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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 2002
[ ] 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 000-19914
COTT CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
CANADA None
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(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
207 Queen's Quay West, Suite 340
Toronto, Ontario M5J 1A7
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (416) 203-3898
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares without nominal or par value
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(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-K or any
amendment to this form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]
The aggregate market value of the common equity held by non-affiliates of
the registrant as of June 28, 2002 (based on the closing sale price of the
registrant's common stock as reported on the NASDAQ National Market on such
date) was $1,004,469,916.
The number of shares outstanding of the registrant's common stock as of
February 28, 2003 was 68,642,585.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement, to be filed within
120 days of December 28, 2002, are incorporated by reference in Part III.
Such reports, except for the parts therein which have been specifically
incorporated by reference, shall not be deemed "filed" for the purposes of this
report on Form 10-K.
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TABLE OF CONTENTS
PAGE
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PART I
Item 1 Business.................................................................................. 22
Item 2 Properties................................................................................ 29
Item 3 Legal Proceedings......................................................................... 30
Item 4 Submission of Matters to a Vote of Security Holders....................................... 30
PART II
Item 5 Market for the Registrant's Common Equity and Related Shareowner Matters ................. 33
Item 6 Selected Financial Data .................................................................. 34
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations .... 35
Item 7A Quantitative and Qualitative Disclosures about Market Risk ............................... 45
Item 8 Financial Statements and Supplementary Data
Report of Management................................................................. 46
Report of Independent Accountants.................................................... 47
Consolidated Statements of Income for the years ended December 28, 2002, December
29, 2001 and December 30, 2000.................................................... 48
Consolidated Balance Sheets as of December 28, 2002 and December 29, 2001............ 49
Consolidated Statements of Shareowners' Equity for the years ended December 28,
2002, December 29, 2001 and December 30, 2000..................................... 50
Consolidated Statements of Cash Flows for the years ended December 28, 2002,
December 29, 2001 and December 30, 2000........................................... 51
Notes to the Consolidated Financial Statements....................................... 52
Quarterly Financial Information...................................................... 74
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...... 74
PART III
Item 10 Executive Officers and Directors.......................................................... 75
Item 11 Executive Compensation.................................................................... 75
Item 12 Security Ownership of Certain Beneficial Owners and Management............................ 75
Item 13 Certain Relationships and Related Transactions............................................ 75
Item 14 Controls and Procedures................................................................... 75
PART IV
Item 15 Exhibits, Financial Statement Schedules and Reports on Form 8-K........................... 76
Cott's consolidated financial statements are prepared in accordance with
United States generally accepted accounting principles ("GAAP") in U.S. dollars.
Unless otherwise indicated, all amounts in this report are in U.S. dollars and
U.S. GAAP.
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FORWARD-LOOKING STATEMENTS
In addition to historical information, this report and the reports and
documents incorporated by reference in this report contain statements relating
to future events and Cott's future results. These statements are
"forward-looking" within the meaning of the Private Securities Litigation Reform
Act of 1995 and include, but are not limited to, statements that relate to
projections of sales, earnings, earnings per share, cash flows, capital
expenditures or other financial items, discussions of estimated future revenue
enhancements and cost savings. These statements also relate to Cott's business
strategy, goals and expectations concerning its market position, future
operations, margins, profitability, liquidity and capital resources. Generally,
words such as "anticipate", "believe", "continue", "could", "estimate",
"expect", "intend", "may", "plan", "predict", "project", "should", "will" and
similar terms and phrases are used to identify forward-looking statements in
this report and in the documents incorporated in this report by reference. These
forward-looking statements are made as of the date of this report.
Although Cott believes the assumptions underlying these forward-looking
statements are reasonable, any of these assumptions could prove to be inaccurate
and, as a result, the forward-looking statements based on those assumptions
could be incorrect. Cott's operations involve risks and uncertainties, many of
which are outside of its control, and any one or any combination of these risks
and uncertainties could also affect whether the forward-looking statements
ultimately prove to be correct.
The following are some of the factors that could affect Cott's financial
performance, including but not limited to sales, earnings and cash flows, or
could cause actual results to differ materially from estimates contained in or
underlying the forward-looking statements:
- loss of key customers, particularly Wal-Mart, and the commitment of
retailer brand beverage customers to their own retailer brand beverage
programs;
- increases in competitor consolidations and other market-place
competition, particularly among branded beverage products;
- Cott's ability to identify acquisition and alliance candidates and to
integrate into its operations the businesses and product lines that are
acquired or allied with;
- fluctuations in the cost and availability of beverage ingredients and
packaging supplies, and Cott's ability to maintain favorable
arrangements and relationships with its suppliers;
- unseasonably cold or wet weather, which could reduce demand for Cott's
beverages;
- Cott's ability to protect the intellectual property inherent in new and
existing products;
- adverse rulings, judgments or settlements in Cott's existing litigation,
and the possibility that additional litigation will be brought against
Cott;
- product recalls or changes in or increased enforcement of the laws and
regulations that affect Cott's business;
- currency fluctuations that adversely affect the exchange between the
U.S. dollar on one hand and the pound sterling, the Canadian dollar and
other currencies on the other hand;
- changes in interest rates;
- changes in tax laws and interpretations of tax laws;
- changes in consumer tastes and preference and market demand for new and
existing products;
- changes in general economic and business conditions; and
- increased acts of terrorism or war.
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Many of these factors are described in greater detail in this report and in
other filings with the SEC. Cott undertakes no obligation to update any
information contained in this report or to publicly release the results of any
revisions to forward-looking statements to reflect events or circumstances that
Cott may become aware of after the date of this report. Undue reliance should
not be placed on forward-looking statements.
All future written and oral forward-looking statements attributable to Cott
or persons acting on Cott's behalf are expressly qualified in their entirety by
the foregoing.
-21-
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF THE BUSINESS
Cott Corporation is the leading supplier of premium quality retailer brand
carbonated soft drinks in the United States, Canada and the United Kingdom. Cott
operates its United States business through an indirect wholly owned subsidiary,
Cott Beverages Inc., its Canadian business through the Cott Beverages Canada
division and its United Kingdom business through an indirect wholly owned
subsidiary, Cott Beverages Ltd. In addition to carbonated soft drinks, product
lines include clear, sparkling flavored beverages, juices and juice-based
products, bottled water, energy drinks and iced teas. Cott's products are sold
principally under customer controlled retailer brands, but Cott also offers
product under brand names that it either owns or licenses from others.
Cott Corporation was incorporated in 1955 and is governed by the Canada
Business Corporations Act. Cott's registered Canadian office is located at 333
Avro Avenue, Pointe-Claire, Quebec, Canada H9R 5W3 and its principal executive
offices are located at 207 Queen's Quay West, Suite 340, Toronto, Ontario,
Canada M5J 1A7.
NARRATIVE DESCRIPTION OF THE BUSINESS
Recognizing the need for sustained long-term growth combined with increased
efficiency, Cott began a restructuring of its worldwide operations in the fall
of 1998 to centralize its organizational structure in each of three core
geographic markets. As a result of these efforts, Cott now operates its Canadian
business through the Cott Beverages Canada division, its United States
operations through its indirect wholly owned subsidiary, Cott Beverages Inc.,
and its U.K. operations through its indirect wholly owned subsidiary, Cott
Beverages Ltd.
From then until 2001, Cott took several steps to strengthen its management
team and strategic focus. Management identified and addressed challenges during
this transitional period and initiated a turnaround based on a three pronged
strategy to:
- focus on carbonated soft drink business in core geographic markets of
the United States, Canada and the United Kingdom;
- fix the cost structure for its product lines; and
- strengthen and rebuild the business.
Cott's strategy of focusing on the beverage business within core geographic
markets led Cott to divest the following non-strategic operations:
- the Australian beverage operations, which were sold in April 1999;
- the frozen food business, which was sold in May 1999;
- the packaging design business, which was sold in May 1999, subject to an
agreement by which the new owners committed to provide ongoing creative
services to Cott at competitive rates for ten years from the date of
sale;
- the Featherstone carbonated soft drink manufacturing plant and related
business in the United Kingdom, which were sold in May 1999;
- its minority interest in Menu Foods Limited (a pet food manufacturer) a
substantial portion of which was sold in August 1999 with the remaining
investment sold in May 2002;
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- the polyethylene terephthalate ("PET") preform manufacturing plant in
Leland, North Carolina and the PET bottle blowing equipment in three of
the carbonated soft drink manufacturing plants in the United States,
which were sold to Schmalbach-Lubeca Plastic Containers USA, Inc. in
April 2000, in connection with which Cott entered into a long-term
supply agreement with Schmalbach for PET bottles in the United States;
and
- the U.K. PET preform manufacturing business, which was sold in October
2000.
In prior years, Cott disposed of its bottling operations in Norway and South
Africa, and its beer and snack food businesses.
In 2002 with turnaround efforts complete, Cott's strategy turned to growth
driven by four key pillars:
- to expand its business in core markets by increasing market share,
winning new customers, developing new products and exploring new
channels;
- to make acquisitions or alliances to transform the business structure to
serve a growing customer base;
- to build world class teams by empowering employees, by communicating
standards of excellence, accountability and integrity and by leveraging
best practices; and
- to drive margins and cash flow by focusing on cash return on assets,
improving working capital turns, enriching product mix and gaining
efficiencies by applying Six Sigma across operations.
Since 1995, Cott has expanded and strengthened its production and
distribution capabilities in core geographic markets through a series of
acquisitions and capital investments. About 85% of Cott's beverages are produced
in facilities it owns or leases or by third party manufacturers with whom Cott
has long-term co-packing agreements. Acquisitions over the last five years
include:
- in October 2000, Cott acquired the Honickman Group's retailer brand
beverage business, through which it acquired a carbonated soft drink
manufacturing facility in Concordville, Pennsylvania, an established
customer base and rights to the Vintage(TM) brand of seltzer water;
- in July 2001, Cott acquired the right to manufacture the retailer brand
concentrate that it formerly obtained under a long-term supply contract
with the Royal Crown unit of Cadbury Schweppes plc ("Royal Crown"), and
gained ownership of unique formulas, proprietary information, a
concentrate manufacturing facility and the Royal Crown business outside
of North America; and
- in September 2001, Cott formed a new business venture with Polar Corp.,
the leading independent retailer brand beverage supplier in New England,
to enhance its position and customer base in the Northeast United
States. Cott has a 51% interest and consolidates the new venture in its
financial statements.
- in January 2002, Cott made equity investments in two spring water
companies, a 30% investment in Iroquois Water Ltd. and a 49% investment
in Iroquois West Bottling Ltd. ("Iroquois West"), to strengthen its
position in the spring water segment across Canada. In January 2003,
Cott acquired the remaining interest of Iroquois West.
- in June 2002, Cott formed a new venture in Mexico, Cott Embotelladores
de Mexico S.A. de C.V. ("CEMSA"), with Embotelladora de Puebla, S.A. de
C.V. ("EPSA") in order to establish manufacturing and marketing
capabilities in Mexico. Cott has a 90% interest in CEMSA.
- in June 2002, Cott acquired all of the outstanding capital stock of
Premium Beverage Packers, Inc. ("Wyomissing"). The acquisition is
expected to add manufacturing strength to Cott's growing presence in the
Northeast United States.
In recent years, Cott has grown its business and beverage offerings primarily
through acquisitions of other
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companies, new product lines and growth with key customers. A part of Cott's
strategy is to continue to expand its business through acquisitions and
alliances. To succeed in this strategy, Cott must identify appropriate
acquisition or strategic alliance candidates.
As Cott seeks to expand its operations, it expects to encounter a number of
risks, including:
- the need to add additional management and other critical personnel;
- the need to add additional equipment and capacity or third party
manufacturing arrangements;
- the risk of failing to predict shifts in consumer preferences and to
match its strategies to these shifts;
- the risk associated with increasing the scope, geographic diversity and
complexity of its operations;
- the risk related to assuming the liabilities of the businesses and
product lines that Cott acquires; and
- the risk that Cott's acquisitions and alliances will not result in the
operating efficiencies or other benefits that it anticipates.
Cott cannot provide assurance that acquisition and alliance opportunities
will be available, that it will have access to the capital required to finance
these opportunities, that it will continue to acquire or align with businesses
and product lines or that any of the businesses or product lines that it
acquires or aligns will be integrated successfully into Cott's business or prove
profitable.
In addition to changes in management and strategic focus, in July of 1998
Cott's shareowner composition underwent a significant transition. Along with
various members of the Pencer family, Cott completed a transaction involving
Thomas H. Lee Company, Paine Webber Capital and various of their related and
affiliated entities (together, the "THL Group") in which they purchased an
aggregate of:
- 10,000,000 common shares and an option to purchase an additional
5,000,000 common shares from members of the Pencer family; and
- 4,000,000 Convertible Participating Voting Second Preferred Shares,
Series 1 (the "Preferred Shares"), that were entitled to voting rights
together with the common shares on an as converted basis.
Additionally, in November 1999, Cott granted the THL Group the right to
purchase up to an additional 5% of the outstanding voting shares on the open
market. As of February 28, 2003, to Cott's knowledge and based upon a review of
public disclosure documents, the right to purchase the additional 5% of voting
shares had not been exercised. As consideration for the grant of this right, the
THL Group agreed to grant to Cott's Chairman of the Board a proxy to vote enough
of their voting shares to ensure that at no time will the THL Group have voting
rights in respect of more than 35% of the voting shares on a fully diluted
basis. The THL Group has also agreed not to exercise any options to acquire more
of the common shares if, after giving effect to such exercise, they would have
the power to vote or hold more than 35% of the voting shares on a fully diluted
basis.
On June 27, 2002, the 4,000,000 outstanding Preferred Shares owned by the
THL Group were converted into 6,286,452 common shares of Cott in accordance with
their terms. No Preferred Shares remain outstanding. On July 5, 2002, the THL
Group exercised the option to purchase the 5,000,000 shares from members of the
Pencer family. As of December 28, 2002, the THL Group collectively held
approximately 31% of the outstanding common shares of Cott.
-24-
FINANCIAL INFORMATION ABOUT SEGMENTS
For financial information about segments, see note 25 to the consolidated
financial statements, found on pages 71 to 73 of this annual report on Form
10-K.
PRINCIPAL PRODUCTS AND PRINCIPAL MARKETS
Cott's principal markets are in the United States, Canada and the United
Kingdom. Although Cott produces the majority of its products under retailer
brands for sale to retail customers, it also sells proprietary products that
include brands that Cott either owns or licenses from others.
Approximately 80% of Cott's beverages produced in the United States were
manufactured in facilities that are either owned or leased by Cott or by third
party manufacturers with whom Cott has long-term co-packing agreements. Cott
manufactures virtually all of the Canadian and United Kingdom beverages in
facilities that it either owns or leases. Cott relies on third parties to
produce and distribute products in areas or markets where it does not have its
own production facilities, such as continental Europe, or when additional
production capacity is required.
For each of the last three years, sales of beverages, including
concentrates, represented 100% of total sales. Sales of beverages in the United
States totaled $872.2 million in 2002; $779.4 million in 2001; and $657.3
million in 2000. Sales of beverages in Canada totaled $171.2 million in 2002;
$163.7 million in 2001; and $169.7 million in 2000. Sales of beverages,
including concentrates, in the United Kingdom and International totaled $146.8
million in 2002; $146.5 million in 2001; and $162.6 million in 2000. Total sales
attributable to all countries other than Canada totaled $1,027.4 million in
2002; $926.4 million in 2001; and $820.9 million in 2000. In Canada, long-lived
assets excluding deferred tax assets totaled $71.3 million in 2002, $72.3
million in 2001 and $79.1 million in 2000. Long-lived assets excluding deferred
tax assets, if any, in the United States totaled $426.9 million in 2002, $393.0
million in 2001 and $244.9 million in 2000. Long-lived assets in all other
countries totaled $62.6 million in 2002, $105.3 million in 2001 and $115.2
million in 2000.
Cott believes that the opportunity exists to increase sales of beverages in
various markets by:
- leveraging existing customer relationships;
- obtaining new customers;
- exploring new channels of distribution; and
- increasing its presence in the alternative beverage segment.
Cott distributes beverages in a variety of ways. Sales in the United States
and Canada are either:
- picked up by customers at Cott's facilities;
- distributed to store locations using third-party distributors; or
- delivered by Cott or a common carrier to either the customer's
distribution centers or directly to retail locations.
In the United Kingdom, Cott generally uses third-party carriers to deliver
products to the customer's distribution centers or directly to stores, although
a few customers collect products directly from the point of manufacture.
Cott may be liable if the consumption of any of its products causes injury,
illness or death. Cott also may be required to recall some of its products if
they become contaminated or are damaged or mislabeled. A significant unfavorable
product liability judgment or a widespread product recall could have a material
adverse
-25-
effect on the results of operations or cash flows. As of February 28, 2003, Cott
was insured against product liability claims with a limitation of $65 million
and a $0.2 million deductible per occurrence with an annual aggregate of $0.2
million. Once exhausted there is a maintenance deductible of $10,000 per
occurrence. Cott is also insured against product recalls with a limitation of
$10 million, a $2 million deductible, and a 20% coinsurance provision. Cott
cannot provide assurance that its insurance coverage will be adequate.
INGREDIENTS AND PACKAGING SUPPLIES
The principal ingredients required to produce Cott's products are
concentrate, sweeteners and carbon dioxide. Since July 2001, Cott makes most of
the concentrates it needs using ingredients from third parties and sources the
remaining concentrates and other ingredients from outside vendors. In July 2001,
Cott purchased the right to the retailer brand concentrate that it formerly
obtained under a long-term supply contract with Royal Crown. With this
acquisition, Cott also gained ownership of unique formulas, proprietary
information, a concentrate manufacturing facility and the Royal Crown business
outside North America. Cott purchases its primary packaging supplies, including
PET bottles, caps and preforms, cans and lids, labels, cartons and trays, from
outside vendors.
Cott has a variety of suppliers for many of its materials, and it maintains
long-standing relationships with many of these suppliers. Cott typically enters
into annual supply arrangements rather than long-term contracts with suppliers,
but has long-term agreements with respect to some of its key packaging supplies,
such as aluminum cans and lids and PET bottles, and some key ingredients, such
as artificial sweeteners. If Cott is forced to replace one or more of these key
suppliers, ingredient and packaging supply costs could increase or decrease.
None of the ingredients or packaging supplies that are used to produce or
package Cott's products are currently in short supply, although the supply of
specific ingredients and packaging supplies could be adversely affected by
economic factors such as industry consolidation, energy shortages, governmental
controls, labor disputes, weather conditions and other factors.
The underlying commodity costs of the ingredients and packaging supplies,
such as resin for PET, aluminum for cans, and high fructose corn syrup, are
cyclical and historically have been subject to price volatility. The majority of
Cott's contracts allow suppliers to alter the costs they charge for ingredients
and packaging supplies based on changes in commodity costs, and in some cases
other factors, at certain predetermined times and subject to defined guidelines.
As a result, Cott bears the risk of shifts in the market costs of these
commodities. A portion of the ingredients and packaging supplies are subject to
fixed prices for one-year terms, after which Cott typically negotiates new terms
based upon prevailing market conditions. If the cost of these ingredients or
packaging supplies increases, Cott may be unable to pass these costs along to
customers through corresponding or contemporaneous adjustments to the selling
prices.
TRADE SECRETS, TRADEMARKS AND LICENSES
Cott sells the majority of its beverages to retailer brand customers who own
the trademarks associated with those products. Cott is the registered owner of
various trademarks, most notably Cott(TM) in North America, as well as Stars &
Stripes(TM), Vess(TM), Vintage(TM), Top Pop(TM), Clear Choice(TM) and City
Club(TM) in the United States and Edge(TM) and Red Rooster(TM) in the U.K. and
RC(TM) in more than 100 countries outside of North America. In 2001, Cott
acquired the rights to the Cott(TM) trademark in the United States from an
unrelated third party. Cott is licensed to use certain trademarks, including
Chubby(TM) in Canada and the United States and RC(TM) in certain regions of
Canada, and Benshaws(TM) and Carters(TM) in the United Kingdom.
Cott's success depends in part on its intellectual property. To protect this
intellectual property, Cott relies principally on contractual restrictions (such
as nondisclosure and confidentiality agreements) in agreements with employees,
consultants and customers, and on the common law of trade secrets and
proprietary "know-
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how". Cott also relies on trademark protection.
Cott may not be successful in protecting its intellectual property for a
number of reasons, including:
- competitors may independently develop intellectual property that is
similar to or better than Cott's;
- employees, consultants and customers may not abide by their contractual
agreements and the cost of enforcing those agreements may be
prohibitive, or those agreements may prove to be unenforceable or more
limited than anticipated;
- foreign intellectual property laws may not adequately protect Cott's
intellectual property rights; and
- trademarks may be challenged, invalidated or circumvented.
If Cott is unable to protect its intellectual property, it would weaken
Cott's competitive position, and it could face significant expense to protect or
enforce intellectual property rights.
If Cott is found to infringe on the intellectual property rights of others,
it could incur significant damages, be enjoined from continuing to manufacture,
market or use the affected product, or be required to obtain a license to
continue manufacturing or using the affected product. A license could be very
expensive to obtain or may not be available at all. Similarly, changing products
or processes to avoid infringing the rights of others may be costly or
impracticable.
Occasionally, third parties may assert that Cott is, or may be, infringing
on or misappropriating their intellectual property rights. In these cases, Cott
will defend against claims or negotiate licenses where it considers these
actions appropriate. Intellectual property cases are uncertain and involve
complex legal and factual questions. If Cott becomes involved in this type of
litigation, it could consume significant resources and divert its attention from
business operations.
SEASONALITY OF SALES
Sales of beverages are seasonal, with the highest sales volumes generally
occurring in the second and third fiscal quarters, which correspond to the
warmer months of the year. Accordingly, sales volume tends to decrease during
cold and wet weather months and can be affected by unseasonably cold or wet
weather conditions in core geographic markets. On the other hand, when the
weather is unseasonably warm, Cott may not have access to adequate production
capacity to meet sales demands.
CUSTOMERS
Cott's customers include many large national and regional grocery,
mass-merchandise, drugstore, wholesale and convenience store chains in the core
markets of the United States, Canada and the U.K. For the year ended December
28, 2002, sales to Wal-Mart Stores, Inc. and its affiliates accounted for
approximately 40% of total sales. For the same period, Cott's top ten customers
accounted for approximately 71% of total sales. Cott expects that sales of its
products to a limited number of customers will continue to account for a high
percentage of sales for the foreseeable future. The loss of Wal-Mart would, and
the loss of one of Cott's other significant customers could, have a material
adverse effect on its business, financial condition and results of operations.
-27-
COMPETITION
The markets for Cott's products are extremely competitive. Competition in
these markets could cause Cott to lose market share, reduce pricing or increase
capital and other expenditures. Companies that produce and sell the major,
national brand beverages located in Cott's core geographic markets possess
significantly greater financial and marketing resources than Cott possesses.
Retailer brand beverages that Cott supplies to its customers compete for access
to shelf space with branded beverage products on the basis of quality and price.
Cott's customers primarily control the shelf space but there is no guarantee
that they will allocate space to their retailer brand products. In addition,
entry of any of the national brand companies into the retailer brand segment of
the beverage market could have a material adverse effect on Cott's business,
financial condition and results of operations. Cott also faces competition from
other retailer brand beverage manufacturers in the United States and the U.K.,
some of which possess substantial bottling facilities.
Cott differentiates itself from other retailer brand beverage suppliers by
offering its customers superior service, efficient distribution methods,
manufacturing innovation, premium quality products, category management and
strategies for packaging and marketing. Cott strives to maintain the quality and
consistency of taste of its products through access to premium quality cola and
other concentrates.
RESEARCH AND DEVELOPMENT
Cott maintains a research facility in Columbus, Georgia where new beverages
are developed and customized. Cott believes that the provision of these services
and the expansion of its product lines are key to innovation, and are an
important part of its business strategy. During 2002, Cott spent approximately
$2.8 million on product research and development, as compared with $1.9 million
in 2001 and $1.5 million in 2000. The increase results primarily from the Royal
Crown acquisition in July 2001.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
Cott's operations and properties are subject to various federal, state,
local and foreign laws and regulations. Cott cannot provide assurance that it
has been or will at all times be in compliance with all regulatory requirements
or that it will not incur material costs or liabilities in connection with
regulatory requirements.
As a producer of beverages, Cott must comply with production, packaging,
quality, labeling and distribution standards in each of the countries where it
operates, including, in the United States, those of the federal Food, Drug and
Cosmetic Act. Cott is also subject to various federal, state, local and foreign
environmental laws and workplace regulations. These laws and regulations
include, in the United States, the Occupational Safety and Health Act, the
Unfair Labor Standards Act, the Clean Air Act, the Clean Water Act and laws
relating to the maintenance of fuel storage tanks.
The Ontario Environmental Protection Act ("EPA") provides that a minimum
percentage of a bottler's soft drink sales within specified areas in Ontario
must be made in refillable containers. To comply with these requirements, Cott
and many other industry participants would have to significantly increase sales
in refillable containers. Cott has attempted to keep itself informed as to
developments under the EPA and the regulations pertaining to soft drink
containers. Based on industry and environmental organization reports, the
regulations have not been actively enforced since 1991 despite the fact that
they are still in effect and not amended. To Cott's knowledge, there have not
been any further significant developments in this matter since then, and there
has been no substantial and active movement on this issue of enforcement of the
regulations by environmental groups since 1998. Based on industry and
environmental organization reports, significant industry participants do not
currently adhere to the guidelines set out in the regulations. In fact, the
Ontario Ministry of the Environment released a report in 1997 stating that
despite the unworkable nature of the EPA regulations, the regulations would be
maintained pending review of further alternatives.
-28-
The EPA provides for various financial penalties for breach of the
regulations that, if assessed, may be material to Cott. However, based on the
foregoing, although still in existence, the regulations have not been enforced
for over ten years and management does not know of any information to suggest
that a change in this regard is imminent. Further, given that the non-compliance
appears to be industry wide, management does not believe that any enforcement
proceedings would be instituted without a transition period and therefore does
not believe that such enforcement would have any immediate material financial
impact on Cott.
Finally, because management believes that enforcement of the regulations is
remote for the foreseeable future, no detailed analysis of the costs that would
be incurred in order to comply with the regulations has been compiled. Although
remote and not yet specifically quantified, capital, operational and other costs
associated with compliance, which may be significant, would be accounted for if
incurred.
Management believes that Cott's current practices and procedures for the
control and disposition of wastes comply in all material respects with
applicable laws, and with the exception of the EPA, that it is in compliance in
all material respects with the existing legislation in Cott's core markets.
EMPLOYEES
As of December 28, 2002, Cott had approximately 2,798 employees, of whom an
estimated 1,436 were located in the United States, 729 were located in Canada
and 633 were located in the United Kingdom, Mexico and elsewhere. Cott has
entered into numerous collective bargaining agreements that management believes
contain terms that are typical in the beverage industry. As these agreements
expire, management believes that they can be renegotiated on terms satisfactory
to Cott. Cott considers its relations with employees to be good.
AVAILABLE INFORMATION
Cott's annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and amendments to reports filed or furnished pursuant to
Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are
available free of charge from Cott's website at www.cott.com, when such reports
are available on the Securities and Exchange Commission website.
ITEM 2. PROPERTIES
Cott operates eight beverage production facilities in the United States,
five of which it owns and three of which it leases, as well as the global
concentrate manufacturing facility in Columbus, Georgia. Cott operates seven
beverage production facilities in Canada; five of which it owns and two of which
it leases. In the United Kingdom, Cott owns and operates two beverage production
facilities. Cott leases and operates one beverage production facility in Mexico.
Total square footage of the production facilities operated by Cott is
approximately 1,629,983 in the United States including the concentrate facility;
1,004,255 in Canada; 556,000 in the United Kingdom; and 111,278 in Mexico. Lease
terms for non-owned beverage production facilities expire between 2003 and 2017.
The lease that expires in 2003 is for a 62,300 square foot juice production
facility in Canada. Cott is currently negotiating an extension of the lease and
expects that it will be extended. Cott believes that its facilities and
production equipment, together with third-party manufacturing arrangements,
provide sufficient capacity to meet current intended purposes, and that it will
be sufficient to supply foreseeable demand from customers, even in peak months.
In addition, management believes that increased demand can be met by increasing
production in its facilities through increases in personnel and the number of
their shifts.
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ITEM 3. LEGAL PROCEEDINGS
In August 1999, Cott was named as a defendant in an action styled North
American Container, Inc. v. Plastipak Packaging Inc., et al., filed in the
United States District Court for the Northern District of Texas, Dallas
Division. The plaintiff, North American Container, Inc., has sued over forty
defendants, alleging, among other things, that Cott has infringed on their
United States patent relating to plastic containers. The complaint subsequently
was amended to include a Reissue Patent based on the original patent in suit.
The plaintiff alleges that the infringement is willful, and seeks injunctive
relief, treble damages and recovery of attorneys' fees and costs. Cott has
reached an agreement with its major supplier of PET bottles in the United States
to indemnify Cott for a significant portion of its costs and damages, if any.
This portion is based on the supplier's pro rata share of those PET bottles
supplied to Cott that Cott sold in the United States during the period in issue
in the litigation, currently estimated to be at least 85%. Cott is not in a
position to state the anticipated outcome of this case at this time; however, it
believes that any damages that may be awarded to the plaintiff will not have a
material adverse effect on Cott's financial condition or results of operations.
Cott (along with others) was named as a defendant in an action filed by
Victoriatea.com, Inc., The Torimiro Corporation and Rachael F. Parray in the
Supreme Court for the State of New York on May 30, 2002. The complaint seeks,
among other things, unspecified compensatory damages in an amount not less than
$3 million on each of six claims, punitive damages in an amount not less than $5
million and unspecified attorney's fees, costs and disbursements. The complaint
alleged breach of contract, negligence, breach of implied warranties, breach of
implied covenant of good faith and prima facie tort in connection with Cott's
manufacture of beverages for one of the plaintiffs. On August 15, 2002, the case
was removed to the U.S. District Court for the Southern District of New York. By
Order dated January 10, 2003, the federal district court granted Cott's motion
to dismiss the case in its entirety based on the doctrine of forum non
conveniens. The time for the plaintiffs to appeal from the order dismissing
their case has elapsed and no appeal has been taken.
Cott is engaged in various litigation matters in the ordinary course of its
business. Cott believes that the resolution of these matters will not have a
material adverse effect on its financial condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareowners during the fourth quarter
of 2002.
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EXECUTIVE OFFICERS OF COTT
The following is a list of names and ages of all of Cott's executive
officers as of February 28, 2003, indicating all positions and offices that each
of them hold.
PERIOD SERVED
NAME AND MUNICIPALITY OF RESIDENCE OFFICE AGE AS OFFICER
- ------------------------------------ ------------------------------------------------ --- ---------------
Frank E. Weise III................. Chairman, President & Chief Executive 58 1998 to present
Vero Beach, Florida Officer
Mark Benadiba...................... Executive Vice-President 49 1990 to present
Toronto, Ontario Canada & International
Paul R. Richardson................. Executive Vice-President 46 1994 to present
Sarasota, Florida Global Procurement & U.K.
John K. Sheppard................... Executive Vice-President 45 2002 to present
Hillsborough County, Florida President, U.S. Operations
Raymond P. Silcock................. Executive Vice-President 52 1998 to present
Loveladies, New Jersey Chief Financial Officer
Mark R. Halperin................... Senior Vice-President, General Counsel & 45 1995 to present
Toronto, Ontario Secretary
Colin D. Walker.................... Senior Vice-President, Corporate Resources 45 1998 to present
London, Ontario
Catherine M. Brennan............... Vice-President, Treasurer 45 1999 to present
Toronto, Ontario
Tina Dell'Aquila................... Vice-President, Controller & Assistant 40 1998 to present
Toronto, Ontario Secretary
Ivano R. Grimaldi.................. Vice-President, Global Procurement 45 2000 to present
Rosemere, Quebec
Douglas P. Neary................... Vice-President, Chief Information 47 2002 to present
Philadelphia, Pennsylvania Officer
Edmund P. O'Keeffe................. Vice-President, Investor Relations & Corporate 39 1999 to present
Toronto, Ontario Development
Prem Virmani....................... Vice-President, Technical Services 56 1991 to present
Columbus, Georgia
During the last five years, the above persons have been engaged in their
principal occupations or in other executive capacities with Cott except as
follows:
- in January 2002, Frank E. Weise III was elected chairman of the board of
directors. Mr. Weise has been a director and president and chief
executive officer of Cott since June 1998. Mr. Weise has held the
position of senior vice-president of Campbell Soup Company (food
products manufacturer) and president, Bakery and Confectionery Division,
of Campbell Soup Company, until 1997; and chairman of Confab Inc.
(feminine incontinence products manufacturer) until 1998;
- prior to January 2002, John K. Sheppard was president and chief
executive officer of Service Central
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Technologies, Inc. and prior to February 2000 was Vice-President,
President NW European division and Vice-President, President Central
European division of the Coca-Cola Company;
- prior to September 1998, Raymond P. Silcock was Chief Financial Officer
of Delimex Holding Inc. (a holding company);
- prior to September 1998, Mark R. Halperin held the position of Vice
President, General Counsel and Secretary and is the brother of Stephen
H. Halperin, a director of the Company;
- prior to September 1998, Colin D. Walker was Senior Manager, Deloitte &
Touche Consulting;
- prior to February 1999, Catherine M. Brennan was Treasurer and Senior
Director, Taxation of Nabisco Ltd. (food and beverage company);
- prior to September 1998, Tina Dell'Aquila was Assistant Corporate
Controller of Cott;
- prior to February 2002, Douglas P. Neary was a management consultant to
Cott and various other companies and prior to June 2001, he was Chief
Executive Officer of eonDigital, Inc. Prior to February 2000, he served
IBM as a Global Solutions Manager;
- Edmund O'Keeffe has held several senior management positions since
joining Cott in October 1994.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREOWNER
MATTERS
Cott's common shares are listed on the Toronto Stock Exchange under the
ticker symbol "BCB", and on the New York Stock Exchange under the ticker symbol
"COT". Cott's common shares were first listed on the New York Stock Exchange on
July 30, 2002. Prior to July 30, 2002, Cott's common shares had traded on the
Nasdaq National Market under the ticker symbol "COTT".
The tables below show the high and low reported per share sales prices of
common shares on the Toronto Stock Exchange (in Canadian dollars) and on Nasdaq
or the New York Stock Exchange (in U.S. dollars) for the indicated periods of
the years ended December 28, 2002 and December 29, 2001.
TORONTO STOCK EXCHANGE (C$)
2002 2001
---- ----
HIGH LOW HIGH LOW
---- --- ---- ---
January 1 -- March 31............. 30.60 23.15 18.90 11.00
April 1 -- June 30................ 33.50 26.37 18.60 13.10
July 1 -- September 30............ 29.00 22.20 24.06 16.68
October 1 -- December 31.......... 30.00 24.05 27.40 20.40
NASDAQ/NEW YORK STOCK EXCHANGE
2002 2001
---- ----
HIGH LOW HIGH LOW
---- --- ---- ---
January 1 -- March 31............. 18.89+ 14.54+ 12.13+ 7.25+
April 1 -- June 30 ............... 21.13+ 17.32+ 12.00+ 8.43+
July 1 -- September 30 ........... 18.27+ 14.06* 15.49+ 10.95+
October 1 -- December 31.......... 19.15* 15.28* 17.43+ 12.85+
+ denotes reported per share sales prices on Nasdaq National Market
* denotes reported per share sales prices on the New York Stock Exchange
As of February 28, 2003, Cott had 851 shareowners of record. This number was
determined from records maintained by Cott's transfer agent and it does not
include beneficial owners of securities whose securities are held in the names
of various dealers or clearing agencies. The closing sale price of Cott's common
shares on February 28, 2003 was C$25.10 on the Toronto Stock Exchange and $16.95
on the New York Stock Exchange.
Cott has not paid cash dividends since June 1998 and it is unlikely that
Cott will do so in 2003. There are certain restrictions on the payment of
dividends under the term loan and credit facility and the indenture governing
the 8% senior subordinated notes maturing in 2011. The most restrictive is the
quarterly limitation on dividends based on the prior quarter's earnings. Cott
currently can pay dividends subject to these limitations but does not intend to
do so.
CALCULATION OF AGGREGATE MARKET VALUE OF NON AFFILIATE SHARES
For purposes of calculating the aggregate market value of common shares held
by non-affiliates as shown on the cover page of this report, it was assumed that
all of the outstanding shares were held by non-affiliates except for shares held
by the THL Group and directors other than Frank E. Weise III. Frank E. Weise III
is included with non-affiliates as he is also an officer. This should not be
deemed to constitute an admission that any of these parties are, in fact,
affiliates of Cott, or that there are not other persons who may be deemed to be
affiliates. Further information concerning shareholdings of officers, directors
and principal stockholders is
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included or incorporated by reference in Item 12: Security Ownership of Certain
Beneficial Owners and Management.
ITEM 6. SELECTED FINANCIAL DATA
DECEMBER 28, DECEMBER 29, DECEMBER 30, JANUARY 1, JANUARY 2,
(in millions of U.S. dollars, except per 2002(1) 2001(2) 2000(3) 2000(4) 1999(5)
share amounts) (52 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS) (48 WEEKS)
------------- ------------- ------------- ------------ ------------
SALES $ 1,198.6 $ 1,090.1 $ 990.6 $ 993.7 $ 961.9
Cost of sales 965.7 902.7 825.5 847.9 862.4
Selling, general and administrative 110.2 94.1 91.3 100.8 91.3
Unusual items - - (2.1) (1.2) 77.2
------------- ------------- ------------- ------------ ------------
OPERATING INCOME (LOSS) 122.7 93.3 75.9 46.2 (69.0)
------------- ------------- ------------- ------------ ------------
Income (loss) from continuing operations 58.3 39.9 26.6 21.4 (95.8)
Extraordinary item (9.6) - (1.2) - -
Cumulative effect of changes in accounting
principles (44.8) - - (2.1) (9.9)
Discontinued operations - - - (0.8) (3.8)
------------- ------------- ------------- ------------ ------------
NET INCOME (LOSS) $ 3.9 $ 39.9 $ 25.4 $ 18.5 $ (109.5)
============= ============= ============= ============ ============
INCOME (LOSS) PER SHARE - BASIC
Income (loss) from continuing operations $ 0.89 $ 0.66 $ 0.44 $ 0.35 $ (1.53)
Extraordinary item $ (0.15) $ - $ (0.02) $ - $ -
Cumulative effect of changes in
accounting principles $ (0.69) $ - $ - $ (0.03) $ (0.16)
Discontinued operations $ - $ - $ - $ (0.01) $ (0.05)
Net income (loss) $ 0.06 $ 0.66 $ 0.42 $ 0.31 $ (1.74)
============= ============= ============= ============ ============
INCOME (LOSS) PER SHARE - DILUTED
Income (loss) from continuing operations $ 0.83 $ 0.58 $ 0.40 $ 0.32 $ (1.53)
Extraordinary item $ (0.14) $ - $ (0.02) $ - $ -
Cumulative effect of changes in
accounting principles $ (0.64) $ - $ - $ (0.03) $ (0.16)
Discontinued operations $ - $ - $ - $ (0.01) $ (0.05)
Net income (loss) $ 0.06 $ 0.58 $ 0.38 $ 0.28 $ (1.74)
============= ============= ============= ============ ============
CASH DIVIDEND PER SHARE $ - $ - $ - $ - $ 0.03
============= ============= ============= ============ ============
Total assets $ 785.4 $ 1,065.4 $ 621.6 $ 589.6 $ 699.2
Current maturities of long-term debt 16.5 281.8 1.6 1.6 12.5
Long-term debt 339.3 359.5 279.6 322.0 365.2
Shareowners' equity 218.2 197.7 158.5 142.3 122.0
Consolidated financial statements in accordance with Canadian GAAP are made
available to all shareowners and filed with Canadian regulatory authorities.
Under Canadian GAAP, Cott reported a net
- -------------------------
(1) During the year, Cott acquired Premium Beverage Packers, Inc. and formed a
new business in Mexico, Cott Embotelladores de Mexico, S.A. de C.V.
(2) During the year, Cott acquired certain assets of the Royal Crown Company
Inc. and formed a new business with Polar Corp. Current maturities of
long-term debt include the 2005 & 2007 Notes repaid on January 22, 2002 from
cash held in trust.
(3) During the year, Cott acquired the assets of the private label beverage and
the Vintage(TM) brand seltzer water businesses of Concord Beverage Company
and completed the divestiture of its polyethylene terephthalate preform
blow-molding operations.
(4) During the year, Cott completed a series of planned divestitures of non-core
businesses.
(5) During the period ended January 2, 1999, Cott undertook a major
restructuring and divested of its bottling operations in Norway.
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income of $58.8 million in 2002, $30.2 million in 2001, and $24.4 million in
2000 compared to a net income under U.S. GAAP of $3.9 million in 2002, $39.9
million in 2001, and $25.4 million in 2000. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" below for the reasons
for the significant difference between Canadian and U.S. GAAP net income.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Cott Corporation is the world's largest retailer brand soft drink supplier, with
the leading take home carbonated soft drink market shares in this segment in its
core markets of the U.S., Canada and the U.K.
OVERVIEW
In 2002, Cott reported strong results with a second consecutive year of record
sales and a 46% increase in income from continuing operations to $58.3 million.
Cott's continued focus on growth based on its four key strategies, expand the
core, make acquisitions & alliances, build world class teams, and drive margins
& cash flow, provided the necessary framework to achieve these results.
RECORD SALES - Cott's sales in 2002 were $1,198.6 million, 10% higher than the
previous record of $1,090.1 million in 2001. The sales growth resulted from
higher sales to core customers and through acquisitions. Sales to the top 10
customers in 2002, representing 71% of total sales, increased 8% over sales to
these customers 2001. Acquisitions made in 2001 and 2002 resulted in $80.7
million of the $108.5 million increase in sales in 2002 compared with 2001.
ACQUISITIONS AND EQUITY INVESTMENTS - In June, Cott formed a new venture in
Mexico, Cott Embotelladores de Mexico S.A. de C.V. ("CEMSA"), with Embotelladora
de Puebla, S.A. de C.V. ("EPSA") in order to establish manufacturing and
marketing capabilities in Mexico. Cott has a 90% interest in this venture. Also
in June, Cott acquired all of the outstanding capital stock of Premium Beverage
Packers, Inc. ("Wyomissing"). The Wyomissing acquisition is expected to add
manufacturing strength to Cott's growing presence in the Northeast United
States.
In January 2002, Cott made two equity investments to strengthen its position in
the retailer brand spring water segment in Canada. On December 29, 2002,
following the 2002 year end, Cott acquired the remaining interest in one of
these ventures located in Revelstoke, British Columbia.
The total cost of the acquisitions and investments in 2002 was $30.6 million.
DRIVING MARGINS - In 2002, gross margin was 19.4% compared to 17.2% in 2001.
Margins improved in the three core businesses, the U.S., Canada and the U.K., as
a result of the integration of the 2001 acquisition of certain assets of the
Royal Crown unit of Cadbury Schweppes plc ("Royal Crown") including the right to
manufacture concentrates, a concentrate production plant and the Royal Crown
business outside of North America and as a result of Cott's continuous cost
improvement efforts across the company. The margin improvement resulting from
the Royal Crown acquisition was partially offset by higher interest expense
relating to the acquisition.
Cott uses continuous cost improvement programs including Six Sigma to help track
and reduce operating variations and increase operating efficiency. Key
performance indicators measure performance in areas such as customer service and
asset utilization at each plant.
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2002 VERSUS 2001
RESULTS OF OPERATIONS
Income from continuing operations in 2002 was $58.3 million or $0.83 per diluted
share as compared with $39.9 million or $0.58 per diluted share in 2001. Net
income for 2002 was $3.9 million or $0.06 per share, taking into account the
extraordinary charge for early debt redemption and the change in accounting
principle for goodwill relating to the U.K.
SALES - Sales in 2002 were $1,198.6 million compared with $1,090.1 million in
2001. Excluding the impact of the acquisitions delineated below and the K-Mart
bankruptcy, sales were $1,109.2 million for 2002, an increase of 4.2% from
$1,064.2 million last year. Beverage volumes increased in the existing U.S. and
Canadian businesses and were partially offset by lower sales in the U.K.
Acquisitions included CEMSA and Wyomissing in 2002, Royal Crown in July 2001 and
the Northeast Retailer Brand LLC ("NRB") business combination in September 2001.
In the U.S., sales of $872.2 million in 2002 increased 11.9% from $779.4 million
in 2001. Of the increased sales, $66.7 million was as a result of the Wyomissing
acquisition and NRB business combination. U.S. sales were also impacted by the
K-Mart bankruptcy in 2002 as sales to this customer decreased $17.2 million in
2002 compared with 2001. Excluding the impact of Wyomissing, NRB and K-Mart,
U.S. sales of $796.8 million were up 5.7% in 2002 compared with 2001.
Sales in Canada of $171.2 million increased 4.6% from $163.7 million in 2001,
driven by increased promotional activities, new product launches and retailer
brand relaunches and a growing water segment in Canada.
Sales in the U.K. & International were $146.8 million in 2002 compared with
$146.5 million in 2001. Of the sales increase, $6.1 million was as a result of
the Royal Crown acquisition. Excluding the impact of the acquisition, sales were
down $5.8 million or 4.0%, the result of SKU and customer rationalization and
the emphasis on national brands by some U.K. retailers, which was partially
offset by the $7.1 million impact of the strengthening U.K. pound in relation to
the U.S. dollar.
GROSS PROFIT - Gross profit was 19.4% of sales for 2002 compared with 17.2% in
2001. Higher margins resulted primarily from operating efficiency improvements
and the impact of acquiring the Royal Crown assets. The Royal Crown acquisition
had a 1.2 percentage point positive effect on Cott's margins by significantly
reducing concentrate costs. Most concentrates are manufactured internally as a
result of this acquisition. The margin improvement from the Royal Crown
acquisition was partially offset by the increased interest expense relating to
the acquisition. Gross profit was also favorably impacted as continuous cost
improvement programs were used to gain operating efficiencies across Cott
plants.
Cost of sales was 80.6% of sales in 2002, 2.2 percentage points better than
2001. Variable costs represented about 90% of total cost of sales and fixed
costs represented about 10%. Major components of cost of sales included
ingredients and packaging costs, fees paid to third party manufacturers,
logistics and freight costs and depreciation and amortization. About 85% of
Cott's beverage products are manufactured in facilities it owns or leases or by
third party manufacturers with whom Cott has long-term co-packing agreements.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A") - SG&A was $110.2 million
in 2002, up $16.1 million from $94.1 million for 2001. SG&A increased as a
percent of sales from 8.6% to 9.2%. Removing the impact of acquisitions and 2001
goodwill amortization, SG&A of $101.4 million was up $11.1 million from 2001.
The increase reflects higher employee costs as headcount was increased to meet
current and future growth in the U.S. business, incremental IT spending and
one-time reorganization charges in the U.K. that were recorded in the first
quarter.
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INTEREST EXPENSE - Net interest expense was $32.9 million in 2002 compared with
$32.2 million for 2001. Interest on the term loan to finance the Royal Crown
acquisition and the NRB business combination resulted in an increase of $3.2
million. The December 2001 refinancing of senior subordinated notes maturing in
2005 and 2007 ("2005 & 2007 Notes") with 8% senior subordinated notes maturing
in 2011 ("2011 Notes") lowered interest expense by $2.2 million. Interest
savings in 2002 would have been higher except that Cott had to pay interest for
most of the month of January on both the 2011 Notes issued in December 2001 and
the 2005 & 2007 Notes repaid from funds held in trust on January 22, 2002. The
refinancing lowered Cott's average interest rate on its high yield notes by one
percentage point.
INCOME TAXES - Cott recorded an income tax provision of $28.9 million reflecting
an effective tax rate of 32.9% as compared with $23.2 million for an effective
rate of 36.8% in 2001. The decrease in the effective tax rate in 2002
principally reflects a lower statutory rate in Canada, restructuring of internal
debt in the third quarter of the year and realization of the benefit of a
capital loss in the first quarter. The 2001 effective tax rate was also lowered
as Cott recorded a $4.4 million tax benefit relating to prior period loss
carryforwards by decreasing the valuation allowance. Cott expects to be able to
utilize prior period tax loss carryforwards as a result of acquisitions made in
2001.
EXTRAORDINARY ITEM - The extraordinary item of $9.6 million in 2002 represents
the after tax costs of redeeming the 2005 & 2007 Notes. Costs include the early
redemption penalty and the non-cash write-off of the unamortized financing fees.
CHANGE IN ACCOUNTING PRINCIPLE - On December 30, 2001, Cott adopted SFAS 142 for
goodwill and intangibles acquired prior to June 30, 2001. Under this standard,
goodwill and intangible assets with indefinite lives are no longer amortized but
are subject to annual impairment tests based on fair values rather than net
recoverable amount. An impairment test of goodwill was required upon adoption of
this standard. Cott completed the impairment test of its reporting units in the
first quarter under the new rules and as a consequence recorded a non-cash
charge of $44.8 million to write down the entire goodwill of its U.K. business.
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL CONDITION - Operating cash flow after capital expenditures and before
cash costs of the redemption of the 2005 & 2007 Notes was $60.0 million, up 4.2%
from $57.6 million in 2001. The increase was attributable to higher cash from
continuing operations partially offset by increased capital spending of $5.4
million over 2001.
Cott used cash from operations to reduce short-term borrowings by $12.9 million
and long-term debt by $10.8 million, excluding the redemption of the 2005 & 2007
Notes. Also, in December 2002, Cott paid $19.5 million in full and final
settlement of the deferred consideration on the acquisition of the Hero Drinks
Group (U.K.) Limited. The amount represents the minimum guaranteed payments
under the agreement adjusted for the early repayment. Cash decreased $0.6
million in the year to $3.3 million as of December 28, 2002.
CAPITAL RESOURCES - Cott's sources of capital include operating cash flows,
short term borrowings under a committed revolving credit facility, issuance of
public and private debt and issuance of equity securities. Management believes
Cott has the financial resources to meet its ongoing cash requirements for
operations and capital expenditures as well as its other financial obligations.
Additional financing may be required to fund future acquisitions, should they
arise.
Under the current committed revolving credit facility, Cott has access to $75.0
million in the U.S. and Canada. The credit facility matures in December 2005.
The amount of the revolving credit facility can be increased by up to an
additional $50 million at Cott's request provided that existing lenders or other
entities willing to commit to this additional amount are identified. Cott also
has a (L)10 million ($16.0 million) demand facility in the U.K.
-37-
expiring in June 2003. Cott expects to renegotiate this demand facility prior to
its maturity. As of December 28, 2002, credit of $74.0 million was available in
aggregate under both facilities.
INVESTING ACTIVITIES - In June 2002, Cott completed two acquisitions. First,
Cott acquired both a 90% stake in a new Mexican soft drink bottling venture,
CEMSA, and a 35% share in a Mexican distribution company in order to establish
manufacturing and marketing capabilities in Mexico. Assets of CEMSA consist of
working capital, machinery and equipment and a customer list. Second, Cott
acquired all of the outstanding capital stock of Wyomissing, which was, prior to
the acquisition, Cott's largest carbonated soft drinks co-packer in the U.S., to
add manufacturing strength in the Northeast United States. The Wyomissing
acquisition included working capital, machinery and equipment, a customer list,
trademarks and goodwill.
The aggregate purchase price of these acquisitions was $28.8 million including
estimated acquisition costs of $1.8 million and an equity investment of $1.0
million. Cott financed the acquisitions with borrowings under its short-term
credit facility.
In January 2002, Cott made equity investments in two spring water companies
totaling $1.8 million to strengthen its position in the spring water segment
across Canada.
In May 2002, Cott disposed of its remaining 7.6% holding in Menu Foods Limited
for cash proceeds of $2.8 million. A gain of $1.3 million was recorded on the
transaction.
CAPITAL EXPENDITURES - Capital expenditures were $41.2 million in 2002 as
compared with $35.8 million in 2001. Major expenditures in 2002 included $6.2
million relating to the purified drinking water filling line projects in the
Tampa and San Antonio plants, $5.1 million for improvements to the Concordville,
Pennsylvania plant that was acquired in October 2000 and $3.2 million for
improvements to the CEMSA plant in Mexico that was acquired in June 2002. In
addition, Cott spent $3.6 million to upgrade and standardize information and
accounting systems in 2002. Key achievements in 2002 were the implementation of
Cott's enterprise resource planning system in the Mississauga and Scoudouc
facilities, both in Canada. Total capital expenditures for 2003 are anticipated
to be approximately $50 million.
LONG TERM DEBT - Long-term debt as of December 28, 2002 was $355.8 million,
compared with $641.3 million at the end of 2001 or $364.9 million net of the
amount held in trust to repay the 2005 & 2007 Notes (repaid January 22, 2002).
Long-term debt consists of $268.2 million in 2011 Notes with an aggregate
principal amount of $275 million, $86.6 million in a term bank loan maturing in
2006 and $1.0 million of other debt. The term loan bears interest at prime plus
1.75% or LIBOR plus 3%, at Cott's option. This variable rate debt is repayable
in a series of scheduled payments. Additional payments may be required based on
Cott's 2002 and future excess cash flows. Cott must offer to the lenders an
amount equal to 50% of its excess cash flow for a given year, calculated as set
out in the agreement. The lenders can choose whether or not they will accept up
to 50% of this repayment. The 2003 payment relating to the 2002 excess cash flow
provision was $3.6 million on a calculated excess cash flow payment of $6.2
million as not all lenders chose to accept the repayment option. The weighted
average interest rate on the term loan was 4.4% as of December 28, 2002 (5.4% -
December 29, 2001).
The senior secured credit facility, term loan and 2011 Notes contain customary
covenants, representations, warranties, indemnities and events of default for
these types of instruments. The credit facility, term loan and the 2011 Notes
indenture contain covenants that, among other things, restrict Cott's ability to
make certain investments, incur additional indebtedness, sell assets and make
distributions. Cott must also maintain certain financial ratios. Events of
default under the credit facility and term loan include both covenant defaults
and cross-defaults. Holders of the 2011 Notes have the right to require Cott to
repurchase the 2011 Notes in the event of a change of control accompanied by a
ratings downgrade.
-38-
CAPITAL STRUCTURE - In 2002, shareowners' equity increased by $20.5 million. Net
income of $3.9 million, additional share capital of $8.7 million from the
exercise of employee stock options including the related tax impact and $7.9
million in favorable foreign currency translation all contributed to the
increase. The foreign currency translation adjustment resulted from the
strengthening of the U.K. pound and the Canadian dollar compared with the U.S.
dollar.
On June 27, 2002, the Thomas H. Lee Company, Paine Webber Capital and various of
their related and affiliated entities converted the 4.0 million preferred shares
into 6.3 million common shares. Cott has no preferred shares outstanding as of
December 28, 2002.
DIVIDEND PAYMENTS - No dividends were paid in 2002. Cott does not expect to
resume dividend payments to common shareowners in 2003 as it intends to use cash
for future growth or debt repayment.
There are certain restrictions on the payment of dividends under the term loan
and credit facility and 2011 Notes indenture. The most restrictive provision is
the quarterly limitation of dividends based on the prior quarter's earnings.
Cott currently can pay dividends subject to these limitations but does not
intend to do so.
CONTRACTUAL OBLIGATIONS - The following chart shows the schedule of future
payments under certain contracts, including debt agreements and guarantees, as
of December 28, 2002:
PAYMENTS DUE BY PERIOD
---------------------------------------------------------
LESS THAN 1 AFTER 5
CONTRACTUAL OBLIGATIONS TOTAL YEAR YEARS 2-3 YEARS 4-5 YEARS
- --------------------------------------------------------------------------------------------
(in millions of U.S. dollars)
Long-term debt $ 362.6 $ 16.5 $ 17.5 $ 53.6 $ 275.0
Operating leases 48.8 12.7 16.7 11.3 8.1
Debt guarantees 2.0 0.4 1.0 0.6 -
---------------------------------------------------------
$ 413.4 $ 29.6 $ 35.2 $ 65.5 $ 283.1
---------------------------------------------------------
In January 2002, Cott guaranteed the obligations of Iroquois West under its Loan
and Security Agreement with Siemens Credit Limited. The loan will be included in
Cott's consolidated debt in 2003 as a result of the acquisition of the remaining
interest in Iroquois West on December 29, 2002.
Cott has agreed to loan $3.8 million (C$6.0 million) to Iroquois Water Ltd. for
the purchase of equipment. The funds will be advanced to the venture in March
2003 if another lender is not found. Cott has agreed to guarantee the advance if
another lender is found.
CRITICAL ACCOUNTING POLICIES
Management's discussion and analysis of its financial condition and results of
operations are based on Cott's consolidated financial statements prepared in
accordance with U.S. generally accepted accounting principles ("GAAP").
Preparation of these consolidated financial statements requires management to
make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. The more significant
areas involving the use of estimates in these financial statements include
allowances for losses on accounts receivables and inventories, carrying values
and lives of property, plant and equipment, goodwill, customer lists and other
intangible assets, and use of operating losses for deferred taxes. Cott bases
its estimates on experience and assumptions that are considered to be reasonable
in the circumstances. Actual results could differ from those estimates under
different assumptions or circumstances. Cott's accounting and revenue
recognition policies are described in note 1 to the consolidated financial
statements.
Cott does not use, nor does it expect to use, derivative financial instruments.
Cott also does not engage in, nor does it expect to engage in, any form of off
balance sheet financing arrangements.
-39-
NEW ACCOUNTING STANDARD
In May 2002, the Financial Accounting Standards Board issued SFAS 145 indicating
that certain debt extinguishment activities do not meet the criteria for
classification as extraordinary items and should no longer be classified as
extraordinary items. Cott will adopt the standard in 2003. Once adopted, the
comparative figures for the year ended December 28, 2002 will disclose income
before income taxes and equity loss of $73.7 million, income tax expense of
$24.4 million and income from continuing operations of $48.7 million or $0.75
per basic share and $0.69 per fully diluted share.
CANADIAN GAAP
Consolidated financial statements in accordance with Canadian GAAP are available
to all shareowners and are filed with Canadian regulatory authorities. Under
Canadian GAAP in 2002, Cott reported net income of $58.8 million and total
assets of $787.1 million compared to the net income and total assets under U.S.
GAAP of $3.9 million and $785.4 million, respectively. There are two primary
differences between results reported under U.S. and Canadian GAAP for the year
ended December 28, 2002.
First, under Canadian GAAP, the 2005 & 2007 Notes were considered discharged on
December 21, 2001 when the funds to redeem the notes were transferred to the
trustee. As a result, debt extinguishment costs of $10.9 million, net of a $5.2
million recovery of taxes, were recorded in 2001 under Canadian GAAP and were
included in results from continuing operations. Under U.S. GAAP, the 2005 & 2007
Notes were considered discharged when they were redeemed on January 22, 2002.
Extinguishment costs of $9.6 million, net of a $4.5 million recovery of taxes,
were recorded as an extraordinary item in the first quarter of 2002 under U.S.
GAAP. The amount of extinguishment costs differed as accrued interest from
December 21, 2001 to January 22, 2002 is included in extinguishment costs under
Canadian GAAP and as interest expense under U.S. GAAP.
Second, under Canadian GAAP, the impairment loss of $44.8 million relating to
the change in the method for valuing goodwill was charged to opening retained
earnings for 2002. Under U.S. GAAP, the impact of the change in accounting
principle is recorded as a charge to net income for the year ended December 28,
2002.
Under Canadian GAAP in 2001, Cott reported net income of $30.2 million and total
assets of $766.6 million compared to the net income and total assets under U.S.
GAAP of $39.9 million and $1,065.4 million. The primary difference was the
treatment of the discharge of the 2005 & 2007 Notes as described above.
2001 VERSUS 2000
RESULTS OF OPERATIONS
Net income for 2001 was $39.9 million or $0.58 per diluted share compared with
$25.4 million or $0.38 per diluted share in 2000. Excluding the impact of an
unusual item in 2000, income from continuing operations of $39.9 million in 2001
was $14.8 million or 59% higher than $25.1 million in 2000. The unusual item in
2000 was primarily attributable to the gain on sale of the polyethylene
terephthalate ("PET") preform manufacturing operations in the U.K.
SALES - Sales in 2001 were $1,090.1 million compared with $990.6 million in
2000. The increase was attributable to the effect of 2001 and 2000 acquisitions
as well as increased volume in the U.S. that was partially offset by lower sales
in Canada and the U.K. Excluding the impact of the Royal Crown acquisition and
NRB business combination in 2001 and the Concord acquisition in 2000, sales of
$992.8 million for 2001 increased 1.8% from $975.7 million last year.
In the U.S., sales of $779.4 million increased 18.6% from 2000. Excluding the
impact of the acquisitions, U.S. sales were up 6.8% in 2001 compared with 2000.
The increase was attributable primarily to growth in sales
-40-
volumes of carbonated soft drinks and reverse osmosis purified drinking water.
The Concord acquisition in 2000 added $81.3 million to sales in 2001 and $14.9
million to sales in 2000. The NRB venture added $11.9 million to 2001 sales.
Sales in Canada of $163.7 million decreased 3.5% from 2000, primarily due to the
weakening in the Canadian dollar compared with the U.S. dollar over the past
year. Excluding the foreign exchange impact, sales increased 0.5% in this stable
market.
Sales in the U.K. & International were $146.5 million in 2001, down 9.9% from
$162.6 million in 2000. The Royal Crown acquisition added $3.6 million to sales
in 2001. Price deflation in the grocery sector, both at the national brand and
retailer brand levels, continued to impact retail grocery and wholesaler prices
in the U.K. In addition, the pound sterling weakened about 5% compared with the
U.S. dollar from 2000, lowering sales revenue in the U.K. Excluding the foreign
exchange impact, sales decreased by $8.5 million.
GROSS PROFIT - Gross profit was 17.2% of sales for 2001 compared with 16.7% in
2000. The Royal Crown acquisition had a 0.3 percentage point positive effect on
Cott's margins as Cott used up pre-acquisition concentrate inventories and
started using product made in its plant. This margin improvement was offset by
the increased interest expense relating to the acquisition. Gross profit was
also favorably impacted by Six Sigma and continuous cost improvement programs
that improved key performance indicators across the operations and by leveraging
assets to lower depreciation expense as a percent of sales.
Cost of sales was 82.8% of sales in 2001, 0.5 points better than in 2000.
Variable costs represented about 90% of total cost of sales in 2001 and fixed
cost of sales about 10%. About 85% of Cott's beverage products were manufactured
in its owned or leased facilities or by third party manufacturers with whom Cott
has long-term co-packing agreements such as Premium Beverage Packers, Inc.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A") - SG&A was $94.1 million
in 2001, up 3.1% from $91.3 million for 2000. Including the impact of
acquisitions, SG&A decreased as a percent of sales from 9.2% to 8.6%.
Acquisitions led to $6.7 million in additional SG&A - partially offset by
reduced depreciation and amortization of existing businesses and also by lower
management incentive compensation payments.
INTEREST EXPENSE - Net interest expense was $32.2 million in 2001 compared with
$30.1 million for 2000. Interest on long-term debt increased $1.3 million. A
$2.6 million increase from the term loan issued to fund the Royal Crown
acquisition and a $0.6 million increase as both the 2011 Notes and 2005 & 2007
Notes were outstanding for part of December 2001 were offset by a $1.9 million
reduction from lower average balances of non-acquisition related borrowings.
INCOME TAXES - Cott recorded an income tax provision of $23.2 million on pretax
income of $63.1 million compared with $20.6 million on pretax income of $47.2
million in 2000. In 2001, Cott recorded a $4.4 million tax benefit relating to
prior period loss carryforwards not previously recognized by decreasing the
valuation allowance. Cott expected to be able to utilize prior period tax loss
carryforwards as a result of acquisitions made in 2001.
-41-
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL CONDITION - Operating cash flow after capital expenditures was $57.6
million, down $10.0 million from $67.6 million in 2000. The decline occurred due
to an increase in current income taxes in the United States and higher capital
spending. Current income taxes are expected to continue to increase as the
remaining tax loss carryforwards in the United States were used in 2001. While
capital spending increased $11.9 million over 2000, it still remained below
annual depreciation as Cott continued to stress full utilization of existing
assets.
Cott used cash from operations and proceeds from debt issues to fund the Royal
Crown acquisition and the NRB venture and the redemption of the 2005 & 2007
Notes. Cash decreased $3.3 million in the year to $3.9 million as of December
29, 2001.
INVESTING ACTIVITIES - In 2001, Cott completed the Royal Crown acquisition and
entered into the NRB business venture with Polar Corp. The $97.6 million Royal
Crown acquisition, including costs, closed on July 13, 2001. It was funded using
the proceeds from a $100 million term loan entered into in July 2001. The
purchased assets included $80.4 million for intellectual property including the
right to manufacture concentrates, $12.0 million in working capital and
property, plant and equipment and $5.2 million in goodwill. The rights acquired
have benefits to Cott that extend beyond the foreseeable future and are not
being amortized.
In September 2001, Cott invested $30.0 million in cash to acquire a 51% interest
in NRB, the new venture with Polar Corp. The purchased assets included $54.1
million for a customer list and $4.3 million in working capital and were
included in Cott's consolidated balance sheet. The minority shareowner's
interest of $28.4 million was recorded as a liability. The NRB agreements
contain various put and buy out rights that are common in these types of
arrangements.
Proceeds from divestitures of $3.5 million relate to the 2000 disposal of the
preform manufacturing operation in the U.K.
CAPITAL EXPENDITURES - Capital expenditures were $35.8 million in 2001 as
compared with $23.9 million in 2000. Major expenditures in 2001 included $9.6
million to expand the capacity of the drinking water systems in Cott's Texas,
Florida, North Carolina and California plants. In addition, $3.7 million was
spent to upgrade and standardize information and accounting systems in 2001. A
key achievement in 2001 was the implementation of Cott's enterprise resource
planning system in the Concordville plant.
LONG TERM DEBT - Long-term debt as of December 29, 2001 was $641.3 million,
$364.9 million net of the amount held in trust to repay the 2005 & 2007 Notes,
which Cott repaid on January 22, 2002, compared with $281.2 million at the end
of 2000. In July 2001, Cott borrowed $100 million on a term loan maturing in
2006, the proceeds of which were used to fund the Royal Crown acquisition. The
term loan bears interest at prime plus 1.75%, payable quarterly, or LIBOR plus
3%, at Cott's option. This variable rate debt is repayable in a series of
scheduled payments. Additional payments may be required based on Cott's 2002 and
future excess cash flows. The outstanding balance of the term loan at December
29, 2001 was $96.5 million at a weighted average interest rate of 5.4%.
In December 2001, Cott's U.S. subsidiary issued 8% subordinated notes maturing
in 2011 with an aggregate principal amount of $275 million. The 2011 Notes were
issued at a discount of 2.75% and are guaranteed by Cott and certain of its U.S.
subsidiaries. Interest is payable on June 15 and December 15 of each year. The
proceeds from the offering, along with approximately $16.6 million borrowed
under the credit facility and $13.3 million of available cash, were used to
repay 2005 & 2007 Notes in January 2002. As of December 29, 2001, Cott had
$297.3 million in an irrevocable trust to repay the 2005 & 2007 Notes, along
with the accrued interest and prepayment penalties. The cash in trust was
released on January 22, 2002 in satisfaction of the 2005 & 2007 Notes.
-42-
CAPITAL STRUCTURE - In 2001, shareowners' equity increased by $39.2 million. Net
income of $39.9 million, together with $10.3 million from increased share
capital due to the exercise of employee stock options including the related tax
impact, was reduced by $11.0 million in adverse foreign currency translation.
The foreign currency translation adjustment resulted from a weaker Canadian
dollar and U.K. pound compared with the U.S. dollar.
Cott had $40.0 million in preferred shares outstanding. The preferred shares
were converted into common shares on June 27, 2002 in accordance with the terms
of the preferred shares.
DIVIDEND PAYMENTS - No dividends were paid in 2001. There are certain
restrictions on the payment of dividends under the term loan and credit facility
and 2011 Notes indenture. The most restrictive provision is the quarterly
limitation of dividends based on the prior quarter's earnings.
CANADIAN GAAP
Under Canadian GAAP in 2001, Cott reported net income of $30.2 million and total
assets of $766.6 million compared to the net income and total assets under U.S.
GAAP of $39.9 million and $1,065.4 million. The primary difference was the
treatment of the discharge of the 2005 & 2007 Notes as described above. Under
Canadian GAAP in 2000, Cott reported net income of $24.4 million and total
assets of $624.1 million compared to net income and total assets under U.S GAAP
of $25.4 million and $621.1 million.
OUTLOOK
Cott's ongoing focus is to increase sales, market share and profitability for
Cott and its customers. The carbonated soft drink industry continues to
experience positive growth, especially in the U.S. Facing price competition from
heavily promoted global and regional brands, Cott's major opportunity for growth
depends on management's execution of its strategies and on retailers' continued
commitment to their retailer brand soft drink programs.
In 2003, Cott will continue to strive to expand the business through growth with
existing customers, the pursuit of new customers and channels and through new
acquisitions and alliances. Cott is not able to accurately predict the success
or timing of such efforts. At this point, sales are expected to grow between 9%
and 11% for 2003. The majority of this growth is expected to be through existing
businesses. Along with sales growth from major customers, management also
believes there are significant opportunities for growth in the U.S. market as
retailer brand penetration is not currently as high as in other markets. The
Canadian division will focus on innovation and entry into new channels. The U.K.
business is stabilizing and continued efforts are expected to further improve
earnings performance. Significant growth opportunities exist in Mexico as, with
a population of approximately 100 million, it is second only to the United
States in per-capita consumption of soft drinks. The CEMSA plant is currently
being upgraded and is expected to go into full operation in time for the 2003
summer season.
As of the date of this report, Cott expects 2003 earnings per share, on a
diluted basis, to rise to between $0.90 and $0.92 and earnings before interest,
taxes, depreciation and amortization ("EBITDA") for 2003 to top $185 million.
EBITDA is defined as earnings from continuing operations before interest, income
taxes, depreciation, amortization and unusual items. Although it is not a
recognized measure of performance under U.S. or Canadian GAAP, EBITDA is
presented because it is a widely accepted financial indicator of a company's
ability to incur and service indebtedness. EBITDA should not be considered an
alternative to net income, nor to cash provided by operating activities nor any
other indicator of performance or liquidity which have been determined in
accordance with U.S. or Canadian GAAP. Cott's method of calculating EBITDA may
differ
-43-
from the methods used by other companies and, accordingly, Cott's EBITDA may not
be comparable to similarly titled measures used by other companies.
RISKS AND UNCERTAINTIES
Risks and uncertainties include national brand pricing strategies, commitment of
major customers to retailer brand programs, stability of procurement costs for
items such as sweetener, packaging materials and other ingredients, the
successful integration of new acquisitions, ability to protect intellectual
property and fluctuations in interest rates and foreign currencies versus the
U.S. dollar.
COMPETITIVE ENVIRONMENT - In comparison to the major national brand soft drink
manufacturers, Cott is a relatively small participant in the industry. The main
risk to Cott's sales and operating income is the highly competitive environment
in which it operates. Cott faces competition from the national brands in all of
its markets and from other retailer brand beverage manufacturers in the U.S. and
the U.K. Cott's profitability in 2003 may be adversely affected to the extent
the national brand manufacturers reduce their selling prices or increase the
frequency of their promotional activities in Cott's core markets or customers do
not allocate adequate shelf space for beverages supplied by Cott.
RELIANCE ON MAJOR CUSTOMERS - Sales to Cott's top customer in 2002 accounted for
40% (2001 - top two customers accounted for 50%) of the Company's total sales
and sales to the top ten customers were 71% of total sales. The loss of a
significant customer, or customers which in the aggregate represent a
significant portion of Cott's sales, could have a material adverse effect on
Cott's operating results and cash flows.
STABILITY OF PROCUREMENT COSTS - Cott is subject to commodity price risk arising
from the price movement for certain commodities included as part of raw
materials. Cott has a variety of suppliers for many of its materials, and it
maintains long-standing relationships with many of its suppliers. Replacing key
raw material suppliers may increase or decrease raw material costs. An increase
could have a material adverse effect on Cott's results of operations.
Cott has long-term agreements with respect to key raw materials. The majority of
the contracts allow suppliers to alter the costs they charge based on changes in
commodity costs, and in some cases other factors, at certain predetermined times
and subject to defined guidelines. As a result, Cott bears the risk of shifts in
the market costs of these commodities. Cott does not use derivative instruments
to manage this risk.
INTEGRATION OF ACQUIRED BUSINESSES - Cott has undertaken several acquisitions in
the past three years and its business strategy is to continue to expand its
business, in part through acquisitions. To succeed with this strategy, Cott must
identify appropriate acquisition or strategic alliance candidates and then
manage and integrate the acquisitions or alliances with its existing business.
The anticipated efficiencies and other benefits of the acquisitions or alliances
may not be realized if Cott is unable to successfully integrate the acquired
businesses.
PROTECTION OF INTELLECTUAL PROPERTY - Cott's success depends, in part, on its
intellectual property, including the right to manufacture its concentrate
formulas. If it is unable to protect its intellectual property or competitors
independently develop similar intellectual property, Cott's competitive position
could be weakened.
FOREIGN EXCHANGE - Cott is exposed to changes in foreign currency exchange
rates. Operations outside of the U.S. account for approximately 26% of 2002
sales and 28% of 2001 sales and are concentrated principally in the U.K. and
Canada. Cott does not currently use derivative instruments to hedge foreign
currency exchange rate exposure.
DEBT OBLIGATIONS AND INTEREST RATES - Cott had a net-debt to
net-debt-plus-equity ratio of 63.1% as of December 28, 2002 (2001 - 66.7%) and
is subject to the risks associated with this level of debt. A significant
-44-
portion of cash flow will be used to make debt service payments and debt levels
could limit Cott's financial flexibility and ability to obtain favorable
financing for future acquisitions.
Cott is exposed to changes in interest rates with 24% of its outstanding
long-term debt is subject to interest at variable rates (2001 - 26%). Cott
regularly reviews the structure of its indebtedness and considers changes to its
proportion of floating versus fixed rate debt through refinancing, interest rate
swaps or other measures in response to the changing economic environment. Cott
does not currently use derivative instruments to hedge interest rate exposure.
The information below summarizes Cott's market risks associated with debt
obligations as of December 28, 2002. The table presents principal cash flows and
related interest rates by year of maturity. Principal payments on the variable
rate term loan are the scheduled payments under the agreement and, for 2003, the
required annual payment of 50% of the previous year's excess cash flows.
Variable rates disclosed represent the actual weighted average rates at December
28, 2002.
FOR THE YEAR ENDED DECEMBER 28, 2002
- ---------------------------------------------------------------------------------------------------------------------------
THERE- FAIR
(in millions) 2003 2004 2005 2006 2007 AFTER TOTAL VALUE
- ---------------------------------------------------------------------------------------------------------------------------
DEBT
Fixed rate $ 0.7 $ 0.3 $ - $ - $ - $ 275.0 $ 276.0 $ 291.1
-------------------------------------------------------------------------------------------------
Weighted average
interest rate 3.7% 8.6% - - - 8.0% 8.0%
-------------------------------------------------------------------------------------------------
Variable rate $ 15.8 $ 8.0 $ 9.2 $ 53.6 $ - $ - $ 86.6 $ 86.8
-------------------------------------------------------------------------------------------------
Weighted average
interest rate 4.4% 4.4% 4.4% 4.4% - - 4.4%
-------------------------------------------------------------------------------------------------
LEGAL MATTERS - Cott, along with other industry participants, is currently not
in compliance with the Environmental Protection Act (Ontario) and applicable
regulations thereunder (collectively the "EPA"). As the requirements under the
EPA have not been actively enforced since 1991 and the non-compliance appears to
be industry wide, Cott believes that the possibility of enforcement is remote
and it does not believe that enforcement proceedings, if initiated, would be
instituted without a transition period. As such, Cott does not believe that any
enforcement would have an immediate material financial impact on its financial
results. Cott has not compiled a detailed analysis of the costs of compliance as
enforcement of the EPA is considered to be remote and will account for any costs
of compliance, which may be significant, if incurred.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Debt Obligations and Interest Rates", on pages 44 and 45 of
Management's Discussion and Analysis in item 7 above.
-45-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF MANAGEMENT
The accompanying consolidated financial statements have been prepared by the
management of Cott in conformity with generally accepted accounting principles
in the United States to reflect the financial position of Cott and its operating
results. Financial information appearing throughout this Annual Report is
consistent with that in the consolidated financial statements. Management is
responsible for the information and representations in such consolidated
financial statements, including the estimates and judgments required for their
preparation.
In order to meet its responsibility, management maintains a system of internal
controls including policies and procedures designed to provide reasonable
assurance that assets are safeguarded and reliable financial records are
maintained. Cott has contracted with Deloitte and Touche LLP to provide internal
audit services including monitoring and reporting on the adequacy of and
compliance with internal controls. The internal audit function reports regularly
to the Audit Committee of the Board of Directors and Cott takes such actions as
are appropriate to address control deficiencies and other opportunities for
improvement as they are identified.
The report of PricewaterhouseCoopers LLP, Cott's independent accountants,
covering their audit of the consolidated financial statements, is included in
this Annual Report. Their independent audit of Cott's financial statements
includes a review of internal accounting controls to the extent they consider
necessary as required by generally accepted auditing standards. Cott used
PricewaterhouseCoopers LLP for audit and tax compliance services in 2002 and
plans to engage them only to provide these services in the future.
The Board of Directors annually appoints an Audit Committee, consisting of at
least three outside directors. The Audit Committee meets with management,
internal auditors and the independent accountants to review any significant
accounting and auditing matters and to discuss the results of audit
examinations. The Audit Committee also reviews the consolidated financial
statements, the Report of Independent Accountants and other information in the
Annual Report and recommends their approval to the Board of Directors.
/s/ Frank E. Weise III /s/ Raymond P. Silcock
Frank E. Weise III Raymond P. Silcock
Chairman, President & Chief Executive Vice President & Chief
Executive Officer Financial Officer
-46-
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREOWNERS OF COTT CORPORATION
We have audited the consolidated balance sheets of COTT CORPORATION as of
December 28, 2002 and December 29, 2001 and the consolidated statements of
income, shareowners' equity and cash flows for each of the three years in the
period ended December 28, 2002. These consolidated financial statements are the
responsibility of Cott's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of Cott as of December 28, 2002 and
December 29, 2001 and the results of its operations and its cash flows for each
of the three years in the period ended December 28, 2002 in accordance with
generally accepted accounting principles in the United States.
As discussed in note 7 to the consolidated financial statements, Cott adopted
Statement of Financial Accounting Standard 142 for goodwill and other
intangibles acquired prior to June 30, 2001 on December 30, 2001.
We reported separately in our report dated January 30, 2002, in accordance with
generally accepted auditing standards in Canada, to the shareowners of COTT
CORPORATION on consolidated financial statements for each of the three years in
the period ended December 28, 2002, prepared in accordance with generally
accepted accounting principles in Canada.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
January 30, 2003
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COTT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in millions of U.S. dollars, except per share amounts)
FOR THE YEARS ENDED
-------------------------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 30,
2002 2001 2000
--------------- --------------- ---------------
SALES $ 1,198.6 $ 1,090.1 $ 990.6
Cost of sales 965.7 902.7 825.5
--------------- --------------- ---------------
GROSS PROFIT 232.9 187.4 165.1
Selling, general and administrative expenses 110.2 94.1 91.3
Unusual items - note 2 - - (2.1)
--------------- --------------- ---------------
OPERATING INCOME 122.7 93.3 75.9
Other income, net - note 3 (0.1) (2.4) (1.4)
Interest expense, net - note 4 32.9 32.2 30.1
Minority interest 2.1 0.4 -
--------------- --------------- ---------------
INCOME BEFORE INCOME TAXES AND EQUITY LOSS 87.8 63.1 47.2
Income taxes - note 5 (28.9) (23.2) (20.6)
Equity loss (0.6) - -
--------------- --------------- ---------------
INCOME FROM CONTINUING OPERATIONS 58.3 39.9 26.6
Extraordinary item - note 6 (9.6) - (1.2)
Cumulative effect of change in accounting principle,
net of tax - note 7 (44.8) - -
--------------- --------------- ---------------
NET INCOME - note 8 $ 3.9 $ 39.9 $ 25.4
--------------- --------------- ---------------
PER SHARE DATA - note 9
INCOME PER COMMON SHARE - BASIC
Income from continuing operations $ 0.89 $ 0.66 $ 0.44
Extraordinary item $ (0.15) $ - $ (0.02)
Cumulative effect of change in accounting principle $ (0.69) $ - $ -
Net income $ 0.06 $ 0.66 $ 0.42
INCOME PER COMMON SHARE - DILUTED
Income from continuing operations $ 0.83 $ 0.58 $ 0.40
Extraordinary item $ (0.14) $ - $ (0.02)
Cumulative effect of change in accounting principle $ (0.64) $ - $ -
Net income $ 0.06 $ 0.58 $ 0.38
The accompanying notes are an integral part of these
consolidated financial statements.
-48-
COTT CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions of U.S. dollars)
DECEMBER 28, DECEMBER 29,
2002 2001
--------------- ---------------
ASSETS
CURRENT ASSETS
Cash $ 3.3 $ 3.9
Cash in trust - note 6 - 297.3
Accounts receivable - note 10 136.2 122.0
Inventories - note 11 78.0 68.2
Prepaid expenses 7.2 3.4
---------------- ---------------
224.7 494.8
PROPERTY, PLANT AND EQUIPMENT - note 12 273.0 246.9
GOODWILL - note 13 77.0 114.1
INTANGIBLES AND OTHER ASSETS - note 14 210.7 209.6
--------------- ---------------
$ 785.4 $ 1,065.4
=============== ===============
LIABILITIES
CURRENT LIABILITIES
Short-term borrowings - note 15 $ 21.3 $ 34.2
Current maturities of long-term debt - note 16 16.5 281.8
Accounts payable and accrued liabilities - note 17 127.3 123.1
--------------- ---------------
165.1 439.1
LONG-TERM DEBT - note 16 339.3 359.5
OTHER LIABILITIES - note 18 36.2 41.0
--------------- ---------------
540.6 839.6
--------------- ---------------
MINORITY INTEREST 26.6 28.1
SHAREOWNERS' EQUITY
CAPITAL STOCK - note 19
Common shares - 68,559,035 (2001 - 61,319,807) shares issued 248.1 199.4
Second preferred shares, Series 1 - no shares outstanding - 40.0
RETAINED EARNINGS 5.9 2.0
ACCUMULATED OTHER COMPREHENSIVE INCOME (35.8) (43.7)
--------------- ---------------
218.2 197.7
--------------- ---------------
$ 785.4 $ 1,065.4
=============== ===============
APPROVED BY THE BOARD OF DIRECTORS
/s/ Serge Gouin Director /s/ C. Hunter Boll Director
- --------------------------- ---------------------------
The accompanying notes are an integral part of these
consolidated financial statements.
-49-
COTT CORPORATION
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
(in millions of U.S. dollars)
NUMBER OF
COMMON ACCUMULATED
SHARES RETAINED OTHER
(in COMMON PREFERRED EARNINGS/ COMPREHENSIVE TOTAL
thousands) SHARES SHARES (DEFICIT) INCOME EQUITY
------------------------------------------------------------------------------
Balance at January 1, 2000 59,837 $189.0 $ 40.0 $(63.3) $(23.4) $142.3
Options exercised - note 20 31 0.1 - - - 0.1
Comprehensive income - note 8
Currency translation adjustment - - - - (9.3) (9.3)
Net income - - - 25.4 - 25.4
------------------------------------------------------------------------------
Balance at December 30, 2000 59,868 189.1 40.0 (37.9) (32.7) 158.5
Options exercised, including tax 1,452 10.3 - - - 10.3
benefit of $2.3 million - note 20
Comprehensive income - note 8
Currency translation adjustment - - - - (11.0) (11.0)
Net income - - - 39.9 - 39.9
------------------------------------------------------------------------------
Balance at December 29, 2001 61,320 199.4 40.0 2.0 (43.7) 197.7
Options exercised, including tax
benefit of $2.9 million - note 20 953 8.7 - - - 8.7
Conversion of preferred shares into
common shares - note 19 6,286 40.0 (40.0) - - -
Comprehensive income - note 8
Currency translation adjustment - - - - 7.9 7.9
Net income - - - 3.9 - 3.9
------------------------------------------------------------------------------
Balance at December 28, 2002 68,559 $248.1 $ - $ 5.9 $(35.8) $218.2
==============================================================================
The accompanying notes are an integral part of these
consolidated financial statements.
-50-
COTT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions of U.S. dollars)
FOR THE YEARS ENDED
------------------------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 30,
2002 2001 2000
------------ -------------- --------------
OPERATING ACTIVITIES
Income from continuing operations $ 58.3 $ 39.9 $ 26.6
Depreciation and amortization 44.1 40.2 37.4
Amortization of financing fees 1.7 1.9 1.6
Deferred income taxes - note 5 9.8 9.3 20.1
Minority interest 2.1 0.4 -
Equity loss 0.6 - -
Gain on disposal of investment (1.3) - -
Other non-cash items 2.4 (0.7) 0.3
Net change in non-cash working capital from continuing
operations - note 21 (16.5) 2.4 5.5
--------- --------- ---------
Cash provided by continuing operations 101.2 93.4 91.5
Cash cost of redemption of long-term debt - note 6 (10.6) - -
--------- --------- ---------
Cash provided by operating activities 90.6 93.4 91.5
--------- --------- ---------
INVESTING ACTIVITIES
Additions to property, plant and equipment (41.2) (35.8) (23.9)
Acquisitions and equity investments - note 22 (30.6) (127.6) (55.5)
Proceeds from disposal of businesses - 3.5 18.9
Other (0.5) 1.3 (1.9)
--------- --------- ---------
Cash used in investing activities (72.3) (158.6) (62.4)
--------- --------- ---------
FINANCING ACTIVITIES
Issue of long-term debt 1.0 367.4 -
Decrease (increase) in cash in trust 297.3 (297.3) -
Payments of long-term debt (287.2) (7.2) (38.7)
Payment of deferred consideration on acquisition (19.5) - (2.0)
Short-term borrowings (12.9) (2.5) 17.5
Debt issue costs - (5.0) -
Distributions to subsidiary minority shareowner (3.9) (0.7) -
Issue of common shares 5.8 8.0 0.1
Other (0.2) - (0.1)
--------- --------- ---------
Cash provided by (used in) financing activities (19.6) 62.7 (23.2)
--------- --------- ---------
Net cash used in discontinued operations - (0.6) (0.4)
Effect of exchange rate changes on cash 0.7 (0.2) (0.9)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH (0.6) (3.3) 4.6
CASH, BEGINNING OF YEAR 3.9 7.2 2.6
--------- --------- ---------
CASH, END OF YEAR $ 3.3 $ 3.9 $ 7.2
========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
-51-
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These consolidated financial statements have been prepared in accordance with
United States ("U.S.") generally accepted accounting principles ("GAAP") and
using the U.S. dollar as the reporting currency, as the majority of Cott's
business and the majority of its shareowners are in the United States.
Consolidated financial statements in accordance with Canadian GAAP, in U.S.
dollars, are available to all shareowners and are filed with various Canadian
regulatory authorities.
Comparative amounts in prior years have been reclassified to conform to the
financial statement presentation adopted in the current year.
BASIS OF CONSOLIDATION
The financial statements consolidate the accounts of Cott and its wholly owned
and majority owned subsidiaries where it exercises control over the majority of
the voting rights. All significant inter-company accounts and transactions are
eliminated upon consolidation.
ESTIMATES
The preparation of these 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. Actual results could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of cost, determined on the first-in,
first-out method, or net realizable value. Returnable bottles and plastic shells
are valued at the lower of cost, deposit value or net realizable value. Finished
goods and work-in-process include the cost of raw materials, direct labor and
manufacturing overhead costs.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at the lower of cost less accumulated
depreciation or fair value. Depreciation is provided using the straight-line
method over the estimated useful lives of the assets as follows:
Buildings 20 to 40 years
Machinery and equipment 7 to 15 years
Furniture and fixtures 3 to 10 years
Computer hardware and software 3 to 5 years
Plates and films 3 years
-52-
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cott periodically compares the carrying value of property, plant and equipment
to the estimated undiscounted future cash flows that may be generated by the
related assets and recognizes in net income any impairment to fair value.
GOODWILL
Goodwill represents the excess purchase price of acquired businesses over the
fair value of the net assets acquired. Starting in 2002, Cott does not amortize
goodwill. Goodwill was previously amortized over periods not exceeding 40 years.
Cott currently compares the carrying amount of the goodwill to the fair value,
at least annually, and recognizes in net income any impairment in value.
Previously, it compared the carrying value to the estimated undiscounted cash
flows generated by the related businesses and recognized in net income any
impairment in value.
INTANGIBLES AND OTHER ASSETS
Issuance costs for credit facilities and long-term debt are deferred and
amortized over the term of the credit agreement or related debt, respectively.
Rights to manufacture concentrate formulas, with all the related inventions,
processes and technical expertise, are recorded as intangible assets at the cost
of acquisition. The rights are not amortized as their useful lives extend
indefinitely. Cott compares the carrying amount of the rights to their fair
value, at least annually, and recognizes in net income any impairment in value.
Customer lists represent the cost of acquisition for the right to sell to
specific customers and are amortized over 15 years. Trademarks are recorded at
the cost of acquisition and are amortized over 15 years. Cott periodically
compares the carrying value of the customer lists and trademarks to the
estimated undiscounted future cash flows that may be generated by the related
businesses and recognizes in net income any impairment to fair value.
REVENUE RECOGNITION
Cott recognizes sales at the time ownership passes to the customer. This may be
upon shipment of goods or upon delivery to customer, depending on contractual
terms. Sales incentives are deducted in net sales. Those requiring future volume
commitments are accrued based on management's best estimates.
SHIPPING AND HANDLING COSTS
Cott records shipping and handling costs as incurred and includes these costs as
a component of cost of sales.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of foreign operations, all of which are
self-sustaining, are translated at the exchange rates in effect at the balance
sheet dates. Revenues and expenses are translated using average exchange rates
prevailing during the period. The resulting gains or losses are accumulated in
the other comprehensive income account in shareowners' equity.
-53-
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
TAXATION
Cott accounts for income taxes under the asset and liability method. Deferred
tax assets and liabilities are recognized based on the differences between the
accounting values of assets and liabilities and their related tax bases using
currently enacted income tax rates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reflected in the consolidated balance sheets for cash, cash
in trust, receivables, payables, short-term borrowings, long-term debt and
deferred consideration on acquisitions approximate their respective fair values,
except as otherwise indicated.
COMPREHENSIVE INCOME
Comprehensive income is comprised of net income adjusted for changes in the
cumulative foreign currency translation adjustment account.
NEW ACCOUNTING STANDARDS
In May 2002, the Financial Accounting Standards Board issued SFAS 145 indicating
that certain debt extinguishment activities do not meet the criteria for
classification as extraordinary items and will no longer be classified as
extraordinary items. Cott will adopt the standard retroactively in 2003. Once
adopted, the comparative figures for the year ended December 28, 2002 will
disclose income before income taxes and equity loss of $73.7 million, income tax
expense of $24.4 million and income from continuing operations of $48.7 million
or $0.75 per basic share and $0.69 per fully diluted share.
NOTE 2 - UNUSUAL ITEMS
During the year ended December 30, 2000, Cott disposed of its preform blow
molding operation in the United Kingdom and recorded a $1.7 million gain on
disposal. Proceeds of disposal included deferred consideration of $4.4 million
((L)3.0 million) payable by the acquirer over the period to October 2003.
NOTE 3 - OTHER INCOME, NET
FOR THE YEARS ENDED
-------------------------------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 30,
2002 2001 2000
---------------- ---------------- ---------------
(in millions of U.S. dollars)
Foreign exchange loss (gain) $ 0.7 $ (2.3) $ (1.3)
Gain on disposal of investment in Menu Foods
Limited (1.3) - -
Other 0.5 (0.1) (0.1)
--------- --------- --------
$ (0.1) $ (2.4) $ (1.4)
========= ========= ========
-54-
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - INTEREST EXPENSE, NET
FOR THE YEARS ENDED
--------------------------------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 30,
2002 2001 2000
---------------- ---------------- ----------------
(in millions of U.S. dollars)
Interest on long-term debt $ 31.8 $ 32.5 $ 31.2
Other interest expense 1.7 1.3 0.9
Interest income (0.6) (1.6) (2.0)
--------- --------- ---------
$ 32.9 $ 32.2 $ 30.1
========= ========= =========
Interest paid during the year was approximately $38.4 million ($30.1 million -
December 29, 2001; $22.8 million - December 30, 2000).
NOTE 5 - INCOME TAXES
Income (loss) before income taxes and equity loss consisted of the following:
FOR THE YEARS ENDED
-------------------------------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 30,
2002 2001 2000
---------------- --------------- ---------------
(in millions of U.S. dollars)
Canada $ (0.5) $ 8.3 $ 4.7
Outside Canada 88.3 54.8 42.5
-------- -------- --------
$ 87.8 $ 63.1 $ 47.2
======== ======== ========
Provision for income taxes consisted of the following:
FOR THE YEARS ENDED
-------------------------------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 30,
2002 2001 2000
---------------- --------------- ---------------
(in millions of U.S. dollars)
CURRENT
Canada $ (0.2) $ (0.3) $ (0.2)
Outside Canada (18.9) (13.6) (0.3)
--------- ---------- ---------
$ (19.1) $ (13.9) $ (0.5)
--------- ---------- ---------
DEFERRED
Canada $ (1.5) $ (1.3) $ (1.8)
Outside Canada (8.3) (8.0) (18.3)
--------- ---------- ---------
$ (9.8) $ (9.3) $ (20.1)
--------- ---------- ---------
PROVISION FOR INCOME TAXES $ (28.9) $ (23.2) $ (20.6)
========= ========== =========
-55-
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INCOME TAXES (continued)
Income taxes paid during the year were $19.0 million ($5.7 million - December
29, 2001; $2.4 million - December 30, 2000).
The following table reconciles income taxes calculated at the basic Canadian
corporate rates with the income tax provision:
FOR THE YEARS ENDED
-------------------------------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 30,
2002 2001 2000
---------------- --------------- ---------------
(in millions of U.S. dollars)
Income tax provision based on Canadian statutory
rates $ (33.6) $ (26.0) $ (20.4)
Foreign tax rate differential 1.8 1.8 2.3
Manufacturing and processing deduction 0.2 (0.1) 0.3
Decrease (increase) in valuation allowance - 4.4 (0.8)
Adjustment for change in enacted rates 0.7 (1.5) -
Realization of benefit on carry back of capital loss 1.8 - -
Non-deductible items 0.8 (1.4) (2.0)
Other (0.6) (0.4) -
---------- --------- --------
Provision for income taxes $ (28.9) $ (23.2) $ (20.6)
========== ========= ========
During the year ended December 29, 2001, Cott made acquisitions that made it
likely that it would utilize all of its tax loss carryforwards. As a result, the
valuation allowance was adjusted to recognize the benefit of these loss
carryforwards that had not previously been recognized.
Deferred income tax assets and liabilities were recognized on temporary
differences between the financial and tax bases of existing assets and
liabilities as follows:
DECEMBER 28, DECEMBER 29,
2002 2001
--------------- ---------------
(in millions of U.S. dollars)
DEFERRED TAX ASSETS
Loss carryforwards $ 19.4 $ 13.5
Liabilities and reserves 5.5 4.7
Intangible assets - 1.4
Other 7.3 2.7
--------- --------
32.2 22.3
--------- --------
DEFERRED TAX LIABILITIES
Property, plant and equipment 30.5 20.2
Intangible assets 6.1 -
Other 29.1 26.3
--------- --------
65.7 46.5
--------- --------
NET DEFERRED TAX LIABILITY $ (33.5) $ (24.2)
========= ========
As of December 28, 2002, operating loss carryforwards of $58.0 million are
available to reduce future taxable income. These losses expire as follows:
-56-
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INCOME TAXES (continued)
(in millions of U.S. dollars)
2005 $ 12.5
2006 18.7
2008 6.3
No expiry date 20.5
--------
$ 58.0
========
NOTE 6 - EXTRAORDINARY ITEM
On December 21, 2001, Cott announced its intention to redeem the senior
unsecured notes maturing in 2005 and 2007 ("2005 & 2007 Notes") and placed funds
sufficient to pay the face value, accrued interest and early redemption
penalties of $10.6 million in an irrevocable trust. On January 22, 2002, Cott
redeemed the $276.4 million remaining balance of the 2005 & 2007 Notes and paid
the related accrued interest and early redemption penalties using the funds
placed in trust. A charge of $9.6 million, net of a deferred tax recovery of
$4.5 million, was recorded on the early extinguishment of these senior notes.
The charge is comprised of the early redemption penalty of $10.6 million and the
write off of the unamortized financing fees.
During the year ended December 30, 2000, Cott repaid the $30.6 million
((L)21.0 million) remaining balance of its term bank loan in the United
Kingdom from cash-on-hand. A loss of $1.2 million, net of a deferred income tax
recovery of $0.5 million, was recorded as an extraordinary item on the early
extinguishment of this debt. The loss represented primarily the write-off of the
unamortized portion of financing costs for the term loan.
NOTE 7 - CHANGES IN ACCOUNTING PRINCIPLES
Effective December 30, 2001, Cott adopted SFAS No. 142, Goodwill and Other
Intangible Assets, for goodwill and other intangibles acquired prior to June 30,
2001. Cott adopted SFAS No. 142 for goodwill and other intangible assets
acquired subsequent to June 30, 2001 in 2001. Under this standard, goodwill and
intangible assets with indefinite lives are no longer amortized but are subject
to an annual impairment test. Other intangible assets continue to be amortized
over their estimated useful lives and are also tested for impairment annually.
Cott completed a goodwill impairment test as of the adoption date for the
standard and determined that unamortized goodwill of $44.8 million relating to
the United Kingdom reporting unit was impaired under the new rules. The
impairment write down has been recorded as a change in accounting principle. No
income tax recovery was recorded on the impairment write down.
-57-
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - CHANGES IN ACCOUNTING PRINCIPLES (continued)
The goodwill amortization charged in the consolidated statement of income in the
years ended December 29, 2001 and December 30, 2000 was $3.7 million and $3.6
million, respectively. Excluding amortization of goodwill, income from
continuing operations, net income, basic and fully diluted income per share for
the years ended December 29, 2001 and December 30, 2000 would have been as
follows:
DECEMBER 29, DECEMBER 30,
2001 2000
------------ ------------
(in millions of U.S. dollars)
Income from continuing operations $ 42.7 $ 29.4
Net income 42.7 28.2
Net income per common share - basic 0.71 0.47
Net income per common share - diluted 0.62 0.42
Cott continues to amortize intangible assets acquired prior to June 30, 2001,
other than goodwill, over their estimated useful lives.
NOTE 8 - OTHER COMPREHENSIVE INCOME
FOR THE YEARS ENDED
---------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 30,
2002 2001 2000
------------ ------------- ------------
(in millions of U.S. dollars)
Net income $ 3.9 $ 39.9 $ 25.4
Foreign currency translation including $0.6 million
impact of wind up of foreign subsidiaries
(December 29, 2001 - net of $1.8 million) 7.9 (11.0) (9.3)
-------- --------- --------
$ 11.8 $ 28.9 $ 16.1
======== ========= ========
-58-
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - INCOME PER COMMON SHARE
Basic net income per common share is computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
net income per share includes the effect of exercising stock options and
converting the preferred shares, only if dilutive.
The following table reconciles the basic weighted average number of shares
outstanding to the diluted weighted average number of shares outstanding:
FOR THE YEARS ENDED
---------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 30,
2002 2001 2000
------------ ------------ ------------
(in thousands)
Weighted average number of shares outstanding - basic 65,262 60,384 59,856
Dilutive effect of stock options 2,202 2,166 454
Dilutive effect of second preferred shares 3,074 6,286 6,286
------ ------ ------
Adjusted weighted average number of shares outstanding -
diluted 70,538 68,836 66,596
====== ====== ======
NOTE 10 - ACCOUNTS RECEIVABLE
DECEMBER 28, DECEMBER 29,
2002 2001
------------ ------------
(in millions of U.S. dollars)
Trade receivables $ 125.9 $ 112.9
Allowance for doubtful accounts (3.4) (5.1)
Other 13.7 14.2
---------- --------
$ 136.2 $ 122.0
========== ========
As of December 28, 2002, other receivables include receivables from related
parties of $1.1 million. These amounts are due from two equity investees,
Iroquois West Bottling Ltd. ("Iroquois West") and Iroquois Water Ltd ("Iroquois
Water") that were acquired during the year. Subsequent to the date of these
financial statements, Cott acquired the remaining interest in Iroquois West.
NOTE 11 - INVENTORIES
DECEMBER 28, DECEMBER 29,
2002 2001
------------ ------------
(in millions of U.S. dollars)
Raw materials $ 26.6 $ 25.3
Finished goods 41.8 35.8
Other 9.6 7.1
-------- --------
$ 78.0 $ 68.2
======== ========
-59-
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - PROPERTY, PLANT AND EQUIPMENT
DECEMBER 28, 2002 DECEMBER 29, 2001
------------------------------------------- -----------------------------------------
ACCUMULATED ACCUMULATED
COST DEPRECIATION NET COST DEPRECIATION NET
------------------------------------------- -----------------------------------------
(in millions of U.S. dollars) (in millions of U.S. dollars)
Land $ 17.6 $ - $ 17.6 $ 16.7 $ - $ 16.7
Buildings 83.7 17.3 66.4 76.0 13.9 62.1
Machinery and equipment 297.9 132.7 165.2 256.6 104.5 152.1
Computer hardware and
software 43.3 26.0 17.3 32.3 21.5 10.8
Furniture and fixtures 9.3 6.7 2.6 8.9 5.8 3.1
Plates and film 12.8 8.9 3.9 9.7 7.6 2.1
------------------------------------------- -----------------------------------------
$ 464.6 $ 191.6 $ 273.0 $ 400.2 $ 153.3 $ 246.9
=========================================== =========================================
Depreciation expense was $35.0 million ($30.5 million - December 29, 2001; $30.9
million - December 30, 2000).
NOTE 13 - GOODWILL
DECEMBER 28, DECEMBER 29,
2002 2001
------------- -------------
(in millions of U.S. dollars)
Balance at December 29, 2001 $ 114.1 $ 115.2
Impairment write down on change in accounting principle - note 7 (44.8) -
---------- ---------
69.3 115.2
Acquisitions - note 22 7.7 5.2
Amortization - (3.7)
Foreign exchange and other - (2.6)
---------- ---------
$ 77.0 $ 114.1
========== =========
-60-
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - INTANGIBLES AND OTHER ASSETS
DECEMBER 28, 2002 DECEMBER 29, 2001
----------------------------------- --------------------------------------
ACCUMULATED ACCUMULATED
COST AMORTIZATION NET COST AMORTIZATION NET
----------------------------------- --------------------------------------
(in millions of U.S. dollars) (in millions of U.S. dollars)
INTANGIBLES
Not subject to amortization
Rights $ 80.4 $ - $ 80.4 $ 80.4 $ - $ 80.4
----------------------------------- --------------------------------------
Subject to amortization
Customer lists 108.3 13.5 94.8 103.6 6.5 97.1
Trademarks 25.7 3.7 22.0 18.9 2.2 16.7
Other 2.9 0.1 2.8 - - -
----------------------------------- --------------------------------------
136.9 17.3 119.6 122.5 8.7 113.8
----------------------------------- --------------------------------------
217.3 17.3 200.0 202.9 8.7 194.2
----------------------------------- --------------------------------------
OTHER ASSETS
Financing costs 5.6 2.3 3.3 13.5 5.4 8.1
Other 7.6 0.2 7.4 8.4 1.1 7.3
----------------------------------- --------------------------------------
13.2 2.5 10.7 21.9 6.5 15.4
----------------------------------- --------------------------------------
$ 230.5 $ 19.8 $ 210.7 $ 224.8 $ 15.2 $ 209.6
=================================== ======================================
For the year ended December 28, 2002, other assets include $1.3 million due from
Iroquois Water, an equity investee and related party. The investment in Iroquois
Water was acquired during the year. Currently, there are no fixed terms of
repayment.
Amortization expense of intangibles was $8.6 million ($5.5 million - December
29, 2001; $2.4 million - December 30, 2000). The estimated amortization expense
for intangibles over the next five years is:
(in millions of U.S.dollars)
2003 $ 9.1
2004 9.1
2005 9.1
2006 9.1
2007 9.0
--------
$ 45.4
========
-61-
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - SHORT-TERM BORROWINGS
Short-term borrowings include bank overdrafts and borrowings under Cott's credit
facilities.
At December 28, 2002, Cott has a committed, revolving, secured credit facility
of $75.0 million expiring on December 31, 2005. Accounts receivable, inventories
and certain personal property of the U.S. and Canadian operations have been
pledged as collateral for this facility and the $86.6 million term loan included
in long-term debt. The amount of available collateral exceeds the borrowings
under the two facilities. As of December 28, 2002, credit of $61.0 million was
available. Borrowings under the bank credit facility bear interest at prime plus
1.25% or LIBOR plus 2.50%. An annual facility fee of 0.5% is payable on the
entire line of credit. The weighted average interest rate at December 28, 2002
was 5.5% (6.0% - December 29, 2001) on this short-term credit facility.
Cott also has a $16.0 million ((L)10.0 million) demand bank credit facility in
the U.K. expiring in 2003 with $13.0 million ((L)8.1 million) available as of
December 28, 2002. Borrowings under this facility bear interest at prime plus
1.0% or LIBOR plus 0.75%. The interest rate at December 28, 2002 was 5.0%. There
were no borrowings on this facility at December 29, 2001.
NOTE 16 - LONG-TERM DEBT
DECEMBER 28, DECEMBER 29,
2002 2001
------------- -------------
(in millions of U.S. dollars)
Senior subordinated unsecured notes at 8% due 2011 (a) $ 268.2 $ 267.4
Senior unsecured notes at 9.375% due 2005 - note 6 - 152.4
Senior unsecured notes at 8.5% due 2007 - note 6 - 124.0
Term bank loan at prime plus 1.75% or LIBOR plus 3% with sinking
fund payments and due 2006 (b) 86.6 96.5
Other 1.0 1.0
--------- ---------
355.8 641.3
Less current maturities (16.5) (281.8)
--------- ---------
$ 339.3 $ 359.5
========= =========
-62-
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - LONG-TERM DEBT (continued)
(a) The 8% senior subordinated unsecured notes were issued at a discount of
2.75% on December 21, 2001. The fair value of the notes as of December 28,
2002 is estimated to be $290.1 million (December 29, 2001 - $270.2 million).
The notes contain a number of financial covenants including limitations on
capital stock repurchases, dividend payments and incurrence of indebtedness.
Penalties exist if Cott redeems the notes prior to December 15, 2009.
DECEMBER 28, DECEMBER 29,
2002 2001
-------------- -------------
(in millions of U.S. dollars)
Face value $ 275.0 $ 275.0
Discount (6.8) (7.6)
----------- -----------
$ 268.2 $ 267.4
=========== ===========
(b) The collateral for the term loan is described in Note 15. Starting in 2003,
the term loan requires annual repayments of 50% of the previous year's
excess cash flow, as defined in the agreement, in addition to the scheduled
principal repayments. The estimated amount of the excess cash flow
repayment for 2003 of $6.2 million has been classified as current
maturities of long-term debt. The creditors have the right to refuse this
repayment and, as a result, the actual payment may be lower than this
amount.
(c) Long-term debt payments required in each of the next five years and
thereafter are as follows:
(in millions of U.S. dollars)
2003 $ 16.5
2004 8.3
2005 9.2
2006 53.6
2007 -
Thereafter 275.0
---------
$ 362.6
=========
-63-
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
DECEMBER 28, DECEMBER 29,
2002 2001
-------------- -------------
(in millions of U.S. dollars)
Trade payables $ 71.5 $ 67.6
Accrued compensation 18.5 15.7
Accrued promotion and rebates 21.6 18.2
Accrued interest 1.4 9.8
Income, sales and other taxes 6.3 5.9
Other accrued liabilities 8.0 5.9
------------ -----------
$ 127.3 $ 123.1
============ ===========
NOTE 18 - OTHER LIABILITIES
DECEMBER 28, DECEMBER 29,
2002 2001
------------- -------------
(in millions of U.S. dollars)
Deferred income taxes - note 5 $ 33.5 $ 24.2
Deferred consideration on acquisition - 16.8
Other 2.7 -
-------- --------
$ 36.2 $ 41.0
======== ========
On December 6, 2002, Cott paid $19.5 million ((L)12.3 million) in full and final
settlement of the deferred consideration on the acquisition of the Hero Drinks
Group (U.K.) Limited. The amount represented the minimum guaranteed payments
under the agreement adjusted for early repayment. The balance as of December 29,
2001 of (L)11.6 million was the present value of the minimum guaranteed payments
under the agreement. The deferred consideration was non-interest bearing and was
discounted using an effective interest rate of 8.5%.
-64-
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - CAPITAL STOCK
The authorized capital stock of Cott consists of an unlimited number of common
shares and an unlimited number of first and second preferred shares, issuable in
series.
PREFERRED SHARES
The Convertible Participating Voting Second Preferred Shares, Series 1 ("second
preferred shares") were convertible into that amount of common shares which is
determined by dividing a conversion factor in effect at the time of conversion
by a conversion value. The initial conversion factor of $10.00 was adjusted
semi-annually at the rate of 2.5% for each six-month period, compounded
semi-annually, with daily accrual, until July 7, 2002. From and after July 7,
2002 the conversion factor was $12.18. The conversion value was $7.75 and was
subject to reduction in certain circumstances. The right of conversion could
have been exercised by the preferred shareowners at any time, and by Cott at any
time after July 7, 2002 or if the common shares had traded at an average closing
price of not less than $13.00 during a consecutive 120 day trading period, prior
to July 7, 2002.
The 4,000,000 second preferred shares were converted to 6,286,452 common shares
on June 27, 2002 using a conversion factor of $12.18 and conversion value of
$7.75.
Prior to conversion, these second preferred shares carried a cash dividend equal
to one-half of the common share cash dividend, if any, on an as converted basis.
From and after July 7, 2002, the preferred shareowners would have been entitled
to receive a cumulative preferential non-cash paid-in-kind dividend, payable in
additional second preferred shares, at the rate of 2.5% for each six months,
compounded semi-annually, with daily accrual. The second preferred shares were
also entitled to voting rights together with the common shares on an as
converted basis.
NOTE 20 - STOCK OPTION PLANS
Under the 1986 Common Share Option Plan as amended on April 18, 2001, Cott has
reserved 12.0 million common shares for future issuance. Options are granted at
a price not less than fair value of the shares on the date of grant.
Options granted prior to April 12, 1996 and all options that were previously
granted to employees with six months of service expire after five years and vest
at 20% per annum over 4.5 years. Options granted on or after April 12, 1996 but
before September 1, 1998 expire after ten years and vest at 25% per annum
commencing on the second anniversary date of the grant. Options granted after
September 1, 1998 expire after 7 years and vest at 30% per annum on the
anniversary date of the grant for the first two years and the balance on the
third anniversary date of the grant. Certain options granted under the plan vest
monthly over a period of 24 or 36 months. Options granted after July 17, 2001 to
the non-management members of the Board of Directors vest immediately. All
options are non-transferrable.
-65-
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 - STOCK OPTION PLANS (continued)
Pursuant to the SFAS No. 123, Accounting for Stock-Based Compensation, Cott has
elected to account for its employee stock option plan under APB opinion No. 25,
Accounting for Stock Issued to Employees. Accordingly, no compensation expense
has been recognized for stock options issued under these plans. Had compensation
expense for the plans been determined based on the fair value at the grant date
consistent with SFAS No. 123, Cott's net income and income per common share
would have been as follows:
FOR THE YEARS ENDED
-----------------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 30,
2002 2001 2000
------------- ------------- -------------
(in millions of U.S. dollars, except per share amounts)
NET INCOME (LOSS)
As reported $ 3.9 $ 39.9 $ 25.4
Pro forma (1.5) 36.3 22.6
NET INCOME (LOSS) PER SHARE - BASIC
As reported 0.06 0.66 0.42
Pro forma (0.02) 0.60 0.38
NET INCOME (LOSS) PER SHARE - DILUTED
As reported 0.06 0.58 0.38
Pro forma (0.02) 0.53 0.34
The pro forma compensation expense has been tax effected to the extent it
relates to stock options granted to employees in jurisdictions where the related
benefits are deductible for income tax purposes. Prior periods have been
restated to reflect the current year's presentation.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
FOR THE YEARS ENDED
----------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 30,
2002 2001 2000
------------- ------------- -------------
Risk-free interest rate 3.8% - 4.7% 4.4% - 5.5% 5.7% - 6.5%
Average expected life (years) 4 4 4
Expected volatility 45.0% 50.0% 50.0%
Expected dividend yield - - -
-66-
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 - STOCK OPTION PLANS (continued)
Option activity was as follows:
DECEMBER 28, 2002 DECEMBER 29, 2001 DECEMBER 30, 2000
------------------------ ------------------------ -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE (C$) SHARES PRICE (C$) SHARES PRICE (C$)
------------------------ ------------------------ -----------------------
Balance - at beginning 4,752,845 $ 11.63 5,247,660 $ 9.12 5,205,060 $ 9.55
Granted 1,476,000 $ 28.98 1,346,000 $ 17.09 878,000 $ 8.24
Exercised (952,776) $ 9.60 (1,451,465) $ 8.57 (30,950) $ 7.37
Cancelled (291,729) $ 12.15 (389,350) $ 8.15 (804,450) $ 11.01
--------- --------- ---------
Balance - at end 4,984,340 $ 16.90 4,752,845 $ 11.63 5,247,660 $ 9.12
--------- --------- ---------
Weighted average fair value of
options granted during the year $ 11.20 $ 8.46 $ 3.60
Outstanding options at December 28, 2002 are as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE PRICE
PRICES (C$) OUTSTANDING LIFE PRICE (C$) EXERCISABLE (C$)
- -------------------------------------------------------------------------------------------------------
$ 4.75 - $ 9.90 1,980,190 4.5 8.61 1,758,744 8.65
$ 10.80 - $ 16.10 362,350 4.6 13.37 338,850 13.40
$ 16.68 - $ 20.85 1,213,800 5.5 17.16 462,696 17.08
$ 23.60 - $ 31.77 1,428,000 6.4 29.08 5,000 23.99
---------------------------------------------------------------------------
4,984,340 5.3 16.90 2,565,290 10.82
---------------------------------------------------------------------------
NOTE 21 - NET CHANGE IN NON-CASH WORKING CAPITAL
The changes in non-cash working capital components from continuing operations,
net of effects of acquisitions and divestitures of businesses and unrealized
foreign exchange gains and losses, are as follows:
FOR THE YEARS ENDED
-------------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 30,
2002 2001 2000
------------- ------------- -------------
(in millions of U.S. dollars)
Decrease (increase) in accounts receivable $ (5.4) $ (12.7) $ (4.4)
Decrease (increase) in inventories (3.5) 1.7 2.1
Decrease (increase) in prepaid expenses 0.2 (1.4) 0.1
Increase (decrease) in accounts payable and
accrued liabilities (7.8) 14.8 7.7
----------- ----------- ----------
$ (16.5) $ 2.4 $ 5.5
=========== =========== ==========
-67-
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22 - ACQUISITIONS AND EQUITY INVESTMENTS
All acquisitions have been accounted for using the purchase method, and
accordingly, the results of operations are included in Cott's consolidated
statements of income from the effective dates of purchase, except as otherwise
indicated.
The total purchase prices of the acquisitions and equity investments were
allocated as follows based on the fair value of the net assets:
DECEMBER 28, DECEMBER 29, DECEMBER 30,
2002 2001 2000
--------------------------------------------------
(in millions of U.S dollars)
Current assets $ 11.8 $ 14.0 $ 12.0
Property, plant & equipment 14.0 5.0 10.1
Rights - 80.4 -
Customer list 4.8 54.1 25.0
Trademark 6.8 - 18.0
Goodwill 7.7 5.2 15.4
Other assets 3.0 - -
Equity investments 2.8 - -
----------- ----------- ----------
50.9 158.7 80.5
----------- ----------- ----------
Current liabilities 12.8 2.7 7.1
Deferred taxes and other liabilities 7.1 - -
Minority interest 0.4 28.4 -
----------- ----------- ----------
PURCHASE PRICE $ 30.6 $ 127.6 $ 73.4
=========== =========== ==========
YEAR ENDED DECEMBER 28, 2002
Effective June 21, 2002, Cott formed a new venture in Mexico, Cott
Embotelladores de Mexico S.A. de C.V. ("CEMSA"), with Embotelladora de Puebla,
S.A. de C.V. ("EPSA") in order to establish manufacturing and marketing
capabilities in Mexico. Cott acquired a 90% interest in this new venture. EPSA
has the remaining 10% interest. The purchase price was allocated to working
capital, machinery and equipment and customer list.
Effective June 25, 2002, Cott acquired all of the outstanding capital stock of
Premium Beverage Packers, Inc. ("Wyomissing"). Wyomissing's assets included
working capital, machinery and equipment, a customer list, trademarks and
goodwill. The acquisition is expected to add manufacturing strength to Cott's
growing presence in the Northeast United States.
The total purchase price for both acquisitions was $28.8 million, including
estimated acquisition costs of $1.8 million and an equity investment of $1.0
million for a 35% share of a Mexican distribution company and before working
capital adjustments. The acquisitions were funded from borrowings on Cott's
short-term credit facility. The goodwill recognized on the transactions is not
deductible for tax purposes.
In January 2002, Cott made equity investments in two spring water companies,
Iroquois Water and Iroquois West, totalling $1.8 million to strengthen its
position in the spring water segment across Canada. Subsequent to the date of
these financial statements, Cott acquired the remaining interest in Iroquois
West.
-68-
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22 - ACQUISITIONS AND EQUITY INVESTMENTS (continued)
YEAR ENDED DECEMBER 29, 2001
Effective July 19, 2001, Cott completed an acquisition of certain assets of
Royal Crown Company Inc. ("Royal Crown"). The purchased assets included
intellectual property, licenses and permits, equipment, working capital, and the
manufacturing facility used by Royal Crown in the production of concentrate.
Cott intends to use the concentrate assets to produce all of its concentrate
requirements previously produced for Cott by Royal Crown. In addition, Cott also
acquired the Royal Crown international business, which encompasses the Royal
Crown branded business outside the United States, Canada, Mexico and certain
U.S. territories. The total purchase price was $95.5 million, excluding
acquisition costs of $2.1 million. Cott funded the acquisition with proceeds
from the term loan described in note 16.
Of the purchase price, $80.4 million was assigned to the rights to manufacture
its concentrates, with all inventions, processes, technologies, technical and
manufacturing information and know how related to the manufacture of
concentrates. These rights are not subject to amortization. The goodwill
recognized on this transaction is expected to be fully deductible for tax
purposes.
Effective September 25, 2001, Cott formed a new business with Polar Corp.
("Polar"), the leading independent retailer-brand beverage supplier in New
England, to enhance its position and customer base in the northeast United
States. Cott invested $29.5 million in cash, excluding acquisition costs of $0.5
million, in Northeast Retailer Brands LLC ("LLC") through a wholly-owned
subsidiary. Cott has a 51% ownership interest in the LLC, and Polar, together
with its wholly-owned subsidiary, has a 49% interest.
YEAR ENDED DECEMBER 30, 2000
Effective October 2000, Cott acquired substantially all the assets and assumed
certain obligations of the private label beverage and Vintage(TM) brand seltzer
water businesses of the Concord Beverage Company, a retailer brand soft drink
manufacturing operation in the northeast United States. The acquisition price
was $72.8 million, excluding acquisition costs of $0.6 million, $34.4 million of
which was paid from cash-on-hand. The balance was financed through Cott's
existing bank credit facilities and two promissory notes payable to the seller
totaling $17.9 million, bearing interest at 7% per annum and due one year from
the acquisition date. The goodwill recognized on this transaction is expected to
be fully deductible for tax purposes.
The following unaudited pro forma information for the year ended December 30,
2000 presents the consolidated results of operations of Cott as if the
acquisition of Concord had occurred as of January 2, 2000. Pro forma information
does not include benefits from the anticipated synergies resulting from the
acquisition.
INCOME FROM
CONTINUING NET NET INCOME PER SHARE
SALES OPERATIONS INCOME BASIC DILUTED
- ---------------------------------------------------------------------------------------------------------------
(in millions of U.S. dollars, except per share amounts)
DECEMBER 30, 2000
As reported $ 990.6 $ 26.6 $ 25.4 $ 0.42 $ 0.38
Pro forma 1,055.2 24.8 23.6 0.39 0.35
- ----------------------------------------------------------------------------------------------------------------
-69-
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 23 - BENEFIT PLANS
Cott maintains primarily defined contribution pension plans covering qualifying
employees in the United States, Canada and the United Kingdom. The total expense
with respect to these plans was $4.2 million for the year ended December 28,
2002 ($3.3 million - December 29, 2001; $2.5 million - December 30, 2000).
NOTE 24 - COMMITMENTS AND CONTINGENCIES
a) Cott leases buildings, machinery & equipment, computer hardware & software
and furniture & fixtures. The minimum annual payments under operating leases
are as follows:
(in millions of U.S. dollars)
2003 $ 12.7
2004 9.4
2005 7.3
2006 6.4
2007 4.9
Thereafter 8.1
--------
$ 48.8
========
Operating lease expenses were:
(in millions of U.S. dollars)
Year ended December 28, 2002 $ 11.9
Year ended December 29, 2001 9.7
Year ended December 30, 2000 9.9
b) As of December 28, 2002, Cott had commitments for capital expenditures of
approximately $5.2 million.
c) Cott is subject to environmental legislation in jurisdictions in which it
carries on business. Cott anticipates that environmental legislation may
become more restrictive but at this time is not in a position to assess the
impact of future potential legislation. Cott, along with other industry
participants, is currently not in compliance with the Environmental
Protection Act (Ontario) and applicable regulations thereunder (collectively
the "EPA"). As the requirements under the EPA have not been actively
enforced since 1991 and the non-compliance appears to be industry-wide, Cott
believes that the possibility of enforcement is remote and it does not
believe that enforcement proceedings, if initiated, would be instituted
without a transition period. As such, Cott does not believe that any
enforcement would have an immediate material financial impact on its
financial results. Cott has not compiled a detailed analysis of the costs of
compliance as enforcement of the EPA is considered to be remote and will
account for any costs of compliance, which may be significant, if incurred.
d) Cott is subject to various claims and legal proceedings with respect to
matters such as governmental regulations, income taxes, 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
Cott's financial position or results from operations.
-70-
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 24 - COMMITMENTS AND CONTINGENCIES (continued)
e) In January 2002, Cott guaranteed the obligations of Iroquois West under its
Loan and Security Agreement with Siemens Credit Limited. The loan is secured
by the equipment of Iroquois West and expires in December 2006. The
guarantee is not limited to payment of all sums presently and hereafter
owing under this agreement. As of December 28, 2002, the outstanding
obligation was $2.0 million (C$3.1 million). The loan will be included in
Cott's consolidated debt in 2003 as a result of the acquisition of the
remaining interest in Iroquois West on December 29, 2002.
Cott has $2.1 million in standby letters of credit outstanding as of
December 28, 2002.
NOTE 25 - SEGMENT REPORTING
Cott produces, packages and distributes retailer brand and branded bottled and
canned soft drinks to regional and national grocery, mass-merchandise and
wholesale chains in the United States, Canada and the United Kingdom &
International. The Mexican acquisitions of June 2002 and the concentrate assets
acquired in July 2001, including the related results of operations, have been
included in the Corporate & Other Segment from their respective acquisition
dates. For comparative purposes, the segmented information for prior periods has
been restated to conform to the way Cott currently manages its beverage business
by geographic segments as described below:
BUSINESS SEGMENTS
UNITED
FOR THE YEAR ENDED UNITED KINGDOM & CORPORATE &
DECEMBER 28, 2002 STATES CANADA INTERNATIONAL OTHER TOTAL
- ----------------------------------------------------------------------------------------------------------------
(in millions of U.S. dollars)
External sales $ 872.2 $ 171.2 $ 146.8 $ 8.4 $ 1,198.6
Intersegment sales 0.8 27.6 0.1 (28.5) -
Depreciation and amortization 29.4 6.3 6.7 1.7 44.1
Operating income (loss) 110.2 17.9 3.9 (9.3) 122.7
Property, plant and equipment 155.4 43.8 60.7 13.1 273.0
Goodwill, intangibles and other
assets 170.8 20.0 5.1 91.8 287.7
Total assets 452.8 107.9 152.8 71.9 785.4
Additions to property, plant and
equipment 22.8 3.6 2.6 12.2 41.2
- ----------------------------------------------------------------------------------------------------------------
-71-
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 25 - SEGMENT REPORTING (continued)
UNITED
FOR THE YEAR ENDED UNITED KINGDOM & CORPORATE &
DECEMBER 29, 2001 STATES CANADA INTERNATIONAL OTHER TOTAL
- ---------------------------------------------------------------------------------------------------------------
(in millions of U.S. dollars)
External sales $ 779.4 $ 163.7 $ 146.5 $ 0.5 $ 1,090.1
Intersegment sales 1.7 16.1 0.6 (18.4) -
Depreciation and amortization 25.0 6.6 7.7 0.9 40.2
Operating income (loss) 89.7 17.6 (3.3) (10.7) 93.3
Property, plant and equipment 131.7 44.9 59.0 11.3 246.9
Goodwill, intangibles and other
assets 158.7 17.2 51.6 96.2 323.7
Total assets 520.0 97.3 201.0 247.1 1,065.4
Additions to property, plant and
equipment 24.4 5.2 4.1 2.1 35.8
Property, plant and equipment,
acquired - - - 5.0 5.0
Goodwill acquired - - 5.2 - 5.2
Intangibles acquired 54.1 - - 80.4 134.5
- -------------------------------------------------------------------------------------------------------------
UNITED
FOR THE YEAR ENDED UNITED KINGDOM & CORPORATE
DECEMBER 30, 2000 STATES CANADA INTERNATIONAL & OTHER TOTAL
- -------------------------------------------------------------------------------------------------------------
(in millions of U.S. dollars)
External sales $ 657.3 $ 169.7 $ 162.6 1.0 $ 990.6
Intersegment sales 4.0 12.8 - (16.8) -
Depreciation and amortization 20.6 7.8 8.5 0.5 37.4
Operating income (loss) before 63.6 17.1 4.8 (11.7) 73.8
unusual items
Unusual items (0.2) - (1.7) (0.2) (2.1)
Property, plant and equipment 126.3 48.7 64.8 5.2 245.0
Goodwill, intangibles and other
assets 112.6 18.9 50.4 12.3 194.2
Total assets 427.5 143.7 157.5 (107.1) 621.6
Additions to property, plant and 16.5 3.0 3.9 0.5 23.9
equipment
Property, plant and equipment
acquired 10.1 - - - 10.1
Goodwill acquired 15.4 - - - 15.4
Intangibles acquired 43.0 - - - 43.0
- -------------------------------------------------------------------------------------------------------------
-72-
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 25 - SEGMENT REPORTING (continued)
Intersegment sales and total assets under the Corporate & Other caption include
the elimination of intersegment sales, receivables and investments.
For the year ended December 28, 2002, sales to a major customer accounted for
40% of Cott's total sales. For the year ended December 29, 2001, sales to two
major customers accounted for 39% and 11%, respectively of Cott's total sales
(35% and 13% - December 30, 2000).
Credit risk arises from the potential default of a customer in meeting its
financial obligations with Cott. Concentrations of credit exposure may arise
with a group of customers which 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.
-73-
COTT CORPORATION
QUARTERLY FINANCIAL INFORMATION
(Unaudited, in millions of U.S. dollars, except per share amounts)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
---------------------------------------------------------------
YEAR ENDED DECEMBER 28, 2002
Sales $ 250.0 $ 329.5 $ 338.8 $ 280.3 $1,198.6
Cost of sales 203.9 262.4 272.1 227.3 965.7
Selling, general and administrative 27.7 28.3 27.6 26.6 110.2
----------------------------------------------------------------
Operating income 18.4 38.8 39.1 26.4 122.7
----------------------------------------------------------------
Income from continuing operations 7.6 19.2 19.8 11.7 58.3
Extraordinary item (9.6) - - - (9.6)
Cumulative effect of change in accounting
principle (44.8) - - - (44.8)
----------------------------------------------------------------
Net income $ (46.8) $ 19.2 $ 19.8 $ 11.7 $ 3.9
================================================================
Per share data:
Income per common share - basic
Income from continuing operations $ 0.12 $ 0.31 $ 0.29 $ 0.17 $ 0.89
Net income $ (0.76) $ 0.31 $ 0.29 $ 0.17 $ 0.06
Income per common share - diluted
Income from continuing operations $ 0.11 $ 0.27 $ 0.28 $ 0.17 $ 0.83
Net income $ (0.76) $ 0.27 $ 0.28 $ 0.17 $ 0.06
================================================================
YEAR ENDED DECEMBER 29, 2001
Sales $ 229.0 $ 305.6 $ 302.5 $ 253.0 $1,090.1
Cost of sales 192.9 251.0 252.1 206.7 902.7
Selling, general and administrative 23.1 25.6 24.2 21.2 94.1
----------------------------------------------------------------
Operating income 13.0 29.0 26.2 25.1 93.3
----------------------------------------------------------------
Net income $ 5.1 $ 14.5 $ 11.1 $ 9.2 $ 39.9
================================================================
Per share data:
Income per common share - basic
Net income $ 0.09 $ 0.24 $ 0.18 $ 0.15 $ 0.66
Income per common share - diluted
Net income $ 0.07 $ 0.21 $ 0.16 $ 0.13 $ 0.58
================================================================
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-74-
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS
The information required by this item regarding directors is incorporated by
reference to, and will be contained in, the "Election of Directors" section of
the definitive proxy statement, which will be filed within 120 days after
December 28, 2002. The information required by this item regarding executive
officers appears as the Supplementary Item in Part I.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The information required by this item is incorporated by reference to, and
will be contained in, the "Section 16(a) Beneficial Ownership Reporting
Compliance" section of the definitive proxy statement, which will be filed
within 120 days after December 28, 2002.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to, and
will be contained in, the "Executive Compensation" section of the definitive
proxy statement, which will be filed within 120 days after December 28, 2002.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to, and
will be contained in, the "Voting Shares and Principal Owners," the "Security
Ownership for Directors and Officers" and "Equity Compensation Plan Information"
sections of the definitive proxy statement, which will be filed within 120 days
after December 28, 2002.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to, and
will be contained in, the "Certain Relationships and Related Transactions"
section of the definitive proxy statement, which will be filed within 120 days
after December 28, 2002.
ITEM 14. CONTROLS AND PROCEDURES
Cott's Chief Executive Officer and Chief Financial Officer have concluded
that its disclosure controls and procedures (as defined in Exchange Act Rules
13a-14(c) and 15d - 14(c)) are effective, based on their evaluation of these
controls and procedures within 90 days of the date of this report. There have
been no significant changes in Cott's internal controls or in other factors that
could significantly affect these controls subsequent to the date of their
evaluation.
-75-
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
1. FINANCIAL STATEMENTS:
The consolidated financial statements are included in Item 8 of this annual
report on Form 10-K.
2. FINANCIAL STATEMENT SCHEDULES:
Report of Independent Accountants
Schedule II -- Valuation and Qualifying Accounts
Schedule III -- Consolidating Financial Statements
All other schedules called for by the applicable SEC accounting regulations
are not required under the related instructions or are inapplicable and,
therefore, have been omitted.
3. EXHIBITS:
NUMBER DESCRIPTION
- ------ -----------
2.1 + Asset Purchase Agreement by and between Concord Beverage Company and Concord Beverage LP,
dated as of October 18, 2000 (incorporated by reference to Exhibit 2.1 to Cott's Form 8-K
dated as of October 18, 2000).
2.2 + Agreement of Sale by and between Concord Beverage Company and Concord Beverage LP, dated as of
October 18, 2000 (incorporated by reference to Exhibit 2.2 to Cott's Form 8-K dated as of
October 18, 2000).
2.3 Acquisition Agreement, dated November 20, 1997, among Cott UK Limited, Cott
Corporation and the several persons listed in Schedule 1 to the Agreement relating to
the acquisition of Hero Drinks Group (U.K.) Limited (incorporated by reference to
Exhibit 10.2 to Cott's Form 10-K dated March 31, 2000).
2.4 (*) Asset Acquisition and Facility Use Agreement, dated April 13, 2000, between BCB USA Corp.
(since renamed "Cott Beverages Inc.") and Schmalbach-Lubeca Plastic Containers USA, Inc.
relating to the sale of the PET preform blow molding operation (incorporated by reference to
Exhibit 10.1 to Cott's Form 10-Q dated May 16, 2000).
2.5 + (*) Asset Purchase Agreement by and among Royal Crown Company, Inc., Cott Corporation and BCB
USA Corp. (since renamed "Cott Beverages Inc.") dated as of June 13, 2001 (incorporated by
reference to Exhibit 2.1 to Cott's Form 8-K dated July 19, 2001).
3.1 Articles of Incorporation of Cott (incorporated by reference to Exhibit 3.1 to Cott's Form
10-K dated March 31, 2000).
3.2 By-laws of Cott (incorporated by reference to Exhibit 3.2 to Cott's Form 10-K dated March 8,
2002).
-76-
NUMBER DESCRIPTION
- ------ -----------
4.1 Subscription Agreement dated as of June 12, 1998 for Cott's (as issuer) Convertible
Participating Voting Second Preferred Shares, Series 1 (incorporated by reference to Exhibit
4.2 to Cott's Form 10-K dated March 31, 2000).
4.2 Letter Agreement dated as of November 3, 1999, regarding standstill provisions between Cott
and the Thomas H. Lee Company (incorporated by reference to Exhibit 4.3 to Cott's Form 10-K
dated March 31, 2000).
4.3 Indenture dated as of December 21, 2001, between Cott (as issuer) and HSBC Bank USA (as
trustee) (incorporated by reference to Exhibit 4.3 to Cott's Form 10-K dated March 8,
2002).
4.4 Registration Rights Agreement dated as of December 21, 2001, among Cott Beverages Inc., the
Guarantors named therein and Lehman Brothers Inc., BMO Nesbitt Burns Corp. and CIBC World
Markets Corp. (incorporated by reference to Exhibit 4.4 to Cott's Form 10-K dated March 8,
2002).
10.1 (*) Termination Agreement, dated November 1, 1999, between Cott Beverages USA, Inc. (now "Cott
Beverages Inc.") and Premium Beverages Packers, Inc, (incorporated by reference to Exhibit
10.1 to Cott's Form 10-K dated March 31, 2000).
10.2 (*) Supply Agreement, dated December 21, 1998, between Wal-Mart Stores, Inc. and Cott
Beverages USA, Inc. (now "Cott Beverages Inc.") (incorporated by reference to Exhibit 10.3 to
Cott's Form 10-K dated March 31, 2000).
10.3 (**) Employment Agreement of Frank E. Weise III dated June 11, 1998 (incorporated
by reference to Exhibit 10.5 to Cott's Form 10-K dated March 31, 2000), as amended
July 3, 2001 (incorporated by reference to Exhibit 10.2 of Cott's Form 10-Q for the
period ended June 30, 2001), as amended and restated as of December 10, 2002 (filed
herewith).
10.4 (**) Employment Agreement of Mark Benadiba dated October 7, 1997, as amended December 19, 1997
(incorporated by Reference to Exhibit 10.7 to Cott's Form 10-K dated March 31, 2000), as
amended September 25, 2000 (incorporated by reference to Exhibit 10.6 to Cott's Form 10-K
dated March 7, 2001) and as further amended October 25, 2002 (filed herewith).
10.5 (**) Employment Agreement of Paul R. Richardson dated August 23, 1999 (incorporated by
reference to Exhibit 10. 8 to Cott's Form 10-K dated March 31, 2000), as amended February 18,
2002 (incorporated by reference to Exhibit 10.5 to Cott's Form 10-K dated March 8, 2002).
10.6 (**) Employment Agreement of Raymond P. Silcock dated August 17, 1998 (incorporated by reference
to Exhibit 10.9 to Cott's Form 10-K dated March 31, 2000).
10.7 (**) Employment Agreement of John K. Sheppard dated December 21, 2001 (filed herewith).
10.8 (**) Amended 1999 Executive Incentive Share Compensation Plan effective January 3, 1999
(incorporated by reference to Exhibit 10.6 to Cott's Form 10-K dated March 7, 2001).
-77-
NUMBER DESCRIPTION
- ------ -----------
10.9 (**) 2000 Executive Incentive Share Compensation Plan Effective January 2, 2001 (incorporated
by reference to Exhibit 10.6 to Cott's Form 10-K dated March 7, 2001).
10.10 (**) 2001 Executive Incentive Share Compensation Plan Effective January 2, 2002 (incorporated
by reference to Exhibit 10.10 to Cott's Form 10-K dated March 8, 2002).
10.11 (**) 2002 Executive Incentive Share Compensation Plan effective January 2, 2003 (filed
herewith).
10.12 (**) Second Canadian Employee Share Purchase Plan effective January 2, 2001 (incorporated by
reference to Exhibit 10.6 to Cott's Form 10-K dated March 7, 2001).
10.13 (*) Credit Agreement dated as of July 19, 2001 between BCB USA Corp. (since renamed "Cott
Beverages Inc."), Cott Corporation and the several lenders, Lehman Brothers Inc., First Union
National Bank, Bank of Montreal and Lehman Commercial Paper, Inc. (incorporated by reference
to Exhibit 10.1 to Cott's Form 8-K dated July 19, 2001), as amended December 13, 2001 and
December 19, 2001 (incorporated by reference to Exhibit 10.13 to Cott's Form 10-K dated March
8, 2002).
13.1 Annual Report to Shareowners for the year ended December 28, 2002 (filed herewith).
21.1 List of Subsidiaries of Cott (filed herewith).
23.1 Consent of Independent Accountants (filed herewith).
- -----------------------------
+ In accordance with Item 601(b)(2) of Regulation S-K, the exhibits to
this Exhibit have been omitted and a list briefly describing those
exhibits is contained in the Exhibit. The Registrant will furnish a
copy of any omitted exhibit to the Commission upon request.
(*) Document is subject to request for confidential treatment.
(**) Indicates a management contract or compensatory plan.
4. REPORTS ON FORM 8-K
On November 13, 2002, Cott furnished a current report on Form 8-K, dated
November 12, 2002, providing the certificate of Cott's president and chief
executive officer and Cott's executive vice president and chief financial
officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
-78-
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
COTT CORPORATION
Our audits of the consolidated financial statements referred to in our
report dated January 30, 2003 appearing on page 47 of this annual report on Form
10-K also included an audit of the financial statement schedules listed in Item
15(2) of this Form 10-K. In our opinion, these financial statement schedules
present fairly, in all material respects, the information set forth therein when
read in conjunction with the consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
January 30, 2003
-79-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
COTT CORPORATION
/s/ Frank E. Weise III
Frank E. Weise III
Chairman, President and Chief
Executive Officer
Date: March 5, 2003
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Chairman, President and Chief Executive Date: March 5, 2003
Officer
/s/ Frank E. Weise III (Principal Executive Officer)
- --------------------------------------------
Frank E. Weise III
Executive Vice President and Chief Date: March 5, 2003
Financial Officer
/s/ Raymond P. Silcock (Principal Financial Officer)
- --------------------------------------------
Raymond P. Silcock
Vice President, Controller and Date: March 5, 2003
Assistant Secretary
/s/ Tina Dell'Aquila (Principal Accounting Officer)
- --------------------------------------------
Tina Dell'Aquila
/s/ Serge Gouin Director Date: March 5, 2003
- --------------------------------------------
Serge Gouin
/s/ Colin J. Adair Director Date: March 5, 2003
- --------------------------------------------
Colin J. Adair
/s/ W. John Bennett Director Date: March 5, 2003
- --------------------------------------------
W. John Bennett
/s/ C. Hunter Boll Director Date: March 5, 2003
- --------------------------------------------
C. Hunter Boll
-80-
/s/ Thomas M. Hagerty Director Date: March 5, 2003
- --------------------------------------------
Thomas M. Hagerty
/s/ Stephen H. Halperin Director Date: March 5, 2003
- --------------------------------------------
Stephen H. Halperin
/s/ David V. Harkins Director Date: March 5, 2003
- --------------------------------------------
David V. Harkins
/s/ Christine A. Magee Director Date: March 5, 2003
- --------------------------------------------
Christine A. Magee
/s/ Donald G. Watt Director Date: March 5, 2003
- --------------------------------------------
Donald G. Watt
-81-
CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.
I, Frank E. Weise, III, certify that:
1. I have reviewed this annual report on Form 10-K of Cott Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 5, 2003 /s/ Frank E. Weise III
---------------------------------------
Frank E. Weise III
Chairman, President and Chief Executive
Officer
-82-
I, Raymond P. Silcock, certify that:
1. I have reviewed this annual report on Form 10-K of Cott Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 5, 2003 /s/ Raymond P. Silcock
----------------------------------
Raymond P. Silcock
Executive Vice-President and Chief
Financial Officer
-83-
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 28, 2002
-------------------------------------------------------------------------------------
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND CHARGED TO BALANCE AT END
DESCRIPTION YEAR EXPENSES OTHER ACCOUNTS DEDUCTION OF YEAR
- --------------------------------------------------------------------------------------------------------------------------------
RESERVES DEDUCTED IN THE BALANCE
SHEET FROM THE ASSETS TO WHICH
THEY APPLY
Allowances for losses on:
Accounts receivables................. $ (5.1) $ (1.6) $ 1.3 $ 2.0 $ (3.4)
Inventories.......................... (6.1) (1.5) - 0.9 (6.7)
Intangibles and other assets......... (1.1) - - - (1.1)
--------------------------------------------------------------------------------------
$(12.3) $ (3.1) $ 1.3 $ 2.9 $ (11.2)
=====================================================================================
YEAR ENDED DECEMBER 29, 2001
--------------------------------------------------------------------------------------
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND CHARGED TO BALANCE AT END
DESCRIPTION YEAR EXPENSES OTHER ACCOUNTS* DEDUCTION OF YEAR
- --------------------------------------------------------------------------------------------------------------------------------
RESERVES DEDUCTED IN THE BALANCE
SHEET FROM THE ASSETS TO WHICH
THEY APPLY
Allowances for losses on:
Accounts receivables................. $ (3.3) $ (0.2) $ (2.6) $ 1.0 $ (5.1)
Inventories.......................... (5.1) (1.9) - 0.9 (6.1)
Intangibles and other assets......... (1.1) - - - (1.1)
Deferred income taxes................ (10.1) 5.3 - 4.8 -
-------------------------------------------------------------------------------------
$ (19.6) $ 3.2 $ (2.6) $ 6.7 $ (12.3)
=====================================================================================
* includes $(2.9) million from acquisitions
YEAR ENDED DECEMBER 30, 2000
--------------------------------------------------------------------------------------
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND CHARGED TO BALANCE AT END
DESCRIPTION YEAR EXPENSES OTHER ACCOUNTS DEDUCTION OF YEAR
- --------------------------------------------------------------------------------------------------------------------------------
RESERVES DEDUCTED IN THE BALANCE
SHEET FROM THE ASSETS TO WHICH
THEY APPLY
Allowances for losses on:
Accounts receivables................. $ (8.7) $ (0.4) $ - $ 5.8 $ (3.3)
Inventories.......................... (5.9) (2.9) - 3.7 (5.1)
Property, plant and equipment........ - (0.8) - 0.8 -
Goodwill............................. (1.2) - - 1.2 -
Intangibles and other assets......... (1.1) (0.4) - 0.4 (1.1)
Deferred income taxes................ (9.3) (0.8) - - (10.1)
-------------------------------------------------------------------------------------
$(26.2) $ (5.3) $ - $ 11.9 $(19.6)
=====================================================================================
-84-
SCHEDULE III -- CONSOLIDATING FINANCIAL STATEMENTS
Cott Beverages Inc., a wholly owned subsidiary of Cott, has entered
into financing arrangements that are guaranteed by Cott and certain other wholly
owned subsidiaries (the "Guarantor Subsidiaries"). Such guarantees are full,
unconditional and joint and several.
The following supplemental financial information sets forth on an
unconsolidated basis, balance sheets, statements of income and cash flows for
Cott Corporation, Cott Beverages Inc., Guarantor Subsidiaries and Cott's other
subsidiaries (the "Non-guarantor Subsidiaries"). The balance sheets, statements
of income and cash flows for Cott Beverages Inc. have been adjusted
retroactively to include Concord Beverage Company, Concord Holdings GP and
Concord Holdings LP that were amalgamated with Cott Beverages Inc. on December
29, 2001. The supplemental financial information reflects the investments of
Cott and Cott Beverages Inc. in their respective subsidiaries using the equity
method of accounting.
COTT CORPORATION
CONSOLIDATING STATEMENTS OF INCOME
(in millions of U.S. dollars)
FOR THE YEAR ENDED DECEMBER 28, 2002
-------------------------------------------------------------------------------------------------
NON-
COTT COTT BEVERAGES GUARANTOR GUARANTOR ELIMINATION
CORPORATION INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------------------------------------------------------------------------------------------------
SALES $ 198.8 $ 808.1 $ 52.1 $ 201.2 $ (61.6) $ 1,198.6
Cost of sales 161.4 639.6 49.5 177.2 (62.0) 965.7
-------------------------------------------------------------------------------------------------
GROSS PROFIT 37.4 168.5 2.6 24.0 0.4 232.9
Selling, general and
administrative expenses 29.6 56.5 4.0 20.1 - 110.2
-------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) 7.8 112.0 (1.4) 3.9 0.4 122.7
Other expense (income), net 10.0 - 65.9 (9.3) (66.7) (0.1)
Interest expense, net (1.9) 32.8 1.2 0.8 - 32.9
Minority interest - - - 2.1 - 2.1
-------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME
TAXES AND EQUITY INCOME
(LOSS) (0.3) 79.2 (68.5) 10.3 67.1 87.8
Income taxes (0.5) (25.4) - (0.1) (2.9) (28.9)
Equity income (loss) 59.1 0.9 55.9 - (116.5) (0.6)
-------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS 58.3 54.7 (12.6) 10.2 (52.3) 58.3
Extraordinary item (9.6) - - - - (9.6)
Cumulative effect of change
in accounting principle - - - (44.8) - (44.8)
Equity loss on cumulative
effect of change in
accounting principle (44.8) - - - 44.8 -
-------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 3.9 $ 54.7 $ (12.6) $ (34.6) $ (7.5) $ 3.9
-------------------------------------------------------------------------------------------------
-85-
COTT CORPORATION
CONSOLIDATING BALANCE SHEETS
(in millions of U.S. dollars)
AS OF DECEMBER 28, 2002
------------------------------------------------------------------------------------
COTT COTT BEVERAGES GUARANTOR NON-GUARANTOR ELIMINATION
CORPORATION INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------------------------------------------------------------------------------
ASSETS
Current assets
Cash $ - $ - $ 0.1 $ 3.2 $ - $ 3.3
Accounts receivable 36.7 84.3 4.4 32.7 (21.9) 136.2
Inventories 15.1 43.9 5.7 13.3 - 78.0
Prepaid expenses 1.4 1.3 0.7 3.8 - 7.2
---------------------------------------------------------------------------------
53.2 129.5 10.9 53.0 (21.9) 224.7
Property, plant and equipment 49.7 138.3 23.7 61.3 - 273.0
Goodwill 17.5 46.0 13.5 - - 77.0
Intangibles and other assets 7.4 134.8 13.0 55.5 - 210.7
Due from affiliates 46.1 0.5 68.2 268.1 (382.9) -
Investments in subsidiaries 148.4 79.2 (41.6) - (186.0) -
---------------------------------------------------------------------------------
$ 322.3 $ 528.3 $ 87.7 $ 437.9 $ (590.8) $ 785.4
=================================================================================
LIABILITIES
Current liabilities
Short-term borrowings $ 2.3 $ 16.5 $ - $ 2.5 $ - $ 21.3
Current maturities of long-term debt - 16.5 - - - 16.5
Accounts payable and accrued liabilities 40.0 63.0 9.4 36.8 (21.9) 127.3
---------------------------------------------------------------------------------
42.3 96.0 9.4 39.3 (21.9) 165.1
Long-term debt - 339.3 - - - 339.3
Due to affiliates 50.6 66.6 219.6 46.1 (382.9) -
Other liabilities 11.2 16.7 6.9 1.4 - 36.2
---------------------------------------------------------------------------------
104.1 518.6 235.9 86.8 (404.8) 540.6
---------------------------------------------------------------------------------
Minority interest - - - 26.6 - 26.6
SHAREOWNERS' EQUITY
Capital stock
Common shares 248.1 275.8 122.7 448.4 (846.9) 248.1
Retained earnings (deficit) 5.9 (266.1) (270.9) (97.4) 634.4 5.9
Accumulated other comprehensive income (35.8) - - (26.5) 26.5 (35.8)
---------------------------------------------------------------------------------
218.2 9.7 (148.2) 324.5 (186.0) 218.2
---------------------------------------------------------------------------------
$ 322.3 $ 528.3 $ 87.7 $ 437.9 $ (590.8) $ 785.4
=================================================================================
-86-
COTT CORPORATION
CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions of U.S. dollars)
FOR THE YEAR ENDED DECEMBER 28, 2002
-----------------------------------------------------------------------------------
COTT COTT BEVERAGES GUARANTOR NON-GUARANTOR ELIMINATION
CORPORATION INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-----------------------------------------------------------------------------------
OPERATING ACTIVITIES
Income (loss) from continuing operations $ 58.3 $ 54.7 $ (12.6) $ 10.2 $ (52.3) $ 58.3
Depreciation and amortization 6.7 21.9 4.7 10.8 - 44.1
Amortization of financing fees - 1.7 - - - 1.7
Deferred income taxes 0.3 9.3 - 0.2 - 9.8
Minority interest - - - 2.1 - 2.1
Equity income, net of distributions (58.6) 3.2 6.4 - 49.6 0.6
Gain on disposal of investment (1.3) - - - - (1.3)
Other non-cash items 12.2 (1.2) 66.0 (8.6) (66.0) 2.4
Net change in non-cash working capital from
continuing operations (17.2) (15.3) 3.5 10.7 1.8 (16.5)
--------------------------------------------------------------------------------
Cash provided by (used in) continuing operations 0.4 74.3 68.0 25.4 (66.9) 101.2
Cost of debt redemption (10.6) - - - - (10.6)
--------------------------------------------------------------------------------
Cash provided by (used in) operating activities (10.2) 74.3 68.0 25.4 (66.9) 90.6
--------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to property, plant and equipment (11.5) (21.4) (2.0) (6.3) - (41.2)
Acquisitions (1.8) - (26.8) (2.0) - (30.6)
Advances to affiliates (5.4) (0.5) (54.3) - 60.2 -
Investment in subsidiaries (7.9) (27.0) (10.0) - 44.9 -
Other 2.1 (2.2) 0.3 (0.7) - (0.5)
--------------------------------------------------------------------------------
Cash provided by (used in) investing activities (24.5) (51.1) (92.8) (9.0) 105.1 (72.3)
--------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payments of long-term debt (276.4) (10.8) - - - (287.2)
Payments of deferred consideration of
acquisition - - - (19.5) - (19.5)
Short-term borrowings 0.7 (16.0) - 2.4 - (12.9)
Increase in long-term debt - 1.0 - - - 1.0
Decrease in cash in trust 297.3 - - - - 297.3
Advances from affiliates 6.9 54.3 (1.5) 0.5 (60.2) -
Distributions to subsidiary minority shareowner - - - (3.9) - (3.9)
Issue of common shares 5.8 10.0 27.0 7.9 (44.9) 5.8
Dividends paid - (62.4) (0.4) (4.1) 66.9 -
Other - - (0.2) - - (0.2)
--------------------------------------------------------------------------------
Cash provided by (used in) financing activities 34.3 (23.9) 24.9 (16.7) (38.2) (19.6)
--------------------------------------------------------------------------------
Effect of exchange rate changes on cash 0.4 - - 0.3 - 0.7
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH - (0.7) 0.1 - - (0.6)
CASH, BEGINNING OF YEAR - 0.7 - 3.2 - 3.9
--------------------------------------------------------------------------------
CASH, END OF YEAR $ - $ - $ 0.1 $ 3.2 $ - $ 3.3
================================================================================
-87-
COTT CORPORATION
CONSOLIDATING STATEMENTS OF INCOME
(in millions of U.S. dollars)
FOR THE YEAR ENDED DECEMBER 29, 2001
-----------------------------------------------------------------------------------
COTT COTT BEVERAGES GUARANTOR NON-GUARANTOR ELIMINATION
CORPORATION INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-----------------------------------------------------------------------------------
SALES $ 197.8 $ 775.4 $ - $ 153.0 $ (36.1) $ 1,090.1
Cost of sales 162.1 638.7 - 139.0 (37.1) 902.7
--------------------------------------------------------------------------------
GROSS PROFIT 35.7 136.7 - 14.0 1.0 187.4
Selling, general and administrative expenses 22.3 54.9 0.2 16.7 - 94.1
Unusual items (0.1) - - 0.1 - -
--------------------------------------------------------------------------------
OPERATING INCOME 13.5 81.8 (0.2) (2.8) 1.0 93.3
Other income, net (0.2) (0.1) - (2.1) - (2.4)
Interest expense, net 5.4 5.1 20.4 1.3 - 32.2
Minority interest - - - 0.4 - 0.4
--------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY
INCOME 8.3 76.8 (20.6) (2.4) 1.0 63.1
Income taxes (1.0) (22.7) - 2.2 (1.7) (23.2)
Equity income 32.6 0.4 54.5 - (87.5) -
--------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 39.9 54.5 33.9 (0.2) (88.2) 39.9
Extraordinary item - - - - - -
--------------------------------------------------------------------------------
NET INCOME (LOSS) $ 39.9 $ 54.5 $ 33.9 $ (0.2) $ (88.2) $ 39.9
================================================================================
-88-
COTT CORPORATION
CONSOLIDATING BALANCE SHEETS
(in millions of U.S. dollars)
AS OF DECEMBER 29, 2001
-----------------------------------------------------------------------------------
COTT COTT BEVERAGES GUARANTOR NON-GUARANTOR ELIMINATION
CORPORATION INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-----------------------------------------------------------------------------------
ASSETS
Current assets
Cash $ - $ 0.7 $ - $ 3.2 $ - $ 3.9
Cash in trust 297.3 - - - - 297.3
Accounts receivable 28.7 75.1 0.4 27.4 (9.6) 122.0
Inventories 11.7 46.0 - 10.8 (0.3) 68.2
Prepaid expenses 1.4 1.4 - 0.6 - 3.4
----------------------------------------------------------------------------------
339.1 123.2 0.4 42.0 (9.9) 494.8
Property, plant and equipment 49.3 138.6 - 59.0 - 246.9
Goodwill 17.2 46.7 5.1 45.1 - 114.1
Intangibles and other assets 11.2 140.3 - 58.1 - 209.6
Due from affiliates 251.1 284.0 297.9 42.3 (875.3) -
Investments in subsidiaries 190.6 41.7 279.5 - (511.8) -
--------------------------------------------------------------------------------
$ 858.5 $ 774.5 $ 582.9 $ 246.5 $(1,397.0) $ 1,065.4
================================================================================
LIABILITIES
Current liabilities
Short-term borrowings $ 1.7 $ 32.5 $ - $ - $ - $ 34.2
Current maturities of long-term debt 276.4 5.4 - - - 281.8
Accounts payable and accrued liabilities 39.8 66.1 0.2 26.6 (9.6) 123.1
--------------------------------------------------------------------------------
317.9 104.0 0.2 26.6 (9.6) 439.1
Long-term debt - 359.4 - 0.1 - 359.5
Due to affiliates 328.0 12.3 497.7 37.3 (875.3) -
Other liabilities 14.9 7.4 - 17.9 0.8 41.0
--------------------------------------------------------------------------------
660.8 483.1 497.9 81.9 (884.1) 839.6
--------------------------------------------------------------------------------
Minority interest - - - 28.1 - 28.1
SHAREOWNERS' EQUITY
Capital stock
Common shares 199.4 265.8 59.0 214.4 (539.2) 199.4
Second preferred shares, Series 1 40.0 - - - - 40.0
--------------------------------------------------------------------------------
239.4 265.8 59.0 214.4 (539.2) 239.4
Retained earnings (deficit) 2.0 25.6 26.0 (58.7) 7.1 2.0
Accumulated other comprehensive income (43.7) - - (19.2) 19.2 (43.7)
--------------------------------------------------------------------------------
197.7 291.4 85.0 136.5 (512.9) 197.7
--------------------------------------------------------------------------------
$ 858.5 $ 774.5 $ 582.9 $ 246.5 $(1,397.0) $ 1,065.4
================================================================================
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COTT CORPORATION
CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions of U.S. dollars)
FOR THE YEAR ENDED DECEMBER 29, 2001
-----------------------------------------------------------------------------------
COTT COTT BEVERAGES GUARANTOR NON-GUARANTOR ELIMINATION
CORPORATION INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-----------------------------------------------------------------------------------
OPERATING ACTIVITIES
Income (loss) from continuing operations $ 39.9 $ 52.2 $ 31.6 $ (0.2) $ (83.6) $ 39.9
Depreciation and amortization 7.0 24.4 0.2 8.6 - 40.2
Amortization of financing fees 1.0 0.9 - - - 1.9
Deferred income taxes 0.8 11.4 - (2.2) (0.7) 9.3
Minority interest - - - 0.4 - 0.4
Equity income, net of distributions (31.5) (0.4) (28.5) - 60.4 -
Other non-cash items 0.8 (1.2) - (0.5) 0.2 (0.7)
Net change in non-cash working capital from
continuing operations 7.8 6.0 (3.0) (7.3) (1.1) 2.4
--------------------------------------------------------------------------------
Cash provided by (used in) operating activities 25.8 93.3 0.3 (1.2) (24.8) 93.4
--------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to property, plant and equipment (8.3) (23.4) - (4.1) - (35.8)
Acquisitions - (97.6) - (30.0) - (127.6)
Proceeds from disposal of businesses - - - 3.5 - 3.5
Investment in subsidiaries 14.8 (29.5) (15.8) - 30.5 -
Advances to affiliates (20.9) (283.9) (283.6) 15.6 572.8 -
Other (6.1) 11.4 - (4.0) - 1.3
--------------------------------------------------------------------------------
Cash used in investing activities (20.5) (423.0) (299.4) (19.0) 603.3 (158.6)
--------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issue of long-term debt - 367.4 - - - 367.4
Increase in cash in trust (297.3) - - - - (297.3)
Payments of long-term debt (2.5) (4.4) - (0.3) - (7.2)
Short-term borrowings 1.6 (4.1) - - - (2.5)
Debt issue costs - (5.0) - - - (5.0)
Advances from affiliates 283.6 (15.6) 299.7 5.1 (572.8) -
Distributions to subsidiary minority shareowner - - - (0.7) - (0.7)
Issue of common shares 8.0 15.8 - 29.5 (45.3) 8.0
Redemption of common shares - - - (14.8) 14.8 -
Dividends paid - (23.7) - (1.1) 24.8 -
--------------------------------------------------------------------------------
Cash provided by (used in) financing activities (6.6) 330.4 299.7 17.7 (578.5) 62.7
--------------------------------------------------------------------------------
Net cash used in discontinued operations - - (0.6) - - (0.6)
Effect of exchange rate changes on cash
(0.2) - - - - (0.2)
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (1.5) 0.7 - (2.5) - (3.3)
CASH, BEGINNING OF YEAR 1.5 - - 5.7 - 7.2
--------------------------------------------------------------------------------
CASH, END OF YEAR $ - $ 0.7 $ - $ 3.2 $ - $ 3.9
================================================================================
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COTT CORPORATION
CONSOLIDATING STATEMENTS OF INCOME
(in millions of U.S. dollars)
FOR THE YEAR ENDED DECEMBER 30, 2000
-----------------------------------------------------------------------------------
COTT COTT BEVERAGES GUARANTOR NON-GUARANTOR ELIMINATION
CORPORATION INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-----------------------------------------------------------------------------------
SALES $ 207.1 $ 663.2 $ - $ 157.6 $ (37.3) $ 990.6
Cost of sales 171.9 558.2 - 136.0 (40.6) 825.5
--------------------------------------------------------------------------------
GROSS PROFIT 35.2 105.0 - 21.6 3.3 165.1
Selling, general and administrative expenses 24.9 46.9 0.1 19.4 - 91.3
Unusual items (0.2) (0.2) - (1.7) - (2.1)
--------------------------------------------------------------------------------
OPERATING INCOME 10.5 58.3 (0.1) 3.9 3.3 75.9
Other expense (income), net (5.0) 0.1 - 3.0 0.5 (1.4)
Interest expense, net 7.6 4.0 16.8 1.7 - 30.1
--------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY
INCOME 7.9 54.2 (16.9) (0.8) 2.8 47.2
Income taxes (2.0) (16.3) - (1.0) (1.3) (20.6)
Equity income 19.5 - 37.9 - (57.4) -
--------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 25.4 37.9 21.0 (1.8) (55.9) 26.6
Extraordinary item - - - (1.2) - (1.2)
--------------------------------------------------------------------------------
NET INCOME (LOSS) $ 25.4 $ 37.9 $ 21.0 $ (3.0) $ (55.9) $ 25.4
================================================================================
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COTT CORPORATION
CONSOLIDATING BALANCE SHEETS
(in millions of U.S. dollars)
AS OF DECEMBER 30, 2000
-----------------------------------------------------------------------------------
COTT COTT BEVERAGES GUARANTOR NON-GUARANTOR ELIMINATION
CORPORATION INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-----------------------------------------------------------------------------------
ASSETS
Current assets
Cash $ 1.5 $ - $ - $ 5.7 $ - $ 7.2
Accounts receivable 41.2 60.9 0.3 23.2 (16.6) 109.0
Inventories 12.3 42.6 - 9.1 - 64.0
Prepaid expenses 0.8 0.8 - 0.6 - 2.2
--------------------------------------------------------------------------------
55.8 104.3 0.3 38.6 (16.6) 182.4
Property, plant and equipment 53.1 127.1 - 64.8 - 245.0
Goodwill 18.8 43.2 5.3 47.9 - 115.2
Intangibles and other assets 7.1 69.4 - 2.5 - 79.0
Due from affiliates 231.2 0.1 14.3 58.0 (303.6) -
Investments in subsidiaries 175.6 12.4 234.5 - (422.5) -
--------------------------------------------------------------------------------
$ 541.6 $ 356.5 $ 254.4 $ 211.8 $ (742.7) $ 621.6
================================================================================
LIABILITIES
Current liabilities
Short-term borrowings $ - $ 36.6 $ - $ - $ - $ 36.6
Current maturities of long-term debt 0.3 1.0 - 0.3 - 1.6
Accounts payable and accrued liabilities 46.4 48.7 3.3 31.3 (15.2) 114.5
Discontinued operations - - 0.6 - - 0.6
--------------------------------------------------------------------------------
46.7 86.3 3.9 31.6 (15.2) 153.3
Long-term debt 278.6 0.8 - 0.1 0.1 279.6
Due to affiliates 44.4 27.9 198.0 33.3 (303.6) -
Other liabilities 13.4 (5.4) 1.4 19.6 1.2 30.2
--------------------------------------------------------------------------------
383.1 109.6 203.3 84.6 (317.5) 463.1
--------------------------------------------------------------------------------
SHAREOWNERS' EQUITY
Capital stock
Common shares 189.1 250.0 59.0 199.7 (508.7) 189.1
Second preferred shares, Series 1 40.0 - - - - 40.0
--------------------------------------------------------------------------------
229.1 250.0 59.0 199.7 (508.7) 229.1
Retained earnings (deficit) (37.9) (3.1) (7.9) (83.7) 94.7 (37.9)
Accumulated other comprehensive income (32.7) - - 11.2 (11.2) (32.7)
--------------------------------------------------------------------------------
158.5 246.9 51.1 127.2 (425.2) 158.5
--------------------------------------------------------------------------------
$ 541.6 $ 356.5 $ 254.4 $ 211.8 $ (742.7) $ 621.6
================================================================================
-92-
COTT CORPORATION
CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions of U.S. dollars)
FOR THE YEAR ENDED DECEMBER 30, 2000
-----------------------------------------------------------------------------------
COTT COTT BEVERAGES GUARANTOR NON-GUARANTOR ELIMINATION
CORPORATION INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-----------------------------------------------------------------------------------
OPERATING ACTIVITIES
Income (loss) from continuing operations $ 25.4 $ 37.9 $ 21.0 $ (1.8) $ (55.9) $ 26.6
Depreciation and amortization 8.3 20.5 0.1 8.5 - 37.4
Amortization of financing fees 1.0 0.2 - 0.4 - 1.6
Deferred income taxes 1.8 16.3 - 0.7 1.3 20.1
Equity income, net of distributions 12.6 - (24.2) - 11.6 -
Other non-cash items - 0.5 - (0.2) - 0.3
Net change in non-cash working capital from
continuing operations (1.2) 0.6 3.2 5.7 (2.8) 5.5
--------------------------------------------------------------------------------
Cash provided by operating activities 47.9 76.0 0.1 13.3 (45.8) 91.5
--------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to property, plant and equipment (4.8) (15.2) - (3.9) - (23.9)
Acquisitions - (55.5) - - - (55.5)
Proceeds from disposal of businesses - 15.9 - 3.0 - 18.9
Proceeds from disposal of property, plant and
equipment 0.4 1.3 - 0.2 - 1.9
Advances to affiliates (198.9) - 0.3 190.6 8.0 -
Investment in subsidiary 164.6 - (197.9) - 33.3 -
Other - (3.8) - - - (3.8)
--------------------------------------------------------------------------------
Cash provided by (used in) investing activities (38.7) (57.3) (197.6) 189.9 41.3 (62.4)
--------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payments of long-term debt (4.6) (0.9) - (33.2) - (38.7)
Short-term borrowings - 18.3 - (0.8) - 17.5
Advances from affiliates 0.3 (220.2) 197.9 30.0 (8.0) -
Issue of common shares 0.1 197.9 - 2.4 (200.3) 0.1
Redemption of common shares - - - (167.0) 167.0 -
Other (2.1) - - - - (2.1)
Dividends paid - (13.8) - (32.0) 45.8 -
--------------------------------------------------------------------------------
Cash provided by (used in) financing activities (6.3) (18.7) 197.9 (200.6) 4.5 (23.2)
--------------------------------------------------------------------------------
Net cash used in discontinued operations - - (0.4) - - (0.4)
Effect of exchange rate changes on cash and cash
equivalents (1.4) - - 0.5 - (0.9)
--------------------------------------------------------------------------------
NET INCREASE IN CASH 1.5 - - 3.1 - 4.6
CASH, BEGINNING OF YEAR - - - 2.6 - 2.6
--------------------------------------------------------------------------------
CASH, END OF YEAR $ 1.5 $ - $ - $ 5.7 $ - $ 7.2
================================================================================
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