Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
This Managements Discussion and Analysis of Financial Condition and Results of Operations
is intended to further the readers understanding of the consolidated financial condition and results of operations of our Company. It should be read in conjunction with the financial statements included in this quarterly report on Form 10-Q
and our annual report on Form 10-K for the year ended December 31, 2011 (the 2011 Annual Report). These historical financial statements may not be indicative of our future performance. This discussion contains a number of
forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks referred to under Risk Factors in Item 1A in our 2011 Annual Report.
Overview
We are one of the worlds largest producers of beverages on behalf of retailers, brand owners and distributors. Our objective of creating sustainable long-term growth in revenue and profitability is
predicated on working closely with our customers to provide proven profitable products. As a fast follower of innovative products, our goal is to identify which new products are succeeding in the marketplace and develop similar private
label, high quality products at a better value. This objective is increasingly relevant in more difficult economic times.
The
beverage market is subject to some seasonal variations. Our beverage sales are generally higher during the warmer months and also can be influenced by the timing of holidays and weather fluctuations. The purchases of our raw materials and related
accounts payable fluctuate based upon the demand for our products as well as the timing of the fruit growing season. The seasonality of our sales volume combined with the fruit growing season causes our working capital needs to fluctuate
throughout the year, with inventory levels increasing in the first half of the year in order to meet the higher summer demand, while fruit peaks during the last quarter of the year when purchases are made after the growing season. In addition, our
accounts receivable balances decline in the fall as customers pay their higher-than-average outstanding balances from the summer deliveries.
We typically operate at low margins, and therefore relatively small changes in cost structures can materially impact our results.
Ingredient and packaging costs represent a significant portion of our cost of sales. These costs are subject to global and regional commodity price trends. Our largest commodities are aluminum for cans
and ends, resin for polyethylene terephthalate bottles, preforms and caps, fruit and fruit concentrates and corn for high fructose corn syrup (HFCS). We attempt to manage our exposure to fluctuations in ingredient and packaging costs of
our products by implementing price increases as needed and entering into fixed price commitments for a portion of our ingredient and packaging requirements. We have entered into fixed price commitments for the remainder of 2012 for all of our HFCS
requirements and a majority of our forecasted aluminum and fruit requirements. We also have entered into fixed price commitments for over half of our aluminum, all of our HFCS requirements and a portion of our fruit requirements for 2013. Finally,
we have entered into fixed price commitments for a small portion of our aluminum for 2014.
On August 17, 2010, we
completed the acquisition of substantially all of the assets and liabilities of Cliffstar Corporation (Cliffstar) and its affiliated companies for approximately $503.0 million in cash, $14.0 million in deferred consideration to be paid
over three years, of which $4.7 million was paid in each of the third quarter of 2011 and the third quarter of 2012, and contingent consideration of up to $55.0 million (the Cliffstar Acquisition). The first $15.0 million of the
contingent consideration was based upon the achievement of milestones in certain expansion projects in 2010, which were achieved in 2010. The remainder of the contingent consideration was based on the achievement of certain performance measures
during the fiscal year ended January 1, 2011. The seller of Cliffstar notified us of certain objections to the performance measures used to calculate the contingent consideration, and the seller asserted a claim for amounts in excess of the
amounts accrued as contingent consideration at July 2, 2011. During the third and fourth quarters of 2011, Cott made interim payments to the seller equal to $21.0 million and $8.6 million, respectively. The payment of $21.0 million was net of a
$4.7 million refund due to Cott as a result of the final determination of working capital, and the payment of $8.6 million included $0.9 million in settlement of certain of the sellers objections to the calculation of the contingent
consideration. The sellers remaining objections to the calculation of the contingent consideration are subject to an ongoing binding arbitration process under the terms of the asset purchase agreement. The seller is seeking up to
$12.1 million in additional contingent consideration. The final resolution of these matters may result in amounts payable to the seller that vary from the amount of post-closing payments previously made to the seller of $34.3 million. We are
currently unable to predict the ultimate outcome of this action. Any changes in the fair value of contingent consideration will be recorded in our Consolidated Statements of Operations.
31
We supply Walmart and its affiliated companies, under annual non-exclusive supply
agreements, with a variety of products in the United States, Canada, United Kingdom and Mexico, including carbonated soft drinks (CSDs), clear, still and sparkling flavored waters, juice, juice-based products, bottled water, energy
drinks and ready-to-drink teas. During the first nine months of 2012, we supplied Walmart with all of its private label CSDs in the United States. If Walmart were to utilize other suppliers to fulfill a portion or all of its requirements for such
products, our operating results could be materially adversely affected. Sales to Walmart for the nine months ended September 29, 2012 and October 1, 2011 accounted for 31.3% and 31.9% of total revenue, respectively.
Summary financial results
Our net income for the three months ended September 29, 2012 (the third quarter) and the nine months ended September 29, 2012 (first nine months of 2012 or year to
date) was $14.5 million or $0.15 per diluted share and $45.5 million or $0.48 per diluted share, respectively, compared with net income of $16.2 million or $0.17 per diluted share and $49.5 million or $0.52 per diluted share for the three and
nine months ended October 1, 2011, respectively.
The following items of significance impacted our financial
results for the third quarter and first nine months of 2012:
|
|
|
our revenue decreased 2.9% year to date from the comparable prior year period due primarily to a decline in North America volume resulting from our
exit from certain low margin business and a product mix shift into juice drinks and sports drinks from 100% shelf-stable juice. Absent foreign exchange impact, revenue decreased 1.9% year to date from the comparable prior year period;
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|
|
|
our gross profit as a percentage of revenue increased to 12.5% and 13.2% for the third quarter and year to date, respectively, compared to 11.1% and
12.6%, respectively, from the comparable prior year periods due primarily to increased pricing on products and our exit from lower margin business;
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|
our filled beverage 8-ounce equivalents (beverage case volume) decreased 8.7% year to date due primarily to the exit of certain low margin
business and the general decline in the North American CSD and juice categories;
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|
our selling, general and administrative (SG&A) expenses for the first nine months of 2012 increased to $134.4 million from $128.3
million in the comparable prior year period due primarily to an increase in certain employee-related costs compared to a lowering of the annual incentive and long-term incentive accruals in the prior year;
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|
our loss on disposal of property, plant and equipment year to date was the result of the sale of a facility in each of Mexico and the U.K. and normal
operational disposals;
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|
our other income was $2.2 million year to date as a result of insurance recoveries in excess of the loss incurred on a U.S. facility in the amount of
$1.3 million and recording a bargain purchase of $0.9 million in the U.K. compared to other expense of $2.1 million in the comparable prior year period, which was the result of $1.2 million in foreign exchange effects and $0.9 million in adjustments
to the contingent consideration associated with the Cliffstar Acquisition;
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|
our interest expense decreased by $2.8 million year to date as a result of decreased debt balances held throughout the period;
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|
our income tax expense was $5.5 million year to date compared to a $1.7 million benefit in the comparable prior year period, due primarily to the
recording of $4.3 million of allowances against deferred tax assets in the U.S. that are uncertain to be realized and the lapping of a favorable tax settlement in the prior year; and
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|
our earnings before interest expense, taxes, depreciation and amortization adjusted for inventory step-up (step-down) and integration costs related to
the Cliffstar Acquisition (Adjusted EBITDA) increased 2.8% to $170.4 million year to date from $165.8 million in the comparable prior year period.
|
32
The following items of significance impacted our financial results for the third
quarter and first nine months of 2011:
|
|
|
the Cliffstar Acquisition contributed $401.7 million to revenue and $26.8 million to operating income on a year to date basis;
|
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|
our gross profit as a percentage of revenue was 11.1% and 12.6% for the third quarter and year to date, respectively, compared to 13.8% and 15.5%,
respectively, from the comparable prior year period;
|
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|
|
our revenue increased 40.1% year to date from the comparable prior year period. Absent foreign exchange impact, revenue increased 38.0% year to date
from the comparable prior year period, due primarily to the Cliffstar Acquisition;
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|
our beverage case volume increased 20.5% year to date due primarily to the Cliffstar Acquisition. Excluding the impact of the Cliffstar Acquisition,
our year to date beverage case volume increased 5.4% on a consolidated basis and 4.6% in North America;
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|
our SG&A expenses for the first nine months of 2011 increased to $128.3 million from $114.2 million in the comparable prior year period, due
primarily to the Cliffstar Acquisition, offset in part by a reduction to certain employee-related costs, information technology costs and professional fees;
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|
our interest expense increased to $43.4 million year to date from $22.6 million in the comparable prior year period due primarily to the issuance in
the prior year period of $375.0 million of senior notes that are due on September 1, 2018 (the 2018 Notes);
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|
the decrease in other expense of $1.5 million year to date was due primarily to the write-off of financing fees in the comparable prior year period;
and
|
|
|
|
our income tax benefit of $1.7 million compared to income tax expense of $13.9 million in the comparable prior year period, due primarily to lower
pretax income in the United States and Canada, the reorganization of our legal entity structure and refinancing of intercompany debt.
|
Non-GAAP Measures
In this report, we supplement our reporting of
financial measures determined in accordance with U.S. generally accepted accounting principles (GAAP) by utilizing certain non-GAAP financial measures. We exclude the impact of foreign exchange from GAAP revenues to separate the impact
of currency exchange rate changes from Cotts results of operations. Cott excludes these items to better understand trends in the business.
We also utilize earnings before interest expense, taxes, depreciation and amortization (EBITDA), which is GAAP earnings before interest expense, provision for income taxes, depreciation and
amortization. We consider EBITDA to be an indicator of operating performance. We also use EBITDA, as do analysts, lenders, investors and others, because it excludes certain items that can vary widely across different industries or among companies
within the same industry. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies. We also utilize Adjusted EBITDA as an indicator of operating
performance. Our Adjusted EBITDA excludes purchase accounting adjustments, integration expenses, restructuring and asset impairments. Adjusted EBITDA excludes these items to facilitate period-over-period comparisons of our ongoing core operations
before material charges.
Because Cott uses these adjusted financial results in the management of its business and to
understand underlying business performance, management believes this supplemental information is useful to investors for their independent evaluation and understanding of Cotts business performance and the performance of its management. The
non-GAAP financial measures described above are in addition to, and not meant to be considered superior to, or a substitute for, Cotts financial statements prepared in accordance with GAAP. In addition, the non-GAAP financial measures included
in this report reflect managements judgment of particular items, and may be different from, and therefore may not be comparable to, similarly titled measures reported by other companies.
33
The following table summarizes our Consolidated Statements of Operations as a percentage of
revenue for the three and nine months ended September 29, 2012 and October 1, 2011, respectively:
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|
|
|
|
|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
|
|
September 29, 2012
|
|
|
October 1, 2011
|
|
|
September 29, 2012
|
|
|
October 1, 2011
|
|
(in millions of U.S. dollars, except percentages)
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
Revenue, net
|
|
|
583.8
|
|
|
|
100.0
|
|
|
|
611.3
|
|
|
|
100.0
|
|
|
|
1,733.4
|
|
|
|
100.0
|
|
|
|
1,785.4
|
|
|
|
100.0
|
|
Cost of sales
|
|
|
510.6
|
|
|
|
87.5
|
|
|
|
543.7
|
|
|
|
88.9
|
|
|
|
1,504.5
|
|
|
|
86.8
|
|
|
|
1,560.2
|
|
|
|
87.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
73.2
|
|
|
|
12.5
|
|
|
|
67.6
|
|
|
|
11.1
|
|
|
|
228.9
|
|
|
|
13.2
|
|
|
|
225.2
|
|
|
|
12.6
|
|
Selling, general and administrative expenses
|
|
|
43.8
|
|
|
|
7.5
|
|
|
|
38.1
|
|
|
|
6.2
|
|
|
|
134.4
|
|
|
|
7.8
|
|
|
|
128.3
|
|
|
|
7.2
|
|
Loss on disposal of property, plant & equipment
|
|
|
0.8
|
|
|
|
0.1
|
|
|
|
0.5
|
|
|
|
0.1
|
|
|
|
1.7
|
|
|
|
0.1
|
|
|
|
0.5
|
|
|
|
0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
28.6
|
|
|
|
4.9
|
|
|
|
29.0
|
|
|
|
4.8
|
|
|
|
92.8
|
|
|
|
5.3
|
|
|
|
96.4
|
|
|
|
5.4
|
|
Other (income) expense, net
|
|
|
(1.5
|
)
|
|
|
(0.3
|
)
|
|
|
1.3
|
|
|
|
0.2
|
|
|
|
(2.2
|
)
|
|
|
(0.1
|
)
|
|
|
2.1
|
|
|
|
0.1
|
|
Interest expense, net
|
|
|
13.1
|
|
|
|
2.2
|
|
|
|
14.4
|
|
|
|
2.4
|
|
|
|
40.6
|
|
|
|
2.3
|
|
|
|
43.4
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
17.0
|
|
|
|
3.0
|
|
|
|
13.3
|
|
|
|
2.2
|
|
|
|
54.4
|
|
|
|
3.1
|
|
|
|
50.9
|
|
|
|
2.9
|
|
Income tax expense (benefit)
|
|
|
1.2
|
|
|
|
0.2
|
|
|
|
(4.0
|
)
|
|
|
(0.7
|
)
|
|
|
5.5
|
|
|
|
0.3
|
|
|
|
(1.7
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
15.8
|
|
|
|
2.8
|
|
|
|
17.3
|
|
|
|
2.9
|
|
|
|
48.9
|
|
|
|
2.8
|
|
|
|
52.6
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable to non-controlling interests
|
|
|
1.3
|
|
|
|
0.2
|
|
|
|
1.1
|
|
|
|
0.2
|
|
|
|
3.4
|
|
|
|
0.2
|
|
|
|
3.1
|
|
|
|
0.2
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributed to Cott Corporation
|
|
|
14.5
|
|
|
|
2.6
|
|
|
|
16.2
|
|
|
|
2.7
|
|
|
|
45.5
|
|
|
|
2.6
|
|
|
|
49.5
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation & amortization
|
|
|
24.7
|
|
|
|
4.2
|
|
|
|
24.0
|
|
|
|
3.9
|
|
|
|
72.2
|
|
|
|
4.2
|
|
|
|
71.4
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes our revenue and operating income (loss) by reporting segment for the three
and nine months ended September 29, 2012 and October 1, 2011, respectively:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
(in millions of U.S. dollars)
|
|
September 29, 2012
|
|
|
October 1, 2011
|
|
|
September 29, 2012
|
|
|
October 1, 2011
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
439.3
|
|
|
$
|
468.1
|
|
|
$
|
1,323.1
|
|
|
$
|
1,388.2
|
|
United Kingdom
|
|
|
125.5
|
|
|
|
124.5
|
|
|
|
356.2
|
|
|
|
336.8
|
|
Mexico
|
|
|
9.7
|
|
|
|
12.7
|
|
|
|
29.0
|
|
|
|
40.3
|
|
RCI
|
|
|
9.3
|
|
|
|
6.0
|
|
|
|
25.1
|
|
|
|
20.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
583.8
|
|
|
$
|
611.3
|
|
|
$
|
1,733.4
|
|
|
$
|
1,785.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
18.9
|
|
|
$
|
19.8
|
|
|
$
|
67.4
|
|
|
$
|
70.6
|
|
United Kingdom
|
|
|
7.8
|
|
|
|
8.3
|
|
|
|
21.5
|
|
|
|
22.7
|
|
Mexico
|
|
|
(1.0
|
)
|
|
|
(0.9
|
)
|
|
|
(3.2
|
)
|
|
|
(3.0
|
)
|
RCI
|
|
|
2.9
|
|
|
|
1.8
|
|
|
|
7.1
|
|
|
|
6.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
28.6
|
|
|
$
|
29.0
|
|
|
$
|
92.8
|
|
|
$
|
96.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues are attributed to reporting segments based on the location of the customer.
34
The following table summarizes our beverage case volume by reporting segment for the three
and nine months ended September 29, 2012 and October 1, 2011, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
(in millions of physical cases)
|
|
September 29, 2012
|
|
|
October 1, 2011
|
|
|
September 29, 2012
|
|
|
October 1, 2011
|
|
Volume - 8 oz equivalent cases - Total Beverage (including concentrate)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
190.1
|
|
|
|
207.5
|
|
|
|
573.9
|
|
|
|
620.3
|
|
United Kingdom
|
|
|
53.9
|
|
|
|
55.6
|
|
|
|
154.5
|
|
|
|
157.3
|
|
Mexico
|
|
|
6.4
|
|
|
|
8.7
|
|
|
|
19.0
|
|
|
|
28.9
|
|
RCI
|
|
|
77.5
|
|
|
|
60.2
|
|
|
|
220.2
|
|
|
|
204.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
327.9
|
|
|
|
332.0
|
|
|
|
967.6
|
|
|
|
1,010.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume - 8 oz equivalent cases - Filled Beverage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
167.3
|
|
|
|
188.1
|
|
|
|
505.6
|
|
|
|
557.3
|
|
United Kingdom
|
|
|
50.5
|
|
|
|
53.0
|
|
|
|
143.1
|
|
|
|
145.8
|
|
Mexico
|
|
|
6.4
|
|
|
|
8.7
|
|
|
|
19.0
|
|
|
|
28.9
|
|
RCI
|
|
|
0.3
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
224.5
|
|
|
|
249.8
|
|
|
|
668.0
|
|
|
|
732.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables summarize revenue and volume by product for the three and nine months ended
September 29, 2012 and October 1, 2011, respectively:
For the Three Months Ended September 29, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions of U.S. dollars)
|
|
North America
|
|
|
United Kingdom
|
|
|
Mexico
|
|
|
RCI
|
|
|
Total
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carbonated soft drinks
|
|
$
|
182.3
|
|
|
$
|
43.1
|
|
|
$
|
5.1
|
|
|
$
|
0.3
|
|
|
$
|
230.8
|
|
Juice
|
|
|
133.7
|
|
|
|
3.7
|
|
|
|
0.3
|
|
|
|
0.4
|
|
|
|
138.1
|
|
Concentrate
|
|
|
3.3
|
|
|
|
0.5
|
|
|
|
|
|
|
|
8.5
|
|
|
|
12.3
|
|
All other products
|
|
|
120.0
|
|
|
|
78.2
|
|
|
|
4.3
|
|
|
|
0.1
|
|
|
|
202.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
439.3
|
|
|
$
|
125.5
|
|
|
$
|
9.7
|
|
|
$
|
9.3
|
|
|
$
|
583.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 29, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions of physical cases)
|
|
North America
|
|
|
United Kingdom
|
|
|
Mexico
|
|
|
RCI
|
|
|
Total
|
|
Volume - 8 oz equivalent cases - Total Beverage (including concentrate)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carbonated soft drinks
|
|
|
77.0
|
|
|
|
22.7
|
|
|
|
3.7
|
|
|
|
0.1
|
|
|
|
103.5
|
|
Juice
|
|
|
30.1
|
|
|
|
1.0
|
|
|
|
0.4
|
|
|
|
0.2
|
|
|
|
31.7
|
|
Concentrate
|
|
|
22.8
|
|
|
|
3.4
|
|
|
|
|
|
|
|
77.2
|
|
|
|
103.4
|
|
All other products
|
|
|
60.2
|
|
|
|
26.8
|
|
|
|
2.3
|
|
|
|
|
|
|
|
89.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
190.1
|
|
|
|
53.9
|
|
|
|
6.4
|
|
|
|
77.5
|
|
|
|
327.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 29, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions of U.S. dollars)
|
|
North America
|
|
|
United Kingdom
|
|
|
Mexico
|
|
|
RCI
|
|
|
Total
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carbonated soft drinks
|
|
$
|
533.3
|
|
|
$
|
121.8
|
|
|
$
|
16.4
|
|
|
$
|
0.3
|
|
|
$
|
671.8
|
|
Juice
|
|
|
406.9
|
|
|
|
10.5
|
|
|
|
0.7
|
|
|
|
1.1
|
|
|
|
419.2
|
|
Concentrate
|
|
|
9.6
|
|
|
|
1.8
|
|
|
|
|
|
|
|
23.6
|
|
|
|
35.0
|
|
All other products
|
|
|
373.3
|
|
|
|
222.1
|
|
|
|
11.9
|
|
|
|
0.1
|
|
|
|
607.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,323.1
|
|
|
$
|
356.2
|
|
|
$
|
29.0
|
|
|
$
|
25.1
|
|
|
$
|
1,733.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
For the Nine Months Ended September 29, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions of physical cases)
|
|
North America
|
|
|
United Kingdom
|
|
|
Mexico
|
|
|
RCI
|
|
|
Total
|
|
Volume - 8 oz equivalent cases - Total Beverage (including concentrate)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carbonated soft drinks
|
|
|
235.2
|
|
|
|
63.8
|
|
|
|
11.6
|
|
|
|
0.1
|
|
|
|
310.7
|
|
Juice
|
|
|
92.6
|
|
|
|
2.8
|
|
|
|
0.7
|
|
|
|
0.2
|
|
|
|
96.3
|
|
Concentrate
|
|
|
68.3
|
|
|
|
11.4
|
|
|
|
|
|
|
|
219.9
|
|
|
|
299.6
|
|
All other products
|
|
|
177.8
|
|
|
|
76.5
|
|
|
|
6.7
|
|
|
|
|
|
|
|
261.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
573.9
|
|
|
|
154.5
|
|
|
|
19.0
|
|
|
|
220.2
|
|
|
|
967.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended October 1, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions of U.S. dollars)
|
|
North America
|
|
|
United Kingdom
|
|
|
Mexico
|
|
|
RCI
|
|
|
Total
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carbonated soft drinks
|
|
$
|
192.8
|
|
|
$
|
47.5
|
|
|
$
|
9.6
|
|
|
$
|
|
|
|
$
|
249.9
|
|
Juice
|
|
|
144.1
|
|
|
|
3.4
|
|
|
|
0.7
|
|
|
|
|
|
|
|
148.2
|
|
Concentrate
|
|
|
2.5
|
|
|
|
0.7
|
|
|
|
|
|
|
|
6.0
|
|
|
|
9.2
|
|
All other products
|
|
|
128.7
|
|
|
|
72.9
|
|
|
|
2.4
|
|
|
|
|
|
|
|
204.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
468.1
|
|
|
$
|
124.5
|
|
|
$
|
12.7
|
|
|
$
|
6.0
|
|
|
$
|
611.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended October 1, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions of physical cases)
|
|
North America
|
|
|
United Kingdom
|
|
|
Mexico
|
|
|
RCI
|
|
|
Total
|
|
Volume - 8 oz equivalent cases - Total Beverage (including concentrate)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carbonated soft drinks
|
|
|
90.9
|
|
|
|
25.5
|
|
|
|
6.0
|
|
|
|
|
|
|
|
122.4
|
|
|
|
|
|
|
|
Juice
|
|
|
32.5
|
|
|
|
1.0
|
|
|
|
0.8
|
|
|
|
|
|
|
|
34.3
|
|
|
|
|
|
|
|
Concentrate
|
|
|
19.5
|
|
|
|
2.6
|
|
|
|
|
|
|
|
60.2
|
|
|
|
82.3
|
|
|
|
|
|
|
|
All other products
|
|
|
64.6
|
|
|
|
26.5
|
|
|
|
1.9
|
|
|
|
|
|
|
|
93.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
207.5
|
|
|
|
55.6
|
|
|
|
8.7
|
|
|
|
60.2
|
|
|
|
332.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended October 1, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions of U.S. dollars)
|
|
North America
|
|
|
United Kingdom
|
|
|
Mexico
|
|
|
RCI
|
|
|
Total
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carbonated soft drinks
|
|
$
|
549.8
|
|
|
$
|
134.4
|
|
|
$
|
31.2
|
|
|
$
|
|
|
|
$
|
715.4
|
|
Juice
|
|
|
456.3
|
|
|
|
9.6
|
|
|
|
2.4
|
|
|
|
|
|
|
|
468.3
|
|
Concentrate
|
|
|
6.8
|
|
|
|
2.4
|
|
|
|
|
|
|
|
20.1
|
|
|
|
29.3
|
|
All other products
|
|
|
375.3
|
|
|
|
190.4
|
|
|
|
6.7
|
|
|
|
|
|
|
|
572.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,388.2
|
|
|
$
|
336.8
|
|
|
$
|
40.3
|
|
|
$
|
20.1
|
|
|
$
|
1,785.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended October 1, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions of physical cases)
|
|
North America
|
|
|
United Kingdom
|
|
|
Mexico
|
|
|
RCI
|
|
|
Total
|
|
Volume - 8 oz equivalent cases - Total Beverage (including concentrate)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carbonated soft drinks
|
|
|
262.0
|
|
|
|
73.2
|
|
|
|
20.5
|
|
|
|
|
|
|
|
355.7
|
|
Juice
|
|
|
104.4
|
|
|
|
2.7
|
|
|
|
2.1
|
|
|
|
|
|
|
|
109.2
|
|
Concentrate
|
|
|
63.1
|
|
|
|
11.4
|
|
|
|
|
|
|
|
204.3
|
|
|
|
278.8
|
|
All other products
|
|
|
190.8
|
|
|
|
70.0
|
|
|
|
6.3
|
|
|
|
|
|
|
|
267.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
620.3
|
|
|
|
157.3
|
|
|
|
28.9
|
|
|
|
204.3
|
|
|
|
1,010.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
Results of operations
The following tables summarize the change in revenue by reporting segment for the three and nine months ended September 29, 2012 and October 1,
2011, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
(in millions of U.S. dollars, except percentages)
|
|
September 29, 2012
|
|
|
|
Cott
|
|
|
North
America
|
|
|
United
Kingdom
|
|
|
Mexico
|
|
|
RCI
|
|
Change in revenue
|
|
$
|
(27.5
|
)
|
|
$
|
(28.8
|
)
|
|
$
|
1.0
|
|
|
$
|
(3.0
|
)
|
|
$
|
3.3
|
|
Impact of foreign exchange
1
|
|
|
5.5
|
|
|
|
1.6
|
|
|
|
2.9
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change excluding foreign exchange
|
|
$
|
(22.0
|
)
|
|
$
|
(27.2
|
)
|
|
$
|
3.9
|
|
|
$
|
(2.0
|
)
|
|
$
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage change in revenue
|
|
|
-4.5
|
%
|
|
|
-6.2
|
%
|
|
|
0.8
|
%
|
|
|
-23.6
|
%
|
|
|
55.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage change in revenue excluding foreign exchange
|
|
|
-3.6
|
%
|
|
|
-5.8
|
%
|
|
|
3.1
|
%
|
|
|
-15.7
|
%
|
|
|
55.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
(in millions of U.S. dollars, except percentages)
|
|
September 29, 2012
|
|
|
|
Cott
|
|
|
North
America
|
|
|
United
Kingdom
|
|
|
Mexico
|
|
|
RCI
|
|
Change in revenue
|
|
$
|
(52.0
|
)
|
|
$
|
(65.1
|
)
|
|
$
|
19.4
|
|
|
$
|
(11.3
|
)
|
|
$
|
5.0
|
|
|
|
|
|
|
|
Impact of foreign exchange
1
|
|
|
17.2
|
|
|
|
5.0
|
|
|
|
8.3
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change excluding foreign exchange
|
|
$
|
(34.8
|
)
|
|
$
|
(60.1
|
)
|
|
$
|
27.7
|
|
|
$
|
(7.4
|
)
|
|
$
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage change in revenue
|
|
|
-2.9
|
%
|
|
|
-4.7
|
%
|
|
|
5.8
|
%
|
|
|
-28.0
|
%
|
|
|
24.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage change in revenue excluding foreign exchange
|
|
|
-1.9
|
%
|
|
|
-4.3
|
%
|
|
|
8.2
|
%
|
|
|
-18.4
|
%
|
|
|
24.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Impact of foreign exchange is the difference between the current years revenue translated utilizing the current years average foreign
exchange rates less the current years revenue translated utilizing the prior years average foreign exchange rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
(in millions of U.S. dollars, except percentages)
|
|
October 1, 2011
|
|
|
|
Cott
|
|
|
North
America
|
|
|
United
Kingdom
|
|
|
Mexico
|
|
|
RCI
|
|
Change in revenue
|
|
$
|
124.4
|
|
|
$
|
96.3
|
|
|
$
|
27.9
|
|
|
$
|
0.3
|
|
|
$
|
(0.1
|
)
|
|
|
|
|
|
|
Impact of foreign exchange
1
|
|
|
(7.0
|
)
|
|
|
(2.7
|
)
|
|
|
(3.8
|
)
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change excluding foreign exchange
|
|
$
|
117.4
|
|
|
$
|
93.6
|
|
|
$
|
24.1
|
|
|
$
|
(0.2
|
)
|
|
$
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage change in revenue
|
|
|
25.5
|
%
|
|
|
25.9
|
%
|
|
|
28.9
|
%
|
|
|
2.4
|
%
|
|
|
-1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage change in revenue excluding foreign exchange
|
|
|
24.1
|
%
|
|
|
25.2
|
%
|
|
|
24.9
|
%
|
|
|
-1.6
|
%
|
|
|
-1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
(in millions of U.S. dollars, except percentages)
|
|
October 1, 2011
|
|
|
|
Cott
|
|
|
North
America
|
|
|
United
Kingdom
|
|
|
Mexico
|
|
|
RCI
|
|
Change in revenue
|
|
$
|
510.9
|
|
|
$
|
452.4
|
|
|
$
|
59.3
|
|
|
$
|
2.0
|
|
|
$
|
(2.8
|
)
|
|
|
|
|
|
|
Impact of foreign exchange
1
|
|
|
(26.0
|
)
|
|
|
(7.9
|
)
|
|
|
(15.9
|
)
|
|
|
(2.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change excluding foreign exchange
|
|
$
|
484.9
|
|
|
$
|
444.5
|
|
|
$
|
43.4
|
|
|
$
|
(0.2
|
)
|
|
$
|
(2.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage change in revenue
|
|
|
40.1
|
%
|
|
|
48.3
|
%
|
|
|
21.4
|
%
|
|
|
5.2
|
%
|
|
|
-12.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage change in revenue excluding foreign exchange
|
|
|
38.0
|
%
|
|
|
47.5
|
%
|
|
|
15.6
|
%
|
|
|
-0.5
|
%
|
|
|
-12.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Impact of foreign exchange is the difference between the current years revenue translated utilizing the current years average foreign
exchange rates less the current years revenue translated utilizing the prior years average foreign exchange rates.
|
37
The following table summarizes our EBITDA and Adjusted EBITDA for the three and nine months
ended September 29, 2012 and October 1, 2011, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
(in millions of U.S. dollars)
|
|
September 29, 2012
|
|
|
October 1, 2011
|
|
|
September 29, 2012
|
|
|
October 1, 2011
|
|
|
|
|
|
|
Net income attributed to Cott Corporation
|
|
$
|
14.5
|
|
|
$
|
16.2
|
|
|
$
|
45.5
|
|
|
$
|
49.5
|
|
Interest expense, net
|
|
|
13.1
|
|
|
|
14.4
|
|
|
|
40.6
|
|
|
|
43.4
|
|
Income tax expense (benefit)
|
|
|
1.2
|
|
|
|
(4.0
|
)
|
|
|
5.5
|
|
|
|
(1.7
|
)
|
Depreciation & amortization
|
|
|
24.7
|
|
|
|
24.0
|
|
|
|
72.2
|
|
|
|
71.4
|
|
Net income attributable to non-controlling interests
|
|
|
1.3
|
|
|
|
1.1
|
|
|
|
3.4
|
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
54.8
|
|
|
$
|
51.7
|
|
|
$
|
167.2
|
|
|
$
|
165.7
|
|
|
|
|
|
|
Acquisition adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnout adjustment
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
|
|
0.9
|
|
Inventory step-up (step-down)
|
|
|
|
|
|
|
0.3
|
|
|
|
0.1
|
|
|
|
(3.8
|
)
|
Integration costs
|
|
|
1.3
|
|
|
|
1.9
|
|
|
|
3.1
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
56.1
|
|
|
$
|
54.8
|
|
|
$
|
170.4
|
|
|
$
|
165.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
Revenue decreased $27.5 million or 4.5% and $52.0 million or 2.9% in the
third quarter and year to date, respectively, from the comparable prior year periods. Excluding the impact of foreign exchange, revenue decreased 3.6% and 1.9% in the third quarter and year to date, respectively, from the comparable prior year
periods.
North America revenue decreased $28.8 million or 6.2% and $65.1 million or 4.7% in the third quarter and year to
date, respectively, from the comparable prior year periods due primarily to an 8.4% and 7.5% decrease in beverage case volume in the third quarter and year to date, respectively, from the comparable prior year periods. Net selling price per beverage
case (which is net revenue divided by beverage case volume) increased 2.4% and 3.0% in the third quarter and year to date, respectively, from the comparable prior year periods. The increase in net selling price per beverage case was due primarily to
a price increase implemented to mitigate rising commodity costs and was more than offset by our exit from certain low gross margin business and a product mix shift into sports drinks from 100% shelf-stable juice.
U.K. revenue increased $1.0 million or 0.8% and $19.4 million or 5.8% in the third quarter and year to date, respectively, from the
comparable prior year periods due primarily to continued improvement in product mix and growth in the wholesale channel. Net selling price per beverage case increased 4.0% and 7.7% in the third quarter and year to date, respectively, from the
comparable prior year periods due primarily to price increases implemented to mitigate rising commodity costs and an improved product mix. Absent foreign exchange impact, U.K. revenue increased 3.1% and 8.2% in the third quarter and year to date,
respectively, from the comparable prior year periods.
Mexico revenue decreased $3.0 million or 23.6% and $11.3 million or
28.0% in the third quarter and year to date, respectively, from the comparable prior year periods due primarily to the non-renewal of a regional brand license. As a result of the current product mix, Mexico saw an increase in net selling price per
beverage case of 3.8% and 9.5% in the third quarter and year to date, respectively. Absent foreign exchange impact, Mexico revenue decreased 15.7% and 18.4% in the third quarter and year to date, respectively, from the comparable prior year periods.
RCI revenue increased $3.3 million or 55.0% and $5.0 million or 24.9% in the third quarter and year to date, respectively,
from the comparable prior year periods. Concentrate volume increased 28.4% and 7.6% in the third quarter and year to date, respectively, from the comparable prior year periods due primarily to increased shipments to Asia and South America. Net
selling price per case increased 20.4% and 15.9% in the third quarter and year to date, respectively, from the comparable prior year periods. RCI primarily sells concentrate.
Cost of Sales
Cost of sales represented 87.5% and 86.8% of revenue in the third quarter and year to date, respectively, compared to 88.9% and 87.4% in the comparable prior year
periods. The decrease in cost of sales as a percentage of revenue in the third quarter was due primarily to the price increases implemented to mitigate rising commodity costs and an improved product mix. Variable costs represented 76.7% and 76.0% of
revenue in the third quarter and year to date, respectively, compared to 78.9% and 77.3% in the comparable prior year periods. Major elements of these variable costs included ingredient and packaging costs, distribution costs and fees paid to
third-party manufacturers.
Gross Profit
Gross profit as a percentage of revenue increased to 12.5% and
13.2% in the third quarter and year to date, respectively, from 11.1% and 12.6% in the comparable prior year periods, due primarily to increased pricing on products and our exit from certain low gross margin business.
38
Selling, General and Administrative Expenses
SG&A increased $5.7
million or 15.4% and $6.1 million or 4.8% in the third quarter and year to date, respectively, from the comparable prior year periods. The increase was due primarily to an increase of certain employee-related costs compared to a lowering of the
annual incentive and long-term incentive accruals from the comparable prior year periods. As a percentage of revenue, SG&A increased to 7.5% and 7.8% in the third quarter and year to date from 6.2% and 7.2% in the comparable prior year periods.
Operating Income
Operating income was $28.6 million and $92.8 million in the third quarter and year to
date, respectively, compared to $29.0 million and $96.4 million, respectively, in the comparable prior year periods. The decrease in the third quarter and year to date was due primarily to lower overall sales relative to the prior year periods, as
well as higher SG&A costs, offset partly by higher gross profit as a percentage of revenue.
Other (Income) Expense
Other income was $1.5 million and $2.2 million in the third quarter and year to date, respectively, compared to other expense of $1.3 million and $2.1 million, respectively, in the comparable prior year periods. The increase year to
date was due to insurance recoveries in excess of the loss incurred on a U.S. facility in the amount of $1.3 million and a gain on bargain purchase in the amount of $0.9 million in the U.K. There was not a significant impact from foreign exchange
rates.
Income Tax Expense (Benefit)
Income tax expense was $1.2 million and $5.5 million in the third
quarter and year to date, respectively, compared to a benefit of $4.0 million and $1.7 million, respectively, in the comparable prior year periods. The year to date increase was due primarily to the recording of $4.3 million of allowances against
deferred tax assets in the U.S. that are uncertain to be realized and the lapping of a favorable tax settlement in the prior year. Due to the global restructuring during the second quarter of 2011 our annual effective tax rate is expected to be
lower than the statutory rate for the current year.
Liquidity and Financial Condition
The following table summarizes our cash flows for the three and nine months ended September 29, 2012 and October 1, 2011,
respectively, as reported in our Consolidated Statements of Cash Flows in the accompanying Consolidated Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
(in millions of U.S. dollars)
|
|
September 29, 2012
|
|
|
October 1, 2011
|
|
|
September 29, 2012
|
|
|
October 1, 2011
|
|
Net cash provided by operating activities
|
|
$
|
58.0
|
|
|
$
|
63.9
|
|
|
$
|
53.0
|
|
|
$
|
59.6
|
|
Net cash used in investing activities
|
|
|
(15.9
|
)
|
|
|
(35.2
|
)
|
|
|
(61.0
|
)
|
|
|
(62.7
|
)
|
Net cash used in financing activities
|
|
|
(3.3
|
)
|
|
|
(23.3
|
)
|
|
|
(7.6
|
)
|
|
|
(17.0
|
)
|
Effect of exchange rate changes on cash
|
|
|
2.2
|
|
|
|
(1.2
|
)
|
|
|
2.8
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash & cash equivalents
|
|
|
41.0
|
|
|
|
4.2
|
|
|
|
(12.8
|
)
|
|
|
(20.0
|
)
|
Cash & cash equivalents, beginning of period
|
|
|
47.1
|
|
|
|
24.0
|
|
|
|
100.9
|
|
|
|
48.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash & cash equivalents, end of period
|
|
$
|
88.1
|
|
|
$
|
28.2
|
|
|
$
|
88.1
|
|
|
$
|
28.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial and Capital Resources and Liquidity
As of September 29, 2012, we had total debt of $606.1 million and $88.1 million of cash and cash equivalents compared to $609.3
million of debt and $28.2 million of cash and cash equivalents as of October 1, 2011.
We believe that our level of
resources, which includes cash on hand, available borrowings under our asset-based lending credit facility (the ABL facility) and funds provided by operations, will be adequate to meet our expenses, capital expenditures, and debt service
obligations for the next twelve months. We have maintained adequate liquidity to meet current working capital requirements, fund capital expenditures and make scheduled principal and interest payments on debt. Absent deterioration of market
conditions, we believe that cash flows from operating activities and financing activities will provide adequate resources to satisfy working capital, scheduled principal and interest payments on debt, and anticipated capital expansion requirements
for both short-term and long-term capital needs, as well as the payment of future dividends. For periods extending beyond twelve months, we believe that our ability to generate cash to meet our expenses and debt service obligations and to otherwise
reduce our debt as anticipated will depend primarily on our ability to retain a substantial amount of volume from our key customers and maintain the profitability of our business. If we do not generate sufficient cash from operations or have excess
debt availability to meet our expenses and debt service obligations or if the ABL facility, the 8.375% senior notes that are due on November 15, 2017 (the 2017 Notes) or the 2018 Notes were to become currently due, either at
maturity or as a result of a breach, we may be required to take actions such as amending our ABL facility, the indenture governing the 2017 Notes, or the indenture governing the 2018 Notes, refinancing all or part of our existing debt, selling
assets, incurring additional indebtedness or raising equity. If we need to seek additional financing, there is no assurance that this additional financing will be available on favorable terms or at all.
39
Should we desire to consummate significant acquisition opportunities or undertake
significant expansion activities, our capital needs would increase and could result in our needing to borrow available amounts under the ABL facility, increase available borrowings under our ABL facility or access public or private debt or equity
markets.
As of September 29, 2012, our total availability under the ABL facility was $275.0 million, which was based on
our borrowing base (accounts receivable, inventory and fixed assets) as of October 15, 2012 (the September month-end under the terms of the credit agreement governing our ABL facility), and we had no ABL borrowings outstanding and $11.0 million
in outstanding letters of credit. As a result, our excess availability under the ABL facility was $264.0 million. Each months borrowing base is not effective until submitted to the lenders, which usually occurs on the fifteenth day of the
following month.
We may, from time to time, depending on market conditions, including without limitation whether the 2017
Notes or 2018 Notes are then trading at discounts to their respective face amounts, repurchase the 2017 Notes or 2018 Notes for cash and/or in exchange for shares of our common stock, warrants, preferred stock, debt or other consideration, in each
case in open market purchases and/or privately negotiated transactions. The amounts involved in any such transactions, individually or in the aggregate, may be material. However, the covenants in our ABL facility subject such purchases to certain
limitations and conditions.
Operating activities
Cash provided by operating activities was $53.0 million year to date compared to $59.6 million in the comparable prior year period. The $6.6 million decrease was due primarily to the timing of inventory,
prepaids and accounts payable payments, offset in part by accounts receivable receipts and income tax recoveries.
Investing activities
Cash used in investing activities was $61.0 million year to date compared to $62.7 million in the comparable prior year
period. The $1.7 million decrease was due primarily to not making any contingent consideration payments in 2012, the sale of two facilities, and the recovery of insurance proceeds on a third facility, offset in part by increased capital expenditure
investments and the acquisition of a beverage and wholesale business in our U.K. reporting segment. The prior year period included contingent consideration payments of $21.0 million paid in connection with the Cliffstar Acquisition.
Financing activities
Cash used in financing activities was $7.6 million year to date compared to $17.0 million in the comparable prior year period. The $9.4
million decrease was due primarily to ABL borrowings in the prior year period.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as defined under Item 303(a)(4) of Regulation S-K as of September 29, 2012.
Contractual Obligations
We have no material changes to the disclosure on this matter made in our Annual Report on Form 10-K for the year ended December 31,
2011.
Debt
Asset Based
Lending Credit Facility
On March 31, 2008, we entered into a credit agreement with JPMorgan Chase Bank N.A. as Agent
that created an ABL facility to provide financing for our North America, U.K. and Mexico reporting segments. In connection with the Cliffstar Acquisition, we refinanced the ABL facility on August 17, 2010 to, among other things, provide for the
Cliffstar Acquisition, the issuance of the 2018 Notes and the application of net proceeds therefrom, the underwritten public offering of 13,340,000 common shares at a price of $5.67 per share and the application of net proceeds therefrom, and to
increase the amount available for borrowings to $275.0 million. We drew down a portion of the indebtedness under the ABL facility in order to fund the Cliffstar Acquisition. We incurred $5.4 million of financing fees in connection with the
refinancing of the ABL facility.
On July 19, 2012, we amended the ABL facility to, among other things, extend the
maturity date to either July 19, 2017 or, if we have not redeemed, repurchased or refinanced the 2017 Notes by May 1, 2017, May 15, 2017. We incurred $1.2 million of financing fees in connection with the amendment of the ABL
facility.
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The financing fees incurred in connection with the refinancing of the ABL facility on
August 17, 2010, along with the financing fees incurred in connection with the amendment of the ABL facility on July 19, 2012, are being amortized using the straight line method over the duration of the amended ABL facility.
As of September 29, 2012, we had no outstanding borrowings under the ABL facility. The commitment fee was 0.375% per annum of
the unused commitment, which, taking into account $11.0 million of letters of credit, was $264.0 million as of September 29, 2012.
8.125% Senior Notes due in 2018
On August 17, 2010, we issued $375.0 million of the 2018 Notes. The issuer of the 2018 Notes is our wholly-owned subsidiary Cott Beverages Inc., but Cott Corporation and most of its U.S., Canadian
and U.K. subsidiaries guarantee the 2018 Notes. The interest on the 2018 Notes is payable semi-annually on
March 1
st
and September 1
st
of each year.
We incurred $8.6 million of financing fees in connection with the 2018 Notes. The financing fees are being amortized using the effective
interest method over an eight-year period, which represents the duration of the 2018 Notes.
8.375% Senior Notes due in 2017
On November 13, 2009, we issued $215.0 million of the 2017 Notes. The 2017 Notes were issued at
a $3.1 million discount. The issuer of the 2017 Notes is our wholly-owned subsidiary Cott Beverages Inc., but Cott Corporation and most of its U.S., Canadian and U.K. subsidiaries guarantee the 2017 Notes. The interest on the 2017 Notes is payable
semi-annually on May 15
th
and November 15
th
of each year.
We incurred $5.1 million of financing fees in connection with the 2017 Notes. The financing fees are being amortized using the effective
interest method over an eight-year period, which represents the duration of the 2017 Notes.
Credit Ratings and Covenant Compliance
Credit Ratings
On September 26, 2012, Standard & Poors raised its long-term corporate credit rating on Cott and its rating on the 2017 Notes and 2018 Notes to B+ from B.
The rating outlook remains at stable.
On September 26, 2012, Moodys raised Cotts rating outlook
to positive from stable, affirmed its long-term corporate credit rating on Cott at B2 and affirmed its rating on the 2017 Notes and 2018 Notes at B3.
Covenant Compliance
ABL
Facility
Under the credit agreement governing the ABL facility, Cott Corporation and its restricted subsidiaries are
subject to a number of business and financial covenants, including a covenant requiring a minimum fixed charge coverage ratio of at least 1.1 to 1.0 effective when and if excess availability is less than the greater of (a) $30.0 million and
(b) the lesser of (i) 12.5% of the amount of the aggregate borrowing base or (ii) $37.5 million. If availability is less than $37.5 million, the lenders will take dominion over the cash and will apply excess cash to reduce amounts
owing under the facility.
On July 19, 2012, we, and the other parties to the ABL facility, agreed to amend the ABL
facility to, among other things (a) extend the maturity date to either July 19, 2017 or, if we have not redeemed, repurchased or refinanced the 2017 Notes by May 1, 2017, May 15, 2017, (b) change the threshold at which
the springing minimum fixed charge coverage ratio would be tested, which threshold will now be met if excess availability is less than the greater of 10% of the lenders commitments under the revolving credit facility (the Revolver)
or $27.5 million, and (c) change the threshold at which the springing cash dominion provision would become effective, which threshold will now be met if excess availability is less than the greater of 12.5% of the lenders commitments
under the Revolver or $34.375 million. Although the minimum fixed charge coverage ratio was not triggered as of September 29, 2012, the ratio as calculated under this covenant was greater than 1.1 to 1.0. We were in compliance with all of the
applicable covenants under the ABL facility as of September 29, 2012.
8.125% Senior Notes due in 2018
Under the indenture governing the 2018 Notes, we are subject to a number of covenants, including covenants that limit our and certain of
our subsidiaries ability, subject to certain exceptions and qualifications, to (i) pay dividends or make distributions, repurchase equity securities, prepay subordinated debt or make certain investments, (ii) incur additional debt or
issue certain disqualified stock or preferred stock, (iii) create or incur liens on assets securing indebtedness, (iv) merge or consolidate with another company or sell all or substantially all of our assets taken as a whole,
(v) enter into transactions with affiliates and (vi) sell assets. We have been in compliance with all of the covenants under the 2018 Notes and there have been no amendments to any such covenants since the 2018 Notes were issued.
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8.375% Senior Notes due in 2017
Under the indenture governing the 2017 Notes, we are subject to a number of covenants, including covenants that limit our and certain of
our subsidiaries ability, subject to certain exceptions and qualifications, to (i) pay dividends or make distributions, repurchase equity securities, prepay subordinated debt or make certain investments, (ii) incur additional debt or
issue certain disqualified stock or preferred stock, (iii) create or incur liens on assets securing indebtedness, (iv) merge or consolidate with another company or sell all or substantially all of our assets taken as a whole,
(v) enter into transactions with affiliates and (vi) sell assets. We have been in compliance with all of the covenants under the 2017 Notes and there have been no amendments to any such covenants since the 2017 Notes were issued.
Common Share Repurchase Program
On May 1, 2012, our Board of Directors authorized the repurchase of up to $35.0 million of our common shares in the open market or through privately negotiated transactions over a 12-month period
through either a 10b5-1 automatic trading plan or at managements discretion in compliance with regulatory requirements, and given market, cost and other considerations. We are unable to predict the number of shares that will be repurchased
under the share repurchase program, or the aggregate dollar amount of the shares actually purchased. We may discontinue purchases at any time, subject to compliance with applicable regulatory requirements. During the second quarter of 2012, we
repurchased 35,272 common shares for approximately $0.3 million through open market transactions. No repurchases were made during the three months ended September 29, 2012.
Capital Structure
Since December 31, 2011, our equity has increased
by $62.0 million. The increase was the result of net income of $45.5 million, share-based compensation expense of $3.5 million, and other comprehensive income of $13.3 million, partly offset by common share repurchases of $0.3 million.
Dividend Payments
There
are certain restrictions on the payment of dividends under our ABL facility and under the indentures governing the 2017 Notes and 2018 Notes. No dividend payments were made during the first nine months of 2012 or in 2011. On October 31, 2012,
the Board of Directors declared a dividend of CAD $0.06 per share on common shares, payable in cash on December 20, 2012 to shareowners of record at the close of business on December 4, 2012. Cott intends to pay a regular quarterly
dividend on its common shares subject to, among other things, the best interests of its shareowners, Cotts results of operations, cash balances and future cash requirements, financial condition, statutory regulations and covenants set forth in
the ABL facility and indentures governing the 2017 Notes and 2018 Notes, as well as other factors that the Board of Directors may deem relevant from time to time.
Critical Accounting Policies and Estimates
Our critical accounting
policies require management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and the accompanying notes. These estimates are based on historical experience, the advice of external experts or
other assumptions that management believes to be reasonable. Where actual amounts differ from estimates, revisions are included in the results for the period in which actual amounts become known. Historically, differences between estimated and
actual amounts have not had a significant impact on our consolidated financial statements.
Critical accounting policies and
estimates used to prepare the financial statements are discussed with our Audit Committee as they are implemented and on an annual basis.
We have no material changes to our Critical Accounting Policies and Estimates disclosure as filed in our Annual Report on Form 10-K for the year ended December 31, 2011.
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Forward-looking Statements
In addition to historical information, this report may contain statements relating to future events and 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 involve known and unknown risks, uncertainties, future expectations and other factors that may cause actual results, performance or achievements of Cott
Corporation to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such statements 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, endeavor,
estimate, expect, intend, may, will, 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 reflect current expectations regarding future events and operating performance and are made only as of the date of this report.
The forward-looking statements are not guarantees of future performance or events and, by their nature, are based on certain
estimates and assumptions regarding interest and foreign exchange rates, expected growth, results of operations, performance, business prospects and opportunities and effective income tax rates, which are subject to inherent risks and uncertainties.
Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in forward-looking statements may include, but are not limited to, assumptions regarding managements current plans and estimates, our
ability to remain a low cost supplier, and effective management of commodity costs. 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 prove to 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. These risks and uncertainties include, but are not limited to, those described in Part I, Item 1A. Risk Factors in our Annual Report on Form
10-K for the year ended December 31, 2011, and those described from time to time in our future reports filed with the Securities and Exchange Commission (SEC) and Canadian securities regulatory authorities.
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:
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our ability to compete successfully in the highly competitive beverage category;
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changes in consumer tastes and preferences for existing products and our ability to develop and timely launch new products that appeal to such changing
consumer tastes and preferences;
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loss of or a reduction in business with key customers, particularly Walmart;
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fluctuations in commodity prices and our ability to pass on increased costs to our customers, and the impact of those increased prices on our volumes;
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our ability to manage our operations successfully;
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currency fluctuations that adversely affect the exchange between the U.S. dollar and the British pound sterling, the Euro, the Canadian dollar, the
Mexican peso and other currencies;
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our ability to maintain favorable arrangements and relationships with our suppliers;
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our ability to realize the expected benefits of the Cliffstar Acquisition because of integration difficulties and other challenges;
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risks associated with the asset purchase agreement entered into in connection with the Cliffstar Acquisition;
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our substantial indebtedness we incurred and our ability to meet our obligations;
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our ability to maintain compliance with the covenants and conditions under our debt agreements;
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fluctuations in interest rates;
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the impact of global financial events on our financial results;
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our ability to fully realize the expected cost savings and/or operating efficiencies from our restructuring activities;
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any disruption to production at our beverage concentrates or other manufacturing facilities;
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our ability to protect our intellectual property;
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compliance with product health and safety standards;
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liability for injury or illness caused by the consumption of contaminated products;
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liability and damage to our reputation as a result of litigation or legal proceedings;
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changes in the legal and regulatory environment in which we operate;
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the impact of proposed taxes on soda and other sugary drinks;
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enforcement of compliance with the Ontario Environmental Protection Act;
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unseasonably cold or wet weather, which could reduce demand for our beverages;
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the impact of national, regional and global events, including those of a political, economic, business and competitive nature;
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our ability to recruit, retain, and integrate new management and a new management structure;
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our exposure to intangible asset risk;
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our ability to renew our collective bargaining agreements on satisfactory terms;
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disruptions in our information systems;
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volatility of our stock price; or
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our ability to maintain compliance with the listing requirements of the New York Stock Exchange.
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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, and 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.