United States
Securities and Exchange Commission
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended: July 1, 2006
------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ________ to ________
Commission File Number: 000-19914
---------
COTT CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
CANADA NONE
--------------------------------------------- ---------------------------------
(State or Other Jurisdiction of Incorporation (IRS Employer Identification No.)
or Organization)
207 QUEEN'S QUAY WEST, SUITE 340,
TORONTO, ONTARIO M5J 1A7
--------------------------------------------- ---------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (416) 203-3898
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.:
Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 4, 2006
------------------------------------------------------- ------------------------------------------------------
Common Stock, no par value per share 71,714,630 shares
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the three and six month periods ended July 1, 2006
and July 2, 2005...................................................................... Page 3
Consolidated Balance Sheets as of July 1, 2006 and December 31, 2005......................... Page 4
Consolidated Statements of Shareowners' Equity as of July 1, 2006
and July 2, 2005...................................................................... Page 5
Consolidated Statements of Cash Flows for the three and six month periods ended July 1, 2006
and July 2, 2005...................................................................... Page 6
Notes to Consolidated Financial Statements .................................................. Page 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations ........................................................................... Page 23
Item 3. Quantitative and Qualitative Disclosures about Market Risk .................................. Page 28
Item 4. Controls and Procedures ..................................................................... Page 29
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings ........................................................................... Page 30
Item 1A. Risk Factors ................................................................................ Page 30
Item 4. Submission of Matters to a Vote of Security Holders.......................................... Page 30
Item 6. Financial Statement Schedules and Exhibits .................................................. Page 31
Signatures ............................................................................................. Page 33
2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COTT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in millions of U.S. dollars, except per share amounts)
Unaudited
For the three months ended For the six months ended
------------------------------ ------------------------------
JULY 1, JULY 2, JULY 1, JULY 2,
2006 2005 2006 2005
------------ ------------ ------------ ------------
SALES $ 502.0 $ 492.7 $ 896.2 $ 888.2
Cost of sales 429.7 412.0 771.2 751.5
------------ ------------ ------------ ------------
GROSS PROFIT 72.3 80.7 125.0 136.7
Selling, general and administrative
expenses 48.7 35.5 88.6 72.4
(Gain) Loss on disposal of property,
plant and equipment (0.1) 0.5 -- (0.2)
Unusual items -- note 2
Restructuring 0.2 -- 1.8 --
Asset impairments (0.1) -- 1.3 (0.2)
Other 0.6 -- 2.6 --
------------ ------------ ------------ ------------
OPERATING INCOME 23.0 44.7 30.7 64.7
Other income, net -- (0.6) (0.2) --
Interest expense, net 7.5 6.6 15.7 13.1
Minority interest 1.1 1.4 2.1 2.3
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 14.4 37.3 13.1 49.3
Income tax expense -- note 4 6.8 12.3 7.6 16.0
------------ ------------ ------------ ------------
NET INCOME -- note 5 $ 7.6 $ 25.0 $ 5.5 $ 33.3
============ ============ ============ ============
PER SHARE DATA -- note 6
INCOME PER COMMON SHARE
Basic $ 0.11 $ 0.35 $ 0.08 $ 0.47
Diluted $ 0.11 $ 0.35 $ 0.08 $ 0.46
The accompanying notes are an integral part of these consolidated financial
statements.
3
COTT CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions of U.S. dollars)
Unaudited
JULY 1, DECEMBER 31,
2006 2005
------------ ------------
ASSETS
CURRENT ASSETS
Cash $ 9.8 $ 21.7
Accounts receivable 239.6 191.1
Inventories -- note 7 161.8 144.2
Prepaid expenses and other assets -- note 8 17.8 9.5
Deferred income taxes 8.1 7.3
------------ ------------
437.1 373.8
PROPERTY, PLANT AND EQUIPMENT -- note 9 385.4 394.2
GOODWILL 155.8 150.3
INTANGIBLES AND OTHER ASSETS -- note 10 256.4 260.4
DEFERRED INCOME TAXES -- 0.4
------------ ------------
$ 1,234.7 $ 1,179.1
============ ============
LIABILITIES
CURRENT LIABILITIES
Short-term borrowings -- note 11 $ 150.1 $ 157.9
Current maturities of long-term debt 0.8 0.8
Accounts payable and accrued liabilities 217.1 182.5
Deferred income taxes -- 0.2
------------ ------------
368.0 341.4
LONG-TERM DEBT 272.2 272.3
DEFERRED INCOME TAXES 69.4 61.0
------------ ------------
709.6 674.7
------------ ------------
MINORITY INTEREST 22.8 22.5
SHAREOWNERS' EQUITY
CAPITAL STOCK
Common shares -- 71,714,630 shares issued (December 31, 2005
-- 71,711,630 shares) 273.0 273.0
ADDITIONAL PAID-IN-CAPITAL 23.0 18.4
RETAINED EARNINGS 191.7 186.2
ACCUMULATED OTHER COMPREHENSIVE INCOME 14.6 4.3
------------ ------------
502.3 481.9
------------ ------------
$ 1,234.7 $ 1,179.1
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
4
COTT CORPORATION
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
(in millions of U.S. dollars)
Unaudited
NUMBER OF ACCUMULATED
COMMON ADDITIONAL OTHER
SHARES COMMON PAID-IN- RETAINED COMPREHENSIVE TOTAL
(in thousands) SHARES CAPITAL EARNINGS INCOME EQUITY
-------------- ------------ ------------ ------------ ------------ ------------
Balance at January 1, 2005 71,440 $ 269.4 $ 17.6 $ 161.6 $ 8.7 $ 457.3
Options exercised, including tax
benefit of $0.6 million 191 2.4 0.6 -- -- 3.0
Comprehensive income -- note 5
Currency translation adjustment -- -- -- -- (7.8) (7.8)
Unrealized gains on cash flow
hedges -- note 8 -- -- -- -- 0.7 0.7
Net income -- -- -- 33.3 -- 33.3
------------ ------------ ------------ ------------ ------------ ------------
Balance at July 2, 2005 71,631 $ 271.8 $ 18.2 $ 194.9 $ 1.6 $ 486.5
============ ============ ============ ============ ============ ============
Balance at December 31, 2005 71,712 $ 273.0 $ 18.4 $ 186.2 $ 4.3 $ 481.9
Options exercised, including tax
benefit 3 -- -- -- -- --
Stock compensation expense -- -- 4.6 -- -- 4.6
Comprehensive income -- note 5
Currency translation adjustment -- -- -- -- 10.1 10.1
Unrealized gains on cash flow
hedges -- note 8 -- -- -- -- 0.2 0.2
Net income -- -- -- 5.5 -- 5.5
------------ ------------ ------------ ------------ ------------ ------------
Balance at July 1, 2006 71,715 $ 273.0 $ 23.0 $ 191.7 $ 14.6 $ 502.3
============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
5
COTT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions of U.S. dollars)
Unaudited
For the three months ended For the six months ended
------------------------------------- -------------------------------------
JULY 1, 2006 JULY 2, 2005 JULY 1, 2006 JULY 2, 2005
---------------- ---------------- ---------------- ----------------
OPERATING ACTIVITIES
Net income $ 7.6 $ 25.0 $ 5.5 $ 33.3
Depreciation and amortization 19.1 15.9 38.4 32.7
Amortization of financing fees 0.2 0.3 0.5 0.3
Stock option expense 1.9 -- 4.6 --
Deferred income taxes 6.4 3.5 6.6 3.3
Minority interest 1.1 1.4 2.1 2.3
Loss (gain) on disposal of property,
plant and equipment (0.1) 0.5 -- (0.2)
Asset impairments (0.1) -- 1.3 (0.2)
Other non-cash items 0.2 0.3 0.5 0.9
Net change in non-cash working capital --
note 12 (15.6) (13.3) (31.4) (17.5)
---------------- ---------------- ---------------- ----------------
Cash provided by operating activities 20.7 33.6 28.1 54.9
---------------- ---------------- ---------------- ----------------
INVESTING ACTIVITIES
Additions to property, plant and equipment (8.4) (26.7) (16.7) (54.8)
Proceeds from disposition of property,
plant and equipment 0.8 1.0 1.5 2.0
Other investing activities (3.3) (2.6) (5.7) (4.1)
---------------- ---------------- ---------------- ----------------
Cash used in investing activities (10.9) (28.3) (20.9) (56.9)
---------------- ---------------- ---------------- ----------------
FINANCING ACTIVITIES
Payments of long-term debt (0.3) (0.2) (0.5) (0.4)
Short-term borrowings (9.7) (0.6) (16.7) (5.5)
Distributions to subsidiary minority
shareowner (0.7) (0.8) (1.8) (1.9)
Issue of common shares -- 1.5 -- 2.4
Financing costs -- (0.5) -- (2.6)
Other financing activities -- (0.1) (0.1) (0.2)
---------------- ---------------- ---------------- ----------------
Cash used in financing activities (10.7) (0.7) (19.1) (8.2)
---------------- ---------------- ---------------- ----------------
Effect of exchange rate changes on cash (0.1) (0.1) -- (0.5)
---------------- ---------------- ---------------- ----------------
NET INCREASE (DECREASE) IN CASH (1.0) 4.5 (11.9) (10.7)
CASH, BEGINNING OF PERIOD 10.8 11.4 21.7 26.6
---------------- ---------------- ---------------- ----------------
CASH, END OF PERIOD $ 9.8 $ 15.9 $ 9.8 $ 15.9
================ ================ ================ ================
The accompanying notes are an integral part of these consolidated financial
statements.
6
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 1
Summary of Significant Accounting Policies
BASIS OF PRESENTATION
The interim consolidated financial statements have been prepared in accordance
with United States ("U.S.") generally accepted accounting principles ("GAAP")
for interim financial information. Accordingly, they do not include all
information and notes presented in the annual consolidated financial statements
in conformity with U.S. GAAP. In our opinion, the financial statements reflect
all adjustments that are necessary for a fair presentation of the results for
the interim periods presented. All such adjustments are of a normal recurring
nature. These financial statements should be read in conjunction with the most
recent annual consolidated financial statements. The accounting policies used in
these interim consolidated financial statements are consistent with those used
in the annual consolidated financial statements, except for the stock-based
compensation as outlined below.
The presentation of these interim consolidated financial statements in
conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements and
accompanying notes. We review long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amounts may not be
recoverable. Determining whether an impairment has occurred requires various
estimates and assumptions including estimates of cash flows that are directly
related to the potentially impaired asset, the useful life over which cash flows
will occur and their amounts. The measurement of an impairment loss requires an
estimate of fair value, which is also based on estimates of future cash flows.
Material recognition, measurement, and presentation differences between U.S.
GAAP and Canadian GAAP are disclosed in note 16.
Stock-Based Compensation
Effective January 1, 2006, we adopted Statement of Financial Accounting Standard
("SFAS") 123R, Share-Based Payments, using the modified prospective approach and
therefore have not restated results for prior periods. Under this prospective
approach, stock-based compensation expense for the first quarter of fiscal 2006
includes compensation expense for all stock-based compensation awards granted
prior to, but not yet vested as of January 1, 2006, based on the grant date fair
value estimated in accordance with the original provision of SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). Stock-based compensation
expense for all stock-based compensation awards granted after January 1, 2006 is
based on the grant-date fair value estimated in accordance with the provisions
of SFAS 123R. We recognize these compensation costs net of a forfeiture rate on
a straight-line basis over the requisite service period of the award, which is
generally the option vesting term of three years. We estimated the forfeiture
rate for the first half of fiscal 2006 based on our historical experience with
forfeitures during the preceding three fiscal years. For the six month period
ended July 1, 2006, net income includes compensation expense of $4.6 million, or
$3.6 million net of tax of $1.0 million, which equates to $0.05 per basic and
diluted share. If the change had been reported retroactively, comparative
figures for the six month period ended July 2, 2005 would show income before
taxes of $44.1 million, income tax expense of $14.6 million and net income of
$29.5 million or $0.41 per basic and diluted share as described in note 13.
Inventory Costs
Effective January 1, 2006, we also adopted SFAS 151, Inventory Costs. The
statement requires that the allocation of fixed production overheads to
inventory be based on the normal capacity of the production facilities;
unallocated overheads resulting from abnormally low production and certain other
costs are to be recognized as an expense in the period in which they are
incurred. There was no material impact from the adoption of this standard.
Income Taxes
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes".
FIN 48 is an interpretation of FASB Statement No. 109 "Accounting for
7
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Income Taxes" and must be adopted by us no later than January 1, 2007. FIN 48
prescribes a comprehensive model for recognizing, measuring, presenting, and
disclosing in the financial statements uncertain tax positions that we have
taken or expect to take in our tax returns. We are evaluating the impact of
adopting FIN 48, and it may result in differences between Canadian and United
States accounting standards on uncertain income tax positions.
NOTE 2
Unusual Items
For the three months ended For the six months ended
-------------------------------- --------------------------------
JULY 1, JULY 2, JULY 1, JULY 2,
2006 2005 2006 2005
------------ ----------- ------------ ------------
(in millions of U.S. dollars) (in millions of U.S. dollars)
Restructuring $ 0.2 $ -- $ 1.8 $ --
Asset impairments (0.1) -- 1.3 (0.2)
Other 0.6 -- 2.6 --
------------ ----------- ------------ ------------
$ 0.7 $ -- $ 5.7 $ (0.2)
============ =========== ============ ============
In September 2005 we announced our plan to realign the management of our
Canadian and U.S. businesses to a North American basis, rationalize product
offerings, eliminate underperforming assets and increase our focus on high
potential accounts. In conjunction with this plan, we closed our Lachine, Quebec
juice plant in February 2006 and in March 2006 we closed our Columbus, Ohio soft
drink plant to bring production capacity in line with the needs of our
customers.
Restructuring
We recorded restructuring charges of $1.8 million including $0.9 million for
severance and contract termination costs relating to the closures of our
Columbus, Ohio soft drink plant and our Lachine, Quebec juice plant. The
remaining restructuring cost of $0.9 million relates to consulting fees.
Restructuring charges of $0.4 million remain accrued as at July 1, 2006.
Asset impairments
We recorded an impairment loss of $1.3 million, which is comprised of charges of
$1.6 million for the writedown of property, plant and equipment, customer list
and information technology software related to the closure of our Columbus, Ohio
soft drink plant and $0.1 million for the writedown of property, plant and
equipment relating to our Lachine, Quebec juice plant, net of a $0.4 million
recovery from the sale of other assets.
Other
Other unusual items are primarily legal and other fees relating to the United
Kingdom ("U.K.") Competition Commission review of our acquisition of 100% of the
shares of Macaw (Holdings) Limited (now known as Cott Nelson (Holdings)
Limited), the parent company of Macaw (Soft Drinks) Limited (now known as Cott
(Nelson) Limited) (the "Macaw Acquisition") in the U.K.
We are currently evaluating various actions to reduce costs and are developing
detailed plans which may result in additional exit and other costs being
incurred. In the near term, we expect to incur additional charges relating to
contract termination costs associated with the closure of our Columbus, Ohio
soft drink plant and our Lachine, Quebec juice plant. To date since September
29, 2005 (through the end of the second quarter of 2006), we have recorded
pre-tax charges of $40 million relating to our previously announced North
American realignment plan and other assets impairment, of which $20 million was
recorded in 2005 relating to customer relationship impairment. These amounts are
part of the previously announced charges of $60 to $80 million associated with
the North American realignment plan and other assets impairment.
8
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
The breakdown of the charges discussed above is as follows:
UNUSUAL ITEMS
----------------------------------------------------
For the six months ended July 1, 2006
----------------------------------------------------
NORTH AMERICAN
REALIGNMENT AND
OTHER ASSETS
IMPAIRMENT OTHER TOTAL
--------------- ------------ -----------
(in millions of U.S. dollars)
Restructuring $ 1.8 $ -- $ 1.8
Asset impairments 1.3 -- 1.3
Other -- 2.6 2.6
------------ ------------ -----------
$ 3.1 $ 2.6 $ 5.7
============ ============ ===========
UNUSUAL ITEMS
------------------------------------------------------
For the year ended December 31, 2005
------------------------------------------------------
NORTH AMERICAN
REALIGNMENT AND
OTHER ASSETS
IMPAIRMENT OTHER TOTAL
--------------- ------------ -----------
(in millions of U.S. dollars)
Restructuring $ 3.2 $ -- $ 3.2
Asset impairments 33.7 (0.2) 33.5
Other -- 0.8 0.8
----------- ----------- -----------
$ 36.9 $ 0.6 $ 37.5
=========== =========== ===========
Restructuring charges are comprised of severance and contract termination costs
in connection with the closure of our Lachine, Quebec juice plant and our
Columbus, Ohio soft drink plant.
Asset impairments are comprised of writedown of property, plant and equipment
and goodwill in connection with the closure of our Lachine, Quebec juice plant
and our Columbus, Ohio soft drink plant.
We may also rationalize products and production capacity further but have not
yet completed our analysis nor have we completed our detailed plans.
Accordingly, the ultimate amount of any asset impairment charges or change in
useful lives of assets that may result is uncertain. It is reasonably possible
that our estimates of future cash flows or the useful lives, or both, related to
certain equipment and intangibles will be significantly reduced in the near
term. As a result, the carrying value of the related assets may also be reduced
materially in the near term.
NOTE 3
Business Seasonality
Our net income for the three and six month periods ended July 1, 2006 is not
necessarily indicative of the results that may be expected for the full year due
to business seasonality. Operating results are impacted by business seasonality,
which normally leads to higher sales in the second and third quarters versus the
first and fourth quarters of the year. Conversely, fixed costs such as
depreciation, amortization and interest, are not impacted by seasonal trends.
9
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 4
Income Taxes
The following table reconciles income taxes calculated at the basic Canadian
corporate rates with the income tax provision:
For the three months ended For the six months ended
------------------------------ ------------------------------
JULY 1, JULY 2, JULY 1, JULY 2,
2006 2005 2006 2005
------------ ------------ ------------ ------------
(in millions of U.S. dollars) (in millions of U.S. dollars)
Income tax provision based on
Canadian statutory rates $ 5.0 $ 12.8 $ 4.5 $ 17.0
Foreign tax rate differential (1.3) (0.1) (2.4) (0.9)
Non-deductible expenses and other items 4.4 (0.4) 5.6 (0.1)
Decrease in valuation allowance (1.3) -- (0.1) --
------------ ------------ ------------ ------------
$ 6.8 $ 12.3 $ 7.6 $ 16.0
============ ============ ============ ============
NOTE 5
Comprehensive Income
For the three months ended For the six months ended
----------------------------- -----------------------------
JULY 1, JULY 2, JULY 1, JULY 2,
2006 2005 2006 2005
------------ ------------ ------------ ------------
(in millions of U.S. dollars) (in millions of U.S. dollars)
Net income $ 7.6 $ 25.0 $ 5.5 $ 33.3
Foreign currency translation 10.7 (4.7) 10.1 (7.8)
Unrealized gains on cash flow hedges --
note 8 0.1 0.5 0.2 0.7
------------ ------------ ------------ ------------
$ 18.4 $ 20.8 $ 15.8 $ 26.2
============ ============ ============ ============
NOTE 6
Income Per Share
Basic net income per common share is computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
net income per share is calculated using the weighted average number of common
shares outstanding adjusted to include the effect that would occur if
in-the-money stock options were exercised.
The following table reconciles the basic weighted average number of shares
outstanding to the diluted weighted average number of shares outstanding:
10
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
For the three months ended For the six months ended
----------------------------- -----------------------------
JULY 1, JULY 2, JULY 1, JULY 2,
2006 2005 2006 2005
------------ ------------ ------------ ------------
(in thousands) (in thousands)
Weighted average number of shares
outstanding -- basic 71,714 71,593 71,713 71,549
Dilutive effect of stock options 46 322 44 368
------------ ------------ ------------ ------------
Adjusted weighted average number
of shares outstanding -- diluted 71,760 71,915 71,757 71,917
============ ============ ============ ============
At July 1, 2006, options to purchase 3,835,664 shares (2,677,525 -- July 2,
2005) of common stock at a weighted average exercise price of C$41.59 per share
(C$36.18 -- July 2, 2005) were outstanding, but were not included in the
computation of diluted net income per share because the options' exercise price
was greater than the average market price of our common stock during the period.
As of July 1, 2006, we had 71,714,630 common shares and 3,956,955 common share
options outstanding. Of our common share options outstanding, 2,548,269 options
were exercisable as of July 1, 2006.
During the second quarter ended July 1, 2006, no common share options were
issued and 1,000 common share options were exercised at an exercise price of
C$5.95.
NOTE 7
Inventories
JULY 1, DECEMBER 31,
2006 2005
------------ ------------
(in millions of U.S. dollars)
Raw materials $ 64.6 $ 63.9
Finished goods 78.4 62.9
Other 18.8 17.4
------------ ------------
$ 161.8 $ 144.2
============ ============
NOTE 8
Derivative Financial Instruments
We enter into cash flow hedges to mitigate exposure to declines in the value of
the Canadian dollar attributable to certain forecasted U.S. dollar raw material
purchases of the Canadian business. In fiscal 2005, we also entered into cash
flow hedges to mitigate exposure to declines in the value of pound sterling
attributable to certain forecasted U.S. dollar raw material purchases of the
U.K. and European business segments. The hedges consist of monthly foreign
exchange options to buy U.S. dollars at fixed rates per Canadian dollar and
mature at various dates through December 28, 2006. The fair market value of the
foreign exchange options is included in prepaid expenses and other assets.
At July 1, 2006, the hedges consisted of foreign exchange options to buy U.S.
dollars at fixed rates per Canadian dollar at a cost of $0.3 million. The fair
value of the options of $0 ($0.8 million -- July 2, 2005) has been included in
prepaid expenses and other assets and the unrealized loss of $0.3 million ($0.7
million unrealized gain -- July 2, 2005) is recorded in other comprehensive
income, reflecting a $0.2 million ($0.7 million -- July 2, 2005) change in the
unrealized loss in comprehensive income for the period ending July 1, 2006.
11
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 9
Property, Plant and Equipment
JULY 1, DECEMBER 31,
2006 2005
------------ ------------
(in millions of U.S. dollars)
Cost $ 700.5 $ 680.8
Accumulated depreciation (315.1) (286.6)
------------ ------------
$ 385.4 $ 394.2
============ ============
NOTE 10
Intangibles and Other Assets
JULY 1, 2006 DECEMBER 31, 2005
------------------------------------------ ------------------------------------------
ACCUMULATED ACCUMULATED
COST AMORTIZATION NET COST AMORTIZATION NET
---------- -------------- ---------- ---------- -------------- ----------
(in millions of U.S. dollars) (in millions of U.S. dollars)
INTANGIBLES
Not subject to
amortization
Rights $ 80.4 $ -- $ 80.4 $ 80.4 $ -- $ 80.4
---------- -------------- ---------- ---------- -------------- ----------
Subject to amortization
Customer relationships 168.3 46.0 122.3 166.7 40.1 126.6
Trademarks 29.3 10.4 18.9 29.0 9.3 19.7
Information technology 53.9 28.5 25.4 49.1 24.1 25.0
Other 3.5 1.1 2.4 3.6 1.0 2.6
---------- -------------- ---------- ---------- -------------- ----------
255.0 86.0 169.0 248.4 74.5 173.9
---------- -------------- ---------- ---------- -------------- ----------
335.4 86.0 249.4 328.8 74.5 254.3
---------- -------------- ---------- ---------- -------------- ----------
OTHER ASSETS
Financing costs 4.7 1.8 2.9 4.6 1.2 3.4
Other 7.2 3.1 4.1 5.4 2.7 2.7
---------- -------------- ---------- ---------- -------------- ----------
11.9 4.9 7.0 10.0 3.9 6.1
---------- -------------- ---------- ---------- -------------- ----------
$ 347.3 $ 90.9 $ 256.4 $ 338.8 $ 78.4 $ 260.4
========== ============== ========== ========== ============== ==========
Amortization expense of intangible assets was $11.6 million for the period ended
July 1, 2006 ($10.2 million -- July 2, 2005).
NOTE 11
Short-Term Borrowings
Short-term borrowings include bank overdrafts, and borrowings under our credit
facilities and receivables securitization facility.
The credit facilities are collateralized by substantially all our personal
property with certain exceptions including the receivables sold as part of our
receivables securitization facility discussed below.
12
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
In general, borrowings under the credit facilities bear interest at either a
floating or fixed rate for the applicable currency plus a margin based on our
consolidated total leverage ratio. A facility fee of between 0.15% and 0.375%
per annum is payable on the entire line of credit. The level of the facility fee
is dependent on financial covenants.
As at July 1, 2006, credit of $77.7 million was available after borrowings of
$142.2 million and standby letters of credit of $5.1 million. The weighted
average interest rate was 6.02% on these facilities as of July 1, 2006.
The amount of funds available under the receivables securitization facility is
based upon the amount of eligible receivables and various reserves required by
the facility. Accordingly, availability may fluctuate over time given changes in
eligible receivables balances and calculation of reserves, but will not exceed
the $75.0 million program limit. This facility bears interest at a variable
rate, based on the cost of borrowing of an unaffiliated entity, Park Avenue
Receivables Company, LLC and certain other financial institutions (the
"Purchasers"). A fee of between 0.20% and 0.40% per annum is currently payable
on the unused portion of the facility. The level of the facility fee is
dependent on financial covenants. As of July 1, 2006, $57.6 million of eligible
receivables, net of reserves, were available for purchase under this facility
with no balance outstanding.
NOTE 12
Net Change in Non-Cash Working Capital
The changes in non-cash working capital components, net of effects of unrealized
foreign exchange gains and losses, are as follows:
For the three months ended For the six months ended
----------------------------- -----------------------------
JULY 1, JULY 2, JULY 1, JULY 2,
2006 2005 2006 2005
------------ ------------ ------------ ------------
(in millions of U.S. dollars) (in millions of U.S. dollars)
Increase in accounts receivable $ (48.7) $ (29.1) $ (40.3) $ (47.5)
Decrease (increase) in inventories 13.3 0.8 (14.1) (17.4)
Increase in prepaid and other expenses (5.2) (2.9) (7.7) (2.3)
Increase in accounts payable and
accrued liabilities 25.0 17.9 30.7 49.7
------------ ------------ ------------ ------------
$ (15.6) $ (13.3) $ (31.4) $ (17.5)
============ ============ ============ ============
NOTE 13
Stock-Based Compensation
Effective January 1, 2006, we adopted the fair value recognition provisions of
SFAS 123R, using the modified prospective approach and therefore have not
restated prior periods' results. Under this prospective approach, stock-based
compensation expense for the first quarter of fiscal 2006 includes compensation
expense for all stock-based compensation awards granted prior to, but not yet
vested as of January 1, 2006, based on the grant date fair value estimated in
accordance with the original provision of SFAS 123. Stock-based compensation
expense for all stock-based compensation awards granted after January 1, 2006 is
based on the grant-date fair value estimated in accordance with the provisions
of SFAS 123R. We recognize these compensation costs net of a forfeiture rate on
a straight-line basis over the requisite service period of the award, which is
generally the option vesting term of three years. We estimated the forfeiture
rate for the first half of fiscal 2006 based on our historical experience with
forfeitures during the preceding three fiscal years. For the interim period
ending July 1, 2006, net income includes compensation expense of $4.6 million,
or $3.6 million net of tax of $1.0 million, which equates to $0.05 per basic and
diluted share.
13
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
The pro forma table below reflects net earnings and basic and diluted net
earnings per share for fiscal 2005, had we applied the fair value recognition
provisions of SFAS 123, as follows:
For the three months ended For the six months ended
JULY 2, 2005 JULY 2, 2005
---------------------=-------------- ------------------------------------
(in millions of U.S. dollars, except (in millions of U.S. dollars, except
per share amounts) per share amounts)
NET INCOME
As reported $ 25.0 $ 33.3
Compensation expense (1.7) (3.8)
------------ ------------
Pro forma $ 23.3 $ 29.5
============ ============
NET INCOME PER SHARE - BASIC
As reported $ 0.35 $ 0.47
Pro forma $ 0.33 $ 0.41
NET INCOME PER SHARE -- DILUTED
As reported $ 0.35 $ 0.46
Pro forma $ 0.32 $ 0.41
The pro forma compensation expense has been tax effected to the extent it
relates to stock options granted in jurisdictions where the related benefits are
deductible for income tax purposes.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
JULY 2, 2005
-------------
Risk-free interest rate 3.3% - 3.7%
Average expected life (years) 4
Expected volatility 40.0%
Expected dividend yield --
There were no options granted during the first six months of fiscal 2006.
14
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Option activity was as follows:
WEIGHTED WEIGHTED AVERAGE
AVERAGE REMAINING CONTRACTUAL
SHARES EXERCISE PRICE TERM (IN YEARS)
------------ -------------- ---------------------
Balance at January 1, 2005 4,205,965 $ 30.90
Granted 165,000 29.55
Exercised (315,675) 34.37
Forfeited (190,600) 15.18
------------ ------------ ------------
Outstanding at July 2, 2005 3,864,690 31.34 4.8
============ ============ ============
Exercisable at July 2, 2005 1,845,014 24.54
============ ============ ============
Balance at December 31, 2005 4,604,655 $ 30.69
Granted -- --
Exercised (3,000) 5.95
Forfeited (644,700) 33.93
------------ ------------ ------------
Outstanding at July 1, 2006 3,956,955 40.61 4.2
============ ============ ============
Exercisable at July 1, 2006 2,548,269 29.63
============ ============ ============
Outstanding options at July 1, 2006 are as follows:
Options Outstanding Options Exercisable
Weighted
Remaining Average
Number Contractual Life Weighted Average Number Exercise
Range of Exercise Prices (C$) Outstanding (Years) Exercise Price (C$) Exercisable Price (C$)
----------------------------- ------------ ---------------- ------------------- -------------- --------------
$7.70 - $16.10 123,291 1.7 $ 9.87 123,291 $ 9.87
$16.68 - $24.25 807,964 3.0 $ 19.76 667,438 $ 19.80
$26.00 - $33.30 1,980,250 4.5 $ 29.99 1,039,340 $ 30.40
$35.21 -- $43.64 1,045,450 4.8 $ 40.99 718,200 $ 41.05
-------------- -------------- -------------- -------------- --------------
3,956,955 4.2 $ 40.61 2,548,269 $ 29.63
============== ============== ============== ============== ==============
Total compensation expense related to non-vested awards not yet recognized is
expected to be $12.3 million. The weighted average period over which this is
expected to be recognized is 16 months.
During the second quarter of 2006, Brent Willis, our President and Chief
Executive Officer, received a net cash award of $0.9 million at commencement of
employment to purchase common shares of the Company. The purchased shares must
be held for a minimum of three years. This award is recognized as compensation
expense over the vesting period. As of July 1, 2006, $0.1 million was expensed
as compensation expense and remaining balance, which has been deferred within
other assets, will be classified as a reduction in shareowners' equity when the
shares are purchased. In addition, 204,000 common shares with a fair value of
$3.2 million, which vest over three years, and 111,695 of performance share
units with a fair value of $1.5 million, which vest at the end of the three year
performance cycle, have been granted to Mr. Willis. Compensation costs of $0.2
million were recognized in selling, general and administrative expenses in the
period ended July 1, 2006. As of July 1, 2006 there was $4.5 million of unearned
compensation relating to these grants that is expected to be recognized on a
straight-line basis over a period of three years.
NEW LONG-TERM INCENTIVE PLANS
During the second quarter of 2006, our shareowners approved and adopted two new
long-term incentive plans for 2006 and future periods, the Performance Share
Unit Plan ("PSU Plan") and the Share Appreciation Rights Plan ("SAR Plan").
15
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
PSU Plan
Under the PSU Plan, performance share units ("PSUs") may be granted to employees
of our Company and its subsidiaries. The value of an employee's award under our
PSU Plan will depend on (i) our performance over a three-year performance cycle;
and (ii) the market price of our common shares at the time of vesting.
Performance targets will be established annually by the Human Resources and
Compensation Committee of the Board of Directors. PSUs granted will vest over a
term not to exceed three fiscal years.
At the start of each performance cycle, we will establish three tiers of
performance goals for our Company to achieve over the three-year period: a
minimum threshold level, a target level and an outstanding performance level. A
target number of PSUs for each participant will be established at the beginning
of each three-year performance cycle. Each PSU represents the right, on vesting,
to receive one Company common share. If performance over the three-year
performance cycle falls below the threshold level, no PSUs will vest.
Throughout the performance cycle, there are no dividends paid to participants on
the PSUs, and holders do not have the right to vote the common shares
represented by their PSUs. Following the vesting of a participant's PSUs, we
will contribute cash to an independent trust to be used for the purpose of
purchasing an equivalent number of our common shares on the New York Stock
Exchange at the prevailing market price. The common shares purchased by the
trustee will then be registered in the name of the participant and delivered to
the participant upon his or her request.
No shares are issued from treasury and the PSU Plan is not dilutive to our
shareowners.
SAR Plan
Under the SAR Plan, share appreciation rights ("SARs") may be granted to
employees and directors of our Company and its subsidiaries. SARs will typically
vest on the third anniversary of the grant date. On vesting, each SAR will
represent the right to be paid the difference, if any, between the price of our
common shares on the date of grant and their price on the SAR's vesting date.
Payments in respect of vested in-the-money SARs will be made in the form of our
common shares purchased on the open market by an independent trust with cash
contributed by us. If our share price on the date of vesting is lower than on
the date of grant, no payment will be made in respect of those vested SARs.
Prior to vesting, there are no dividends paid on the share appreciation rights,
and holders do not have the right to vote the common shares represented by their
SARs.
No shares are issued from treasury and the SAR Plan is not dilutive to our
shareowners.
We recognize the compensation cost of the PSUs and SARs based on the fair value
of the grant. The fair value of each grant is estimated on the date of grant
using the Black-Scholes option pricing model. We recognize these compensation
costs net of a forfeiture rate on a straight-line basis over the requisite
service period of the award, which is generally the vesting term of three years.
Compensation cost of the PSUs may vary depending on management's estimates of
the probability of the performance measures being achieved and the number of
PSUs expected to vest.
NOTE 14
Contingencies
We are subject to various claims and legal proceedings with respect to matters
such as governmental regulations, income taxes, and other actions arising out of
the normal course of business. Management believes that the resolution of these
matters will not have a material adverse effect on our financial position or
results from operations.
In January 2005, we were named as one of many defendants in a class action suit
alleging the unauthorized use by the defendants of container deposits and the
imposition of recycling fees on customers. In February 2005 similar class action
claims were filed in a number of other Canadian provinces. The litigation is at
a very preliminary stage and the merits of these cases have not been determined.
16
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 15
Segment Reporting
We produce, package and distribute retailer brand and branded bottled and canned
beverages to regional and national grocery, mass-merchandise and wholesale
chains in North America, the U.K. & Europe and International business segments.
The International segment includes our Mexican business, our Royal Crown
International business and our business in Asia. The concentrate assets, sales
and related expenses have been included in the Corporate & Other segment. For
comparative purposes, segmented information has been restated to conform to the
way we managed our beverage business to the end of the second quarter of 2006.
BUSINESS SEGMENTS
UNITED
NORTH KINGDOM CORPORATE
AMERICA & EUROPE INTERNATIONAL & OTHER TOTAL
------------ ------------ ------------- ------------ ------------
(in millions of U.S. dollars)
FOR THE THREE MONTHS ENDED
JULY 1, 2006
External sales $ 383.2 $ 92.9 $ 24.2 $ 1.7 $ 502.0
Depreciation and amortization 13.5 4.1 0.3 1.2 19.1
Operating income (loss) before
unusual items 27.1 7.1 4.1 (14.6) 23.7
Unusual items -- note 2
Restructuring (0.4) -- -- 0.6 0.2
Asset impairment (0.1) -- -- -- (0.1)
Other -- 0.6 -- -- 0.6
Additions to property, plant and
equipment 5.7 2.1 0.1 0.5 8.4
AS OF JULY 1, 2006
Property, plant and equipment 254.6 113.5 9.4 7.9 385.4
Goodwill 75.1 71.1 4.5 5.1 155.8
Intangibles and other assets 128.9 26.9 0.8 99.8 256.4
Total assets 729.1 334.1 85.9 85.6 1,234.7
------------ ------------ ------------ ------------ ------------
17
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
UNITED
NORTH KINGDOM CORPORATE
AMERICA & EUROPE INTERNATIONAL & OTHER TOTAL
------------ ------------ ------------- ------------ ------------
(in millions of U.S. dollars)
FOR THE THREE MONTHS ENDED
JULY 2, 2005
External sales $ 414.1 $ 57.9 $ 20.0 $ 0.7 $ 492.7
Depreciation and amortization 12.6 2.2 0.4 0.7 15.9
Operating income (loss) 41.9 3.1 2.8 (3.1) 44.7
Additions to property, plant and
equipment 22.9 2.9 0.3 0.6 26.7
AS OF DECEMBER 31, 2005
Property, plant and equipment 266.2 109.4 10.3 8.3 394.2
Goodwill 74.1 66.6 4.5 5.1 150.3
Intangibles and other assets 136.0 26.3 1.1 97.0 260.4
Total assets 710.5 307.7 83.1 77.8 1,179.1
------------ ------------ ------------ ------------ ------------
UNITED
NORTH KINGDOM CORPORATE
AMERICA & EUROPE INTERNATIONAL & OTHER TOTAL
------------ ------------ ------------- ------------ ------------
(in millions of U.S. dollars)
FOR THE SIX MONTHS ENDED
JULY 1, 2006
External sales $ 692.7 $ 158.2 $ 42.1 $ 3.2 $ 896.2
Depreciation and amortization 27.2 8.0 0.7 2.5 38.4
Operating income (loss) before
unusual items 42.1 8.9 7.0 (21.6) 36.4
Unusual items -- note 2
Restructuring 0.9 -- -- 0.9 1.8
Asset impairment 1.1 -- -- 0.2 1.3
Other -- 2.6 -- -- 2.6
Additions to property, plant and
equipment 12.1 4.0 0.1 0.5 16.7
------------ ------------ ------------ ------------ ------------
18
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
UNITED
NORTH KINGDOM CORPORATE
AMERICA & EUROPE INTERNATIONAL & OTHER TOTAL
------------ ------------ ------------- ------------ ------------
(in millions of U.S. dollars)
FOR THE SIX MONTHS ENDED
JULY 2, 2005
External sales $ 749.5 $ 101.5 $ 35.7 $ 1.5 $ 888.2
Depreciation and amortization 26.3 4.3 0.7 1.4 32.7
Operating income (loss) before
unusual items 61.0 5.1 5.0 (6.6) 64.5
Unusual items -- asset
impairments -- (0.2) -- -- (0.2)
Additions to property, plant and
equipment 46.0 7.6 0.5 0.7 54.8
------------ ------------ ------------ ------------ ------------
Total assets under the Corporate & Other heading include the elimination of
intersegment receivables and investments.
Credit risk arises from the potential default of a customer in meeting its
financial obligations with us. Concentrations of credit exposure may arise with
a group of customers which have similar economic characteristics or that are
located in the same geographic region. The ability of such customers to meet
obligations would be similarly affected by changing economic, political or other
conditions.
Sales to our top customer (Wal-Mart Stores, Inc.) in the first six months of
2006 and 2005 accounted for 39% and 41%, respectively, of our total sales. Sales
to the top ten customers in the first six months of 2006 and 2005 accounted for
61% and 67%, respectively, of our total sales. The loss of any significant
customer, or customers which in the aggregate represent a significant portion of
our sales, could have a material adverse effect on our operating results and
cash flows.
Revenues by geographic area are as follows:
For the three months ended For the six months ended
----------------------------- -----------------------------
JULY 1, JULY 2, JULY 1, JULY 2,
2006 2005 2006 2005
------------ ------------ ------------ ------------
(in millions of U.S. dollars) (in millions of U.S. dollars)
United States $ 327.7 $ 360.4 $ 604.1 $ 660.7
Canada 64.8 59.7 105.4 100.8
United Kingdom 90.3 55.9 153.6 97.7
Other Countries 19.2 16.7 33.1 29.0
------------ ------------ ------------ ------------
$ 502.0 $ 492.7 $ 896.2 $ 888.2
============ ============ ============ ============
Revenues are attributed to countries based on the location of the plant.
Property, plant and equipment, goodwill, and intangibles and other assets by
geographic area are as follows:
19
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
JULY 1, 2006 DECEMBER 1, 2005
------------ ----------------
(in millions of U.S. dollars)
United States $ 475.1 $ 491.7
Canada 99.7 98.2
United Kingdom 211.5 202.3
Other countries 11.3 12.7
------------ ------------
$ 797.6 $ 804.9
============ ============
NOTE 16
Differences Between United States and Canadian Accounting Principles and
Practices
These consolidated financial statements have been prepared in accordance with
U.S. GAAP which differs in certain respects from those principles and practices
that we would have followed had our consolidated financial statements been
prepared in accordance with Canadian GAAP.
(a) In fiscal 2005, under U.S. GAAP, we elected not to record compensation
expense for options issued to employees with an exercise price equal to the
market value of the options. Effective January 1, 2006, we adopted SFAS
123R, Share-Based Payments, which requires us to recognize compensation
expense for all types of stock options, using the modified prospective
approach. As a result, there was no difference in compensation expense
recorded for Canadian GAAP in the first six months of 2006. Compensation
expense of $5.2 million, $3.8 million net of tax of $1.3 million, was
recorded in the first six months of 2005. We recognize these compensation
costs net of a forfeiture rate on a straight-line basis over the requisite
service period of the award, which is generally the option vesting term of
three years. We estimated the forfeiture rate for the first six months of
fiscal 2006 based on our historical experience with forfeitures during the
preceding three fiscal years. As a result, compensation expense of $4.6
million ($5.2 million - July 2, 2005), $3.6 million ($3.8 million -- July
2, 2005) net of tax of $1.0 million ($1.3 million -- July 2, 2005) was
recorded in the first six months of 2006.
(b) Under U.S. GAAP, costs of start-up activities and organization costs are
expensed as incurred. Under Canadian GAAP these costs, if they meet certain
criteria, can be capitalized and amortized over the future benefit period.
(c) Under U.S. GAAP, the adoption of the U.S. dollar in 1998 as the
presentation and reporting currency was implemented retroactively, such
that prior period financial statements are translated under the current
rate method using the foreign exchange rates in effect on those dates.
Under Canadian GAAP, the change in presentation and reporting currency was
implemented by translating all prior year financial statement amounts at
the foreign exchange rate on January 31, 1998. As a result, there is a
difference in the share capital, retained earnings and cumulative
translation adjustment amounts under Canadian GAAP as compared to U.S.
GAAP.
Under Canadian GAAP, these differences would have been reported in the
consolidated statements of income, consolidated balance sheets and consolidated
statements of cash flows as follows:
20
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
CONSOLIDATED BALANCE SHEETS
JULY 1, 2006 DECEMBER 31, 2005
------------------------------- -------------------------------
U.S. GAAP CANADIAN GAAP U.S. GAAP CANADIAN GAAP
------------ ------------- ------------ -------------
(in millions of U.S. dollars) (in millions of U.S. dollars)
Property, plant &
equipment (b) $ 385.4 $ 385.4 $ 394.2 $ 394.2
Goodwill (b) 155.8 156.3 150.3 150.8
Total assets 1,234.7 1,235.2 1,179.1 1,179.6
Deferred income taxes - net (a),(b) 61.3 54.8 53.5 47.0
Total liabilities 709.6 703.1 674.7 668.2
Capital stock (a),(c) 273.0 263.9 273.0 263.9
Additional paid-in-capital (a) 23.0 29.8 18.4 25.2
Retained earnings (a),(b),(c) 191.7 158.6 186.2 153.1
Accumulated other comprehensive
income (c) 14.6 57.0 4.3 46.7
Total shareowners' equity 502.3 509.3 481.9 488.9
RECONCILIATION OF CONSOLIDATED STATEMENTS OF INCOME
For the three months ended For the six months ended
------------------------------ ------------------------------
JULY 1, JULY 2, JULY 1, JULY 2,
2006 2005 2006 2005
------------ ------------ ------------ ------------
(in millions of U.S. dollars) (in millions of U.S. dollars)
Net income under U.S. GAAP $ 7.6 $ 25.0 $ 5.5 $ 33.3
Cost of sales (b) -- (0.1) -- (0.2)
Stock compensation expense (a) -- (2.4) -- (5.2)
Recovery of income taxes (a),(b) -- 0.7 -- 1.4
------------ ------------ ------------ ------------
Net income under Canadian GAAP $ 7.6 $ 23.2 $ 5.5 $ 29.3
============ ============ ============ ============
Net income per common share, Canadian GAAP
Basic $ 0.11 $ 0.32 $ 0.08 $ 0.41
Diluted $ 0.11 $ 0.32 $ 0.08 $ 0.41
21
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
RECONCILIATION OF CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended For the six months ended
------------------------------ ------------------------------
JULY 1, JULY 2, JULY 1, JULY 2,
2006 2005 2006 2005
------------ ------------ ------------ ------------
(in millions of U.S. dollars) (in millions of U.S. dollars)
Cash provided by operating activities
U.S. GAAP $ 20.7 $ 33.6 $ 28.1 $ 54.9
Net income (a),(b) -- (1.8) -- (4.0)
Depreciation & amortization (b) -- 0.1 -- 0.2
Deferred income taxes (a),(b) -- (0.7) -- (1.4)
Other non-cash items (a) -- 2.4 -- 5.2
------------ ------------ ------------ ------------
Cash provided by operating activities
Canadian GAAP $ 20.7 $ 33.6 $ 28.1 $ 54.9
============ ============ ============ ============
NOTE 17
Certain of the comparative figures have been reclassified to conform to the
current period's presentation.
NOTE 18
Subsequent Events
On July 27, 2006, we announced changes to our senior management structure, roles
and responsibilities. As a result of these changes, certain senior executives
have departed from the Company. We estimate the associated severance and other
costs to be approximately $3.7 million and these costs will be recognized in the
third quarter of 2006.
22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We are one of the world's largest non-alcoholic beverage companies and the
world's largest retailer brand beverage supplier.
RESULTS OF OPERATIONS
For the three months ended For the six months ended
------------------------------------------------- -------------------------------------------------
JULY 1, 2006 JULY 2, 2005 JULY 1, 2006 JULY 2, 2005
----------------------- ----------------------- ----------------------- -----------------------
Millions Millions Millions Millions
of Percent of Percent of Percent of Percent
Dollars of Sales Dollars of Sales Dollars of Sales Dollars of Sales
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Sales $ 502.0 100.0% $ 492.7 100.0% $ 896.2 100.0% $ 888.2 100.0%
Cost of sales 429.7 85.6% 412.0 83.6% 771.2 86.1% 751.5 84.6%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross margin 72.3 14.4% 80.7 16.4% 125.0 13.9% 136.7 15.4%
SG&A 48.7 9.7% 35.5 7.2% 88.6 9.9% 72.4 8.2%
(Gain) Loss on disposal of
property, plant and
equipment (0.1) -- 0.5 0.1% -- -- (0.2) --
Unusual items 0.7 0.1% -- -- 5.7 0.6% (0.2) --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income 23.0 4.6% 44.7 9.1% 30.7 3.4% 64.7 7.3%
Other income, net -- -- (0.6) 0.1% (0.2) -- -- --
Interest expense 7.5 1.5% 6.6 1.3% 15.7 1.8% 13.1 1.5%
Minority interest 1.1 0.2% 1.4 0.3% 2.1 0.2% 2.3 0.3%
Income taxes 6.8 1.4% 12.3 2.5% 7.6 0.8% 16.0 1.8%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income $ 7.6 1.5% $ 25.0 5.1% $ 5.5 0.6% $ 33.3 3.7%
========== ========== ========== ========== ========== ========== ========== ==========
Depreciation & amortization $ 19.1 3.8% $ 15.9 3.2% $ 38.4 4.3% $ 32.7 3.7%
========== ========== ========== ========== ========== ========== ========== ==========
We reported a net income of $7.6 million or $0.11 per diluted share for the
second quarter ended July 1, 2006, down 70% as compared with net income of $25
million, or $0.35 per diluted share for the second quarter of 2005. For the
first half of 2006, net income decreased 83% to $5.5 million or $0.08 per
diluted share, from $33.3 million or $0.46 per diluted share in the same period
last year. The decrease was primarily due to:
o higher fixed costs resulting from new production capacity in the U.S.;
o benefit related to the settlement of a lawsuit against suppliers of
high fructose corn syrup recognized in the same period last year;
o increased SG&A costs due to CEO transition costs, higher incentive
compensation expense and stock option expense;
o increased unusual item charges relating to North American realignment
costs and legal and other fees relating to the U.K Competition
Commission review of our August 2005 acquisition of 100% of the
outstanding shares of Macaw (Holdings) Limited (now known as Cott
Nelson (Holdings) Limited, the parent company of Macaw (Soft Drinks)
Limited (now known as Cott (Nelson) Limited) (the "Macaw
Acquisition");
o increased interest expense due to the Macaw Acquisition; and
o increased effective income tax rate due to higher non-deductible
expenses and additional tax provision due to change in estimates.
SALES -- Sales in the second quarter of 2006 were $502.0 million, an increase of
2% from $492.7 million in the second quarter of 2005. The impact of foreign
exchange on sales was negligible. Sales decreased 5% when excluding the impact
of foreign exchange and the Macaw Acquisition. The decrease was largely due to a
structural change in our business arrangement with one of our self-manufacturing
customers. The related sales are now in the form of concentrates rather than
filled beverages, which lowers our revenue but has minimal earnings impact.
Other factors contributing to the revenue decline were continued softness in
23
the carbonated soft drink category and our product rationalization actions.
Total 8-ounce equivalent case volume was 363.6 million cases in the second
quarter of 2006, an increase of 12% compared to the second quarter of 2005.
Excluding the impact of the Macaw Acquisition, 8-ounce equivalent case volume
was up 6% compared with the second quarter of 2005 driven by strong growth in
concentrate and international sales. Sales of concentrate increased by 48% to
113 million 8-ounce equivalent cases in the second quarter of 2006 compared to
the second quarter of 2005. The increase is principally due to increased
customer demand, including the impact of the structural change in the business
arrangement with one of our self-manufacturing customers. Shipment timing also
favorably impacted concentrate sales. Filled beverage sales in the second
quarter of 2006 were essentially flat at 250.6 million equivalent cases,
compared to 249.6 million in the same period last year.
Sales for the first half of 2006 increased to $896.2 million, 1% higher than the
same period last year and down 5% when the impact of acquisition and foreign
exchange rates are excluded.
Total 8-ounce equivalent case volume was 658.6 million cases for the first half
of 2006.
For the six months ended July 1, 2006
(in millions of dollars) COTT NORTH AMERICA UK & EUROPE INTERNATIONAL
------------------------ ------------ ------------- ------------ -------------
Change in sales $ 8.0 $ (56.8) $ 56.7 $ 6.4
Impact of acquisitions (49.1) -- (49.1) --
Impact of foreign exchange (5.5) (9.2) 3.9 (0.2)
------------ ------------ ------------ ------------
Change excluding acquisitions &
exchange $ (46.6) $ (66.0) $ 11.5 $ 6.2
------------ ------------ ------------ ------------
Percentage change excluding
acquisitions & exchange (5)% (9)% 12% 17%
------------ ------------ ------------ ------------
In North America, sales were $383.2 million in the second quarter of 2006, a
decrease of 8% from the second quarter of 2005. Excluding the impact of foreign
exchange, sales decreased by 9%. In the first half of 2006, sales were $692.7
million, a decrease of 8% from the first half of 2005. Excluding the impact of
foreign exchange, sales decreased by 9%. This decline was mainly due to a
structural change in our business arrangement with one of our self-manufacturing
customers, which was described earlier in this section. Other factors impacting
North American sales were continued carbonated soft drink ("CSD") softness and
product rationalization.
In the U.K. and Europe, sales were $92.9 million in the second quarter of 2006,
an increase of 60% from the second quarter of 2005 due to strong base business
growth and the Macaw Acquisition. Excluding the impact of the Macaw Acquisition,
sales increased 10%. Excluding the impact of the Macaw Acquisition and foreign
exchange, sales increased 12%. In the first half of 2006, sales were $158.2
million, an increase of 56% from the first half of 2005. Excluding the impact of
the Macaw Acquisition, sales increased 8%. Excluding the impact of the Macaw
Acquisition and foreign exchange, sales increased 12%.
The International segment includes our Mexican business, our Royal Crown
International business and our business in Asia. Sales in this segment were
$24.2 million in the second quarter of 2006, an increase of 21% when compared
with the second quarter of 2005. This increase was primarily in Mexico where
sales in the second quarter of 2006 were $16.7 million, an increase of $2
million when compared with sales in the second quarter of 2005, due to increased
volume. In the first half of 2006, sales in the International segment were $42.1
million, an increase of 18% when compared with the first half of 2005. This
increase was primarily in Mexico where sales in the first half of 2006 were
$28.5 million, an increase of $3.3 million when compared with sales in the first
half of 2005, due to increased volume.
GROSS PROFIT -- Gross profit for the second quarter of 2006 was $72.3 million,
or 14.4% of sales, down from 16.4% of sales in the second quarter of 2005. The
decline in gross margin was impacted by the $4.9 million benefit related to the
settlement of a lawsuit against suppliers of high fructose corn syrup recognized
in the second quarter of 2005. The gross margin decline was also impacted by
increased capacity-related fixed costs, partially offset by a favorable product
mix. Gross profit in the first half of 2006 was $125 million, or 13.9% of sales,
compared to gross profit of $136.7 million, or 15.4% of sales, in the first half
of 2005. Gross profit for the first half of the year reflects the impact of
increased capacity-related fixed costs, the impact of the high fructose corn
syrup settlement in 2005, partially offset by a favorable product mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A") -- SG&A was $48.7 million
in the second quarter of 2006, an increase of $13.2 million from the second
quarter of 2005, largely due to $6.3 million of CEO transition costs, increased
incentive compensation costs of $4.3 million and $1.9 million of stock option
expense. SG&A was $88.6 million in the first half of 2006,
24
an increase of $16.2 million from the first half of 2005, largely due to $6.3
million of CEO transition costs, increased incentive compensation costs of $6.7
million and $4.6 million of stock option expense. The additional SG&A costs
resulting from the Macaw Acquisition were largely offset by our company-wide
cost control actions. As a percentage of sales, SG&A increased to 9.7% during
the second quarter of 2006, up from 7.2% for the same period last year and to
9.9% for the first half of the year, up from 8.2% for the same period last year.
STOCK-BASED COMPENSATION -- Effective January 1, 2006, we adopted Statement of
Financial Accounting Standard ("SFAS 123R"), Share-Based Payments, using the
modified prospective approach and therefore have not restated results for prior
periods. Under this prospective approach, stock-based compensation expense for
the first quarter of fiscal 2006 includes compensation expense for all
stock-based compensation awards granted prior to, but not yet vested as of
January 1, 2006, based on the grant date fair value estimated in accordance with
the original provision of SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). Stock-based compensation expense for all stock-based
compensation awards granted after January 1, 2006 is based on the grant-date
fair value estimated in accordance with the provisions of SFAS 123R. We
recognize these compensation costs net of a forfeiture rate on a straight-line
basis over the requisite service period of the award, which is generally the
option vesting term of three years. We estimated the forfeiture rate for the
first half of fiscal 2006 based on our historical experience with forfeitures
during the preceding three fiscal years. For the interim period ending July 1,
2006, net income includes compensation expense of $4.6 million, or $3.6 million
net of tax of $1.0 million, which equates to $0.05 per basic and diluted share.
If the change had been reported retroactively, comparative figures for the six
month period ended July 2, 2005 would show income before taxes of $44.1 million,
income tax expense of $14.6 million and net income of $29.5 million or $0.41 per
basic and diluted share.
During the second quarter of 2006, our shareowners approved and adopted two new
compensation plans for 2006 and future periods, the Performance Share Unit Plan
and the Share Appreciation Rights Plan.. These plans are designed to attract,
maintain and motivate key employees while promoting the long-term financial
success of our business.
UNUSUAL ITEMS -- In the second quarter of 2006, we recorded charges for unusual
items of $0.7 million on a pre-tax basis or $0.01 per diluted share after tax.
In the first quarter and first half of 2005, the only unusual item was a $0.2
million gain. For the first half of 2006, we recorded charges for unusual items
of $5.7 million on a pre-tax basis or $0.06 per diluted share after tax.
Of the $0.7 million of unusual items recorded in the second quarter of 2006,
$0.2 million relates to restructuring charges, $0.1 million gain relates to a
recovery from sale of other assets partially offset by asset impairments and
$0.6 million relates to legal and other fees relating to the U.K Competition
Commission review of the Macaw Acquisition. Of the $5.7 million of unusual items
recorded in the first half of 2006, $1.8 million relates to restructuring
charges, $1.3 million relates to asset impairments net of a recovery from the
sale of other assets and $2.6 million relates to legal and other fees relating
to the U.K Competition Commission review of the Macaw Acquisition.
Restructuring charges of $0.2 million recorded in the second quarter include
$0.3 million net recovery relating to the closures of our Columbus, Ohio soft
drink plant and our Lachine, Quebec juice plant. The remaining restructuring
cost of $0.5 million relates to consulting fees. Restructuring charges of $1.8
million recorded in the first half of 2006 include $0.9 million for severance
and contract termination costs relating to the closures of our Columbus, Ohio
soft drink plant and our Lachine, Quebec juice plant. The remaining
restructuring costs of $0.9 million are consulting fees relating to the North
American realignment.
Asset impairments of $0.1 million gain recorded in the second quarter of 2006
include $0.2 million related to the closure of our Columbus, Ohio soft drink
plant (relating to the writedown of customer list), $0.1 million related to the
closure of our Lachine, Quebec juice plant (relating to the writedown of
property, plant and equipment) and a recovery of $0.4 million from the sale of
other assets. Asset impairments of $1.3 million recorded in the first half of
2006 include $1.6 million related to the closure of our Columbus, Ohio soft
drink plant (relating to the writedown of property, plant and equipment,
customer list and information technology software), $0.1 million related to the
closure of our Lachine, Quebec juice plant (relating to the writedown of
property, plant and equipment) and a recovery of $0.4 million from the sale of
other assets.
On July 27, 2006, we announced changes to our senior management structure, roles
and responsibilities. As a result of these changes, certain senior executives
have departed from the Company. We estimate the associated severance and other
costs to be approximately $3.7 million and these costs will be recognized in the
third quarter of 2006.
OPERATING INCOME -- Operating income was $23.0 million in the second quarter of
2006 including unusual items of $0.7 million, as compared with $44.7 million in
the second quarter of 2005. Operating income was $30.7 million for the first
half of 2006
25
including unusual items of $5.7 million, as compared with $64.7 million in the
first half of 2005 which included unusual items of $0.2 million gain.
INTEREST EXPENSE -- Net interest expense was $7.5 million in the second quarter
of 2006, up from $6.6 million in the second quarter of 2005 primarily resulting
from the Macaw Acquisition. Net interest expense was $15.7 million in the first
half of 2006, up from $13.1 million in the first half of 2005 also primarily
resulting from the Macaw Acquisition.
INCOME TAXES -- We recorded an income tax provision of $6.8 million for the
second quarter and $7.6 million for the first half of 2006 as compared with
$12.3 million and $16.0 million, respectively, for the same periods last year.
The effective income tax rate increased to 47%, reflecting higher non-deductible
expenses and additional tax provision due to changes in estimates.
FINANCIAL CONDITION
OPERATING ACTIVITIES -- Cash provided by operating activities in the first half
of 2006 was $11.4 million, after capital expenditures of $16.7 million, as
compared to the first half of 2005 in which cash provided by operating
activities was $0.1 million, after capital expenditures of $54.8 million.
Cash decreased from $21.7 million to $9.8 million in the first half of 2006 due
to the normal seasonal build up of inventories.
CAPITAL RESOURCES AND LONG-TERM DEBT -- Our sources of capital include operating
cash flows, short term borrowings under current credit and receivables
securitization facilities, issuance of public and private debt and issuance of
equity securities. We believe we have adequate financial resources to meet our
ongoing cash requirements for operations and capital expenditures, as well as
our other financial obligations based on our operating cash flows and currently
available credit.
Our senior secured credit facilities allow for revolving credit borrowings of up
to $225.0 million provided we are in compliance with the covenants and
conditions of the agreement. As of July 1, 2006 credit of $77.7 million was
available after borrowings of $142.2 million, and standby letters of credit of
$5.1 million. The weighted average interest rate was 6.02% on these facilities
as of July 1, 2006.
The receivables securitization facility allows for borrowing up to $75.0 million
based on the amount of eligible receivables and various reserves required by the
facility. As of July 1, 2006, $57.6 million of eligible receivables, net of
reserves, were available for purchase under this facility with no balance
outstanding.
As of July 1, 2006, long-term debt totaled $273.0 million compared with $273.1
million at the end of 2005. At the end of the first half of 2006, debt consisted
of $270.9 million in 8% senior subordinated notes with a face value of $275.0
million and $2.1 million of other debt.
CANADIAN GAAP -- Under Canadian GAAP, in the first half of 2006, we reported a
net income of $5.5 million and total assets of $1,235.2 million compared to net
income and total assets under U.S. GAAP of $5.5 million and $1,234.7 million,
respectively, in the first half of 2006.
There were no material U.S./Canadian GAAP differences in the first half of 2006.
OUTLOOK
We continue to expect 2006 to be a challenging year. Sales of carbonated soft
drinks are expected to remain under pressure in North America during the year.
We continue to expect strong growth in the bottled water and non-carbonated
beverages segments.
To date since September 29, 2005 (through the end of the second quarter of
2006), we have recorded pretax charges of $40 million relating to unusual items
including impairment and restructuring charges. These amounts are part of the
previously announced charges of $60 to 80 million associated with the North
American realignment plan and other assets impairment. We continue to expect net
income, excluding unusual items, stock based compensation expense and charges
related to the chief executive officer change, to be substantially lower in 2006
than in 2005.
To build long-term success and profitability, we will focus on three key
priorities: 1) reducing costs; 2) improving our partnerships with our retailer
customers; and 3) building and sustaining an innovation pipeline for new product
development.
26
Our cost reduction program will focus on asset optimization, fixed cost
reduction and world-class efficiency initiatives, the introduction of a
sub-zero-based budgeting system, optimization of selling, general and
administrative expenses, further centralization of procurement and suppliers,
and ongoing SKU rationalization. In addition, we intend to drive top-line growth
by focusing on in-store execution, penetration of new, high-margin beverage
segments, expansion of our business to new, high-margin channels, and expansion
to new global customers and geographies.
To support the Company's long term growth, we have restructured our organization
under two business units responsible for North America and International. These
business units will focus on customer management, channel development, sales and
marketing. They will be supported by four centralized functions: 1) People; 2)
Supply/Manufacturing; 3) Finance; 4) Legal / Corporate Development. The new
organizational structure is designed to leverage our strengths and drive
efficiencies, standardization and performance in all areas, while reducing costs
to improve future financial performance.
We have not completed detailed action plans or the requisite analyses to
estimate the charges relating to new initiatives within the cost reduction
program. As a result, the ultimate amount and timing of the charges is
uncertain.
Our business strategy also involves continuing to expand outside of North
America. We continue to view Mexico as a strong long-term growth opportunity and
are working closely with our customers to grow the retailer brand beverage
segment in this market. Our U.K. division intends to continue to enhance its
performance through product innovation and a customer-centric focus to identify
opportunities. On April 28, 2006, the U.K. Competition Commission gave final
approval to the Macaw Acquisition and we are integrating Macaw business into our
U.K. business. This acquisition has added additional production capacity and
aseptic beverage capabilities to our U.K. business unit.
FORWARD-LOOKING STATEMENTS -- In addition to historical information, this report
and the reports and documents incorporated by reference in this report contain
statements relating to future events and our future results. These statements
are "forward-looking" within the meaning of the Private Securities Litigation
Reform Act of 1995 and applicable Canadian securities legislation and include,
but are not limited to, statements that relate to projections of sales,
earnings, earnings per share, cash flows, capital expenditures or other
financial items, discussions of estimated future revenue enhancements and cost
savings. These statements also relate to our business strategy, goals and
expectations concerning our market position, future operations, margins,
profitability, liquidity and capital resources. Generally, words such as
"anticipate", "believe", "continue", "could", "estimate", "expect", "intend",
"may", "plan", "predict", "project", "should" and similar terms and phrases are
used to identify forward-looking statements in this report and in the documents
incorporated in this report by reference. These forward-looking statements are
made as of the date of this report.
Although we believe the assumptions underlying these forward-looking statements
are reasonable, any of these assumptions could prove to be inaccurate and, as a
result, the forward-looking statements based on those assumptions could be
incorrect. Our operations involve risks and uncertainties, many of which are
outside of our control, and any one or any combination of these risks and
uncertainties could also affect whether the forward-looking statements
ultimately prove to be correct.
The following are some of the factors that could affect our financial
performance, including but not limited to sales, earnings and cash flows, or
could cause actual results to differ materially from estimates contained in or
underlying the forward-looking statements:
o changing nature of the North American business;
o our ability to successfully implement our realignment plan;
o our ability to grow business outside of North America;
27
o our ability to integrate new management and a new management
structure;
o loss of key customers, particularly Wal-Mart, and the commitment of
retailer brand beverage customers to their own retailer brand beverage
programs;
o increases in competitor consolidations and other market-place
competition, particularly among branded beverage products;
o our ability to identify acquisition and alliance candidates and to
integrate into our operations the businesses and product lines that we
acquire or become allied with;
o our ability to secure additional production capacity either through
acquisitions, or third party manufacturing arrangements;
o increase in interest rates;
o our ability to restore plant efficiencies and lower logistics costs;
o fluctuations in the cost and availability of beverage ingredients and
packaging supplies, and our ability to maintain favorable arrangements
and relationships with our suppliers;
o our ability to pass on increased costs to our customers;
o unseasonably cold or wet weather, which could reduce demand for our
beverages;
o our ability to protect the intellectual property inherent in new and
existing products;
o adverse rulings, judgments or settlements in our existing litigation
and regulatory reviews, and the possibility that additional litigation
or regulatory reviews will be brought against us;
o product recalls or changes in or increased enforcement of the laws and
regulations that affect our business;
o currency fluctuations that adversely affect the exchange between the
U.S. dollar on one hand and the pound sterling, the Canadian dollar
and other currencies on the other;
o changes in tax laws and interpretations of tax laws;
o changes in consumer tastes and preferences and market demand for new
and existing products;
o interruption in transportation systems, labor strikes, work stoppages
and other interruptions or difficulties in the employment of labor or
transportation in our markets; and
o changes in general economic and business conditions.
Many of these factors are described in greater detail in this report and in
other filings that we make with the U.S. Securities and Exchange Commission
("SEC") and Canadian securities regulatory authorities. We undertake no
obligation to update any information contained in this report or to publicly
release the results of any revisions to forward-looking statements to reflect
events or circumstances of which we may become aware of after the date of this
report. Undue reliance should not be placed on forward-looking statements.
All future written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the
foregoing.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to Item 7A: Quantitative and Qualitative Disclosures about
Market Risk described in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2005.
In the first half of 2006, we entered into cash flow hedges to mitigate exposure
to declines in the value of the Canadian dollar attributable to certain
forecasted U.S. dollar raw material purchases of the Canadian business segment.
In fiscal 2005, we also entered into cash flow hedges to mitigate exposure to
declines in the value of pound sterling attributable to certain forecasted U.S.
dollar raw material purchases of the United Kingdom ("U.K.") and European
business segments. The hedges consist of monthly foreign exchange options to buy
U.S. dollars at fixed rates per Canadian dollar and mature at various dates
through December 28, 2006. The fair market value of the foreign exchange options
is included in prepaid expenses and other assets.
Changes in the fair value of the cash flow hedge instruments are recognized in
accumulated other comprehensive income. Amounts recognized in accumulated other
comprehensive income and prepaid expenses and other assets are recorded in
earnings in the same periods in which the forecasted purchases or payments
affect earnings. At July 1, 2006, the fair value of the options
28
was $0 million ($0.8 million -- July 2, 2005) and we recorded $0.3 million
unrealized loss in comprehensive income in the first half of 2006. See "Note 8
Derivative Financial Instruments."
Our sales outside the U.S. are concentrated principally in the U.K. and Canada.
We believe that our foreign currency exchange rate risk has been immaterial
given the historic stability of the U.S. dollar with respect to the foreign
currencies to which we have our principal exposure. However, there can be no
assurance that these exchange rates will remain stable or that our exposure to
foreign currency exchange rate risk will not increase in the future.
ITEM 4. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934, as amended) are
effective, based on their evaluation of these controls and procedures as of the
end of the period covered by this report. There have been no changes in our
internal control over financial reporting or in other factors during the quarter
ended July 1, 2006 that could materially affect, or are likely to materially
affect, our internal control over financial reporting.
29
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the legal proceedings described in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2005 and to our Quarterly
Report on Form 10-Q for the three-month period ended April 1, 2006. In addition,
in reference to the action styled the Consumers' Association of Canada and Bruce
Cran v. Coca-Cola Bottling Ltd. et al., on June 2, 2006, the British Columbia
Supreme Court granted the summary trial application, which resulted in the
dismissal of the plaintiffs' action against us and the other defendants. On June
26, 2006, the plaintiffs' appealed the dismissal of their action to the British
Columbia Court of Appeal. We, together with the other defendants, are defending
the appeal, which we expect will be heard in the next eight to twelve months. It
is too early to assess the chances of success of the appeal.
ITEM 1A. RISK FACTORS
Reference is made to the detailed description of risk factors our Annual Report
on Form 10-K for the fiscal year ended December 31, 2005. Risks and
uncertainties include national brand pricing strategies, commitment of major
customers to retailer brand programs, stability of procurement costs for items
such as sweetener, packaging materials and other ingredients, the successful
integration of new acquisitions, the ability to protect intellectual property
and fluctuations in interest rates and foreign currencies versus the U.S.
dollar.
The Risk Factors included in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2005 have not changed materially other than as set forth
below.
IF THE COMPETITION COMMISSION IN THE U.K. DOES NOT APPROVE THE MACAW
ACQUISITION, WE MIGHT BE REQUIRED TO SELL ALL OR PART OF THIS BUSINESS AND MAY
NOT RECOVER OUR FULL COST.
This Risk Factor is no longer applicable as the U.K. Competition Commission
approved the Macaw Acquisition on April 28, 2006.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual and Special Meeting of Cott's Shareowners was held on April
20, 2006.
(b) The meeting was held to consider and vote on the following matters:
30
AGAINST/ BROKER NON-
MATTERS SUBMITTED TO A VOTE FOR WITHHELD VOTES
-------------------------------------------------- ------------ ------------ ------------
To elect directors for a period of one year:
56,382,169 268,109 --
Colin J. Adair 56,383,111 267,167 --
W. John Bennett 55,732,419 917,589 --
Serge Gouin 55,732,554 917,724 --
Stephen H. Halperin 56,057,388 592,890 --
Betty Jane Hess 56,375,724 274,554 --
Philip B. Livingston 56,058,721 591,557 --
Christine A. Magee 56,386,244 264,034 --
Andrew Prozes 56,062,924 587,354 --
John K. Sheppard 55,696,398 953,880 --
Donald G. Watt 56,061,591 588,687 --
Frank E. Weise III
To appoint PricewaterhouseCoopers LLP
as auditors 56,363,259 287,019 --
To adopt the Performance Share Unit Plan 45,450,314 7,735,046 --
To adopt the Share Appreciation Rights
Plan 44,653,211 8,152,149 --
ITEM 6. FINANCIAL STATEMENT SCHEDULES AND EXHIBITS
1. Financial Statement Schedules
Schedule III -- Consolidating Financial Statements
2. Exhibits
31
Number Description
------ -----------
3.1 Articles of Incorporation of Cott (incorporated by reference to
Exhibit 3.1 to our Form 10-K dated March 31, 2000).
3.2 By-laws of Cott (incorporated by reference to Exhibit 3.2 to our
Form 10-K dated March 8, 2002).
10.1 Employment Agreement between Cott Corporation and Brent D. Willis
dated May 16, 2006 (filed herewith).
10.2 Termination Letter Agreement between Cott Corporation and John K.
Sheppard dated May 13, 2006 (filed herewith).
10.3 Cott Corporation Performance Share Unit Plan (filed herewith).
10.4 Cott Corporation Share Appreciation Rights Plan (filed herewith).
31.1 Certification of the President and Chief Executive Officer
pursuant to section 302 of the Sarbanes-Oxley Act of 2002 for the
quarterly period ended July 1, 2006 (filed herewith).
31.2 Certification of the Executive Vice President & Chief Financial
Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002
for the quarterly period ended July 1, 2006 (filed herewith).
32.1 Certification of the President and Chief Executive Officer
pursuant to section 906 of the Sarbanes-Oxley Act of 2002 for the
quarterly period ended July 1, 2006 (furnished herewith).
32.2 Certification of the Executive Vice President & Chief Financial
Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002
for the quarterly period ended July 1, 2006 (furnished herewith).
In accordance with SEC Release No. 33-8238, Exhibits 32.1 and 32.2 are to
be treated as "accompanying" this report rather than "filed" as part of the
report.
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COTT CORPORATION
(Registrant)
Date: August 9, 2006
/s/ B. Clyde Preslar
-----------------------------------
B. Clyde Preslar
Executive Vice President &
Chief Financial Officer
(On behalf of the Company)
Date: August 9, 2006
/s/ Tina Dell'Aquila
-----------------------------------
Tina Dell'Aquila
Vice President, Controller &
Assistant Secretary
(Principal accounting officer)
33
SCHEDULE III -- CONSOLIDATING FINANCIAL STATEMENTS
Cott Beverages Inc., a wholly owned subsidiary of Cott Corporation, has entered
into financing arrangements that are guaranteed by Cott Corporation and certain
other wholly owned subsidiaries of Cott Corporation (the "Guarantor
Subsidiaries"). Such guarantees are full, unconditional and joint and several.
The following supplemental financial information sets forth on an unconsolidated
basis, balance sheets, statements of income and cash flows for Cott Corporation,
Cott Beverages Inc., Guarantor Subsidiaries and Cott Corporation's other
subsidiaries (the "Non-guarantor Subsidiaries"). The supplemental financial
information reflects the investments of Cott Corporation and Cott Beverages Inc.
in their respective subsidiaries using the equity method of accounting.
COTT CORPORATION
CONSOLIDATING STATEMENTS OF INCOME (LOSS)
(in millions of U.S. dollars, unaudited)
FOR THE THREE MONTHS ENDED JULY 1, 2006
--------------------------------------------------------------------------------------------
NON-
COTT COTT GUARANTOR GUARANTOR ELIMINATION
CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ ------------- ------------ ------------ ------------ ------------
SALES $ 69.8 $ 309.3 $ 107.7 $ 35.1 $ (19.9) $ 502.0
Cost of sales 56.7 269.4 93.9 29.6 (19.9) 429.7
------------ ------------ ------------ ------------ ------------ ------------
GROSS PROFIT 13.1 39.9 13.8 5.5 -- 72.3
Selling, general and administrative
expenses 11.1 26.6 8.9 2.1 -- 48.7
Loss (gain) on disposal of
property, plant and equipment (0.5) 0.4 -- -- -- (0.1)
Unusual items
Restructuring and other (0.3) 0.5 0.6 -- 0.8
Asset impairments (0.3) 0.2 -- -- -- (0.1)
------------ ------------ ------------ ------------ ------------ ------------
OPERATING INCOME 3.1 12.2 4.3 3.4 -- 23.0
Other expense (income), net (0.1) 4.0 (0.4) (5.7) 2.2 --
Interest expense (income), net (0.1) 8.0 0.1 (0.5) -- 7.5
Minority interest -- -- -- 1.1 -- 1.1
------------ ------------ ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES
AND EQUITY INCOME (LOSS) 3.3 0.2 4.6 8.5 (2.2) 14.4
Income taxes 0.1 0.9 1.6 4.2 -- 6.8
Equity income (loss) 4.4 (0.8) 4.7 -- (8.3) --
------------ ------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 7.6 $ (1.5) $ 7.7 $ 4.3 $ (10.5) $ 7.6
============ ============ ============ ============ ============ ============
34
COTT CORPORATION
CONSOLIDATING STATEMENTS OF INCOME (LOSS)
(in millions of U.S. dollars, unaudited)
FOR THE SIX MONTHS ENDED JULY 1, 2006
--------------------------------------------------------------------------------------------
NON-
COTT COTT GUARANTOR GUARANTOR ELIMINATION
CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ -------------- ------------ ------------ ------------ ------------
SALES $ 113.9 $ 571.4 $ 185.4 $ 62.4 $ (36.9) $ 896.2
Cost of sales 93.4 499.1 162.7 52.9 (36.9) 771.2
------------ ------------ ------------ ------------ ------------ ------------
GROSS PROFIT 20.5 72.3 22.7 9.5 -- 125.0
Selling, general and administrative
expenses 22.5 45.8 16.4 3.9 -- 88.6
Loss (gain) on disposal of
property, plant and equipment (0.5) 0.5 -- -- -- --
Unusual items
Restructuring and other 0.2 1.6 2.6 -- 4.4
Asset impairments (0.1) 1.4 -- -- -- 1.3
------------ ------------ ------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) (1.6) 23.0 3.7 5.6 -- 30.7
Other expense (income), net (0.1) 4.6 (0.8) (0.9) (3.0) (0.2)
Interest expense (income), net (0.1) 16.0 0.1 (0.3) -- 15.7
Minority interest -- -- -- 2.1 -- 2.1
------------ ------------ ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES
AND EQUITY INCOME (LOSS) (1.4) 2.4 4.4 4.7 3.0 13.1
Income taxes 0.1 1.1 1.9 4.5 -- 7.6
Equity income (loss) 7.0 (0.3) 7.6 -- (14.3) --
------------ ------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 5.5 $ 1.0 $ 10.1 $ 0.2 $ (11.3) $ 5.5
============ ============ ============ ============ ============ ============
35
COTT CORPORATION
CONSOLIDATING BALANCE SHEETS
(in millions of U.S. dollars, unaudited)
AS OF JULY 1, 2006
--------------------------------------------------------------------------------------------
NON-
COTT COTT GUARANTOR GUARANTOR ELIMINATION
CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ -------------- ------------ ------------ ------------ ------------
ASSETS
Current assets
Cash $ 3.8 $ 0.1 $ (0.3) $ 6.2 $ -- $ 9.8
Accounts receivable 40.2 30.3 86.1 120.3 (37.3) 239.6
Inventories 24.3 86.2 45.2 6.1 -- 161.8
Prepaid expenses and other
assets 2.1 3.5 8.5 3.7 -- 17.8
Deferred income taxes -- 6.9 0.8 0.4 -- 8.1
------------ ------------ ------------ ------------ ------------ ------------
70.4 127.0 140.3 136.7 (37.3) 437.1
Property, plant and equipment 52.8 185.2 137.9 9.5 -- 385.4
Goodwill 24.6 45.9 85.3 -- -- 155.8
Intangibles and other assets 16.9 162.8 38.1 38.6 -- 256.4
Due from affiliates 65.8 81.6 175.4 41.9 (364.7) --
Investments in subsidiaries 407.3 72.0 70.2 144.0 (693.5) --
Deferred income taxes -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
$ 637.8 $ 674.5 $ 647.2 $ 370.7 $ (1,095.5) $ 1,234.7
============ ============ ============ ============ ============ ============
LIABILITIES
CURRENT LIABILITIES
Short-term borrowings $ -- $ 10.6 $ 139.5 $ -- $ -- $ 150.1
Current maturities of long-term
debt -- 0.8 -- -- -- 0.8
Accounts payable and accrued
liabilities 38.4 124.0 75.5 19.2 (40.3) 217.1
Deferred income taxes -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
38.4 135.4 215.0 19.2 (40.3) 368.0
Long-term debt -- 272.2 -- -- -- 272.2
Due to affiliates 97.1 120.1 63.5 84.0 (364.7) --
Deferred income taxes -- 40.6 19.4 9.4 -- 69.4
------------ ------------ ------------ ------------ ------------ ------------
135.5 568.3 297.9 112.6 (405.0) 709.6
------------ ------------ ------------ ------------ ------------ ------------
Minority interest -- -- -- 22.8 -- 22.8
SHAREOWNERS' EQUITY
Capital stock
Common shares 273.0 275.8 621.6 175.0 (1,072.4) 273.0
Additional paid-in-capital 23.0 -- -- -- -- 23.0
Retained earnings (deficit) 191.7 (169.6) (171.2) (4.9) 345.7 191.7
Accumulated other comprehensive
income (loss) 14.6 -- (101.4) 65.2 36.2 14.6
------------ ------------ ------------ ------------ ------------ ------------
502.3 106.2 349.3 235.3 (690.5) 502.3
------------ ------------ ------------ ------------ ------------ ------------
$ 637.8 $ 674.5 $ 647.2 $ 370.7 $ (1,095.5) $ 1,234.7
============ ============ ============ ============ ============ ============
36
COTT CORPORATION
CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions of U.S. dollars, unaudited)
FOR THE THREE MONTHS ENDED JULY 1, 2006
--------------------------------------------------------------------------------------------
NON-
COTT COTT GUARANTOR GUARANTOR ELIMINATION
CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ -------------- ------------ ------------ ------------ ------------
OPERATING ACTIVITIES
Net income (loss) $ 7.6 $ (1.5) $ 7.7 $ 4.3 $ (10.5) $ 7.6
Depreciation and amortization 2.9 9.2 5.7 1.3 -- 19.1
Amortization of financing fees -- -- 0.1 0.1 -- 0.2
Stock compensation expense 1.9 -- -- -- -- 1.9
Deferred income taxes -- 2.4 0.2 3.8 -- 6.4
Minority interest -- -- -- 1.1 -- 1.1
Equity (loss) income, net of
distributions (4.4) 1.5 (4.7) -- 7.6 --
Loss (gain) on disposal of
property, plant and equipment (0.4) 0.4 (0.1) -- -- (0.1)
Asset impairments (0.1) -- -- -- -- (0.1)
Other non-cash items (0.1) 0.3 -- -- -- 0.2
Net change in non-cash working
capital (7.2) (4.7) (5.5) (0.4) 2.2 (15.6)
------------ ------------ ------------ ------------ ------------ ------------
Cash provided by (used in)
operating activities 0.2 7.6 3.4 10.2 (0.7) 20.7
------------ ------------ ------------ ------------ ------------ ------------
INVESTING ACTIVITIES
Additions to property, plant and
equipment (0.6) (5.0) (2.7) (0.1) (8.4)
Proceeds from disposal of
property, plant and equipment 1.0 (0.4) 0.2 -- -- 0.8
Advances to affiliates (0.1) 0.1 (2.2) -- 2.2 --
Other investing activities (1.2) (2.1) -- -- -- (3.3)
------------ ------------ ------------ ------------ ------------ ------------
Cash provided by (used in)
investing activities (0.9) (7.4) (4.7) (0.1) 2.2 (10.9)
------------ ------------ ------------ ------------ ------------ ------------
FINANCING ACTIVITIES
Payments of long-term debt -- (0.3) -- -- -- (0.3)
Short-term borrowings -- (1.9) (2.8) (5.0) -- (9.7)
Advances from affiliates -- 2.1 0.1 -- (2.2) --
Distributions to subsidiary
minority shareowner -- -- -- (0.7) -- (0.7)
Dividends paid -- -- -- (0.7) 0.7 --
------------ ------------ ------------ ------------ ------------ ------------
Cash used in financing activities -- (0.1) (2.7) (6.4) (1.5) (10.7)
------------ ------------ ------------ ------------ ------------ ------------
Effect of exchange rate changes on
cash -- -- -- (0.1) -- (0.1)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH (0.7) 0.1 (4.0) 3.6 -- (1.0)
CASH, BEGINNING OF PERIOD 4.5 -- 3.7 2.6 -- 10.8
------------ ------------ ------------ ------------ ------------ ------------
CASH, END OF PERIOD $ 3.8 $ 0.1 $ (0.3) $ 6.2 $ -- $ 9.8
============ ============ ============ ============ ============ ============
37
COTT CORPORATION
CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions of U.S. dollars, unaudited)
FOR THE SIX MONTHS ENDED JULY 1, 2006
--------------------------------------------------------------------------------------------
NON-
COTT COTT GUARANTOR GUARANTOR ELIMINATION
CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ -------------- ------------ ------------ ------------ ------------
OPERATING ACTIVITIES
Net income (loss) $ 5.5 $ 1.0 $ 10.1 $ 0.2 $ (11.3) $ 5.5
Depreciation and amortization 6.0 18.7 11.1 2.6 -- 38.4
Amortization of financing fees -- 0.1 0.2 0.2 -- 0.5
Stock compensation expense 4.6 -- -- -- -- 4.6
Deferred income taxes -- 2.7 -- 3.9 -- 6.6
Minority interest -- -- -- 2.1 -- 2.1
Equity (loss) income, net of
distributions (7.0) 2.1 (7.6) -- 12.5 --
Loss (gain) on disposal of
property, plant and equipment (0.4) 0.5 (0.1) -- -- --
Asset impairments (0.1) 1.4 -- -- -- 1.3
Other non-cash items (0.1) 0.6 -- -- -- 0.5
Net change in non-cash working
capital (9.1) (17.6) (6.1) 4.4 (3.0) (31.4)
------------ ------------ ------------ ------------ ------------ ------------
Cash provided by (used in)
operating activities (0.6) 9.5 7.6 13.4 (1.8) 28.1
------------ ------------ ------------ ------------ ------------ ------------
INVESTING ACTIVITIES
Additions to property, plant and
equipment (1.3) (10.2) (5.1) (0.1) (16.7)
Proceeds from disposal of
property, plant and equipment 1.0 0.2 0.3 -- -- 1.5
Advances to affiliates (1.8) 0.1 (4.3) -- 6.0 --
Other investing activities (2.4) (3.3) -- -- -- (5.7)
------------ ------------ ------------ ------------ ------------ ------------
Cash provided by (used in)
investing activities (4.5) (13.2) (9.1) (0.1) 6.0 (20.9)
------------ ------------ ------------ ------------ ------------ ------------
FINANCING ACTIVITIES
Payments of long-term debt -- (0.5) -- -- -- (0.5)
Short-term borrowings -- 0.2 (6.9) (10.0) -- (16.7)
Advances from affiliates -- 4.2 1.8 -- (6.0) --
Distributions to subsidiary
minority shareowner -- -- -- (1.8) -- (1.8)
Dividends paid -- -- -- (1.8) 1.8 --
Other financing activities -- (0.1) -- -- -- (0.1)
------------ ------------ ------------ ------------ ------------ ------------
Cash provided by (used in)
financing activities -- 3.8 (5.1) (13.6) (4.2) (19.1)
------------ ------------ ------------ ------------ ------------ ------------
Effect of exchange rate changes on
cash 0.1 -- -- (0.1) -- --
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH (5.0) 0.1 (6.6) (0.4) -- (11.9)
CASH, BEGINNING OF PERIOD 8.8 -- 6.3 6.6 -- 21.7
------------ ------------ ------------ ------------ ------------ ------------
CASH, END OF PERIOD $ 3.8 $ 0.1 $ (0.3) $ 6.2 $ -- $ 9.8
============ ============ ============ ============ ============ ============
38
COTT CORPORATION
CONSOLIDATING STATEMENTS OF INCOME
(in millions of U.S. dollars, unaudited)
FOR THE THREE MONTHS ENDED JULY 2, 2005
--------------------------------------------------------------------------------------------
NON-
COTT COTT GUARANTOR GUARANTOR ELIMINATION
CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ -------------- ------------ ------------ ------------ ------------
SALES $ 63.4 $ 331.9 $ 70.5 $ 34.2 $ (7.3) $ 492.7
Cost of sales 52.2 277.3 61.1 28.7 (7.3) 412.0
------------ ------------ ------------ ------------ ------------ ------------
GROSS PROFIT 11.2 54.6 9.4 5.5 -- 80.7
Selling, general and administrative
expenses 9.7 18.6 5.5 1.7 -- 35.5
Loss (gain) on disposal of
property, plant and equipment -- 0.6 (0.1) -- -- 0.5
Unusual items -- asset impairments -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
OPERATING INCOME 1.5 35.4 4.0 3.8 -- 44.7
Other expense (income), net (0.6) (18.6) (0.1) 21.7 (3.0) (0.6)
Interest expense (income), net (0.1) 8.1 (2.0) 0.6 -- 6.6
Minority interest -- -- -- 1.4 -- 1.4
------------ ------------ ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES
AND EQUITY INCOME (LOSS) 2.2 45.9 6.1 (19.9) 3.0 37.3
Income taxes 0.9 10.4 1.1 (0.1) -- 12.3
Equity income (loss) 23.6 3.0 19.5 -- (46.1) --
------------ ------------ ------------ ------------ ------------ ------------
NET INCOME $ 24.9 $ 38.5 $ 24.5 $ (19.8) $ (43.1) $ 25.0
============ ============ ============ ============ ============ ============
FOR THE SIX MONTHS ENDED JULY 2, 2005
--------------------------------------------------------------------------------------------
NON-
COTT COTT GUARANTOR GUARANTOR ELIMINATION
CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ -------------- ------------ ------------ ------------ ------------
SALES $ 106.9 $ 606.5 $ 126.9 $ 61.3 $ (13.4) $ 888.2
Cost of sales 90.2 513.0 109.7 52.0 (13.4) 751.5
------------ ------------ ------------ ------------ ------------ ------------
GROSS PROFIT 16.7 93.5 17.2 9.3 -- 136.7
Selling, general and administrative
expenses 19.3 38.9 10.7 3.5 -- 72.4
Loss (gain) on disposal of
property, plant and equipment -- 0.7 (0.9) -- -- (0.2)
Unusual items -- asset impairments -- -- (0.2) -- -- (0.2)
------------ ------------ ------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) (2.6) 53.9 7.6 5.8 -- 64.7
Other expense (income), net (0.1) (19.1) 0.5 21.7 (3.0) --
Interest expense (income), net (0.1) 16.6 (3.9) 0.5 -- 13.1
Minority interest -- -- -- 2.3 -- 2.3
------------ ------------ ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES
AND EQUITY INCOME (LOSS) (2.4) 56.4 11.0 (18.7) 3.0 49.3
Income taxes (0.5) 14.5 1.7 0.3 -- 16.0
Equity income (loss) 35.1 4.7 26.8 -- (66.6) --
------------ ------------ ------------ ------------ ------------ ------------
NET INCOME $ 33.2 $ 46.6 $ 36.1 $ (19.0) $ (63.6) $ 33.3
============ ============ ============ ============ ============ ============
39
COTT CORPORATION
CONSOLIDATING BALANCE SHEETS
(in millions of U.S. dollars)
AS OF DECEMBER 31, 2005
--------------------------------------------------------------------------------------------
NON-
COTT COTT GUARANTOR GUARANTOR ELIMINATION
CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ -------------- ------------ ------------ ------------ ------------
ASSETS
Current assets
Cash $ 8.8 $ -- $ 6.3 $ 6.6 $ -- $ 21.7
Accounts receivable 35.6 26.5 70.2 103.2 (44.4) 191.1
Inventories 18.8 76.6 43.6 5.2 -- 144.2
Prepaid expenses and other 1.3 2.2 4.7 1.3 -- 9.5
Deferred income taxes -- 7.2 0.1 -- -- 7.3
------------ ------------ ------------ ------------ ------------ ------------
64.5 112.5 124.9 116.3 (44.4) 373.8
Property, plant and equipment 53.0 195.6 135.1 10.5 -- 394.2
Goodwill 23.5 46.0 80.8 -- -- 150.3
Intangibles and other assets 17.0 164.1 38.4 40.9 -- 260.4
Due from affiliates 60.8 60.0 168.8 41.9 (331.5) --
Investments in subsidiaries 395.2 75.4 62.6 137.8 (671.0) --
Deferred income taxes -- -- 0.4 -- -- 0.4
------------ ------------ ------------ ------------ ------------ ------------
$ 614.0 $ 653.6 $ 611.0 $ 347.4 $ (1,046.9) $ 1,179.1
============ ============ ============ ============ ============ ============
LIABILITIES
Current liabilities
Short-term borrowings $ -- $ 10.4 $ 137.5 $ 10.0 $ -- $ 157.9
Current maturities of long-term
debt -- 0.8 -- -- -- 0.8
Accounts payable and accrued
liabilities 36.7 109.6 63.6 17.0 (44.4) 182.5
Deferred income taxes -- -- 0.2 -- -- 0.2
------------ ------------ ------------ ------------ ------------ ------------
36.7 120.8 201.3 27.0 (44.4) 341.4
Long-term debt -- 272.3 -- -- -- 272.3
Due to affiliates 95.4 115.8 58.1 62.2 (331.5) --
Deferred income taxes -- 38.2 17.7 5.1 -- 61.0
------------ ------------ ------------ ------------ ------------ ------------
132.1 547.1 277.1 94.3 (375.9) 674.7
------------ ------------ ------------ ------------ ------------ ------------
Minority interest -- -- -- 22.5 -- 22.5
SHAREOWNERS' EQUITY
Capital stock
Common shares 273.0 275.8 599.5 175.0 (1,050.3) 273.0
Additional paid-in-capital 18.4 -- -- -- -- 18.4
Retained earnings (deficit) 186.2 (169.3) (181.4) (3.4) 354.1 186.2
Accumulated other comprehensive
income (loss) 4.3 -- (84.2) 59.0 25.2 4.3
------------ ------------ ------------ ------------ ------------ ------------
481.9 106.5 333.9 230.6 (671.0) 481.9
------------ ------------ ------------ ------------ ------------ ------------
$ 614.0 $ 653.6 $ 611.0 $ 347.4 $ (1,046.9) $ 1,179.1
============ ============ ============ ============ ============ ============
40
COTT CORPORATION
CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions of U.S. dollars, unaudited)
FOR THE THREE MONTHS ENDED JULY 2, 2005
--------------------------------------------------------------------------------------------
NON-
COTT COTT GUARANTOR GUARANTOR ELIMINATION
CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ -------------- ------------ ------------ ------------ ------------
OPERATING ACTIVITIES
Net income (loss) $ 24.9 $ 38.5 $ 24.5 $ (19.8) $ (43.1) $ 25.0
Depreciation and amortization 2.5 9.7 2.4 1.3 -- 15.9
Amortization of financing fees -- 0.2 -- 0.1 -- 0.3
Deferred income taxes 0.9 2.6 -- -- -- 3.5
Minority interest -- -- -- 1.4 -- 1.4
Equity (loss) income, net of
distributions (23.7) (1.8) (19.5) -- 45.0 --
Gain (loss) on disposal of
property, plant and equipment -- 0.6 (0.1) -- -- 0.5
Asset impairments -- -- -- -- -- --
Other non-cash items (0.3) 1.0 (0.8) (0.1) 0.5 0.3
Net change in non-cash working
capital 3.0 48.8 (28.5) (33.2) (3.4) (13.3)
------------ ------------ ------------ ------------ ------------ ------------
Cash provided by (used in)
operating activities 7.3 99.6 (22.0) (50.3) (1.0) 33.6
------------ ------------ ------------ ------------ ------------ ------------
INVESTING ACTIVITIES
Additions to property, plant and
equipment (2.6) (20.4) (3.3) (0.4) -- (26.7)
Proceeds from disposal of
property, plant and equipment -- 0.7 1.3 -- -- 2.0
Advances to affiliates (2.2) (15.0) (3.9) -- 21.1 --
Investment in subsidiary -- -- (15.0) -- 15.0 --
Other investing activities (2.6) (31.1) 30.8 (0.7) -- (3.6)
------------ ------------ ------------ ------------ ------------ ------------
Cash provided by (used in)
investing activities (7.4) (65.8) 9.9 (1.1) 36.1 (28.3)
------------ ------------ ------------ ------------ ------------ ------------
FINANCING ACTIVITIES
Payments of long-term debt -- (0.2) -- -- -- (0.2)
Short-term borrowings 3.7 (38.5) (5.7) 39.9 -- (0.6)
Advances from affiliates -- 4.0 17.2 -- (21.2) --
Distributions to subsidiary
minority shareowner -- -- -- (0.8) -- (0.8)
Issue of common shares 1.5 -- -- 15.0 (15.0) 1.5
Financing costs -- (0.5) -- -- -- (0.5)
Dividends paid -- -- -- (1.1) 1.1 --
Other financing activities -- 1.8 (1.9) -- -- (0.1)
------------ ------------ ------------ ------------ ------------ ------------
Cash provided by (used in)
financing activities 5.2 (33.4) 9.6 53.0 (35.1) (0.7)
------------ ------------ ------------ ------------ ------------ ------------
Effect of exchange rate changes on
cash 0.1 -- (0.2) -- -- (0.1)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 5.2 0.4 (2.7) 1.6 -- 4.5
CASH, BEGINNING OF PERIOD 0.3 (0.8) 9.3 2.6 -- 11.4
------------ ------------ ------------ ------------ ------------ ------------
CASH, END OF PERIOD $ 5.5 $ (0.4) $ 6.6 $ 4.2 $ -- $ 15.9
============ ============ ============ ============ ============ ============
41
COTT CORPORATION
CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions of U.S. dollars, unaudited)
FOR THE SIX MONTHS ENDED JULY 2, 2005
--------------------------------------------------------------------------------------------
NON-
COTT COTT GUARANTOR GUARANTOR ELIMINATION
CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
------------ -------------- ------------ ------------ ------------ ------------
OPERATING ACTIVITIES
Net income (loss) $ 33.2 $ 46.6 $ 36.1 $ (19.0) $ (63.6) $ 33.3
Depreciation and amortization 6.1 18.1 5.9 2.6 -- 32.7
Amortization of financing fees -- 0.2 -- 0.1 -- 0.3
Deferred income taxes (0.6) 3.7 -- 0.2 -- 3.3
Minority interest -- -- -- 2.3 -- 2.3
Equity (loss) income, net of
distributions (35.1) (2.4) (26.8) -- 64.3 --
Gain (loss) on disposal of
property, plant and equipment -- 0.7 (0.9) -- -- (0.2)
Asset impairments -- -- (0.2) -- -- (0.2)
Other non-cash items -- 0.6 0.2 0.1 -- 0.9
Net change in non-cash working
capital 17.1 49.6 (38.1) (43.3) (2.8) (17.5)
------------ ------------ ------------ ------------ ------------ ------------
Cash provided by (used in)
operating activities 20.7 117.1 (23.8) (57.0) (2.1) 54.9
------------ ------------ ------------ ------------ ------------ ------------
INVESTING ACTIVITIES
Additions to property, plant and
equipment (7.1) (37.6) (9.5) (0.6) -- (54.8)
Proceeds from disposal of
property, plant and equipment -- 0.7 1.3 -- -- 2.0
Advances to affiliates (9.8) (5.0) (3.9) -- 18.7 --
Investment in subsidiary (15.0) -- (15.0) -- 30.0 --
Other investing activities (4.1) (30.1) 30.9 (0.8) -- (4.1)
------------ ------------ ------------ ------------ ------------ ------------
Cash provided by (used in)
investing activities (36.0) (72.0) 3.8 (1.4) 48.7 (56.9)
------------ ------------ ------------ ------------ ------------ ------------
FINANCING ACTIVITIES
Payments of long-term debt -- (0.4) -- -- -- (0.4)
Short-term borrowings 3.8 (48.3) (0.9) 39.9 -- (5.5)
Advances from affiliates -- 4.0 14.8 -- (18.8) --
Distributions to subsidiary
minority shareowner -- -- -- (1.9) -- (1.9)
Issue of common shares 2.4 -- 15.0 15.0 (30.0) 2.4
Financing costs -- (2.6) -- -- -- (2.6)
Dividends paid -- -- -- (2.2) 2.2 --
Other financing activities -- 1.8 (2.0) -- -- (0.2)
------------ ------------ ------------ ------------ ------------ ------------
Cash provided by (used in)
financing activities 6.2 (45.5) 26.9 50.8 (46.6) (8.2)
------------ ------------ ------------ ------------ ------------ ------------
Effect of exchange rate changes on
cash (0.1) -- (0.3) (0.1) -- (0.5)
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH (9.2) (0.4) 6.6 (7.7) -- (10.7)
CASH, BEGINNING OF PERIOD 14.7 -- 0.1 11.8 -- 26.6
------------ ------------ ------------ ------------ ------------ ------------
CASH, END OF PERIOD $ 5.5 $ (0.4) $ 6.7 $ 4.1 $ -- $ 15.9
============ ============ ============ ============ ============ ============
42