (1.8

Common shares issued—Equity Incentive Plan

     496       3.6       (3.6     —         —         —         —    

Common shares issued—Dividend Reinvestment Plan

     22       0.3       —         —         —         —         0.3  

Common shares issued—Employee Stock Purchase Plan

     74       0.6       (0.1     —         —         —         0.5  

Share-based compensation

     —         —         10.9       —         —         —         10.9  

Common shares dividends

     —         —         —         (16.7     —         —         (16.7

Distributions to non-controlling interests

     —         —         —         —         —         (1.8     (1.8

Comprehensive income (loss)

              

Currency translation adjustment

     —         —         —         —         22.2       —         22.2  

Pension benefit plan, net of tax

     —         —         —         —         (0.2     —         (0.2

Loss on derivative instruments, net of tax

     —         —         —         —         (1.0     —         (1.0

Net (loss) income

     —         —         —         (61.0     —         4.3       (56.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at July 1, 2017

     139,032     $ 912.0     $ 61.4     $ (54.8   $ (96.9   $ 7.8     $ 829.5  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

As used herein, “Cott,” “the Company,” “our Company,” “Cott Corporation,” “we,” “us,” or “our” refers to Cott Corporation, together with its consolidated subsidiaries. Cott is a diversified beverage company with a leading volume-based national presence in the North America and European home and office delivery (“HOD”) industry for bottled water, a leader in custom coffee roasting and blending of iced tea for the U.S. foodservice industry, and a leader in the production of beverages on behalf of retailers, brand owners and distributors. Our platform reaches over 2.3 million customers or delivery points across North America and Europe supported by strategically located sales and distribution facilities and fleets, as well as wholesalers and distributors. This enables us to efficiently service residences, businesses, restaurant chains, hotels and motels, small and large retailers, and healthcare facilities.

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. In the opinion of management, all adjustments (consisting of normal recurring adjustments) 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. The consolidated balance sheet as of December 31, 2016 included herein was derived from the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (“2016 Annual Report”). This Quarterly Report on Form 10-Q should be read in conjunction with the annual audited consolidated financial statements and accompanying notes in our 2016 Annual Report. 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 GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

Changes in Presentation

Certain prior period amounts have been reclassified to conform to current period presentation in the accompanying consolidated statements of cash flows. These reclassifications had no effect on net cash provided by operating activities.

Significant Accounting Policies

Included in Note 1 of the 2016 Annual Report is a summary of the Company’s significant accounting policies. Provided below is a summary of additional accounting policies that are significant to the financial results of the Company.

Cost of sales

We record costs associated with the manufacturing of our products in costs of sales. Shipping and handling costs incurred to store, prepare and move products between production facilities or from production facilities to branch locations or storage facilities are recorded in cost of sales. Costs incurred in shipment of products from our production facilities to customer locations are also reflected in cost of sales, with the exception of shipping and handling costs incurred to deliver products from our Water & Coffee Solutions reporting segment branch locations to the end-user consumer of those products, which are recorded in selling, general and administrative (“SG&A”) expenses. These shipping and handling costs were $109.5 million and $215.8 million for the three and six months ended July 1, 2017, respectively, and $78.8 million and $156.6 million for the three and six months ended July 2, 2016, respectively. Finished goods inventory costs include the cost of direct labor and materials and the applicable share of overhead expense chargeable to production.

 

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Goodwill

Goodwill represents the excess purchase price of acquired businesses over the fair value of the net assets acquired. Goodwill is not amortized, but instead is tested for impairment at least annually. The following table summarizes our goodwill on a reporting segment basis as of July 1, 2017:

 

     Reporting Segment         
     Water &      Cott                       
     Coffee      North      Cott                

(in millions of U.S. dollars)

   Solutions      America      U.K.      All Other      Total  

Balance December 31, 2016

   $ 1,003.6      $ 120.5      $ 46.8      $ 4.5      $ 1,175.4  

Goodwill acquired during the year

     5.1        6.8        1.3        —          13.2  

Adjustments1

     1.5        —          —          —          1.5  

Foreign exchange

     23.8        0.8        2.9        —          27.5  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance July 1, 2017

   $ 1,034.0      $ 128.1      $ 51.0      $ 4.5      $ 1,217.6  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

1.  During the six months ended July 1, 2017, we recorded adjustments to goodwill allocated to the Water & Coffee Solutions segment in connection with the acquisitions of S&D and Eden (see Note 2 to the consolidated financial statements).

Recently adopted accounting pronouncements

In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2015-11 – Inventory (Topic 330) to simplify the accounting for inventory. The guidance requires entities to measure most inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The Company adopted the provisions of this guidance effective January 1, 2017, and applied it prospectively to all periods presented. The adoption of this standard did not have a material impact on the Company’s financial statements.

In March 2016, the FASB issued ASU 2016-09—Compensation – Stock Compensation (Topic 718). We elected to early adopt this standard in the fourth quarter of 2016, effective as of the beginning of the Company’s 2016 fiscal year. Amendments requiring the recognition of excess tax benefits and tax deficiencies within the consolidated statements of operations were adopted prospectively and resulted in an increase of $0.5 million in income tax benefit, net income, and net income attributed to Cott Corporation and an increase of $0.01 in net income per common share attributed to Cott Corporation within the consolidated statement of operations for the six months ended July 2, 2016.

Recently issued accounting pronouncements

Changes to GAAP are established by the FASB in the form of ASUs or the issuance of new standards to the FASB’s Accounting Standards Codification (“ASC”). The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial statements.

Update ASU 2014-09 – Revenue from Contracts with Customers (Topic 606)

In May 2014, the FASB amended its guidance regarding revenue recognition and created a new Topic 606, Revenue from Contracts with Customers. The objectives for creating Topic 606 were to remove inconsistencies and weaknesses in revenue recognition, provide a more robust framework for addressing revenue issues, provide more useful information to users of the financial statements through improved disclosure requirements, simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer, and improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve the core principle, an entity should apply the following steps: 1) identify the contract(s) with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations in the contract; and 5) recognize revenue when (or as) the entity satisfies a performance obligation. For public entities, the amendments are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The amendments may be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the amendment recognized at the date of initial application.

 

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During the first half of 2017, we hired a third-party consultant to assist in the adoption of this standard, developed a scoping phase project plan, identified an inventory of revenue streams and are currently in the contract review phase. We are continuing our progress in the contract review phase and are identifying gaps between our current revenue recognition policies and the new standard so that we can quantify and assess the impact to our consolidated financial statements.

Update ASU 2016-02 – Leases (Topic 842)

In February 2016, the FASB issued an update to its guidance on lease accounting. This update revises accounting for operating leases by a lessee, among other changes, and requires a lessee to recognize a liability to make lease payments and an asset representing its right to use the underlying asset for the lease term in the balance sheet. The distinction between finance and operating leases has not changed and the update does not significantly change the effect of finance and operating leases on the consolidated statements of operations and the consolidated statements of cash flows. Additionally, this update requires both qualitative and specific quantitative disclosures. For public entities, the amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. At adoption, this update will be applied using a modified retrospective approach. We are currently assessing the impact of adoption of this standard on our consolidated financial statements.

Update ASU 2016-13 – Financial Instruments—Credit Losses (Topic 326)

In June 2016, the FASB amended its guidance to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Entities will now use forward-looking information to better form their credit loss estimates. The amended guidance also requires enhanced disclosures to help financial statement users better understand significant estimates and judgements used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption will be permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. This guidance will be applied using a prospective or modified retrospective transition method, depending on the area covered in this update. We are currently assessing the impact of adoption of this standard on our consolidated financial statements.

Update ASU 2017-01 – Business Combinations (Topic 805)

In January 2017, the FASB amended its guidance regarding business combinations. The amendment clarified the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments provide an analysis of fair value of assets acquired to determine when a set is not a business, and uses more stringent criteria related to inputs, substantive process, and outputs to determine if a business exists. The amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The amendments in this update should be applied prospectively on or after the effective date with no requirement for disclosures at transition. We are currently assessing the impact of adoption of this standard on our consolidated financial statements.

Update ASU 2017-04 – Intangibles—Goodwill and Other (Topic 350)

In January 2017, the FASB amended its guidance regarding goodwill impairment. The amendments remove certain conditions of the goodwill impairment test and simplify the computation of impairment. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted for any tests performed after January 1, 2017. The amendments in this update should be applied prospectively, with disclosure required as to the nature of and reason for the change in accounting principle upon transition. We are currently assessing the impact of adoption of this standard on our consolidated financial statements.

 

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Update ASU 2017-07 – Compensation—Retirement Benefits (Topic 715)

In March 2017, the FASB issued an update to its guidance on presentation of net periodic pension cost and net periodic post-retirement pension cost, and requires the service cost component to be presented in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. The amendments in this update also allow only the service cost component to be eligible for capitalization when applicable. For public entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. At adoption, this update will be applied retrospectively for the presentation of the service cost component and other components of net periodic pension cost and net periodic post-retirement benefit cost in the income statement and prospectively, on or after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic post-retirement benefit in assets. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. We are currently assessing the impact of adoption of this standard on our consolidated financial statements.

Update ASU 2017-08 – Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20)

In March 2017, the FASB amended its guidance on accounting for debt securities. The amendments shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public entities, the amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. At adoption, this update will be applied using a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. We are currently assessing the impact of adoption of this standard on our consolidated financial statements.

Update ASU 2017-09 – Stock Compensation – Scope of Modification Accounting (Topic 718)

In May 2017, the FASB amended its guidance regarding the scope of modification accounting for share-based compensation arrangements. The amendments provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. For public entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in this update should be applied prospectively to an award modified on or after the adoption date. We are currently assessing the impact of adoption of this standard on our consolidated financial statements.

Note 2—Acquisitions

S&D Acquisition

On August 11, 2016, the Company acquired S. & D. Coffee, Inc. (“S&D”), a premium coffee roaster and provider of customized coffee, tea and extract solutions pursuant to a Stock and Membership Interest Purchase Agreement dated August 3, 2016 (the “S&D Acquisition”). The purchase price consideration of $353.6 million was allocated to the assets acquired and liabilities assumed based on their fair values as of the acquisition date. Measurement period adjustments recorded during the six months ended July 1, 2017 included adjustments to property, plant & equipment and a related adjustment to deferred taxes based on the results of the validation procedures performed as well as an adjustment to income taxes payable existing at the acquisition date. The measurement period adjustments did not have a material effect on our results of operations in prior periods.

 

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The table below summarizes the originally reported estimated acquisition date fair values, measurement period adjustments recorded and the final purchase price allocation of the assets acquired and liabilities assumed:

 

            Measurement         
     Originally      Period         

(in millions of U.S. dollars)

   Reported      Adjustments      Acquired Value  

Cash

   $ 1.7      $ —        $ 1.7  

Accounts receivable

     51.4        —          51.4  

Inventory

     62.5        —          62.5  

Prepaid expenses and other assets

     2.3        —          2.3  

Property, plant & equipment

     92.9        (0.7      92.2  

Goodwill

     117.1        0.7        117.8  

Intangible assets

     119.0        —          119.0  

Other assets

     2.2        —          2.2  

Accounts payable and accrued liabilities

     (46.7      (0.2      (46.9

Deferred tax liabilities

     (43.3      0.2        (43.1

Other long-term liabilities

     (5.5      —          (5.5
  

 

 

    

 

 

    

 

 

 

Total

   $ 353.6      $ —        $ 353.6  
  

 

 

    

 

 

    

 

 

 

Eden Acquisition

On August 2, 2016, the Company acquired 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 purchase price consideration of €515.9 million (U.S. $576.3 million at the exchange rate in effect on the acquisition date), was allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. Measurement period adjustments recorded during the six months ended July 1, 2017 primarily related to the on-going analysis of transfer pricing issues and various deferred tax adjustments related to the preliminary valuations. The measurement period adjustments did not have a material effect on our results of operations in prior periods.

The table below summarizes the originally reported estimated acquisition date fair values, measurement period adjustments recorded and the preliminary purchase price allocation of the assets acquired and liabilities assumed:

 

            Measurement         
     Originally      Period         

(in millions of U.S. dollars)

   Reported      Adjustments      Preliminary  

Cash & cash equivalents

   $ 19.6      $ —        $ 19.6  

Accounts receivable

     95.4        —          95.4  

Inventories

     17.7        —          17.7  

Prepaid expenses and other current assets

     6.2        —          6.2  

Property, plant & equipment

     107.1        —          107.1  

Goodwill

     299.7        0.8        300.5  

Intangible assets

     213.2        —          213.2  

Other assets

     2.8        —          2.8  

Deferred tax assets

     19.5        —          19.5  

Current maturities of long-term debt

     (2.7      —          (2.7

Accounts payable and accrued liabilities

     (128.3      —          (128.3

Long-term debt

     (3.1      —          (3.1

Deferred tax liabilities

     (49.5      1.0        (48.5

Other long-term liabilities

     (21.3      (1.8      (23.1
  

 

 

    

 

 

    

 

 

 

Total

   $ 576.3      $ —        $ 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.

 

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Supplemental Pro Forma Data (unaudited)

The following unaudited pro forma financial information for the three and six months ended July 2, 2016, represent the combined results of operations as if the S&D Acquisition and Eden Acquisition had occurred on January 4, 2015. Unaudited pro forma consolidated results of operations for the acquisition of Aquaterra Corporation (“Aquaterra”) in January 2016 were not included in the combined results of our operations for the three and six months ended July 2, 2016 because 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.

 

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

   For the Three Months Ended      For the Six Months Ended  
   July 2, 2016      July 2, 2016  

Revenue

   $ 997.6      $ 1,913.8  

Net income (loss) attributed to Cott Corporation

     4.1        (3.8

Net income (loss) per common share attributed to Cott Corporation, diluted

   $ 0.03      $ (0.03

Note 3—Share-based Compensation

During the three months ended July 1, 2017, the Company granted 84,060 common shares to the non-management members of our board of directors under the Amended and Restated Cott Corporation Equity Incentive Plan with a grant date fair value of approximately $1.1 million. The common shares were issued in consideration of the directors’ annual board retainer fee and vest upon issuance.

Note 4—Income Taxes

Income tax expense was $2.5 million on pre-tax loss of $54.2 million for the six months ended July 1, 2017, as compared to an income tax benefit of $11.8 million on pre-tax loss of $4.3 million for the six months ended July 2, 2016. The second quarter’s effective income tax rate was 6.7% compared to (34.8%) in the comparable prior year period. The increase in the income tax expense was due primarily to the Company no longer recognizing tax benefits in the United States and Canada. The effective tax rate differs from the Canadian statutory rate primarily due to losses in tax jurisdictions for which we have not recognized a tax benefit, significant permanent differences for which we have recognized a tax benefit and income in tax jurisdictions with lower statutory tax rates than Canada.

Note 5—Net (Loss) Income Per Common Share

Basic net (loss) income per common share is calculated by dividing net (loss) income attributed to Cott Corporation by the weighted average number of common shares outstanding during the periods presented. Diluted net (loss) income per common share is calculated by dividing net (loss) income attributed to Cott Corporation by 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 during the periods presented. Set forth below is a reconciliation of the numerator and denominator for the diluted net (loss) income per common share computations for the periods indicated:

 

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     For the Three Months Ended      For the Six Months Ended  

(in thousands)

   July 1, 2017      July 2, 2016      July 1, 2017      July 2, 2016  

Diluted net (loss) income attributed to Cott Corporation (numerator)

   $ (24.6    $ 7.4      $ (61.0    $ 4.6  
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding—basic

     139,000        123,239        138,867        118,253  

Dilutive effect of Stock Options

     —          548        —          424  

Dilutive effect of Performance-based RSUs

     —          —          —          —    

Dilutive effect of Time-based RSUs

     —          393        —          361  
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding—diluted (denominator)

     139,000        124,180        138,867        119,038  
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table summarizes anti-dilutive securities excluded from the computation of diluted net (loss) income per common share for the periods indicated:

 

     For the Three Months Ended      For the Six Months Ended  

(in thousands)

   July 1, 2017      July 2, 2016      July 1, 2017      July 2, 2016  

Stock Options

     4,459        —          4,459        380  

Performance-based RSUs1

     1,862        1,995        1,862        1,995  

Time-based RSUs

     704        —          704        —    

 

1.  Performance-based RSUs represent the number of shares expected to be issued based primarily on the estimated achievement of cumulative pre-tax income targets for these awards.

Note 6—Segment Reporting

Our broad portfolio of products include bottled water, coffee, brewed tea, water dispensers, coffee and tea brewers, filtration equipment, carbonated soft drinks (“CSDs”), 100% shelf stable juice and juice-based products, clear, still and sparkling flavored waters, energy drinks and shots, sports products, new age beverages, ready-to-drink teas, liquid enhancers, freezables, ready-to-drink alcoholic beverages, hot chocolate, malt drinks, creamers/whiteners, cereals and beverage concentrates.

During the first quarter of 2016, we completed the acquisition of Aquaterra, followed by the S&D Acquisition and the Eden Acquisition in the third quarter of 2016. These businesses were added to our DSS reporting segment, which was then renamed “Water & Coffee Solutions” to reflect the increased scope of our offering. Other than the change in name, there was no impact on prior period results for this reporting segment. The Water & Coffee Solutions reporting segment produces a product category consisting primarily of bottled water, coffee, brewed tea, water dispensers, coffee and tea brewers and filtration equipment.

Our business operates through four reporting segments: Water & Coffee Solutions, Cott North America, Cott U.K. and All Other. We refer to our Cott North America, Cott U.K. and All Other reporting segments together as our “traditional business.” Our corporate oversight function is not treated as a segment; it includes certain general and administrative costs that are not allocated to any of the reporting segments.

 

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(in millions of U.S. dollars)

   Water &
Coffee
Solutions
     Cott
North
America
     Cott
U.K.
     All
Other
     Corporate     Eliminations     Total  

For the Three Months Ended July 1, 2017

                  

Revenue, net1

   $ 538.9      $ 345.0      $ 124.5      $ 12.1      $ —       $ (6.4   $ 1,014.1  

Depreciation and amortization

     47.0        17.8        4.8        0.1        —         —         69.7  

Operating income (loss)

     26.4        9.1        2.2        1.9        (9.0     —         30.6  

Additions to property, plant & equipment

     30.6        8.8        0.9        0.1        —         —         40.4  

For the Six Months Ended July 1, 2017

                  

Revenue, net1

   $ 1,034.4      $ 646.1      $ 218.7      $ 23.6      $ —       $ (12.3   $ 1,910.5  

Depreciation and amortization

     88.6        35.6        9.6        0.3        —         —         134.1  

Operating income (loss)

     41.3        10.2        2.2        3.5        (15.8     —         41.4  

Additions to property, plant & equipment

     58.7        17.1        4.5        0.7        —         —         81.0  

As of July 1, 2017

                  

Total assets2

   $ 2,814.1      $ 916.2      $ 359.1      $ 28.2      $ —       $ —       $ 4,117.6  

 

1.  Intersegment revenue between Cott North America and the other reporting segments was $6.4 million and $12.3 million for the three and six months ended July 1, 2017, respectively.
2.  Excludes intersegment receivables, investments and notes receivable.

 

(in millions of U.S. dollars)

   Water &
Coffee
Solutions
     Cott
North
America
     Cott
U.K.
     All
Other
     Corporate     Eliminations     Total  

For the Three Months Ended July 2, 2016

                  

Revenue, net1

   $ 275.7      $ 349.2      $ 132.3      $ 14.8      $ —       $ (7.0   $ 765.0  

Depreciation and amortization

     29.3        18.6        5.4        0.2        —         —         53.5  

Operating income (loss)

     17.8        18.4        11.7        3.4        (14.7     —         36.6  

Additions to property, plant & equipment

     22.7        6.6        3.8        0.1        —         —         33.2  

For the Six Months Ended July 2, 2016

                  

Revenue, net1

   $ 533.0      $ 662.5      $ 252.9      $ 28.4      $ —       $ (13.4   $ 1,463.4  

Depreciation and amortization

     57.7        36.9        10.9        0.5        —         —         106.0  

Operating income (loss)

     23.5        19.0        21.6        5.9        (18.7     —         51.3  

Additions to property, plant & equipment

     40.5        16.0        5.8        0.4        —         —         62.7  

As of December 31, 2016

                   —      

Total assets2

   $ 2,735.1      $ 862.9      $ 316.5      $ 25.2      $ —       $ —       $ 3,939.7  

 

1.  Intersegment revenue between Cott North America and the other reporting segments was $7.0 and $13.4 million for the three and six months ended July 2, 2016.
2.  Excludes intersegment receivables, investments and notes receivable.

For the six months ended July 1, 2017, sales to Walmart accounted for 13.0% of our total revenue (July 2, 2016—17.9%), 1.2% of our Water & Coffee Solutions reporting segment revenue (July 2, 2016—2.4%), 32.8% of our Cott North America reporting segment revenue (July 2, 2016—33.7%), 11.2% of our Cott U.K. reporting segment revenue (July 2, 2016—10.4%), and 2.4% of our All Other reporting segment revenue (July 2, 2016—2.1%).

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

 

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Revenues by channel by reporting segment were as follows:

 

     For the Three Months Ended July 1, 2017  

(in millions of U.S. dollars)

   Water &
Coffee
Solutions
     Cott
North
America
     Cott
U.K.
     All
Other
     Eliminations     Total  

Revenue, net

                

Private label retail

   $ 23.5      $ 268.1      $ 54.4      $ 0.8      $ (0.4   $ 346.4  

Branded retail

     20.3        24.1        40.3        1.1        (0.5     85.3  

Contract packaging

     —          45.7        24.9        3.3        (2.3     71.6  

Home and office bottled water delivery

     256.6        —          —          —          —         256.6  

Coffee and tea services

     173.8        —          0.7        —          —         174.5  

Concentrate and other

     64.7        7.1        4.2        6.9        (3.2     79.7  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 538.9      $ 345.0      $ 124.5      $ 12.1      $ (6.4   $ 1,014.1  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

     For the Six Months Ended July 1, 2017  

(in millions of U.S. dollars)

   Water &
Coffee
Solutions
     Cott
North
America
     Cott
U.K.
     All
Other
     Eliminations     Total  

Revenue, net

                

Private label retail

   $ 44.9      $ 508.7      $ 92.7      $ 1.7      $ (0.8   $ 647.2  

Branded retail

     39.4        46.7        69.8        2.0        (0.9     157.0  

Contract packaging

     —          76.8        46.7        6.3        (4.2     125.6  

Home and office bottled water delivery

     485.7        —          —          —          —         485.7  

Coffee and tea services

     339.4        —          1.3        —          —         340.7  

Concentrate and other

     125.0        13.9        8.2        13.6        (6.4     154.3  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 1,034.4      $ 646.1      $ 218.7      $ 23.6      $ (12.3   $ 1,910.5  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

     For the Three Months Ended July 2, 2016  

(in millions of U.S. dollars)

   Water &
Coffee
Solutions
     Cott
North
America
     Cott
U.K.
     All
Other
     Eliminations     Total  

Revenue, net

                

Private label retail

   $ 20.7      $ 280.9      $ 54.9      $ 1.1      $ (0.3   $ 357.3  

Branded retail

     22.9        24.8        41.2        1.0        (0.4     89.5  

Contract packaging

     —          35.7        31.0        5.0        (2.5     69.2  

Home and office bottled water delivery

     177.2        —          —          —          —         177.2  

Coffee and tea services

     30.0        —          0.8        —          —         30.8  

Concentrate and other

     24.9        7.8        4.4        7.7        (3.8     41.0  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 275.7      $ 349.2      $ 132.3      $ 14.8      $ (7.0   $ 765.0  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

16


Table of Contents
     For the Six Months Ended July 2, 2016  

(in millions of U.S. dollars)

   Water &
Coffee
Solutions
     Cott
North
America
     Cott
U.K.
     All
Other
     Eliminations     Total  

Revenue, net

                

Private label retail

   $ 37.6      $ 529.4      $ 105.6      $ 1.6      $ (0.7   $ 673.5  

Branded retail

     47.2        51.6        77.4        1.8        (0.7     177.3  

Contract packaging

     —          67.1        59.3        9.7        (4.6     131.5  

Home and office bottled water delivery

     339.2        —          —          —          —         339.2  

Coffee and tea services

     61.5        —          1.6        —          —         63.1  

Concentrate and other

     47.5        14.4        9.0        15.3        (7.4     78.8  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 533.0      $ 662.5      $ 252.9      $ 28.4      $ (13.4   $ 1,463.4  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Note 7—Inventories

The following table summarizes inventories as of July 1, 2017 and December 31, 2016:

 

(in millions of U.S. dollars)

   July 1, 2017      December 31, 2016  

Raw materials

   $ 135.5      $ 123.4  

Finished goods

     137.3        131.6  

Resale items

     21.4        22.0  

Other

     30.4        24.4  
  

 

 

    

 

 

 

Total

   $ 324.6      $ 301.4  
  

 

 

    

 

 

 

Note 8—Intangible Assets, Net

The following table summarizes intangible assets, net as of July 1, 2017 and December 31, 2016:

 

     July 1, 2017      December 31, 2016  

(in millions of U.S. dollars)

   Cost      Accumulated
Amortization
     Net      Cost      Accumulated
Amortization
     Net  

Intangible Assets

                 

Not subject to amortization

                 

Rights1

   $ 45.0      $ —        $ 45.0      $ 45.0      $ —        $ 45.0  

Trademarks

     261.6        —          261.6        257.1        —          257.1  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total intangible assets not subject to amortization

     306.6        —          306.6        302.1        —          302.1  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Subject to amortization

                 

Customer relationships

     851.7        261.5        590.2        900.1        303.4        596.7  

Patents

     15.3        0.3        15.0        —          —          —    

Trademarks

     10.6        6.8        3.8        31.6        27.9        3.7  

Information technology

     76.3        44.4        31.9        70.5        38.0        32.5  

Other

     10.5        6.7        3.8        10.3        5.6        4.7  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total intangible assets subject to amortization

     964.4        319.7        644.7        1,012.5        374.9        637.6  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total intangible assets

   $ 1,271.0      $ 319.7      $ 951.3      $ 1,314.6      $ 374.9      $ 939.7  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

1.  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.

 

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Table of Contents

Amortization expense of intangible assets was $23.3 million and $44.7 million for the three and six months ended July 1, 2017, compared to $19.1 million and $38.3 million for the three and six months ended July 2, 2016, respectively.

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

 

(in millions of U.S. dollars)

      

Remainder of 2017

   $ 46.8  

2018

     89.1  

2019

     79.6  

2020

     68.0  

2021

     61.1  

Thereafter

     300.1  
  

 

 

 

Total

   $ 644.7  
  

 

 

 

Note 9—Accounts Payable and Accrued Liabilities

The following table summarizes accounts payable and accrued liabilities as of July 1, 2017 and December 31, 2016:

 

(in millions of U.S. dollars)

   July 1, 2017      December 31, 2016  

Trade payables

   $ 404.1      $ 339.9  

Accrued compensation

     65.8        63.6  

Accrued sales incentives

     23.3        20.6  

Accrued interest

     34.7        12.2  

Payroll, sales and other taxes

     23.9        17.6  

Accrued deposits

     66.1        51.9  

Other accrued liabilities

     93.4        91.6  
  

 

 

    

 

 

 

Total

   $ 711.3      $ 597.4  
  

 

 

    

 

 

 

Note 10—Debt

Our total debt as of July 1, 2017 and December 31, 2016 was as follows:

 

     July 1, 2017      December 31, 2016  

(in millions of U.S. dollars)

   Principal      Unamortized
Debt Issuance
Costs
     Net      Principal      Unamortized
Debt Issuance
Costs
     Net  

6.750% senior notes due in 2020

   $ —        $ —        $ —        $ 625.0      $ 9.3      $ 615.7  

10.000% senior notes due in 20211

     272.2        —          272.2        384.2        —          384.2  

5.375% senior notes due in 2022

     525.0        6.6        518.4        525.0        7.1        517.9  

5.500% senior notes due in 2024

     514.0        9.8        504.2        474.1        9.8        464.3  

5.500% senior notes due in 2025

     750.0        11.5        738.5        —          —          —    

ABL facility

     255.0        —          255.0        207.0        —          207.0  

GE Term Loan

     3.1        0.1        3.0        4.3        0.2        4.1  

Capital leases and other debt financing

     8.5        —          8.5        7.5        —          7.5  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total debt

     2,327.8        28.0        2,299.8        2,227.1        26.4        2,200.7  

Less: Short-term borrowings and current debt:

                 

ABL facility

     255.0        —          255.0        207.0        —          207.0  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total short-term borrowings

     255.0        —          255.0        207.0        —          207.0  

GE Term Loan - current maturities

     2.3        —          2.3        2.3        —          2.3  

Capital leases and other debt financing - current maturities

     4.3        —          4.3        3.4        —          3.4  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total current debt

     261.6        —          261.6        212.7        —          212.7  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term debt

   $ 2,066.2      $ 28.0      $ 2,038.2      $ 2,014.4      $ 26.4      $ 1,988.0  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

1.  Includes unamortized premium of $22.2 million and $34.2 million at July 1, 2017 and December 31, 2016, respectively. The effective interest rate is 7.515%.

 

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Table of Contents

5.500% Senior Notes due in 2025 (the “2025 Notes”)

On March 22, 2017, we issued $750.0 million of 2025 Notes to qualified purchasers in a private placement offering under Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States to non-U.S. purchasers pursuant to Regulation S under the Securities Act and other applicable laws. The 2025 Notes were issued by our wholly-owned subsidiary Cott Holdings Inc., and most of our U.S., Canadian, U.K., Luxembourg and Dutch subsidiaries guarantee the 2025 Notes. The 2025 Notes will mature on April 1, 2025 and interest is payable semi-annually on April 1st and October 1st of each year commencing on October 1, 2017.

We incurred $11.7 million of financing fees in connection with the issuance of the 2025 Notes. The financing fees are being amortized using the effective interest method over an eight-year period, which represents the term to maturity of the 2025 Notes.

6.750% Senior Notes due in 2020 (the “2020 Notes”)

On March 22, 2017, we used a portion of the proceeds from the issuance of the 2025 Notes to purchase $202.3 million in aggregate principal amount of the 2020 Notes in a cash tender offer. The tender offer included $7.1 million in premium payments, accrued interest of $3.1 million, the write-off of $2.9 million in deferred financing fees and other costs of $0.1 million. On April 5, 2017, we used a portion of the proceeds from the issuance of the 2025 Notes to redeem the remaining $422.7 million aggregate principal amount of our 2020 Notes. The redemption included $14.3 million in premium payments, accrued interest of $7.4 million, and the write-off of $5.8 million in deferred financing fees.

10.000% Senior Notes due in 2021 (the “DSS Notes”)

On May 5, 2017, we used a portion of the proceeds from the issuance of the 2025 Notes to purchase $100.0 million in aggregate principal amount of the DSS Notes. The redemption included $7.7 million in premium payments, accrued interest of $1.8 million, and the write-off of $9.2 million of unamortized premium.

Note 11—Accumulated Other Comprehensive (Loss) Income

Changes in accumulated other comprehensive (loss) income (“AOCI”) by component for the six months ended July 1, 2017 and July 2, 2016 were as follows:

 

(in millions of U.S. dollars)1

   Gains and Losses
on Derivative
Instruments
     Pension
Benefit
Plan Items
     Currency
Translation
Adjustment Items
     Total  

Beginning balance January 2, 2016

   $ (4.7    $ (10.1    $ (61.4    $ (76.2
  

 

 

    

 

 

    

 

 

    

 

 

 

OCI before reclassifications

     5.8        —          (17.9      (12.1

Amounts reclassified from AOCI

     (2.7      0.2        —          (2.5
  

 

 

    

 

 

    

 

 

    

 

 

 

Net current-period OCI

     3.1        0.2        (17.9      (14.6
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance July 2, 2016

   $ (1.6    $ (9.9    $ (79.3    $ (90.8
  

 

 

    

 

 

    

 

 

    

 

 

 

Beginning balance December 31, 2016

   $ (0.1    $ (14.4    $ (103.4    $ (117.9
  

 

 

    

 

 

    

 

 

    

 

 

 

OCI before reclassifications

     0.5        —          22.2        22.7  

Amounts reclassified from AOCI

     (1.5      (0.2      —          (1.7
  

 

 

    

 

 

    

 

 

    

 

 

 

Net current-period OCI

     (1.0      (0.2      22.2        21.0  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance July 1, 2017

   $ (1.1    $ (14.6    $ (81.2    $ (96.9
  

 

 

    

 

 

    

 

 

    

 

 

 

 

1.  All amounts are net of tax.

 

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Table of Contents

The following table summarizes the amounts reclassified from AOCI for the three and six months ended July 1, 2017 and July 2, 2016, respectively.

 

(in millions of U.S. dollars)

   For the Three Months Ended     For the Six Months Ended     Affected Line Item in  
Details About AOCI    July 1,      July 2,     July 1,      July 2,     the Statement Where  

Components1

   2017      2016     2017      2016     Net Income Is Presented  

Gains and losses on derivative instruments

            

Foreign currency and commodity hedges

   $ 0.8      $ 2.4     $ 1.5      $ 4.0       Cost of sales  
     —          (0.7     —          (1.3     Tax expense  
  

 

 

    

 

 

   

 

 

    

 

 

   
   $ 0.8      $ 1.7     $ 1.5      $ 2.7       Net of tax  
  

 

 

    

 

 

   

 

 

    

 

 

   

Amortization of pension benefit plan items

            

Prior service costs2

   $ 0.3      $ (0.1   $ 0.2      $ (0.2     Cost of sales  
  

 

 

    

 

 

   

 

 

    

 

 

   
     0.3        (0.1     0.2        (0.2     Total before taxes  
     —          —         —          —         Tax expense  
  

 

 

    

 

 

   

 

 

    

 

 

   
   $ 0.3      $ (0.1   $ 0.2      $ (0.2     Net of tax  
  

 

 

    

 

 

   

 

 

    

 

 

   

Total reclassifications for the period

   $ 1.1      $ 1.6     $ 1.7      $ 2.5       Net of tax  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

1.  Amounts in parenthesis 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.

We had $40.1 million in standby letters of credit outstanding as of July 1, 2017 ($42.4 million—December 31, 2016).

Note 13—Hedging Transactions and Derivative Financial Instruments

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

We use various types of derivative instruments including, but not limited to, forward contracts, futures contracts and swap agreements for certain commodities. Forward and futures contracts are agreements to buy or sell a quantity of a commodity at a predetermined future date, and at a predetermined rate or price. Forward contracts are traded over-the-counter whereas future contracts are traded on an exchange. A swap agreement is a contract between two parties to exchange cash flows based on specified underlying notional amounts, assets and/or indices.

 

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Table of Contents

All derivatives are carried at fair value in the consolidated balance sheets in the line item accounts receivable, net or accounts payable and accrued liabilities. The carrying values of the derivatives reflect the impact of legally enforceable master netting agreements with each counterparty. 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. Derivatives can be designated as fair value hedges, cash flow hedges or hedges of net investments in foreign operations. The changes in the fair values of derivatives that have been designated and qualify for fair value hedge accounting are recorded in the same line item in our consolidated statements of operations as the changes in the fair value of the hedged items attributable to the risk being hedged. The changes in fair values of derivatives that have been designated and qualify 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. 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. The changes in fair values of derivatives that were not designated and/or did not qualify as hedging instruments are immediately recognized into earnings. We classify cash inflows and outflows related to derivative and hedging instruments within the appropriate cash flows section associated with the item being hedged.

For derivatives that will be accounted for as hedging instruments, 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 (see Note 14 to the consolidated financial statements). 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 over-the-counter or exchange traded 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 monitor counterparty exposures regularly and review promptly any downgrade in counterparty credit rating. We mitigate pre-settlement risk by being permitted to net settle for transactions with the same counterparty. To minimize the concentration of credit risk, we enter into derivative transactions with a portfolio of financial institutions. Based on these factors, we consider the risk of counterparty default to be minimal.

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 and commodity prices. 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 six months ended July 1, 2017 or July 2, 2016. Foreign exchange contracts typically have maturities of less than twelve months. Substantially all outstanding hedges as of July 1, 2017 are expected to settle in the next twelve months.

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 values of derivatives that were designated and qualified for our foreign currency cash flow hedging program were $12.3 million and $15.3 million as of July 1, 2017 and December 31, 2016, respectively. Approximately $0.2 million and $0.9 million of unrealized losses, net of tax, related to the foreign currency cash flow hedges were included in AOCI as of July 1, 2017 and July 2, 2016, respectively. The hedge ineffectiveness for these cash flow hedging instruments was not material during the periods presented.

 

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Table of Contents

We have entered into commodity swaps on aluminum to mitigate the price risk associated with forecasted purchases of materials used in our manufacturing process. These derivative instruments were designated and qualified as a part of our commodity cash flow hedging program. The objective of this hedging program is to reduce the variability of cash flows associated with future purchases of aluminum. We had no outstanding aluminum commodity swaps as of July 1, 2017 and December 31, 2016. Unrealized net of tax losses of $1.0 million related to the commodity swaps were included in AOCI as of July 2, 2016. The cumulative hedge ineffectiveness for these hedging instruments was not material during the periods presented.

We have entered into coffee futures contracts to hedge exposure to price fluctuations on green coffee associated with fixed-price sales contracts with customers, which generally range from three to 18 months in length. These derivatives have been designated and qualified as a part of our commodity cash flow hedging program effective January 1, 2017. The objective of this hedging program is to reduce the variability of cash flows associated with future purchases of green coffee. We did not elect hedge accounting for our coffee futures contracts in 2016. The notional amount for the coffee futures contracts that were designated and qualified for our commodity cash flow hedging program was 29.1 million pounds as of July 1, 2017. The notional amounts for the coffee futures contracts not designated or qualifying as hedging instruments was 44.9 million pounds as of December 31, 2016. The effective portion of the cash-flow hedge recognized in AOCI during the six months ended July 1, 2017 was $0.7 million. Approximately $0.8 million and $1.5 million of realized gains, representing the effective portion of the cash-flow hedge, were subsequently reclassified from AOCI to earnings and recognized in cost of sales in the consolidated statements of operations for the three and six months ended July 1, 2017, respectively. The hedge ineffectiveness for these cash flow hedging instruments was nil and $0.1 million for the three and six months ended July 1, 2017, respectively.

The fair value of the Company’s derivative assets included within other receivables as a component of accounts receivable, net was $0.1 million and $0.1 million as of July 1, 2017 and December 31, 2016, respectively. The fair value of the Company’s derivative liabilities included in accrued liabilities was $1.9 million and $6.1 million as of July 1, 2017 and December 31, 2016, respectively. Set forth below is a reconciliation of the Company’s derivatives by contract type for the periods indicated:

 

(in millions of U.S. dollars)

   July 1, 2017      December 31, 2016  

Derivative Contract

   Assets      Liabilities      Assets      Liabilities  

Foreign currency hedge

   $ 0.1      $ 0.3      $ 0.1      $  —    

Coffee futures1

     —          1.6        —          6.1  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 0.1      $ 1.9      $ 0.1      $ 6.1  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

1.  The fair value of the coffee futures excludes amounts in the related margin accounts. As of July 1, 2017 and December 31, 2016, the aggregate margin account balances were $3.7 million and $9.2 million, respectively, and are included in cash & cash equivalents on the consolidated balance sheets.

Coffee futures are subject to enforceable master netting arrangements and are presented net in the reconciliation above. The fair value of the coffee futures assets and liabilities which are shown on a net basis are reconciled in the table below:

 

(in millions of U.S. dollars)

   July 1, 2017      December 31, 2016  

Coffee futures assets

   $ 0.8      $ 1.4  

Coffee futures liabilities

     (2.4      (7.5
  

 

 

    

 

 

 

Net asset (liability)

   $ (1.6    $ (6.1
  

 

 

    

 

 

 

The settlement of our derivative instruments resulted in a credit to cost of sales of $0.8 million and $1.5 million for the three and six months ended July 1, 2017, respectively, and $2.4 million and $4.0 million for the three and six months ended July 2, 2016, respectively.

Note 14—Fair Value Measurements

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

 

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

 

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

 

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

 

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

We have certain assets and liabilities such as our derivative instruments that are required to be recorded at fair value on a recurring basis in accordance with GAAP.

Our derivative assets and liabilities represent Level 2 instruments. Level 2 instruments are valued based on observable inputs for quoted prices for similar assets and liabilities in active markets. The fair value for the derivative assets as of July 1, 2017 and December 31, 2016 was $0.1 million, respectively. The fair value for the derivative liabilities as of July 1, 2017 and December 31, 2016 was $1.9 million and $6.1 million, respectively.

Fair Value of Financial Instruments

The carrying amounts reflected in the consolidated balance sheets for cash & cash equivalents, receivables, payables, short-term borrowings and long-term debt approximate their respective fair values, except as otherwise indicated. The carrying values and estimated fair values of our significant outstanding debt as of July 1, 2017 and December 31, 2016 were as follows:

 

     July 1, 2017      December 31, 2016  

(in millions of U.S. dollars)

   Carrying
Value
     Fair
Value
     Carrying
Value
     Fair
Value
 

6.750% senior notes due in 20201, 3

   $ —        $ —        $ 615.7      $ 647.7  

10.000% senior notes due in 20211, 2

     272.2        265.0        384.2        383.7  

5.375% senior notes due in 20221, 3

     518.4        544.0        517.9        534.2  

5.500% senior notes due in 20241, 3

     504.2        557.0        464.3        505.5  

5.500% senior notes due in 20251, 3

     738.5        766.9        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,033.3      $ 2,132.9      $ 1,982.1      $ 2,071.1  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

1.  The fair values were based on the trading levels and bid/offer prices observed by a market participant and are considered Level 2 financial instruments.
2.  Includes unamortized premium of $22.2 million and $34.2 million at July 1, 2017 and December 31, 2016, respectively.
3.  The carrying value of our significant outstanding debt is net of unamortized debt issuance costs of $28.0 million and $26.4 million as of July 1, 2017 and December 31, 2016, respectively.

 

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Note 15—Guarantor Subsidiaries

Guarantor Subsidiaries for DSS Notes

The DSS Notes assumed as part of the acquisition of DSS are guaranteed on a senior basis by Cott Corporation and certain of its 100% owned direct and indirect subsidiaries (the “DSS Guarantor Subsidiaries”). DSS and each DSS Guarantor Subsidiary is 100% owned by Cott Corporation. The DSS Notes are fully and unconditionally, jointly and severally, guaranteed by Cott Corporation and the DSS Guarantor Subsidiaries. The Indenture governing the DSS Notes (“DSS Indenture”) requires any 100% owned domestic restricted subsidiary (i) that guarantees or becomes a borrower under the Credit Agreement (as defined in the DSS Indenture) or the asset-based lending facility (the “ABL facility”) or (ii) that guarantees any other indebtedness of Cott Corporation, DSS or any of the DSS Guarantor Subsidiaries (other than junior lien obligations) secured by collateral (other than Excluded Property (as defined in the DSS Indenture)) to guarantee on a secured basis the DSS Notes. The guarantees of Cott Corporation and the DSS Guarantor Subsidiaries may be released in limited circumstances only upon the occurrence of certain customary conditions set forth in the Indenture governing the DSS Notes.

We have not presented separate financial statements and separate disclosures have not been provided concerning the DSS Guarantor Subsidiaries due to the presentation of condensed consolidating financial information set forth in this Note, consistent with Securities and Exchange Commission (“SEC”) rules governing reporting of subsidiary financial information.

The following summarized condensed consolidating financial information of the Company sets forth on a consolidating basis: our Balance Sheets, Statements of Operations and Cash Flows for Cott Corporation, DSS, the DSS Guarantor Subsidiaries and our other non-guarantor subsidiaries (the “DSS Non-Guarantor Subsidiaries”). This supplemental financial information reflects our investments and those of DSS in their respective subsidiaries using the equity method of accounting.

The €450.0 million (U.S. $514.0 million at the exchange rate in effect on July 1, 2017) of 5.500% senior notes due 2024 (the “2024 Notes”) were initially issued on June 30, 2016 by Cott Finance Corporation, which was not a DSS Guarantor Subsidiary. Cott Finance Corporation was declared an unrestricted subsidiary under the DSS Indenture. As a result, such entity is reflected as a DSS Non-Guarantor Subsidiary in the following summarized condensed consolidating financial information through August 2, 2016. Substantially simultaneously with the closing of the Eden Acquisition on August 2, 2016, we assumed all of the obligations of Cott Finance Corporation as issuer under the 2024 Notes, and Cott Corporation’s U.S., Canadian, U.K., Luxembourg and Dutch subsidiaries that are currently obligors under the 2022 Notes and the 2020 Notes (including Cott Beverages Inc.) entered into a supplemental indenture to guarantee the 2024 Notes. Currently, the obligors under the 2024 Notes are different than the obligors under the DSS Notes, but identical to the obligors under the 2020 Notes and the 2022 Notes. The 2024 Notes are listed on the official list of the Irish Stock Exchange and are traded on the Global Exchange Market thereof.

 

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Table of Contents

Condensed Consolidating Statements of Operations

(in millions of U.S. dollars)

Unaudited

 

     For the Three Months Ended July 1, 2017  
     Cott
Corporation
    DS Services of
America, Inc.
    DSS
Guarantor
Subsidiaries
    DSS
Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

Revenue, net

   $ 46.3     $ 265.6     $ 577.8     $ 138.1     $ (13.7   $ 1,014.1  

Cost of sales

     38.9       103.0       482.0       61.6       (13.7     671.8  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     7.4       162.6       95.8       76.5       —         342.3  

Selling, general and administrative expenses

     8.6       140.2       87.3       63.6       —         299.7  

Loss (gain) on disposal of property, plant & equipment, net

     —         4.3       (0.4     0.1       —         4.0  

Acquisition and integration expenses

     —         1.5       3.7       2.8       —         8.0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (1.2     16.6       5.2       10.0       —         30.6  

Other (income) expense, net

     —         (1.1     18.5       0.8       —         18.2  

Intercompany interest (income) expense, net

     (1.5     10.9       (4.9     (4.5     —         —    

Interest expense, net

     7.2       5.9       20.1       0.1       —         33.3  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (6.9     0.9       (28.5     13.6       —         (20.9

Income tax expense (benefit)

     —         0.4       (3.8     4.8       —         1.4  

Equity (loss) income

     (17.7     —         2.3       —         15.4       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   $ (24.6   $ 0.5     $ (22.4   $ 8.8     $ 15.4     $ (22.3

Less: Net income attributable to non-controlling interests

     —         —         —         2.3       —         2.3  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributed to Cott Corporation

   $ (24.6   $ 0.5     $ (22.4   $ 6.5     $ 15.4     $ (24.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income attributed to Cott Corporation

   $ (15.8   $ 0.5     $ (56.7   $ 4.6     $ 51.6     $ (15.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Condensed Consolidating Statements of Operations

(in millions of U.S. dollars)

Unaudited

 

     For the Six Months Ended July 1, 2017  
     Cott
Corporation
    DS Services of
America, Inc.
    DSS
Guarantor
Subsidiaries
    DSS
Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

Revenue, net

   $ 81.0     $ 514.4     $ 1,084.2     $ 255.8     $ (24.9   $ 1,910.5  

Cost of sales

     69.5       200.5       899.2       113.3       (24.9     1,257.6  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     11.5       313.9       185.0       142.5       —         652.9  

Selling, general and administrative expenses

     15.1       280.0       174.3       121.4       —         590.8  

Loss (gain) on disposal of property, plant & equipment, net

     —         6.0       (0.7     0.1       —         5.4  

Acquisition and integration expenses

     —         3.1       6.3       5.9       —         15.3  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (3.6     24.8       5.1       15.1       —         41.4  

Other expense (income), net

     0.3       (1.7     28.0       —         —         26.6  

Intercompany interest (income) expense, net

     (3.0     21.7       (10.0     (8.7     —         —    

Interest expense, net

     14.2       13.2       41.6       —         —         69.0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (15.1     (8.4     (54.5     23.8       —         (54.2

Income tax expense (benefit)

     —         0.8       (3.3     5.0       —         2.5  

Equity (loss) income

     (45.9     —         4.4       —         41.5       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

   $ (61.0   $ (9.2   $ (46.8   $ 18.8     $ 41.5     $ (56.7

Less: Net income attributable to non-controlling interests

     —         —         —         4.3       —         4.3  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributed to Cott Corporation

   $ (61.0   $ (9.2   $ (46.8   $ 14.5     $ 41.5     $ (61.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income attributed to Cott Corporation

   $ (40.0   $ (9.2   $ (90.7   $ 19.4     $ 80.5     $ (40.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Condensed Consolidating Statements of Operations

(in millions of U.S. dollars)

Unaudited

 

     For the Three Months Ended July 2, 2016  
     Cott
Corporation
    DS Services of
America, Inc.
    DSS
Guarantor
Subsidiaries
    DSS
Non-Guarantor
Subsidiaries
     Elimination
Entries
    Consolidated  

Revenue, net

   $ 48.2     $ 259.0     $ 437.3     $ 35.2      $ (14.7   $ 765.0  

Cost of sales

     38.9       98.9       360.6       28.7        (14.7     512.4  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Gross profit

     9.3       160.1       76.7       6.5        —         252.6  

Selling, general and administrative expenses

     16.8       141.2       41.1       3.0        —         202.1  

Loss on disposal of property, plant & equipment, net

     —         1.4       0.8       —          —         2.2  

Acquisition and integration expenses

     —         1.1       10.6       —          —         11.7  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Operating (loss) income

     (7.5     16.4       24.2       3.5        —         36.6  

Other expense (income), net

     1.8       (0.3     1.4       0.1        —         3.0  

Intercompany interest expense (income), net

     —         10.8       (10.8     —          —         —    

Interest expense, net

     0.2       7.2       19.6       —          —         27.0  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

(Loss) income before income tax benefit and equity income

     (9.5     (1.3     14.0       3.4        —         6.6  

Income tax benefit

     —         0.4       1.9       —          —         2.3  

Equity income

     16.9       —         1.5       —          (18.4     —    
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss)

   $ 7.4     $ (0.9   $ 17.4     $ 3.4      $ (18.4   $ 8.9  

Less: Net income attributable to non-controlling interests

     —         —         —         1.5        —         1.5  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss) attributed to Cott Corporation

   $ 7.4     $ (0.9   $ 17.4     $ 1.9      $ (18.4   $ 7.4  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Comprehensive (loss) income attributed to Cott Corporation

   $ (4.6   $ (0.9   $ 75.4     $ 4.0      $ (78.5   $ (4.6
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

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Table of Contents

Condensed Consolidating Statements of Operations

(in millions of U.S. dollars)

Unaudited

 

     For the Six Months Ended July 2, 2016  
     Cott
Corporation
    DS Services of
America, Inc.
    DSS
Guarantor
Subsidiaries
    DSS
Non-Guarantor
Subsidiaries
     Elimination
Entries
    Consolidated  

Revenue, net

   $ 82.0     $ 502.1     $ 844.1     $ 63.7      $ (28.5   $ 1,463.4  

Cost of sales

     68.6       196.3       708.8       51.6        (28.5     996.8  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Gross profit

     13.4       305.8       135.3       12.1        —         466.6  

Selling, general and administrative expenses

     22.3       278.4       92.7       5.7        —         399.1  

Loss (gain) on disposal of property, plant & equipment, net

     —         3.2       (0.1     —          —         3.1  

Acquisition and integration expenses

     —         2.0       11.1       —          —         13.1  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Operating (loss) income

     (8.9     22.2       31.6       6.4        —         51.3  

Other expense (income), net

     0.2       (1.3     1.8       0.1        —         0.8  

Intercompany interest expense (income), net

     —         21.6       (21.6     —          —         —    

Interest expense, net

     0.4       14.6       39.8       —          —         54.8  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

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

     (9.5     (12.7     11.6       6.3        —         (4.3

Income tax (benefit) expense

     —         (4.6     (7.3     0.1        —         (11.8

Equity income

     14.1       —         3.3       —          (17.4     —    
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss)

   $ 4.6     $ (8.1   $ 22.2     $ 6.2      $ (17.4   $ 7.5  

Less: Net income attributable to non-controlling interests

     —         —         —         2.9        —         2.9  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss) attributed to Cott Corporation

   $ 4.6     $ (8.1   $ 22.2     $ 3.3      $ (17.4   $ 4.6  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Comprehensive (loss) income attributed to Cott Corporation

   $ (10.0   $ (8.1   $ 106.7     $ 3.4      $ (102.0   $ (10.0
             

 

28


Table of Contents

Consolidating Balance Sheets

(in millions of U.S. dollars)

Unaudited

 

     As of July 1, 2017  
     Cott
Corporation
    DS Services of
America, Inc.
    DSS
Guarantor
Subsidiaries
    DSS
Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

ASSETS

            

Current assets

            

Cash & cash equivalents

   $ 5.1     $ 22.7     $ 67.3     $ 28.1     $ —       $ 123.2  

Accounts receivable, net of allowance

     36.2       127.4       428.3       105.7       (210.9     486.7  

Inventories

     17.4       29.4       253.9       23.9       —         324.6  

Prepaid expenses and other current assets

     1.3       6.9       17.5       11.9       —         37.6  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     60.0       186.4       767.0       169.6       (210.9     972.1  

Property, plant & equipment, net

     27.6       368.6       421.5       118.1       —         935.8  

Goodwill

     21.1       586.6       301.3       308.6       —         1,217.6  

Intangible assets, net

     0.1       362.0       383.0       206.2       —         951.3  

Deferred tax assets

     —         —         —         1.5       —         1.5  

Other long-term assets, net

     1.3       14.2       20.8       3.0       —         39.3  

Due from affiliates

     1,002.8       —         544.4       356.6       (1,903.8     —    

Investments in subsidiaries

     307.4       —         390.5       —         (697.9     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 1,420.3     $ 1,517.8     $ 2,828.5     $ 1,163.6     $ (2,812.6   $ 4,117.6  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

            

Current liabilities

            

Short-term borrowings

   $ —       $ —       $ 255.0     $ —       $ —       $ 255.0  

Current maturities of long-term debt

     —         —         3.0       3.6       —         6.6  

Accounts payable and accrued liabilities

     91.5       273.2       422.1       135.4       (210.9     711.3  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     91.5       273.2       680.1       139.0       (210.9     972.9  

Long-term debt

     504.3       272.4       1,258.7       2.8       —         2,038.2  

Deferred tax liabilities

     1.0       82.2       48.5       32.4       —         164.1  

Other long-term liabilities

     0.7       39.2       48.8       24.2       —         112.9  

Due to affiliates

     1.1       543.3       500.6       858.8       (1,903.8     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     598.6       1,210.3       2,536.7       1,057.2       (2,114.7     3,288.1  

Equity

            

Common shares, no par

     912.0       355.5       729.2       140.4       (1,225.1     912.0  

Additional paid-in-capital

     61.4       —         —         —           61.4  

Accumulated deficit

     (54.8     (47.8     (551.3     (55.8     654.9       (54.8

Accumulated other comprehensive (loss) income

     (96.9     (0.2     113.9       14.0       (127.7     (96.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Cott Corporation equity

     821.7       307.5       291.8       98.6       (697.9     821.7  

Non-controlling interests

     —         —         —         7.8       —         7.8  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

     821.7       307.5       291.8       106.4       (697.9     829.5  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 1,420.3     $ 1,517.8     $ 2,828.5     $ 1,163.6     $ (2,812.6   $ 4,117.6  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

Consolidating Balance Sheets

(in millions of U.S. dollars)

 

     As of December 31, 2016  
     Cott
Corporation
    DS Services of
America, Inc.
    DSS
Guarantor
Subsidiaries
    DSS
Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

ASSETS

            

Current assets

            

Cash & cash equivalents

   $ 4.8     $ 22.7     $ 52.1     $ 38.5     $ —       $ 118.1  

Accounts receivable, net of allowance

     27.4       121.7       239.6       93.7       (78.5     403.9  

Inventories

     14.0       29.2       237.1       21.1       —         301.4  

Prepaid expenses and other current assets

     1.4       7.1       16.6       4.7       —         29.8  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     47.6       180.7       545.4       158.0       (78.5     853.2  

Property, plant & equipment, net

     27.5       364.5       430.7       107.2       —         929.9  

Goodwill

     20.3       582.0       290.4       282.7       —         1,175.4  

Intangible assets, net

     0.1       356.8       385.0       197.8       —         939.7  

Deferred tax assets

     —         —         —         0.2       —         0.2  

Other long-term assets, net

     1.2       14.6       23.1       2.4       —         41.3  

Due from affiliates

     943.2       —         544.3       —         (1,487.5     —    

Investments in subsidiaries

     361.9       —         400.5       —         (762.4     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 1,401.8     $ 1,498.6     $ 2,619.4     $ 748.3     $ (2,328.4   $ 3,939.7  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

            

Current liabilities

            

Short-term borrowings

   $ —       $ —       $ 207.0     $ —       $ —       $ 207.0  

Current maturities of long-term debt

     —         —         2.7       3.0       —         5.7  

Accounts payable and accrued liabilities

     66.5       135.1       341.0       133.3       (78.5     597.4  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     66.5       135.1       550.7       136.3       (78.5     810.1  

Long-term debt

     464.3       384.2       1,136.7       2.8       —         1,988.0  

Deferred tax liabilities

     1.0       81.2       49.0       26.6       —         157.8  

Other long-term liabilities

     0.5       38.0       49.9       21.6       —         110.0  

Due to affiliates

     1.0       543.3       453.4       489.8       (1,487.5     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     533.3       1,181.8       2,239.7       677.1       (1,566.0     3,065.9  

Equity

            

Common shares, no par

     909.3       355.4       691.5       149.7       (1,196.6     909.3  

Additional paid-in-capital

     54.2       —         —         —         —         54.2  

Retained earnings (deficit)

     22.9       (38.4     (469.6     (92.9     600.9       22.9  

Accumulated other comprehensive (loss) income

     (117.9     (0.2     157.8       9.1       (166.7     (117.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Cott Corporation equity

     868.5       316.8       379.7       65.9       (762.4     868.5  

Non-controlling interests

     —         —         —         5.3       —         5.3  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

     868.5       316.8       379.7       71.2       (762.4     873.8  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 1,401.8     $ 1,498.6     $ 2,619.4     $ 748.3     $ (2,328.4   $ 3,939.7  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

30


Table of Contents

Consolidating Statements of Condensed Cash Flows

(in millions of U.S. dollars)

Unaudited

 

     For the Three Months Ended July 1, 2017  
     Cott
Corporation
    DS Services of
America, Inc.
    DSS
Guarantor
Subsidiaries
    DSS
Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

Net cash provided by (used in) operating activities

   $ 12.3     $ 148.1     $ (58.6   $ 14.9     $ (11.8   $ 104.9  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investing Activities

            

Acquisition, net of cash received

     —         (19.0     (16.9     (3.3     —         (39.2

Additions to property, plant & equipment

     (0.5     (20.2     (9.0     (10.7     —         (40.4

Additions to intangible assets

     —         (0.9     (1.5     (0.6     —         (3.0

Proceeds from sale of property, plant & equipment and sale-leasebacks

     —         —         14.6       0.3       —         14.9  

Other investing activities

     —         —         0.2       —         —         0.2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (0.5     (40.1     (12.6     (14.3     —         (67.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financing Activities

            

Payments of long-term debt

     —         (100.0     (423.4     (1.1     —         (524.5

Borrowings under ABL

     —         —         684.4       1.3       —         685.7  

Payments under ABL

     —         —         (576.6     —         —         (576.6

Premiums and costs paid upon extinguishment of long-term debt

     —         (7.7     (14.3     —         —         (22.0

Financing fees

     —         —         (1.7     —         —         (1.7

Distributions to non-controlling interests

     —         —         —         (0.9     —         (0.9

Issuance of common shares

     0.3       —         —         —         —         0.3  

Dividends paid to common shareowners

     (8.3     —         —         —         —         (8.3

Other financing activities

     —         —         —         0.4       —         0.4  

Intercompany dividends

     —         —         —         (11.8     11.8       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

     (8.0     (107.7     (331.6     (12.1     11.8       (447.6

Effect of exchange rate changes on cash

     0.2       —         1.3       1.4       —         2.9  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash & cash equivalents

     4.0       0.3       (401.5     (10.1     —         (407.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash & cash equivalents, beginning of period

     1.1       22.4       468.8       38.2       —         530.5  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash & cash equivalents, end of period

   $ 5.1     $ 22.7     $ 67.3     $ 28.1     $ —       $ 123.2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

31


Table of Contents

Consolidating Statements of Condensed Cash Flows

(in millions of U.S. dollars)

Unaudited

 

     For the Six Months Ended July 1, 2017  
     Cott
Corporation
    DS Services of
America, Inc.
    DSS
Guarantor
Subsidiaries
    DSS
Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

Net cash provided by (used in) operating activities

   $ 20.0     $ 172.0     $ (98.6   $ 20.5     $ (12.7   $ 101.2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investing Activities

            

Acquisition, net of cash received

     —         (26.8     (16.3     (1.1     —         (44.2

Additions to property, plant & equipment

     (1.4     (37.7     (25.2     (16.7     —         (81.0

Additions to intangible assets

     —         (1.9     (3.3     (0.6     —         (5.8

Proceeds from sale of property, plant & equipment and sale-leasebacks

     —         2.1       16.3       0.6       —         19.0  

Other investing activities

     —         —         0.4       —         —         0.4  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (1.4     (64.3     (28.1     (17.8     —         (111.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financing Activities

            

Payments of long-term debt

     —         (100.0     (626.4     (1.4     —         (727.8

Issuance of long-term debt

     —         —         750.0       —         —         750.0  

Borrowings under ABL

     —         —         1,457.3       1.3       —         1,458.6  

Payments under ABL

     —         —         (1,409.3     (1.5     —         (1,410.8

Premiums and costs paid upon extinguishment of long-term debt

     —         (7.7     (21.5     —         —         (29.2

Financing fees

     —         —         (11.1     —         —         (11.1

Distributions to non-controlling interests

     —         —         —         (1.8     —         (1.8

Issuance of common shares

     0.8       —         —         —         —         0.8  

Common shares repurchased and cancelled

     (1.8     —         —         —         —         (1.8

Dividends paid to common shareowners

     (16.7     —         —         —         —         (16.7

Other financing activities

     —         —         —         0.9       —         0.9  

Intercompany dividends

     —         —         —         (12.7     12.7       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (17.7     (107.7     139.0       (15.2     12.7       11.1  

Effect of exchange rate changes on cash

     (0.6     —         2.9       2.1       —         4.4  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash & cash equivalents

     0.3       —         15.2       (10.4     —         5.1  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash & cash equivalents, beginning of period

     4.8       22.7       52.1       38.5       —         118.1  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash & cash equivalents, end of period

   $ 5.1     $ 22.7     $ 67.3     $ 28.1     $ —       $ 123.2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

32


Table of Contents

Consolidating Statements of Condensed Cash Flows

(in millions of U.S. dollars)

Unaudited

 

     For the Three Months Ended July 2, 2016  
     Cott
Corporation
    DS Services of
America, Inc.
    DSS
Guarantor
Subsidiaries
    DSS
Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

Net cash (used in) provided by operating activities

   $ (0.3   $ 29.6     $ 67.2     $ 5.2     $ (14.1   $ 87.6  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investing Activities

            

Acquisitions, net of cash received

     0.5       (2.3     —         —         —         (1.8

Additions to property, plant & equipment

     (0.5     (20.8     (11.6     (0.3     —         (33.2

Additions to intangible assets

     —         (0.6     (0.4     —         —         (1.0

Proceeds from sale of property, plant & equipment

     —         —         0.2       —         —         0.2  

Increase in restricted cash

     (2.8     —         —         —         —         (2.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (2.8     (23.7     (11.8     (0.3     —         (38.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financing Activities

            

Payments of long-term debt

     —         —         (0.3     (0.1     —         (0.4

Borrowings under ABL

     57.2       —         66.7       —         —         123.9  

Payments under ABL

     (88.9     —         (98.8     —         —         (187.7

Distributions to non-controlling interests

     —         —         —         (1.0     —         (1.0

Issuance of common shares

     220.1       —         —         —         —         220.1  

Dividends paid to common shareowners

     (7.4     —         —         —         —         (7.4

Intercompany dividends

     —         —         (13.0     (1.1     14.1       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     181.0       —         (45.4     (2.2     14.1       147.5  

Effect of exchange rate changes on cash

     (0.2     —         (1.8     (0.1     —         (2.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in cash & cash equivalents

     177.7       5.9       8.2       2.6       —         194.4  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash & cash equivalents, beginning of period

     4.9       20.5       25.0       4.7       —         55.1  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash & cash equivalents, end of period

   $ 182.6     $ 26.4     $ 33.2     $ 7.3     $ —       $ 249.5  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

33


Table of Contents

Consolidating Statements of Condensed Cash Flows

(in millions of U.S. dollars)

Unaudited

 

     For the Six Months Ended July 2, 2016  
     Cott
Corporation
    DS Services of
America, Inc.
    DSS
Guarantor
Subsidiaries
    DSS
Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

Net cash (used in) provided by operating activities

   $ (137.1   $ 55.7     $ 156.9     $ 9.9     $ (16.5   $ 68.9  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investing Activities

            

Acquisitions, net of cash received

     (42.7     (3.5     —         —         —         (46.2

Additions to property, plant & equipment

     (0.9     (37.6     (23.6     (0.6     —         (62.7

Additions to intangible assets

     (0.1     (1.1     (2.1     —         —         (3.3

Proceeds from sale of property, plant & equipment

     —         0.1       2.8       —         —         2.9  

Increase in restricted cash

     (2.8     —         —         —         —         (2.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (46.5     (42.1     (22.9     (0.6     —         (112.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financing Activities

            

Payments of long-term debt

     —         —         (1.3     (0.2     —         (1.5

Borrowings under ABL

     144.8       —         476.3       —         —         621.1  

Payments under ABL

     (147.7     —         (598.3     —         —         (746.0

Distributions to non-controlling interests

     —         —         —         (3.3     —         (3.3

Issuance of common shares

     364.2       —         —         —         —         364.2  

Common shares repurchased and cancelled

     (1.1     —         —         —         —         (1.1

Dividends paid to common shareowners

     (14.7     —         —         —         —         (14.7

Intercompany dividends

     —         —         (13.0     (3.5     16.5       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     345.5       —         (136.3     (7.0     16.5       218.7  

Effect of exchange rate changes on cash

     (0.1     —         (2.9     (0.1     —         (3.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash & cash equivalents

     161.8       13.6       (5.2     2.2       —         172.4  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash & cash equivalents, beginning of period

     20.8       12.8       38.4       5.1       —         77.1  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash & cash equivalents, end of period

   $ 182.6     $ 26.4     $ 33.2     $ 7.3     $ —       $ 249.5  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

34


Table of Contents

Guarantor Subsidiaries for 2020 Notes, 2022 Notes, and 2024 Notes

The 2020 Notes and the $525.0 million of 5.375% senior notes due 2022 (the “2022 Notes”), each issued by Cott Corporation’s 100% owned subsidiary Cott Beverages Inc. (“CBI”), are fully and unconditionally, jointly and severally guaranteed on a senior basis by Cott Corporation and certain of its 100% owned direct and indirect subsidiaries (the “Cott Guarantor Subsidiaries”). The Indentures governing the 2020 Notes and the 2022 Notes require (i) any 100% owned direct and indirect restricted subsidiary that guarantees any indebtedness of CBI or any guarantor and (ii) any non-100% owned subsidiary that guarantees any other capital markets debt of CBI or any guarantor to guarantee the 2020 Notes and the 2022 Notes. No non-100% owned subsidiaries guarantee the 2020 Notes or the 2022 Notes. The guarantees of Cott Corporation and the Cott Guarantor Subsidiaries may be released in limited circumstances only upon the occurrence of certain customary conditions set forth in the Indentures governing the 2020 Notes and the 2022 Notes. As of April 5, 2017, the entire aggregate principal amount of our 2020 Notes has been redeemed (see Note 10 to the consolidated financial statements).

The 2024 Notes were initially issued on June 30, 2016 by Cott Finance Corporation, which was not a Cott Guarantor Subsidiary. Cott Finance Corporation was declared an unrestricted subsidiary under the Indentures governing the 2022 Notes and the 2020 Notes. As a result, such entity is reflected as a Cott Non-Guarantor Subsidiary in the following summarized condensed consolidating financial information through August 2, 2016. Substantially simultaneously with the closing of the Eden Acquisition on August 2, 2016, we assumed all of the obligations of Cott Finance Corporation as issuer under the 2024 Notes, and Cott Corporation’s U.S., Canadian, U.K., Luxembourg and Dutch subsidiaries that are currently obligors under the 2022 Notes and the 2020 Notes (including CBI) entered into a supplemental indenture to guarantee the 2024 Notes. The Indenture governing the 2024 Notes requires (i) any 100% owned domestic restricted subsidiary that guarantees any debt of the issuer or any guarantor and (ii) and any non-100% owned subsidiary that guarantees any other capital markets debt of Cott Corporation or any other guarantor to guarantee the 2024 Notes. No non-100% owned subsidiaries guarantee the 2024 Notes. The guarantees of CBI and the Cott Guarantor Subsidiaries may be released in limited circumstances only upon the occurrence of certain customary conditions set forth in the Indenture governing the 2024 Notes. Currently, the obligors under the 2024 Notes are identical to the obligors under the 2020 Notes and the 2022 Notes, but different than the obligors under the DSS Notes. The 2024 Notes are listed on the official list of the Irish Stock Exchange and are traded on the Global Exchange Market thereof.

We have not presented separate financial statements and separate disclosures have not been provided concerning the Cott Guarantor Subsidiaries due to the presentation of condensed consolidating financial information set forth in this Note, consistent with the SEC rules governing reporting of subsidiary financial information.

The following summarized condensed consolidating financial information of the Company sets forth on a consolidating basis: our Balance Sheets, Statements of Operations and Cash Flows for Cott Corporation, CBI, the Cott Guarantor Subsidiaries and our other non-guarantor subsidiaries (the “Cott Non-Guarantor Subsidiaries”). This supplemental financial information reflects our investments and those of CBI in their respective subsidiaries using the equity method of accounting.