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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 2005
Commission File Number 000-19914
COTT CORPORATION
(Exact name of registrant as specified in its charter)
CANADA None
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
207 Queen's Quay West, Suite 340, Toronto, Ontario M5J 1A7
(Address of principal executive offices) (Postal Code)
(416)203-3898
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes X No
----- -----
There were 71,570,020 shares of common stock outstanding as of April 30, 2005.
1
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the three months ended
April 2, 2005 and April 3, 2004............................ Page 3
Consolidated Balance Sheets as of April 2, 2005 and
January 1, 2005............................................ Page 4
Consolidated Statements of Shareowners' Equity as of
April 2, 2005 and April 3, 2004............................ Page 5
Consolidated Statements of Cash Flows for the three months
ended April 2, 2005 and April 3, 2004...................... Page 6
Notes to Consolidated Financial Statements ................... Page 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................. Page 18
Item 3. Quantitative and Qualitative Disclosures about Market Risk ... Page 22
Item 4. Controls and Procedures ...................................... Page 23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ............................................ Page 24
Item 6. Financial Statement Schedules and Exhibits ................... Page 24
Signatures ............................................................. Page 25
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COTT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in millions of U.S. dollars, except per share amounts)
Unaudited
For the three months ended
--------------------------
APRIL 2, APRIL 3,
2005 2004
-------- --------
SALES $395.5 $370.9
Cost of sales 339.5 300.5
------ ------
GROSS PROFIT 56.0 70.4
Selling, general and administrative expenses 36.9 38.7
Unusual items (0.2) --
------ ------
OPERATING INCOME 19.3 31.7
Other expense (income), net (0.1) 0.3
Interest expense, net 6.5 6.6
Minority interest 0.9 1.0
------ ------
INCOME BEFORE INCOME TAXES AND EQUITY LOSS 12.0 23.8
Income taxes - note 3 (3.7) (8.3)
Equity loss -- (0.1)
------ ------
NET INCOME - note 4 $ 8.3 $ 15.4
====== ======
PER SHARE DATA - note 5
INCOME PER COMMON SHARE
Basic $ 0.12 $ 0.22
Diluted $ 0.12 $ 0.21
The accompanying notes are an integral part of these
consolidated financial statements.
3
COTT CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions of U.S. dollars)
APRIL 2, JANUARY 1,
2005 2005
--------- ----------
Unaudited Audited
ASSETS
CURRENT ASSETS
Cash $ 11.4 $ 26.6
Accounts receivable 199.7 184.3
Inventories - note 6 140.5 122.8
Prepaid expenses and other assets 9.3 9.7
-------- --------
360.9 343.4
PROPERTY, PLANT AND EQUIPMENT - note 8 339.7 313.7
GOODWILL 88.6 88.8
INTANGIBLES AND OTHER ASSETS - note 9 262.3 276.1
-------- --------
$1,051.5 $1,022.0
======== ========
LIABILITIES
CURRENT LIABILITIES
Short-term borrowings $ 66.3 $ 71.4
Current maturities of long-term debt 0.8 0.8
Accounts payable and accrued liabilities 173.6 145.2
-------- --------
240.7 217.4
LONG-TERM DEBT 272.5 272.5
DEFERRED INCOME TAXES 50.8 51.0
-------- --------
564.0 540.9
-------- --------
MINORITY INTEREST 23.6 23.8
SHAREOWNERS' EQUITY
CAPITAL STOCK
Common shares - 71,539,220 shares issued 288.2 287.0
RETAINED EARNINGS 169.9 161.6
ACCUMULATED OTHER COMPREHENSIVE INCOME 5.8 8.7
-------- --------
463.9 457.3
-------- --------
$1,051.5 $1,022.0
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
4
COTT CORPORATION
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
(in millions of U.S. dollars)
Unaudited
NUMBER OF ACCUMULATED
COMMON OTHER
SHARES COMMON RETAINED COMPREHENSIVE TOTAL
(in thousands) SHARES EARNINGS INCOME (LOSS) EQUITY
-------------- ------ -------- ------------- ------
Balance at January 3, 2004 70,259 $267.9 $ 83.3 $(6.1) $345.1
Options exercised, including tax benefit of
$0.8 million 229 3.0 -- -- 3.0
Comprehensive income - note 4
Currency translation adjustment -- -- -- (0.7) (0.7)
Net income -- -- 15.4 -- 15.4
------ ------ ------ ----- ------
Balance at April 3, 2004 70,488 $270.9 $ 98.7 $(6.8) $362.8
====== ====== ====== ===== ======
Balance at January 1, 2005 71,440 $287.0 $161.6 $ 8.7 $457.3
Options exercised, including tax benefit of
$0.3 million 99 1.2 -- -- 1.2
Comprehensive income - note 4
Currency translation adjustment -- -- -- (3.1) (3.1)
Unrealized gains on cash flow hedges -- -- -- 0.2 0.2
Net income -- -- 8.3 -- 8.3
------ ------ ------ ----- ------
Balance at April 2, 2005 71,539 $288.2 $169.9 $ 5.8 $463.9
====== ====== ====== ===== ======
The accompanying notes are an integral part of these
consolidated financial statements.
5
COTT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions of U.S. dollars)
Unaudited
For the three months ended
--------------------------
APRIL 2, APRIL 3,
2005 2004
-------- --------
OPERATING ACTIVITIES
Net income $ 8.3 $ 15.4
Depreciation and amortization 16.8 15.0
Amortization of financing fees -- 0.2
Deferred income taxes (0.2) (0.3)
Minority interest 0.9 1.0
Equity loss -- 0.1
Other non-cash items (0.3) 0.3
Net change in non-cash working capital - note 11 (4.2) (12.7)
------ ------
Cash provided by operating activities 21.3 19.0
------ ------
INVESTING ACTIVITIES
Additions to property, plant and equipment (28.1) (9.5)
Acquisitions -- (17.7)
Proceeds from disposition of property, plant and equipment 1.0 --
Other investing activities (1.5) (2.0)
------ ------
Cash used in investing activities (28.6) (29.2)
------ ------
FINANCING ACTIVITIES
Payments of long-term debt (0.2) (2.2)
Short-term borrowings (4.9) 2.1
Distributions to subsidiary minority shareowner (1.1) (1.2)
Issue of common shares 0.9 2.2
Financing costs (2.1) --
Other financing activities (0.1) (0.1)
------ ------
Cash provided by (used in) financing activities (7.5) 0.8
------ ------
Effect of exchange rate changes on cash (0.4) --
------ ------
NET DECREASE IN CASH (15.2) (9.4)
CASH, BEGINNING OF PERIOD 26.6 18.4
------ ------
CASH, END OF PERIOD $ 11.4 $ 9.0
====== ======
The accompanying notes are an integral part of these
consolidated financial statements.
6
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The interim consolidated financial statements have been prepared in accordance
with United States ("U.S.") generally accepted accounting principles ("GAAP")
for interim financial information. Accordingly, they do not include all
information and notes presented in the annual consolidated financial statements
in conformity with U.S. GAAP. In our opinion, the financial statements reflect
all adjustments that are necessary for a fair presentation of the results for
the interim periods presented. All such adjustments are of a normal recurring
nature.
These financial statements should be read in conjunction with the most recent
annual consolidated financial statements. The accounting policies used in these
interim consolidated financial statements are consistent with those used in the
annual consolidated financial statements.
Material recognition, measurement, and presentation differences between U.S.
GAAP and Canadian GAAP are disclosed in note 15.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On December 16, 2004, the Financial Accounting Standards Board issued SFAS 123R,
Share-Based Payments which requires companies to recognize compensation expense
for all types of stock options. On April 14, 2005 the Financial Accounting
Standards Board approved a new rule that deferred the effective date of FAS123R.
We are required to adopt this standard for our interim period ending April 1,
2006. We are currently evaluating the impact of FAS123R on the results of
operations.
NOTE 2 - BUSINESS SEASONALITY
Our net income for the first quarter ending April 2, 2005 is not necessarily
indicative of the results that may be expected for the full year due to business
seasonality. Operating results are impacted by business seasonality, which
normally leads to higher sales in the second and third quarters versus the first
and fourth quarters of the year. Conversely, fixed costs such as depreciation,
amortization and interest, are not impacted by seasonal trends.
NOTE 3 - INCOME TAXES
The following table reconciles income taxes calculated at the basic Canadian
corporate rates with the income tax provision:
For the three months ended
--------------------------
APRIL 2, APRIL 3,
2005 2004
--------- --------
(in millions of U.S.
dollars)
Income tax provision based on Canadian statutory rates $(4.2) $(8.3)
Foreign tax rate differential 0.8 0.2
Non-deductible and other items (0.3) (0.2)
----- -----
$(3.7) $(8.3)
===== =====
7
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - COMPREHENSIVE INCOME
For the three months ended
--------------------------
APRIL 2, APRIL 3,
2005 2004
-------- --------
(in millions of U.S.
dollars)
Net income $ 8.3 $15.4
Foreign currency translation (3.1) (0.7)
Unrealized gains on cash flow hedges 0.2 --
----- -----
$ 5.4 $14.7
===== =====
NOTE 5 - INCOME PER 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 is calculated using the weighted average number of common
shares outstanding adjusted to include the effect that would occur if
in-the-money stock options were exercised.
The following table reconciles the basic weighted average number of shares
outstanding to the diluted weighted average number of shares outstanding:
For the three months ended
--------------------------
APRIL 2, APRIL 3,
2005 2004
-------- --------
(in thousands)
Weighted average number of shares outstanding - basic 71,504 70,389
Dilutive effect of stock options 415 1,454
------ ------
Adjusted weighted average number of shares outstanding - diluted 71,919 71,843
====== ======
At April 2, 2005, options to purchase 2,758,400 shares of common stock at a
weighted average exercise price of C$36.37 per share were outstanding, but were
not included in the computation of diluted net income per share because the
options' exercise price was greater than the average market price of our common
stock during the period.
As of April 2, 2005, we had 71,539,220 common shares and 4,155,565 common share
options outstanding. Of our common share options outstanding, 1,780,264 options
were exercisable as of April 2, 2005.
During the first quarter ended April 2, 2005, 142,500 of common share options
were issued at a weighted average price of C$29.67 and 99,200 common share
options were exercised at a weighted average exercise price of C$13.80.
8
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 - INVENTORIES
APRIL 2, JANUARY 1,
2005 2005
-------- ----------
(in millions of U.S.
dollars)
Raw materials $ 52.7 $ 47.9
Finished goods 72.2 59.9
Other 15.6 15.0
------ ------
$140.5 $122.8
====== ======
NOTE 7 - DERIVATIVE FINANCIAL INSTRUMENTS
We enter into cash flow hedges to mitigate exposure to declines in the value of
the Canadian dollar and pound sterling attributable to certain forecasted U.S.
dollar raw material purchases of the Canadian and United Kingdom ("U.K.") and
European business segments. The hedges consist of monthly foreign exchange
options to buy U.S. dollars at fixed rates per Canadian dollar and pound
sterling and mature at various dates through December 30, 2005. The fair market
value of the foreign exchange options is included in prepaid expenses and other
assets.
Changes in the fair value of cash flow hedge instruments are recognized in
accumulated other comprehensive income. Amounts recognized in accumulated other
comprehensive income and prepaid expenses and other assets are recorded in
earnings in the same periods in which the forecasted purchases or payments
affect earnings. At April 2, 2005, the fair value of the foreign exchange
options was $0.9 million ($0.5 million - April 3, 2004) and we recorded $0.2
million unrealized gains in comprehensive income in the first quarter of 2005.
NOTE 8 - PROPERTY, PLANT AND EQUIPMENT
APRIL 2, JANUARY 1,
2005 2005
-------- ----------
(in millions of U.S.
dollars)
Cost $ 606.1 $ 570.3
Accumulated depreciation (266.4) (256.6)
------- -------
$ 339.7 $ 313.7
======= =======
9
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9 - INTANGIBLES AND OTHER ASSETS
APRIL 2, 2005 JANUARY 1, 2005
------------------------------ ------------------------------
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 relationships 164.7 34.2 130.5 164.7 31.5 133.2
Trademarks 30.0 7.9 22.1 30.0 7.3 22.7
Information technology 41.7 19.7 22.0 40.4 18.4 22.0
Other 3.6 0.7 2.9 3.6 0.6 3.0
------ ----- ------ ------ ----- ------
240.0 62.5 177.5 238.7 57.8 180.9
------ ----- ------ ------ ----- ------
320.4 62.5 257.9 319.1 57.8 261.3
------ ----- ------ ------ ----- ------
OTHER ASSETS
Financing costs 3.5 0.4 3.1 5.6 4.6 1.0
Other 3.3 2.0 1.3 15.5 1.7 13.8
------ ----- ------ ------ ----- ------
6.8 2.4 4.4 21.1 6.3 14.8
------ ----- ------ ------ ----- ------
$327.2 $64.9 $262.3 $340.2 $64.1 $276.1
====== ===== ====== ====== ===== ======
Amortization expense of intangible assets was $4.9 million for the period ended
April 2, 2005 ($4.3 million - April 3, 2004).
NOTE 10 - SHORT-TERM BORROWINGS
On March 31, 2005, we entered into new committed senior secured credit
facilities that provide for financing in the United States, Canada, the United
Kingdom, and Mexico. The new facilities replaced our former committed senior
secured credit facility in the United States and Canada and our demand bank
credit facility in the United Kingdom. The new facilities terminate, and the
debt under the senior secured credit agreement is due, on March 31, 2010. The
new facilities allow for revolving credit borrowings in a principal amount of up
to $100 million and are initially comprised of two separate facilities: (1) a
$95 million multicurrency facility made by certain lenders to us and our
indirect wholly-owned subsidiaries, Cott Beverages Inc. and Cott Beverages
Limited as co-borrowers, and (2) a $5 million Mexican facility made by certain
lenders to our indirect 90% owned subsidiary Cott Embottelladores de Mexico,
S.A. de C.V. ("CEMSA"). Each facility includes subfacilities for swingline loans
and letters of credit. The $100 million facilities can be increased up to an
additional $150 million at our option if lenders agree to increase their
commitments or new lenders join the facility and we satisfy certain conditions.
Within such $150 million of extra availability, and subject to certain other
limitations, we can establish additional revolving loan facilities in an
aggregate amount not to exceed $30 million to be provided in various currencies
as agreed upon for additional subsidiaries designated by us. Wachovia Bank,
National Association acts as administrative agent and security trustee for
lenders under the new facilities. In general, borrowings under the credit
facilities bear interest at either a floating or fixed rate for the applicable
currency plus a margin based on our consolidated total leverage ratio. As at
April 2, 2005, credit of $36.1 million was available after borrowings of $54.9
million and standby letters of credit of $4.0 million. The weighted average
interest rate was 5.59% on this facility as of April 2, 2005.
10
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 - SHORT-TERM BORROWINGS (continued)
On April 1, 2005, our principal U.S. operating subsidiaries (the "Originators")
entered into a receivables securitization facility under which they agreed to
sell substantially all of their receivables generated from their ordinary course
operations, as well as certain related assets, to a new special purpose indirect
subsidiary of ours, Cott USA Receivables Corporation, which will in turn sell
and assign undivided interests in the receivables and related assets to an
unaffiliated entity, Park Avenue Receivables Company, LLC ("PARCO") and certain
other financial institutions (together with PARCO, the "Purchasers") in exchange
for cash in amounts determined by the parties, subject to specified conditions.
The transfers to the Purchasers will be treated as a financing for purposes of
our consolidated financial statements; however, the presentation of consolidated
financial statements does not itself imply that the assets of any consolidated
entity (including any special-purpose entity formed for a particular project)
are available to pay the liabilities of any other consolidated entity, or that
the liabilities of any consolidated entity (including any special-purpose entity
formed for a particular project) are obligations of any other consolidated
entity. The transfers of the receivables and related assets to the Purchasers
are governed by a Receivables Purchase Agreement, dated April 1, 2005, by and
among Cott USA Receivables Corporation, Cott Beverages Inc., the Purchasers and
JPMorgan Chase Bank, N.A. ("JPMorgan"), acting for itself and the Purchasers.
The agreement contains representations, warranties, covenants, and indemnities
customary for facilities of this type. The facility does not contain any
covenants that the Company views as materially constraining its activities or
(except for Cott USA Receivables Corporation) the activities of its
subsidiaries.
The amount of funds available under the receivables facility will be based upon
the amount of eligible receivables and various reserves required by the
facility. Accordingly, availability may fluctuate over time given changes in
eligible receivables balances and calculation of reserves, but will not exceed
the $75 million program limit. As of April 2, 2005, $48.5 million of eligible
receivables, net of reserves, were available for purchase with no amount
outstanding.
NOTE 11 - NET CHANGE IN NON-CASH WORKING CAPITAL
The changes in non-cash working capital components, net of effects of unrealized
foreign exchange gains and losses, are as follows:
For the three months ended
-----------------------------
APRIL 2, APRIL 3,
2005 2004
-------- --------
(in millions of U.S. dollars)
Decrease (increase) in accounts receivable $(18.4) $(19.1)
Decrease (increase) in inventories (18.2) (24.4)
Decrease (increase) in prepaid expenses 0.6 (1.0)
Increase (decrease) in accounts payable
and accrued liabilities 31.8 31.8
------ ------
$ (4.2) $(12.7)
====== ======
11
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 12 - STOCK OPTION PLANS
Pursuant to the SFAS No. 123, Accounting for Stock-Based Compensation, we have
elected to account for our employee stock option plan under APB opinion No. 25,
Accounting for Stock Issued to Employees. Under this method of accounting,
compensation expense is measured as the excess, if any, of the market value of
our common stock at the award date over the amount the employee must pay for the
stock (exercise price). Our policy is to award stock options with an exercise
price equal to the closing price of our common stock on the Toronto Stock
Exchange on the last trading day immediately before the date of award, and
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, our net
income and income per common share would have been as follows:
For the three months ended
-----------------------------
APRIL 2, APRIL 3,
2005 2004
-------- --------
(in millions of U.S. dollars,
except per share amounts)
NET INCOME
As reported $ 8.3 $15.4
Compensation expense (2.1) (1.8)
----- -----
Pro forma $ 6.2 $13.6
===== =====
NET INCOME PER SHARE - BASIC
As reported $0.12 $0.22
Pro forma $0.09 $0.19
NET INCOME PER SHARE - DILUTED
As reported $0.12 $0.21
Pro forma $0.09 $0.19
The pro forma compensation expense has been tax effected to the extent it
relates to stock options granted in jurisdictions where the related benefits are
deductible for income tax purposes.
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:
APRIL 2, APRIL 3,
2005 2004
---------- ----------
Risk-free interest rate 3.3% - 3.7% 3.4% - 3.5%
Average expected life (years) 4 4
Expected volatility 40.0% 45.0%
Expected dividend yield -- --
12
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 13 - CONTINGENCIES
In January 2005, we were named as one of many defendants in a class action suit
alleging the unauthorized use by the defendants of container deposits and the
imposition of recycling fees on customers. This litigation is at a very
preliminary stage and the merits of the case have not been determined.
In addition, we are 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. We believe that the resolution of
these matters will not have a material adverse effect on our financial position
or results from operations.
NOTE 14 - SEGMENT REPORTING
We produce package and distribute retailer brand and branded bottled and canned
beverages to regional and national grocery, mass-merchandise and wholesale
chains in the U.S., Canada, the U.K. & Europe and International business
segments. The International segment includes our Mexican business, our Royal
Crown International business and our business in Asia. The concentrate assets,
sales and related expenses have been included in the Corporate & Other segment.
BUSINESS SEGMENTS
UNITED
FOR THE THREE MONTHS ENDED UNITED KINGDOM CORPORATE
APRIL 2, 2005 STATES CANADA & EUROPE INTERNATIONAL & OTHER TOTAL
- ------------------------------ ------ ------ -------- ------------- --------- --------
(in millions of U.S. dollars)
External sales $294.3 $ 41.1 $ 43.6 $15.7 $ 0.8 $ 395.5
Intersegment sales -- 2.5 -- -- (2.5) --
Depreciation and amortization 10.5 3.2 2.1 0.3 0.7 16.8
Operating income (loss) before
unusual items 18.1 0.4 1.9 2.3 (3.6) 19.1
Unusual items -- -- (0.2) -- -- (0.2)
Property, plant and equipment 196.9 55.8 70.1 9.5 7.4 339.7
Goodwill 55.7 23.2 -- 4.5 5.2 88.6
Intangibles and other assets 164.7 1.4 3.6 1.2 91.4 262.3
Total assets 622.7 133.2 146.6 77.2 71.8 1,051.5
Additions to property, plant
and equipment 18.5 4.6 4.7 0.2 0.1 28.1
13
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 14 - SEGMENT REPORTING (continued)
UNITED
FOR THE THREE MONTHS ENDED UNITED KINGDOM CORPORATE
APRIL 3, 2004 STATES CANADA & EUROPE INTERNATIONAL & OTHER TOTAL
- ------------------------------ ------ ------ -------- ------------- --------- --------
(in millions of U.S. dollars)
External sales $273.1 $ 39.8 $ 42.7 $14.7 $ 0.6 $ 370.9
Intersegment sales -- 5.7 -- -- (5.7) --
Depreciation and amortization 9.8 2.1 2.0 0.7 0.4 15.0
Operating income (loss) 31.1 0.4 1.6 2.7 (4.1) 31.7
Property, plant and equipment
(as of January 1, 2005) 174.9 53.0 68.7 9.6 7.5 313.7
Goodwill (as of January 1,
2005) 55.6 23.5 -- 4.6 5.1 88.8
Intangibles and other assets
(as of January 1, 2005) 179.3 3.4 3.9 1.2 88.3 276.1
Total assets (as of January 1,
2005) 591.1 131.3 135.6 85.3 78.7 1,022.0
Additions to property, plant
and equipment 6.5 1.0 1.1 0.5 0.4 9.5
Intersegment sales and total assets under the Corporate & Other caption include
the elimination of intersegment sales, receivables and investments.
Credit risk arises from the potential default of a customer in meeting its
financial obligations with us. 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.
For the quarter ended April 2, 2005, sales to Wal-Mart accounted for 41% (April
3, 2004 - 41%) of our total sales.
Revenues by geographic area are as follows:
For the three months ended
-----------------------------
APRIL 2, 2005 APRIL 3, 2004
------------- -------------
(in millions of U.S. dollars)
United States $300.3 $279.5
Canada 41.1 39.8
United Kingdom 41.8 41.0
Other countries 12.3 10.6
------ ------
$395.5 $370.9
====== ======
Revenues are attributed to countries based on the location of the plant.
14
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 14 - SEGMENT REPORTING (continued)
Property, plant and equipment, goodwill, and intangibles and other assets by
geographic area are as follows:
APRIL 2, 2005 JANUARY 1, 2005
------------- ---------------
(in millions of U.S. dollars)
United States $518.4 $508.9
Canada 87.9 86.3
United Kingdom 73.7 72.5
Other countries 10.6 10.9
------ ------
$690.6 $678.6
====== ======
NOTE 15 - DIFFERENCES BETWEEN UNITED STATES AND CANADIAN ACCOUNTING PRINCIPLES
AND PRACTICES
These consolidated financial statements have been prepared in accordance with
U.S. GAAP which differ in certain respects from those principles and practices
that we would have followed had our consolidated financial statements been
prepared in accordance with Canadian GAAP.
(a) Under U.S. GAAP, we have elected not to record compensation expense for
options issued to employees with an exercise price equal to the market
value of the options. Under Canadian GAAP, effective January 1, 2004, the
cost of stock options issued to employees subsequent to January 1, 2002 are
recognized in net income based on their fair value. As a result,
compensation expense of $2.8 million ($1.6 million - April 3, 2004), $2.1
million ($1.2 million - April 3, 2004) net of tax of $0.7 million ($0.4
million - April 3, 2004), was recorded in the first quarter of 2005. This
policy was adopted on a retroactive basis with no restatement of
comparative figures and as a result $5.6 million was charged to opening
retained earnings as at January 3, 2004. Contributed surplus of $18.3
million ($6.5 million - April 3, 2004) was recorded to reflect the charge
for unexercised options and share capital of $0.3 million in April 3, 2004
was recorded to reflect the options exercised. Of the options exercised in
the period, all were granted prior to January 1, 2002.
(b) Under U.S. GAAP, costs of start-up activities and organization costs are
expensed as incurred. Under Canadian GAAP these costs, if they meet certain
criteria, can be capitalized and amortized over the future benefit period.
(c) Under U.S. GAAP, the adoption of the U.S. dollar in 1998 as the
presentation and reporting currency was implemented retroactively, such
that prior period financial statements are translated under the current
rate method using the foreign exchange rates in effect on those dates.
Under Canadian GAAP, the change in presentation and reporting currency was
implemented by translating all prior year financial statement amounts at
the foreign exchange rate on January 31, 1998. As a result, there is a
difference in the share capital, retained earnings and cumulative
translation adjustment amounts under Canadian GAAP as compared to U.S.
GAAP.
15
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 15 - DIFFERENCES BETWEEN UNITED STATES AND CANADIAN ACCOUNTING PRINCIPLES
AND PRACTICES (continued)
Under Canadian GAAP, these differences would have been reported in the
consolidated statements of income, consolidated balance sheets, consolidated
statements of shareowners' equity and consolidated statements of cash flows as
follows:
APRIL 2, 2005 JANUARY 1, 2005
----------------------------- -----------------------------
CONSOLIDATED BALANCE SHEETS U.S. GAAP CANADIAN GAAP U.S. GAAP CANADIAN GAAP
- --------------------------- --------- ------------- --------- -------------
(in millions of U.S. dollars) (in millions of U.S. dollars)
Property, plant &
equipment (b) 339.7 340.0 313.7 314.1
Goodwill (b) 88.6 89.1 88.8 89.3
Total assets 1,051.5 1,053.1 1,022.0 1,023.9
Deferred income taxes (a), (b) 50.8 46.3 51.0 47.2
Total liabilities 564.0 559.5 540.9 537.1
Capital stock (a), (c) 288.2 260.7 287.0 259.5
Contributed Surplus (a) -- 18.3 -- 15.5
Retained earnings (a), (b), (c) 169.9 142.0 161.6 135.9
Accumulated other
comprehensive income (c) 5.8 48.2 8.7 51.1
Total shareowners' equity 463.9 469.2 457.3 462.0
Income reconciliation for the three
months ended
-----------------------------------
APRIL 2, APRIL 3,
CONSOLIDATED STATEMENTS OF INCOME 2005 2004
- --------------------------------- -------- --------
(in millions of U.S. dollars)
Net income under U.S. GAAP $ 8.3 $15.4
Cost of sales (b) (0.1) (0.1)
Stock compensation expense (a) (2.8) (1.6)
Recovery of income taxes (a),(b) 0.7 0.4
----- -----
Net income under Canadian GAAP $ 6.1 $14.1
===== =====
Basic income per common share,
Canadian GAAP $0.09 $0.20
Diluted income per common share,
Canadian GAAP $0.08 $0.20
16
COTT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 15 - DIFFERENCES BETWEEN UNITED STATES AND CANADIAN ACCOUNTING PRINCIPLES
AND PRACTICES (continued)
Cash flow reconciliation for the three
months ended
--------------------------------------
APRIL 2, APRIL 3,
CONSOLIDATED STATEMENTS OF CASH FLOWS 2005 2004
- ------------------------------------- -------- --------
(in millions of U.S. dollars)
Cash provided by operating activities U.S. GAAP $21.3 $19.0
Net income (a),(b) (2.2) (1.3)
Depreciation & amortization (b) 0.1 0.1
Deferred income taxes (a),(b) (0.7) (0.4)
Other non-cash items (a) 2.8 1.6
----- -----
Cash provided by operating activities Canadian GAAP $21.3 $19.0
===== =====
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
We are the leading supplier of premium quality retailer brand carbonated soft
drinks in the United States, Canada and the United Kingdom.
RESULTS OF OPERATIONS
We reported net income of $8.3 million or $0.12 per diluted share for the first
quarter ended April 2, 2005, down 43% compared with $15.4 million, or $0.21 per
diluted share, for the first quarter of 2004. The decrease was due to increased
packaging costs, primarily PET resin, and delayed price increases to recover
those increased costs. Higher fixed costs as a result of new production capacity
added in the U.S. and changes in product and packaging mix also had a negative
impact on our net income.
SALES -Sales in the first quarter of 2005 were $395.5 million, an increase of 7%
from $370.9 million in the first quarter of 2004. Sales increased 5%, after
excluding the impact of foreign exchange. Sales increased 3% when also excluding
the acquisition of certain of the assets of The Cardinal Companies of
Elizabethtown, LLC. and of Metro Beverage Co. Total 8 ounce equivalent case
volume was 203.6 million cases in the first quarter of 2005, an increase of 2%
compared to the first quarter of 2004. Excluding the impact of acquisitions,
case volume was flat compared with the first quarter of 2004. The sale of
concentrates is a high volume but low dollar component of our overall sales.
In the U.S., sales were $294.3 million in the first quarter of 2005, an increase
of 7.8% from the first quarter of 2004. Excluding acquisitions, sales increased
to 5.1% driven primarily by increased volume and price increases to our
customers.
In Canada, sales were $41.1 million in the first quarter of 2005, an increase of
3.3% compared with the first quarter of 2004. Excluding the impact of foreign
exchange, sales in Canada decreased 4% in the first quarter of 2005, primarily
due to a decline in volume to our customers.
In the U.K. and Europe, sales were $43.6 million in the first quarter of 2005,
an increase of 2.1% from the first quarter of 2004. Excluding the impact of the
strengthened U.K. pound, sales decreased 0.7% in the first quarter of 2005,
primarily due to a decline in volume to our customers.
The International segment includes our Mexican operations, our Royal Crown
International division and our business in Asia. Sales by this segment were
$15.7 million in the first quarter of 2005, an increase of 6.8% when compared
with the first quarter of 2004. This increase was primarily from Mexico where
sales in the first quarter were $10.5 million, an increase of $1.5 million when
compared with sales in the first quarter of 2004 primarily due to increased
volume.
GROSS PROFIT - Gross profit as a percentage of sales decreased to 14.2% for the
first quarter of 2005 from 19.0% in the first quarter of 2004. The decrease was
principally due to increased packaging costs, primarily PET resin, and delayed
price increases to recover those increased costs. Higher fixed costs as a result
of new production capacity added in the U.S. and changes in product and
packaging mix from sparkling flavoured waters to purified drinking water also
added to the decrease in gross margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A") - SG&A was $36.9 million
in the first quarter of 2005, a decrease of $1.8 million from the first quarter
of 2004. SG&A was higher in the first quarter of 2004 primarily due to a $2.3
million provision against an export receivable in Canada recorded in that
quarter. This was partially offset by the impact of foreign exchange rates on
our U.K. and Canadian
18
business segments in 2005. As a percentage of sales, SG&A declined to 9.3% in
the first quarter of 2005 from 10.4% in the first quarter of 2004.
INTEREST EXPENSE - Net interest expense was $6.5 million in the first quarter of
2005, down slightly from $6.6 million in the first quarter of 2004. This
decrease was primarily due to lower borrowings on our credit facilities during
2005.
INCOME TAXES - We recorded an income tax provision of $3.7 million in the first
quarter of 2005 reflecting an effective tax rate of 30.8%. This compares with
$8.3 million, or an effective rate of 34.9%, in the first quarter of 2004. The
decrease in the effective tax rate in the first quarter of 2005 was primarily
due to the impact of lower income in the U.S.
FINANCIAL CONDITION - Cash used in operating activities in the first quarter of
2005 was $6.8 million, after capital expenditures of $28.1 million, as compared
to the first quarter of 2004 in which cash provided by operating activities was
$9.5 million, after capital expenditures of $9.5 million. The increase in
capital expenditures was primarily a result of the ongoing construction of our
new Texas plant, which we currently anticipate will begin operations in June
2005.
Cash decreased $15.2 million in the first quarter to $11.4 million as of April
2, 2005.
INVESTING ACTIVITIES - No acquisitions were completed in the first quarter of
2005. In March 2004, we acquired certain of the assets of The Cardinal Companies
of Elizabethtown, LLC in Kentucky ("Cardinal"), including a bottling facility.
The total purchase price for the acquisition was $17.7 million, including
estimated acquisition costs of $0.3 million. The acquisition was funded from
cash flow from operations and short-term borrowings.
CAPITAL RESOURCES AND LONG-TERM DEBT - Our sources of capital include operating
cash flows, short term borrowings under current credit facilities, issuance of
public and private debt and issuance of equity securities. We believe we have
adequate financial resources to meet our ongoing cash requirements for
operations and capital expenditures, as well as our other financial obligations
based on our operating cash flows and currently available credit.
On March 31, 2005, we entered into new committed senior secured credit
facilities that provide for financing in the United States, Canada, the United
Kingdom, and Mexico. The new facilities replaced our former committed senior
secured credit facility in the United States and Canada and our demand bank
credit facility in the United Kingdom. The new facilities terminate, and the
debt under the senior secured credit agreement is due, on March 31, 2010. The
new facilities allow for revolving credit borrowings in a principal amount of up
to $100 million and are initially comprised of two separate facilities: (1) a
$95 million multicurrency facility made by certain lenders to us and our
indirect wholly-owned subsidiaries, Cott Beverages Inc. and Cott Beverages
Limited as co-borrowers, and (2) a $5 million Mexican facility made by certain
lenders to our indirect 90% owned subsidiary Cott Embottelladores de Mexico,
S.A. de C.V. ("CEMSA"). Each facility includes subfacilities for swingline loans
and letters of credit. The $100 million facilities can be increased up to an
additional $150 million at our option if lenders agree to increase their
commitments or new lenders join the facility and we satisfy certain conditions.
Within such $150 million of extra availability, and subject to certain other
limitations, we can establish additional revolving loan facilities in an
aggregate amount not to exceed $30 million to be provided in various currencies
as agreed upon for additional subsidiaries designated by us. Wachovia Bank,
National Association acts as administrative agent and security trustee for
lenders under the new facilities. In general, borrowings under the credit
facilities bear interest at either a floating or fixed rate for the applicable
currency plus a margin based on our consolidated total leverage ratio. As at
April 2, 2005, credit of $36.1 million was available after borrowings of $54.9
million and standby letters of credit of $4.0 million. The weighted average
interest rate was 5.59% on this facility as of April 2, 2005.
19
On April 1, 2005, our principal U.S. operating subsidiaries (the "Originators")
entered into a receivables securitization facility under which they agreed to
sell substantially all of their receivables generated from their ordinary course
operations, as well as certain related assets, to a new special purpose indirect
subsidiary of ours, Cott USA Receivables Corporation, which will in turn sell
and assign undivided interests in the receivables and related assets to an
unaffiliated entity, Park Avenue Receivables Company, LLC ("PARCO") and certain
other financial institutions (together with PARCO, the "Purchasers") in exchange
for cash in amounts determined by the parties, subject to specified conditions.
The transfers to the Purchasers will be treated as a financing for purposes of
our consolidated financial statements; however, the presentation of consolidated
financial statements does not itself imply that the assets of any consolidated
entity (including any special-purpose entity formed for a particular project)
are available to pay the liabilities of any other consolidated entity, or that
the liabilities of any consolidated entity (including any special-purpose entity
formed for a particular project) are obligations of any other consolidated
entity. The transfers of the receivables and related assets to the Purchasers
are governed by a Receivables Purchase Agreement, dated April 1, 2005, by and
among Cott USA Receivables Corporation, Cott Beverages Inc., the Purchasers and
JPMorgan Chase Bank, N.A. ("JPMorgan"), acting for itself and the Purchasers.
The agreement contains representations, warranties, covenants, and indemnities
customary for facilities of this type. The facility does not contain any
covenants that the Company views as materially constraining its activities or
(except for Cott USA Receivables Corporation) the activities of its
subsidiaries.
The amount of funds available under the receivables facility will be based upon
the amount of eligible receivables and various reserves required by the
facility. Accordingly, availability may fluctuate over time given changes in
eligible receivables balances and calculation of reserves, but will not exceed
the $75 million program limit. As of April 2, 2005, $48.5 million of eligible
receivables, net of reserves, were available for purchase with no amount
outstanding.
As of April 2, 2005, long-term debt totaled $273.3 million compared with $273.3
million at the end of 2004. At the end of the first quarter of 2005, debt
consisted of $269.9 million in 8% senior subordinated notes with a face value of
$275 million and $3.4 million of other debt.
CANADIAN GAAP - Under Canadian GAAP, in the first quarter of 2005, Cott reported
net income of $6.1 million and total assets of $1,053.1 million compared to net
income and total assets under U.S. GAAP of $8.3 million and $1,051.5 million,
respectively, in the first quarter of 2005.
The main U.S./Canadian GAAP difference in the first quarter of 2005 and 2004 was
the accounting of stock options. Under Canadian GAAP, effective January 1, 2004,
the cost of stock options issued to employees subsequent to January 1, 2002 are
recognized in net income based on their fair value. As a result, compensation
expense of $2.8 million, $2.1 million after tax of $0.7 million, was recorded in
the first quarter of 2005. Under U.S. GAAP, we have elected not to record
compensation expense for options issued to employees with an exercise price
equal to the market value of the options.
OUTLOOK - Our ongoing focus is to increase sales, market share and profitability
for us and our customers. In the U.S., while the carbonated soft drink industry
continues to experience slow growth, the retailer brand segment is experiencing
positive growth. We believe there are significant opportunities for growth in
the U.S. market as retailer brand volumes increase. We are continuing to
implement our back-to-basics approach. As part of our back-to-basics approach we
are focusing on effective logistics, managing inventory to appropriate levels
and increasing plant efficiencies. Our Canadian division intends to focus on
better customer support and sales execution and to expand the non-supermarket
channel with dedicated products to help grow its business. Our U.K. division
intends to continue to enhance its performance through product innovation and a
customer-centric focus to identify opportunities. We continue to view Mexico as
a strong long-term growth opportunity.
20
On April 21, 2005, we released guidance indicating that in 2005 we expect sales
growth of between 8% and 10% and earnings per share, on a diluted basis, to be
between $1.14 and $1.18. As of the date of this report, we are not aware of
anything that would lead us to revise that guidance.
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, the ability to
protect intellectual property and fluctuations in interest rates and foreign
currencies versus the U.S. dollar.
Sales to our top customer (Wal-Mart Stores, Inc.) in the first three months of
2005 and 2004 accounted for 41% of our total sales. Sales to the top ten
customers in the first three months of 2005 and 2004 accounted for 68% and 70%,
respectively, of our total sales. The loss of any significant customer, or
customers which in the aggregate represent a significant portion of our sales,
could have a material adverse effect on our operating results and cash flows.
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 our 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 our business
strategy, goals and expectations concerning our 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" 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 we believe 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 these assumptions could be
incorrect. Our operations involve risks and uncertainties, many of which are
outside of our 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 our 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
our 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;
- our ability to identify acquisition and alliance candidates and to
integrate into our operations the businesses and product lines that we
acquire or become allied with;
- our ability to secure additional production capacity either through
acquisitions or third party manufacturing arrangements;
- our ability to restore plant efficiencies and lower logistics costs;
- fluctuations in the cost and availability of beverage ingredients and
packaging supplies, and our
21
ability to maintain favorable arrangements and relationships with our
suppliers;
- unseasonably cold or wet weather, which could reduce demand for our
beverages;
- our ability to protect the intellectual property inherent in new and
existing products;
- adverse rulings, judgments or settlements in our existing litigation,
and the possibility that additional litigation will be brought against
us;
- product recalls or changes in or increased enforcement of the laws and
regulations that affect our business;
- currency fluctuations that adversely affect the exchange between the
U.S. dollar on the one hand and the pound sterling, the Canadian
dollar and other currencies on the other;
- changes in tax laws and interpretations of tax laws;
- changes in consumer tastes and preferences and market demand for new
and existing products;
- interruption in transportation systems, labor strikes, work stoppages
or other interruptions or difficulties in the employment of labor or
transportation in our markets; and
- changes in general economic and business conditions.
Many of these factors are described in greater detail in this report and in
other filings that we make with the U.S. Securities and Exchange Commission
("SEC") and the Canadian securities regulatory authorities. We undertake 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 of which we may become aware 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 us or
persons acting on our behalf are expressly qualified in their entirety by the
foregoing.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to Item 7A: Quantitative and Qualitative Disclosures about
Market Risk described in our Annual Report on Form 10-K for the fiscal year
ended January 1, 2005.
In the first quarter of 2005, we entered into cash flow hedges to mitigate
exposure to declines in the value of the Canadian dollar and pound sterling
attributable to certain forecasted U.S. dollar raw material purchases of the
Canadian and U.K. and European business segments. The hedges consist of monthly
foreign exchange options to buy U.S. dollars at fixed rates per Canadian dollar
and pound sterling and mature at various dates through December 30, 2005. The
fair market value of the foreign exchange options is included in prepaid
expenses and other assets.
Changes in the fair value of the cash flow hedge instruments are recognized in
accumulated other comprehensive income. Amounts recognized in accumulated other
comprehensive income and prepaid expenses and other assets are recorded in
earnings in the same periods in which the forecasted purchases or payments
affect earnings. At April 2, 2005, the fair value of the options was $0.9
million ($0.5 million - April 3, 2004) and we recorded $0.2 million unrealized
gain in comprehensive income in the first quarter of 2005. See "Note 7
Derivative Financial Instruments."
22
Our sales outside the U.S. are concentrated principally in the U.K. and Canada.
We believe that our foreign currency exchange rate risk has been immaterial
given the historic stability of the U.S. dollar exchange rates with respect to
the foreign currencies to which we have our principal exposure. However, there
can be no assurance that these exchange rates will remain stable or that our
exposure to foreign currency exchange rate risk will not increase in the future.
ITEM 4. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934, as amended) are effective,
based on their evaluation of these controls and procedures as of the end of the
period covered by this report. There have been no changes in our internal
control over financial reporting or in other factors during the quarter ended
April 2, 2005 that could materially affect, or are likely to materially affect,
our internal control over financial reporting.
23
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the legal proceedings described in our Form 10-K for the
fiscal year ended January 1, 2005.
ITEM 6. FINANCIAL STATEMENT SCHEDULES AND EXHIBITS
1. Financial Statement Schedules
Schedule III - Consolidating Financial Statements
2. Exhibits
Number Description
------ -----------
3.1 Articles of Incorporation of Cott (incorporated by reference to
Exhibit 3.1 to our Form 10-K dated March 31, 2000).
3.2 By-laws of Cott (incorporated by reference to Exhibit 3.2 to our
Form 10-K dated March 8, 2002).
10.1* Credit Agreement, dated as of March 31, 2005, by and among Cott
Corporation, Cott Beverages Inc., Cott Beverages Limited, and Cott
Embotelladores de Mexico, S.A. de C.V., as Borrowers, the Lenders
referred to herein, Wachovia Bank, National Association, as
Administrative Agent and Security Trustee, Bank of Montreal, as
Syndication Agent, and HSBC Bank Canada, Cooperatieve Centrale
Raiffeisen-BoerenleenBank B.A., "Rabobank International", New York
Branch, each as a Documentation Agent, Wachovia Capital Markets,
LLC as a Lead Arranger and the Sole Book Manager, BMO Nesbitt
Burns, as a Lead Arranger (filed herewith).
10.2* Receivables Purchase Agreement, dated as of April 1, 2005, among
Cott USA Receivables Corporation, Cott Beverages Inc., Park Avenue
Receivables Company, LLC, the financial institutions from time to
time parties to the agreement, and JPMorgan Chase Bank, N.A.
(filed herewith).
31.1 Certification of the President and Chief Executive Officer
pursuant to section 302 of the Sarbanes-Oxley Act of 2002 for the
quarterly period ended April 2, 2005 (filed herewith).
31.2 Certification of the Vice President, Controller & Assistant
Secretary and Interim Chief Financial Officer pursuant to section
302 of the Sarbanes-Oxley Act of 2002 for the quarterly period
ended April 2, 2005 (filed herewith).
32.1 Certification of the President and Chief Executive Officer
pursuant to section 906 of the Sarbanes-Oxley Act of 2002 for the
quarterly period ended April 2, 2005.
32.2 Certification of the Vice President, Controller & Assistant
Secretary and Interim Chief Financial Officer pursuant to section
906 of the Sarbanes-Oxley Act of 2002 for the quarterly period
ended April 2, 2005.
(*) Portions of the document are subject to a request for confidential
treatment.
In accordance with SEC Release No. 33-8238, Exhibits 32.1 and 32.2 are to
be treated as "accompanying" this report rather than "filed" as part of the
report.
24
SIGNATURES
Pursuant to the requirements 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
(Registrant)
Date: May 11, 2005 /s/ Tina Dell'Aquila
-------------------------------------
Tina Dell'Aquila
Vice President, Controller & Assistant
Secretary and Interim Chief Financial
Officer
(On behalf of the Company and as the
principal accounting officer)
25
SCHEDULE III - CONSOLIDATING FINANCIAL STATEMENTS
Cott Beverages Inc., a wholly owned subsidiary of Cott Corporation, has entered
into financing arrangements that are guaranteed by Cott Corporation and certain
other wholly owned subsidiaries of Cott Corporation (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 Corporation's other
subsidiaries (the "Non-guarantor Subsidiaries"). The supplemental financial
information reflects the investments of Cott Corporation 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, unaudited)
FOR THE THREE MONTHS ENDED APRIL 2, 2005
----------------------------------------------------------------------------------------
COTT COTT GUARANTOR NON-GUARANTOR ELIMINATION
CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
----------- -------------- ------------ ------------- ----------- ------------
SALES $43.5 $274.6 $10.3 $72.7 $ (5.6) $395.5
Cost of sales 38.0 235.7 8.8 62.6 (5.6) 339.5
----- ------ ----- ----- ------ ------
GROSS PROFIT 5.5 38.9 1.5 10.1 -- 56.0
Selling, general and administrative
expenses 9.6 20.3 0.9 6.1 -- 36.9
Unusual items -- -- -- (0.2) -- (0.2)
----- ------ ----- ----- ------ ------
OPERATING INCOME (LOSS) (4.1) 18.6 0.6 4.2 -- 19.3
Other expense (income), net 0.5 (0.4) (0.2) -- -- (0.1)
Interest expense (income), net -- 8.5 (2.0) -- -- 6.5
Minority interest -- -- -- 0.9 -- 0.9
----- ------ ----- ----- ------ ------
INCOME (LOSS) BEFORE INCOME TAXES AND
EQUITY INCOME (4.6) 10.5 2.8 3.3 -- 12.0
Income taxes 1.4 (4.1) -- (1.0) -- (3.7)
Equity income 11.5 1.7 7.3 -- (20.5) --
----- ------ ----- ----- ------ ------
NET INCOME $ 8.3 $ 8.1 $10.1 $ 2.3 $(20.5) $ 8.3
===== ====== ===== ===== ====== ======
26
COTT CORPORATION
CONSOLIDATING BALANCE SHEETS
(in millions of U.S. dollars, unaudited)
AS OF APRIL 2, 2005
----------------------------------------------------------------------------------------
COTT COTT GUARANTOR NON-GUARANTOR ELIMINATION
CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
----------- -------------- ------------ ------------- ----------- ------------
ASSETS
Current assets
Cash $ 0.3 $ (0.8) $ -- $ 11.9 $ -- $ 11.4
Accounts receivable 38.1 122.2 17.7 41.9 (20.2) 199.7
Inventories 22.7 78.9 6.5 32.4 -- 140.5
Prepaid expenses and other assets 2.3 3.1 0.8 3.1 -- 9.3
------ ------- ------- ------ ------- --------
63.4 203.4 25.0 89.3 (20.2) 360.9
Property, plant and equipment 51.1 183.7 20.3 84.6 -- 339.7
Goodwill 22.5 51.9 13.5 0.7 -- 88.6
Intangibles and other assets 10.2 192.9 11.5 47.7 -- 262.3
Due from affiliates 54.2 4.6 126.3 271.4 (456.5) --
Investments in subsidiaries 379.4 74.3 54.2 -- (507.9) --
------ ------- ------- ------ ------- --------
$580.8 $ 710.8 $ 250.8 $493.7 $(984.6) $1,051.5
====== ======= ======= ====== ======= ========
LIABILITIES
CURRENT LIABILITIES
Short-term borrowings $ -- $ 56.7 $ 1.1 $ 8.5 $ -- $ 66.3
Current maturities of long-term debt -- 0.8 -- -- -- 0.8
Accounts payable and accrued
liabilities 33.0 101.0 8.8 51.0 (20.2) 173.6
------ ------- ------- ------ ------- --------
33.0 158.5 9.9 59.5 (20.2) 240.7
Long-term debt -- 272.5 -- -- -- 272.5
Due to affiliates 80.1 124.5 197.3 54.6 (456.5) --
Deferred income taxes 3.8 39.3 -- 7.7 -- 50.8
------ ------- ------- ------ ------- --------
116.9 594.8 207.2 121.8 (476.7) 564.0
------ ------- ------- ------ ------- --------
Minority interest -- -- -- 23.6 -- 23.6
SHAREOWNERS' EQUITY
Capital stock
Common shares 288.2 275.4 168.0 451.4 (894.8) 288.2
Retained earnings (deficit) 169.9 (159.4) (124.4) (83.3) 367.1 169.9
Accumulated other comprehensive income 5.8 -- -- (19.8) 19.8 5.8
------ ------- ------- ------ ------- --------
463.9 116.0 43.6 348.3 (507.9) 463.9
------ ------- ------- ------ ------- --------
$580.8 $ 710.8 $ 250.8 $493.7 $(984.6) $1,051.5
====== ======= ======= ====== ======= ========
27
COTT CORPORATION
CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions of U.S. dollars, unaudited)
FOR THE THREE MONTHS ENDED APRIL 2, 2005
----------------------------------------------------------------------------------------
COTT COTT BEVERAGES GUARANTOR NON-GUARANTOR ELIMINATION
CORPORATION INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
----------- -------------- ------------ ------------- ----------- ------------
OPERATING ACTIVITIES
Net income (loss) $ 8.3 $ 8.1 $ 10.1 $ 2.3 $(20.5) $ 8.3
Depreciation and amortization 3.6 8.4 1.4 3.4 -- 16.8
Deferred income taxes (1.5) 1.1 -- 0.2 -- (0.2)
Minority interest -- -- -- 0.9 -- 0.9
Equity income, net of distributions (11.4) (0.6) (7.3) -- 19.3 --
Other non-cash items 0.3 (0.3) -- 0.2 (0.5) (0.3)
Net change in non-cash working capital 14.1 0.8 (3.7) (16.0) 0.6 (4.2)
------ ------ ------ ------ ------ ------
Cash provided by (used in) operating
activities 13.4 17.5 0.5 (9.0) (1.1) 21.3
------ ------ ------ ------ ------ ------
INVESTING ACTIVITIES
Additions to property, plant and
equipment (4.5) (17.2) (1.5) (4.9) -- (28.1)
Acquisitions -- -- -- -- -- --
Advances to affiliates (7.6) 10.0 -- -- (2.4) --
Investment in subsidiary (15.0) -- -- -- 15.0 --
Other investing activities (1.5) 1.0 0.1 (0.1) -- (0.5)
------ ------ ------ ------ ------ ------
Cash used in investing activities (28.6) (6.2) (1.4) (5.0) 12.6 (28.6)
------ ------ ------ ------ ------ ------
FINANCING ACTIVITIES
Payments of long-term debt -- (0.2) -- -- -- (0.2)
Short-term borrowings 0.1 (9.8) 1.0 3.8 -- (4.9)
Advances from affiliates -- -- (15.0) 12.6 2.4 --
Distributions to subsidiary minority
shareowner -- -- -- (1.1) -- (1.1)
Issue of common shares 0.9 -- 15.0 -- (15.0) 0.9
Financing costs -- (2.1) -- -- -- (2.1)
Dividends paid -- -- -- (1.1) 1.1 --
Other financing activities -- -- (0.1) -- -- (0.1)
------ ------ ------ ------ ------ ------
Cash provided by (used in) financing
activities 1.0 (12.1) 0.9 14.2 (11.5) (7.5)
------ ------ ------ ------ ------ ------
Effect of exchange rate changes on cash (0.2) -- -- (0.2) -- (0.4)
------ ------ ------ ------ ------ ------
NET INCREASE (DECREASE) IN CASH (14.4) (0.8) -- -- -- (15.2)
CASH, BEGINNING OF PERIOD 14.7 -- -- 11.9 -- 26.6
------ ------ ------ ------ ------ ------
CASH, END OF PERIOD $ 0.3 $ (0.8) $ -- $ 11.9 $ -- $ 11.4
====== ====== ====== ====== ====== ======
28
COTT CORPORATION
CONSOLIDATING STATEMENTS OF INCOME
(in millions of U.S. dollars, unaudited)
FOR THE THREE MONTHS ENDED APRIL 3, 2004
----------------------------------------------------------------------------------------
COTT COTT BEVERAGES GUARANTOR NON-GUARANTOR ELIMINATION
CORPORATION INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
----------- -------------- ------------ ------------- ----------- ------------
SALES $45.5 $254.0 $10.7 $68.7 $ (8.0) $370.9
Cost of sales 37.2 202.6 9.3 59.4 (8.0) 300.5
----- ------ ----- ----- ------ ------
GROSS PROFIT 8.3 51.4 1.4 9.3 -- 70.4
Selling, general and administrative
expenses 13.7 18.7 0.9 5.4 -- 38.7
----- ------ ----- ----- ------ ------
OPERATING INCOME (LOSS) (5.4) 32.7 0.5 3.9 -- 31.7
Other expense (income), net 0.3 0.1 (0.2) 0.1 -- 0.3
Interest expense (income), net -- 7.9 (1.4) 0.1 -- 6.6
Minority interest -- -- -- 1.0 -- 1.0
----- ------ ----- ----- ------ ------
INCOME (LOSS) BEFORE INCOME TAXES AND
EQUITY INCOME (LOSS) (5.7) 24.7 2.1 2.7 -- 23.8
Income taxes 1.8 (9.5) -- (0.6) -- (8.3)
Equity income (loss) 19.3 1.7 16.3 -- (37.4) (0.1)
----- ------ ----- ----- ------ ------
NET INCOME $15.4 $ 16.9 $18.4 $ 2.1 $(37.4) $ 15.4
===== ====== ===== ===== ====== ======
29
COTT CORPORATION
CONSOLIDATING BALANCE SHEETS
(in millions of U.S. dollars)
AS OF JANUARY 1, 2005
----------------------------------------------------------------------------------------
COTT COTT GUARANTOR NON-GUARANTOR ELIMINATION
CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
----------- -------------- ------------ ------------- ----------- ------------
ASSETS
Current assets
Cash $ 14.7 $ -- $ -- $ 11.9 $ -- $ 26.6
Accounts receivable 52.2 109.3 17.5 44.2 (38.9) 184.3
Inventories 20.9 72.4 5.9 23.6 -- 122.8
Prepaid expenses and other assets 3.0 3.3 0.8 2.6 -- 9.7
------ ------- ------- ------ ------- --------
90.8 185.0 24.2 82.3 (38.9) 343.4
Property, plant and equipment 48.3 162.0 20.0 83.4 -- 313.7
Goodwill 22.8 51.8 13.5 0.7 -- 88.8
Intangibles and other assets 11.6 203.7 11.7 49.1 -- 276.1
Due from affiliates 47.0 4.7 109.4 276.7 (437.8) --
Investments in subsidiaries 354.0 74.2 46.6 -- (474.8) --
------ ------- ------- ------ ------- --------
$574.5 $ 681.4 $ 225.4 $492.2 $(951.5) $1,022.0
====== ======= ======= ====== ======= ========
LIABILITIES
Current liabilities
Short-term borrowings $ -- $ 66.5 $ 0.1 $ 4.8 $ -- $ 71.4
Current maturities of
long-term debt -- 0.8 -- -- -- 0.8
Accounts payable and accrued
liabilities 31.7 82.5 9.8 60.1 (38.9) 145.2
------ ------- ------- ------ ------- --------
31.7 149.8 9.9 64.9 (38.9) 217.4
Long-term debt -- 272.5 -- -- -- 272.5
Due to affiliates 80.4 112.6 197.3 47.5 (437.8) --
Deferred income taxes 5.1 38.1 -- 7.8 -- 51.0
------ ------- ------- ------ ------- --------
117.2 573.0 207.2 120.2 (476.7) 540.9
------ ------- ------- ------ ------- --------
Minority interest -- -- -- 23.8 -- 23.8
SHAREOWNERS' EQUITY
Capital stock
Common shares 287.0 275.8 152.7 451.4 (879.9) 287.0
Retained earnings (deficit) 161.6 (167.4) (134.5) (84.5) 386.4 161.6
Accumulated other comprehensive income 8.7 -- -- (18.7) 18.7 8.7
------ ------- ------- ------ ------- --------
457.3 108.4 (18.2) 348.2 (474.8) 457.3
------ ------- ------- ------ ------- --------
$574.5 $ 681.4 $ 225.4 $492.2 $(951.5) $1,022.0
====== ======= ======= ====== ======= ========
30
COTT CORPORATION
CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions of U.S. dollars, unaudited)
FOR THE THREE MONTHS ENDED APRIL 3, 2004
----------------------------------------------------------------------------------------
COTT COTT GUARANTOR NON-GUARANTOR ELIMINATION
CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
----------- -------------- ------------ ------------- ----------- ------------
OPERATING ACTIVITIES
Net income $15.4 $16.9 $ 18.4 $ 2.1 $(37.4) $15.4
Depreciation and amortization 2.2 7.5 1.5 3.8 -- 15.0
Amortization of financing fees -- 0.2 -- -- -- 0.2
Deferred income taxes (1.9) 1.0 -- 0.6 -- (0.3)
Minority interest -- -- -- 1.0 -- 1.0
Equity (income) loss, net of
distributions (19.3) (0.5) (16.3) -- 36.2 0.1
Other non-cash items 0.3 (0.2) -- 0.2 -- 0.3
Net change in non-cash working capital (10.2) (7.9) (2.0) 7.4 -- (12.7)
----- ----- ------ ----- ------ -----
Cash provided by (used in) operating
activities (13.5) 17.0 1.6 15.1 (1.2) 19.0
----- ----- ------ ----- ------ -----
INVESTING ACTIVITIES
Additions to property, plant and
equipment (1.5) (7.5) (0.4) (1.9) -- (11.3)
Acquisitions -- (17.7) -- -- -- (17.7)
Advances to affiliates 3.5 -- (6.5) -- 3.0 --
Investment in subsidiary (5.0) -- -- -- 5.0 --
Other investing activities (0.2) -- -- -- -- (0.2)
----- ----- ------ ----- ------ -----
Cash used in investing activities (3.2) (25.2) (6.9) (1.9) 8.0 (29.2)
----- ----- ------ ----- ------ -----
FINANCING ACTIVITIES
Payments of long-term debt -- (0.3) -- (1.9) -- (2.2)
Short-term borrowings 1.2 0.7 0.3 (0.1) -- 2.1
Advances from affiliates -- 6.5 -- (3.5) (3.0) --
Distributions to subsidiary minority
shareowner -- -- -- (1.2) -- (1.2)
Issue of common shares 2.2 -- 5.0 -- (5.0) 2.2
Dividends paid -- -- -- (1.2) 1.2 --
Other financing activities -- -- (0.1) -- -- (0.1)
----- ----- ------ ----- ------ -----
Cash provided by (used in) financing
activities 3.4 6.9 5.2 (7.9) (6.8) 0.8
----- ----- ------ ----- ------ -----
Effect of exchange rate changes
on cash (0.1) -- -- 0.1 -- --
----- ----- ------ ----- ------ -----
NET INCREASE (DECREASE) IN CASH (13.4) (1.3) (0.1) 5.4 -- (9.4)
CASH, BEGINNING OF PERIOD 13.4 (0.6) 0.1 5.5 -- 18.4
----- ----- ------ ----- ------ -----
CASH, END OF PERIOD $ -- $(1.9) $ -- $10.9 $ -- $ 9.0
===== ===== ====== ===== ====== =====
31