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Table of Contents

 

 

United States

Securities and Exchange Commission

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended: September 30, 2017

 

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

For the transition period from                      to                     

Commission File Number: 001-31410

 

 

COTT CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

CANADA   98-0154711

(State or Other Jurisdiction of

Incorporation or Organization)

 

(IRS Employer

Identification No.)

6525 VISCOUNT ROAD

MISSISSAUGA, ONTARIO, CANADA

  L4V 1H6

4221 WEST BOY SCOUT BOULEVARD

TAMPA, FLORIDA, UNITED STATES

  33607
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (905) 672-1900 and (813) 313-1800

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

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

 

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at November 2, 2017

Common Shares, no par value per share   139,298,082 shares

 

 

 


Table of Contents

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION

     3  

Item 1. Financial Statements (unaudited)

     3  

Consolidated Statements of Operations

     3  

Condensed Consolidated Statements of Comprehensive Income (Loss)

     4  

Consolidated Balance Sheets

     5  

Consolidated Statements of Cash Flows

     6  

Consolidated Statements of Equity

     8  

Notes to the Consolidated Financial Statements

     9  

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     51  

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     65  

Item 4. Controls and Procedures

     65  

PART II. OTHER INFORMATION

     65  

Item 1. Legal Proceedings

     65  

Item 1A. Risk Factors

     66  

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

     66  

Item 6. Exhibits

     67  

SIGNATURES

     68  

 

2


Table of Contents

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements (unaudited)

Cott Corporation

Consolidated Statements of Operations

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

Unaudited

 

     For the Three Months Ended     For the Nine Months Ended  
     September 30,
2017
    October 1,
2016
    September 30,
2017
    October 1,
2016
 

Revenue, net

   $ 580.9     $ 476.7     $ 1,698.4       1,102.0  

Cost of sales

     288.1       229.0       849.7       510.4  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     292.8       247.7       848.7       591.6  

Selling, general and administrative expenses

     262.8       225.3       777.8       547.7  

(Gain) loss on disposal of property, plant & equipment, net

     (0.4     1.4       4.8       4.6  

Acquisition and integration expenses

     3.2       7.4       17.2       20.5  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     27.2       13.6       48.9       18.8  

Other expense (income), net

     1.5       0.2       (1.1     —    

Interest expense, net

     23.2       14.5       62.1       29.2  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     2.5       (1.1     (12.1     (10.4

Income tax expense (benefit)

     0.9       2.9       1.0       (4.8
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) from continuing operations

   $ 1.6     $ (4.0   $ (13.1   $ (5.6

Net income from discontinued operations, net of income taxes (Note 3)

     43.0       2.9       1.0       12.0  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 44.6     $ (1.1   $ (12.1   $ 6.4  

Less: Net income attributable to non-controlling interests - discontinued operations

     2.1       1.5       6.4       4.4  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Cott Corporation

   $ 42.5     $ (2.6   $ (18.5   $ 2.0  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

Basic:

        

Continuing operations

   $ 0.01     $ (0.03   $ (0.09   $ (0.04

Discontinued operations

   $ 0.29     $ 0.01     $ (0.04   $ 0.06  

Net income (loss)

   $ 0.30     $ (0.02   $ (0.13   $ 0.02  

Diluted:

        

Continuing operations

   $ 0.01     $ (0.03   $ (0.09   $ (0.04

Discontinued operations

   $ 0.29     $ 0.01     $ (0.04   $ 0.06  

Net income (loss)

   $ 0.30     $ (0.02   $ (0.13   $ 0.02  

Weighted average common shares outstanding (in thousands)

        

Basic

     139,205       138,195       138,980       124,900  

Diluted

     141,003       138,195       138,980       124,900  

Dividends declared per common share

   $ 0.06     $ 0.06     $ 0.18     $ 0.18  

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

 

3


Table of Contents

Cott Corporation

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in millions of U.S. dollars)

Unaudited

 

     For the Three Months Ended     For the Nine Months Ended  
     September 30,
2017
    October 1,
2016
    September 30,
2017
    October 1,
2016
 

Net income (loss)

   $ 44.6     $ (1.1   $ (12.1   $ 6.4  

Other comprehensive income (loss):

        

Currency translation adjustment

     3.9       (5.9     26.1       (23.8

Pension benefit plan, net of tax 1

     (0.2     —         (0.4     0.2  

Gain (loss) on derivative instruments, net of tax 2

     0.5       0.7       (0.5     3.8  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     4.2       (5.2     25.2       (19.8
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 48.8     $ (6.3   $ 13.1     $ (13.4

Less: Comprehensive income attributable to non-controlling interests

     2.1       1.5       6.4       4.4  
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Cott Corporation

   $ 46.7     $ (7.8   $ 6.7     $ (17.8
  

 

 

   

 

 

   

 

 

   

 

 

 

 

1. Net of the effect of $0.3 million tax expense for the nine months ended September 30, 2017, and $0.1 million and $0.3 million tax benefit for the three and nine months ended October 1, 2016, respectively.
2. Net of the effect of $0.8 million and $2.3 million tax benefit for the three and nine months ended October 1, 2016, respectively.

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

 

4


Table of Contents

Cott Corporation

Consolidated Balance Sheets

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

Unaudited

 

     September 30,
2017
    December 31,
2016
 

ASSETS

    

Current assets

    

Cash & cash equivalents

   $ 82.0     $ 78.1  

Accounts receivable, net of allowance of $8.1

    

($6.3 as of December 31, 2016)

     311.6       276.7  

Inventories

     142.3       124.6  

Prepaid expenses and other current assets

     22.2       22.1  

Current assets of discontinued operations

     426.5       351.7  
  

 

 

   

 

 

 

Total current assets

     984.6       853.2  

Property, plant & equipment, net

     590.4       581.8  

Goodwill

     1,097.0       1,048.3  

Intangible assets, net

     763.9       759.0  

Deferred tax assets

     2.2       —    

Other long-term assets, net

     36.8       24.0  

Long-term assets of discontinued operations

     673.6       673.4  
  

 

 

   

 

 

 

Total assets

   $ 4,148.5     $ 3,939.7  
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

    

Current liabilities

    

Current maturities of long-term debt

   $ 2.6     $ 2.9  

Accounts payable and accrued liabilities

     453.1       368.0  

Current liabilities of discontinued operations

     519.1       439.2  
  

 

 

   

 

 

 

Total current liabilities

     974.8       810.1  

Long-term debt

     1,534.0       851.4  

Deferred tax liabilities

     131.9       155.0  

Other long-term liabilities

     67.5       75.4  

Long-term liabilities of discontinued operations

     566.5       1,174.0  
  

 

 

   

 

 

 

Total liabilities

     3,274.7       3,065.9  

Equity

    

Common shares, no par - 139,268,878

    

(December 31, 2016 -138,591,100) shares issued

     915.5       909.3  

Additional paid-in-capital

     63.3       54.2  

(Accumulated deficit) retained earnings

     (20.7     22.9  

Accumulated other comprehensive loss

     (92.7     (117.9
  

 

 

   

 

 

 

Total Cott Corporation equity

     865.4       868.5  

Non-controlling interests

     8.4       5.3  
  

 

 

   

 

 

 

Total equity

     873.8       873.8  
  

 

 

   

 

 

 

Total liabilities and equity

   $ 4,148.5     $ 3,939.7  
  

 

 

   

 

 

 

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

 

5


Table of Contents

Cott Corporation

Consolidated Statements of Cash Flows

(in millions of U.S. dollars)

Unaudited

 

     For the Three Months Ended     For the Nine Months Ended  
     September 30,
2017
    October 1,
2016
    September 30,
2017
    October 1,
2016
 

Cash flows from operating activities of continuing operations:

        

Net income (loss)

   $ 44.6     $ (1.1   $ (12.1   $ 6.4  

Net income from discontinued operations, net of income taxes

     43.0       2.9       1.0       12.0  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) from continuing operations

     1.6       (4.0     (13.1     (5.6

Adjustments to reconcile net income (loss) from continuing operations to cash flows from operating activities:

        

Depreciation & amortization

     49.4       41.2       141.8       102.6  

Amortization of financing fees

     0.6       0.3       1.4       0.3  

Amortization of senior notes premium

     (1.1     (1.5     (3.9     (4.4

Share-based compensation expense

     2.1       (0.9     11.1       4.0  

Benefit for deferred income taxes

     (3.1     1.3       1.4       (11.3

Unrealized commodity hedging gain, net

     (0.4     (1.0     (1.9     (0.8

Gain on extinguishment of debt, net

     —         —         (1.5     —    

(Gain) loss on disposal of property, plant & equipment, net

     (0.4     1.4       4.8       4.6  

Other non-cash items

     (8.4     8.5       (13.2     7.7  

Change in operating assets and liabilities, net of acquisitions:

        

Accounts receivable

     (16.4     4.6       (36.7     (18.5

Inventories

     (4.9     7.4       (14.5     10.6  

Prepaid expenses and other current assets

     2.5       1.6       (0.3     (3.5

Other assets

     0.7       (1.0     4.8       0.6  

Accounts payable and accrued liabilities and other liabilities

     24.0       (6.8     58.5       (14.4
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities from continuing operations

     46.2       51.1       138.7       71.9  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities of continuing operations:

        

Acquisitions, net of cash received

     (3.4     (912.5     (33.4     (958.7

Additions to property, plant & equipment

     (38.2     (32.4     (97.1     (69.3

Additions to intangible assets

     (3.4     (1.2     (6.0     (2.3

Proceeds from sale of property, plant & equipment

     3.1       1.3       6.0       1.5  

Other investing activities

     0.5       —         0.9       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities from continuing operations

     (41.4     (944.8     (129.6     (1,028.8
  

 

 

   

 

 

   

 

 

   

 

 

 

 

6


Table of Contents

Cash flows from financing activities of continuing operations:

        

Payments of long-term debt

     (0.3     (0.8     (101.9     (0.9

Issuance of long-term debt

     —         —         750.0       498.7  

Premiums and costs paid upon extinguishment of long-term debt

     —         —         (7.7     —    

Issuance of common shares

     2.1       2.4       2.9       366.6  

Common shares repurchased and cancelled

     (0.1     (3.4     (1.9     (4.5

Financing fees

     —         (9.6     (11.1     (9.6

Dividends paid to common shareholders

     (8.4     (8.4     (25.1     (23.1

Payment of contingent consideration for acquisitions

     —         (10.8     —         (10.8

Other financing activities

     —         —         0.5       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities from continuing operations

     (6.7     (30.6     605.7       816.4  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from discontinued operations:

        

Operating activities of discontinued operations

     47.4       44.9       56.1       87.5  

Investing activities of discontinued operations

     (13.3     (8.2     (36.7     (29.3

Financing activities of discontinued operations

     (9.2     257.9       (610.5     128.3  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) discontinued operations

     24.9       294.6       (591.1     186.5  
  

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash

     2.0       (4.0     6.4       (4.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

     25.0       (633.7     30.1       41.8  

Cash, cash equivalents and restricted cash, beginning of period

     123.2       752.6       118.1       77.1  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash & cash equivalents, end of period

     148.2       118.9       148.2       118.9  

Cash & cash equivalents of discontinued operations, end of period

     66.2       27.5       66.2       27.5  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash & cash equivalents from continuing operations, end of period

   $ 82.0     $ 91.4     $ 82.0     $ 91.4  
  

 

 

   

 

 

   

 

 

   

 

 

 

Supplemental Non-cash Investing and Financing Activities:

        

Accrued deferred financing fees

   $ —       $ 0.7     $ 0.6     $ 0.7  

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

     6.8       5.8       6.9       7.1  

Supplemental Disclosures of Cash Flow Information:

        

Cash paid for interest

   $ 12.6     $ 17.5     $ 45.4     $ 35.1  

Cash (received) paid for income taxes, net

     (0.1     0.2       1.7       4.2  

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

 

7


Table of Contents

Cott Corporation

Consolidated Statements of Equity

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

Unaudited

 

     Cott Corporation Equity              
     Number of
Common
Shares

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

Balance at January 2, 2016

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

Cumulative effect adjustment

     —         —         —         2.8       —         —         2.8  

Common shares repurchased and cancelled

     (302     (4.5     —         —         —         —         (4.5

Common shares issued - Equity Incentive Plan

     1,012       12.5       (3.7     —         —         —         8.8  

Common shares issued - Equity issuance

     27,853       363.6       —         —         —         —         363.6  

Common shares issued - Dividend Reinvestment Plan

     14       0.2       —         —         —         —         0.2  

Common shares issued - Employee Stock Purchase Plan

     74       0.9       (0.1     —         —         —         0.8  

Share-based compensation

     —         —         5.7       —         —         —         5.7  

Common shares dividends

     —         —         —         (23.1     —         —         (23.1

Distributions to non-controlling interests

     —         —         —         —         —         (5.9     (5.9

Comprehensive (loss) income

              

Currency translation adjustment

     —         —         —         —         (23.8     —         (23.8

Pension benefit plan, net of tax

     —         —         —         —         0.2       —         0.2  

Unrealized gain on derivative instruments, net of tax

     —         —         —         —         3.8       —         3.8  

Net income

     —         —         —         2.0       —         4.4       6.4  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at October 1, 2016

     138,346     $ 907.4     $ 53.1     $ 111.3     $ (96.0   $ 5.1     $ 980.9  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2016

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

Common shares repurchased and cancelled

     (165     (1.9     —         —         —         —         (1.9

Common shares issued - Equity Incentive Plan

     708       6.4       (5.0     —         —         —         1.4  

Common shares issued - Dividend Reinvestment Plan

     27       0.3       —         —         —         —         0.3  

Common shares issued - Employee Stock Purchase Plan

     108       1.4       (0.2     —         —         —         1.2  

Share-based compensation

     —         —         14.3       —         —         —         14.3  

Common shares dividends

     —         —         —         (25.1     —         —         (25.1

Distributions to non-controlling interests

     —         —         —         —         —         (3.3     (3.3

Comprehensive income (loss)

              

Currency translation adjustment

     —         —         —         —         26.1       —         26.1  

Pension benefit plan, net of tax

     —         —         —         —         (0.4     —         (0.4

Loss on derivative instruments, net of tax

     —         —         —         —         (0.5     —         (0.5

Net (loss) income

     —         —         —         (18.5     —         6.4       (12.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2017

     139,269     $ 915.5     $ 63.3     $ (20.7   $ (92.7   $ 8.4     $ 873.8  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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Cott Corporation

Notes to the Consolidated Financial Statements

Unaudited

Note 1—Business and Recent Accounting Pronouncements

Description of Business

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

On July 24, 2017, we entered into a Share Purchase Agreement (the “Purchase Agreement”) with Refresco Group N.V., a Netherlands limited liability company (“Refresco”), pursuant to which we will sell to Refresco our carbonated soft drinks (“CSDs”) and juice businesses via the sale of our North America, United Kingdom (“U.K.”) and Mexico business units (including the Canadian business) and our Royal Crown International (“RCI”) finished goods export business (collectively, “Traditional Business”). Accordingly, as a result of the sale of the Traditional Business representing a strategic shift in our operations, those businesses are presented herein as discontinued operations. See Note 3 to the consolidated financial statements for additional information on discontinued operations. The Traditional Business excludes our Route Based Services and Coffee, Tea and Extract Solutions reporting segments, and RCI concentrate business, the Columbus manufacturing facility and our Aimia Foods (“Aimia”) business.

Basis of Presentation

The accompanying interim unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of our results of operations for the interim periods reported and of our financial condition as of the date of the interim balance sheet have been included. The consolidated balance sheet as of December 31, 2016 included herein was derived from the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (“2016 Annual Report”). This Quarterly Report on Form 10-Q should be read in conjunction with the annual audited consolidated financial statements and accompanying notes in our 2016 Annual Report. The accounting policies used in these interim consolidated financial statements are consistent with those used in the annual consolidated financial statements.

The presentation of these interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. During the third quarter of 2017, we reviewed our reporting segments as a result of the Refresco transaction. Following such review, we reorganized our reporting segments into three reporting segments: Route Based Services (which includes our DS Services of America, Inc. (“DSS”), Aquaterra Corporation (“Aquaterra”) and Eden Springs Europe B.V. (“Eden”) businesses), Coffee, Tea & Extract Solutions (which includes our S. & D. Coffee, Inc. (“S&D”) business) and All Other (which includes our Aimia and RCI concentrate businesses, the Columbus manufacturing facility and other miscellaneous expenses). Segment reporting results have been recast to reflect these changes for all periods presented.

Changes in Presentation

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

Significant Accounting Policies

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

 

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Cost of sales

We record costs associated with the manufacturing of our products in costs of sales. Shipping and handling costs incurred to store, prepare and move products between production facilities or from production facilities to branch locations or storage facilities are recorded in cost of sales. Costs incurred in shipment of products from our production facilities to customer locations are also reflected in cost of sales, with the exception of shipping and handling costs incurred to deliver products from our Route Based Services and Coffee, Tea and Extract Solutions segment branch locations to the end-user consumer of those products, which are recorded in selling, general and administrative (“SG&A”) expenses. These shipping and handling costs totaled $123.2 million and $339.0 million for the three and nine months ended September 30, 2017, respectively, and $92.4 million and $240.3 million for the three and nine months ended October 1, 2016, respectively. Finished goods inventory costs include the cost of direct labor and materials and the applicable share of overhead expense chargeable to production.

Goodwill

Goodwill represents the excess purchase price of acquired businesses over the fair value of the net assets acquired. Goodwill is not amortized, but instead is tested for impairment at least annually. The following table summarizes our goodwill on a reporting segment basis as of September 30, 2017:

 

     Reporting Segment         

(in millions of U.S. dollars)

   Route
Based
Services
     Coffee, Tea
and Extract
Solutions
     All Other      Total  

Balance December 31, 2016

   $ 886.5      $ 117.1      $ 44.7      $ 1,048.3  

Goodwill acquired during the year

     7.0        —          1.3        8.3  

Adjustments 1

     0.1        0.7        —          0.8  

Foreign exchange

     35.6        —          4.0        39.6  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance September 30, 2017

   $ 929.2      $ 117.8      $ 50.0      $ 1,097.0  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

1. During the nine months ended September 30, 2017, we recorded adjustments to goodwill allocated to the Route Based Services and the Coffee, Tea and Extract Solutions segments in connection with the acquisitions of Eden and S&D (see Note 4 to the consolidated financial statements).

Discontinued Operations

In July 2017, the Company’s Board of Directors committed to a plan to sell our Traditional Business. The closing of the transaction is subject to certain customary closing conditions, including regulatory approval from the United Kingdom. Approval from Refresco’s stockholders was received in September 2017 and accordingly, the Company has presented this portion of our business as discontinued operations beginning in the third quarter of 2017. The Company has reclassified the financial results of the Traditional Business to net income from discontinued operations, net of income taxes in the consolidated statements of operations for all periods presented. The Company has also reclassified the related assets and liabilities as current and long-term assets and liabilities of discontinued operations on the accompanying consolidated balance sheets as of September 30, 2017 and December 31, 2016. Cash flows from the Company’s discontinued operations are presented in the consolidated statements of cash flows for all periods presented. See Note 3 to the consolidated financial statements for additional information on discontinued operations.

Recently adopted accounting pronouncements

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

In March 2016, the FASB issued ASU 2016-09—Compensation – Stock Compensation (Topic 718). We elected to early adopt this standard in the fourth quarter of 2016, effective as of the beginning of the Company’s 2016 fiscal year. Amendments requiring the recognition of excess tax benefits and tax deficiencies within the consolidated statements of operations were adopted prospectively and resulted in an increase of $1.0 million and $1.2 million in income tax benefit and net income (loss) from continuing operations for the three and nine months ended October 1, 2016.

 

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Recently issued accounting pronouncements

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

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

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

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

Update ASU 2016-02 – Leases (Topic 842)

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

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

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

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

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

 

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

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

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

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

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

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

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

In May 2017, the FASB amended its guidance regarding the scope of modification accounting for share-based compensation arrangements. The amendments provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. For public entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for public entities for reporting periods for which financial statements have not yet been issued. The amendments in this update should be applied prospectively to an award modified on or after the adoption date. We are currently assessing the impact of adoption of this standard on our consolidated financial statements.

Update ASU 2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities

In August 2017, the FASB amended its guidance regarding the improvement of accounting for hedging transactions. This new standard simplifies and expands the eligible hedging strategies for financial and non-financial risks. It also enhances the transparency of how hedging results are presented and disclosed. Further, the new standard provides partial relief on the timing of certain aspects of hedge documentation and eliminates the requirement to recognize hedge ineffectiveness separately in earnings. The guidance is designed to align hedge accounting with a company’s risk management activities and simplifies its application through targeted improvements by expanding the list of items eligible to be hedged and amending the methods used to measure the effectiveness of hedging relationships. Additionally it prescribes how hedging results should be presented and requires incremental disclosures. The amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted in any interim period after issuance of this update. We are currently assessing the impact of adoption of this standard on our consolidated financial statements.

 

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Note 2 – Revision of Previously Reported Financial Information

During the fourth quarter of 2016, the Company adopted ASU 2016-18 – Statement of Cash Flows (Topic 230): Restricted Cash, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and restricted cash, and that adoption be applied retrospectively. During the second quarter of 2017, we failed to retrospectively adjust our 2016 comparative consolidated statements of cash flows for the second quarter 2016 issuance of $498.7 million of our 5.500% senior notes due 2024 (the “2024 Notes”), the cash proceeds of which were restricted for a subsequent acquisition. Prior to the adoption of ASU 2016-18, this restricted use financing was disclosed as a non-cash investing and financing activity. In connection with this revision, we are also correcting other immaterial cash flow errors. For the three and six months ended July 2, 2016, these errors resulted in our cash provided from operating activities being overstated by $2.6 and $5.5 million, our cash used in investing activities being overstated by $4.1 and $7.0 million, and our cash provided from financing activities being understated by $498.7 and $498.7 million. As a result of this error, cash, cash equivalents and restricted cash, end of period, was understated by $503.1 million as of July 2, 2016 in the consolidated statement of cash flows.

We have also corrected other immaterial items in the consolidated statements of cash flows for the three and nine months ended October 1, 2016, as presented herein. These corrections increase cash provided by operating activities from continuing operations and cash flows used in investing activities from continuing operations by $3.1 million for the three months ended October 1, 2016 and decreased cash flows provided by operating activities from continuing operations and cash flows used in investing activities from continuing operations by $1.1 million for the nine months ended October 1, 2016. These corrections also impacted the supplemental disclosure of additions to property, plant & equipment through accounts payable and accrued liabilities by $1.1 million for the nine months ended October 1, 2016.

As a result of the revision, our ending cash, cash equivalents and restricted cash in the statements of cash flows for the three and six months ended July 2, 2016, now reconcile to the ending cash and restricted cash as presented on the consolidated balance sheet as of July 2, 2016, within the Form 10-Q filed August 9, 2016.

We have evaluated these errors and determined they are not material to the previously issued financial statements and have elected to revise our previously issued consolidated statements of cash flows for the three and six months ended July 2, 2016 as follows:

 

     For the Three Months Ended July 2, 2016  

(in millions of U.S. dollars)

   As Previously
Reported
     Adjustments      As Revised  

Other non-cash items

   $ 2.6      $ (1.3    $ 1.3  

Accounts payable and accrued liabilities and other liabilities

     44.6        (1.3      43.3  

Net cash provided by operating activities

     87.6        (2.6      85.0  

Additions to property, plant & equipment

     (33.2      1.3        (31.9

Other investing activities

     (2.8      2.8        —    

Net cash used in investing activities

     (38.6      4.1        (34.5

Issuance of long-term debt

     —          498.7        498.7  

Net cash provided by financing activities

     147.5        498.7        646.2  

Effect of exchange rate changes on cash

     (2.1      2.9        0.8  

Net (decrease) increase in cash, cash equivalents, and restricted cash

     194.4        503.1        697.5  

Cash & cash equivalents, beginning of period

     55.1        —          55.1  

Cash, cash equivalents and restricted cash, end of period

     249.5        503.1        752.6  

Supplemental Non-cash Investing and Financing Activities:

        

Long-term debt funded to escrow

     498.7        (498.7      —    

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

     10.2        1.3        11.5  

 

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

(in millions of U.S. dollars)

   As Previously Reported      Adjustments      As Revised  

Other non-cash items

   $ 0.9      $ (1.3    $ (0.4

Accounts payable and accrued liabilities and other liabilities

     11.1        (4.2      6.9  

Net cash provided by operating activities

     68.9        (5.5      63.4  

Additions to property, plant & equipment

     (62.7      4.2        (58.5

Other investing activities

     (2.8      2.8        —    

Net cash used in investing activities

     (112.1      7.0        (105.1

Issuance of long-term debt

     —          498.7        498.7  

Net cash provided by financing activities

     218.7        498.7        717.4  

Effect of exchange rate changes on cash

     (3.1      2.9        (0.2

Net (decrease) increase in cash, cash equivalents, and restricted cash

     172.4        503.1        675.5  

Cash & cash equivalents, beginning of period

     77.1        —          77.1  

Cash, cash equivalents and restricted cash, end of period

     249.5        503.1        752.6  

Supplemental Non-cash Investing and Financing Activities:

        

Long-term debt funded to escrow

     498.7        (498.7      —    

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

     11.4        4.2        15.6  

 

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Table of Contents

Note 3Discontinued Operations

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

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

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

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

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

 

     For the Three Months Ended      For the Nine Months Ended  

(in millions of U.S. dollars)

   September 30,
2017
     October 1,
2016
     September 30,
2017
     October 1,
2016
 

Revenue, net

   $ 425.6      $ 419.3      $ 1,244.7      $ 1,282.7  

Cost of sales

     371.3        361.3        1,093.4        1,102.0  

Operating income from discontinued operations

     13.9        21.0        33.6        67.1  

Income (loss) from discontinued operations, before income taxes

     12.1        4.5        (27.5      9.5  

Income tax (benefit) expense1

     (30.9      1.6        (28.5      (2.5

Net income from discontinued operations, net of income taxes

     43.0        2.9        1.0        12.0  

Less: Net income attributable to non-controlling interests

     2.1        1.5        6.4        4.4  

Net income (loss) attributable to Cott Corporation – discontinued operations

   $ 40.9      $ 1.4      $ (5.4    $ 7.6  

 

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

 

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

 

(in millions of U.S. dollars)

   September 30,
2017
     December 31,
2016
 

ASSETS

     

Cash & cash equivalents

   $ 66.2      $ 40.0  

Accounts receivable, net

     165.2        127.2  

Inventories

     184.7        176.8  

Prepaid expenses and other current assets

     10.4        7.7  
  

 

 

    

 

 

 

Current assets of discontinued operations

     426.5        351.7  

Property, plant & equipment, net

     341.9        348.1  

Goodwill

     136.9        127.1  

Intangible assets, net

     175.7        180.7  

Other long-term assets, net

     19.1        17.5  
  

 

 

    

 

 

 

Long-term assets of discontinued operations

   $ 673.6      $ 673.4  
  

 

 

    

 

 

 

LIABILITIES

     

Short-term borrowings

     247.6        207.0  

Current maturities of long-term debt

     2.9        2.8  

Accounts payable and accrued liabilities

     268.6        229.4  
  

 

 

    

 

 

 

Current liabilities of discontinued operations

     519.1        439.2  

Long-term debt

     519.8        1,136.6  

Deferred tax liabilities

     0.8        2.8  

Other long-term liabilities

     45.9        34.6  
  

 

 

    

 

 

 

Long-term liabilities of discontinued operations

   $ 566.5      $ 1,174.0  
  

 

 

    

 

 

 

Note 4—Acquisitions

S&D Acquisition

On August 11, 2016, the Company acquired S. & D. Coffee, Inc. (“S&D”), a premium coffee roaster and provider of customized coffee, tea and extract solutions pursuant to a Stock and Membership Interest Purchase Agreement dated August 3, 2016 (the “S&D Acquisition”). The purchase price consideration of $353.6 million was allocated to the assets acquired and liabilities assumed based on their fair values as of the acquisition date. Measurement period adjustments recorded during the nine months ended September 30, 2017 included adjustments to property, plant & equipment and a related adjustment to deferred taxes based on the results of the validation procedures performed as well as an adjustment to income taxes payable existing at the acquisition date. The measurement period adjustments did not have a material effect on our results of operations in prior periods.

 

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

 

(in millions of U.S. dollars)

   Originally
Reported
     Measurement
Period
Adjustments
     Acquired Value  

Cash

   $ 1.7      $ —        $ 1.7  

Accounts receivable

     51.4        —          51.4  

Inventory

     62.5        —          62.5  

Prepaid expenses and other assets

     2.3        —          2.3  

Property, plant & equipment

     92.9        (0.7      92.2  

Goodwill

     117.1        0.7        117.8  

Intangible assets

     119.0        —          119.0  

Other assets

     2.2        —          2.2  

Accounts payable and accrued liabilities

     (46.7      (0.2      (46.9

Deferred tax liabilities

     (43.3      0.2        (43.1

Other long-term liabilities

     (5.5      —          (5.5
  

 

 

    

 

 

    

 

 

 

Total

   $ 353.6      $ —        $ 353.6  
  

 

 

    

 

 

    

 

 

 

Eden Acquisition

On August 2, 2016, the Company acquired Eden Springs Europe B.V., a leading provider of water and coffee solutions in Europe (“Eden”), pursuant to a Share Purchase Agreement dated June 7, 2016 (the “Eden Acquisition”). The purchase price consideration of €515.9 million (U.S. $576.3 million at the exchange rate in effect on the acquisition date), was allocated to the assets acquired and liabilities assumed based on their fair values as of the acquisition date. Measurement period adjustments recorded during the nine months ended September 30, 2017 included adjustments to property, plant & equipment and a related adjustment to deferred taxes based on the results of the validation procedures performed, adjustments to accounts receivable, intangible assets and accrued liabilities based on a final review of fair values, and an adjustment to other long-term liabilities based on a final analysis of certain tax positions. The measurement period adjustments did not have a material effect on our results of operations in prior periods.

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

 

(in millions of U.S. dollars)

   Originally
Reported
     Measurement
Period
Adjustments
     Acquired Value  

Cash & cash equivalents

   $ 19.6      $ —        $ 19.6  

Accounts receivable

     95.4        (1.0      94.4  

Inventories

     17.7        —          17.7  

Prepaid expenses and other current assets

     6.2        —          6.2  

Property, plant & equipment

     107.1        (8.2      98.9  

Goodwill

     299.7        0.1        299.8  

Intangible assets

     213.2        (0.7      212.5  

Other assets

     2.8        —          2.8  

Deferred tax assets

     19.5        —          19.5  

Current maturities of long-term debt

     (2.7      —          (2.7

Accounts payable and accrued liabilities

     (128.3      (0.5      (128.8

Long-term debt

     (3.1      —          (3.1

Deferred tax liabilities

     (49.5      3.5        (46.0

Other long-term liabilities

     (21.3      6.8        (14.5
  

 

 

    

 

 

    

 

 

 

Total

   $ 576.3      $ —        $ 576.3  
  

 

 

    

 

 

    

 

 

 

Supplemental Pro Forma Data (unaudited)

The following unaudited pro forma financial information for the three and nine months ended October 1, 2016, represent the combined results of operations as if the S&D Acquisition and Eden Acquisition had occurred on January 4, 2015. Unaudited pro forma consolidated results of operations for the acquisition of Aquaterra Corporation (“Aquaterra”) in

 

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January 2016 were not included in the combined results of our operations for the three and nine months ended October 1, 2016 because the Company determined they were immaterial. The unaudited pro forma financial information results reflect certain adjustments related to these acquisitions such as increased amortization expense on acquired intangible assets resulting from the preliminary fair valuation of assets acquired. The unaudited pro forma financial information does not necessarily reflect the results of operations that would have occurred had we operated as a single entity during such periods.

 

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

   For the Three Months Ended
October 1, 2016
     For the Nine Months Ended
October 1, 2016
 

Revenue

   $ 588.6      $ 1,664.3  

Net income from continuing operations

     12.8        18.0  

Net income attributable to Cott Corporation

     13.9        23.4  

Net income per common share from continuing operations

   $ 0.08      $ 0.13  

Net income per common share attributable to Cott Corporation, diluted

   $ 0.09      $ 0.17  

Note 5—Share-based Compensation

During the nine months ended September 30, 2017, the Company granted 84,060 common shares to the non-management members of our board of directors under the Amended and Restated Cott Corporation Equity Incentive Plan with an aggregate grant date fair value of approximately $1.1 million. The common shares were issued in consideration of the directors’ annual board retainer fee and vest upon issuance.

Note 6—Income Taxes

Income tax expense was $0.9 million on pre-tax income from continuing operations of $2.5 million and income tax expense was $1.0 million on pre-tax loss from continuing operations of $12.1 million for the three and nine months ended September 30, 2017, as compared to income tax expense of $2.9 million on pre-tax loss from continuing operations of $1.1 million and an income tax benefit of $4.8 million on pre-tax loss from continuing operations of $10.4 million in the comparable prior year periods. The effective income tax rates for the three and nine months ended September 30, 2017 were 36.0% and (8.3%), respectively, compared to (263.6%) and 46.2% in the comparable prior year periods.

The effective tax rates for the three and nine months ended September 30, 2017 varied from the effective tax rates for the three and nine months ended October 1, 2016 primarily due to losses incurred in the United States for which we have not recognized a tax benefit in 2017, partially offset by tax expense related to the Canadian valuation allowance recorded in the third quarter of 2016.

The effective tax rate differs from the Canadian statutory rate during the three and nine months ended September 30, 2017 and October 1, 2016, primarily due to: (a) losses incurred in tax jurisdictions for which we have not recognized a tax benefit; (b) permanent differences for which we recognized a tax benefit; (c) income in tax jurisdictions with lower statutory tax rates than Canada; and (d) the Canadian valuation allowance recorded in the third quarter of 2016.

The pending transaction with Refresco is anticipated to generate a gain on sale which could result in a U.S. valuation allowance release and recognition of a material income tax benefit within the next twelve months.

Note 7—Net Income (Loss) per Common Share

Basic net income (loss) per common share is calculated by dividing net income (loss) attributable to Cott Corporation by the weighted average number of common shares outstanding during the periods presented. Diluted net income (loss) per common share is calculated by dividing net income (loss) attributable to Cott Corporation by the weighted average number of common shares outstanding adjusted to include the effect, if dilutive, of the exercise of in-the-money Stock Options, Performance-based RSUs, and

 

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Time-based RSUs during the periods presented. Set forth below is a reconciliation of the numerator and denominator for the diluted net income (loss) per common share computations for the periods indicated:

 

     For the Three Months Ended      For the Nine Months Ended  
     September 30,
2017
     October 1,
2016
     September 30,
2017
     October 1,
2016
 

Numerator (in millions):

           

Net income (loss) attributable to Cott Corporation

           

Continuing operations

   $ 1.6      $ (4.0    $ (13.1    $ (5.6

Discontinued operations

     40.9        1.4        (5.4      7.6  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net earnings

     42.5        (2.6      (18.5      2.0  
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic Earnings Per Share

           

Denominator (in thousands):

           

Weighted average common shares outstanding - basic

     139,205        138,195        138,980        124,900  

Basic Earnings Per Share:

           

Continuing operations

     0.01        (0.03      (0.09      (0.04

Discontinued operations

     0.29        0.01        (0.04      0.06  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net earnings

     0.30        (0.02      (0.13      0.02  
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted Earnings Per Share

           

Denominator (in thousands):

           

Weighted average common shares outstanding - basic

     139,205        138,195        138,980        124,900  

Dilutive effect of Stock Options

     1,158        —          —          —    

Dilutive effect of Performance based RSUs

     154        —          —          —    

Dilutive effect of Time-based RSUs

     486        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding - diluted

     141,003        138,195        138,980        124,900  

Diluted Earnings Per Share:

           

Continued operations

     0.01        (0.03      (0.09      (0.04

Discontinued operations

     0.29        0.01        (0.04      0.06  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net earnings

     0.30        (0.02      (0.13      0.02  
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     For the Three Months Ended      For the Nine Months Ended  

(in thousands)

   September 30,
2017
     October 1,
2016
     September 30,
2017
     October 1,
2016
 

Stock Options

     198        2,846        4,286        2,846  

Performance-based RSUs 1

     —          1,574        1,703        1,574  

Time-based RSUs

     —          882        660        882  

 

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

Note 8—Segment Reporting

Our broad portfolio of products include bottled water, coffee, brewed tea, water dispensers, coffee and tea brewers, filtration equipment, clear, still and sparkling flavored waters, hot chocolate and beverage concentrates.

During the third quarter of 2017, we reviewed our reporting segments as a result of the Refresco transaction. Following such review, we reorganized our reporting segments into three reporting segments: Route Based Services (which includes our DSS, Aquaterra and Eden businesses), Coffee, Tea & Extract Solutions (which includes our S&D business) and All Other

 

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(which includes our Aimia and RCI concentrate businesses, the Columbus manufacturing facility and other miscellaneous expenses). Our corporate oversight function is not treated as a segment. This function includes certain general and administrative costs that are not allocated to any of the reporting segments. Segment reporting results have been recast to reflect these changes for all periods presented.

 

(in millions of U.S. dollars)

   Route
Based
Services
     Coffee, Tea
and Extract
Solutions
     All
Other
     Corporate     Total  

For the Three Months Ended September 30, 2017

             

Revenue, net 1

   $ 397.3      $ 143.4      $ 40.2      $ —       $ 580.9  

Depreciation and amortization

     41.7        6.0        1.7        —         49.4  

Operating income (loss)

     34.6        3.7        4.7        (15.8     27.2  

Additions to property, plant & equipment

     34.8        3.3        0.1        —         38.2  

For the Nine Months Ended September 30, 2017

             

Revenue, net 1

   $ 1,134.9      $ 440.2      $ 123.3      $ —       $ 1,698.4  

Depreciation and amortization

     119.1        17.2        5.5        —         141.8  

Operating income (loss)

     66.3        13.3        6.9        (37.6     48.9  

Additions to property, plant & equipment

     85.9        10.6        0.6        —         97.1  

As of September 30, 2017

             

Total assets 2

   $ 2,370.3      $ 471.8      $ 206.3      $ —       $ 3,048.4  

 

1. All Other includes $9.5 million and $31.4 million of related party concentrate sales to discontinued operations for the three and nine months ended September 30, 2017.
2  Excludes intersegment receivables, investments and notes receivable.

 

(in millions of U.S. dollars)

   Route
Based
Services
     Coffee, Tea
and Extract
Solutions
    All
Other
     Corporate     Total  

For the Three Months Ended October 1, 2016

            

Revenue, net 1

   $ 349.2      $ 87.3     $ 40.2      $ —       $ 476.7  

Depreciation and amortization

     36.9        2.8       1.5        —         41.2  

Operating income (loss)

     21.2        (0.1     0.7        (8.2     13.6  

Additions to property, plant & equipment

     30.4        1.8       0.2        —         32.4  

For the Nine Months Ended October 1, 2016

            

Revenue, net 1

   $ 882.3      $ 87.3     $ 132.4      $ —       $ 1,102.0  

Depreciation and amortization

     94.6        2.8       5.2        —         102.6  

Operating income (loss)

     44.7        (0.1     7.5        (33.3     18.8  

Additions to property, plant & equipment

     66.6        1.8       0.9        —         69.3  

As of December 31, 2016

            

Total assets 2

   $ 2,287.1      $ 463.2     $ 164.3      $ —       $ 2,914.6  

 

1. All Other includes $9.0 million and $29.7 million of related party concentrate sales to discontinued operations for the three and nine months ended October 1, 2016.
2  Excludes intersegment receivables, investments and notes receivable.

 

Reconciliation of Segment Assets to Total Assets              

(in millions of U.S. dollars)

   September 30, 2017      December 31, 2016  

Segment assets 1

   $ 3,048.4      $ 2,914.6  

Assets of discontinued operations 1

     1,100.1        1,025.1  
  

 

 

    

 

 

 

Total assets

   $ 4,148.5      $ 3,939.7  
  

 

 

    

 

 

 

 

1. Excludes intersegment receivables, investments and notes receivable.

 

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

Revenues by channel by reporting segment were as follows:

 

     For the Three Months Ended September 30, 2017  

(in millions of U.S. dollars)

   Route
Based
Services
     Coffee, Tea
and Extract
Solutions
     All
Other
     Total  

Revenue, net

           

Home and office bottled water delivery

   $ 268.0      $ —        $ —        $ 268.0  

Coffee and tea services

     44.2        120.9        0.7        165.8  

Retail

     43.5        —          11.7        55.2  

Other

     41.6        22.5        27.8        91.9  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 397.3      $ 143.4      $ 40.2      $ 580.9  
  

 

 

    

 

 

    

 

 

    

 

 

 
     For the Nine Months Ended September 30, 2017  

(in millions of U.S. dollars)

   Route
Based
Services
     Coffee, Tea
and Extract
Solutions
     All
Other
     Total  

Revenue, net

           

Home and office bottled water delivery

   $ 753.7      $ —        $ —        $ 753.7  

Coffee and tea services

     134.9        369.6        2.0        506.5  

Retail

     127.8        —          33.9        161.7  

Other

     118.5        70.6        87.4        276.5  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,134.9      $ 440.2      $ 123.3      $ 1,698.4  
  

 

 

    

 

 

    

 

 

    

 

 

 
     For the Three Months Ended October 1, 2016  

(in millions of U.S. dollars)

   Route
Based
Services
     Coffee, Tea
and Extract
Solutions
     All
Other
     Total  

Revenue, net

           

Home and office bottled water delivery

   $ 235.9      $ —        $ —        $ 235.9  

Coffee and tea services

     38.9        72.0        2.0        112.9  

Retail

     42.9        —          10.0        52.9  

Other

     31.5        15.3        28.2        75.0  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 349.2      $ 87.3      $ 40.2      $ 476.7  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     For the Nine Months Ended October 1, 2016  

(in millions of U.S. dollars)

   Route
Based
Services
     Coffee, Tea
and Extract
Solutions
     All
Other
     Total  

Revenue, net

           

Home and office bottled water delivery

   $ 575.1      $ —        $ —        $ 575.1  

Coffee and tea services

     100.4        72.0        2.0        174.4  

Retail

     127.7        —          37.8        165.5  

Other

     79.1        15.3        92.6        187.0  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 882.3      $ 87.3      $ 132.4      $ 1,102.0  
  

 

 

    

 

 

    

 

 

    

 

 

 

Note 9—Inventories

The following table summarizes inventories as of September 30, 2017 and December 31, 2016:

 

(in millions of U.S. dollars)

   September 30, 2017      December 31, 2016  

Raw materials

   $ 80.5      $ 56.5  

Finished goods

     37.5        42.7  

Resale items

     21.1        22.0  

Other

     3.2        3.4  
  

 

 

    

 

 

 

Total

   $ 142.3      $ 124.6  
  

 

 

    

 

 

 

Note 10—Intangible Assets, Net

The following table summarizes intangible assets, net as of September 30, 2017 and December 31, 2016:

 

     September 30, 2017      December 31, 2016  

(in millions of U.S. dollars)

   Cost      Accumulated
Amortization
     Net      Cost      Accumulated
Amortization
     Net  

Intangible Assets

                 

Not subject to amortization

                 

Rights 1

   $ 24.5      $ —        $ 24.5      $ 24.5      $ —        $ 24.5  

Trademarks

     263.1        —          263.1        257.1        —          257.1  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total intangible assets not subject to amortization

     287.6        —          287.6        281.6        —          281.6  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Subject to amortization

                 

Customer relationships

     580.8        138.9        441.9        552.3        94.3        458.0  

Patents

     15.2        0.6        14.6        —          —          —    

Trademarks

     1.2        0.2        1.0        1.1        0.1        1.0  

Information technology

     27.4        11.8        15.6        20.5        6.3        14.2  

Other

     6.7        3.5        3.2        6.2        2.0        4.2  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total intangible assets subject to amortization

     631.3        155.0        476.3        580.1        102.7        477.4  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total intangible assets

   $ 918.9      $ 155.0      $ 763.9      $ 861.7      $ 102.7      $ 759.0  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

1. Relates to the 2001 acquisition of intellectual property from Royal Crown Company, Inc., including the right to manufacture our concentrates, with all related inventions, processes, technologies, technical and manufacturing information, know-how and the use of the Royal Crown brand outside of North America and Mexico.

 

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Amortization expense of intangible assets was $17.9 million and $50.7 million for the three and nine months ended September 30, 2017, respectively, compared to $14.5 million and $36.6 million for the three and nine months ended October 1, 2016, respectively.

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

 

(in millions of U.S. dollars)

      

Remainder of 2017

   $ 18.1  

2018

     66.7  

2019

     59.2  

2020

     50.2  

2021

     44.0  

Thereafter

     238.1  
  

 

 

 

Total

   $ 476.3  
  

 

 

 

Note 11—Accounts Payable and Accrued Liabilities

The following table summarizes accounts payable and accrued liabilities as of September 30, 2017 and December 31, 2016:

 

(in millions of U.S. dollars)

   September 30, 2017      December 31, 2016  

Trade payables

   $ 218.0      $ 185.9  

Accrued compensation

     48.5        38.4  

Accrued sales incentives

     6.9        1.0  

Accrued interest

     30.9        11.6  

Payroll, sales and other taxes

     13.3        9.0  

Accrued deposits

     65.8        51.9  

Other accrued liabilities

     69.7        70.2  
  

 

 

    

 

 

 

Total

   $ 453.1      $ 368.0  
  

 

 

    

 

 

 

Note 12—Debt

Our total debt as of September 30, 2017 and December 31, 2016 was as follows:

 

     September 30, 2017      December 31, 2016  

(in millions of U.S. dollars)

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

10.000% senior notes due in 2021 1

     271.1        —          271.1        384.2        —          384.2  

5.500% senior notes due in 2024

     531.1        9.8        521.3        474.1        9.8        464.3  

5.500% senior notes due in 2025

     750.0        11.2        738.8        —          —          —    

Capital leases

     5.4        —          5.4        5.8        —          5.8  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total debt

     1,557.6        21.0        1,536.6        864.1        9.8        854.3  

Capital leases - current maturities

     2.6        —          2.6        2.9        —          2.9  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total current debt

     2.6        —          2.6        2.9        —          2.9  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term debt

   $ 1,555.0      $ 21.0      $ 1,534.0      $ 861.2      $ 9.8      $ 851.4  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

1. Includes unamortized premium of $21.1 million and $34.2 million at September 30, 2017 and December 31, 2016, respectively. The effective interest rate is 7.515%.

 

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

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

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

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

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

Note 13—Accumulated Other Comprehensive (Loss) Income

Changes in accumulated other comprehensive (loss) income (“AOCI”) by component for the nine months ended September 30, 2017 and October 1, 2016 were as follows:

 

(in millions of U.S. dollars)1

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

Beginning balance January 2, 2016

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

 

 

    

 

 

    

 

 

    

 

 

 

OCI before reclassifications

     7.4        —          (23.8      (16.4

Amounts reclassified from AOCI

     (3.6      0.2        —          (3.4
  

 

 

    

 

 

    

 

 

    

 

 

 

Net current-period OCI

     3.8        0.2        (23.8      (19.8
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance October 1, 2016

   $ (0.9    $ (9.9    $ (85.2    $ (96.0
  

 

 

    

 

 

    

 

 

    

 

 

 

Beginning balance December 31, 2016

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

 

 

    

 

 

    

 

 

    

 

 

 

OCI before reclassifications

     1.2        (0.5      26.1        26.8  

Amounts reclassified from AOCI

     (1.7      0.1        —          (1.6
  

 

 

    

 

 

    

 

 

    

 

 

 

Net current-period OCI

     (0.5      (0.4      26.1        25.2  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance September 30, 2017

   $ (0.6    $ (14.8    $ (77.3    $ (92.7
  

 

 

    

 

 

    

 

 

    

 

 

 

 

1. All amounts are net of tax.

 

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The following table summarizes the amounts reclassified from AOCI for the three and nine months ended September 30, 2017 and October 1, 2016, respectively.

 

(in millions of U.S. dollars)

   For the Three Months Ended     For the Nine Months Ended     Affected Line Item in  

Details About AOCI Components1

   September 30,
2017
    October 1,
2016
    September 30,
2017
    October 1,
2016
    the Statement Where
Net Income Is Presented
 

Gains and losses on derivative instruments

          

Foreign currency and commodity hedges

   $ 0.2     $ 1.5     $ 1.7     $ 5.5       Cost of sales  
     —         (0.6     —         (1.9     Tax expense  
  

 

 

   

 

 

   

 

 

   

 

 

   
   $ 0.2     $ 0.9     $ 1.7     $ 3.6       Net of tax  
  

 

 

   

 

 

   

 

 

   

 

 

   

Amortization of pension benefit plan items

          

Prior service costs 2

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

 

 

   

 

 

   

 

 

   

 

 

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

 

 

   

 

 

   

 

 

   

 

 

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

 

 

   

 

 

   

 

 

   

 

 

   

Total reclassifications for the period

   $ (0.1   $ 0.9     $ 1.6     $ 3.4       Net of tax  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

1. Amounts in parenthesis indicate debits.
2. These AOCI components are included in the computation of net periodic pension cost.

Note 14—Commitments and Contingencies

We are subject to various claims and legal proceedings with respect to matters such as governmental regulations and other actions arising out of the normal course of business. Management believes that the resolution of these matters will not have a material adverse effect on our financial position, results of operations, or cash flow.

We had $40.1 million in standby letters of credit outstanding as of September 30, 2017 ($42.4 million—December 31, 2016).

Note 15—Hedging Transactions and Derivative Financial Instruments

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

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

All derivatives are carried at fair value in the consolidated balance sheets in the line item accounts receivable, net or accounts payable and accrued liabilities. The carrying values of the derivatives reflect the impact of legally enforceable master netting agreements with each counterparty. These allow us to net settle positive and negative positions (assets and liabilities) arising from different transactions with the same counterparty.

The accounting for gains and losses that result from changes in the fair values of derivative instruments depends on whether the derivatives have been designated and qualify as hedging instruments and the types of hedging relationships. Derivatives can be designated as fair value hedges, cash flow hedges or hedges of net investments in foreign operations. The changes in the fair values of derivatives that have been designated and qualify for fair value hedge accounting are recorded in the same line item in our consolidated statements of operations as the changes in the fair value of the hedged items attributable to the risk being hedged. The changes in fair values of derivatives that have been designated and qualify as cash flow hedges are recorded in AOCI and are reclassified into the line item in the consolidated statements of operations in which the hedged items are recorded in the same period the hedged items affect earnings. Due to the high degree of effectiveness between the hedging instruments and the underlying exposures being hedged, fluctuations in the value of the derivative instruments are generally offset by changes in the fair values or cash flows of the underlying exposures being hedged. The changes in fair values of derivatives that were not designated and/or did not qualify as hedging instruments are immediately recognized into earnings. We classify cash inflows and outflows related to derivative and hedging instruments within the appropriate cash flows section associated with the item being hedged.

 

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Table of Contents

For derivatives that will be accounted for as hedging instruments, we formally designate and document, at inception, the financial instrument as a hedge of a specific underlying exposure, the risk management objective and the strategy for undertaking the hedge transaction. In addition, we formally assess both at the inception and at least quarterly thereafter, whether the financial instruments used in hedging transactions are effective at offsetting changes in either the fair values or cash flows of the related underlying exposures. Any ineffective portion of a financial instrument’s change in fair value is immediately recognized into earnings.

We estimate the fair values of our derivatives based on quoted market prices or pricing models using current market rates (see Note 16 to the consolidated financial statements). The notional amounts of the derivative financial instruments do not necessarily represent amounts exchanged by the parties and, therefore, are not a direct measure of our exposure to the financial risks described above. The amounts exchanged are calculated by reference to the notional amounts and by other terms of the derivatives, such as interest rates, foreign currency exchange rates or other financial indices. We do not view the fair values of our derivatives in isolation, but rather in relation to the fair values or cash flows of the underlying hedged transactions. All of our derivatives are over-the-counter or exchange traded instruments with liquid markets.

Credit Risk Associated with Derivatives

We have established strict counterparty credit guidelines and enter into transactions only with financial institutions of investment grade or better. We monitor counterparty exposures regularly and review promptly any downgrade in counterparty credit rating. We mitigate pre-settlement risk by being permitted to net settle for transactions with the same counterparty. To minimize the concentration of credit risk, we enter into derivative transactions with a portfolio of financial institutions. Based on these factors, we consider the risk of counterparty default to be minimal.

Cash Flow Hedging Strategy

We use cash flow hedges to minimize the variability in cash flows of assets or liabilities or forecasted transactions caused by fluctuations in commodity prices. The changes in fair values of hedges that are determined to be ineffective are immediately reclassified from AOCI into earnings. We did not discontinue any cash flow hedging relationships during the nine months ended September 30, 2017 or October 1, 2016. Substantially all outstanding hedges as of September 30, 2017 are expected to settle in the next twelve months.

We have entered into coffee futures contracts to hedge exposure to price fluctuations on green coffee associated with fixed-price sales contracts with customers, which generally range from three to 18 months in length. These derivatives have been designated and qualified as a part of our commodity cash flow hedging program effective January 1, 2017. The objective of this hedging program is to reduce the variability of cash flows associated with future purchases of green coffee.

We did not elect hedge accounting for our coffee futures contracts in 2016. The notional amount for the coffee futures contracts that were designated and qualified for our commodity cash flow hedging program was 32.1 million pounds as of September 30, 2017. The notional amounts for the coffee futures contracts not designated or qualifying as hedging instruments was 44.9 million pounds as of December 31, 2016. The effective portion of the cash-flow hedge recognized in AOCI during the nine months ended September 30, 2017 was $1.6 million. Approximately $0.2 million and $1.7 million of realized gains, representing the effective portion of the cash-flow hedge, were subsequently reclassified from AOCI to earnings and recognized in cost of sales in the consolidated statements of operations for the three and nine months ended September 30, 2017, respectively. The hedge ineffectiveness for these cash flow hedging instruments was nil and $0.1 million for the three and nine months ended September 30, 2017, respectively.

The fair value of the Company’s derivative assets included within other receivables as a component of accounts receivable, net was nil as of September 30, 2017 and December 31, 2016. The fair value of the Company’s derivative liabilities included in accrued liabilities was $1.9 million and $6.1 million as of September 30, 2017 and December 31, 2016, respectively. Set forth below is a reconciliation of the Company’s derivatives by contract type for the periods indicated:

 

(in millions of U.S. dollars)

   September 30, 2017      December 31, 2016  

Derivative Contract

   Assets      Liabilities      Assets      Liabilities  

Coffee futures 1

   $ —        $ 1.9      $ —        $ 6.1  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ —        $ 1.9      $ —        $ 6.1  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

1. The fair value of the coffee futures excludes amounts in the related margin accounts. As of September 30, 2017 and December 31, 2016, the aggregate margin account balances were $4.1 million and $9.2 million, respectively, and are included in cash & cash equivalents on the consolidated balance sheets.

 

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Table of Contents

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

 

(in millions of U.S. dollars)

   September 30, 2017      December 31, 2016  

Coffee futures assets

   $ 0.1      $ 1.4  

Coffee futures liabilities

     (2.0      (7.5
  

 

 

    

 

 

 

Net liability

   $ (1.9    $ (6.1
  

 

 

    

 

 

 

The settlement of our derivative instruments resulted in a credit to cost of sales of $0.2 million and $1.7 million for the three and nine months ended September 30, 2017, respectively, and nil and nil for the three and nine months ended October 1, 2016, respectively.

Note 16—Fair Value Measurements

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

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

 

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

 

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

 

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

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

Our derivative assets and liabilities represent Level 2 instruments. Level 2 instruments are valued based on observable inputs for quoted prices for similar assets and liabilities in active markets. The fair value for the derivative assets as of September 30, 2017 and December 31, 2016 was nil. The fair value for the derivative liabilities as of September 30, 2017 and December 31, 2016 was $1.9 million and $6.1 million, respectively.

Fair Value of Financial Instruments

The carrying amounts reflected in the consolidated balance sheets for cash & cash equivalents, receivables, payables, short-term borrowings and long-term debt approximate their respective fair values, except as otherwise indicated. The carrying values and estimated fair values of our significant outstanding debt as of September 30, 2017 and December 31, 2016 were as follows:

 

     September 30, 2017      December 31, 2016  

(in millions of U.S. dollars)

   Carrying
Value
     Fair
Value
     Carrying
Value
     Fair
Value
 

10.000% senior notes due in 2021 1, 2

     271.1        264.4        384.2        383.7  

5.500% senior notes due in 2024 1, 3

     521.3        584.9        464.3        505.5  

5.500% senior notes due in 2025 1, 3

     738.8        781.9        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,531.2      $ 1,631.2      $ 848.5      $ 889.2  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

1. The fair values were based on the trading levels and bid/offer prices observed by a market participant and are considered Level 2 financial instruments.
2. Includes unamortized premium of $21.1 million and $34.2 million at September 30, 2017 and December 31, 2016, respectively.
3. The carrying value of our significant outstanding debt is net of unamortized debt issuance costs of $21.0 million and $9.8 million as of September 30, 2017 and December 31, 2016, respectively.

 

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Table of Contents

Note 17—Guarantor Subsidiaries

Guarantor Subsidiaries for DSS Notes

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

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

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

The €450.0 million (U.S. $531.1 million at the exchange rate in effect on September 30, 2017) of the 2024 Notes were initially issued on June 30, 2016 by Cott Finance Corporation, which was not a DSS Guarantor Subsidiary. Cott Finance Corporation was declared an unrestricted subsidiary under the DSS Indenture. As a result, such entity is reflected as a DSS Non-Guarantor Subsidiary in the following summarized condensed consolidating financial information through August 2, 2016. Substantially simultaneously with the closing of the Eden Acquisition on August 2, 2016, we assumed all of the obligations of Cott Finance Corporation as issuer under the 2024 Notes, and Cott Corporation’s U.S., Canadian, U.K., Luxembourg and Dutch subsidiaries that are currently obligors under the 5.375% senior notes due 2022 (“2022 Notes”) and the 6.75% senior notes due 2020 (“2020 Notes”) (including Cott Beverages Inc.) entered into a supplemental indenture to guarantee the 2024 Notes. Currently, the obligors under the 2024 Notes are different than the obligors under the DSS Notes, but identical to the obligors under the 2020 Notes and the 2022 Notes. The 2024 Notes are listed on the official list of the Irish Stock Exchange and are traded on the Global Exchange Market thereof.

 

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Table of Contents

Condensed Consolidating Statements of Operations

 

(in millions of U.S. dollars)

Unaudited

 

     For the Three Months Ended September 30, 2017  
     Cott
Corporation
    DS Services of
America, Inc.
    DSS
Guarantor
Subsidiaries
    DSS
Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

Revenue, net

   $ —       $ 271.9     $ 198.7     $ 110.3     $ —       $ 580.9  

Cost of sales

     —         105.4       145.9       36.8       —         288.1  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     —         166.5       52.8       73.5       —         292.8  

Selling, general and administrative expenses

     1.2       143.7       57.0       60.9       —         262.8  

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

     —         0.3       (0.6     (0.1     —         (0.4

Acquisition and integration expenses

     —         2.5       2.2       (1.5     —         3.2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (1.2     20.0       (5.8     14.2       —         27.2  

Other expense (income), net

     —         0.3       1.3       (0.1     —         1.5  

Intercompany interest expense (income), net

     —         54.2       (33.4     (12.8     (8.0     —    

Interest expense, net

     7.5       5.2       10.5       —         —         23.2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income tax expense, equity income and discontinued operations

     (8.7     (39.7     15.8       27.1       8.0       2.5  

Income tax expense

     —         0.4       0.5       —         —         0.9  

Equity income

     43.4       —         0.1       —         (43.5     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) from continuing operations

   $ 34.7     $ (40.1   $ 15.4     $ 27.1     $ (35.5   $ 1.6  

Net income from discontinued operations, net of income taxes

     7.8       —         32.8       3.3       (0.9     43.0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     42.5       (40.1     48.2       30.4       (36.4     44.6  

Less: Net income attributable to non-controlling interests

     —         —         —         2.1       —         2.1  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Cott Corporation

   $ 42.5     $ (40.1   $ 48.2     $ 28.3     $ (36.4   $ 42.5  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Cott Corporation

   $ 46.7     $ (40.1   $ 27.4     $ 23.0     $ (10.3   $ 46.7  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Condensed Consolidating Statements of Operations

 

(in millions of U.S. dollars)

Unaudited

 

     For the Nine Months Ended September 30, 2017  
     Cott
Corporation
    DS Services of
America, Inc.
    DSS
Guarantor
Subsidiaries
    DSS
Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

Revenue, net

   $ —       $ 786.3     $ 607.6     $ 304.5     $ —       $ 1,698.4  

Cost of sales

     —         305.9       443.8       100.0       —         849.7  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     —         480.4       163.8       204.5       —         848.7  

Selling, general and administrative expenses

     4.1       423.4       171.6       178.7       —         777.8  

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

     —         6.3       (1.5     —         —         4.8  

Acquisition and integration expenses

     —         5.9       6.9       4.4       —         17.2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (4.1     44.8       (13.2     21.4       —         48.9  

Other (income) expense, net

     —         (1.4     0.9       (0.6     —         (1.1

Intercompany interest expense (income), net

     —         32.5       (21.6     (7.6     (3.3     —    

Interest expense, net

     21.6       18.4       22.1       —         —         62.1  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income tax (benefit) expense, equity income and discontinued operations

     (25.7     (4.7     (14.6     29.6       3.3       (12.1

Income tax (benefit) expense

     —         1.2       (5.3     5.1       —         1.0  

Equity income

     0.6       —         0.1       —         (0.7     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income from continuing operations

   $ (25.1   $ (5.9   $ (9.2   $ 24.5     $ 2.6     $ (13.1

Net income (loss) from discontinued operations, net of income taxes

     6.6       —         (7.4     10.8       (9.0     1.0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (18.5     (5.9     (16.6     35.3       (6.4     (12.1

Less: Net income attributable to non-controlling interests

     —         —         —         6.4       —         6.4  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to Cott Corporation

   $ (18.5   $ (5.9   $ (16.6   $ 28.9     $ (6.4   $ (18.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Cott Corporation

   $ 6.7     $ (5.9   $ (81.3   $ 28.5     $ 58.7     $ 6.7  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Condensed Consolidating Statements of Operations

 

(in millions of U.S. dollars)

Unaudited

 

     For the Three Months Ended October 1, 2016  
     Cott
Corporation
    DS Services of
America, Inc.
    DSS
Guarantor
Subsidiaries
    DSS
Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

Revenue, net

   $
 

  

 
  $ 262.2     $ 144.6     $ 69.9     $ —       $ 476.7  

Cost of sales

     —         101.2       103.0       24.8       —         229.0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     —         161.0       41.6       45.1       —         247.7  

Selling, general and administrative expenses

     1.6       143.9       38.7       41.1       —         225.3  

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

     —         1.6       (0.2     —         —         1.4  

Acquisition and integration expenses

     —         (1.4     7.4       1.4       —         7.4  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (1.6     16.9       (4.3     2.6       —         13.6  

Other (income) expense, net

     —         (0.3     (0.6     1.1       —         0.2  

Intercompany interest expense (income), net

     —         10.8       (0.6     (4.2     (6.0     —    

Interest expense (income), net

     7.4       7.4       —         (0.3     —         14.5  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income tax expense (benefit), equity income and discontinued operations

     (9.0     (1.0     (3.1     6.0       6.0       (1.1

Income tax expense (benefit)

     7.6       (0.2     (4.9     0.4       —         2.9  

Equity income

     8.7       —         —         —         (8.7     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income from continuing operations

   $ (7.9   $ (0.8   $ 1.8     $ 5.6     $ (2.7   $ (4.0

Net income from discontinued operations, net of income taxes

     5.3       —         5.0       3.2       (10.6     2.9  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (2.6     (0.8     6.8       8.8       (13.3     (1.1

Less: Net income attributable to non-controlling interests

     —         —         —         1.5       —         1.5  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to Cott Corporation

   $ (2.6   $ (0.8   $ 6.8     $ 7.3     $ (13.3   $ (2.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income attributable to Cott Corporation

   $ (7.8   $ (0.8   $ 110.4     $ 11.2     $ (120.8   $ (7.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

31


Table of Contents

Condensed Consolidating Statements of Operations

 

(in millions of U.S. dollars)

Unaudited

 

     For the Nine Months Ended October 1, 2016  
     Cott
Corporation
    DS Services of
America, Inc.
    DSS
Guarantor
Subsidiaries
    DSS
Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

Revenue, net

   $ —       $ 764.3     $ 267.8     $ 69.9     $ —       $ 1,102.0  

Cost of sales

     —         297.5       188.1       24.8       —         510.4  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     —         466.8       79.7       45.1       —         591.6  

Selling, general and administrative expenses

     12.6       422.3       71.7       41.1       —         547.7  

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

     —         4.8       (0.2     —         —         4.6  

Acquisition and integration expenses

     —         0.6       18.5       1.4       —         20.5  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (12.6     39.1       (10.3     2.6       —         18.8  

Other (income) expense, net

     —         (1.6     0.5       1.1       —         —    

Intercompany interest expense (income), net

     —         32.4       0.4       (13.3     (19.5     —    

Interest expense (income), net

     7.4       22.0       —         (0.2     —         29.2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income tax expense (benefit), equity income and discontinued operations

     (20.0     (13.7     (11.2     15.0       19.5       (10.4

Income tax expense (benefit)

     7.4       (4.8     (7.6     0.2       —         (4.8

Equity income

     22.9       —         —         —         (22.9     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income from continuing operations

   $ (4.5   $ (8.9   $ (3.6   $ 14.8     $ (3.4   $ (5.6

Net income from discontinued operations, net of income taxes

     6.5       —         26.7       9.4       (30.6     12.0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     2.0       (8.9     23.1       24.2       (34.0     6.4  

Less: Net income attributable to non-controlling interests

     —         —         —         4.4       —         4.4  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Cott Corporation

   $ 2.0     $ (8.9   $ 23.1     $ 19.8     $ (34.0   $ 2.0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income attributable to Cott Corporation

   $ (17.8   $ (8.9   $ 211.2     $ 23.8     $ (226.1   $ (17.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

32


Table of Contents

Consolidating Balance Sheets

 

(in millions of U.S. dollars)

Unaudited

 

     As of September 30, 2017  
     Cott
Corporation
    DS Services of
America, Inc.
    DSS
Guarantor
Subsidiaries
    DSS
Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

ASSETS

            

Current assets

            

Cash & cash equivalents

   $ —       $ 20.8     $ 34.4     $ 26.8     $ —       $ 82.0  

Accounts receivable, net of allowance

     —         137.4       89.0       93.9       (8.7     311.6  

Inventories

     —         30.2       96.5       15.6       —         142.3  

Prepaid expenses and other current assets

     0.1       8.5       7.1       6.5       —         22.2  

Current assets of discontinued operations

     63.2       —         563.4       28.9       (229.0     426.5  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     63.3       196.9       790.4       171.7       (237.7     984.6  

Property, plant & equipment, net

     —         371.2       112.2       107.0       —         590.4  

Goodwill

     —         587.2       189.6       320.2       —         1,097.0  

Intangible assets, net

     —         353.1       203.6       207.2       —         763.9  

Deferred tax assets

     —         —         —         2.2       —         2.2  

Other long-term assets, net

     0.4       14.6       5.6       16.2       —         36.8  

Due from affiliates

     —         —         1.1       371.8       (372.9     —    

Investments in subsidiaries

     —         —         3.9       —         (3.9     —    

Long-term assets of discontinued operations

     1,425.1       —         1,546.1       6.9       (2,304.5     673.6  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 1,488.8     $ 1,523.0     $ 2,852.5     $ 1,203.2     $ (2,919.0   $ 4,148.5  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

            

Current liabilities

            

Current maturities of long-term debt

   $ —       $ 0.1     $ —       $ 2.5     $ —       $ 2.6  

Accounts payable and accrued liabilities

     8.6       275.6       187.1       136.8       (155.0     453.1  

Current liabilities of discontinued operations

     91.6       —         500.2       10.0       (82.7     519.1  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     100.2       275.7       687.3       149.3       (237.7     974.8  

Long-term debt

     521.3       271.2       738.8       2.7       —         1,534.0  

Deferred tax liabilities

     —         82.6       18.6       30.7       —         131.9  

Other long-term liabilities

     —         39.5       17.2       10.8       —         67.5  

Due to affiliates

     —         543.3       424.8       858.6       (1,826.7     —    

Long-term liabilities of discontinued operations

     1.9       —         655.4       28.1       (118.9     566.5  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     623.4       1,212.3       2,542.1       1,080.2       (2,183.3     3,274.7  

Equity

            

Common shares, no par

     915.5       355.5       752.1       144.5       (1,252.1     915.5  

Additional paid-in-capital

     63.3       —         —         —           63.3  

(Accumulated deficit) retained earnings

     (20.7     (44.6     (534.8     (38.6     618.0       (20.7

Accumulated other comprehensive (loss) income

     (92.7     (0.2     93.1       8.7       (101.6     (92.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Cott Corporation equity

     865.4       310.7       310.4       114.6       (735.7     865.4  

Non-controlling interests

     —         —         —         8.4       —         8.4  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

     865.4       310.7       310.4       123.0       (735.7     873.8  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 1,488.8     $ 1,523.0     $ 2,852.5     $ 1,203.2     $ (2,919.0   $ 4,148.5  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

33


Table of Contents

Consolidating Balance Sheets

 

(in millions of U.S. dollars)

 

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

ASSETS

            

Current assets

            

Cash & cash equivalents

   $ —       $ 22.7     $ 23.6     $ 31.8     $ —       $ 78.1  

Accounts receivable, net of allowance

     —         121.7       82.6       84.0       (11.6     276.7  

Inventories

     —         29.2       79.9       15.5       —         124.6  

Prepaid expenses and other current assets

     1.7       7.1       10.0       4.2       (0.9     22.1  

Current assets of discontinued operations

     47.2       —         346.6       23.2       (65.3     351.7  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     48.9       180.7       542.7       158.7       (77.8     853.2  

Property, plant & equipment, net

     —         364.5       115.8       101.5       —         581.8  

Goodwill

     —         582.0       183.6       282.7       —         1,048.3  

Intangible assets, net

     —         356.8       204.4       197.8       —         759.0  

Other long-term assets, net

     0.5       14.6       6.6       2.3       —         24.0  

Due from affiliates

     —         —         —         329.6       (329.6     —    

Investments in subsidiaries

     —         —         —         —         —         —    

Long-term assets of discontinued operations

     1,353.7       —         1,548.9       4.2       (2,233.4     673.4  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 1,403.1     $ 1,498.6     $ 2,602.0     $ 1,076.8     $ (2,640.8   $ 3,939.7  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

            

Current liabilities

            

Current maturities of long-term debt

   $ —       $ —       $ 0.1     $ 2.8     $ —       $ 2.9  

Accounts payable and accrued liabilities

     4.2       135.1       124.9       124.8       (21.0     368.0  

Current liabilities of discontinued operations

     63.6       —         423.8       8.5       (56.7     439.2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     67.8       135.1       548.8       136.1       (77.7     810.1  

Long-term debt

     464.4       384.2       —         2.8       —         851.4  

Deferred tax liabilities

     0.9       81.2       46.5       26.4       —         155.0  

Other long-term liabilities

     —         38.0       16.9       20.5       —         75.4  

Due to affiliates

     —         543.3       390.6       775.1       (1,709.0     —    

Long-term liabilities of discontinued operations

     1.5       —         1,255.8       24.6       (107.9     1,174.0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     534.6       1,181.8       2,258.6       985.5       (1,894.6     3,065.9  

Equity

            

Common shares, no par

     909.3       355.4       691.5       149.7       (1,196.6     909.3  

Additional paid-in-capital

     54.2       —         —         —         —         54.2  

Retained earnings (accumulated deficit)

     22.9       (38.4     (505.9     (72.8     617.1       22.9  

Accumulated other comprehensive (loss) income

     (117.9     (0.2     157.8       9.1       (166.7     (117.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Cott Corporation equity

     868.5       316.8       343.4       86.0       (746.2     868.5  

Non-controlling interests

     —         —         —         5.3       —         5.3  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

     868.5       316.8       343.4       91.3       (746.2     873.8  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 1,403.1     $ 1,498.6     $ 2,602.0     $ 1,076.8     $ (2,640.8   $ 3,939.7  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

34


Table of Contents

Consolidating Statements of Condensed Cash Flows

 

(in millions of U.S. dollars)

Unaudited

 

     For the Three Months Ended September 30, 2017  
     Cott
Corporation
    DS Services of
America, Inc.
    DSS
Guarantor
Subsidiaries
    DSS
Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

Net cash (used in) provided by operating activities from continuing operations

   $ (0.1   $ (88.0   $ 17.4     $ 14.7     $ 102.2     $ 46.2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investing Activities

            

Acquisitions, net of cash received

     —         (1.1     —         (2.3     —         (3.4

Additions to property, plant & equipment

     —         (22.1     (7.9     (8.2     —         (38.2

Additions to intangible assets

     —         (0.4     (2.7     (0.3     —         (3.4

Proceeds from sale of property, plant & equipment

     —         0.2       0.9       2.0       —         3.1  

Other investing activities

     —         —         0.5       —         —         0.5  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities from continuing operations

     —         (23.4     (9.2     (8.8     —         (41.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financing Activities

            

Payments of long-term debt

     —         —         (0.2     (0.1     —         (0.3

Issuance of common shares

     2.1       —         —         —         —         2.1  

Common shares repurchased and cancelled

     (0.1     —         —         —         —         (0.1

Dividends paid to common shareowners

     (8.4     —         —         —         —         (8.4

Proceeds from intercompany loan from affiliate

     —         109.5       —         —         (109.5     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities from continuing operations

     (6.4     109.5       (0.2     (0.1     (109.5     (6.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flows from Discontinued Operations

            

Net cash provided by operating activities from discontinued operations

     7.6       —         137.5       6.1       (103.8     47.4  

Net cash used in investing activities from discontinued operations

     (0.5     —         (121.8     (0.5     109.5       (13.3

Net cash used in financing activities from discontinued operations

     —         —         (7.9     (2.9     1.6       (9.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by discontinued operations

     7.1       —         7.8       2.7       7.3       24.9  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash

     0.1       —         1.1       0.8       —         2.0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash & cash equivalents

     0.7       (1.9     16.9       9.3       —         25.0  

Cash & cash equivalents, beginning of period

     5.1       22.7       67.3       28.1       —         123.2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash & cash equivalents, end of period

     5.8       20.8       84.2       37.4       —         148.2  

Cash & cash equivalents from discontinued operations, end of period

     5.8       —         49.8       10.6       —         66.2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash & cash equivalents from continuing operations, end of period

   $  —       $ 20.8     $ 34.4     $ 26.8     $ —       $ 82.0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

35


Table of Contents

Consolidating Statements of Condensed Cash Flows

 

(in millions of U.S. dollars)

Unaudited

 

     For the Nine Months Ended September 30, 2017  
     Cott
Corporation
    DS Services of
America, Inc.
    DSS
Guarantor
Subsidiaries
    DSS
Non-Guarantor
Subsidiaries
    Elimination
Entries
    Consolidated  

Net cash provided by operating activities from continuing operations

   $ 0.5     $ 84.0     $ 34.4     $ 29.8     $ (10.0   $ 138.7  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investing Activities

            

Acquisitions, net of cash received

     —         (27.9     (2.1     (3.4     —         (33.4

Additions to property, plant & equipment

     —         (59.8     (13.3     (24.0     —         (97.1

Additions to intangible assets

     —         (2.4     (2.7     (0.9     —         (6.0

Proceeds from sale of property, plant & equipment

     —         2.4       0.9       2.7       —         6.0  

Intercompany loan to affiliate

     —         —         (750.0     —         750.0       —