Note 3—Discontinued Operations

On July 24, 2017, the Company entered into a Purchase Agreement with Refresco, pursuant to which the Company will sell to Refresco its Traditional Business. The transaction is structured as a sale of the assets of the Canadian business and a sale of the stock of the operating subsidiaries engaged in the Traditional Business in the other jurisdictions after the Company completes an internal reorganization. The Traditional Business excludes our Route Based Services and Coffee, Tea and Extract Solutions reporting segments, and RCI’s concentrate business, the Columbus manufacturing facility and our Aimia business. The Traditional Business produces, either directly or through third-party manufacturers through co-packing arrangements, CSDs, 100% shelf stable juice and juice-based products, clear, still and sparkling flavored waters, energy drinks and shots, sports drinks, new age beverages, ready-to-drink teas, liquid enhancers, freezables, and ready-to-drink alcoholic beverages. The closing of the transaction is subject to receipt of regulatory approval in the United Kingdom. The aggregate deal consideration is $1.25 billion, is payable at closing in cash, subject to adjustment for indebtedness, working capital, and other items, and is expected to close near the end of 2017. The Company intends to use the proceeds of the transaction to repay indebtedness and reduce overall leverage.

Upon closing of the sale of the Traditional Business, the Company and Refresco will enter into a Transition Services Agreement pursuant to which the Company and Refresco will provide certain services to each other for various service periods, with the longest service period being 18 months, including tax and accounting services, certain human resources services, communications systems and support, and insurance/risk management. Each party will be compensated for services rendered as set forth in the Transition Services Agreement. Each service period may be extended as set forth in the Transition Services Agreement, up to a maximum extension of 180 days.

In addition, upon closing the Company and Refresco will enter into certain Co-pack Manufacturing Agreements pursuant to which the Company and Refresco will manufacture and supply certain beverage products for each other and a Concentrate Supply Agreement pursuant to which the Company will supply concentrates to Refresco. Each party will be compensated for the products they supply as set forth in the applicable agreements. The Co-pack Manufacturing Agreements provide for a term of 36 months and the Concentrate Supply Agreement provides for a term that is coterminous with the term of the Transition Services Agreement.

For all periods presented, the operating results associated with the Traditional Business have been reclassified into net income from discontinued operations, net of income taxes in the consolidated statements of operations and the assets and liabilities associated with this business have been reflected as assets and liabilities of discontinued operations in the consolidated balance sheets.

The major components of net income from discontinued operations, net of income taxes in the consolidated statements of operations include the following:


	For the Three Months Ended					For the Nine Months Ended
(in millions of U.S. dollars)	September 30, 2017			October 1, 2016		September 30, 2017			October 1, 2016
Revenue, net	$	425.6		$	419.3	$	1,244.7		$	1,282.7
Cost of sales		371.3			361.3		1,093.4			1,102.0
Operating income from discontinued operations		13.9			21.0		33.6			67.1
Income (loss) from discontinued operations, before income taxes		12.1			4.5		(27.5	)		9.5
Income tax (benefit) expense¹		(30.9	)		1.6		(28.5	)		(2.5	)
Net income from discontinued operations, net of income taxes		43.0			2.9		1.0			12.0
Less: Net income attributable to non-controlling interests		2.1			1.5		6.4			4.4
Net income (loss) attributable to Cott Corporation – discontinued operations	$	40.9		$	1.4	$	(5.4	)	$	7.6

^1.

The pending transaction with Refresco is anticipated to result in a gain on sale which led to certain U.S. deferred tax liabilities being considered as a source of future taxable income. As a result, we recognized a tax benefit of approximately $26.9 million related to a corresponding U.S. valuation allowance release.

Assets and liabilities of discontinued operations presented in the consolidated balance sheets as of September 30, 2017 and December 31, 2016 include the following:


(in millions of U.S. dollars)	September 30, 2017		December 31, 2016
ASSETS
Cash & cash equivalents	$	66.2	$	40.0
Accounts receivable, net		165.2		127.2
Inventories		184.7		176.8
Prepaid expenses and other current assets		10.4		7.7

Current assets of discontinued operations		426.5		351.7
Property, plant & equipment, net		341.9		348.1
Goodwill		136.9		127.1
Intangible assets, net		175.7		180.7
Other long-term assets, net		19.1		17.5

Long-term assets of discontinued operations	$	673.6	$	673.4

LIABILITIES
Short-term borrowings		247.6		207.0
Current maturities of long-term debt		2.9		2.8
Accounts payable and accrued liabilities		268.6		229.4

Current liabilities of discontinued operations		519.1		439.2
Long-term debt		519.8		1,136.6
Deferred tax liabilities		0.8		2.8
Other long-term liabilities		45.9		34.6

Long-term liabilities of discontinued operations	$	566.5	$	1,174.0