Notes to Financial Statements
December 31,
2013
and
2012
General
The following description of The Restated Cott USA 401(k) Savings & Retirement Plan (the Plan) is provided for general
information purposes only. Participants should refer to the Plan document for a more complete description of the Plans provisions. The Plan is a defined contribution savings and investment plan under Section 401(k) of the Internal Revenue
Code (IRC) covering substantially all full-time employees 18 years or older who have completed 90 days of service with Cott Beverages, Inc. (formerly Cott Beverages USA, Inc.), a wholly-owned subsidiary of Cott Corporation (the
Company). The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA).
Effective January 1, 2008, the Plan was amended to become a safe-harbor Qualified Automatic Contribution Arrangement (QACA),
pursuant to Section 401(k)(13) of the Code, as added by the Pension Protection Act of 2006, except with respect to certain union employees. The QACA is a safe-harbor plan design that allows the Plan to automatically satisfy the ADP and ACP
tests.
Participant Accounts
Participant accounts are credited with units by investment for participant contributions, employer contributions, fund transfers and
participant loan repayments. Unit values are calculated daily to reflect the gains or losses of the underlying investments and expenses. Each participants account is credited with the participants contribution and allocation of Plan
earnings (losses). Allocations are based on account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the units in the participants account by investment multiplied by the appropriate
unit values on the valuation date.
Voting Rights
Each participant is entitled to exercise voting rights attributable to the Companys common stock allocated to his or her account and is
notified by the Trustee prior to the time that such rights are to be exercised. If a participant fails to provide direction as to voting theirs shares on any issue, the Trustee will vote the shares as directed by the Plan Administrator.
Contributions
Participation in the Plan
is voluntary. All participants are entitled to elect employee contributions to be on a pre-tax basis or as a Roth 401(k) contribution, subject to certain limitations under the Internal Revenue Code. Active participants can contribute up to 50%
of earnings, to a maximum of $17,500 for 2013 and $17,000 for 2012 to the Plan in the form of basic contributions. Contributions in excess of those allowed by IRC Section 401(k)(3) are reflected as excess participant
contributions. Participants who have attained age 50 before the end of the Plan year are eligible to make catch-up contributions. The Plan has been established under Section 401 of the Internal Revenue Code. Therefore, employee
contributions, except for Roth 401(k) contributions, are not subject to Federal income withholding tax, but are taxable when withdrawn from the Plan.
The Company provided for a safe harbor match under their QACA for non-union employee contributions dollar for dollar on the first 1% of the
participants eligible compensation, and 50% of the next 5% of the participants eligible compensation for the years ended December 31, 2013 and 2012. The Company matched up to 3% on the first 3% of participant eligible compensation
of San Bernardino union employees. Non-matching Company contributions may be made at the discretion of the Board of Directors of the Company. There were no non-matching contributions for during the years ended December 31, 2013 and 2012.
The Company, at its discretion, may make additional discretionary profit sharing contributions to San Bernardino union employees. Discretionary profit sharing contributions were approximately $75,000 and $74,000 during the years ended
December 31, 2013 and 2012.
Investment in Cott Corporation Common Stock is optional for Plan participants.
7
Vesting
Participant contributions to the Plan plus actual earnings or losses thereon are fully vested at all times. The participants share of
matching contributions and profit sharing contributions and earnings and losses thereon which were contributed to the plan prior to January 1, 2008 vest in accordance with the following schedule:
|
|
|
|
|
Years of Service
|
|
Vesting
Percentage
|
|
Less than 1 year
|
|
|
0
|
%
|
1 year
|
|
|
20
|
%
|
2 years
|
|
|
40
|
%
|
3 years
|
|
|
60
|
%
|
4 years
|
|
|
80
|
%
|
5 years
|
|
|
100
|
%
|
Effective January 1, 2008, the participants of Qualified Automatic Contribution Agreement
(QACA) matching contributions and earnings and losses thereon vest in accordance with the Safe Harbor provisions and the following schedule:
|
|
|
|
|
Years of Service
|
|
Vesting
Percentage
|
|
Less than 2 years
|
|
|
0
|
%
|
2 years
|
|
|
100
|
%
|
Participants will vest 100% upon attainment of age 65, or in the event of death or disability while employed
by the Company.
Investment Options
The Plan provides participants with twenty-one diverse mutual funds, one common collective investment trust fund, one money market account and
Cott Corporation Common Stock fund, as investment options in which to invest their contributions.
Notes Receivable from Participants
Participants may borrow from their accounts up to a maximum of the lesser of $50,000, or 50% of their account balance. The term of the loan
shall not exceed 5 years except for loans to purchase a primary residence, in which case the term of the loan shall not exceed 30 years. The loans are secured by the balance in the participants account and bear interest at a rate of prime plus
1% as of the date of loan origination. Principal and interest is paid rateably through payroll deductions.
Benefit Payments
Vested benefits of retired, disabled, or terminated employees are distributed in several methods as elected by the participant or, when
applicable, the participants beneficiary. The methods of distribution include single lump-sum payments; or provided the participants vested account exceeds $5,000, in periodic monthly, quarterly or annual installments; or in periodic
partial-sum payments, in accordance with non-discriminatory and objective standards and procedures consistently applied by the administrator; or to the extent the participants vested account is invested in employer securities, in a single
payment in the form of whole shares of stock, with any fractional shares, and the cash and cash equivalent portions of the underlying unitized stock account, being distributed in cash.
8
2.
|
Summary of Significant Accounting Policies
|
Basis of Presentation
The accompanying financial statements have been prepared on the accrual basis of accounting.
Recently Issued Accounting Pronouncements
In 2013, the FASB issued various ASUs which are not expected to have an impact on the Plans net assets available for benefits.
Investment Valuation and Income Recognition
The Plans investments are stated at fair value. Fair value is the price that would be received to sell our asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. See Note 9 for further discussion.
As described
in Accounting Standards Codification (ASC) No. 962-325-35 (ASC 962),
Plan Accounting Defined Contribution Pension Plans
, investment contracts held in a defined-contribution plan are required to
be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined-contribution plan attributable to fully benefit-responsive investment contracts because
contract value is the amount participants would receive if they were to initiate permitted transactions under terms of the Plan. The Plan invests in investment contracts through a common collective investment trust. As required by ASC 962, the
Statements of Net Assets Available for Benefits present the fair value of the investment in the common collective investment trust as well as the adjustment of the investment in the common collective investment trust from fair value to contract
value relating to the investment contracts. The Statements of Changes in Net Assets Available for Benefits are prepared on a contract value basis. Therefore, the presentation of the December 31, 2013 and 2012 financial statement amounts include
the presentation of fair value with an adjustment to contract value for such investments.
Purchases and sales of securities are recorded
on a trade date basis. Interest income is recorded on an accrual basis. Dividends are recorded on the ex-dividend date. The Plan presents in the Statements of Changes in Net Assets Available for Benefits the net appreciation in fair value of its
investments which consists of the realized gains and losses and the unrealized appreciation on those investments.
Contributions
Participant and employer matching contributions are recorded in the period during which payroll deductions are made from the participants
earnings.
Use of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of increases and decreases in net assets during the reporting periods. Actual results could differ from those estimates.
Administrative Costs
Substantially all
administrative expenses of the Plan are paid by the Plan. Additionally, participant returns are reported net of investment management fees and other administrative expenses.
Benefit Payments
Benefits are recorded
when paid.
Notes Receivable from Participants
Notes receivable from participants represent participant loans that are recorded at their unpaid principal balance plus any accrued and unpaid
interest. Interest income on notes receivable from participants is recorded when it is earned. Related fees are recorded as administrative costs and are expensed as incurred. No allowance for credit losses has been recorded as of December 31,
2013 or 2012. If a participant ceases to make loan repayments and the Plan Administrator deems the participant loan to be a distribution, the participant loan balance is reduced and a benefit payment is recorded.
9
Risks and Uncertainties
The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market and credit
risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect
participants account balances and the amounts reported in the Statements of Net Assets Available for Benefits.
Although it has not expressed any intent to do so, the Company has the
right under the Plan to discontinue contributions and terminate the Plan. Upon a complete or partial termination of the Plan, the account of each affected participant will fully vest. The form and timing of payment will be as determined under the
Plan at the time of Plan termination.
Effective January 1, 2008, the Plan was amended to be QACA safe-harbor
plan. The Internal Revenue Service has determined and informed the Company by a letter dated July 7, 2010, that the Plan, and the related trust, are designed in accordance with the applicable sections of the IRC and therefore, the Plan is
qualified and the related trust is tax exempt under the applicable sections of the IRC. The Plan has adopted amendments since receiving the determination letter from the Internal Revenue Service. The Plan administrator believes that the Plan is
currently designed and being operated in compliance with the applicable requirements of the IRC.
Accounting principles generally accepted
in the United States of America require the Plans management to evaluate tax positions taken by the Plan and recognize a tax liability or asset if the Plan has taken an uncertain position that more likely than not would not be sustained upon
examination by the Internal Revenue Service. The Plan administrator has analyzed the tax positions by the Plan, and has concluded that as of December 31, 2013 and 2012, there are no uncertain positions taken or expected to be taken that would
require recognition of a liability or asset or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Plan administrator
believes it is no longer subject to income tax examinations for years prior to 2010.
The Plan Administrator has determined that a
technical correction of the Plan document is required to comply with IRS Regulations. The Plan is in the process of submitting the correction through the voluntary correction program (VCP), which will be subject to IRS approval. The Plan
Administrator does not believe the technical correction will have a material impact on the financial statements of the Plan.
Forfeited nonvested amounts at December 31, 2013 and 2012 were $23,589
and $27,121, respectively. These are included in the Plans investments and are available to reduce future employer contributions and pay administrative expenses. Forfeited nonvested amounts used to reduce employer contributions and pay
administrative expenses were $59,893 and $118,211 for the years ended December 31, 2013 and 2012, respectively.
6.
|
Common Collective Investment Trust
|
The New York Life Anchor Account II Fund (the
Anchor Fund) offered to participants of the Plan is a common collective investment trust fund managed by NY Life, the trustee. The Anchor Fund consists of a diversified portfolio of high quality stable value investment contracts issued
by life insurance companies, banks and other financial institutions. Income is accrued daily and reinvested in the fund. The accrual of income is reflected in each funds unit price which is priced daily and is not held constant.
The key factors that impact the crediting rate under the contract are the timing and magnitude of the cash flows in and out of the Anchor Fund
as well as prevailing market rates on fixed income assets available for investment by the Anchor Fund. The interest crediting rate may be reset not more frequently than daily and not less frequently than quarterly. The interest crediting rate
reflects the book yield on the Anchor Fund, adjusted to reflect amortization of any realized gains and losses. The minimum crediting rate is zero, as provided in the contract.
10
The annualized gross crediting rate under the contract was 2.16% and 2.37% as of
December 31, 2013 and 2012, respectively. The annualized net crediting rate under the contract (i.e. the rate credited to participants in the Plan) was 1.51% and 1.73% as of December 31, 2013 and 2012, respectively.
The contract limits the ability of the Plan to transact at contract value upon the occurrence of certain events. These events include:
|
|
|
The Plans failure to qualify under Section 401(a) or Section 401(k) of the IRC.
|
|
|
|
Any substantive modification of the Plan that would have a potential adverse financial, legal or administrative impact on the obligations of the Anchor Fund to the Plan.
|
|
|
|
Any transfer of assets from the Anchor Fund directly to a competing investment option.
|
|
|
|
Withdrawals due to events initiated by the Plan including, but not limited to, total or partial Plan termination, mergers, spin-offs, lay-offs, early retirement incentive programs, sales or closings of all or part of
the Companys operations, bankruptcy or receivership.
|
The contract may be terminated by the contract holder at any
time with 30 days written notice to NY Life. NY Life will pay a single amount equal to the Anchor Fund account balance as of the termination date projected for a two-year period at an interest rate equal to the effective annual rate applicable, as
of the termination date, pursuant to the contract, and discounted back to the termination date at a rate equal to the greater of 1) the effective annual interest rate pursuant to the contract as of the termination date or 2) the yield quoted or
estimated by Salomon Brothers Bond Market Roundup for New Issues - Industrials (long term) rated BBB as of the Friday preceding the termination date, or, if such yield is not quoted by Salomon Brothers, such other recognized independent public
source of interest rates as NY Life may reasonably select.
7
|
Related-Party Transactions
|
Fees paid by the Plan for trustee management services
amounted to $173,701 and $175,135 for the years ended December 31, 2013 and 2012, respectively. These fees qualify as party-in-interest transactions and are recorded in administrative costs in the accompanying Statements of Changes in Net
Assets Available for Benefits.
The Plans investments include shares of Cott Corporation Common Stock and mutual funds managed by
the trustee and therefore these transactions qualify as party-in-interest transactions. Shares of Cott Corporation Common Stock purchased by the Plan during 2013 and 2012 were nil and 7,700, respectively. Shares of Cott Corporation Common Stock sold
by the Plan during 2013 and 2012 were 36,400 and 25,850, respectively. Additionally, loans to participants qualify as party-in-interest transactions.
The following table presents the Plans investments that represent 5%
or more of the Plans net assets available for benefits as of December 31, 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
New York Life Anchor Acct II Fund
|
|
$
|
12,120,007
|
|
|
$
|
12,555,983
|
|
JP Morgan SmartRet 2015 Fund A
|
|
|
5,659,958
|
|
|
|
5,505,253
|
|
JP Morgan SmartRet 2020 Fund A
|
|
|
11,417,549
|
|
|
|
10,683,093
|
|
JP Morgan SmartRet 2025 Fund A
|
|
|
14,498,791
|
|
|
|
11,925,945
|
|
JP Morgan SmartRet 2030 Fund A
|
|
|
10,885,606
|
|
|
|
8,643,027
|
|
JP Morgan SmartRet 2035 Fund A
|
|
|
9,898,090
|
|
|
|
7,618,192
|
|
JP Morgan SmartRet 2040 Fund A
|
|
|
7,021,364
|
|
|
|
5,676,092
|
|
During 2013 and 2012, the Plans investments (including gains and losses on investments bought and sold,
as well as held during the year) appreciated in value as follows:
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
Collective Investment Trust Fund
|
|
$
|
191,092
|
|
|
$
|
122,272
|
|
Common stocks
|
|
|
108,660
|
|
|
|
699,594
|
|
Mutual funds
|
|
|
11,082,596
|
|
|
|
7,909,351
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,382,348
|
|
|
$
|
8,731,217
|
|
|
|
|
|
|
|
|
|
|
11
9.
|
Fair Value Measurements
|
ASC 820 Fair Value Measurement, defines fair value
as the exchange prices that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the
measurement date. Additionally, ASC 820 establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under ASC
No. 820 are described below:
Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or
liabilities in active markets that the Plan has the ability to access.
Level 2 Inputs to the valuation methodology include:
|
|
|
Quoted prices for similar assets or liabilities in active markets;
|
|
|
|
Quoted prices for identical or similar assets or liabilities in inactive markets;
|
|
|
|
Inputs other than quoted prices that are observable for the asset or liability;
|
|
|
|
Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the
asset or liability.
Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The assets or liabilitys fair value measurement level within the fair value hierarchy is based on the lowest level of any
input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used for assets measured at fair value:
|
|
|
Common stock: Valued at the closing price reported on the active market on which the individual securities are traded and as such are generally categorized as level 1.
|
|
|
|
Mutual funds: Valued at the net asset value (NAV) of shares held by the Plan at year end and as such are generally categorized as level 1.
|
|
|
|
Common Collective Investment Trust fund: Value based on the fair value of the underlying investments (Refer to Note 2
Investment Valuation and Income Recognition
) and as such is generally
categorized as level 2.
|
The methods described above may produce a fair value calculation that may not be indicative
of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the
fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The following table
sets forth by level, within the fair value hierarchy, the Plans assets at fair value as of December 31, 2013 and 2012. There have been no changes in methodologies used at December 31, 2013 and 2012.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value as of December 31, 2013
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Mutual funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
$
|
11,751,717
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
11,751,717
|
|
International Equity
|
|
|
3,430,646
|
|
|
|
|
|
|
|
|
|
|
|
3,430,646
|
|
Fixed Income
|
|
|
2,784,202
|
|
|
|
|
|
|
|
|
|
|
|
2,784,202
|
|
Balanced
|
|
|
66,826,705
|
|
|
|
|
|
|
|
|
|
|
|
66,826,705
|
|
Money Market
|
|
|
38,148
|
|
|
|
|
|
|
|
|
|
|
|
38,148
|
|
Common Stock
|
|
|
2,497,762
|
|
|
|
|
|
|
|
|
|
|
|
2,497,762
|
|
Common Collective Investment Trust
|
|
|
|
|
|
|
12,178,183
|
|
|
|
|
|
|
|
12,178,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
87,329,180
|
|
|
$
|
12,178,183
|
|
|
$
|
|
|
|
$
|
99,507,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value as of December 31, 2012
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Mutual funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
$
|
7,508,420
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,508,420
|
|
International Equity
|
|
|
2,798,157
|
|
|
|
|
|
|
|
|
|
|
|
2,798,157
|
|
Fixed Income
|
|
|
2,881,243
|
|
|
|
|
|
|
|
|
|
|
|
2,881,243
|
|
Balanced
|
|
|
56,379,882
|
|
|
|
|
|
|
|
|
|
|
|
56,379,882
|
|
Money Market
|
|
|
117,681
|
|
|
|
|
|
|
|
|
|
|
|
117,681
|
|
Common Stock
|
|
|
2,864,454
|
|
|
|
|
|
|
|
|
|
|
|
2,864,454
|
|
Common Collective Investment Trust
|
|
|
|
|
|
|
12,798,313
|
|
|
|
|
|
|
|
12,798,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
72,549,837
|
|
|
$
|
12,798,313
|
|
|
$
|
|
|
|
$
|
85,348,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
Reconciliation of Financial Statements to Form 5500
|
The following is a reconciliation
of Net Assets Available for Benefits per the financial statements to the Form 5500, which was prepared on a cash basis, as of December 31, 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
Net Assets Available for Benefits per the financial statements
|
|
$
|
104,138,341
|
|
|
$
|
89,854,846
|
|
Plus: Current year excess contributions payable to participants
|
|
|
1,857
|
|
|
|
10,599
|
|
|
|
|
|
|
|
|
|
|
Net Assets Available for Benefits per Form 5500
|
|
$
|
104,140,198
|
|
|
$
|
89,865,445
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation of participant contributions per the financial statements to the Form 5500
as of December 31, 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
Participant contributions per the financial statements
|
|
$
|
6,125,665
|
|
|
$
|
5,804,313
|
|
Less: Additional prior year excess contributions payable to participants
|
|
|
(10,599
|
)
|
|
|
(700
|
)
|
Plus: Current year excess contributions payable to participants per the financial statements
|
|
|
1,857
|
|
|
|
10,599
|
|
|
|
|
|
|
|
|
|
|
Participant contributions per Form 5500
|
|
$
|
6,116,923
|
|
|
$
|
5,814,212
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation of net appreciation in fair value of investments per the financial
statements to the Form 5500 as of December 31, 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
Net appreciation in fair value of investments per the financial statements
|
|
$
|
11,382,348
|
|
|
$
|
8,731,217
|
|
Plus: Prior year adjustment from contract value to fair value for interest in collective investment trust relating to fully
benefit-responsive investment contract
|
|
|
|
|
|
|
120,240
|
|
|
|
|
|
|
|
|
|
|
Net appreciation in fair value of investments per Form 5500
|
|
$
|
11,382,348
|
|
|
$
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8,851,457
|
|
|
|
|
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|
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|
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Effective January 1, 2014, the Companys Board of Directors
voted to eliminate the QACA safe harbor employer match.
13