Securities and Exchange Commission
Washington, D.C. 20549
Form10-K
Form 10-K
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| ☒ | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 30,
20172023 | | | | | |
| ☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period fromto
Commission file number
001-31410COTT
(Exact name of registrant as specified in its charter)
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| Ontario | | 98-0154711 |
CANADA | | 98-0154711 |
(State or Other Jurisdiction of
Incorporation or Organization)
| | (IRS Employer
Identification No.)
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| | |
| 1150 Assembly Dr. | | |
| Suite 800 | | |
| Tampa, | Florida | | 33607 |
1200 BRITANNIA ROAD EAST
MISSISSAUGA, ONTARIO, CANADA
United States | | | L4W 4T5
| |
4221 WEST BOY SCOUT BOULEVARD SUITE 400
TAMPA, FLORIDA, UNITED STATES
| | 33607 |
| (Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code:
(905) 795-6500 and(813) 313-1800544-8515
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
COMMON SHARES WITHOUT NOMINAL OR
PAR VALUE
Common Shares, no par value per share
| PRMW | NEW YORK STOCK EXCHANGE
TORONTO STOCK EXCHANGE
New York Stock Exchange |
| Toronto Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ ý No ☐¨ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐¨ No ☒ý 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 ☒ý No ☐¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ý No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K (§229.405) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to this Form10-K. ☐
¨ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule
12b-2 of the Exchange Act. (Check one):
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| Large accelerated filer | ý | | ☒ | | Accelerated filer | | ☐ |
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| Non-accelerated filer | ☐ | | ☐ (Do not check if a smaller reporting company) | | Smaller reporting company | | ☐ |
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| | | | Emerging growth company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☒ No ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule12-12 12b-2 of the Act). Yes ☐ No ☒ The aggregate market value of the common equity held by
non-affiliates of the registrant as of
July��1, 2017July 01, 2023 (based on the closing sale price of
$14.44$12.54 for the registrant’s common shares as reported on the New York Stock Exchange on June 30,
2017)2023) was
$1,974.8$1,934.5 million.
(Reference is made to Part II, Item 5 for a statement of assumptions upon which the calculation is made).
The number of the registrant’s outstanding common shares as of February 21,
20182024 was
140,081,348.159,511,008.
Documents incorporated by reference
Portions of our definitive proxy
circularstatement for the
20182024 Annual and Special Meeting of Shareowners, to be filed within 120 days of December 30,
2017,2023, are incorporated by reference in Part III. Such proxy
circular,statement, except for the parts therein which have been specifically incorporated by reference, shall not be deemed “filed” for the purposes of this Annual Report on Form
10-K.
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Our consolidated financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”) in U.S. dollars. Unless otherwise indicated, all amounts in this Annual Report on Form
10-K are in U.S. dollars and U.S. GAAP.
Any reference to
2017, 20162023, 2022 and
20152021 corresponds to our fiscal years ended December 30,
2017,2023, December 31,
2016,2022, and January
2, 2016,1, 2022, respectively.
Forward-looking statements
In addition to historical information, this Annual Report on Form
10-K, and the reports and documents incorporated by reference in this Annual Report on Form
10-K, 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
CottPrimo Water 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, statements regarding our intentions to pay regular quarterly dividends on our common shares, and 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 Annual Report on Form
10-K and in the documents incorporated in this Annual Report on Form
10-K 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 Annual Report on Form
10-K.Factors that could cause actual results to differ materially from those described in this Annual Report on Form 10-K include, among others: financial condition and results of operations; our ability to compete successfully in the markets in which we operate; fluctuations in commodity prices and our ability to pass on increased costs to our customers or hedge against such rising costs, and the impact of those increased prices on our volumes; our ability to maintain favorable arrangements and relationships with our suppliers; our ability to manage supply chain disruptions and cost increases related to inflation; our ability to manage our operations successfully; currency fluctuations that adversely affect the exchange between currencies including the U.S. dollar, the British pound sterling, the Euro and the Canadian dollar; the impact on our financial results from uncertainty in the financial markets and other adverse changes in general economic conditions, including inflation and interest rates; any disruption to production at our manufacturing facilities; our ability to maintain access to our water sources; the impact of climate change on our business; our ability to protect our intellectual property; the seasonal nature of our business and the effect of adverse weather conditions; the impact of national, regional and global events, including those of a political, economic, business and competitive nature, such as the Russia/Ukraine war or the Israel/Hamas war; the impact of a pandemic, such as COVID-19, related government actions and our strategy in response thereto on our business; our ability to fully realize the potential benefit of the strategic opportunities that we pursue; our ability to realize cost synergies of our acquisitions due to integration difficulties and other challenges; our exposure to intangible asset risk; our ability to meet our obligations under our debt agreements, and risks of further increases to our indebtedness; our ability to maintain compliance with the covenants and conditions under our debt agreements; fluctuations in interest rates, which could increase our borrowing costs; our ability to recruit, retain and integrate new management; our ability to renew our collective bargaining agreements from time to time on satisfactory terms; compliance with product health and safety standards; liability for injury or illness caused by the consumption of contaminated products; liability and damage to our reputation as a result of litigation or legal proceedings; changes in the legal and regulatory environment in which we operate; our ability to adequately address the challenges and risks associated with our international operations and address difficulties in complying with laws and regulations including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act of 2010; the impact on our tax obligations and effective tax rate arising from changes in local tax laws or countries adopting more aggressive interpretations of tax laws; disruptions in our information systems; our ability to securely maintain our customers’ confidential or credit card information, or other private data relating to our employees or the Company; our ability to maintain our quarterly dividend; or credit rating changes.
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 management’s current plans and estimates. 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” and elsewhere in this Annual Report on Form
10-K and those described from time to time in our future reports filed with the Securities and Exchange Commission and Canadian securities regulatory authorities.
We undertake no obligation to update any information contained in this Annual Report on Form
10-K 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 Annual Report on Form
10-K. 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.
When used in this report, the terms
“Cott,“Primo,” “the Company,” “our Company,”
“Cott“Primo Water Corporation,” “we,” “us,” or “our”
mean Cottrefers to Primo Water Corporation,
andtogether with its consolidated
subsidiaries, collectively.subsidiaries.
We
originally incorporated in 1955 and,
following the July 2021 continuance to the jurisdiction of the Province of Ontario, are governed by the
Canada Business Corporations
Act.Act (Ontario). Our
registered Canadianprincipal executive office is located at
1100 boulevard Rene-Levesque Ouest, 25e etage, Montreal, Quebec, Canada H3B 5C9 and our principal executive offices are located at 4221 W. Boy Scout Boulevard1150 Assembly Dr. Suite
400,800, Tampa, Florida, United States
33607 and 1200 Britannia Road East, Mississauga, Ontario, Canada L4W 4T5.Cott33607.
Primo is a route based service company withleading North America-focused pure-play water solutions provider that operates largely under a leading volume-based national presencerecurring revenue model in the large format water category (defined as 3 gallons or greater). This business strategy is commonly referred to as “razor-razorblade” because the initial sale of a product creates a base of users who frequently purchase complementary consumable products. The razor in Primo’s revenue model is its industry leading line-up of innovative water dispensers, which are sold through approximately 10,900 retail locations and online at various price points. The dispensers help increase household and business penetration which drives recurring purchases of Primo’s razorblade offering or water solutions. Primo’s razorblade offering is comprised of Water Direct, Water Exchange, and Water Refill. Through its Water Direct business, Primo delivers sustainable hydration solutions direct to customers, whether at home or to businesses. Through its Water Exchange business, customers visit retail locations and purchase a pre-filled bottle of water. Once consumed, empty bottles are exchanged at our recycling center displays, which provide a ticket that offers a discount toward the purchase of a new bottle. Water Exchange is available in approximately 17,500 retail locations. Through its Water Refill business, customers refill empty bottles at approximately 23,500 self-service refill drinking water stations. Primo also offers water filtration units across North America.
Primo’s water solutions expand consumer access to purified, spring and mineral water to promote a healthier, more sustainable lifestyle while simultaneously reducing plastic waste and pollution. Primo is committed to its water stewardship standards and is proud to partner with the International Bottled Water Association in North America which ensures strict adherence to safety, quality, sanitation and European homeregulatory standards for the benefit of consumer protection. Environmental stewardship is a part of who we are, and office delivery (“HOD”) industry for bottledwe have worked to progressively achieve carbon neutrality throughout our organization. Our U.S. operations achieved carbon neutral certification in 2020 under the Carbon Neutral Protocol, an international standard administered by Climate Impact Partners. In 2021, Primo announced its planned exit from the North American small-format retail water business. This business was relatively small and used predominantly single-use plastic bottles. The exit from this category reduced single-use retail water bottles from our production environment by more than 400 million, annually, while also improving overall margins. The exit was completed during the second quarter of 2022.
On November 2, 2023, Primo and Osmosis Buyer Limited, a company incorporated in England and a
leader in custom coffee roasting, blendingsubsidiary of
iced tea and extract solutions for the
U.S. foodservice industry. Our platform reaches over 2.4 million customers or delivery points across North America and Europe supported by strategically located sales and distribution facilities and fleets, as well as wholesalers and distributors. This enables us to efficiently service residences, businesses, restaurant chains, hotels and motels, small and large retailers, and healthcare facilities.On January 30, 2018, we sold our carbonated soft drinksCulligan Group (“CSDs”) and juice businesses via the sale of our North America, United Kingdom (“U.K.”) and Mexico business units (including the Canadian business) and our Royal Crown International (“RCI”) finished goods export business (collectively, the “Traditional Business”) to Refresco Group N.V., a Dutch public company (“Refresco”Purchaser”), pursuant toentered into a Share Purchase Agreement (the “Purchase Agreement”) dated as of July 24, 2017 (the “Transaction”). The Transaction was structured as aproviding for the sale of the assetsCarbon Luxembourg S.à.r.l. and certain of our Canadian business and a sale of the stock of the operatingits subsidiaries engaged in the Traditional Business in the other jurisdictions. The aggregate deal consideration was $1.25 billion in cash, paid at closing, subject to adjustment for indebtedness, working capital, and other customary post-closing adjustments. Accordingly, as a result of(the "European Business"). On December 29, 2023, Primo completed the sale of the TraditionalEuropean Business for aggregate deal consideration of $575.0 million, adjusted for customary purchase price adjustments, resulting in total cash consideration of $565.9 million (the “European Divestiture”). The European Divestiture did not include Primo's interest in Aimia Foods Limited (“Aimia”), Decantae Mineral Water Limited (“Decantae”), Fonthill Waters Ltd (“Fonthill”), John Farrer & Company Limited (“Farrers”), the portions of the Eden Springs Netherlands B.V. business located in the United Kingdom, Israel, and Portugal (collectively the "Remaining International Businesses"). The European Business and the Remaining International Businesses are collectively the "International Businesses." This deal is the first of several transactions that will occur in 2024 as part of a Board-approved plan to sell all of our international businesses representing a strategic shift in our operations, those businessesoperations. Accordingly, the International Businesses are presented herein as discontinued operations.operations for all periods presented. See Note 2 to the Consolidated Financial Statements for additional information on discontinued operations. Unless otherwise noted, discussion within Part I and Part II relates to continuing operations.
During the second quarter of 2022, our Board of Directors approved the exit from our business in Russia. Accordingly, we recorded an impairment charge of $11.2 million during the second quarter to reduce the carrying value of the assets to the estimated fair value less costs to sell. Separately, we reviewed and realigned our reporting segments. The
Transaction did not includedecision to exit our
Route Based Servicesbusiness in Russia and
Coffee, Teathe realignment of segments resulted in a triggering event for goodwill and
Extract Solutions reportingintangible assets with indefinite lives requiring quantitative assessments for the combined Eden business (which, prior to realignment, included the Eden Europe and Eden Israel businesses) immediately before the realignment of segments
our RCI concentrate business, our Columbus, Georgia manufacturing facility or our Aimia Foods Limited (“Aimia”) and
Decantae Mineral Water Ltd. (“Decantae”) businesses.Thefor the Eden Europe and Israel businesses upon realignment of segments. These assessments resulted in recording a goodwill impairment charge of $11.2 million due to a decrease in cash proceeds from the Transaction were used to (i) retire $525.0 million aggregate principal amount of 5.375% senior notes due 2022 (the “2022 Notes”), (ii) retire the remaining $250.0 million aggregate principal amount of 10.000% senior secured notes due 2021 (the “DSS Notes”), (iii) repay $262.5 million outstanding balance on our asset-based lending facility (the “ABL facility”), and (iv) repay $1.9 million in aggregate principal outstanding on our capital lease finance arrangement with General Electric Capital Corporation (the “GE Term Loan”). Additionally, in connectionflows associated with the closingexit from our business in Russia and recording a trademark impairment charge of $6.7 million due primarily to a decrease in the royalty rate used in the quantitative analysis. These impairment charges totaling $17.9 million are included in Net income (loss) from discontinued operations, net of income taxes on the Consolidated Statements of Operations for the twelve months ended December 31, 2022. The impairment charge of
$11.2 million to reduce the carrying value of the
TransactionRussia business to its estimated fair value less costs to sell is included within impairment charges on
January 30, 2018, we entered into a second amendmentthe Consolidated Statements of Operations for the twelve months ended December 31, 2022 and
restatement agreement making effective an amended and restated senior secured asset-based lending credit facility (the “ABL facility”).is included within the Other category. The
ABL facility, as amended and restated, under which Cott and its subsidiaries, Cott Holdings Inc., DS Servicesexit of
America, Inc., S. & D. Coffee, Inc., Aimia Foods Limited and Aquaterra Corporation, are borrowers, is a revolving facilityour business in Russia was completed during the third quarter of
up to $250.0 million, which may be increased up to an additional $100.0 million at our option if lenders agree to increase their commitments, with a maturity date of August 3, 2021.2022.
At the beginning of 2017,2023, our business operated through four two reporting segments: Water and Coffee Solutions (which(i) North America, which included our DS Services of America, Inc. (“DSS”), Aquaterra Corporation (“Aquaterra”), Mountain Valley Spring Company (“Mountain Valley”) and the businesses associated with the acquisition of Primo Water Corporation ("Legacy Primo"), and (ii) Europe, which included the European business of Eden Springs Netherlands B.V. (“Eden”Eden Europe”), and S. & D. Coffee, Inc. (“S&D”our Decantae and Fonthill businesses. The Other category included the Israel business of Eden ("Eden Israel") businesses), Cottand our Aimia and Farrers businesses, as well as our corporate oversight function and other miscellaneous expenses.
During the fourth quarter of 2023, we reviewed and realigned our reporting segments to exclude the businesses within discontinued operations which reflects how the business will be managed and results will be evaluated by the Chief Executive Officer, who is the Company’s chief operating decision maker. Following such review, our one reporting segment is North America,
Cott United Kingdom (“Cott U.K.”)which includes our DSS, Aquaterra, Mountain Valley and
AllLegacy Primo businesses. The Other
(which includedcategory includes our
Mexicocorporate oversight function and
RCI operating segments).Duringother miscellaneous expenses and the results of our business in Russia prior to the exit of the business during the third quarter of 2017, we reviewed our reporting segments as a result of the Transaction. Following such review, we reorganized our reporting segments into three reporting segments: Route Based Services (which includes our DSS, Aquaterra and Eden businesses), Coffee, Tea and Extract Solutions (which includes our S&D business) and All Other (which includes our Aimia and Decantae businesses, the RCI concentrate business, our Columbus, Georgia manufacturing facility and other miscellaneous expenses).2022. Segment reporting results have been recast to reflect these changes for all periods presented.
North America
Our
corporate oversight function is not treated as a segment; it includes certain general and administrative costs that are not allocated to any of the reporting segments.Route Based Services
Our Route Based ServicesNorth America reporting segment provides bottled water coffeesolutions, water filtration and water filtrationcoffee services to customers in North America. Products included in our North America Europe, and Israel. Route Based Services products includereporting segment consist primarily of bottled water, coffee, brewed tea, water dispensers, coffeepurified bottled water, self-service refill drinking water, premium spring, sparkling and tea brewersflavored essence water, filtration equipment and filtration equipment. Route Based Services’ net revenue was $1,501.7 million, $1,224.3 million and $1,021.2 million, and represented 66.2%, 75.5% and 86.0% ofcoffee.
Other
The Other category includes our
total net revenue for 2017, 2016 and 2015, respectively.Coffee, Tea and Extract Solutions
Our Coffee, Tea and Extract Solutions reporting segment provides premium coffee roasting and customized coffee, tea and extract solutions to customers in the United States. Coffee, Tea and Extract Solutions products include fresh brewed coffee or tea, speciality coffee, liquid coffee or tea concentrate, single cup coffee, cold brewed coffee, iced blend coffee or tea beverages, tea, blended teas, hot tea, sparkling tea, and coffee or tea extract solutions. Coffee, Tea and Extract Solutions net revenue was $602.2 million and $228.0 million, and represented 26.5% and 14.0% of our total net revenue for 2017 and 2016, respectively.
All Other
Our All Other segment consists of our Aimia, Decantae and the RCI concentrate businesses, our Columbus, Georgia manufacturing facilitycorporate oversight function and other miscellaneous expenses. All Other products include hot chocolate, coffee, tea, soups, malt drinks, creamers/whiteners, cereals, beverage concentratesexpenses and mineral water. All Other net revenue was $165.8 million, $170.9 million and $166.1 million, and represented 7.3%, 10.5% and 14.0%the results of our total revenue for 2017, 2016 and 2015, respectively.
business in Russia prior to the exit of the business during the third quarter of 2022.
The combination of our scale and density of our routes in key markets, our industry-leading infrastructure, and our emphasis on superior customer service is intended to create significant competitive strengths.
With respect to our Route Based Services and Coffee, Tea and Extract Solutions reporting segments, weWe continually invest in our delivery,
exchange and refill service infrastructure, call centers and service capabilities
as well as coffee roasting and extract capacity, to
maintainearn our
established position as
a leader in these segments.an industry leader. We believe these investments have positioned us to
capitalize onbenefit from a number of positive industry dynamics and new growth opportunities. First, we intend to capture new customers as we
capitalize onbenefit from favorable consumer trends across our addressable markets, including increased focus on health and wellness,
and concerns about deteriorating municipal water
quality and the shift to premium coffee systems and “on the go” coffee and tea purchases.quality. Second, we believe our ability to
cross-selloffer complementary water and
coffeefiltration products and services represents a significant untapped opportunity. Third, the highly fragmented market in which we operate affords us ample opportunity to make the most of our scale, systems and customer density to execute synergistic
tuck-in acquisitions across all of our service areas. We believe these strengths, along with the strengths outlined below, will allow us to
capitalize onmaximize growth opportunities to drive sustainable and profitable growth.
Leading Position in Multiple Service Platforms
We have a leading volume-based national presence in the North America and European HOD industry for bottled water. InAmerican bottled water weindustry. We offer a portfolio of well-known brands with longstanding heritages, such as Primo®, Crystal Springs®, Mountain Valley®, Crystal Rock®, Vermont Pure®, Sparkletts®, Hinckley Springs®, Kentwood Springs®, Canadian Springs®, and Labrador and Eden Springs,Source®, which have contributed to our leadership position in the HODbottled water industry. In office coffee services (“OCS”),water filtration, we offer a complete range of products under leading brands including Keurig®, Mars Alterra®, Starbucks® Coffee, Caribou Coffee®, Peet’s Coffee & Tea®, Javarama®carbon filtration and Lavazza®.In coffee roasting, tea blending, and extract production, we are a leading custom coffee, tea and extract solutions provider, offering a portfolio of service offerings to our customers. Our superior scale, product development and expertise, as well as our focus on customer service, differentiates us from our competition as we are able to partner with our customers on logistics, supply chain and ongoing strategy development.
reverse osmosis filtration.
We are one of the
onlydirect-to-customerleading direct-to-consumer providers that can offer comprehensive services to residential customers and small and
medium-sized businesses, as well as large regional and national corporations and
retailers, universities and government agencies.retailers. Our broad
direct-to-consumer network creates an advantage in marketing and customer reach, while our extensive range of products and capabilities allows us to offer customers a convenient, single solution for
coffee, tea and high quality drinking water. We believe our position
is strengthened by our presence in the exchange and refill channels and will be further strengthened through our ongoing efforts to enhance and promote our full-service
beveragewater solutions offering to new and existing customers.
We also believe
that opportunities exist to increase sales of our products in our core markets by optimizing existing customer relationships, capitalizing on
cross-selling andup-selling opportunities, obtaining new customers, exploring new channels of distribution and introducing new products through our broad reaching distribution network.
Scale International HOD
Water Delivery, Water Filtration or Point of Use and
OCSOffice Coffee Service Platforms
We believe
that having one of the leading North American
and European HODwater delivery production and distribution networks in the industry gives us the ability to reduce our purchasing, manufacturing and delivery costs relative to our competitors as well as drive customer density within the markets we serve. We have an extensive
HODwater delivery, water filtration and
OCSoffice coffee services distribution network with a unique ability to service
customers.customers, along with numerous locations through which we provide our exchange and refill offerings. We believe
few companies have a comparableour footprint
or infrastructure
and attention to customer service uniquely enable us to support local, regional and national accounts,
directly, which differentiates us in the industry. Our
scaled network has allowed us to secure strategic relationships, which have been successful in attracting new customers and leveraging our production and delivery infrastructure. We are able to provide multiple products to our
HODwater delivery, water filtration and
OCSoffice coffee services customers at minimal additional cost and generate additional profits on those incremental sales.
The acquisition of Eden in 2016 further expanded our European capabilities. We believe that our large distribution footprint in thewater-and-coffee solutions space in Europe differentiates us from our competitors, providing us with region wide coverage for our most significant businesses and allowing us to meet the water and coffee needs of our diversified customer base, including both small and medium sized businesses and larger European customer accounts.
High Levels of Customer Service and Strong Customer Integration
Customer service and customer retention are key indicators of
success within our
Route Based Services reporting segment.success. Our goal is to increase the customer lifetime value through increased customer retention. Route Sales Representatives
or “RSRs”("RSRs"), who comprise the
consumer-facingcustomer-facing part of the business, are an important part of the customer relationship and not only drive customer service, but also generate new organic customer growth.
Our Route Based Services reporting segment providesWe provide reliable
deliveriesdelivery schedules and closely
trackstrack call center and customer service metrics to continually improve customer satisfaction.
Customer service
Business Strategy
Our business strategy is aligned around a key drivercommon purpose and vision and operates largely under a recurring revenue model in the successlarge format water category (defined as 3 gallons or greater). Our purpose defines and growthidentifies who we are and what sets us apart. We aim to Inspire Healthier Lives With Water Your Way. In order to achieve our purpose, our vision guides our decisions and future investments to help differentiate us from our competitors. We aim to become the leading brand in the pure-play water category with a unique portfolio of sustainable drinking water solutions. To achieve this vision, we have aligned around a common set of strategic pillars. These strategic pillars are integrated across our business to help drive a differentiated offering for our customers while at the same time providing an engaged and purpose-driven culture for our associates. Through our strategies, we believe we can drive an enhanced customer experience while at the same time leverage our scale to generate enhanced efficiencies. We also empower and motivate our associate base to help service our customers and their needs. When our associate experience is aligned and operating in tandem with that of our Coffee, Teacustomers, we have the best ability to deliver growth for all stakeholders. We believe our business strategy will enable long-term measurable success in support of our vision and Extract Solutions reporting segment. Customers havepurpose.
Our strategic pillars and goals include:
•Water Your Way - we provide a diverse set of water solutions and products for residential, small and medium-sized businesses and retail customers. We believe this allows our customers access to on-trend and high-quality drinking water whenever, wherever and however customers want it. Our goal is to establish Primo as the preferred water brand in the spaces we compete by increasing customer penetration of our water solutions while also diversifying our customer base. Our financial model is strengthened by the recurring-revenue nature of our business model. Our offering is further enhanced through digital channels allowing customers to manage their delivery and order preferences or purchase products on owned and third-party online sites of our retail partners.
•Category Leading Innovation - we focus on new product innovation to drive customer penetration and increased water consumption. We focus on selling-in dispensers to retail locations and online and then work to promote the sell-through of these products to customers.We also provide dispensers for rent to Water Direct customers. We have expanded our dispenser offering with a vast arrayvariety of services, includingoptions that include hot, cold and technology to brew coffee, tea and other beverages in numerous price ranges that are suitable for our commodity sourcing,retail customer needs. We have also enhanced our lineup with color and style options that are on trend for residential and business settings. Dispenser innovation and enhancements also enable us to improve our service efficiency and reduce service costs.
•Customer for Life Promise - we position the customer at the center of everything we do. Our goal is to increase the customer lifetime value through increased customer retention. We seek to understand customer needs and listen to their feedback across our product development, delivery systemsofferings. By providing trusted high-quality products and sustainability programs,equipment and responding to their service needs, we believe we can enhance the value of the relationship. We continue to build out interactive digital touch-points to improve the customer experience.
•Operational Excellence - we believe we can unlock and increase efficiencies through our scale and product offering. With our pure-play water focus we have begun streamlining and centralizing support functions. Additionally, we have enhanced our staff with a procurement team to help drive valuable supplier partnerships and harmonize our best practices. In conjunction with our other strategies, as we increase our customer base and customer diversity, we believe it will improve our route density and network optimization.
•Environmental, Social and Corporate Governance ("ESG") Leadership - we strive to provide a positive impact on the environment, our associates and the communities where we live, work and service. We maintain sustainable water resources, have achieved carbon neutrality throughout our organization, aim to reduce our carbon footprint further and energy usage, and seek to increase the use of recycled packaging. We promote associate health and safety initiatives, as well as diversity, equity and inclusion training for all management. Additionally, we aim to ensure our supplier community complies with all federal, state and local human relations laws and regulations, and each supplier is required to comply with our Global Supplier Code of Conduct. Our Code of Business Conduct and Ethics drives compliance with all relevant rules and regulations.
•Associate Experience - we are developing a number of other services.purpose-driven culture that will drive an enhanced associate experience. Our abilitygoal is to customize these servicesattract and respond quickly toretain highly-engaged associates who will live our customers’ needs are hallmarks for our high level of customer service.Strategic Importance to Our Coffee, Tea and Extract Solutions Customers
The acquisition of S&Dpurpose in 2016 (and creation of our Coffee, Tea and Extract Solutions reporting segment in 2017) made us a leader in custom coffee roasting and blending of foodservice iced teas in the United States. We believe the combination of S&D’s premium quality products and solutions, sourcing and distribution reach, and human capital assets create unmatched custom coffee, tea and extract production capabilities.
Our Coffee, Tea and Extract Solutions reporting segment has a proven track record of working alongsidetheir interactions with our customers, to create menu ideation and develop products to take to market. Our product development team develops differentiated and profitable menu items which span the culinary arts and food science, backed by our innovative coffee and liquid extract labs. In addition, we offer a sourcing capability staffed with a team of industry veterans. Coffee and tea markets are unpredictable, but with our industry expertise, we are able to guide our customers through the process utilizing our size, strength and relationships.
Business Strategy
Our vision is to be the preeminent international route based direct to consumer and service provider across water, coffee, tea, filtration and extract solutions with dedicated focus on shareowner returns through continuous growth, expanding margins, and growing free cash flow. Our business services profile offers recurring and repeatable revenue streams and scalable platforms which uniquely position us to allow for operational leverage with growth and to capture synergies throughtuck-in acquisition opportunities. We intend to drive value creation through growth from our“Better-for-You” product
offerings (positioned in growing categories of water, coffee, tea, filtration and extract solutions), focused innovation with product development, route logistics and technology creating further growth, as well as cross selling and customer service opportunities, margin expansion driven by scaled platforms within their communities. We seek to implement an effective talent strategy that focuses on the entire associate lifecycle – onboarding to exit.
We ultimately believe that our strategies will help drive increased customer
growth and
route density, highly synergisticgreater customer
list ortuck-in acquisition opportunities,retention due to our innovation and
strong free cash flow generation.on-trend water solution offerings, all while leveraging our operating scale. Our associates will be highly-engaged in driving our purpose and engaging in our ESG leadership.
Focus on Water
Coffee, Tea,Direct, Water Exchange, Water Refill and Water Filtration
and Extract ServicesSolutions Growth
Our goal is
Using our strategic pillars, our goals are to grow profitably as consumers move to healthier beverage options and
increase free cash flow by expandingto sell across multiple channels. This drives our customer density and consumption,
focusing on customer service and reducing costs to
serve, as well as price improvement.serve.
We will remain focused on expanding our
residential and small and
medium-sized business customer base, a market segment that we believe remains underpenetrated, by continuing to capitalize on our strong
direct-to-consumer distribution network, international sales and marketing efforts as well as our strategic partnerships.
Additionally, the sale of our water dispensers through retail and digital channels helps us expand our customer base through which we can offer a diverse set of water solutions both direct and through retail stores.
We intend to utilize our e-commerce capabilities to employ data-driven customer acquisition, increase penetration, expand our customer base and provide a seamless strategy for improved customer experience, retention and long-term growth. Our e-commerce capabilities utilize common platforms while engaging and serving potential and current customers in the most optimized manner.
We believe our ability to
cross-selloffer complementary water
coffee, tea and filtration products and services represents a significant untapped opportunity as nearly all of our existing and target customers consume multiple products. We believe we are well-positioned to capitalize on this opportunity utilizing our strong relationships and frequent
face-to-face interactions with our large installed customer base. RSRs are trained to sell across our product set and are highly incentivized through our commission structure to promote new products to existing customers, which increases sales and average revenue per customer.
We intend to proactively pursue accretive acquisitions to complement our organic growth. The highly fragmented market in which we operate affords us ample opportunities to execute synergistic
HOD water
OCSdelivery and filtration
tuck-in acquisitions. Our acquisition strategy is consistent with our objective to continually build customer density and reduce the overall cost of servicing our existing customer base. We have a proven track record of achieving significant synergies and integrating companies onto our platform, and we believe that our acquisition strategy will continue to improve our
profitability and margins.profitability.
We have managed to pursue this acquisition strategy while reducing leverage levels from the time of the acquisition of DSS by employing a combination of disciplined purchase pricing,purchasing, successful integration and synergy realization, and divestiture of assets that are no longer instrumental to our missionpurpose, vision or strategy. In the second quarter of 2022, Primo exited from the North American small-format retail water business. This business was relatively small and strategy.used predominantly single-use plastic bottles. The exit from this category is estimated to reduce single-use retail water bottles from our production environment by more than 400 million, annually, while also improving overall margins.
Evaluate Acquisition Opportunities
We will continue to evaluate additional
mid-to-larger scale opportunities
(like the acquisitions of S&D and Eden) to expand our positions in the
HOD water
coffee, tea,delivery and filtration
and extract solution service categories, as well as other higher margin or growth-oriented
water categories where we believe our platform, operating strength and synergies can be leveraged.
Financial Information about Segments
For financial information about reporting segments and geographic areas, see Note
910 to the Consolidated Financial Statements contained in this Annual Report on Form
10-K.Ingredient and Packaging Supplies
In addition to water, the principal raw materials required to produce our products are
green coffee, tea, polyethylene terephthalate (“PET”) resin, high-density polyethylene (“HDPE”) and polycarbonate bottles, caps and preforms, labels and cartons and trays. The cost of these raw materials can fluctuate substantially over time. We have implemented a number of risk mitigation programs
including our futures contracts and hedging programs with our customers in order to reduce the risk of commodity fluctuations in key areas such as
coffee procurement and energy surcharges tied to certain energy indexes within North America.
We also have implemented a number of sustainability programs throughout our network to assist our suppliers in operating under changing environments. Our core product of
HOD bottled water utilizes a reusable bottle that allows for the overall cost to service to be spread out over a number of recurring trips to our customer base.
We utilize a refill, reuse and recycle concept with our three gallon (“3G”) and five gallon (“5G”) bottled water packaging. Where we have not established a risk mitigation program, it is often necessary to recover the increased cost of materials through price increases, which we have historically had success in
utilizingimplementing in order to reduce our overall exposure to rising ingredient and packaging costs.
Under many of our supply arrangements for these raw materials, the price we pay fluctuates along with certain changes in underlying commodity costs, such as
green coffee, tea, resin in the case of PET, and HDPE. We believe that we will be able to either renegotiate contracts with these suppliers when they expire or find alternative sources for supply. We also believe there is adequate supply of the ingredient and packaging materials used to produce and package our products.
Generally, we bear the risk of increases in the costs of the ingredient and packaging materials used to produce our products, including the underlying costs of the commodities used to manufacture them and, to some extent, the costs of converting those commodities into the materials we purchase.
Green coffee, tea, resin
Resin for PET, HDPE and fuel are examples of underlying commodities for which we bear the risk of increases in costs. In addition, the contracts for certain of our ingredient and packaging materials permit our suppliers to increase the costs they charge us based on increases in their cost of converting the underlying commodities into the materials we purchase. In certain cases, those increases are subject to negotiated limits. Changes in the prices we pay for ingredient and packaging materials occur at times that vary by product and supplier, and take place on a monthly, quarterly or annual basis.
A portion of our revenues is derived from coffee product distribution. The supply and price of coffee beans may be affected by weather, international conditions, consumer demand, and access to transportation. An increase in the price of coffee beans could reduce our coffee sales and coffee product margins, which could adversely affect our business, financial condition and results of operations.
Trade Secrets, Copyrights, Trademarks and Licenses
We sell a majority of our
HOD three gallon (“3G”)3G and
five gallon (“5G”)5G bottled water under our own brands while our
OCSoffice coffee services business sells both our branded products as well as products under which we have a distribution license. We
sell a majority of our manufactured coffee and tea products under retailer or foodservice brands to customers who own the trademarks associated with those products. We own registrations
or applications to register,for various trademarks that are important to our worldwide business, including
Alhambra® Primo®,
Belmont Springs® Alhambra®,
Crystal Rock®, Mountain Valley®, Deep Rock®Rock®,
Hinckley Springs®Springs®,
Crystal Springs®Springs®, Kentwood Springs®Springs®, Mount Olympus®,Standard Coffee®Olympus®, Javarama®, Athena®, Nursery®, Relyant®Pureflo®, Sierra Springs®Springs®, Sparkletts®Sparkletts®, Constant Coffeeand Renü®, Premium Gold®, S&D® andS&D Coffee & Tea® in the United States
and Canadian Springs®Springs®, Labrador Source® and
Labrador® Amazon Springs® in
Canada, Eden®, Eden Springs®, Chateaud’eau®, Edelvia®, Mey Eden®, Edenissimo®, Kafevend®, Pauza®,and Garraways®in EuropeCanada. We have filed certain trademark registration applications and
Israel,intend to develop additional trademarks and
RC® mark in various formats in more than 120 countries seek registrations for such trademarks and
territories outside of North America.to develop other intellectual property. The licenses to which we are a party are of varying terms, including some that are perpetual. Trademark ownership is generally of indefinite duration when marks are properly maintained in commercial use.
Our success depends in part on our intellectual property, which includes
trade secrets in the form of concentrate formulas for our beverages and trademarks for the names of the beverages we sell. To protect this intellectual property, we rely principally on registration of trademarks, contractual responsibilities and restrictions in agreements (such as indemnification, nondisclosure and confidentiality agreements) with employees, consultants and customers, and on the common law and/or statutory protections afforded to trademarks, copyrights, trade secrets and proprietary
“know-how. “know-how.” We also closely monitor the use of our trademarks and, when necessary, vigorously pursue any party that infringes on our trademarks, using all available legal remedies.
Customers
Our Traditional Business experienced some customer concentration. Following the closing of the Transaction on January 30, 2018, we
We have limited customer concentration
of whichas no customer accounts for more than 10% of our net revenues.
Our
principal competitor in the 3G and 5G HOD bottled water business in the United States is Nestlé, which competes with us directly in many of our markets. Within Canada and Europe, our principal competitors are local,
or regional
HODand national bottled water
businesses.businesses as well as providers of various types of water filtration units and services. We face
significant competition in our
HOD business as distribution methods for
residential and commercial bottled water products continue to change and
evolve, including the increasing availability of 3G and 5G water bottles in retail stores. This could affect our business as some customers may choose to purchase water in returnable bottles through retailers rather than through our sales and distribution network. We have a strategic alliance with Primo Water Corporation (“Primo”) to bottle and distribute Primo’s 3G and 5G water bottles through retail stores, however, customers could choose to purchase Primo’s competitors’ retail products.evolve. Our
HOD business also faces increased competition from filtration
units in the residential and commercial market. Because homes and offices with installed filtration systems participate at a lower rate in the bottled water market, the installation of these systems poses a competitive threat to our business and reduces the number of potential customers for our bottled water products.units. In addition, consumers may choose to drink from municipal water sources instead of purchasing bottled water or using a filtration unit.
The coffee industry is highly competitive, including with respect to price, product quality, service, convenience and innovation, and competition could become increasingly more intense due to the relatively low barriers to entry. We face competition from many sources, including the institutional foodservice divisions of multi-national manufacturers of retail products many of which have greater financial and other resources than we do, wholesale foodservice distributors, regional institutional coffee roasters, and specialty coffee suppliers. If we do not succeed in differentiating ourselves through, among other things, our product and service offerings, then our competitive position may be weakened and our sales and profitability may be materially adversely affected. If, due to competitive pressures or contractual restrictions, we are required to reduce prices to attract market share or we are unable to increase prices in response to commodity and other cost increases and we are not able to increase sales volumes to offset the margin declines, then our results of operations could be adversely affected.
We seek to differentiate ourselves from our competitors by offering our customers high-quality products, category management strategies, packaging and marketing strategies, efficient distribution methods, and superior service.
Government Regulation and Environmental Matters
The production, distribution and sale in the United States of many of our products are subject to the Federal Food, Drug, and Cosmetic Act, the Federal Trade Commission Act, the Lanham Act, state consumer protection laws, federal, state and local workplace health and safety laws, various federal, state and local environmental protection laws and various other federal, state and local statutes and regulations applicable to the production, transportation,
import, sale, safety, advertising, labeling and ingredients of such products. Outside the United States, the production, distribution and sale of our many products and related operations are also subject to numerous similar and other statutes and regulations.
A number of states have passed laws setting forth warning or labeling requirements relating to products made for human consumption. For example, the California law known as “Proposition 65” requires that a specific warning appear on any product sold in California containing a substance listed by that state as having been found to cause cancer or reproductive toxicity. This law, and others like it, exposes all food and beverage producers to the possibility of having to provide warnings on their products. The detection of even a trace amount of a listed substance can subject an affected product to the requirement of a warning label, although products containing listed substances that occur naturally or that are contributed to such products solely by a municipal water supply are generally exempt from the warning requirement. From time to time over the past several years, certain of our customers have received notices alleging that the labeling requirements of the relevant state regulation would apply to products manufactured by us and sold by them. There can be no assurance that we will not be adversely affected by actions against our customers or us relating to Proposition 65 or similar “failure to warn” laws.
We currently offer and use
non-refillable recyclable containers in the United States and
other countries around the world.Canada. We also offer and use refillable containers, which are also recyclable. Legal requirements apply in various jurisdictions in the United States and
other countriesCanada requiring that deposits or certain taxes or fees be charged for the sale, marketing and use of certain
non-refillable beverage containers. The precise requirements imposed by these measures vary. Other types of beverage container-related deposit, recycling, tax and/or product stewardship statutes and regulations also apply in various jurisdictions. We anticipate that additional, similar legal requirements may be proposed or enacted in the future at local, state and federal
levels, both inlevels. In the
United Statessecond quarter of 2022, we exited from the North American small-format retail water business. This business was relatively small and
elsewhere.used predominantly single-use plastic bottles. The exit from this category is estimated to reduce production of plastic water bottles by more than 400 million, annually, while also improving overall margins.
We are a member of the International Bottled Water Association (“IBWA”) and the Water Quality Association. These associations often set higher water quality standards than those set by governmental agencies. Members must comply with these standards, which are enforced by the members themselves. The IBWA requires submission to annual plant inspections administered by an independent third-party inspection agency, such as the National Sanitation Foundation. These inspections audit quality and testing records, review all areas of plant operations and the bottling process, and check compliance with relevant national standards, good manufacturing practices, and any other regulations set by the IBWA. If we fail to meet the standards set by the IBWA and
the Water Quality Association, there could be an adverse impact on our reputation, which could have a material adverse effect on our business and results of operations.
All of our production facilities and other operations are subject to various environmental protection statutes and regulations, including those of the U.S. Environmental Protection Agency (“EPA”), which pertain to the use of water resources and the discharge of waste water. Failure to comply with these regulations can have serious consequences, including civil and administrative penalties. Compliance with these provisions has not had, and we do not expect such compliance to have, any material adverse effect on our capital expenditures, net income or competitive position.
Subject to the terms and conditions of the applicable policies, we have coverage for product recalls and product liability claims that could result from the injury, illness or death of consumers using our products, contamination of our products, or damage to or mislabeling of our products.
Human Capital
As of December 30,
2017,2023, we had over
10,4006,400 employees, of whom approximately
8,6006,330 were in the
Route Based ServicesNorth America reporting
segment, 1,200segment; and approximately 70 were in the
Coffee, Tea and Extract Solutions reporting segment, and 500 in All Other.Other category. We have entered into collective bargaining agreements covering approximately
770390 of
the employees in the
Route Based ServicesNorth America reporting segment
thatwhich all contain terms that we believe are typical in our industry. As these agreements expire, we believe that they can be renegotiated on terms satisfactory to us. We consider our relations with employees to be generally good.
Diversity and Inclusion
We are committed to creating an inclusive workplace that promotes and values diversity, where we embrace our differences and empower our associates to be authentic and transparent. Our company is made up of extraordinary people of every race, gender, religion, sexual orientation and background. We are committed to a culture built on our core value of respect for each other, respect for our customers, respect for our business partners and respect for our communities. We do not tolerate discrimination, harassment or retaliation.
We created a diversity, equity, and inclusion (“DEI”) Strategy Committee, a cross-functional group of diverse associates across Primo that has taken the lead in formalizing our DEI Commitment. The commitment statement is an important first step. Our goal is to create a truly inclusive work culture that ensures diversity of thought is valued across our Company. We are committed to recognizing and embracing the whole associate. As part of this process, our associates and senior management are creating detailed and measurable actions to be incorporated into our strategic plans. And we are inserting a DEI lens into our recruitment processes that is deliberate, consistent and ensures that our talent base reflects the diversity of people, of perspectives and experiences that we need to truly be one Primo across the globe.
Primo offers several options for associates to raise concerns about harassment or discrimination, including an online web-based platform, a helpline, and by speaking with human resource partners or leaders in our organization. We will not tolerate retaliation or unfair treatment of any associate who reports concerns in good faith or who participates in an investigation of any such reports. Retaliation against an individual for reporting in good faith any violation or for participating in any such investigation is a serious violation of our Code of Business Conduct and Ethics that will subject the violator to appropriate disciplinary action, including possible termination of employment.
Health and Safety
Primo is committed to providing our customers with safe and high-quality water products, while ensuring the health and safety of our associates, contractors, and the communities in which we operate. Our approach to health and safety is rooted in our tenets and core values, and we continuously strive to ensure that safety, security, and quality always come first.
The Company’s health and safety program is designed to proactively identify, assess, and manage risks and hazards associated with our operations, products, and services. We operate in compliance with all applicable health and safety laws, regulations, and standards, and our program includes a comprehensive set of policies, procedures, and training programs that cover all aspects of our business operations, including manufacturing, distribution, and customer service.
At Primo, we believe that safety, security, and quality are the foundation of a successful organization. As such, we maintain a proactive approach to risk management, which includes regular risk assessments, observations and inspections to identify and mitigate unsafe conditions and behaviors in our operations while building a caring culture. We have a strong reporting process to ensure that all incidents and hazard identifications are investigated, and appropriate corrective and preventative actions are taken.
Primo is committed to continuously improving our health and safety program to ensure that we exceed the expectations of our stakeholders. We believe that our commitment to safety, security, and quality is essential to our long-term success, and we will continue to invest in our health and safety programs to achieve our goal of zero incidents.
Total Rewards
Our compensation programs are designed to align the compensation of our associates with the Company's performance, offering market-competitive compensation, meaningful benefits, and differentiated rewards for our high performers. We believe that investing in our associates results in increased engagement, satisfaction and retention, which ultimately leads to an elevated customer experience and increased shareowner value.
Our total rewards philosophy is designed to:
•Attract, motivate, reward, and retain talent who contribute to the success of the Company;
•Value the diversity of our workforce, recognizing that different people have different needs, and thus strive to provide flexibility and choice in our reward system;
•Be both internally and externally equitable, providing our talent with opportunities, which relate to competitive practices and reflect individual responsibilities, skills, and contributions to the Company;
•Support the whole person, enabling personal and professional growth; and
•Be transparent and effectively communicate; simple and easy to understand the value.
Our target total direct compensation for our executive leadership is designed to be competitive with peer companies and market data to help us attract and retain top talent. A substantial portion of executive officer compensation is variable or at-risk, in line with our philosophy of rewarding our executives when they produce value for our shareowners and our associates.
It is also our intention to offer benefits that will allow our associates and their families to live healthier lives. We offer comprehensive benefits to all eligible associates. These include, among other benefits:
•Medical insurance, prescription drug benefits, dental and vision insurance;
•Accident insurance, critical illness insurance, life insurance, disability insurance, legal insurance, health savings and flexible spending accounts;
•Paid and unpaid leaves;
•Retirement plan; and
•Voluntary benefits that allow associates to select the options that meet their needs, including flexible time-off, telemedicine, and adoption assistance.
Serving Our Communities
We are strongly committed to the communities we serve and to the world at large. After all, our families live, work and play in the local communities where we operate.
It is part of our purpose to promote hydration and wellness via sponsorships and in-kind donations, and to provide aid in the times of need. We provide bottled water products for local sporting events, culinary and hospitality programs, fundraisers, and associate-supported efforts and have also contributed time and resources to many regional causes. In addition, we donate water to medical centers and first responders, as well as support hospitality partners feeding front-line workers during extreme weather-related incidents and natural disasters.
Availability of Information and Other Matters
We are required to file annual, quarterly and current reports, proxy statements and other information with the U.S. Securities and Exchange Commission (the “SEC”) and Canadian securities regulatory authorities. The
public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information in the Public Reference Room may be obtained by calling the SEC at1-202-551-8090. In addition, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file with the SEC at www.sec.gov. Information filed with the Canadian securities regulatory authorities is available at www.sedar.com.
Our Annual Report on Form
10-K, quarterly reports on Form
10-Q, current reports on Form
8-K and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are also available free of charge on our website at
www.cott.com,www.primowatercorp.com, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The information found on our website is not part of this or any other report that we file with, or furnish to, the SEC or to Canadian securities regulatory
authorities.authorities nor is such information incorporated by reference herein or therein.
We are responsible for establishing and maintaining adequate internal control over financial reporting as required by the SEC. See “Management’s Report on Internal Control over Financial Reporting” in Item 9A.
In addition to the other information set forth in this Annual Report on Form
10-K, you should carefully consider the following factors, which could materially affect our business, financial condition or results of
operations for both continuing operations and discontinued operations. The risks described below are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may negatively affect our business, financial condition or results of operations.
Risks Related to Our Business, Industry and Operations
We may be unable to compete successfully in the markets in which we operate.
We face competition in our
HOD business as distribution methods for
residential and commercial bottled water products continue to change and evolve. The increasing availability of
3G and 5Gmulti-gallon water bottles in retail stores could affect our business as some customers may choose to purchase water in returnable bottles through
retailerscompetitors' retail products rather than
through our sales and distribution network. We have a strategic alliance with Primo to bottle and distribute Primo’s 3G and 5G water bottles through retail stores, however, customers could choose to purchase Primo’s competitors’ retail products.ours. Our
HOD business also faces increased competition from filtration units in the
residential and commercial market.
Because homes and offices with installed filtration systems participate at a lower rate in the bottled water market, the installation of these systems poses a competitive threat to our business and reduces the number of potential customers for our bottled water products. In addition, consumers may choose to drink from municipal water sources instead of purchasing bottled water or using a filtration unit.
Our OCS business is also subject to intense competition. Our coffee business consists of both large brewers and single-serve brewers, where increased competition has developed from food, beverage and office products distributors. Additionally, retail and internet availability of these products could negatively affect demand for the direct distribution sources we offer.
Supply chain disruptions and cost increases related to inflation had, and could continue to have, an adverse effect on our business, operating results, and financial condition.
We experienced inflationary cost increases in our underlying expenses, including transportation and labor costs. We were impacted by global supply chain disruption, which increased ocean freight voyage lead times for the shipment of our water dispensers to our branch locations and increased freight costs.
The coffee industry is highly competitive, including with respectCompany largely was able to mitigate the impacts of inflation and supply chain disruptions. Our mitigation strategies, such as price product quality, service, convenienceincreases and innovation, and competition could become increasingly more intense duecost control efforts, have provided us the necessary flexibility to respond to the relatively low barriersrisks.
While we have taken steps to
entry. We face competition from many sources, includingminimize the
institutional foodservice divisionsimpact of
multi-national manufacturers of retail products many ofthese increased costs, global supply chain disruption and inflationary pressures may increase, which
have greatercould adversely affect our business, financial
and other resources than we do, wholesale foodservice distributors, regional institutional coffee roasters, and specialty coffee suppliers. If we do not succeed in differentiating ourselves through, amongother things, our product and service offerings, then our competitive position may be weakened and our sales and profitability may be materially adversely affected. If, due to competitive pressures or contractual restrictions, we are required to reduce prices to attract market share or we are unable to increase prices in response to commodity and other cost increases and we are not able to increase sales volumes to offset the margin declines, then ourcondition, results of operations could be adversely affected.
and cash flows.
Our ingredients, packaging supplies and other costs are subject to price increases, and we may be unable to effectively pass rising costs on to our
customers, or effectively hedge against such rising costs.customers.
We typically bear the risk of changes in prices on the ingredient and packaging materials in our products. The majority of our ingredient and packaging supply contracts allow our suppliers to alter the prices they charge us based on changes in the costs of the underlying commodities,
such as resin for PET, HDPE and polycarbonate bottles that are used to produce them and, in some cases, changes in production costs.
Resin for PET, HDPE and polycarbonate bottles and green coffee are examples of these underlying commodities. These changes in the prices we pay for ingredient and packaging materials occur at times that vary by product and supplier, and take place, on a monthly, quarterly or annual basis.
Accordingly, we bear the risk of fluctuations in the costs of these ingredient and packaging materials, including the underlying costs of the commodities used to manufacture them and, to some extent, the costs of converting those commodities into the materials we purchase. If the cost of these ingredients or packaging materials increases, we may be unable to pass these costs along to our customers through adjustments to the prices we charge, which could have a negative effect on our results of operations. If we are able to pass these costs on to our customers through price increases, the impact those increased prices could have on our volumes is uncertain.
Our production facilities use a significant amount of electricity, natural gas and other energy sources to operate. Fluctuations in the price of fuel and other energy sources for which we have not locked in long-term pricing commitments or arrangements would affect our operating costs, which could negatively affect our results of operations.
If we are unable to maintain relationships with our raw material suppliers, we may incur higher supply costs or be unable to deliver products to our customers.
In addition to water, the principal raw materials required to produce our products are PET resin, HDPE and polycarbonate bottles, caps and preforms, labels and cartons and trays. We rely upon our ongoing relationships with our key suppliers to support our operations.
We typically enter into annual or multi-year supply arrangements with our key suppliers, meaning that our suppliers are obligated to continue to supply us with materials for one-year or multi-year periods, at the end of which we must either renegotiate the contracts with those suppliers or find alternative sources for supply. There can be no assurance that we will be able to either renegotiate contracts (with similar or more favorable terms) with these suppliers when they expire or, alternatively, if we are unable to renegotiate contracts with our key suppliers, there can be no assurance that we could replace them. We could also incur higher ingredient and packaging supply costs in renegotiating contracts with existing suppliers or replacing those suppliers, or we could experience temporary disruptions in our ability to deliver products to our customers, either of which could negatively affect our results of operations.
With respect to some of our key ingredients, we have entered into
futures contracts designed to mitigate the price risk associated with forecasted purchases of green coffee used in our manufacturing process. Price increases could exert pressure on our costs and we may not be able to effectively hedge any such increases. Furthermore, price decreases in commodities that we have effectively hedged could also increase our cost of goods sold formark-to-market changes in the derivative instruments.long-term supply agreements. In addition,
to risk mitigation programs around futures contractsthe supply of specific ingredient and
hedging programs with our customers in order to reduce the riskpackaging materials could be adversely affected by many factors, including industry consolidation, energy shortages, governmental controls, labor disputes, natural disasters, pandemics, transportation interruption, political instability, acts of
commodity fluctuations in key areas such as coffee procurement, we also have implemented energy surcharges in our Route Based Services reporting segment in North America tied to certain energy indexes within North America. We also have implemented a number of sustainability programs throughout our network to assist our suppliers in operating under changing environments. Our core product of HOD bottled water utilizes a reusable bottle that allows for the overall cost to service to be spread out over a number of recurring trips to our customer base.war or terrorism and other factors.
If we fail to manage our operations successfully, our business and results of operations may be negatively affected.
In recent years, we have grown our business and beverage offerings primarily through the acquisition of other companies, development of new product lines and growth with key customers. We believe that opportunities exist to grow our business by leveraging existing customer relationships, obtaining new customers, exploring new channels of distribution, introducing new products or identifying appropriate acquisition or strategic alliance candidates. The success of this strategy with respect to acquisitions depends on our ability to manage and integrate acquisitions and alliances into our existing business. Furthermore, the businesses or product lines that we acquire or align with may not be integrated successfully into our business or prove profitable.
In addition to the foregoing factors, our ability to expand our business in foreign countries is also dependent on, and may be limited by, our ability to comply with the laws of the various jurisdictions in which we may operate, as well as changes in local government regulations and policies in such jurisdictions. If we fail to successfully manage our operations, our business and results of operation could be adversely affected.
We may devote a significant amount of our management’s attention and resources to our ongoing review of strategic opportunities, and we may not be able to fully realize the potential benefit of any such alternatives that we pursue.
As part of our overall strategic planning process, from time to time we evaluate whether there are alternatives available to complement our strategy of organic growth and growth through diversification. Accordingly, we may from time to time be engaged in evaluating potential transactions and other strategic alternatives, and we may engage in discussions that may result in one or more transactions. Although there would be uncertainty that any of these discussions would result in definitive agreements or the completion of any transaction, we may devote a significant amount of our management’s attention and resources to evaluating and pursuing a transaction or opportunity, which could negatively affect our operations.
In addition, we may incur significant costs in connection with evaluating and pursuing other strategic opportunities, regardless of whether any transaction is completed. We may not fully realize the potential benefits of any strategic alternatives or transactions that we pursue.
We have completed the divestiture of our Traditional Business, and have ongoing obligations and potential liabilities associated with the Transaction.
On January 30, 2018, we completed the divestiture of our Traditional Business in the Transaction. Under the Purchase Agreement, we remain liable for certainpre-closing liabilities associated with the divested business, such as taxes and certain litigation, and we remain liable for a period of time for breaches of representations, warranties and covenants made to the purchaser. We have also indemnified the purchaser in the event of such breaches and for other specific risks. Even though the Purchase Agreement contains what we believe to be customary liability caps, and we have established reserves for any expected ongoing liability associated with the divested business, unexpected liabilities may arise for which we could be responsible. If that occurs, or if established reserves are not sufficient, it could negatively affect our financial condition and future results of operations.
We may not realize the expected revenue and cost synergies related to our recent acquisitions.
The success of our recent acquisitions will depend, in part, on our ability to realize all or some of the anticipated benefits from integrating with our existing businesses. The integration process may be complex, costly, time-consuming and subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and are beyond our control. The difficulties of integrating the operations and realizing revenue and cost synergies include, among others:
failure to implement our business plan for the combined business;
unanticipated issues in integrating manufacturing, logistics, information, communications and other systems;
possible inconsistencies in standards, controls, procedures and policies, and compensation structures between acquired structures and our structure;
failure to retain key customers and suppliers;
unanticipated changes in applicable laws and regulations;
failure to retain key employees;
additional exposure to risks of new markets and geographies;
inherent operating risks; and
other unanticipated issues, expenses and liabilities.
We may not be able to maintain the levels of revenue, earnings or operating efficiency that each of Cott, on the one hand, and DSS, Eden and S&D, on the other hand, had achieved or might achieve separately. Even if we realize the expected benefits, this may not be achieved within the anticipated time frame. Furthermore, the synergies from recent acquisitions may be offset by costs incurred in consummating such acquisitions or in integrating the acquired businesses, increases in other expenses, operating losses or unrelated adverse results in the business. As a result, there can be no assurance that such synergies will be achieved.
In addition, actual results may differ from pro forma financial information of the combined companies due to changes in the fair value of assets acquired and liabilities assumed, changes in assumptions used to form estimates, difference in accounting policies between the companies, and completion of purchase accounting.
Our indemnification rights under the acquisition agreements are limited.
In connection with each of the acquisitions of DSS, Eden and S&D, we are generally subject to all of the liabilities of the acquired business that were not satisfied on or prior to the closing date of such transaction. There may be liabilities that we underestimated or did not discover in the course of performing our due diligence investigation. Under each of the respective purchase agreements, we have been provided with a limited set of warranties and indemnities in relation to
identified risks. Our sole remedy from the sellers for any breach of those warranties is an action for indemnification, which is subject to certain negotiated limitations and thresholds, or an action for damages. Our rights to indemnification in most cases must be asserted within a negotiated time period after closing, which means if we fail to identify a breach promptly after closing, we may not be able to recover amounts to which we otherwise would have been entitled. We have secured insurance to cover losses arising in respect of the breach by the seller of those warranties and funds have been placed into escrow, but such funds may prove insufficient to cover damages that may occur. Damages resulting from a breach of warranty could have a material and adverse effect on our financial condition and results of operations.
Changes in future business conditions could cause business investments and/or recorded goodwill, indefinite life intangible assets or other intangible assets to become impaired, resulting in substantial losses and write-downs that would negatively affect our results of operations.
As part of our overall strategy, we will, from time to time, make investments in other businesses. These investments are made upon target analysis and due diligence procedures designed to achieve a desired return or strategic objective. These procedures often involve certain assumptions and judgment in determining investment amount or acquisition price. After consummation of an acquisition or investment, unforeseen issues could arise that adversely affect anticipated returns or that are otherwise not recoverable as an adjustment to the purchase price. Even after careful integration efforts, actual operating results may vary significantly from initial estimates. Goodwill accounted for approximately $1,104.7 million of our recorded total assets of continuing operations as of December 30, 2017. We evaluate the recoverability of recorded goodwill amounts annually, or when evidence of potential impairment exists. The annual impairment test is based on several factors requiring judgment and certain underlying assumptions. Our other intangible assets with indefinite lives relate to the 2001 acquisition of intellectual property from Royal Crown Company, Inc., including the right to manufacture our concentrates, with all related inventions, processes, technologies, technical and manufacturing information,know-how and the use of the Royal Crown brand outside of North America and Mexico (the “Rights”), and trademarks acquired in the acquisitions of DSS, Aquaterra and Eden. These assets have an aggregate net book value of $288.6 million, and are more fully described in Note 1 to the Consolidated Financial Statements.
As of December 30, 2017, our intangible assets subject to amortization, net of accumulated amortization for continuing operations were $462.5 million, which consisted principally of $428.7 million of customer relationships that arose from acquisitions, $15.8 million of software, and $14.2 million of patents. Customer relationships are typically amortized on an accelerated basis for the period over which we expect to receive the economic benefits. The customer relationships acquired in connection with the acquisitions of S&D, Eden, Aquaterra, and DSS are amortized over the expected remaining useful life of those relationships on a basis that reflects the pattern of realization of the estimated undiscountedafter-tax cash flows. We review the estimated useful life of these intangible assets annually, taking into consideration the specific net cash flows related to the intangible asset, unless a review is required more frequently due to a triggering event such as the loss of a significant customer. The permanent loss of, or significant decline in sales to customers included in the intangible asset would result in either an impairment in the value of the intangible asset or an accelerated amortization of any remaining value and could lead to an impairment of the fixed assets that were used to service that customer. Principally, a decrease in expected reporting segment cash flows, changes in market conditions, loss of key customers and a change in our imputed cost of capital may indicate potential impairment of recorded goodwill, the Rights, trademarks or tradenames. For additional information on accounting policies we have in place for goodwill impairment, see our discussion under “Critical Accounting Policies and Estimates” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form10-K and Note 1 to the Consolidated Financial Statements.
Our geographic diversity subjects us to the risk of currency fluctuations.
Although our sales predominately come from the United States, we
We conduct operations in
manydifferent areas of the world, involving transactions denominated in
a variety ofmultiple currencies. We are subject to currency exchange rate risk to the extent that our costs are denominated in currencies other than those in which we earn revenues. In addition, because our financial statements are denominated in U.S. dollars, changes in currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have, an impact on our results of operations. While we may enter into financial transactions to address these risks, there can be no assurance that currency exchange rate fluctuations will not negatively affect our financial condition, results of operations and cash flows. In addition, while the use of currency hedging instruments may provide us with protection from adverse fluctuations in currency exchange rates, by utilizing these instruments we potentially forego the benefits that might result from favorable fluctuations in currency exchange rates.
If we are unable to maintain relationships with our raw material suppliers, we may incur higher supply costs or be unable to deliver products to our customers.
In addition to water,
Uncertainty in the
principal raw materials required to produce our products are green coffee, tea, PET resin, HDPEfinancial markets and
polycarbonate bottles, caps and preforms, labels and cartons and trays. We rely upon our ongoing relationships with our key suppliers to support our operations.We typically enter into annual or multi-year supply arrangements with our key suppliers, meaning that our suppliers are obligated to continue to supply us with materials forone-year or multi-year periods, atother adverse changes in general economic conditions in the end ofcountries in which we must either renegotiate the contracts with those suppliers or find alternative sources for supply. There can be no assurance that we will be able to either renegotiate contracts (with similar or more favorable terms) with these suppliers when they expire or, alternatively, if we are unable to renegotiate contracts with our key suppliers, there can be no assurance that we could replace them. We could also incur higher ingredient and packaging supply costs in renegotiating contracts with existing suppliers or replacing those suppliers, or we could experience temporary disruptions in our ability to deliver products to our customers, either of which could negatively affect our results of operations.
With respect to some of our key ingredients, such as green coffee, we have entered into long-term supply agreements, the remaining terms of which range up to 12 months, and therefore we expect to have a supply of those key ingredients during such terms. In addition, the supply of specific ingredient and packaging materials could be adversely affected by many factors, including industry consolidation, energy shortages, governmental controls, labor disputes, natural disasters, transportation interruption, political instability, acts of war or terrorism and other factors.
Some of the Arabica coffee beans we purchase do not trade directly on the commodity markets. Rather, we purchase these coffee beans on a negotiated basis from coffee brokers, exporters and growers. If any of these supply relationships deteriorate, we may be unable to procure a sufficient quantity ofhigh-quality coffee beans at prices acceptable to us or at all. Further,non-performance by suppliers could expose us to credit and supply risk under coffee purchase commitments for delivery in the future. In addition, the political situation in many of the Arabica coffee growing regions, including Africa, Indonesia, and Central and South America, can be unstable, and such instability could affect our ability to purchase coffee from those regions. If green coffee beans from a region become unavailable or prohibitively expensive, we could be forced to use alternative coffee beans or discontinue certain blends, which could adversely impact our sales. A raw material shortage could result in a decrease in revenues or a deterioration of our relationship with our customers in our OCS business or could impair our ability to expand our OCS business.
We have a significant amount of outstanding indebtedness, which could adversely affect our financial health, and future cash flows may not be sufficient to meet our obligations.
As of December 30, 2017, our total indebtedness for continuing operations was $2,287.0 million, of which $1,011.2 million was retired or repaid upon closing of the Transaction. Our present indebtedness and any future borrowings could have important adverse consequences to us and our investors, including:
requiring a substantial portion of our cash flow from operations to make interest payments on this indebtedness;
making it more difficult to satisfy debt service and other obligations;
increasing the risk of a future credit ratings downgrade of our indebtedness, which would increase future debt costs;
increasing our vulnerability to general adverse economic and industry, conditions;
reducing the cash flow available or limiting our ability to borrow additional funds for share repurchases, to pay dividends, to fund capital expenditures and other corporate purposes and to grow our business;
limiting our flexibility in planning for, or reacting to, changes in our business and the industry; and
placing us at a competitive disadvantage to our competitors that may not be as highly leveraged as we are.
To the extent we become more leveraged, we face an increased likelihood that one or more of the risks described above would materialize. In addition, our actual cash requirements in the future may be greater than expected. We cannot assure you that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us in amounts sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.
If we fail to generate sufficient cash flow from future operations to meet our debt service obligations, we may need to refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness on attractive terms, commercially reasonable terms or at all. If we cannot service or refinance our indebtedness, we may have to take actions such as selling assets, seeking additional equity or reducing or delaying capital expenditures, strategic acquisitions, investments and alliances, any of which could impede the implementation of our business strategy, prevent us from entering into transactions that would otherwise benefit our business and/or have a material adverse effect on our financial condition and results of operations. Our future operating performance
Periods of uncertainty in the financial markets and
our ability to service or refinance our indebtedness will be subject to futureadverse economic conditions
and to financial, business and other factors, many of which are beyond our control.Our ABL facility and the indenture governing our outstanding notes each contain various covenants limiting the discretion of our management in operating our business, which could prevent us from capitalizing on business opportunities and taking some corporate actions.
Our ABL facility and the indenture governing our outstanding notes each impose significant operating and financial restrictions on us. These restrictions will limit or restrict, among other things, our ability and the ability of our restricted subsidiaries to:
incur additional indebtedness;
make restricted payments (including paying dividends on, redeeming, repurchasing or retiring our capital stock);
make investments;
create liens;
sell assets;
enter into agreements restricting our subsidiaries’ ability to pay dividends, make loans or transfer assets to us;
engage in transactions with affiliates; and
consolidate, merge or sell all or substantially all of our assets.
These covenants are subject to important exceptions and qualifications. In addition, our ABL facility also requires us, under certain circumstances, to maintain compliance with certain financial covenants as described in the “Covenant Compliance” sectioncountries in Item 7. Our ability to comply with these covenants may be affected by events beyond our control, including those described in this “Risk Factors” section. A breach of any of the covenants contained in our ABL facility, or the indentures governing our outstanding notes could result in an event of default under one or more of the documents governing such obligations, which would allow the lenders under our ABL facility to declare all borrowings outstanding, or in the case of the noteholders of our outstanding notes, all principal amounts outstanding on such notes, to be due and payable. Any such acceleration would trigger cross-default provisions under the ABL facility, and the indentures governing our outstanding notes and, potentially, our other indebtedness. In the event of an acceleration of payment obligations, we would likely be unable to pay our outstanding indebtedness with our cash and cash equivalents then on hand. We would, therefore, be required to seek alternative sources of funding, which may not be available on commercially reasonable terms, terms as favorable as our current agreements or at all. If we are unable to refinance our indebtedness or find alternative means of financing our operations, we may be required to curtail our operations, face bankruptcy, or take other actions that are inconsistent with our current business practices or strategy. For additional information about our ABL facility, see our discussion under “Liquidity and Capital Resources” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form10-K and Note 15 to the Consolidated Financial Statements.
A portion of our debt may be variable rate debt, and changes in interest rates could adversely affect us by causing us to incur higher interest costs with respect to such variable rate debt.
Our ABL facility subjects us to interest rate risk. The rate at which we pay interest on amounts borrowed under such facility fluctuates with changes in interest rates and our debt leverage. Accordingly, with respect to any amounts from time to time outstanding under our ABL facility, we are and will be exposed to changes in interest rates. If we are unable to adequately manage our debt structure in response to changes in the market, our interest expensedo business could increase, which would negatively affect our financial condition and results of operations. The outstanding borrowings under the ABL facility as of December 30, 2017 were $220.3 million.
We incurred substantial indebtedness in order to finance acquisitions, which could adversely affect our business and limit our ability to plan for or respond to changes in our business.
Our strategy of growth by acquisitions has been financed by the incurrence of substantial indebtedness. There can be no assurance that we will be successful in obtaining any future debt financing on favorable terms or at all.
Our ability to make payments on our debt obligations and to fund planned capital expenditures depends on our ability to generate cash from our future operations. This, to a certain extent, is subject to financial, competitive, legislative, regulatory and other factors that are beyond our control. In addition, if we cannot service our indebtedness, we may have to take actions such as selling assets, seeking additional equity or reducing or delaying capital expenditures, strategic acquisitions, investments and alliances, any of which could impede the implementation of our business strategy, prevent us from entering into transactions that would otherwise benefit our business and/or negatively affect our financial condition and results of operations. We may not be able to refinance our indebtedness or take such other actions, if necessary, on commercially reasonable terms, or at all.
Our results of operations may be negatively affected by global financial events.
In recent years, global financial events have resulted in the consolidation, failure or near failure of a number of institutions in the banking, insurance and investment banking industries and have substantially reduced the ability of companies to obtain financing. These events also adversely affected the financial markets. These events could continue to have a number of different effects on our business, including:
•a reduction in consumer spending, which could result in a reduction in our sales volume;
•a negative impact on the ability of our customers to timely pay their obligations to us or our vendors to timely supply materials, thus reducing our cash flow;
•an increase in counterparty risk;
•an increased likelihood that one or more members of our banking syndicate may be unable to honor its commitments under our ABL facility;senior secured revolving credit facility (“Revolving Credit Facility”); and
•restricted access to capital markets that may limit our ability to take advantage of business opportunities.
Other events or
If economic conditions
may arise or persist directly or indirectly from the global financial events thatdeteriorate, our industry, business and results of operations could
negatively affect our business.We may not fully realize the expected cost savings and/or operating efficiencies from our restructuring activities.
We have in the past implemented,be materially and may in the future implement, restructuring activities to support the implementation of key strategic initiatives designed to achieve long-term sustainable growth. These activities are intended to maximize our operating effectiveness and efficiency and to reduce our costs. We cannot be assured that we will achieve or sustain the targeted benefits under these programs or that the benefits, even if achieved, will be adequate to meet our long-term growth expectations. In addition, the implementation of key elements of these activities may have an adverse impact on our business, particularly in the near-term.
adversely affected.
Substantial disruption to production at our production facilities could occur.
A disruption in production at our production facilities or those of our suppliers,
bottlers, distribution channels or service networks could have a material adverse effect on our business. The disruption could occur for many reasons, including fire, natural disasters,
pandemics, weather, manufacturing problems,
contamination, diseases, strikes
or labor shortages, supply chain disruptions, transportation interruption, government regulation,
war, terrorism or
terrorism.other hostile acts. Alternative facilities with sufficient capacity or capabilities may not be available, may cost substantially more or may take a significant time to start production, each of which could negatively impact our business and results of operations.
Our business is dependent on our ability to maintain access to our water sources; water scarcity,
government regulation of water access and poor quality could negatively affect our long-term financial performance.
A
Damage to or a disruption in the water flow at any one of our water sources, a dispute over water rights, increased legal restrictions on
or government regulation of water use or access at our water sources or the failure to maintain access to our water sources could cause an increase in the cost of our products or shortages that would likely not allow us to meet market demand. The potential delivery and price disruptions due to the loss of any one water source or a decline in the volume of water available could significantly disrupt our business, result in the loss of customer confidence and have an adverse effect on our business, financial condition and results of operations. Further, if any of our municipal water sources were curtailed or eliminated as a result of, for example, a natural disaster, work stoppage or other significant event that disrupted water flow from such municipal source, we may have to purchase water from other sources, which could increase water and transportation costs and could result in supply shortages and price increases. Any one of these events could have a negative impact on our business, financial condition, reputation and results of operations.
Water is a limited resource facing significant challenges from population growth, environmental contamination and poor management. As demand for water continues to increase and if water becomes more scarce and the quality of water available deteriorates, our business may incur increasing costs or face capacity constraints, which could adversely affect our profitability or net sales in the long run.
Furthermore, even if we are able to secure adequate water sources, the methods which we employ to do so, including acquisitions of additional water sources, may have a negative impact on our public reputation, especially in jurisdictions encountering drought or where water is considered a limited resource.
Climate change may have an adverse impact on our business and results of operations.
There is concern that a gradual increase in global average temperatures due to increased concentration of carbon dioxide and other greenhouse gases in the atmosphere is causing significant changes in weather patterns and an increase in the frequency or duration of extreme weather and climate events. These changes could adversely impact some of our facilities, the availability and cost of key raw materials and water resources we use. Public expectations for reductions in greenhouse gas emissions are rapidly changing and may require us to make additional investments in facilities and equipment, including more fuel-efficient vehicles. In addition, federal, state or local governmental authorities may propose legislative and regulatory initiatives in response to concerns over climate change , such as the new disclosure requirements that have been adopted in the European Union and California and additional requirements expected to be adopted by the SEC, which could have varying and inconsistent requirements that could increase our compliance costs and may require additional investments or increase the cost of raw materials, fuel, ingredients and water. Further, if we are unable to meet public expectations and regulatory developments, or if our existing practices and procedures are not adequate to meet new regulatory requirements, we may miss corporate opportunities or become subject to regulatory scrutiny or third-party claims. As a result, the effects of climate change could have an adverse impact on our business and results of operations.
Our success depends, in part, on our intellectual property, which we may be unable to protect.
While we own certain of the trademarks used to identify our beverages, other trademarks are used through licenses from
third-partiesthird parties or by permission from our customers. Our success depends, in part, on our ability to protect our intellectual
property.property across multiple jurisdictions.
To protect this intellectual property, we rely principally on registration of trademarks, contractual responsibilities and restrictions in agreements (such as indemnification, nondisclosure and confidentiality agreements) with employees, consultants and customers, and on common law and statutory protections afforded to trademarks, trade secrets and proprietary“know-how. “know-how.” In addition, we vigorously protect our intellectual property against infringements using any and all legal remedies available. Notwithstanding our efforts, we may not be successful in protecting our intellectual property for a number of reasons, including: •our competitors may independently develop intellectual property that is similar to or better than ours;
•employees, consultants or customers may not abide by their contractual agreements and the cost of enforcing those agreements may be prohibitive, or those agreements may prove to be unenforceable or more limited than anticipated;
foreign intellectual property laws may not adequately protect our intellectual property rights; and
•our intellectual property rights may be successfully challenged, invalidated or circumvented.
If we are unable to protect our intellectual property, our competitive position would weaken and we could face significant expense to protect or enforce our intellectual property rights.
At December 30, 2017, we had $24.5 million of Rights and $264.1 million of trademarks recorded as intangible assets not subject to amortization (see Note 13 to the Consolidated Financial Statements).Occasionally,
third partiesthird-parties may assert that we are, or may be, infringing on or misappropriating their intellectual property rights. In these cases, we intend to defend against claims or negotiate licenses when we consider these actions appropriate. Intellectual property cases are uncertain and involve complex legal and factual questions. If we become involved in this type of litigation, it could consume significant resources and divert our attention from business operations.
If we are found to infringe on the intellectual property rights of others, we could incur significant damages, be enjoined from continuing to manufacture, market or use the affected product, or be required to obtain a license to continue manufacturing or using the affected product. A license could be very expensive to obtain or may not be available at all. Similarly, changing products or processes to avoid infringing the rights of others may be costly or impracticable.
Our business is seasonal and adverse weather conditions could negatively affect our business, financial condition and results of operations.
The sales of our products are influenced to some extent by weather conditions in the markets in which we operate. Unusually cold or rainy weather during the summer months may reduce the demand for our bottled water and other products and contribute to lower revenues, which could negatively affect our profitability.
Global or regional unrest, conflict, geopolitical disputes or catastrophic events could affect our operations and results of operations.
Our business can be affected by war, large-scale terrorist or other hostile acts, especially those directed against the United States or other major industrialized countries in which we do business, major natural disasters, long-term periods of drought, or widespread outbreaks of infectious diseases. Such events could impair our ability to manage our business, could disrupt our supply of raw materials, and could affect production, transportation and delivery of products. For example, the U.S.-China trade relations remain uncertain, and if tensions continue to worsen, we may increase our onshoring and diversification efforts to reduce reliance on the Chinese supply chain which could impact our supply chain, production and
delivery of products. Further, regional conflicts, such as the Ukraine-Russia and Israel-Hamas conflicts, could escalate and expand, which in turn could have negative impacts on our operations, including our operations and associates in Israel, and the global economy and financial markets. Such disruptions of regional or global economic activity can affect consumers’ purchasing power in the affected areas and, therefore, reduce demand for our products.
The outbreak of contagious diseases, similar to COVID-19, could adversely affect our business, financial condition and results of operations.
Our business could be adversely affected by the effects of a widespread outbreak of contagious diseases, similar to COVID-19, which impacted global, national and local economies, created a number of macroeconomic challenges that impacted our business, including volatility and uncertainty in business planning, disruptions in global supply chains, material, freight and labor inflation, shortages of and delays in obtaining certain materials and labor shortages.
The extent of the impact of a pandemic similar to the COVID-19 pandemic on our business and financial results will depend on numerous evolving factors that we are not able to accurately predict and that all will vary by market, including the duration and scope of the pandemic, the emergence of new variants of the virus and the efficacy of vaccines against such variants, global economic conditions during and after the pandemic, including disruptions in the global supply chain, inflation and labor shortages, government actions that may be taken in the future, in response to the pandemic, and changes in customer behavior in response to the pandemic, some of which may be more than just temporary.
Strategic Risks
We may devote a significant amount of our management’s attention and resources to our ongoing review of strategic opportunities, including potential divestitures, and we may not be able to fully realize the potential benefit of any such alternatives that we pursue.
As part of our overall strategic planning process, from time to time we evaluate whether there are alternatives available to complement our strategy of organic growth and growth through diversification. Accordingly, we may from time to time be engaged in evaluating potential transactions and other strategic alternatives, and we may engage in discussions that may result in one or more transactions. Although there would be uncertainty that any of these discussions would result in definitive agreements or the completion of any transaction, we may devote a significant amount of our management’s attention and resources to evaluating and pursuing a transaction or opportunity, which could negatively affect our operations.
We are executing strategic alternatives for our remaining international businesses. There can be no assurance that the strategic plan to divest our Remaining International Businesses will receive the level of market support that we expect or that we will be able to achieve the anticipated operational, strategic and other benefits. Moreover, our business will be less diversified geographically, which could make us more susceptible to changing market conditions in North America.
In addition, we may incur significant costs in connection with evaluating and pursuing other strategic opportunities, regardless of whether any transaction is completed. We may not fully realize the potential benefits of any strategic alternatives or transactions that we pursue.
We may not realize the expected revenue and cost synergies related to our acquisitions.
The success of our acquisitions will depend, in part, on our ability to realize all or some of the anticipated benefits from integrating with our existing businesses. The integration process may be complex, costly, time-consuming and subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and are beyond our control. The difficulties of integrating the operations and realizing revenue and cost synergies include, among others:
•failure to implement our business plan for the combined business;
•unanticipated issues in integrating manufacturing, logistics, information, communications and other systems;
•possible inconsistencies in standards, controls, procedures and policies, and compensation structures between acquired structures and our structure;
•failure to retain key customers and suppliers;
•unanticipated changes in applicable laws and regulations;
•failure to retain key employees;
•additional exposure to risks of new markets and geographies;
•inherent operating risks; and
•other unanticipated issues, expenses and liabilities.
We may not be able to maintain the levels of revenue, earnings or operating efficiency that each of the Company, on the one hand, and the acquired businesses, on the other hand, had achieved or might achieve separately. Even if we realize the expected benefits, this may not be achieved within the anticipated time frame. Furthermore, the synergies from acquisitions may be offset by costs incurred in consummating such acquisitions or in integrating the acquired businesses, increases in other expenses, operating losses or unrelated adverse results in the business. As a result, there can be no assurance that such synergies will be achieved.
In addition, actual results may differ from pro forma financial information of the combined companies due to changes in the fair value of assets acquired and liabilities assumed, changes in assumptions used to form estimates, differences in accounting policies between the companies, and completion of purchase accounting.
Changes in future business conditions could cause business investments and/or recorded goodwill, indefinite life intangible assets or other intangible assets to become impaired, resulting in substantial losses and write-downs that would negatively affect our results of operations.
As part of our overall strategy, we will, from time to time, make investments in other businesses. These investments are made upon targeted analysis and due diligence procedures designed to achieve a desired return or strategic objective. These procedures often involve certain assumptions and judgment in determining investment amount or acquisition price. After consummation of an acquisition or investment, unforeseen issues could arise that adversely affect anticipated returns or that are otherwise not recoverable as an adjustment to the purchase price. Even after careful integration efforts, actual operating results may vary significantly from initial estimates. We evaluate the recoverability of recorded goodwill and indefinite life intangible asset amounts annually, or when evidence of potential impairment exists. The impairment test is based on several factors requiring judgment and certain underlying assumptions. Goodwill accounted for approximately $1,004.6 million of our recorded total assets as of December 30, 2023. Our other intangible assets with indefinite lives as of December 30, 2023 relate primarily to the trademarks acquired in our historical acquisitions. These assets have an aggregate net book value of $381.2 million, and are more fully described in Note 1 to the Consolidated Financial Statements.
As of December 30, 2023, our intangible assets subject to amortization, net of accumulated amortization for continuing operations were $333.0 million, which consisted principally of $310.7 million of customer relationships that arose from acquisitions, $13.8 million of software, and $5.9 million of patents. Customer relationships are typically amortized over the period for which we expect to receive the economic benefits. The customer relationships acquired in connection with our historical acquisitions are amortized over the expected remaining useful life of those relationships on a basis that reflects the pattern of realization of the estimated undiscounted after-tax cash flows. We review the estimated useful life of these intangible assets annually, taking into consideration the specific net cash flows related to the intangible asset, unless a review is required more frequently due to a triggering event such as the loss of a significant customer. The permanent loss of, or significant decline in sales to customers included in the intangible asset would result in either an impairment in the value of the intangible asset or an accelerated amortization of any remaining value and could lead to an impairment of the fixed assets that were used to service that customer. Principally, a decrease in expected reporting segment cash flows, changes in market conditions, loss of key customers and a change in our imputed cost of capital may indicate potential impairment of recorded goodwill, trademarks or trade names. For additional information on accounting policies we have in place for goodwill and indefinite life intangible asset impairment, see our discussion under “Critical Accounting Policies” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K and Note 1 to the Consolidated Financial Statements.
Financial, Credit and Liquidity Risks
We have a significant amount of outstanding indebtedness, which could adversely affect our financial health, and future cash flows may not be sufficient to meet our obligations.
As of December 30, 2023, our total indebtedness was $1.3 billion. Our present indebtedness and any future borrowings could have important adverse consequences to us and our investors, including:
•requiring a substantial portion of our cash flow from operations to make interest payments on this indebtedness;
•making it more difficult to satisfy debt service and other obligations;
•increasing the risk of a future credit ratings downgrade of our indebtedness, which would increase future debt costs;
•increasing our vulnerability to general adverse economic and industry conditions;
•reducing the cash flow available or limiting our ability to borrow additional funds to pay dividends, to fund capital expenditures and other corporate purposes and to grow our business;
•limiting our flexibility in planning for, or reacting to, changes in our business and the industry; and
•placing us at a competitive disadvantage to our competitors that may not be as highly leveraged as we are.
Our levels of indebtedness are driven, in part, by our strategy of growth by acquisitions. There can be no assurance that we will be successful in obtaining any future debt financing on favorable terms or at all and to the extent we become more leveraged, we face an increased likelihood that one or more of the risks described above would materialize. In addition, our actual cash requirements in the future may be greater than expected. We cannot assure you that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us in amounts sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.
If we fail to generate sufficient cash flow from future operations to meet our debt service obligations, we may need to refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness on attractive terms, commercially reasonable terms or at all. If we cannot service or refinance our indebtedness, we may have to take actions such as selling assets, seeking additional equity or reducing or delaying capital expenditures, strategic acquisitions, investments and alliances, any of which could impede the implementation of our business strategy, prevent us from entering into transactions that would otherwise benefit our business and/or have a material adverse effect on our financial condition and results of operations. Our future operating performance and our ability to service or refinance our indebtedness will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control.
Our Revolving Credit Facility and the indentures governing our outstanding notes each contain various covenants limiting the discretion of our management in operating our business, which could prevent us from capitalizing on business opportunities and taking some corporate actions.
Our Revolving Credit Facility and the indentures governing our outstanding notes each impose significant operating and financial restrictions on us. These restrictions will limit or restrict, among other things, our ability and the ability of our restricted subsidiaries to:
•incur additional indebtedness;
•make restricted payments (including paying dividends on, redeeming, repurchasing or retiring our capital stock);
•make investments;
•create liens;
•sell assets;
•enter into agreements restricting our subsidiaries’ ability to pay dividends, make loans or transfer assets to us;
•engage in transactions with affiliates; and
•consolidate, merge or sell all or substantially all of our assets.
These covenants are subject to important exceptions and qualifications. In addition, our Revolving Credit Facility also requires us, under certain circumstances, to maintain compliance with certain financial covenants as described in the “Covenant Compliance” section in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Our ability to comply with these covenants may be affected by events beyond our control, including those described in this “Risk Factors” section. A breach of any of the covenants contained in our Revolving Credit Facility, or the indentures governing our outstanding notes could result in an event of default under one or more of the documents governing such obligations, which would allow the lenders under our Revolving Credit Facility to declare all borrowings outstanding, or in the case of the note holders of our outstanding notes, all principal amounts outstanding on such notes, to be due and payable. Any such acceleration would trigger cross-default provisions under the Revolving Credit Facility, and the indentures governing our outstanding notes and, potentially, our other indebtedness. In the event of an acceleration of payment obligations, we would likely be unable to pay our outstanding indebtedness with our cash and cash equivalents then on hand. We would, therefore, be required to seek alternative sources of funding, which may not be available on commercially reasonable terms, terms as favorable as our current agreements or at all. If we are unable to refinance our indebtedness or find alternative means of financing our operations, we may be required to curtail our operations, face bankruptcy, or take other actions that are inconsistent with our current business practices or strategy. For additional information about our Revolving Credit Facility, see our discussion under “Liquidity and Capital Resources” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K and Note 16 to the Consolidated Financial Statements.
A portion of our debt may be variable rate debt, and changes in interest rates could adversely affect us by causing us to incur higher interest costs with respect to such variable rate debt.
Our Revolving Credit Facility subjects us to interest rate risk. The rate at which we pay interest on amounts borrowed under such facility fluctuates with changes in interest rates and our debt leverage. Accordingly, with respect to any amounts from time to time outstanding under our Revolving Credit Facility, we are and will be exposed to changes in interest rates. In 2022 and 2023, interest rates have risen significantly in efforts to mitigate ongoing inflation, which has increased our debt service costs over prior periods. If we are unable to adequately manage our debt structure in response to changes in the market, our interest expense could increase, which would negatively affect our financial condition and results of operations. As of December 30, 2023, there were no outstanding borrowings under the Revolving Credit Facility.
Risks Related to Our Human Capital
Our success depends in part upon our ability to recruit, retain and prepare succession plans for our CEO, CFO, senior management and key employees.
The performance of our Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”), senior management and other key employees is critical to our success. In January 2024, we appointed Robbert Rietbroek as our new CEO after the planned retirement of Tom Harrington, which was announced in May 2023. We plan to continue to invest time and resources in developing our senior management and key employee teams. Our long-term success will depend on our ability to recruit and retain capable senior management and other key employees, and any failure to do so could have a material adverse effect on our future operating results and financial condition. Further, if we fail to adequately plan for the succession of our CEO, CFO, senior management and other key employees, our results of operations could be negatively affected.
Our business could be adversely affected by increased labor costs.
Increased labor costs, due to factors such as competition for workers, labor shortages, labor market pressures, increased minimum wage requirements, paid sick leave or vacation accrual mandates, or other legal or regulatory changes, may adversely impact our operating costs. In addition, competition for all qualified personnel is increasingly intense and there can be no assurance that we will be successful in hiring, training, and retaining personnel in the future. The extent and duration of the impact of labor market challenges are subject to numerous factors, availability of qualified personnel and competition from within our industry.
We may not be able to renew collective bargaining agreements on satisfactory terms, or we could experience strikes.
Some of our employees are covered by collective bargaining agreements expiring on various dates. We may not be able to renew our collective bargaining agreements on satisfactory terms or at all. This could result in strikes or work stoppages, which could impair our ability to manufacture and distribute our products and result in a substantial loss of sales. The terms of existing or renewed agreements could also significantly increase our costs or negatively affect our ability to increase operational efficiency.
Risks Related to Our Information Technology, Cybersecurity and Data Protection
An interruption or cybersecurity breach, disruption or misuse of our information systems, or the information systems of our third-party service providers, could have a material adverse effect on our business.
We depend on highly complex key information systems to accurately and efficiently transact our business, provide information to management and prepare financial reports. We rely on third-party providers for various networking, application hosting and related business process services which support our key information systems. Maintaining and upgrading such systems is increasingly costly, and issues with performance by these third parties may disrupt our operations and as a result, our operating expenses could increase, which could negatively affect our results of operations.
In addition, these systems and services are vulnerable to interruptions or other failures resulting from, among other things, natural disasters, war, terrorism or other hostile acts, software, equipment or telecommunications failures, processing errors or supplier defaults. Moreover, the nature of these digital systems makes them potentially vulnerable to cybersecurity attacks, such as computer viruses, ransomware, phishing, hackers, or other security issues. In addition, the rapid evolution and increased adoption of new technologies, such as artificial intelligence, may intensify our cybersecurity risks.
Cybersecurity attacks have become increasingly common and we have experienced immaterial business disruption, monetary loss and data loss as a result of phishing, business email compromise and other types of attacks. Such events may be difficult to detect, and once detected, their impact may be difficult to assess and address. Additionally, security, backup and disaster recovery measures may not be adequate or implemented properly to avoid such disruptions or failures. Any disruption or failure of these systems or services could cause substantial errors, data loss, processing inefficiencies, security breaches, inability to use the systems or process transactions, loss of customers or other business disruptions, any of which could negatively affect our business and results of operations, subject us to penalties or result in reputational harm.
If we are unable to securely maintain our customers’ confidential or credit card information, or other private data relating to our employees or our Company, we could be subject to negative publicity, costly government enforcement actions or private litigation, which could damage our business reputation and negatively affect our results of operations.
The protection of our customer, employee and Company data is critical to us. We have procedures and technology in place to safeguard our customers’ debit card, credit card and other personal information, our employees’ private data and Company records and intellectual property. However, if we experience a data security breach of any kind, we could be exposed to negative publicity, government enforcement actions, private litigation or costly response measures. In addition, our reputation within the business community and with our customers may be affected, which could result in our customers discontinuing their purchases of our products and services or their use of the debit or credit card payment option. Any loss of our ability to securely offer our customers a credit card payment option would make our products less attractive to many small organizations by negatively affecting our customer experience and significantly increasing our administrative costs related to customer payment processing. This could cause us to lose customers and could have a negative effect on our results of operations. While we maintain insurance coverage that is intended to address certain aspects of data security risks, the coverage may be insufficient to cover all losses or all types of claims that may arise.
In addition, the regulatory environment surrounding information security and privacy is increasingly demanding, with frequent imposition of new and changing requirements. For example, the European Union’s General Data Protection Regulation, which became effective in 2018, and the California Consumer Privacy Act, which became effective in 2020, impose significant new requirements on how we collect, process and transfer personal data, as well as significant fines for non-compliance. Compliance with changes in privacy and information security laws and standards may result in significant expense due to increased investment in technology and the development of new operational processes.
Legal, Regulatory and Tax Risks
Our products may not meet health and safety standards or could become contaminated and we could be liable for injury, illness or death caused by consumption of our products.
We have adopted various quality, environmental, health and safety standards. However, our products may still not meet these standards or could otherwise become contaminated. A failure to meet these standards or contamination could occur in our operations or those of our bottlers, distributors or suppliers. This could result in expensive production interruptions, recalls and liability claims. We may be liable to our customers if the consumption of any of our products causes injury, illness or death. Moreover, negative publicity could be generated from false, unfounded or nominal liability claims or limited recalls. Any of these failures or occurrences could negatively affect our business, results of operations or cash flows.
Litigation or legal proceedings could expose us to significant liabilities and damage our reputation.
We are party to various litigation claims and legal proceedings. We evaluate these claims and proceedings to assess the likelihood of unfavorable outcomes, and, if possible, estimate the amount of potential losses. If our products are not safely and/or properly manufactured or designed, personal injuries or property damage could result, which could subject us to claims for damages. The costs associated with defending product liability and other claims, and the payment of damages, could be substantial. Our reputation could also be adversely affected by such claims, whether or not successful.
We may establish a reserve as appropriate based upon assessments and estimates in accordance with our accounting policies, and we have also asserted insurance claims where appropriate. We base our assessments, estimates and disclosures on the information available to us at the time and rely on legal and management judgment. Actual outcomes or losses or any recoveries we may receive from insurance may differ materially from assessments and estimates. Actual settlements, judgments or resolutions of these claims or proceedings may negatively affect our business and financial performance. A successful claim against us that is not covered by insurance or is in excess of our available insurance limits could require us to make significant payments of damages and could negatively affect our business, financial condition and results of operations. For more information, see “Item 3. Legal Proceedings.”
Changes in the legal and regulatory environment in the jurisdictions in which we operate could negatively affect our results of operations, adversely affect demand for our products and services or result in litigation.
As a producer and distributor of foods and beverages, we must comply with various federal, state, provincial, local and foreign laws and regulations relating to production, packaging, quality, labeling and distribution, including, in the United States, those of the federal Food, Drug and Cosmetic Act, the Fair Packaging and Labeling Act, the Federal Trade Commission Act, the Nutrition Labeling and Education Act and California Proposition 65. We are also subject to various federal, state, provincial, local and foreign environmental laws and workplace regulations. These laws and regulations include, in the United States, the Occupational Safety and Health Act, the Unfair Labor Standards Act, the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act, the Comprehensive Environmental Response, Compensation, and Liability Act, the Resource Conservation and Recovery Act, the Federal Motor Carrier Safety Act, laws governing equal employment opportunity, customs and foreign trade laws and regulations, laws relating to the maintenance of fuel storage tanks, laws relating to mineral and chemical concentration and water quality, consumption and treatment, and various other federal statutes and regulations.distribution. The Food and Drug Administration (“FDA”) regulates bottled water as a food. Our bottled water must meet FDA requirements of safety for human consumption, labeling, processing, security and distribution under sanitary conditions and production in accordance with FDA “good“Current Good Manufacturing Practices.” We import certain of manufacturing practices.” Outside the United States, the productionequipment, and distribution of our productswe must comply with import laws and regulations. We are also subject to various federal, state, provincial, local and foreign environmental laws and workplace regulations. These laws and regulations may change as a result of political, economic, or social events. Such regulatory changes may include changes in food and drug laws, laws related to advertising, accounting standards, taxation requirements, competition laws and environmental laws, including laws relating to the regulation of water rights and treatment.
Changes in laws, regulations or government policy and related interpretations may alter the environment in which we do business, which may negatively affect our results of operations or increase our costs or liabilities.
A number of states have passed laws setting forth warning or labeling requirements relating to products made for human consumption. For example, the California law known as Proposition 65 requires that a specific warning
statement appear on any product sold in California containing a substance listed by that state as having been found to cause cancer or reproductive toxicity. This law, and others like it, exposes all food and beverage producers to the possibility of having to provide warnings on their products. The detection of even a trace amount of a listed substance can subject an affected product to the requirement of a warning label, although products containing listed substances that occur naturally or that are contributed to such products solely by a municipal water supply are generally exempt from the warning requirement. From time to time over the past several years, certain of our customers have received notices alleging that the labeling requirements of the relevant state regulation would apply to products manufactured by us and sold by them. There can be no assurance that we will not be adversely affected by actions against our customers or us relating to Proposition 65 or similar “failure to warn” laws. Were any such claim to be pursued or succeed, we might in some cases be required to indemnify our customers for damages and provide warnings on our products in order for them to be sold in certain states. Any negative media attention, adverse publicity or action arising from allegations of violations could adversely affect consumer perceptions of our products and harm our business.
Energy/Conservation Initiatives
The EPA has oversight over the
voluntary Energy Star certification program for appliances, including bottled water
dispensers. Since February 1, 2014, the EPA has required appliances in the programdispensers, intended to
adhere to a lower energy
consumption standard of 0.87 kilowatt hours per day.consumption. While we are working closely with our water cooler manufacturers to ensure we have continued access to Energy Star certified bottled water dispensers, there can be no assurances that we will continue to have such access. Our inability to utilize compliant dispensers could negatively affect our business, financial condition, reputation and results of operations.
Recent initiatives have taken place in several markets in which we operate regarding bottled water. Regulations have been proposed in some jurisdictions that would ban the use of public funds to purchase bottled water, enact local taxes on bottled water and water extraction and restrict the withdrawal of water from public and private sources. We believe that the adverse publicity associated with these initiatives is generally aimed at the retail, small bottle segment of the industry that is a minimal part of our business, and that our customers can readily distinguish our products from the retail bottles that are currently the basis for concern in some areas. Our customers typically buy their water in reusable
3G and 5Gmulti-gallon water bottles that are placed on coolers and reused many times. While we believe that to date we have not directly experienced any adverse effects from these concerns, and that our products are sufficiently different from those under scrutiny, there is no assurance that adverse publicity about any element of the bottled water industry will not affect
consumerpublic behavior by discouraging
buyersconsumers from buying bottled water products generally. In that case, our sales and other financial results could be adversely affected.
The increasing concern over climate change also may result in more regional, federal and/or global legal and regulatory requirements to reduce or mitigate the effects of greenhouse gases. In the event that such regulation is more aggressive than the sustainability measures that we are currently undertaking to monitor our emissions and improve our energy efficiency, we may experience significant increases in our costs of operation and delivery. In particular, increasing regulation of fuel emissions could substantially increase the cost of energy, including fuel, required to operate our facilities or transport and distribute our products,
particularly in our DSS business, thereby substantially increasing the distribution and supply chain costs associated with our products. As a result, climate change could negatively affect our business and results of operations.
The manufacture
sale and use of resins and Bisphenol A (“BPA”) used to make our 3G and 5G water bottles are subject to regulation by the
Food and Drug Administration (“FDA”).FDA. These regulations relate to substances used in food packaging
materials, not with specific finished food packaging products.materials. BPA is contained in substantially all of our
three-3G and
five-gallon5G returnable polycarbonate plastic bottles. Negative media attention regarding BPA has generated concern in the bottled water
market, although a January 2010 report bymarket. Regulatory agencies in several jurisdictions worldwide, including the FDA,
notes studies that suggest the low levels of BPA used in polycarbonate bottles arehave found these materials to be safe for
human exposure and the FDA sustained this opinionfood contact at current levels, but a significant change in
its March 2013regulatory rulings or state or local laws concerning BPA
consumer update. The FDA indicated that it will continue to evaluate these studies before issuing a final assessmentcould have an adverse effect on
the safety of BPA and the FDA’s current public health recommendations include taking reasonable steps to reduce exposure of infants and young children to BPA. The FDA and certain states, however, may in the future decide to regulate more aggressively the potential harmful effects of BPA. Although the FDA rejected a 2012 citizen petition from the Natural Resources Defense Council seeking the ban of BPA from all food and drink packaging, including plastic bottles and canned foods, our
customers and potential new customers may share the concerns raised by the citizens petition and may reduce their exposure to BPA as a result. The FDA has also asserted the need for additional studies on the safety of BPA in food packaging materials and acknowledged recent studies regarding potential developmental and behavioral effects of BPA exposure on infants and young children. The EPA and certain states also may in the future study or regulate BPA. Additionally, a number of states have passed legislation banning the use of BPA in packaging intended for children three years of age and younger, such as in baby bottles and sippy cups.business. Extensive negative public perception regarding food packaging that uses BPA
or other types of plastics, or the presence of nanoplastics in water generally, could cause consumers to stop purchasing our products manufactured in polycarbonate bottles. Further, the emergence of new scientific evidence or reports that suggests our polycarbonate water bottles are unsafe, or interpretations of existing evidence by regulatory agencies that lead to prohibitions on the use of polycarbonate plastic as packaging for food contact materials, could cause a serious disruption in our ability to package our bottled water products. If polycarbonate plastic becomes a banned substance, we may not be able to adopt alternative packaging, and conduct extensive and costly safety testing, in time to prevent adverse effects to our business, financial condition and results of operations. Further, if our competitors successfully integrate
BPA-free packaging into their business and BPA is subsequently deemed undesirable or unsafe, our competitors may have a significant competitive advantage over us.
We engage in or have in the past engaged in the handling, storage or use of hazardous substances, including for the maintenance and fueling of our vehicle
fleet for our DSS business.fleet. We are also required to obtain environmental permits from governmental authorities for certain operations. We cannot assure you that we have been or will be at all times in complete compliance with such laws, regulations and permits. If we violate or fail to comply with these laws, regulations or permits, we could be fined or otherwise sanctioned by regulators. We could also be held liable for any consequences arising out of human exposure to hazardous substances or other environmental damage.
Certain environmental laws impose liability on current or previous owners or operators of real property for the cost of removal or remediation of hazardous substances. These laws often impose liability even if the owner or operator did not know of, or was not responsible for, the release of such hazardous substances and also impose liability on persons who arrange for hazardous substances to be sent to disposal or treatment facilities. In addition to actions brought by governmental agencies, private plaintiffs may also bring personal injury claims arising from the presence of hazardous substances on a property.
Certain environmental contamination has been identified at or in the vicinity of some of our DSS properties. From time to time, we have also been named a potentially responsible party at third-party waste disposal sites. There can be no assurances that we will not be required to make material expenditures in the future for these or other contamination-related concerns or that other responsible parties will conduct any required cleanup. Environmental laws and regulations are complex, change frequently and tend to become more stringent over time.
We cannot assure you that ourThe costs of complying with current and future environmental laws and regulations and our liabilities arising from past or future releases of, or exposure to, hazardous substances
will notmay negatively affect our business, financial condition or results of operations.
Our business is seasonal
International Trade Regulations
Currently, a large portion of our dispensers are assembled by independent manufacturers in, and adverse weather conditionsimported from, China. These import operations are subject to international trade regulations, including import charges and other agreements among the United States and its trading partners, including China.
The previous U.S. presidential administration made significant changes to U.S. trade policy, including new or increased tariffs on a broad range of goods imported into the United States, particularly from China. Further, these changes in U.S. trade policy have triggered retaliatory protectionist actions by affected countries. Given the uncertainty regarding the scope and duration of these trade actions by the United States and other countries, as well as the potential for additional trade actions, the impact on our operations and results remains uncertain and could
be significant. To the extent that our supply chain, costs, sales or profitability are negatively
affectaffected by the existing tariffs or any other trade actions (including duties, import charges or other similar restrictions or other reductions in trade), our business, financial condition and results of
operations.The sales of our products are influenced to some extent by weather conditions in the markets in which we operate. Unusually cold or rainy weather during the summer months may reduce the demand for our bottled water and other products and contribute to lower revenues, which could negatively affect our profitability. Warmer winter weather could decrease sales of our coffee and hot chocolate products and negatively affect our business, financial condition and results of operations.
Global or regional catastrophic events could affect our operations and results of operations.
Our business can be affected by large-scale terrorist acts, especially those directed against the United States or other major industrialized countries in which we do business, major natural disasters, or widespread outbreaks of infectious diseases. Such events could impair our ability to manage our business, could disrupt our supply of raw materials, and could affect production, transportation and delivery of products. In addition, such events could cause disruption of regional or global economic activity, which can affect consumers’ purchasing power in the affected areas and, therefore, reduce demand for our products.
Our success depends in part upon our ability to recruit, retain and prepare succession plans for our CEO, CFO, senior management and key employees.
The performance of our Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”), senior management and other key employees is critical to our success. We plan to continue to invest time and resources in developing our senior management and key employee teams. Our long-term success will depend on our ability to recruit and retain capable senior management and other key employees, and any failure to do so could have a material adverse effect on our future operating results and financial condition. Further, if we fail to adequately plan for the succession of our CEO, CFO, senior management and other key employees, our results of operations could be negatively affected.
We may not be able to renew collective bargaining agreements on satisfactory terms, or we could experience strikes.
Some of our employees are covered by collective bargaining agreements expiring on various dates. We may not be able to renew our collective bargaining agreements on satisfactory terms or at all. This could result in strikes or work stoppages, which could impair our ability to manufacture and distribute our products and result in a substantial loss of sales. The terms of existing or renewed agreements could also significantly increase our costs or negatively affect our ability to increase operational efficiency.
We depend on key information systems and third-party service providers.
We depend on key information systems to accurately and efficiently transact our business, provide information to management and prepare financial reports. We rely on third-party providers for various networking, application hosting and related business process services which support our key information systems. Issues with performance by these third-parties may disrupt our operations and as a result, our operating expenses could increase, which could negatively affect our results of operations.
In addition, these systems and services are vulnerable to interruptions or other failures resulting from, among other things, natural disasters, terrorist attacks, software, equipment or telecommunications failures, processing errors, computer viruses, hackers, other security issues or supplier defaults. Security, backup and disaster recovery measures may not be adequate or implemented properly to avoid such disruptions or failures. Any disruption or failure of these systems or services could cause substantial errors, processing inefficiencies, security breaches, inability to use the systems or process transactions, loss of customers or other business disruptions, all of which could negatively affect our business and results of operations.
If we are unable to securely maintain our customers’ confidential or credit card information, or other private data relating to our employees or our Company, we could be subject to negative publicity, costly government enforcement actions or private litigation, which could damage our business reputation and negatively affect our results of operations.
The protection of our customer, employee and Company data is critical to us. We have procedures and technology in place to safeguard our customers’ debit card, credit card and other personal information, our employees’ private data and Company records and intellectual property. However, if we experience a data security breach of any kind, we could be exposed to negative publicity, government enforcement actions, private litigation or costly response measures. In addition, our reputation within the business community and with our customers may be affected, which could result in our customers discontinuing their purchases of our products and services or their use of the debit or credit card payment option. Any loss of our ability to securely offer our customers a credit card payment option would make our products less attractive to many small organizations by negatively affecting our customer experience and significantly increasing our administrative costs related to customer payment processing. This could cause us to lose market share to our competitors and could have a negative effect on our results of operations.
In addition, the regulatory environment surrounding information security and privacy is increasingly demanding, with frequent imposition of new and changing requirements. For example, the European Union’s General Data Protection Regulation, which will become effective in May 2018, imposes significant new requirements on how we collect, process and transfer personal data, as well as significant fines fornon-compliance. Compliance with changes in privacy and information security laws and standards may result in significant expense due to increased investment in technology and the development of new operational processes.
We may not continue our quarterly dividend and shareowners may never obtain a return on their investment.
We have paid quarterly cash dividends since 2012. Most recently, the board of directors declared a dividend of $0.06 per common share to be paid in cash on March 28, 2018 to shareowners of record at the close of business on March 13, 2018. However, there can be no assurance that we will continue to declare quarterly dividends in the future. The declaration and payment of future dividends on our common shares is subject to, among other things, the best interests of our shareowners, our results of operations, cash balances and future cash requirements, financial condition, statutory regulations and covenants and other restrictions on payment set forth in the instruments governing our indebtedness and preferred shares in effect from time to time. Accordingly, shareowners must rely on sales of their common shares after price appreciation, which may never occur, as the only way to realize any return on their investment.
materially adversely affected.
We are subject to risks associated with our international operations, including compliance with applicable U.S. and foreign anti-corruption laws and regulations, such as the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act of 2010 and other applicable anti-corruption laws, which may increase the cost of doing business in international jurisdictions.
We currently operate internationally
and we intend to continue expansion of our international operations. We now operate in 17 European countriesacross North America, the United Kingdom, Portugal and Israel. As a result, our business is exposed to risks inherent in foreign operations. If we fail to adequately address the challenges and risks associated with our international operations and acquisition strategy, we may encounter difficulties in our international operations and implementing our strategy, which could impede our growth or
harm our operating results. These risks, which can vary substantially by jurisdiction, include the difficulties associated with managing an organization with operations in multiple countries, compliance with differing laws and regulations (including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act of 2010 and local laws prohibiting payments to government officials and other corrupt practices, tax laws, regulations and rates), enforcing agreements and collecting receivables through foreign legal systems. Although we have implemented policies and procedures designed to ensure compliance with these laws, there can be no assurance that our employees, contractors and agents will not take actions in violation of our policies, particularly as we expand our operations through organic growth and acquisitions. Any such violations could subject us to civil or criminal penalties, including material fines or prohibitions on our ability to offer our products in one or more countries, and could also materially damage our reputation, brand, international expansion efforts, business and operating results. Additional risks include the potential for restrictive actions by foreign governments, changes in economic conditions in each market, foreign customers who may have longer payment cycles than customers in the United States, the impact of economic, political and social instability of those countries in which we operate and acts of nature, such as typhoons, tsunamis, or earthquakes. The overall volatility of the economic environment has increased the risk of disruption and losses resulting from hyper–inflation, currency devaluation and tax or regulatory changes in certain countries in which we have operations.
We are subject to the risk of increased taxes.
We base our tax positions upon our understanding of the tax laws of the various countries in which we have assets or conduct business activities. However, our tax positions are subject to review and possible challenge by taxing authorities. This includes adverse changes to the manner in which Canada and other countries tax multinational companies and interpret or change their tax laws. We cannot determine in advance the extent to which some jurisdictions may assess additional tax or interest and penalties on such taxes. In addition, our effective tax rate may be increased by changes in the valuation of deferred tax assets and liabilities, changes in our cash management strategies, changes in local tax rates or countries adopting more aggressive interpretations of tax laws.
Our income tax expense includes tax benefits resulting from several reorganizations of our legal entity structure and refinancing of intercompany debt during the last three years. However, since the calculation of our tax liabilities involves dealing with uncertainties in the application of complex
and changing tax laws and regulations in a multitude of jurisdictions across our
global operations, our effective tax rate may ultimately be different than the amount we are currently reporting. In addition, several jurisdictions in which we operate have tax laws with detailed transfer pricing rules which require that all transactions with nonresident related parties be priced using arm’s length pricing principles, and that contemporaneous documentation must exist to support such pricing. There is a risk that the taxing authorities may not deem our transfer pricing documentation acceptable. The Organization for Economic Cooperation and Development
(“OECD”) released guidance related to Base Erosion and Profit Shifting
(“BEPS”) which may also result in legislative changes that could impact our effective tax rate.
On August 16, 2022, the U.S. enacted the Inflation Reduction Act ("IRA"), which introduces among other items, an excise tax that would impose a 1% surcharge on stock repurchases by covered corporations beginning in 2023. We could be subject to this new excise tax depending on the manner in which the stock repurchase is funded.
Risks Related to Our Common Shares
We may not continue our quarterly dividend and shareowners may never obtain a return on their investment.
We have paid quarterly cash dividends since 2012. Most recently, our Board of Directors declared a dividend of $0.09 per common share to be paid in cash on March 25, 2024 to shareowners of record at the close of business on March 8, 2024. However, there can be no assurance that we will continue to declare quarterly dividends in the future. The
interpretationdeclaration and
applicationpayment of
future dividends on our common shares is subject to, among other things, the
2017 Tax Cuts and Jobs Act could materially affectbest interests of our
tax obligations and effective tax rate.The 2017 Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017, and significantly affected U.S. tax law. The U.S. rule-making bodies have the authority to issue regulations and interpretative guidance that may significantly impact how we apply the law and impactshareowners, our results of operations, cash balances and future cash requirements, financial condition, statutory regulations and covenants and other restrictions on payment set forth in the period issued. The applicationinstruments governing our indebtedness in effect from time to time. Accordingly, shareowners must rely on sales of accounting guidance for such items is currently uncertaintheir common shares after price appreciation, which may never occur, as the rules are broad and complex and require information not previously relevant or regularly produced. As a result, we have provided a provisional estimateonly way to realize any return on the effect of the Tax Act in our Consolidated Financial Statements. As we complete our analysis of the Tax Act, collect and prepare necessary data, and interpret any additional guidance, we may make adjustments to provisional amounts that we have recorded that could materially impact our provision for income taxes in the period in which the adjustments are made.
their investment.
General Risk Factors
We also face other risks that could adversely affect our business, results of operations or financial condition, which include:
•any requirement to restate financial results in the event of inappropriate application of accounting principles or otherwise;
•any event that could damage our reputation;
•failure to properly manage credit risk from customers;
•failure of our processes to prevent and detect unethical conduct of employees;
•any significant failure of internal controls over financial reporting;
•failure of our prevention and control systems related to employee compliance with internal policies and regulatory requirements;
•failure of corporate governance policies and procedures; and
•credit ratings changes.
| | | | | |
| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
Cybersecurity Risk Management, Strategy and Governance
The Company maintains a robust cybersecurity infrastructure to safeguard our operations, networks and data through comprehensive security measures including our technology tools, internal management and external service providers.
The Company’s Global Chief Information Security Officer (“CISO”) is responsible for assessing, identifying, and managing the risks from cybersecurity threats. This individual has over 30 years of experience in information security positions. Our CISO holds the Certified Information Security Manager and Certified Information Systems Security Professional certifications from ISACA and ISC2, respectively, two leading independent cybersecurity associations.
Our Board of Directors, primarily through the Audit Committee, oversees management's approach to managing cybersecurity risks. The Audit Committee holds periodic discussions with management regarding the Company’s guidelines and policies with respect to cybersecurity risks and receives regular reports regarding such risks and the steps management has taken to monitor and control any exposure resulting from such risks. Our CISO also leads an annual review and discussion with the full Board of Directors dedicated to Primo’s cyber risks, threats, and protections and provides updates throughout the year, as warranted.
We have processes and a risk-based approach that align with the National Institute of Standards and Technology Cybersecurity Framework. Our information security program includes, among other aspects, vulnerability management, antivirus and malware protection, encryption and access control, and employee training. The CISO reviews emerging threats, controls, and procedures as part of assessing, identifying, and managing risks. This review aids in the identification of material breaches at other companies, including our third-party service providers. The CISO also discusses trends in cyber risks and our strategy to defend our information against cybersecurity incidents with our Audit Committee and executive leadership team on a regular basis, in addition to the annual review and discussion with the full board.
In addition to our dedicated information security and technology teams monitoring our daily operations, we engage independent third-party cybersecurity providers for managed systems security, endpoint detection and response, and threat and vulnerability management. Regular communication with these providers aids in the identification and remediation of potential threats, and we regularly review our relationships with and services from these providers against industry standards and evolving cybersecurity threats.
We also endeavor to apprise employees of emerging risks and require them to undergo annual security awareness trainings and supplemental trainings as needed. All employees undergo annual training and there are additional trainings for certain roles and functions. Additionally, we conduct periodic internal exercises to gauge the effectiveness of the trainings and assess the need for additional training.
Material cybersecurity incidents are required to be reported to the Board of Directors and to the SEC on Form 8-K. Our systems and services are vulnerable to interruptions or other failures resulting from cybersecurity attacks, such as computer viruses, ransomware, phishing, hackers, or other security issues. In addition, the rapid evolution and increased adoption of new technologies, such as artificial intelligence, may intensify our cybersecurity risks. An interruption or cybersecurity breach, disruption or misuse of our information systems, or the information systems of our third-party service providers, could have a material negative effect on our business, financial condition and results of operations but we have processes in place to mitigate these risks. As of the date of this report, we have not experienced material business disruption, monetary loss, and/or data loss as a result of phishing, business email compromise or other types of attacks.
Our business is supported by our extensive manufacturing and distribution network.
Immediately following the sale of our Traditional Business, ourOur manufacturing footprint encompasses
5438 strategically located
beverage manufacturing and production facilities
including: 46 facilities in our Route Based Services reporting segment, which includes 30 facilities in the United States, nine facilities in Europe, and
seven facilities in Canada; four facilities in our Coffee, Tea and Extract Solutions reporting segment, all in the United States; and four facilities representing our All Other reporting segment, which includes three facilities in the United Kingdom and one concentrate manufacturing facility based in the United States. We also have 376186 branch distribution and warehouse
facilities. Our facilities
across all ofare used to support our
reporting segments, which include 250 facilities in the United States, 110 facilities in Europeoperations and
16 facilities in Canada,are suitable and
one customer service call centeradequate to carry out our business at expected capacity for the
DSS business in the United States.foreseeable future. The total square footage of our beverage manufacturing and production facilities is approximately 2.5 million square feet in the United States; 0.3 million square feet in Canada; and 0.7 million square feet in Europe, inclusive of 0.2 million square feet in the United Kingdom. The total square footage of our branch distribution and warehouse facilities is approximately 2.7 million square feet in the United States; 0.2 million square feet in Canada; and 0.9 million square feet in Europe. This square footage does not include 29 leased office spaces and one owned office space that together comprise 0.4 million square feet. Lease terms fornon-owned beverage production facilities and offices expire between 2018 and 2046.
The beverage production facilities and square footage amounts noted abovebelow do not include vacant or underutilized properties.
The following table is a summary of our properties by segment as of December 30, 2023 and excludes properties classified as discontinued operations:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (square feet in millions) | North America | | Other 2 | | Total |
| Count | | Sq Ft. | | Count | | Sq Ft. | | Count | | Sq Ft. |
| Manufacturing and Production | | | | | | | | | | | |
| Owned | 11 | | | 0.8 | | | — | | | — | | | 11 | | | 0.8 | |
Leased1 | 27 | | | 1.4 | | | — | | | — | | | 27 | | | 1.4 | |
| 38 | | | 2.2 | | | — | | | — | | | 38 | | | 2.2 | |
| Branch Distribution and Warehouses | | | | | | | | | | | |
| Owned | 42 | | | 0.7 | | | — | | | — | | | 42 | | | 0.7 | |
Leased1 | 144 | | | 2.1 | | | — | | | — | | | 144 | | | 2.1 | |
| 186 | | | 2.8 | | | — | | | — | | | 186 | | | 2.8 | |
| Office Space | | | | | | | | | | | |
| Owned | — | | | — | | | — | | | — | | | — | | | — | |
Leased1 | 3 | | | 0.1 | | | 2 | | | 0.1 | | | 5 | | | 0.2 | |
| 3 | | | 0.1 | | | 2 | | | 0.1 | | | 5 | | | 0.2 | |
| Total | 227 | | 5.1 | | 2 | | 0.1 | | 229 | | 5.2 |
______________________
1 Lease terms for non-owned properties expire between 2024 and 2040.
2 Properties in our Other category include our Corporate headquarters.
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 of operations.
Pursuant to SEC rules, we will disclose any proceeding in which a government authority is a party and that arises under any federal, state or local provisions enacted or adopted regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment only where we believe that such proceedings, individually or in the aggregate, will result in monetary sanctions on us, exclusive of interest and costs, above $500,000 or is otherwise material to our financial position, results of operations, or cash flows.
| | | | | |
| ITEM 4. | MINE SAFETY DISCLOSURES |
SUPPLEMENTAL ITEM PART I.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
OF THE REGISTRANTThe following is a list of names, ages, offices and backgrounds of all of our executive officers as of February 28,
2018.2024. Our officers do not serve for a set term.
| | | | | | | | | | | | | | |
| | Office | | Age |
| Robbert Rietbroek | | Office
| | Age
|
Jerry Fowden | | Chief Executive Officer | | 6150 |
Jay Wells
David Hass | | Chief Financial Officer | | 5545 |
Thomas Harrington
| | President Services/Chief Executive Officer - DSS Business Unit
| | 60 |
Ron Hinson
| | Chief Executive Officer - S&D Business Unit
| | 62 |
Marni Morgan Poe | | Vice President, General CounselChief Legal Officer and Secretary
| | 4854 |
William "Jamie" Jamieson | | Global Chief Information Officer | | 51 |
| Mercedes Romero | | Chief Procurement Officer | | 57 |
| Anne Melaragni | | Chief Human Resources Officer | | 48 |
| Jason Ausher | | Chief Accounting Officer | | 44 |
Steve Erdman
| | Senior Vice President Global Human Resources | | 5550 |
Jerry Fowden•Robbert Rietbroek was appointed as our Chief Executive Officer in 2009.and as a director on our Board of Directors effective as of the beginning of 2024. Mr. Rietbroek is a seasoned executive bringing more than 25 years of experience at Fortune 500 companies to Primo Water, including five years as Senior Vice President and General Manager responsible for Quaker Foods North America (QFNA), a reported sector of PepsiCo. Prior to this appointment, hehis role at Quaker, Mr. Rietbroek was a Senior Vice President and General Manager PepsiCo Australia and New Zealand. Before his tenure at PepsiCo, Mr. Rietbroek served as Vice President of our international operating segment, Interimand General Manager Australia, New Zealand, Pacific Islands and Vice President North America and Interim President of our UKGlobal Sector Leader Baby and European business from 2007 to 2009. Prior to joining Cott,Child Care at Kimberly-Clark. Mr. Fowden served as Chief Executive Officer of Trader Media Group and was a member of the Guardian Media Group Plc’s board of directors from 2005 to 2007. Prior to this time, Mr. Fowden servedRietbroek also spent nearly 16 years at Procter & Gamble in a variety of management and marketing roles atin North America, Latin America, Europe, Middle East, and Africa. Mr. Rietbroek has worked across multiple companies, including global Chief Operating Officer of AB InBev S.A. Belgium, an alcoholic beverage company, Chief Executive Officer of Bass Brewers Ltd., a subsidiary of AB InBev S.A. Belgium, Managing Director of the Rank Group plc’s Hospitalityconsumer goods categories and Holiday Divisionhas been recognized for exceptional brand building and member of the Rank Group plc’s board of directors, Chief Executive Officer of Hero AG’s European beverage operationsinnovation, achieving several awards and various roles within PepsiCo Inc.’s beverage operations and Mars, Incorporated’s pet food operations. Mr. Fowden currently serves on the board of directors of Constellation Brands Inc., a premium alcoholic beverage company and on the board of directors of the American Beverage Association. Mr. Fowden has previously served on the board of directors of Chesapeake Corporation, a global packaging company, and as a member of the advisory board of Tchibo Coffee International Ltd, a premium coffee company.recognitions.
Jay Wells•David Hass was appointed Chief Financial Officer in 2012.January 2023. Prior to joining Cott,his appointment, Mr. Wells held various senior finance positions with Molson Coors from 2005Hass served as Chief Strategy Officer for the Company since 2020. From 2011 to 2012, including Chief Financial Officer of Molson Coors Canada, a subsidiary of Molson Coors Brewing Company, and Global Vice President, Treasury, Tax, and Strategic Finance of Molson Coors Brewing Company. From 1990 to 2005,2020, Mr. Wells held several positions within Deloitte and Touche LLP, including partner.
Thomas J. Harrington was appointed Chief Executive Officer of our DS Services business unit upon our acquisition of DS Services in December 2014 and was appointed President Services in July 2016. Prior to the acquisition, Mr. HarringtonHass served in various roles with DS Services from 2004 to 2014,legacy Primo, including Chief ExecutiveStrategy Officer, President, Chief Operating Officer, West Division President, and Senior Vice President Central Division. Prior to joining DS Services, Mr. Harrington served in various roles with Coca-Cola Enterprises, Inc. includingof Strategy, Vice President andof Financial Planning & Analysis (FP&A), as well as General Manager of Coca-Cola Enterprises New York and Chicago divisions. He also served in various sales and marketing roles with Pepperidge Farm from 1979 to 1985. Mr. Harrington currently serves on the board of directors of the National Automatic Merchandising Association, the International Bottled Water AssociationCanadian Business Unit and the Water Quality Association.
Ron Hinson has been Chief Executive OfficerDirect Business Unit. From 2007 to 2011, Mr. Hass served as Vice President of S&D Coffee and Tea since 2000, and he continued in that role after the closing of the S&D Acquisition.Consumer Investment Banking at Stifel (formerly Thomas Weisel Partners). Prior to the acquisition,that, Mr. HinsonHass served in various roles with S&D over a 39 year period, beginning his careeras an Associate in the sales organization and working his way up to Chief Executive Officer in 2000 and Chairman of the Board of Directors of S&D in 2010. Mr. Hinson currently serves on the board of directors of the National Coffee Association and the Tea Association.Client Financial Management practice at Accenture.
•Marni Morgan Poe was appointed Vice President, General Counselhas served as our Chief Legal Officer and Secretary insince 2010. Prior to her appointment, Ms. Poe served as our Corporate Counsel of the Company from 2008 to 2010. Prior to joining the Company,us, Ms. Poe was a partner at the law firm of Holland & Knight LLP from 2000 to 2006 and an associate of the law firm from 1995 to 2000.
•William “Jamie” Jamieson was appointed Global Chief Information Officer in April 2019. Prior to joining us, Mr. Jamieson served as Senior Vice President and Chief Information Officer for GNC from 2015 to 2019, overseeing enterprise technology teams and platforms. From 2000 to 2015, he held various senior roles leading information technology service delivery for Charming Charlie and Chico’s FAS, Inc., both fashion retailers.
•Mercedes Romero was appointed Chief Procurement Officer in August 2020. Prior to joining us, Ms. Romero served as Vice President Sourcing and Supply Management from 2019 to 2020 for Ryder System Inc., overseeing global spend and supply planning teams. From 2017 to 2019, Ms. Romero served as Chief Procurement Officer/VP Procurement Americas with the Campari Group. From 1995 to 2017, Ms. Romero held various senior roles leading procurement and supply chain transformations for TEVA Pharma, Diageo, Starbucks, Clorox and Procter & Gamble. Ms. Romero currently serves on the board of directors of John B. Sanfilippo & Son, Inc., a publicly traded snack food manufacturer, and MarineMax Inc., a publicly traded recreational boat and yacht retailer.
•Anne Melaragni was appointed Chief Human Resources Officer in May 2021. Ms. Melaragni joined Primo in September 2020 as Senior Vice President – Human Resources, North America. Prior to joining us, from November 2019 to August 2020, she served as Chief People Officer for CARE, a global non-profit based in Atlanta, where she oversaw Human Resources ("HR") strategy and execution, the associate experience and global total rewards. Previously, from July 2019 to October 2019, Ms. Melaragni was responsible for driving HR strategy and organizational transformation as the Head of Human Resources at Norfolk Southern. Over the previous 16 years, from 2003 to 2019, Ms. Melaragni held various positions with United Parcel Service, including Global Head of Total Rewards, Vice President – HR, Organizational Transformation and Vice President – HR, International & Emerging Markets. Prior to UPS, Ms. Melaragni led the HR team at Sitestuff.com, a real estate procurement start-up in Austin, Texas.
•Jason Ausher was appointed Chief Accounting Officer in May 2015. Prior to thishis appointment, from 2011 to 2015, Mr. Ausher served as the Company’sour VP Treasurer, Corporate Development. From 2010 to 2011, Mr. Ausher served as the Company’sour Corporate Controller, and from 2008 to 2010, he held the position of Controller
| for the Company’s for our U.S. Business Unit. From 2003 to 2008, Mr. Ausher held numerous positions with Walter Industries, Inc. and Mueller Water Products Inc. (a water infrastructure business and Mueller Water Products Inc. (a water infrastructure business andspin-off of Walter Industries, Inc.), including the position of Vice President of Finance. Prior to this, from 1996 to 2002, Mr. Ausher was with PriceWaterhouseCoopers LLP.
|
Steve Erdman was appointed Senior Vice President Global Human Resources in June 2017. From 2004 to 2017, Mr. Erdman served in various roles with DS Services, including Director of Human Resources, Vice President – Human Resources, Vice President and Chief People Officer, and Senior Vice President and Chief People Officer.Finance. Prior to joining DS Services,this, from 1996 to 2002, Mr. ErdmanAusher was the Group Director – Human Resources with Coca-Cola Enterprises, Inc.PricewaterhouseCoopers LLP.
| | | | | |
| ITEM 5. | MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED SHAREOWNER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Our common shares are listed on the
TSXToronto Stock Exchange (“TSX”) and on the New York Stock Exchange (“NYSE”) under the ticker symbol
“BCB,“PRMW.”
and on the NYSE under the ticker symbol “COT.”The tables below show the high and low reported per share sales prices of our common shares on the TSX (in Canadian dollars) and the NYSE (in U.S. dollars) for the indicated periods for 2017 and 2016.
Toronto Stock Exchange (C$)
| | | | | | | | | | | | | | | | |
| TSX | | | | | | | | | | | | |
| | | 2017 | | | 2016 | |
| | | High | | | Low | | | High | | | Low | |
First Quarter | | $ | 16.75 | | | $ | 13.52 | | | $ | 18.56 | | | $ | 12.65 | |
Second Quarter | | $ | 19.84 | | | $ | 16.01 | | | $ | 21.16 | | | $ | 16.30 | |
Third Quarter | | $ | 20.21 | | | $ | 17.67 | | | $ | 22.66 | | | $ | 17.80 | |
Fourth Quarter | | $ | 22.75 | | | $ | 18.17 | | | $ | 19.18 | | | $ | 13.42 | |
New York Stock Exchange (U.S.$)
| | | | | | | | | | | | | | | | |
| NYSE | | | | | | | | | | | | |
| | | 2017 | | | 2016 | |
| | | High | | | Low | | | High | | | Low | |
First Quarter | | $ | 12.60 | | | $ | 10.34 | | | $ | 14.26 | | | $ | 9.07 | |
Second Quarter | | $ | 14.77 | | | $ | 11.94 | | | $ | 16.70 | | | $ | 12.87 | |
Third Quarter | | $ | 16.18 | | | $ | 13.69 | | | $ | 17.38 | | | $ | 13.94 | |
Fourth Quarter | | $ | 17.77 | | | $ | 14.25 | | | $ | 14.37 | | | $ | 10.10 | |
As of February 21,
2018,2024, we had
926880 shareowners of record. This number was determined from records maintained by our transfer agent and does not include beneficial owners of securities whose securities are held in the names of various dealers or clearing agencies. The closing sale price of our common shares on February 21,
20182024 was
C$18.99$15.19 on the
TSXNYSE and
$14.98C$20.51 on the
NYSE.TSX.
Our
boardBoard of
directorsDirectors has declared a quarterly cash dividend
of $0.06 per common share in each quarter during
20162023 and
2017 for an aggregate yearly2022. The quarterly cash dividend
payment ofin 2023 was $0.08 per common share and aggregated to approximately
$31.7 million$51.8 million. The quarterly cash dividend in 2022 was $0.07 per common share and
$33.7 million, respectively.aggregated to approximately $45.7 million. We intend to pay a regular quarterly dividend on our common shares subject to, among other things, the best interests of our shareowners, our results of operations, cash balances and future cash requirements, financial condition, statutory regulations and covenants set forth in the
ABL facilityRevolving Credit Facility and indentures governing our outstanding notes as well as other factors that our
boardBoard of
directorsDirectors may deem relevant from time to time.
Dividends to shareowners who are
non-residents of Canada will generally be subject to Canadian withholding tax. Under current Canadian tax law, dividends paid by a Canadian corporation to a
non-resident shareowner are generally subject to Canadian withholding tax at a 25% rate. Under the current tax treaty between Canada and the United States, U.S. residents who are entitled to treaty benefits are generally eligible for a reduction in this withholding tax rate to 15% (and to 5% for a shareowner that is a corporation and is the beneficial owner of at least 10% of our voting stock). Accordingly, under current tax law, our U.S. resident shareowners who are entitled to treaty benefits will generally be subject to a Canadian withholding tax at a 15% rate on dividends paid by us, provided that they have complied with applicable procedural requirements to claim the benefit of the reduced rate under the tax treaty. The fifth protocol to the tax treaty between Canada and the United States places additional restrictions on the ability of U.S. residents to claim these reduced rate benefits. U.S. residents generally will be entitled on their U.S. federal income tax returns to claim a foreign tax credit, or a deduction, for Canadian withholding tax that applies to them, subject to certain applicable limitations. U.S. investors should consult their tax advisors with respect to the tax consequences and requirements applicable to them, based on their individual circumstances.
There are certain restrictions on the payment of dividends under our
ABL facilityRevolving Credit Facility and the indentures governing our outstanding notes. The
ABL facilityRevolving Credit Facility and the indentures governing our outstanding notes are discussed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form
10-K.For information on securities authorized for issuance under our equity compensation plans, see “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareowner Matters” in this Annual Report on Form
10-K.
Calculation of
aggregate market valueAggregate Market Value of
non-affiliate shares Non-Affiliate Shares
For purposes of calculating the aggregate market value of common shares held by
non-affiliates as shown on the cover page of this Annual Report on Form
10-K, it was assumed that all of the outstanding shares were held by
non-affiliates except for outstanding shares held or controlled by our directors and executive officers. For further information concerning shareholdings of officers, directors and principal shareowners, see “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareowner Matters” in this Annual Report on Form
10-K.
Shareowner
return performance graphReturn Performance Graph
The following graph shows changes over our past five fiscal years in the value of
C$100,$100, assuming reinvestment of dividends, invested in: (i) our common shares; (ii) the
Toronto Stock Exchange’s S&P/TSX CompositeRussell 2000 Index;
and (iii)
athe peer group
utilized in prior annual reports, which consists of publicly-traded companies in the
bottlingwater- and route-based service industries, comprised
of Coca-Cola Enterprises Inc., Coca-Cola Bottling Co. Consolidated, Coca Cola FEMSA, S.A.B de C.V., Coca Cola Amatil Ltd., National Beverage Corp., A.G. Barr plc, Britvic plc, G&K Services, Inc.,of: UniFirst
Corp., ABM IndustriesCorporation, ADT Inc., Chemed
Corp.,Corporation, Terminix Global Holdings Inc. fka ServiceMaster Global Holdings, Inc.
(included through the last trading day as a public company), Cintas
Corporation, A.O. Smith Corporation, Franklin Electric Co., Inc., IDEX Corporation, Pentair plc, Xylem Inc., The Brink’s Company, Evoqua Water Technologies Corp.
(included through the last trading day as a public company), Mueller Water Products, Inc., Rollins, Inc., Zurn Elkay Water Solutions Corporation (formerly known as Rexnord Corporation), Stericycle Inc., Tetra Tech, Inc., and
Aramark.Watts Water Technologies Inc.; (iv) a new peer group utilized in this Annual Report on Form 10-K, which better reflects our business consisting of publicly-traded companies in the water- and route-based service industries, comprised of: Addus HomeCare Corporation, ADT Inc., A.O. Smith Corporation, Aveanna Healthcare Holdings Inc., The Brink's Company, Casella Waste Systems, Inc., Chemed Corporation, Cintas Corporation, Consolidated Communications Holdings, Inc., Frontier Communications, Inc., Health Services Group, Inc., Heritage-Crystal Clean, Inc. (included through the last trading day as a public company), Rollins, Inc., Stericycle Inc., UniFirst Corporation, and Waste Connections, Inc. The closing price of
Cott’sPrimo’s common shares as of December 29,
2017,2023, the last trading day of
2017,2023, was C$
20.9819.96 on the TSX and
$16.66$15.05 on the NYSE. The following table is in
CanadianUS dollars.
COMPARISON OF CUMULATIVE TOTAL RETURN
ASSUMES $100
(CANADIAN) INVESTED ON DECEMBER 29,
20122018
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING DECEMBER 30,
2017 | | | | | | | | | | | | | | | | | | | | | | | | |
Company / Market / Peer Group | | 12/29/2012 | | | 12/28/2013 | | | 1/3/2015 | | | 1/2/2016 | | | 12/31/2016 | | | 12/30/2017 | |
Cott Corporation | | $ | 100.00 | | | $ | 112.45 | | | $ | 110.38 | | | $ | 209.58 | | | $ | 212.73 | | | $ | 298.60 | |
S&P / TSX Composite | | $ | 100.00 | | | $ | 113.78 | | | $ | 127.25 | | | $ | 115.59 | | | $ | 139.96 | | | $ | 152.67 | |
Peer Group | | $ | 100.00 | | | $ | 132.36 | | | $ | 149.18 | | | $ | 186.70 | | | $ | 193.94 | | | $ | 235.03 | |
2023
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Company / Market / Peer Group | December 29, 2018 | | December 28, 2019 | | January 2, 2021 | | January 1, 2022 | | December 31, 2022 | | December 30, 2023 |
| Primo Water Corporation | $ | 100.00 | | | $ | 100.24 | | | $ | 118.89 | | | $ | 135.54 | | | $ | 121.81 | | | $ | 120.62 | |
| Russell 2000 Index | $ | 100.00 | | | $ | 126.50 | | | $ | 151.79 | | | $ | 174.28 | | | $ | 138.66 | | | $ | 162.14 | |
| Peer Group (Old) | $ | 100.00 | | | $ | 135.24 | | | $ | 172.11 | | | $ | 206.26 | | | $ | 187.47 | | | $ | 227.74 | |
| Peer Group (New) | $ | 100.00 | | | $ | 131.42 | | | $ | 163.27 | | | $ | 191.01 | | | $ | 182.71 | | | $ | 219.73 | |
Issuer Purchases of Equity Securities
and Use of Proceeds
Common Share Repurchase Program
On August 9, 2023, the Board of Directors approved a share repurchase program for up to $50.0 million of our outstanding common shares. Upon the closing of the European Divestiture on December 29, 2023, an incremental $25.0 million share repurchase was authorized, revising the total share repurchase authorization to $75.0 million. During the fourthfiscal year ended December 30, 2023, we repurchased 131,409 common shares for $1.9 million through open market transactions under this repurchase plan. There can be no assurance as to the precise number of common shares, if any, that will be repurchased under the repurchase plan in the future, or the aggregate dollar amount of common shares to be purchased in future periods. We may discontinue purchases at any time, subject to compliance with applicable regulatory requirements.
The following table summarizes the repurchase activity under the repurchase plan for the quarter ended December 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| Total Number of Common Shares Purchased | | Average Price Paid per Common Share | | Total Number of Common Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Approximate Dollar Value of Common Shares that May Yet Be Purchased Under the Plans or Programs |
| October 1 - October 31, 2023 | — | | | $ | — | | | — | | | $ | 75,000,000 | |
| November 1 - November 30, 2023 | 31,129 | | | $ | 14.45 | | | 31,129 | | | $ | 74,550,062 | |
| December 1 - December 30, 2023 | 100,280 | | | $ | 14.96 | | | 100,280 | | | $ | 73,050,144 | |
| Total | 131,409 | | | | | 131,409 | | | |
On August 9, 2022, the Board of
2017, we did notDirectors approved a share repurchase
anyprogram for up to $100.0 million of our
outstanding common
shares.shares over a 12-month period that expired on August 14, 2023. During the fiscal year ended December 30, 2023, we repurchased 1,272,612 common shares for $19.0 million through open market transactions under this repurchase plan. During the fiscal year ended December 31, 2022, we repurchased 1,753,479 common shares for $23.8 million through open market transactions under this repurchase plan.
On May 4, 2021, the Board of Directors approved a share repurchase program for up to $50.0 million of our outstanding common shares over a 12-month period that expired on May 10, 2022. During the fiscal year ended January 1, 2022, we repurchased 2,646,831 common shares for $43.5 million through open market transactions under this repurchase plan, all in the fiscal year ended January 1, 2022.
Shares purchased under these repurchase plans were subsequently canceled.
The following table contains information about shares that we withheld from delivering to employees during
2017the quarter ended December 30, 2023 to satisfy their tax obligations related to share-based
awards. | | | | | | | | | | | | | | | | |
| | | Total
Number of
Common Shares
Purchased | | | Average Price
Paid per
Common Shares | | | Total Number of
Common Shares
Purchased as
Part of Publicly
Announced Plans
or Programs | | | Maximum Approximate
Dollar Value of
Common Shares
that May Yet Be
Purchased Under the
Plans or Programs | |
February 2017 | | | 150,206 | | | $ | 11.32 | | | | N/A | | | | N/A | |
May 2017 | | | 156 | | | $ | 12.74 | | | | N/A | | | | N/A | |
June 2017 | | | 609 | | | $ | 13.19 | | | | N/A | | | | N/A | |
August 2017 | | | 13,770 | | | $ | 15.33 | | | | N/A | | | | N/A | |
October 2017 | | | 506 | | | $ | 15.01 | | | | N/A | | | | N/A | |
December 2017 | | | 112,091 | | | $ | 16.86 | | | | N/A | | | | N/A | |
| | | | | | | | | | | | | | | | |
Total | | | 277,338 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
awards:
| | | | | | | | | | | | | | | | | | | | | | | |
| Total Number
of Common
Shares
Purchased | | Average Price
Paid per
Common
Share | | Total Number of
Common Shares
Purchased as Part of Publicly
Announced Plans
or Programs | | Maximum
Approximate Dollar
Value of Common Shares that May Yet Be Purchased Under the Plans or Programs |
| October 1 - October 31, 2023 | — | | | $ | — | | | N/A | | N/A |
| November 1 - November 30, 2023 | 75 | | | $ | 14.79 | | | N/A | | N/A |
| December 1 - December 30, 2023 | 80,895 | | | $ | 14.69 | | | N/A | | N/A |
| Total | 80,970 | | | | | | | |
| | | | | |
| ITEM 6. | SELECTED FINANCIAL DATA[Reserved] |
The following selected financial data reflects our results of operations. This information should be read in conjunction with, and is qualified by reference to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and Notes thereto included elsewhere in this Annual Report on Form10-K. The financial information presented may not be indicative of future performance.
The Company has accounted for the disposition of our Traditional Business as discontinued operations beginning in 2017. All data for prior periods have been recast.
| | | | | | | | | | | | | | | | | | | | |
| | | December 30,
2017 | | | December 31,
20161 | | | January 2,
2016 | | | January 3,
20152 | | | December 28,
2013 | |
(in millions of U.S. dollars, except per share amounts) | | (52 weeks) | | | (52 weeks) | | | (52 weeks) | | | (53 weeks) | | | (52 weeks) | |
Revenue, net | | $ | 2,269.7 | | | $ | 1,623.2 | | | $ | 1,187.3 | | | $ | 160.8 | | | $ | 68.0 | |
Net (loss) income from continuing operations | | | (3.6 | ) | | | (60.3 | ) | | | 15.7 | | | | 7.1 | | | | (5.6 | ) |
Net income (loss) from discontinued operations, net of income taxes | | | 10.7 | | | | (11.2 | ) | | | 4.9 | | | | 9.3 | | | | 27.6 | |
Net income (loss) | | | 7.1 | | | | (71.5 | ) | | | 20.6 | | | | 16.4 | | | | 22.0 | |
Net (loss) income attributable to Cott Corporation | | | (1.4 | ) | | | (77.8 | ) | | | (3.4 | ) | | | 10.0 | | | | 17.0 | |
Net (loss) income per common share attributable to Cott Corporation | | | | | | | | | | | | | | | | | | | | |
Basic: | | | | | | | | | | | | | | | | | | | | |
Continuing operations | | $ | (0.03 | ) | | $ | (0.47 | ) | | $ | (0.02 | ) | | $ | 0.07 | | | $ | (0.06 | ) |
Discontinued operations | | | 0.02 | | | | (0.14 | ) | | | (0.01 | ) | | | 0.04 | | | | 0.24 | |
Net income (loss) | | | (0.01 | ) | | | (0.61 | ) | | | (0.03 | ) | | | 0.11 | | | | 0.18 | |
Diluted: | | | | | | | | | | | | | | | | | | | | |
Continuing operations | | $ | (0.03 | ) | | $ | (0.47 | ) | | $ | (0.02 | ) | | $ | 0.07 | | | $ | (0.06 | ) |
Discontinued operations | | | 0.02 | | | | (0.14 | ) | | | (0.01 | ) | | | 0.03 | | | | 0.24 | |
Net income (loss) | | | (0.01 | ) | | | (0.61 | ) | | | (0.03 | ) | | | 0.10 | | | | 0.18 | |
Financial Condition | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 4,093.1 | | | $ | 3,939.7 | | | $ | 2,887.3 | | | $ | 3,073.2 | | | $ | 1,410.7 | |
Short-term borrowings required to be repaid or extinguished from divestiture3 | | | 220.3 | | | | 207.0 | | | | 122.0 | | | | 229.0 | | | | 50.8 | |
Debt required to be repaid or extinguished from divestiture4 | | | 519.0 | | | | 1,135.4 | | | | 1,133.6 | | | | 1,132.5 | | | | 392.7 | |
Long-term debt, net of current maturities | | | 1,542.6 | | | | 851.4 | | | | 390.1 | | | | 405.6 | | | | — | |
Convertible preferred shares | | | — | | | | — | | | | — | | | | 116.1 | | | | — | |
Non-convertible preferred shares | | | — | | | | — | | | | — | | | | 32.7 | | | | — | |
Dividends declared per common share | | | 0.24 | | | | 0.24 | | | | 0.24 | | | | 0.24 | | | | 0.24 | |
| 1. | In 2016, we completed the acquisitions of S&D, Eden, and Aquaterra for a combined $973.9 million, financed by a combination of cash on hand, incremental borrowings under our ABL facility of $270.0 million, proceeds from the issuance of €450.0 million (U.S. $539.1 million at the exchange rate in effect on December 30, 2017) of our 2024 Notes, and net proceeds from the issuance of common shares in June 2016 having an aggregate value of $219.8 million. | | | |
2. | In 2014, we completed the acquisition of DSS for approximately $1.246 billion, financed by a combination of incremental borrowings under our ABL facility of $180.0 million, proceeds from the issuance of $625.0 million of 6.75% senior notes due 2020 (the “2020 Notes”), the assumption of DSS’s $350.0 million DSS Notes, and the issuance to the owners of DSS of Preferred Shares having an aggregate value of approximately $148.8 million. |
3. | The obligations under the ABL facility were required to be repaid in full at the closing of the sale of the Traditional Business. Accordingly, the ABL facility is presented as “Short-term borrowings required to be repaid or extinguished as part of divestiture.” |
4. | All senior notes issued by our wholly-owned subsidiary Cott Beverages Inc. were classified as “Debt required to be repaid or extinguished as part of divestiture” in prior periods. |
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Objective
The following discussion provides an analysis of the Company’s financial condition, cash flows and results of operations from management's perspective and should be read in conjunction with the consolidated financial statements and notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K. Our objective is to also provide discussion of events and uncertainties known to management that are reasonably likely to cause reported financial information not to be indicative of future operating results or of future financial condition and to offer information that provides understanding of our financial condition, cash flows and results of operations.
Primo is a route based service company withleading North America-focused pure-play water solutions provider that operates largely under a leading volume-based national presencerecurring revenue model in the large format water category (defined as 3 gallons or greater). This business strategy is commonly referred to as “razor-razorblade” because the initial sale of a product creates a base of users who frequently purchase complementary consumable products. The razor in Primo’s revenue model is its industry leading line-up of innovative water dispensers, which are sold through approximately 10,900 retail locations and online at various price points. The dispensers help increase household and business penetration which drives recurring purchases of Primo’s razorblade offering or water solutions. Primo’s razorblade offering is comprised of Water Direct, Water Exchange, and Water Refill. Through its Water Direct business, Primo delivers sustainable hydration solutions direct to customers, whether at home or to businesses. Through its Water Exchange business, customers visit retail locations and purchase a pre-filled bottle of water. Once consumed, empty bottles are exchanged at our recycling center displays, which provide a ticket that offers a discount toward the purchase of a new bottle. Water Exchange is available in approximately 17,500 retail locations. Through its Water Refill business, customers refill empty bottles at approximately 23,500 self-service refill drinking water stations. Primo also offers water filtration units across North America.
Primo’s water solutions expand consumer access to purified, spring and mineral water to promote a healthier, more sustainable lifestyle while simultaneously reducing plastic waste and pollution. Primo is committed to its water stewardship standards and is proud to partner with the International Bottled Water Association in North America
which ensures strict adherence to safety, quality, sanitation and
European home and office delivery (“HOD”) industry for bottled water and a leader in custom coffee roasting, blending of iced tea and extract solutionsregulatory standards for the
benefit of consumer protection. Environmental stewardship is a part of who we are, and we have worked to progressively achieve carbon neutrality throughout our organization. Our U.S.
foodservice industry. Our platform reaches over 2.4 million customers or delivery points acrossoperations achieved carbon neutral certification in 2020 under the Carbon Neutral Protocol, an international standard administered by Climate Impact Partners. In 2021, Primo announced its planned exit from the North
America and Europe supported by strategically located sales and distribution facilities and fleets, as well as wholesalers and distributors.American small-format retail water business. This
enables us to efficiently service residences, businesses, restaurant chains, hotels and motels,business was relatively small and
large retailers, and healthcare facilities.used predominantly single-use plastic bottles. The beverage market isexit from this category reduced single-use retail water bottles from our production environment by more than 400 million, annually, while also improving overall margins. The exit was completed during the second quarter of 2022.
The markets in which we operate are subject to some seasonal variations. Our water delivery
and beverage sales are generally higher during the warmer
months, while sales of our coffee products are generally higher during cooler months, and may also be influenced by the timing of holidays and weather fluctuations.months. Our purchases of raw materials and related accounts payable fluctuate based upon the demand for our products. The seasonality of our sales volume causes our working capital needs to fluctuate throughout the year.
We conduct operations in Canada and we are subject to currency exchange risks to the extent that our costs are denominated in currencies other than those in which we earn revenues. As our financial statements are denominated in U.S. dollars, fluctuations in currency exchange rates between the U.S. dollar and the Canadian dollar have had and will continue to have an impact on our results of operations.
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 most significant commodities are
green coffee, tea, polyethylene terephthalate (“PET”) resin, high-density polyethylene (“HDPE”) and polycarbonate bottles, caps and preforms, labels and cartons and trays. We attempt to manage our exposure to fluctuations in ingredient and packaging costs by entering into fixed price commitments for a portion of our ingredient and packaging requirements and implementing price increases as needed.
We conduct operations in countries involving transactions denominated in a variety of currencies. We are subject to currency exchange risks to the extent that our costs are denominated in currencies other than those in which we earn revenues. As our financial statements are denominated in U.S. dollars, fluctuations in currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have an impact on our results of operations.
In
2017,2023, our capital expenditures were devoted primarily to supporting growth in our business, maintaining existing facilities and making equipment upgrades.
On November 2, 2023, Primo and Osmosis Buyer Limited, a company incorporated in England and a subsidiary of the Culligan Group (“Purchaser”), entered into a Share Purchase Agreement (the “Purchase Agreement”) providing for the sale of Carbon Luxembourg S.à.r.l. and certain of its subsidiaries (the "European Business"). On December 29, 2023, Primo completed the sale of the European Business for aggregate deal consideration of $575.0 million, adjusted for customary purchase price adjustments, resulting in total cash consideration of $565.9 million (the “European Divestiture”). The European Divestiture did not include Primo's interest in Aimia Foods Limited (“Aimia”), Decantae Mineral Water Limited (“Decantae”), Fonthill Waters Ltd (“Fonthill”), John Farrer & Company Limited (“Farrers”), the portions of the Eden Springs Netherlands B.V. business located in the United Kingdom, Israel, and Portugal (collectively the "Remaining International Businesses"). The European Business and the Remaining International Businesses are collectively the "International Businesses." This deal is the first of several transactions that will occur in 2024 as part of a Board-approved plan to sell all of our international businesses representing a strategic shift in our operations. Accordingly, the International Businesses are presented herein as discontinued operations for all periods presented. See Note 2 to the Consolidated Financial Statements for additional information on discontinued operations. Unless otherwise noted, discussion within Part I and Part II relates to continuing operations.
At the beginning of 2017,2023, our business operated through fourtwo reporting segments; Water and Coffee Solutions (whichsegments: (i) North America, which included our DS Services of America, Inc. (“DSS”), Aquaterra Corporation (“Aquaterra”), Mountain Valley Spring Company (“Mountain Valley”) and the businesses associated with the acquisition of Primo Water Corporation ("Legacy Primo"), and (ii) Europe, which included the European business of Eden Springs EuropeNetherlands B.V. (“Eden”Eden Europe”), and S. & D. Coffee, Inc. (“S&D”our Decantae and Fonthill businesses. The Other category included the Israel business of Eden ("Eden Israel") businesses), Cottand our Aimia and Farrers businesses, as well as our corporate oversight function and other miscellaneous expenses.
As a result of the Board approved plan to sell all of our International Businesses, during the fourth quarter of 2023, we reviewed and realigned our reporting segments to exclude the businesses within discontinued operations which reflects how the business will be managed and results will be evaluated by the Chief Executive Officer, who is the Company’s chief operating decision maker. Following such review, our one reporting segment is North America, Cott United Kingdom (“Cott U.K.”)which includes our DSS, Aquaterra, Mountain Valley and AllLegacy Primo businesses. The Other (which includedcategory includes our Mexicocorporate oversight function and Royal Crown International (“RCI”) operating segments).Duringother miscellaneous expenses and the results of our business in Russia prior to the exit of the business during the third quarter of 2017, we reviewed our reporting segments as a result of the Transaction (as defined below). Following such review, we reorganized our reporting segments into three reporting segments; Route Based Services (which includes our DSS, Aquaterra and Eden businesses), Coffee, Tea and Extract Solutions (which includes our S&D business) and All Other (which includes our Aimia Foods (“Aimia”), Decantae Mineral Water Ltd. (“Decantae”), and our RCI concentrate businesses, our Columbus, Georgia manufacturing facility and other miscellaneous expenses).2022. Segment reporting results have been recast to reflect these changes for all periods presented.
Our
corporate oversight functionfiscal year is
not treated asbased on either a
segment; it includes certain general and administrative costs that are not allocated52- or 53-week period ending on the Saturday closest to
any of the reporting segments.December 31. For the fiscal years ended December 30, 2017,2023, December 31, 20162022 and January 2, 2016,1, 2022, we had 52 weeks of activity. For
Impact of General Economic and Geopolitical Conditions
Our operations and supplier relationships expose us to risks associated with disruptions to global supply chains, labor shortages, inflation and the
year ended January 2, 2016,ongoing Russia/Ukraine and Israel/Hamas wars, all of which are likely to continue to create challenging conditions for our business, through increased costs, increased employee attrition and vacancies, lower consumer spending, volatility in financial markets or other impacts. While we
had four additional shipping dayshave taken steps to minimize the impact of these increased costs, global supply chain disruption may deteriorate and inflationary pressures may increase, which could adversely affect our business, financial condition, results of operations and cash flows. To date, our operations in
Israel have not been materially impacted by the Israel/Hamas war, though we continue to monitor the situation closely and prioritize the safety of our
DSS business, which we estimate contributed $12.5 million of additional revenue and $0.1 million of additional operating income for the year ended January 2, 2016.associates.
Divestiture
Acquisition and Financing Transactions
Divestiture
Divestitures
On November 2, 2023, Primo and Osmosis Buyer Limited, a company incorporated in England and a subsidiary of
Traditional BusinessOn January 30, 2018, we sold our carbonated soft drinks (“CSDs”) and juice businesses via the sale of our North America, United Kingdom (“U.K.”) and Mexico business units (including the Canadian business) and our Royal Crown International (“RCI”) finished goods export business (collectively, “Traditional Business”) to RefrescoCulligan Group, N.V., a Dutch public company (“Refresco”), pursuant toentered into a Share Purchase Agreement (the “Purchase Agreement”) dated as of July 24, 2017 (the “Transaction”). The Transaction was structured as a sale of the assets of our Canadian business and a sale of the stock of the operating subsidiaries engaged in the Traditional Business in the other jurisdictions. The aggregate deal consideration was $1.25 billion, paid in cash at closing, subject to adjustmentproviding for indebtedness, working capital, and other customary post-closing adjustments. Accordingly, as a result of the sale of the Traditional Business representing a strategic shiftEuropean Business. As described above, the European Divestiture closed on December 29, 2023.
During the second quarter of 2022, our Board of Directors approved the exit from our business in our operations, those businesses are presented herein as discontinued operations. See Note 2Russia. Accordingly, we recorded an impairment charge of $11.2 million during the second quarter to reduce the carrying value of the assets to the Consolidated Financial Statements for additional information regarding discontinued operations.estimated fair value less costs to sell. The Transactionexit from our business in Russia was completed during the third quarter of 2022.
In the second quarter of 2022, as part of our overall strategy to increase profitability and further reduce our environmental footprint, we exited the North America single-use retail bottled water category, which consisted primarily of 1-gallon, 2.5-gallon and case-pack water. The exit did not
includeaffect our
Route Based Serviceslarge format exchange, refill, and
Coffee, Tea and Extract Solutions reporting segments, our RCI concentratedispenser business
our Columbus, Georgia manufacturing facility or our
Aimia and Decantae businesses.For all periods presented, the operating results associated with the Traditional BusinessMountain Valley brand, which sells products primarily in glass bottles. On an annualized basis, these products have been reclassified into net income (loss) from discontinued operations, netaccounted for revenue of income taxes in the Consolidated Statements of Operations, and the assets and liabilities associated with this business have been reflected as assets and liabilities of discontinued operations in the Consolidated Balance Sheets. Cash flows from the Company’s discontinued operations are presented in the Consolidated Statements of Cash Flows for all periods presented.
Acquisitions
In August 2016, we acquired S&D, a premium coffee roaster and provider of customized coffee, tea, and extract solutions to the foodservice, convenience, gas, hospitality and office segments in the United States (the “S&D Acquisition”). The aggregate purchase price was $353.6approximately $140.0 million. The S&D Acquisition was funded through a combination of incremental borrowings under our asset-based lending facility (the “ABL facility”) and proceeds from our June 2016 Offering (as defined below).
In August 2016, we acquired Eden, a leading provider of water and coffee solutions in Europe (the “Eden Acquisition”). The aggregate purchase price was €515.9 million (U.S. $576.3 million at the then-current exchange rate). The Eden Acquisition was funded through a combination of proceeds from the 2024 Notes (as defined below) and cash on hand.
In January 2016, we acquired Aquaterra, a Canadiandirect-to-consumer HOD bottled water and office coffee services (“OCS”) business (the “Aquaterra Acquisition”). The aggregate purchase price was C$61.2 million (U.S. $44.0 million at the then-current exchange rate). The purchase price was paid at closing using cash on hand.
Financing Activity
On January 30, 2018, in connection with the closing of the Transaction, we used a portion of the proceeds from the Transaction to retire $525.0 million aggregate principal amount of 5.375% senior notes due 2022 (the “2022 Notes”) and retire the remaining $250.0 million aggregate principal amount of 10.000% senior secured notes due 2021 (the “DSS Notes”). The redemption of our 2022 Notes included $21.2 million in premium payments and accrued interest of $2.2 million. The redemption of our DSS Notes included $12.5 million in premium payments and accrued interest of $10.3 million.
We also used a portion of the proceeds from the Transaction to repay in full our $262.5 million outstanding balance on our ABL facility. Additionally, we amended and restated our ABL facility in connection with the closing of the Transaction, as further discussed below.
On May 5, 2017, we used a portion of the proceeds from the issuance of the 2025 Notes (as defined below) to redeem $100.0 million in aggregate principal amount of the DSS Notes. The partial redemption of the DSS Notes included $7.7 million in premium payments, accrued interest of $1.8 million and thewrite-off of $9.2 million of unamortized premium.
On April
5, 2017 and March 22, 2017, we used a portion of the proceeds from the issuance of the 2025 Notes (as defined below) to purchase $422.7 million and $202.3 million in aggregate principal amount of our $625.0 million of 6.75% senior notes due January 1, 2020 (the “2020 Notes”). The redemption of our 2020 Notes included $14.3 million and $7.1 million in premium payments, accrued interest of $7.4 million and $3.1 million, thewrite-off of $5.8 million and $2.9 million in deferred financing fees, and other costs of $0.1 million.On March 22, 2017,30, 2021, we issued $750.0 million of 5.500%4.375% senior notes due April 1, 2025 (the “202530, 2029 (“2029 Notes”) to qualified purchasers in a private placement offering under Rule 144A144 under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States tonon-U.S. purchasers pursuant to Regulation S under the Securities Act and other applicable laws. The 20252029 Notes were issued by our wholly-owned subsidiary CottPrimo Water Holdings Inc., The 2029 Notes are guaranteed by the Company and mostcertain subsidiaries that are currently obligors under the Revolving Credit Facility and the €450.0 million of our U.S., Canadian, U.K., Luxembourg and Dutch subsidiaries guarantee the 2025 Notes.3.875% senior notes due October 31, 2028. The 20252029 Notes will mature on April 1, 202530, 2029 and interest is payable semi-annually on April 1st30th and October 1st31st of each year commencing on October 31, 2021. The proceeds of the 2029 Notes, along with available cash on hand, were used to redeem in full the $750.0 million of 5.500% senior notes due April 1, 2017. 2025 (“2025 Notes”) and pay related premiums, fees and expenses.
We incurred
$11.7approximately $11.2 million of financing fees
in connection withfor the issuance of the
2029 Notes. The financing fees are being amortized using the effective interest method over an eight-year period, which represents the term to maturity of the 2029 Notes. The redemption of the 2025
Notes.In June 2016,Notes included $20.6 million in premium payments, accrued interest of $3.6 million, and the write-off of $6.6 million in deferred financing fees.
On October 22, 2020, we issued €450.0 million (U.S. $539.1($499.4 million at the exchange raterates in effect on December 30, 2017)2023) of 5.500%3.875% senior notes due July 1, 2024 (the “2024October 31, 2028 (“2028 Notes”) to qualified purchasers in a private placement offering under Rule 144A under the Securities Act, and outside the United States tonon-U.S. purchasers pursuant to Regulation S under the Securities Act and other applicable laws. The 2028 Notes were issued by our wholly-owned subsidiary Primo Water Holdings Inc. The 2028 Notes are guaranteed by the Company and certain subsidiaries that are currently obligors under the Revolving Credit Facility and the 2029 Notes. The 2028 Notes will mature on October 31, 2028 and interest is payable semi-annually on April 30th and October 31st of each year commencing on April 30, 2021.
We incurred
$11.3approximately $8.5 million of financing fees
in connection withfor the issuance of the
20242028 Notes. The
proceedsfinancing fees are being amortized using the effective interest method over an eight-year period, which represents the term to maturity of the
2024 Notes were used to fund a portion of the purchase price of the Eden Acquisition and to pay related fees and expenses.In June 2016, we completed a public offering, on a bought deal basis, of 15,088,000 common shares at a price of $15.25 per share for total gross proceeds to us of $230.1 million (the “June 2016 Offering”). We incurred $9.2 million of underwriter commissions and $1.1 million in professional fees in connection with the June 2016 Offering. The net proceeds of the June 2016 Offering were used to repay borrowings under our ABL facility, to finance the S&D Acquisition and for general corporate purposes.
In2028 Notes.
On March
2016, we completed a public offering, on a bought deal basis, of 12,765,000 common shares at a price of $11.80 per share for total gross proceeds to us of $150.6 million (the “March 2016 Offering”). We incurred $6.0 million of underwriter commissions and $0.8 million in professional fees in connection with the March 2016 Offering. The net proceeds of the March 2016 Offering were used to repay borrowings under our ABL facility and for general corporate purposes.In June 2015,6, 2020, we entered into a sale-leaseback transactioncredit agreement among the Company, as parent borrower, Primo Water Holdings Inc. and certain other subsidiary borrowers, certain other subsidiaries of the Company from time to time designated as subsidiary borrowers, Bank of America, N.A., as administrative agent and collateral agent, and the lenders from time to time party thereto (the “Sale-Leaseback Transaction”“Credit Agreement”) involving three of our continuing operations and two of our discontinued operations manufacturing, production and distribution facilities, all located in North America, pursuant.
On January 13, 2023, we entered into the Second LIBOR Transition Amendment to the Credit Agreement, which we received cash proceedsreplaced interest rate calculations based on LIBOR with calculations based on the continuing operations facilities of $25.3 million, after related transaction expenses, and recordedSecured Overnight Financing Rate ("SOFR"). See Note 16 to the Consolidated Financial Statements for more details.
The Credit Agreement provides for a
gain of $18.1 million. The continuing operations facilities are being leased from the buyer-lessor oversenior secured revolving credit facility in an initial
lease termaggregate committed amount of
20 years and the lease is classified as an operating lease. We determined we have retained the lease rights to the facilities but not the benefits and risks incident to ownership; thus $17.1 million of the $18.1 million gain was deferred, with the remaining $1.0 million recognized as a gain on sale in loss on disposal of property, plant & equipment, net in our Consolidated Statement of Operations for the year ended January 2, 2016. This deferred gain is being amortized as a reduction to rent expense over the20-year initial lease term.In May 2015, we completed a public offering, on a bought deal basis, of 16,215,000 common shares at a price of $9.25 per share for total gross proceeds to us of $150.0$350.0 million (the “2015 Offering”“Revolving Credit Facility”). We incurred $6.0 million, which may be increased by incremental credit extensions from time to time in the form of underwriter commissionsterm loans or additional revolving credit commitments. The Revolving Credit Facility has a five year maturity date and $1.5 million in professional fees in connection with the 2015 Offering. The net proceedsincludes letter of the 2015 Offering were used to redeem all of our Series A Convertible First Preferred Shares (the “Convertible Preferred Shares”)credit and Series BNon-Convertible First Preferred Shares (the“Non-Convertible Preferred Shares,” and together with the Convertible Preferred Shares, the “Preferred Shares”).
swing line loan sub facilities.
Summary Financial Results
Net
lossincome from continuing operations in
20172023 was
$3.6$63.8 million or
$0.03$0.40 per diluted common share, compared with net
lossincome from continuing operations of
$60.3$58.7 million or
$0.47$0.36 per diluted common share, in
2016.2022.
The following items of significance affected our
20172023 financial results:
•Net revenue increased $646.5to $1,771.8 million in 2023 compared to $1,693.2 million in 2022, an increase of $78.6 million, or 39.8%4.6%, in 2017 compared to the prior year due primarily to increased demand for products and services from residential and business customers of $35.0 million and pricing initiatives of $120.9 million, partially offset by the additionsexit from the single-use retail bottled water business in North America of $41.0 million, a decrease in dispenser revenue of $13.0 million, the exit from our S&D and Eden businesses, growthbusiness in volume and consumption, as well as increased pricing in our Route Based Services reporting segment, strong coffee volume growth in our Coffee, Tea and Extract Solutions reporting segment,Russia of $7.4 million and the impact of favorableunfavorable foreign exchange rates. Excluding the impactrates of foreign exchange, revenue increased $633.8 million, or 39.0%, from the prior year;$2.4 million;
•Gross profit increased to $1,127.7 million from $850.1$1,137.0 million in the prior year due primarily to the additions of our S&D and Eden businesses and growth2023 from $1,019.2 million in our DSS business.2022. Gross profit as a percentage of revenue decreased to 49.7%was 64.2% in 20172023 compared to 52.4%60.2% in 2022. The 400 basis point increase is due primarily to increased demand and pricing initiatives, partially offset by the prior year. The decreaseimpact of unfavorable foreign exchange rates;
•SG&A expenses increased to $976.0 million in gross profit2023 compared to $883.8 million in 2022 due primarily to higher selling and operating costs that supported volume and revenue growth related primarily to labor and transportation cost increases, which increased by $37.1 million and $7.0 million, respectively, from 2022, and increases in insurance costs of $12.3 million and professional fees of $7.5 million from 2022, partially offset by the exit from our business in Russia of $5.0 million. SG&A expenses as a percentage of net revenue is due to our S&D business, which is a lower gross profit business;
Selling, general and administrative (“SG&A”) expenses increased to $1,042.7 millionwas 55.1% in 20172023 compared to $806.2 million52.2% in the prior year due primarily to the additions of our S&D and Eden businesses. As a percentage of revenue, SG&A expenses decreased to 45.9% from 49.7% in the prior year;2022;
•Loss on disposal of property, plant and equipment, net was related primarily related to the disposal of $10.2$9.1 million of equipment that was either replaced or no longer being used in our reporting segments;
•Acquisition and integration expenses decreased to $25.9$9.5 million in 20172023 compared to $27.8$12.1 million in 2022 due primarily to costs in the prior year due primarily to the reduction in costsassociated with the exit from the single-use retail bottled water business in North America, partially offset by increased professional fees. Acquisition and integration expenses as a percentage of our S&D and Eden businesses;
Other income, net was $3.0 millionrevenue increased to 0.5% in 20172023 compared to other expense, net of $5.6 million0.7% in the prior year due primarily2022;
•Impairment charges decreased to the increase of net gains on foreign currency transactions and the gain recognized upon the partial redemption of our DSS Notes in 2017 and unrealized losses on our commodity hedges in the prior year;
Interest expense, net increased to $85.5 million in 2017 compared to $43.0 million in the prior year due primarily to the issuance of our 2025 Notes in the first quarter of 2017 and having a full year of interest expense in 2017 associated with our 2024 Notes;
Income tax benefit was $30.0 million in 2017 compared to income tax expense of $21.2 million in the prior year due primarily to the change in the U.S. federal enacted tax rate in 2017 and the Canadian valuation allowance recorded in the third quarter of 2016 and the U.S. federal valuation allowance recorded in the fourth quarter of 2016; and
Adjusted EBITDA increased to $295.6 million in 2017 compared to $211.6nil from $11.2 million in the prior year due to the items listed above.
The following itemsnon-recurrence of significance affectedthe non-cash asset impairment charge resulting from the exit from our 2016 financial results:
business in Russia in 2022;Net revenue increased $435.9•Gain on sale of property decreased to $21.0 million or 36.7%, in 20162023 from $38.8 million in 2022 due to smaller aggregate value of sale transactions for our North America owned real properties in 2023 compared to the prior year2022;
•Other expense, net was $1.2 million in 2023 compared to Other income, net of $2.5 million in 2022 due primarily to the additions of our S&D, Eden, and Aquaterra businesses, partially offset by the impact of unfavorablehigher unrealized foreign exchange rates, and four less shipping dayslosses in 2023;
•Income tax expense was $27.0 million on pre-tax income from continuing operations of $90.8 million in 2023 compared to the prior year in our DSS business. Excluding the impactincome tax expense of foreign exchange and four additional shipping days in 2015, revenue increased $462.0$19.5 million or 39.3%,on pre-tax income from the prior year;
Gross profit increased to $850.1continuing operations of $78.2 million from $650.5 million in the prior year due primarily to the additions of our S&D, Eden and Aquaterra businesses, partially offset by the impact of unfavorable foreign exchange rates and increased operational costs at our DSS business. Gross profit as a percentage of revenue decreased to 52.4% in 2016 compared to 54.8% in the prior year. The decrease in gross profit as a percentage of net revenue is due to our S&D business, which is a lower gross profit business;
SG&A expenses increased to $806.2 million in 2016 compared to $608.4 million in the prior yearincrease was due primarily to the additions of our S&D, Eden and Aquaterra businesses. As a percentage of revenue, SG&A expenses decreased to 49.7% from 51.2%lower foreign exchange losses in the prior year;
Loss on disposal of property, plant and equipment, net was primarily relatedU.S. relative to the disposal of $6.6 million of equipment that was either replaced or no longer being used in our reporting segments;
Acquisition and integration expenses increased to $27.8 million in 2016 compared to $20.0 million in the prior year due primarily to the transaction costs in connection with the acquisitions of our S&D, Eden and Aquaterra businesses;year.
Other expense, net was $5.6 million in 2016 compared to other income, net of $12.8 million in the prior year due primarily to the reduction of net gains on foreign currency transactions and unrealized losses on our commodity hedges, partially offset by realized gains on our commodity hedges;
Interest expense, net was $43.0 million in 2016 compared to $30.1 million in the prior year due primarily to interest on our 2024 Notes issued in the second quarter of 2016;
Income tax expense was $21.2 million in 2016 compared to income tax benefit of $15.1 million in the prior year due primarily to the Canadian valuation allowance recorded in the third quarter of 2016 and the U.S. federal valuation allowance recorded in the fourth quarter of 2016; and
•Adjusted EBITDA increased to $211.6$380.7 million in 20162023 compared to $183.0$343.8 million in the prior year2022 due to the items listed above.above; and
•Cash flows provided by operating activities from continuing operations was $289.2 million in 2023 compared to $238.3 million in 2022. The $50.9 million increase was due primarily to improved earnings, excluding non-cash charges and income and an increase in cash provided by working capital relative to the prior year.
Critical Accounting Policies
Our significant accounting policies and recently issued accounting pronouncements are described in Note 1 to the Consolidated Financial Statements included in this Annual Report on Form
10-K. We believe the following represent our critical accounting policies:
The preparation of
thethese Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amount of revenue and expenses during the reporting period. Actual results could differ from those estimates. The Consolidated Financial Statements include estimates and assumptions that, in the opinion of management, were significant to the underlying amounts representing the future valuation of intangible assets, long-lived assets and goodwill,
insurance reserves, realization of deferred income tax assets,
and the resolution of tax
contingencies, and projected benefit plan obligations.contingencies.
Impairment
testingTesting of
goodwillCottGoodwill
The Company operates through fiveits North America operating segments: Route Based Services, Coffee, Tea and Extract Solutions, Aimia, RCI and Decantae. Route Based Services, Coffee, Tea and Extract Solutions aresegment, which is also its sole reportable segments and Aimia, RCI and Decantae are combined and disclosed in the All Other category.segment. We test goodwill for impairment at least annually on the first day of the fourth quarter, based on our reporting unit carrying values, calculated as total assets less interest-bearingnon-interest bearing liabilities, as of the end of the third quarter, or more frequently if we determine a triggering event has occurred during the year. Any impairment loss is recognized in our results of operations.
We evaluate goodwill for impairment on a reporting unit basis, which is an operating segment or a level below an operating segment, referred to as a component. A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and management regularly reviews the operating results of that component. However, two or more components of an operating segment
arecan be aggregated and deemed a single reporting unit if the components have similar economic characteristics. Our
Route Based ServicesNorth America operating segment was determined to have three components: DSS, Aquaterra, and
Eden.Mountain Valley. We have determined that DSS and Aquaterra have similar economic characteristics and have aggregated them as a single reporting unit for the purpose of testing goodwill for impairment (“DSSAqua”).
ForTherefore, for the purpose of testing goodwill for impairment
in 2017,for the fiscal year ended December 30, 2023, we have determined our reporting units are DSSAqua
Eden, S&D, Aimia, RCI and
Decantae. DSSAqua and Eden are components of the Route Based Services operating segment. S&D is a component of the Coffee, Tea and Extract Solutions operating segment.Mountain Valley.
We had goodwill of
$1,104.7$1,004.6 million on
theour Consolidated Balance Sheet
atas of December 30,
2017,2023, which represents amounts for the DSSAqua
Eden, S&D, Aimia, RCI and
Decantae reporting units.In the fourth quarter of 2017, the Company early adopted Accounting Standard Update (“ASU”)2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” as part of the annual goodwill impairment testing. We have the option of performing a qualitative assessment to determine whether any further quantitative testing for a potential impairment is necessary. Our qualitative assessment will use judgments including, but not limited to, changes in the general economic environment, industry considerations, current economic performance compared to historical economic performance, entity-specific events and events affecting ourMountain Valley reporting units, where applicable. If we elect to bypass the qualitative assessment or if we determine, based uponas well as goodwill within our assessment of those qualitative factors that it is more likely than not that the fair value of the reporting unit is less than its net carrying value, a quantitative assessment is required. Quantitative testing requires the fair value of the reporting unit to be compared with its carrying value. If the reporting unit’s carrying value exceeds its fair value, an impairment charge is recognized for the difference.
Other category.
For purposes of the
2017 annual test
for the fiscal year ended December 30, 2023, we elected to perform a qualitative assessment for
our RCI and Decantaeall reporting units to assess whether it was more likely than not
that the fair value of these reporting units exceeded their respective carrying values. In performing these assessments, management relied on a number of factors including, but not limited to, macroeconomic conditions, industry and market considerations, cost factors that would have a negative effect on earnings and cash flows, overall financial performance compared with forecasted projections in prior periods, and other relevant reporting unit events, the impact of which are all significant judgments and estimates. Based on these factors, management concluded that it was more likely than not that the fair values of
the RCI and Decantae reporting units were greater than their respective carrying amount, including goodwill, indicating no impairment. Goodwill allocated to the RCI and Decantae reporting units as of December 30, 2017 is $4.5 million and $1.7 million, respectively.For the DSSAqua, Eden, S&D and Aimia reporting units, we elected to bypass the qualitative assessment and performed a quantitative analysis due to a decline in 2017 actual versus projected operating results for DSSAqua and Aimia, and to establish a baseline reference for Eden and S&D as 2017 was the first full year of operations for these businesses. We determined the fair value of each reporting unit being evaluated using a mix of the income approach (which is based on the discounted cash flows of the reporting unit) and the guideline public company approach. We weighted the income approach and the guideline public company approach at 50% each to determine the fair value of each reporting unit. We believe using a combination of these approaches provides a more accurate valuation because it incorporates the expected cash generation of the Company in addition to how a third-party market participant would value the reporting unit. As the business is assumed to continue in perpetuity, the discounted future cash flows includes a terminal value. Critical assumptions used in our 2017 valuation of the reporting units include the weighted-average terminal growth rates of 2.5%, 1.5%, 2.5% and 2.0% and discount rates of 8.0%, 9.0%, 8.5% and 11.0% for our DSSAqua, Eden, S&D and Aimia reporting units, respectively. The terminal growth rate assumption incorporated into the discounted cash flow calculation reflects our long-term view of the market and industry, projected changes in the sale of our products, pricing of such products and operating profit margins. The discount rate was determined using various factors and sensitive assumptions, including bond yields, size premiums and tax rates. This rate was based on the weighted average cost of capital a market participant would use if evaluating the reporting unit as an investment. These assumptions are considered significant unobservable inputs and represent our best estimate of assumptions that market participants would use to determine the fair value of the respective reporting units. The key inputs into the discounted cash flow analysis were consistent with market data, where available, indicating that the assumptions used were in a reasonable range of observable market data.
Based on the quantitative assessment including consideration of the sensitivity of the assumptions made and methods used to determine fair value, industry trends and other relevant factors, we noted that the estimated fair values of DSSAqua, Eden, S&D and Aimia reporting units exceeded their carrying values by approximately 42.5%, 17.4%, 25.9% and 19.2%, respectively. Therefore no goodwill impairment charges were recorded in the fourth quarter ended December 30, 2017. Goodwill allocated to the DSSAqua, Eden, S&D and Aimia reporting units as of December 30, 2017 are $612.0 million, $324.7 million, $117.8 million and $44.0 million, respectively.
In addition, we note that goodwill held by reporting units in our Traditional Business totaled $136.8 million at December 30, 2017 and is included in long-term assets of discontinued operations on the Consolidated Balance Sheet. We elected to perform a qualitative assessment for our Traditional Business reporting units to assess whether it was more likely than not that the fair value of these reporting units exceeded their respective carrying values. In performing these assessments, management relied on a number of factors including, but not limited to, macroeconomic conditions, industry and market considerations, cost factors that would have a negative effect on earnings and cash flows, overall financial performance compared with forecasted projections in prior periods, the aggregate deal consideration of $1.25 billion for the sale of the Traditional Business and other relevant reporting unit events, all of which require the use of significant judgments and estimates. Based on these factors, management concluded that it was more likely than not that the fair values of the Traditional Business reporting units were greater than their respective carrying amounts, including goodwill, indicating no impairment.
impairment during the fiscal year ended December 30, 2023.
Each year during the fourth quarter, we
re-evaluate the assumptions used in our assessments, such as revenue growth rates,
operating profit marginsSG&A expenses, capital expenditures and discount rates, to reflect any significant changes in the business environment that could materially affect the fair value of our reporting units. Based on the evaluations performed in
2017,2023, we determined that the fair value of each of our reporting units exceeded their carrying amounts.
There are inherent uncertainties related to each of the above listed assumptions, and our judgment in applying them. Changes in the assumptions used in our qualitative assessment could result in impairment charges that could be material to our Consolidated Financial Statements in any given period.
Refer to Note 2 to the Consolidated Financial Statements for discussion regarding goodwill for the discontinued operations entities.
Impairment
testingTesting of
intangible assets with an indefinite lifeIntangible Assets
Our intangible assets with indefinite lives relate to
the 2001 acquisition of intellectual property from Royal Crown Company, Inc., and include the right to manufacture our concentrates, with all related inventions, processes, technologies, technical and manufacturing information,know-how and the use of the Royal Crown brand outside of North America and Mexico (the “Rights”); trademarks acquired in the acquisition of
DSS (the “DSS Trademarks”); trademarks acquired in the acquisition of Eden (the “Eden Trademarks”),businesses, and
trademarks acquired in the acquisition of Aquaterra (the “Aquaterra Trademarks”). These assets have an aggregate net book value of $288.6 million as of December 30, 2017. Therethere are no legal, regulatory, contractual, competitive, economic, or other factors that limit the useful life of these intangible assets.
The life of the Rights, DSS Trademarks, Eden Trademarks, and Aquaterra Trademarks are considered to be Our trademarks with indefinite and therefore these intangible assetslives are not amortized. Rather, theyamortized, but rather are tested for impairment at least annually or more frequently if we determine a triggering event has occurred during the year. We compare the carrying amount of the intangible assetassets to its fair value and when the carrying amount is greater than the fair value, we recognize in income an impairment loss. DuringOur intangible assets with indefinite lives relate primarily to trademarks acquired in the fourth quarteracquisition of 2017, management concluded that it was more likely than not thatLegacy Primo, trademarks acquired in the fairacquisition of DSS, one of the trademarks acquired in the acquisition of Aquaterra, trademarks acquired in the acquisition of Mountain Valley, and trademarks acquired in the acquisition of Crystal Rock (collectively, the "Trademarks"). These assets have an aggregate net book value of the Rights, DSS Trademarks, Eden Trademarks, and Aquaterra Trademarks were greater than their respective carrying value, indicating no impairment.
$379.7 million as of December 30, 2023.
We assessed qualitative factors to determine whether the existence of events or circumstances indicated that it was more likely than not that the fair value of the
Rights and the Aquaterra Trademarks were less than their respective carrying value. The qualitative factors we assessed included macroeconomic conditions, industry and market considerations, cost factors that would have a negative effect on earnings and cash flows, overall financial performance compared with forecasted projections in prior periods, and other relevant events, the impact of which are all significant
judgementsjudgments and estimates.
WeDuring the fourth quarter of 2023, we concluded that it was more likely than not that the fair value of the
Rights and the Aquaterra Trademarks were more than
itstheir carrying value and therefore we were not required to perform any additional testing.
To determine the fair value
There are inherent uncertainties related to each of the DSS Trademarksabove listed assumptions, and our judgment in applying them. Changes in the Eden Trademarks, we use a relief from royalty method of the income approach, which calculates a fair value royalty rateassumptions used in our qualitative assessment could result in impairment charges that is appliedcould be material to revenue forecasts associated with those trademarks. The resulting cash flows are discounted using a rateour Consolidated Financial Statements in any given period.
Refer to
reflect the risk of achieving the projected royalty savings attributableNote 2 to the
trademarks. The assumptions used to estimate the fair value of these trademarks are subjective and require significant management judgment, including estimated future revenues, the fair value royalty rate (which is estimated to be a reasonable market royalty charge that would be charged by a licensor of the trademarks) and the risk adjusted discount rate. Based on our impairment test, the estimated fair value of the DSS Trademarks and the Eden Trademarks exceeded the carrying value by approximately 18.0% and 28.0%, respectively. If actual revenues in future periods, are less than currently projectedConsolidated Financial Statements for discussion regarding intangible assets for the
DSS Trademarks and Eden Trademarks, these trademarks could be impaired.discontinued operations entities.
Other
intangible assetsIntangible Assets
As of December 30, 2017,2023, our intangible assets subject to amortization, net of accumulated amortization, for continuing operations were $462.5$333.0 million, which consistedconsisting principally of $428.7$310.7 million of customer relationships that arose from acquisitions, $15.8$13.8 million of software, and $14.2$5.9 million of patents. Customer relationships are typically amortized on an accelerated basis forover the period overfor which we expect to receive the economic benefits. The customer relationshipsrelationship intangible assets acquired in connection with theour acquisitions of S&D, Eden, Aquaterra and DSS are amortized over the expected remaining useful life of those relationships on a basis that reflects the pattern of realization of the estimated undiscountedafter-tax cash flows. We review the estimated useful life of these intangible assets annually, taking into consideration the specific net cash flows related to the intangible asset, unless a review is required more frequently due to a triggering event, such as thea loss of a significant customer. Our review of the estimated useful life takes into consideration the specific net cash flows related to the intangible asset. The permanent loss of, or significant decline in sales to customers included in the intangible asset would result in either an impairment in the value of the intangible asset or an accelerated amortization of any remaining value and could lead to an impairment of the fixed assets that were used
to service that customer. We did not record impairment charges for
our intangible assets
subject to amortization in
2017, 2016 or 2015.the fiscal years ended December 30, 2023, December 31, 2022, and January 1, 2022.
Impairment
and Disposal of
long-lived assetsLong-Lived Assets
When adverse events occur, we compare the carrying amount of long-lived assets to the estimated undiscounted future cash flows at the lowest level of independent cash flows for the group of long-lived assets and recognize any impairment loss based on discounted cash flows in the Consolidated Statements of Operations, taking into consideration the timing of testing and the asset’s remaining useful life. The expected life and value of these long-lived assets is based on an evaluation of the competitive environment, history and future prospects as appropriate.
We did not record impairments of long-lived assets during the fiscal years ended December 30, 2023, December 31, 2022, and January 1, 2022.
Insurance Reserves
We maintain insurance retention programs under our general liability, auto liability, and workers' compensation insurance programs. We also carry excess coverage to mitigate catastrophic losses. We use an independent third-party actuary to assist in determining our insurance reserves. Insurance reserves are accrued on an undiscounted basis based on known claims and estimated incurred but not reported claims not otherwise covered by insurance. The estimates are developed utilizing standard actuarial methods and are based on historical claims experience and actuarial assumptions, including loss development factors and expected ultimate loss selections. The inherent uncertainty of future loss projections could cause actual claims to differ from our estimates. The Company recorded insurance reserves of $67.0 million and $58.7 million as of December 30, 2023 and December 31, 2022, respectively, within Accounts payable and accrued liabilities and Other long-term liabilities in the Consolidated Balance Sheets, of which $8.8 million and $12.3 million, respectively, was covered by insurance and included as a component of Accounts receivable, net of allowance and Other long-term assets in the Consolidated Balance Sheets.
We are subject to income taxes in Canada as well as in numerous foreign jurisdictions. Significant judgments and estimates are required in determining the income tax expense in these jurisdictions. Our income tax expense, deferred tax assets and liabilities and reserves for unrecognized tax benefits reflect management’s best assessment of estimated future taxes to be paid in the jurisdictions in which we operate.
Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, we begin with historical results adjusted for the results of discontinued operations and changes in accounting policies and incorporate assumptions including the amount of future Canadian and foreign
pre-tax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying businesses. Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35% to 21%, limiting various business deductions and repealing the corporate alternative minimum tax. Many provisions in the Tax Act are generally effective in tax years beginning after December 31, 2017. U.S. GAAP requires the impact of tax legislation to be recognized in the period in which the law was enacted. As a result of the Tax Act, we recorded tax benefits in the fourth quarter of 2017 of $32.2 million due to are-measurement of the U.S deferred tax assets and liabilities and $1.3 million due to the repeal of the corporate alternative minimum tax. The tax benefits represent provisional amounts and our current best estimates. The provisional amounts incorporate assumptions made based upon our current interpretation of the Tax Act and may be refined through the fourth quarter of 2018 as we receive additional clarification and implementation guidance.Financial Accounting Standards Board (“FASB”(‘‘FASB’’) Accounting Standards Codification (“ASC”(‘‘ASC’’) Topic 740, “Income Taxes” (“
Income Taxes (‘‘ASC 740”740’’) provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. ASC 740 also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We recognize tax liabilities in accordance with ASC 740 and we adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which they are determined.
Pension costs
We account for our defined benefit pension plans in accordance with ASCNo. 715-20, “Compensation—Defined Benefit Plans—General” (“ASC715-20”). The funded status is the difference between the fair value of plan assets and the benefit obligation. The adjustment to accumulated other comprehensive income represents the net unrecognized actuarial gains or losses and unrecognized prior service costs. Future actuarial gains or losses that are not recognized as net periodic benefits cost in the same periods will be recognized as a component of other comprehensive income.
We maintain several defined-benefit plans that cover certain employees in the United States, Switzerland and Israel. We record the expenses associated with these plans based on calculations which include various actuarial assumptions such as discount rates and expected long-term rates of return on plan assets. Material changes in pension costs may occur in the future due to changes in these assumptions. Future annual amounts could be impacted by changes in the discount rate, changes in the expected long-term rate of return, changes in the level of contributions to the plans and other factors.
We utilize a yield curve analysis to determine the discount rates for our defined benefit plans’ obligations. The yield curve considers pricing and yield information for high quality corporate bonds with maturities matched to estimated payouts of future pension benefits. The expected return on plan assets is based on our expectation of the long-term rates of return on each asset class based on the current asset mix of the funds, considering the historical returns earned on the type of assets in the funds. We review our actuarial assumptions on an annual basis and make modifications to the assumptions based on current rates and trends when appropriate. The effects of the modifications to the actuarial assumptions which impact the projected benefit obligation are amortized over future periods.
In connection with certain other collective bargaining agreements to which we are a party, we are required to make contributions on behalf of certain union employees to multiemployer pension plans. The ongoing contributions and liabilities associated with these plans are not material.
In this Annual Report on Form
10-K, we supplement our reporting of financial measures determined in accordance with GAAP by utilizing certain
non-GAAP financial measures that exclude certain items to make period-over-period comparisons for our underlying operations before material charges. We exclude these items to better understand trends in the business. We exclude the impact of foreign exchange to separate the impact of currency exchange rate changes from our results of operations.
We also utilize
earnings (loss)
earnings before interest expense, taxes, depreciation and amortization (“EBITDA”), which is GAAP net
(loss) incomeloss from continuing operations before interest expense, net,
(benefit) expense for income taxes and 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, which is EBITDA excluding acquisition and integration costs,
inventory step up and other purchase accounting adjustments, (gain) loss on commodity hedging instruments, net,share-based compensation costs, COVID-19 costs, impairment charges, foreign exchange and other
(gains) losses, net, loss on disposal of property, plant
&and equipment, net,
gainloss on extinguishment of long-term debt,
share-based compensation costs,(gain) loss on sale of business, (gain) loss on sale of property, and other adjustments,
net, as the case may be (“Adjusted EBITDA”). We consider Adjusted EBITDA to be an indicator of our operating performance. Adjusted EBITDA excludes certain items to make more meaningful period-over-period comparisons of our underlying operations before material changes.
Effective January 1, 2017, share-based compensation expense as a part of annual compensation packages is included as an adjustment to EBITDA, and prior periods presented have been updated to incorporate the change. This determination is based upon review of peer companies and business practices among entities undergoing transformation within their operations.Additionally, we supplement our reporting of net cash provided by operating activities from continuing operations determined in accordance with GAAP by excluding additions to property, plant & equipment to present free cash flow and adjusted free cash flow (which is free cash flow excluding DSS integration capital expenditures, acquisition and integration cash costs, cash collateral costs and other adjustments), which management believes provides useful information to investors about the amount of cash generated by the business that can be used for strategic opportunities, including investing in our business, making strategic acquisitions, paying dividends, and strengthening the balance sheet.
Because we use these adjusted financial results in the management of our business and to understand underlying business performance, we believe this supplemental information is useful to investors for their independent evaluation and understanding of our business performance and the performance of our management. The
non-GAAP financial measures described above are in addition to, and not meant to be considered superior to, or a substitute for, our financial statements prepared in accordance with GAAP. In addition, the
non-GAAP financial measures included in this Annual Report on Form
10-K reflect our judgment of particular items, and may be different from, and therefore may not be comparable to, similarly titled measures reported by other companies.
The following table summarizes our EBITDA and Adjusted EBITDA for the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022:
| | | | | | | | | | | | | | | | | |
| | For the Fiscal Year Ended |
| (in millions of U.S. dollars) | December 30, 2023 | | December 31, 2022 | | January 1, 2022 |
| Net income from continuing operations | $ | 63.8 | | | $ | 58.7 | | | $ | 4.9 | |
| Interest expense, net | 71.4 | | | 67.8 | | | 68.3 | |
| Income tax expense | 27.0 | | | 19.5 | | | 7.7 | |
| Depreciation and amortization | 193.3 | | | 182.0 | | | 160.2 | |
| EBITDA | $ | 355.5 | | | $ | 328.0 | | | $ | 241.1 | |
| Acquisition and integration costs | 9.5 | | | 12.1 | | | 9.1 | |
| Share-based compensation costs | 14.1 | | | 16.4 | | | 15.5 | |
| COVID-19 costs | — | | | (0.6) | | | 2.0 | |
| Impairment charges | — | | | 11.2 | | | — | |
| Foreign exchange and other losses (gains), net | 5.7 | | | 0.9 | | | (0.5) | |
| Loss on disposal of property, plant and equipment, net | 9.1 | | | 7.4 | | | 9.1 | |
| Loss on extinguishment of long-term debt | — | | | — | | | 27.2 | |
| Gain on sale of business | — | | | (0.7) | | | — | |
| Gain on sale of property | (21.0) | | | (38.8) | | | — | |
| Other adjustments, net | 7.8 | | | 7.9 | | | 0.8 | |
| Adjusted EBITDA | $ | 380.7 | | | $ | 343.8 | | | $ | 304.3 | |
Results of Operations - Continuing Operations
The following table summarizes our Consolidated Statements of Operations as a percentage of net revenue for
2017, 2016the fiscal years ended December 30, 2023, December 31, 2022 and
2015: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | 2015 | |
| | | | | | Percentage | | | | | | Percentage | | | | | | Percentage | |
| | | | of | | | | | | of | | | | | | of | |
(in millions of U.S. dollars, except percentage amounts) | | | | | Revenue | | | | | | Revenue | | | | | | Revenue | |
Revenue, net | | $ | 2,269.7 | | | | 100.0 | % | | $ | 1,623.2 | | | | 100.0 | % | | $ | 1,187.3 | | | | 100.0 | % |
Cost of sales | | | 1,142.0 | | | | 50.3 | % | | | 773.1 | | | | 47.6 | % | | | 536.8 | | | | 45.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 1,127.7 | | | | 49.7 | % | | | 850.1 | | | | 52.4 | % | | | 650.5 | | | | 54.8 | % |
SG&A expenses | | | 1,042.7 | | | | 45.9 | % | | | 806.2 | | | | 49.7 | % | | | 608.4 | | | | 51.2 | % |
Loss on disposal of property, plant & equipment, net | | | 10.2 | | | | 0.4 | % | | | 6.6 | | | | 0.4 | % | | | 4.2 | | | | 0.4 | % |
Acquisition and integration expenses | | | 25.9 | | | | 1.1 | % | | | 27.8 | | | | 1.7 | % | | | 20.0 | | | | 1.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating income | | | 48.9 | | | | 2.2 | % | | | 9.5 | | | | 0.6 | % | | | 17.9 | | | | 1.5 | % |
Other (income) expense, net | | | (3.0 | ) | | | (0.1 | )% | | | 5.6 | | | | 0.3 | % | | | (12.8 | ) | | | (1.1 | )% |
Interest expense, net | | | 85.5 | | | | 3.8 | % | | | 43.0 | | | | 2.6 | % | | | 30.1 | | | | 2.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
(Loss) income from continuing operations before income taxes | | | (33.6 | ) | | | (1.5 | )% | | | (39.1 | ) | | | (2.4 | )% | | | 0.6 | | | | 0.1 | % |
Income tax (benefit) expense | | | (30.0 | ) | | | (1.3 | )% | | | 21.2 | | | | 1.3 | % | | | (15.1 | ) | | | (1.3 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net (loss) income from continuing operations | | | (3.6 | ) | | | (0.2 | )% | | | (60.3 | ) | | | (3.7 | )% | | | 15.7 | | | | 1.3 | % |
Net income (loss) from discontinued operations, net of income taxes | | | 10.7 | | | | 0.5 | % | | | (11.2 | ) | | | (0.7 | )% | | | 4.9 | | | | 0.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | | 7.1 | | | | 0.3 | % | | | (71.5 | ) | | | (4.4 | )% | | | 20.6 | | | | 1.7 | % |
Less: Net income attributable tonon-controlling interests - discontinued operations | | | 8.5 | | | | 0.4 | % | | | 6.3 | | | | 0.4 | % | | | 6.1 | | | | 0.5 | % |
Less: Accumulated dividends on preferred shares - continuing operations | | | — | | | | — | % | | | — | | | | — | % | | | 5.9 | | | | 0.5 | % |
Less: Foreign exchange impact on redemption of preferred shares -continued operations | | | — | | | | — | % | | | — | | | | — | % | | | 12.0 | | | | 1.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net loss attributable to Cott Corporation | | $ | (1.4 | ) | | | (0.1 | )% | | $ | (77.8 | ) | | | (4.8 | )% | | $ | (3.4 | ) | | | (0.3 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation & amortization | | $ | 188.6 | | | | 8.3 | % | | $ | 151.1 | | | | 9.3 | % | | $ | 128.3 | | | | 10.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
January 1, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| (in millions of U.S. dollars) | $ | | % | | $ | | % | | $ | | % |
| Revenue, net | 1,771.8 | | | 100.0 | | | 1,693.2 | | | 100.0 | | | 1,576.4 | | | 100.0 | |
| Cost of sales | 634.8 | | | 35.8 | | | 674.0 | | | 39.8 | | | 685.4 | | | 43.5 | |
| Gross profit | 1,137.0 | | | 64.2 | | | 1,019.2 | | | 60.2 | | | 891.0 | | | 56.5 | |
| Selling, general and administrative expenses | 976.0 | | | 55.1 | | | 883.8 | | | 52.2 | | | 769.8 | | | 48.8 | |
| Loss on disposal of property, plant and equipment, net | 9.1 | | | 0.5 | | | 7.4 | | | 0.4 | | | 9.1 | | | 0.6 | |
| Acquisition and integration expenses | 9.5 | | | 0.5 | | | 12.1 | | | 0.7 | | | 9.1 | | | 0.6 | |
| Impairment charges | — | | | — | | | 11.2 | | | 0.7 | | | — | | | — | |
| Gain on sale of property | (21.0) | | | (1.2) | | | (38.8) | | | (2.3) | | | — | | | — | |
| Operating income | 163.4 | | | 9.2 | | | 143.5 | | | 8.5 | | | 103.0 | | | 6.5 | |
| Other expense (income), net | 1.2 | | | 0.1 | | | (2.5) | | | (0.1) | | | 22.1 | | | 1.4 | |
| Interest expense, net | 71.4 | | | 4.0 | | | 67.8 | | | 4.0 | | | 68.3 | | | 4.3 | |
| Income from continuing operations before income taxes | 90.8 | | | 5.1 | | | 78.2 | | | 4.6 | | | 12.6 | | | 0.8 | |
| Income tax expense | 27.0 | | | 1.5 | | | 19.5 | | | 1.2 | | | 7.7 | | | 0.5 | |
| Net income from continuing operations | 63.8 | | | 3.6 | | | 58.7 | | | 3.5 | | | 4.9 | | | 0.3 | |
| Net income (loss) from discontinued operations, net of income taxes (Note 2) | 174.3 | | | 9.8 | | | (29.1) | | | (1.7) | | | (8.1) | | | (0.5) | |
| Net income (loss) | 238.1 | | | 13.4 | | | 29.6 | | | 1.7 | | | (3.2) | | | (0.2) | |
| Depreciation and amortization | 193.3 | | | 10.9 | | | 182.0 | | | 10.7 | | | 160.2 | | | 10.2 | |
The following table summarizes our net revenue, gross profit, SG&A expenses and operating income (loss) by reporting segment for 2017, 2016the fiscal years ended December 30, 2023, December 31, 2022 and 2015 (for purposesJanuary 1, 2022:
| | | | | | | | | | | | | | | | | |
| For the Fiscal Year Ended |
| (in millions of U.S. dollars) | December 30, 2023 | | December 31, 2022 | | January 1, 2022 |
| Revenue, net | | | | | |
| North America | $ | 1,771.2 | | | $ | 1,685.6 | | | $ | 1,562.9 | |
| Other | 0.6 | | | 7.6 | | | 13.5 | |
| | | | | |
| Total | $ | 1,771.8 | | | $ | 1,693.2 | | | $ | 1,576.4 | |
| Gross profit | | | | | |
| North America | $ | 1,136.4 | | | $ | 1,013.5 | | | $ | 881.0 | |
| Other | 0.6 | | | 5.7 | | | 10.0 | |
| Total | $ | 1,137.0 | | | $ | 1,019.2 | | | $ | 891.0 | |
| Selling, general and administrative expenses | | | | | |
| North America | $ | 919.7 | | | $ | 830.8 | | | $ | 720.6 | |
| Other | 56.3 | | | 53.0 | | | 49.2 | |
| Total | $ | 976.0 | | | $ | 883.8 | | | $ | 769.8 | |
| Operating income (loss) | | | | | |
| North America | $ | 222.2 | | | $ | 203.7 | | | $ | 146.0 | |
| Other | (58.8) | | | (60.2) | | | (43.0) | |
| Total | $ | 163.4 | | | $ | 143.5 | | | $ | 103.0 | |
The following tables summarize revenue by channel for the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022:
| | | | | | | | | | | | | | | | | |
| For the Fiscal Year Ended December 30, 2023 |
| (in millions of U.S. dollars) | North America | | Other | | Total |
| Revenue, net | | | | | |
| Water Direct/Water Exchange | $ | 1,345.3 | | | $ | — | | | $ | 1,345.3 | |
| Water Refill/Water Filtration | 226.9 | | | — | | | 226.9 | |
| Other Water | 51.9 | | | — | | | 51.9 | |
| Water Dispensers | 57.5 | | | — | | | 57.5 | |
| Other | 89.6 | | | 0.6 | | | 90.2 | |
| Total | $ | 1,771.2 | | | $ | 0.6 | | | $ | 1,771.8 | |
| | | | | | | | | | | | | | | | | |
| For the Fiscal Year Ended December 31, 2022 |
| (in millions of U.S. dollars) | North America | | Other | | Total |
| Revenue, net | | | | | |
| Water Direct/Water Exchange | $ | 1,242.8 | | | $ | 7.4 | | | $ | 1,250.2 | |
| Water Refill/Water Filtration | 192.0 | | | — | | | 192.0 | |
| Other Water | 73.8 | | | — | | | 73.8 | |
| Water Dispensers | 70.5 | | | — | | | 70.5 | |
| Other | 106.5 | | | 0.2 | | | 106.7 | |
| Total | $ | 1,685.6 | | | $ | 7.6 | | | $ | 1,693.2 | |
| | | | | | | | | | | | | | | | | |
| For the Fiscal Year Ended January 1, 2022 |
| (in millions of U.S. dollars) | North America | | Other | | Total |
| Revenue, net | | | | | |
| Water Direct/Water Exchange | $ | 1,051.0 | | | $ | 13.5 | | | $ | 1,064.5 | |
| Water Refill/Water Filtration | 180.5 | | | — | | | 180.5 | |
| Other Water | 162.6 | | | — | | | 162.6 | |
| Water Dispensers | 65.4 | | | — | | | 65.4 | |
| Other | 103.4 | | | — | | | 103.4 | |
| Total | $ | 1,562.9 | | | $ | 13.5 | | | $ | 1,576.4 | |
The following table summarizes the change in revenue by reporting segment for the fiscal year ended December 30, 2023:
| | | | | | | | | | | | | | | | | |
| | For the Fiscal Year Ended December 30, 2023 |
| (in millions of U.S. dollars) | North America | | Other | | Total |
| Change in revenue | $ | 85.6 | | | $ | (7.0) | | | $ | 78.6 | |
Impact of foreign exchange 1 | 2.4 | | | — | | | 2.4 | |
| Change excluding foreign exchange | $ | 88.0 | | | $ | (7.0) | | | $ | 81.0 | |
| Percentage change in revenue | 5.1 | % | | (92.1) | % | | 4.6 | % |
| Percentage change in revenue excluding foreign exchange | 5.2 | % | | (92.1) | % | | 4.8 | % |
______________________
1 Impact of foreign exchange is the difference between the current year’s revenue translated utilizing the current year’s average foreign exchange rates less the current year’s revenue translated utilizing the prior year’s average foreign exchange rates.
The following table below, oursummarizes the change in revenue by reporting segment for the fiscal year ended December 31, 2022:
| | | | | | | | | | | | | | | | | |
| | For the Fiscal Year Ended December 31, 2022 |
| (in millions of U.S. dollars) | North America | | Other | | Total |
| Change in revenue | $ | 122.7 | | | $ | (5.9) | | | $ | 116.8 | |
Impact of foreign exchange 1 | 2.4 | | | 0.4 | | | 2.8 | |
| Change excluding foreign exchange | $ | 125.1 | | | $ | (5.5) | | | $ | 119.6 | |
| Percentage change in revenue | 7.9 | % | | (43.7) | % | | 7.4 | % |
| Percentage change in revenue excluding foreign exchange | 8.0 | % | | (40.7) | % | | 7.6 | % |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
______________________
1 Impact of foreign exchange is the difference between the current year’s revenue translated utilizing the current year’s average foreign exchange rates less the current year’s revenue translated utilizing the prior year’s average foreign exchange rates.
The following table summarizes the change in gross profit by reporting segment for the fiscal year ended December 30, 2023:
| | | | | | | | | | | | | | | | | |
| For the Fiscal Year Ended December 30, 2023 |
| (in millions of U.S. dollars) | North America | | Other | | Total |
| Change in gross profit | $ | 122.9 | | | $ | (5.1) | | | $ | 117.8 | |
Impact of foreign exchange 1 | 1.5 | | | — | | | 1.5 | |
| Change excluding foreign exchange | $ | 124.4 | | | $ | (5.1) | | | $ | 119.3 | |
| Percentage change in gross profit | 12.1 | % | | (89.5) | % | | 11.6 | % |
| Percentage change in gross profit excluding foreign exchange | 12.3 | % | | (89.5) | % | | 11.7 | % |
______________________
1 Impact of foreign exchange is the difference between the current year's gross profit translated utilizing the current year's average foreign exchange rates less the current year's gross profit translated utilizing the prior year's average foreign exchange rates.
The following tables summarize the change in gross profit by reporting segment for the fiscal year ended December 31, 2022:
| | | | | | | | | | | | | | | | | |
| For the Fiscal Year Ended December 31, 2022 |
| (in millions of U.S. dollars) | North America | | Other | | Total |
| Change in gross profit | $ | 132.5 | | | $ | (4.3) | | | $ | 128.2 | |
Impact of foreign exchange 1 | 1.4 | | | 0.3 | | | 1.7 | |
| Change excluding foreign exchange | $ | 133.9 | | | $ | (4.0) | | | $ | 129.9 | |
| Percentage change in gross profit | 15.0 | % | | (43.0) | % | | 14.4 | % |
| Percentage change in gross profit excluding foreign exchange | 15.2 | % | | (40.0) | % | | 14.6 | % |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
______________________
1 Impact of foreign exchange is the difference between the current year's gross profit translated utilizing the current year's average foreign exchange rates less the current year's gross profit translated utilizing the prior year's average foreign exchange rates.
Our corporate oversight function
(“Corporate”) is not treated as a segment; it includes certain general and administrative costs that are
not allocated to any ofdisclosed in the
reporting segments): | | | | | | | | | | | | |
(in millions of U.S. dollars) | | 2017 | | | 2016 | | | 2015 | |
Revenue, net | | | | | | | | | | | | |
Route Based Services | | $ | 1,501.7 | | | $ | 1,224.3 | | | $ | 1,021.2 | |
Coffee, Tea and Extract Solutions | | | 602.2 | | | | 228.0 | | | | — | |
All Other | | | 165.8 | | | | 170.9 | | | | 166.1 | |
| | | | | | | | | | | | |
Total | | $ | 2,269.7 | | | $ | 1,623.2 | | | $ | 1,187.3 | |
| | | | | | | | | | | | |
Gross profit | | | | | | | | | | | | |
Route Based Services | | $ | 939.9 | | | $ | 752.4 | | | $ | 618.4 | |
Coffee, Tea and Extract Solutions | | | 161.4 | | | | 65.5 | | | | — | |
All Other | | | 26.4 | | | | 32.2 | | | | 32.1 | |
| | | | | | | | | | | | |
Total | | $ | 1,127.7 | | | $ | 850.1 | | | $ | 650.5 | |
| | | | | | | | | | | | |
Operating income (loss) | | | | | | | | | | | | |
Route Based Services | | $ | 77.0 | | | $ | 41.2 | | | $ | 39.0 | |
Coffee, Tea and Extract Solutions | | | 15.7 | | | | 5.3 | | | | — | |
All Other | | | 1.2 | | | | 8.0 | | | | 8.8 | |
Corporate | | | (45.0 | ) | | | (45.0 | ) | | | (29.9 | ) |
| | | | | | | | | | | | |
Total | | $ | 48.9 | | | $ | 9.5 | | | $ | 17.9 | |
| | | | | | | | | | | | |
The following tables summarize revenue by channel for 2017, 2016 and 2015:
| | | | | | | | | | | | | | | | |
| | | For the Year Ended December 30, 2017 | |
(in millions of U.S. dollars) | | Route
Based
Services | | | Coffee, Tea
and Extract
Solutions | | | All
Other | | | Total | |
Revenue, net | | | | | | | | | | | | | | | | |
Home and office bottled water delivery | | $ | 990.6 | | | $ | — | | | $ | — | | | $ | 990.6 | |
Coffee and tea services | | | 184.2 | | | | 501.7 | | | | 2.6 | | | | 688.5 | |
Retail | | | 166.7 | | | | — | | | | 65.3 | | | | 232.0 | |
Other | | | 160.2 | | | | 100.5 | | | | 97.9 | | | | 358.6 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 1,501.7 | | | $ | 602.2 | | | $ | 165.8 | | | $ | 2,269.7 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | For the Year Ended December 31, 2016 | |
(in millions of U.S. dollars) | | Route
Based
Services | | | Coffee, Tea
and Extract
Solutions | | | All
Other | | | Total | |
Revenue, net | | | | | | | | | | | | | | | | |
Home and office bottled water delivery | | $ | 799.4 | | | $ | — | | | $ | — | | | $ | 799.4 | |
Coffee and tea services | | | 146.8 | | | | 187.8 | | | | 2.6 | | | | 337.2 | |
Retail | | | 164.6 | | | | — | | | | 51.7 | | | | 216.3 | |
Other | | | 113.5 | | | | 40.2 | | | | 116.6 | | | | 270.3 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 1,224.3 | | | $ | 228.0 | | | $ | 170.9 | | | $ | 1,623.2 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | For the Year Ended January 2, 2016 | |
(in millions of U.S. dollars) | | Route
Based
Services | | | Coffee, Tea
and Extract
Solutions | | | All
Other | | | Total | |
Revenue, net | | | | | | | | | | | | | | | | |
Home and office bottled water delivery | | $ | 651.3 | | | $ | — | | | $ | — | | | $ | 651.3 | |
Coffee and tea services | | | 121.3 | | | | — | | | | — | | | | 121.3 | |
Retail | | | 149.4 | | | | — | | | | 61.8 | | | | 211.2 | |
Other | | | 99.2 | | | | — | | | | 104.3 | | | | 203.5 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 1,021.2 | | | $ | — | | | $ | 166.1 | | | $ | 1,187.3 | |
| | | | | | | | | | | | | | | | |
Results of Operations
The following table summarizes the change in revenue by reporting segment for 2017:
| | | | | | | | | | | | | | | | |
| | | For the Year Ended December 30, 2017 | |
(in millions of U.S. dollars, except percentage amounts) | | Route
Based
Services | | | Coffee, Tea
and Extract
Solutions | | | All
Other | | | Total | |
Change in revenue | | $ | 277.4 | | | $ | 374.2 | | | $ | (5.1 | ) | | $ | 646.5 | |
Impact of foreign exchange1 | | | (16.9 | ) | | | — | | | | 4.2 | | | | (12.7 | ) |
| | | | | | | | | | | | | | | | |
Change excluding foreign exchange | | $ | 260.5 | | | $ | 374.2 | | | $ | (0.9 | ) | | $ | 633.8 | |
| | | | | | | | | | | | | | | | |
Percentage change in revenue | | | 22.7 | % | | | 164.1 | % | | | (3.0 | )% | | | 39.8 | % |
| | | | | | | | | | | | | | | | |
Percentage change in revenue excluding foreign exchange | | | 21.3 | % | | | 164.1 | % | | | (0.5 | )% | | | 39.0 | % |
| | | | | | | | | | | | | | | | |
1. | Impact of foreign exchange is the difference between the current year’s revenue translated utilizing the current year’s average foreign exchange rates less the current year’s revenue translated utilizing the prior year’s average foreign exchange rates. |
The following table summarizes the change in revenue by reporting segment for 2016:
| | | | | | | | | | | | | | | | |
| | | For the Year Ended December 31, 2016 | |
(in millions of U.S. dollars, except percentage amounts) | | Route
Based
Services | | | Coffee, Tea
and Extract
Solutions | | | All
Other | | | Total | |
Change in revenue | | $ | 203.1 | | | $ | 228.0 | | | $ | 4.8 | | | $ | 435.9 | |
Impact of foreign exchange1 | | | — | | | | — | | | | 13.6 | | | | 13.6 | |
| | | | | | | | | | | | | | | | |
Change excluding foreign exchange | | $ | 203.1 | | | $ | 228.0 | | | $ | 18.4 | | | $ | 449.5 | |
| | | | | | | | | | | | | | | | |
Percentage change in revenue | | | 19.9 | % | | | — | % | | | 2.9 | % | | | 36.7 | % |
| | | | | | | | | | | | | | | | |
Percentage change in revenue excluding foreign exchange | | | 19.9 | % | | | — | % | | | 11.1 | % | | | 37.9 | % |
| | | | | | | | | | | | | | | | |
Impact of four additional shipping days in 2015 | | $ | 12.5 | | | $ | — | | | $ | — | | | $ | 12.5 | |
| | | | | | | | | | | | | | | | |
Change excluding foreign exchange and impact of four additional shipping days in 2015 | | $ | 215.6 | | | $ | 228.0 | | | $ | 18.4 | | | $ | 462.0 | |
| | | | | | | | | | | | | | | | |
Percentage change in revenue excluding foreign exchange and four additional shipping days in 2015 | | | 21.4 | % | | | — | % | | | 11.1 | % | | | 39.3 | % |
| | | | | | | | | | | | | | | | |
1. | Impact of foreign exchange is the difference between the current year’s revenue translated utilizing the current year’s average foreign exchange rates less the current year’s revenue translated utilizing the prior year’s average foreign exchange rates. |
The following table summarizes our EBITDA and Adjusted EBITDA for the fiscal years endedOther category.
Fiscal Year Ended December 30,
2017,2023 Compared to Fiscal Year Ended December 31,
2016 and January 2, 2016, respectively. | | | | | | | | | | | | |
| | | For the Year Ended | |
| | | December 30,
2017 | | | December 31
2016 | | | January 2,
2016 | |
(in millions of U.S. dollars) | | | | | | | | | |
Net (loss) income from continuing operations | | $ | (3.6 | ) | | $ | (60.3 | ) | | $ | 15.7 | |
Interest expense, net | | | 85.5 | | | | 43.0 | | | | 30.1 | |
Income tax (benefit) expense | | | (30.0 | ) | | | 21.2 | | | | (15.1 | ) |
Depreciation & amortization | | | 188.6 | | | | 151.1 | | | | 128.3 | |
| | | | | | | | | | | | |
EBITDA | | $ | 240.5 | | | $ | 155.0 | | | $ | 159.0 | |
Acquisition and integration costs1 | | | 25.9 | | | | 27.8 | | | | 20.0 | |
Inventory step up and other purchase accounting adjustments | | | — | | | | 6.2 | | | | 4.2 | |
Commodity hedging (gain) loss, net2 | | | (0.3 | ) | | | 4.1 | | | | — | |
Foreign exchange and other (gains) losses, net | | | (2.0 | ) | | | 0.2 | | | | (13.4 | ) |
Loss on disposal of property, plant & equipment, net | | | 11.1 | | | | 6.6 | | | | 4.3 | |
Gain on extinguishment of long-term debt | | | (1.5 | ) | | | — | | | | — | |
Share-based compensation costs | | | 14.0 | | | | 6.6 | | | | 6.4 | |
Other adjustments | | | 7.9 | | | | 5.1 | | | | 2.5 | |
| | | | | | | | | | | | |
Adjusted EBITDA | | $ | 295.6 | | | $ | 211.6 | | | $ | 183.0 | |
| | | | | | | | | | | | |
1. | Includes $3.5 million, $0.4 million and $1.2 million of share-based compensation costs for the years ended December 30, 2017, December 31, 2016 and January 2, 2016, respectively, related to awards granted in connection with the acquisitions of our S&D, Eden and DSS businesses. |
2. | In the fourth quarter of 2016, unrealized gains and losses associated with coffee hedges were included as adjustments to EBITDA, while certain realized gains and losses were not included as adjustments. In 2017, with the adoption of Accounting Standards Update (“ASU”)2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” management determined it was appropriate to include these realized and unrealized gains and losses as adjustments to EBITDA for the year ended December 31, 2016. |
The following table summarizes our free cash flow and adjusted free cash flow for the fiscal years ended December 30, 2017, December 31, 2016 and January 2, 2016, respectively:
| | | | | | | | | | | | |
| | | For the Year Ended | |
(in millions of U.S. dollars) | | December 30,
2017 | | | December 31
2016 | | | January 2,
2016 | |
Net cash provided by operating activities from continuing operations | | $ | 176.0 | | | $ | 145.5 | | | $ | 131.1 | |
Less: Additions to property, plant & equipment | | | (121.3 | ) | | | (95.1 | ) | | | (69.6 | ) |
| | | | | | | | | | | | |
Free Cash Flow | | $ | 54.7 | | | $ | 50.4 | | | $ | 61.5 | |
| | | | | | | | | | | | |
Plus: | | | | | | | | | | | | |
DSS integration capital expenditures | | | — | | | | — | | | | 5.3 | |
Acquisition and integration cash costs | | | 23.6 | | | | 18.6 | | | | 13.9 | |
Cash collateral1 | | | — | | | | — | | | | (29.4 | ) |
Other adjustments | | | — | | | | 1.2 | | | | — | |
| | | | | | | | | | | | |
Adjusted Free Cash Flow | | $ | 78.3 | | | $ | 70.2 | | | $ | 51.3 | |
| | | | | | | | | | | | |
1. | In connection with the acquisition of DSS, $29.4 million of cash was required to collateralize certain DSS self-insurance programs. The $29.4 million was funded with borrowings under our ABL facility, and the cash collateral was included within prepaid and other current assets on our Consolidated Balance Sheet at January 3, 2015. After January 3, 2015, additional letters of credit were issued from our available ABL facility capacity, and the cash collateral was returned to the Company and used to repay a portion of our outstanding ABL facility. |
2017 versus 2016
2022
Revenue, Net
Net revenue increased $646.5to $1,771.8 million in 2023 compared to $1,693.2 million in 2022, an increase of $78.6 million, or 39.8%, in 2017 from 2016.4.6%. Excluding the impact of foreign exchange, net revenue increased $633.8$81.0 million, or 39.0%4.8%, in 2023 from 2022.
North America net revenue increased to $1,771.2 million in 2023 from $1,685.6 million in 2022, an increase of $85.6 million, or 5.1%, due primarily to increased demand for products and services from residential and business customers of $35.0 million and pricing initiatives of $120.9 million, partially offset by the exit from the single-use retail bottled water business in North America of $41.0 million, a decrease in dispenser revenue of $13.0 million and the unfavorable impact of foreign exchange rates of $2.4 million.
Other net revenue decreased to $0.6 million in 2023 from $7.6 million in 2022, a decrease of $7.0 million, or (92.1)%, due primarily to the
additions ofexit from our
S&D and Eden businesses, growth in volume and consumption, as well as increased pricing in our Route Based Services reporting segment, and strong coffee volume growth in our Coffee, Tea and Extract Solutions reporting segment.2016 versus 2015
Net revenue increased $435.9 million, or 36.7%, in 2016 from 2015. Excluding the impact of foreign exchange and four additional shipping days in 2015 for DSS, net revenue increased $462.0 million, or 39.3%, due primarily to the additions of our S&D, Eden, and Aquaterra businesses.
Revenue, Net Results for Reporting Segments
2017 versus 2016
Route Based Services net revenue increased $277.4 million, or 22.7%, in 2017 from 2016, due primarily to the addition of our Eden business, growth in volume and consumption, increased pricing, and the impact of favorable foreign exchange rates. Excluding the impact of foreign exchange, net revenue increased $260.5 million, or 21.3%, from the prior year.
Coffee, Tea and Extract Solutions net revenue increased $374.2 million, or 164.1%, in 2017 from 2016, due primarily to having a full year of results for S&D in 2017 as compared to five months in the prior year, as well as strong coffee volume growth in 2017.
All Other net revenue decreased $5.1 million, or 3.0%, in 2017 from 2016. Excluding the impact of foreign exchange, net revenue decreased $0.9 million, or 0.5%, from the prior year.
2016 versus 2015
Route Based Services net revenue increased $203.1 million, or 19.9%, in 2016 from 2015. Excluding the impact of four additional shipping days in 2015 in our DSS business, net revenue increased $215.6 million, or 21.4%, due primarily to the incremental revenues from the additions of our Eden and Aquaterra businesses.
Coffee, Tea and Extract Solutions net revenue increased $228.0 million in 2016 from 2015, due primarily to the addition of our S&D business in the third quarterRussia of the prior year.
All Other net revenue increased $4.8 million, or 2.9%, in 2016 from 2015. Excluding the impact of foreign exchange, net revenue increased $18.4 million, or 11.1%.
Cost of Sales
2017 versus 2016
Cost of sales increased to $1,142.0 million in 2017 compared to $773.1 million in 2016 due primarily to the additions of our S&D and Eden businesses and higher production costs in our DSS business. As a percentage of net revenue, cost of sales was 50.3% in 2017 compared to 47.6% in 2016.
2016 versus 2015
Cost of sales increased to $773.1 million in 2016 compared to $536.8 million in 2015 due primarily to the additions of our S&D, Eden and Aquaterra businesses. As a percentage of net revenue, cost of sales was 47.6% in 2016 compared to 45.2% in 2015.
$7.4 million.
Gross Profit
2017 versus 2016
Gross profit increased to $1,127.7$1,137.0 million in 2017 compared to $850.12023 from $1,019.2 million in 2016 due primarily to the additions of our S&D and Eden businesses and growth in our DSS business. As2022. Gross profit as a percentage of net revenue was 64.2% in 2023 compared to 60.2% in 2022.
North America gross profit
was 49.7%increased to $1,136.4 million in
2017 compared to 52.4%2023 from $1,013.5 million in
2016. The decrease in2022, and gross profit as a percentage of
net revenue
is due to our S&D business, which is a lower gross profit business.2016 versus 2015
Gross profit increased to $850.1 millionwas 64.2% in 20162023 compared to $650.5 million60.1% in 20152022. The 410 basis point increase is due primarily to the additions of our S&D, Edenincreased demand and Aquaterra businesses, partially offset by the impact of unfavorable foreign exchange rates and increased operational costs at our DSS business. As a percentage of net revenue,pricing initiatives.
Other gross profit
was 52.4%decreased to $0.6 million in
2016 compared to 54.8%2023 from $5.7 million in
2015. The decrease in2022, and gross profit as a percentage of
net revenue
was 100.0% in 2023 compared to 75.0% in 2022. The decrease in gross profit is due
primarily to
the exit from our
S&D business
which is a lower gross profit business.in Russia in the third quarter of 2022.
Selling, General and Administrative Expenses
2017 versus 2016
SG&A expenses increased to
$1,042.7$976.0 million in
20172023 compared to
$806.2$883.8 million in
2016 due primarily to the additions of our S&D and Eden businesses. As2022. SG&A expenses as a percentage of net revenue
SG&A expenses were 45.9%was 55.1% in
20172023 compared to
49.7%52.2% in
2016.2016 versus 2015
2022.
North America SG&A expenses increased to $806.2$919.7 million in 20162023 compared to $608.4$830.8 million in 20152022, due primarily to the additionshigher selling and operating costs that supported volume and revenue growth related primarily to labor and transportation cost increases, which increased by $37.1 million and $7.0 million, respectively, from 2022 and increases in insurance costs of our S&D, Eden and Aquaterra businesses. As a percentage of net revenue,$12.3 million from 2022.
Other SG&A expenses
were 49.7%increased to $56.3 million in
20162023 compared to
51.2%$53.0 million in
2015.2022 primarily related to higher professional fees of $7.5 million, partially offset by the exit from our business in Russia in the third quarter of 2022 of $5.0 million.
Acquisition and Integration Expenses
2017 versus 2016
Acquisition and integration expenses include costs directly related to integrating and reorganizing acquired businesses.
Acquisition and integration expenses decreased to $25.9$9.5 million in 20172023 compared to $27.8$12.1 million in 2016 due primarily to the reduction in costs with the2022. Acquisition and integration of our S&D and Eden businesses. Asexpenses as a percentage of net revenue was 0.5% in 2023 compared to 0.7% in 2022.
North America acquisition and integration expenses
were 1.1%decreased to $6.4 million in
20172023 compared to
1.7%$10.8 million in
2016.2016 versus 2015
Acquisition2022, due primarily to costs in the prior year associated with the exit from the single-use retail bottled water business in North America.
Other acquisition and integration expenses increased to
$27.8$3.1 million in
20162023 compared to
$20.0$1.3 million in
2015 due primarily to the transaction costs in connection with the additions of our S&D, Eden and Aquaterra businesses. As a percentage of net revenue, acquisition and integration expenses were 1.7% in 2016 compared to 1.7% in 2015.Operating Income
2017 versus 2016
Operating income was $48.9 million in 2017 compared to $9.5 million in 2016. Overall, operating income increased by $39.4 million, or 414.7% due primarily to the addition of the higher gross profit business of Eden, partially offset by increased SG&A expenses.
2016 versus 2015
Operating income was $9.5 million in 2016 compared to $17.9 million in 2015. Overall, operating income decreased by $8.4 million, or 46.9%,2022, due primarily to increased SG&A expenses and increased acquisition and integration expenses, partially offset by the additions of the higher gross profit businesses of Eden and Aquaterra.
Other (Income) Expense, Net
2017 versus 2016
Other income, net was $3.0professional fees in 2023.
Impairment Charges
Impairment charges decreased to nil in 2023 compared to $11.2 million in 20172022. Impairment charges as a percentage of revenue was nil in 2023 compared to other expense, net0.7% in 2022.
The decrease is due to the non-cash asset impairment charge in Other resulting from the exit of $5.6our business in Russia in 2022.
Gain on Sale of Property
Gain on sale of property decreased to $21.0 million in 2016. 2023 from $38.8 million in 2022.
The differencedecrease was due primarilyto smaller aggregate value of sale transactions for our North America owned real properties than in 2022.
Operating Income (Loss)
Operating income was $163.4 million in 2023 compared to $143.5 million in 2022.
North America operating income increased to $222.2 million in 2023 compared to $203.7 million in 2022, due to the increase of net gains on foreign currency transactions anditems discussed above.
Other operating loss decreased to $58.8 million in 2023 compared to $60.2 million in 2022, due to the
gain recognized upon the partial redemption of our DSS Notes in 2017 and unrealized losses on our commodity hedges in 2016.2016 versus 2015
items discussed above.
Other Expense (Income), Net
Other expense, net was
$5.6$1.2 million in
20162023 compared to
otherOther income, net of
$12.8$2.5 million in
2015. The difference was2022, due primarily to
the reduction of net gains onhigher unrealized foreign
currency transactions and unrealizedexchange losses
on our commodity hedges, partially offset by realized gains on our commodity hedges.Interest Expense, Net
2017 versus 2016
Interestin 2023 compared to 2022.
Income Taxes
Income tax expense net was $85.5$27.0 million in 20172023 compared to $43.0$19.5 million in 2016.2022. The increaseeffective tax rate was 29.7% in 2023 compared to 24.9% in 2022.
The effective tax rate for 2023 varied from the effective tax rate from 2022 due primarily to
the issuance of our 2025 Notesincreased income in
the first quarter of 2017a tax-paying jurisdiction and
havingincreased losses in a
full year of interest expense in 2017 associatedtax jurisdiction with
our 2024 Notes.2016 versus 2015
Interest expense, net was $43.0 million in 2016 compared to $30.1 million in 2015. The increase was due primarily to interest on our 2024 Notes issued in the second quarter of 2016.
Income Taxes
2017 versus 2016
Income tax benefit was $30.0 million in 2017 compared to income tax expense of $21.2 million in 2016. The effective income tax rate was 89.3% in 2017 compared to (54.2%) in 2016. The income tax benefit in 2017 was due primarily to the change in the U.S. federal enacted tax rate in 2017. The income tax expense in 2016 was due primarily to the Canadianexisting valuation allowance recorded in the third quarter of 2016 and the U.S. federal valuation allowance recorded in the fourth quarter of 2016.allowances. The effective tax rate for 2023 differs from the Canadian statutory rate primarily due to: (a) the change in the U.S. federal enacted tax rate in 2017; (b) significant permanent differences for which we have not recognized a tax benefit; (c)(b) income in tax jurisdictions with lower statutory tax rates than Canada; and (d)(c) losses in tax jurisdictions with existing valuationvaluations allowances.
2016 versus 2015
Income tax expense was $21.2
Fiscal Year Ended December 31, 2022 Compared to Fiscal Year Ended January 1, 2022
Revenue, Net
Net revenue increased to $1,693.2 million in 2016 compared to income tax benefit of $15.12022 from $1,576.4 million in 2015. The effective income tax rate was (54.2%)2021, an increase of $116.8 million, or 7.4%. Excluding the impact of foreign exchange, net revenue increased $119.6 million, or 7.6%, in 2016 compared2022 from 2021.
North America net revenue increased to (2,516.7%)$1,685.6 million in 2015. The effective rate2022 from $1,562.9 million in 2021, an increase of $122.7 million, or 7.9%, due primarily to increased demand for products and services from residential and business customers of $76.8 million and pricing initiatives of $134.4 million, partially offset by the exit from the single-use retail bottled water business in 2016 wasNorth America of $101.3 million and the unfavorable impact of foreign exchange rates of $2.4 million.
Other net revenue decreased to $7.6 million in 2022 from $13.5 million in 2021, a decrease of $5.9 million, or 43.7%, due primarily to the Canadian valuation allowance recordedexit from our business in Russia in the third quarter of 20162022 of $6.1 million.
Gross Profit
Gross profit increased to $1,019.2 million in 2022 from $891.0 million in 2021. Gross profit as a percentage of net revenue was 60.2% in 2022 compared to 56.5% in 2021.
North America gross profit increased to $1,013.5 million in 2022 from $881.0 million in 2021, and gross profit as a percentage of revenue was 60.1% in 2022 compared to 56.4% in 2021. The 370 basis point increase is due primarily to increased demand and pricing initiatives.
Other gross profit decreased to $5.7 million in 2022 from $10.0 million in 2021, and gross profit as a percentage of revenue was 75.0% in 2022 compared to 74.1% in 2021. The decrease in gross profit is due primarily to the exit from our business in Russia in the third quarter of 2022.
Selling, General and Administrative Expenses
SG&A expenses increased to $883.8 million in 2022 compared to $769.8 million in 2021. SG&A expenses as a percentage of net revenue was 52.2% in 2022 compared to 48.8% in 2021.
North America SG&A expenses increased to $830.8 million in 2022 compared to $720.6 million in 2021, due primarily to higher selling and operating costs that supported volume and revenue growth. These costs included inflationary labor and transportation cost increases, which increased by $41.9 million and $23.1 million, respectively, from 2021.
Other SG&A expenses increased to $53.0 million in 2022 compared to $49.2 million in 2021, due primarily to inflationary labor cost increases, which increased by $4.9 million from 2021.
Acquisition and Integration Expenses
Acquisition and integration expenses increased to $12.1 million in 2022 compared to $9.1 million in 2021. Acquisition and integration expenses as a percentage of net revenue was 0.7% in 2022 compared to 0.6% in 2021.
North America acquisition and integration expenses increased to $10.8 million in 2022 compared to $5.2 million in 2021, due primarily to costs associated with the exit from the single-use retail bottled water business in North America and ongoing integration costs incurred in connection with the Legacy Primo Acquisition.
Other acquisition and integration expenses decreased to $1.3 million in 2022 compared to $3.9 million in 2021, due primarily to lower acquisition and integration costs relating to the Legacy Primo business.
Impairment Charges
Impairment charges increased to $11.2 million in 2022 compared to nil in 2021. Impairment charges as a percentage of revenue was 0.7% in 2022 compared to nil in 2021.
The increase was due to the non-cash asset impairment charge in Other resulting from the exit from our business in Russia in 2022.
Operating Income (Loss)
Operating income was $143.5 million in 2022 compared to $103.0 million in 2021.
North America operating income increased to $203.7 million in 2022 compared to $146.0 million in 2021, due to the items discussed above.
Other operating loss increased to $60.2 million in 2022 compared to $43.0 million in 2021, due to the items discussed above.
Other Expense (Income), Net
Other income, net was $2.5 million in 2022 compared to Other expense, net of $22.1 million in 2021, due primarily to unrealized foreign exchange losses in 2022 and costs to redeem our 2025 Notes incurred in 2021.
Income Taxes
Income tax expense was $19.5 million in 2022 compared to $7.7 million in 2021. The effective tax rate was 24.9% in 2022 compared to 61.1% in 2021.
The effective tax rate for 2022 varied from the effective tax rate from 2021 due primarily to increased income in the U.S.
federal valuation allowance recordedrelated to real property sales in the fourth quarter of
2016.2022 and the debt refinancing costs incurred in the second quarter of 2021. The effective tax rate
for 2022 differs from the Canadian statutory rate primarily due to: (a)
the Canadian valuation allowance recorded in the third quarter of 2016 and the U.S. federal valuation allowance recorded in the fourth quarter of 2016; (b) significant permanent differences for which we have
not recognized a tax benefit;
(c)(b) income in tax jurisdictions with lower statutory tax rates than Canada; and
(d)(c) losses in tax jurisdictions with existing
valuationvaluations allowances.
Liquidity and Capital Resources
The following table summarizes our cash flows for
2017, 20162023, 2022 and
20152021 as reported in our Consolidated Statements of Cash Flows in the accompanying Consolidated Financial Statements:
| | | | | | | | | | | | |
| | | For the Year Ended | |
| | | December 30,
2017 | | | December 31,
2016 | | | January 2,
2016 | |
(in millions of U.S. dollars) | | | | | | | | | |
Net cash provided by operating activities from continuing operations | | $ | 176.0 | | | $ | 145.5 | | | $ | 131.1 | |
Net cash used in investing activities from continuing operations | | | (153.6 | ) | | | (1,052.6 | ) | | | (66.6 | ) |
Net cash provided by (used in) financing activities from continuing operations | | | 596.5 | | | | 807.1 | | | | (37.5 | ) |
Cash flows from discontinued operations: | | | | | | | | | | | | |
Net cash provided by operating activities from discontinued operations | | | 102.7 | | | | 124.3 | | | | 123.5 | |
Net cash used in investing activities from discontinued operations | | | (44.7 | ) | | | (44.0 | ) | | | (33.1 | ) |
Net cash (used in) provided by financing activities from discontinued operations | | | (643.4 | ) | | | 68.6 | | | | (122.6 | ) |
Effect of exchange rate changes on cash | | | 6.3 | | | | (7.9 | ) | | | (3.9 | ) |
| | | | | | | | | | | | |
Net increase (decrease) in cash, cash equivalents and restricted cash | | | 39.8 | | | | 41.0 | | | | (9.1 | ) |
Cash, cash equivalents and restricted cash, beginning of period | | | 118.1 | | | | 77.1 | | | | 86.2 | |
| | | | | | | | | | | | |
Cash & cash equivalents, end of period | | | 157.9 | | | | 118.1 | | | | 77.1 | |
Cash & cash equivalents from discontinued operations, end of period | | | 66.0 | | | | 40.0 | | | | 55.3 | |
| | | | | | | | | | | | |
Cash & cash equivalents from continued operations, end of period | | $ | 91.9 | | | $ | 78.1 | | | $ | 21.8 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| For the Fiscal Year Ended |
| (in millions of U.S. dollars) | December 30, 2023 | | December 31, 2022 | | January 1, 2022 |
| Net cash provided by operating activities from continuing operations | $ | 289.2 | | | $ | 238.3 | | | $ | 211.3 | |
| Net cash used in investing activities from continuing operations | (147.3) | | | (127.1) | | | (151.9) | |
| Net cash used in financing activities from continuing operations | (290.4) | | | (91.4) | | | (4.2) | |
| Cash flows from discontinued operations: | | | | | |
| Net cash provided by operating activities from discontinued operations | 61.1 | | | 43.3 | | | 45.6 | |
| Net cash provided by (used in) investing activities from discontinued operations | 488.3 | | | (54.4) | | | (89.0) | |
| Net cash provided by (used in) financing activities from discontinued operations | 4.6 | | | (11.4) | | | 3.4 | |
| Effect of exchange rate changes on cash | 2.4 | | | (3.1) | | | (1.9) | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | 407.9 | | | (5.8) | | | 13.3 | |
| Cash and cash equivalents and restricted cash, beginning of year | 122.6 | | | 128.4 | | | 115.1 | |
| Cash and cash equivalents and restricted cash, end of year | 530.5 | | | 122.6 | | | 128.4 | |
| Cash and cash equivalents and restricted cash of discontinued operations, end of year | 22.6 | | | 43.8 | | | 46.3 | |
| Cash and cash equivalents and restricted cash of continuing operations, end of year | $ | 507.9 | | | $ | 78.8 | | | $ | 82.1 | |
Cash provided by operating activities from continuing operations was $176.0$289.2 million in 20172023 compared to $145.5$238.3 million in 20162022 and $131.1$211.3 million in 2015.2021. The $30.5$50.9 million increase in 20172023 compared to 20162022 was due primarily to improved earnings, excluding non-cash charges and income and an increase in cash provided by working capital relative to the decreaseprior year.
The $27.0 million increase in
net loss from continuing operations,2022 compared to 2021 was due primarily to improved earnings, excluding non-cash charges, partially offset by
the changean increase in
cash used for working capital
account balances relative to the prior
year resulting from timing of inventory purchases and payments of interest on our 2024 Notes.The $14.4 million increase in 2016 compared to 2015 was due primarily to the timing of accounts receivable receipts and accounts payable payments relative to the prior year, partially offset by the release of cash collateral held by third parties in the prior year.
Cash used in investing activities from continuing operations was $153.6$147.3 million in 20172023 compared to $1,052.6$127.1 million in 20162022 and $66.6$151.9 million in 2015.2021. The $899.0$20.2 million decreaseincrease in 20172023 compared to 20162022 was due primarily to lower receipt of proceeds from the sale of properties and increased cash used for acquisitions, partially offset by a decrease in the acquisitions of our S&D, Edenadditions to property, plant and Aquaterra businesses inequipment relative to the prior year,year.
The $24.8 million decrease in 2022 compared to 2021 was due primarily to receipt of proceeds from the sale of properties in 2022 and a decrease in cash used for acquisitions, partially offset by an increase in additions to property, plant and equipment relative to the prior year.
The $986.0 million increase in 2016 compared to 2015 was due primarily to the cash used to acquire the S&D, Eden and Aquaterra businesses and an increase in purchases of property, plant and equipment, partially offset by cash provided by the receipt of proceeds from the Sale-Leaseback Transaction in the comparable prior year.
Cash provided by financing activities from continuing operations was $596.5 million in 2017 compared to $807.1 million in 2016 and cash used in financing activities from continuing operations of $37.5was $290.4 million in 2015. The $210.6 million decrease in 20172023 compared to 2016$91.4 million in 2022 and $4.2 million in 2021. The $199.0 million increase in 2023 compared to 2022 was due primarily to an increase in net short-term payments compared to the receipt of net proceeds from theprior year and an increase in dividends paid to common shareholders, partially offset by an increase in issuance of common shares and the 2024 Notesshares.
The $87.2 million increase in 2022 compared to 2021 was due primarily to net short term payments compared to net short-term borrowings in the prior year,
an increase in dividends paid to common shareholders, and decrease in issuances of common shares, partially offset by
the issuance of the 2025 Notes and the partial redemption of the DSS Notes.The $844.6 million increase in cash provided by other financing activities from continuing operationsand a decrease in 2016 compared to 2015 was due primarily to the receipt of the net proceeds from the March 2016 Offeringcash used for financing transactions and the June 2016 Offering, proceeds received from the issuance of the 2024 Notes, and an increase in borrowings under our ABL facility, net of payments.
share repurchases.
As of December 30, 2017,2023, we had $2,287.0$1,285.0 million of debt and $91.9$507.9 million of cash and cash equivalents compared to $2,199.0$1,469.0 million of debt and $78.1$78.8 million of cash and cash equivalents as of December 31, 2016. On January 30, 2018,2022.
Our operations expose us to risks associated with disruptions to global supply chains, labor shortages, inflation and the ongoing Russia/Ukraine and Israel/Hamas wars, all of which are likely to continue to create challenging conditions for our business, through increased costs, increased employee attrition and vacancies, lower consumer spending, volatility in
connection withfinancial markets or other impacts. While we have taken steps to minimize the
closingimpact of
the Transaction, we used a portionthese increased costs, global supply chain disruption may deteriorate and inflationary pressures may increase, which could adversely affect our business, financial condition, results of
the proceeds to (i) retire $525.0 million aggregate principal amount of our 2022 Notes, (ii) retire the remaining $250.0 million aggregate principal amount of our DSS Notes, (iii) repay the $262.5 million outstanding balance on our ABL facility,operations and
(iv) repay $1.9 million in aggregate principal outstanding on our GE Term Loan.cash flows.
We believe that our level of resources, which includes cash on hand,
available borrowingsavailability under our
ABL facilityRevolving Credit Facility and funds provided by
our operations, will be adequate to
meetfund cash outflows that have both a short- and long-term component, including the long-term obligations described in “Other Liquidity Matters” below. These cash flows will support our growth platform and include our expenses, capital expenditures,
anticipated dividend payments, and debt service
obligations forobligations. The Company regularly assesses its cash requirements and the
next twelve months.available resources to fund these needs. Our ability to generate cash to meet our current expenses and debt service obligations will depend on our future performance. If we do not have enough cash to pay our debt service obligations, or if the
ABL facilityRevolving Credit Facility or our outstanding 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 facilityCredit Agreement or the indentures governing our outstanding notes, refinancing all or part of our existing debt, selling assets, incurring additional indebtedness or raising equity.
The ABL facility is secured by substantially all of our assets and those of the respective guarantor subsidiaries. If the ABL facility were to become currently due, the lenders may have the right to foreclose on such assets. If we need to seek additional financing, there is no assurance that this additional financing will be available on favorable terms or at all.
Our
ABL facilityRevolving Credit Facility and debt capital markets transactions are described under “Debt” below.
In
June 2016, we completed the June 2016 Offering for gross proceeds to us of approximately $230.1 million. We incurred $9.2 million of underwriter commissions and $1.1 million in professional fees in connection with the June 2016 Offering. The net proceeds of the June 2016 Offering were used to repay borrowings under our ABL facility, to finance the S&D Acquisition and for general corporate purposes.In March 2016, we completed the March 2016 Offering for gross proceeds to us of approximately $150.6 million. We incurred $6.0 million of underwriter commissions and $0.8 million in professional fees the March 2016 Offering. The net proceeds of the March 2016 Offering were used to repay borrowings under our ABL facility and for general corporate purposes.
In 2017,2023, we declared a dividend of $0.06$0.08 per common share each quarter for an aggregate dividend payment of approximately $33.7$51.8 million.
We earn substantially all of our consolidated operating income in subsidiaries located outside of Canada. We have not provided for federal, state, and foreign deferred income taxes on the undistributed earnings of our non-Canadian subsidiaries. We expect that these earnings will be permanently reinvested by such subsidiaries except in certain instances where repatriation attributable to current earnings results in minimal or no tax consequences.
We expect our existing cash and cash equivalents, cash flows and the issuance of debt will continue to be sufficient to fund our operating, investing, and financing activities. In addition, we expect our existing cash and cash equivalents and cash flows outside of Canada will continue to be sufficient to fund the operating activities of our subsidiaries.
A future change to our assertion that foreign earnings will be permanently reinvested could result in additional income taxes and/or withholding taxes payable, where applicable. Therefore, a higher effective tax rate could occur during the period of repatriation.
We may, from time to time, depending on market conditions, including without limitation whether our outstanding notes are then trading at a discount to their face amount, repurchase our outstanding notes for cash and/or in exchange for
shares of our common shares, warrants, preferred shares, 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 facilityRevolving Credit Facility subject such purchases to certain limitations and conditions.
Off-Balance Sheet Arrangements
We have no
off-balance sheet arrangements
as defined under Item 303(a)(4) of RegulationS-K as of December 30,
2017.Contractual Obligations
2023.
Other Liquidity Matters
We expect capital spending during the fiscal year ended December 28, 2024 to be approximately $153.6 million. Capital spending will be monitored and controlled as the year progresses. We expect to use operating cash flows to satisfy capital spending.
The following table shows the schedule of future payments under certain contracts, including debt agreements and guarantees, as of December 30,
2017: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Payments due by period | |
(in millions of U.S. dollars) | | Total | | | 2018 | | | 2019 | | | 2020 | | | 2021 | | | 2022 | | | Thereafter | |
10.000% senior notes due in 20211 | | | 250.0 | | | | — | | | | — | | | | — | | | | 250.0 | | �� | | — | | | | — | |
5.375% senior notes due in 20221 | | | 525.0 | | | | — | | | | — | | | | — | | | | — | | | | 525.0 | | | | — | |
5.500% senior notes due in 2024 | | | 539.1 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 539.1 | |
5.500% senior notes due in 2025 | | | 750.0 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 750.0 | |
ABL facility2 | | | 220.3 | | | | 220.3 | | | | — | | | | — | | | | — | | | | — | | | | — | |
GE Term Loan3 | | | 2.0 | | | | 2.0 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Capital leases and other long-term debt | | | 7.2 | | | | 3.1 | | | | 1.8 | | | | 1.0 | | | | 0.6 | | | | 0.4 | | | | 0.3 | |
Interest expense4 | | | 536.5 | | | | 75.2 | | | | 70.8 | | | | 75.1 | | | | 74.9 | | | | 70.7 | | | | 169.8 | |
Operating leases | | | 266.7 | | | | 45.9 | | | | 39.6 | | | | 32.7 | | | | 26.9 | | | | 22.7 | | | | 98.9 | |
Pension obligations | | | 10.0 | | | | 0.8 | | | | 0.8 | | | | 0.8 | | | | 0.7 | | | | 0.7 | | | | 6.2 | |
Purchase obligations5 | | | 135.5 | | | | 130.2 | | | | 2.7 | | | | 1.7 | | | | 0.9 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total6 | | $ | 3,242.3 | | | $ | 477.5 | | | $ | 115.7 | | | $ | 111.3 | | | $ | 354.0 | | | $ | 619.5 | | | $ | 1,564.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
1. | On January 30, 2018, in connection with the closing of the Transaction, we used a portion of the proceeds from the Transaction to redeem the remaining aggregate principal amount of the DSS Notes and the 2022 Notes. |
2. | The ABL facility is considered a current liability. As of December 30, 2017, we had $220.3 million of outstanding borrowings under the ABL facility. These borrowings were repaid on January 30, 2018 with proceeds from the Transaction. |
3. | In January 2008, we entered into a capital lease finance arrangement with General Electric Capital Corporation (“GE Capital”) for the lease of equipment. In September 2013, we purchased the equipment subject to the lease for an aggregate purchase price of $10.7 million, with the financing for such purchase provided by GE Capital at a 5.23% interest rate. On January 30, 2018, in connection with the closing of the Transaction, we used a portion of the proceeds from the Transaction to repay the outstanding balance of the GE Term Loan. |
4. | Interest expense includes fixed interest for one month on the DSS Notes, the 2022 Notes, the GE Term Loan and the ABL facility, and a full year of fixed interest on the 2024 Notes, the 2025 Notes, capital leases and other long-term liabilities. Actual amounts will differ from estimates provided. |
5. | Purchase obligations consist of commitments for the purchase of inventory, energy transactions, and payments related to professional fees and technology outsourcing agreements. These obligations represent the minimum contractual obligations expected under the normal course of business. |
6. | The contractual obligations table excludes the Company’s ASC 740 uncertain tax positions of $16.2 million because the Company cannot make a reliable estimate as to when such amounts will be settled. |
2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Payments due by period |
| (in millions of U.S. dollars) | Total | | 2024 | | 2025 | | 2026 | | 2027 | | 2028 | | Thereafter |
| 3.875% senior notes due in 2028 | $ | 499.4 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 499.4 | | | $ | — | |
| 4.375% senior notes due in 2029 | 750.0 | | | — | | | — | | | — | | | — | | | — | | | 750.0 | |
Revolving Credit Facility 1 | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Interest expense 2 | 260.9 | | | 52.0 | | | 50.3 | | | 50.3 | | | 50.3 | | | 47.1 | | | 10.9 | |
| Operating lease obligations | 194.1 | | | 35.9 | | | 34.1 | | | 25.8 | | | 21.8 | | | 12.7 | | | 63.8 | |
Finance leases 3 | 52.9 | | | 16.7 | | | 16.2 | | | 13.1 | | | 4.6 | | | 2.0 | | | 0.3 | |
| | | | | | | | | | | | | |
Purchase obligations 4 | 8.1 | | | 7.8 | | | 0.3 | | | — | | | — | | | — | | | — | |
| Other liabilities | 2.5 | | | 2.5 | | | — | | | — | | | — | | | — | | | — | |
Total 5 | $ | 1,767.9 | | | $ | 114.9 | | | $ | 100.9 | | | $ | 89.2 | | | $ | 76.7 | | | $ | 561.2 | | | $ | 825.0 | |
______________________
1 The Revolving Credit Facility is considered a current liability. As of December 30, 2023, there were no outstanding borrowings under the Revolving Credit Facility.
2 Interest expense includes fixed interest on the 2028 Notes, 2029 Notes, the Revolving Credit Facility and other long-term liabilities. Actual amounts will differ from estimates provided.
3 Includes estimated interest payments using a weighted-average discount rate of 5.5% as of December 30, 2023.
4 Purchase obligations consist of commitments for the purchase of inventory, energy transactions, and payments related to professional fees and technology outsourcing agreements. These obligations represent the minimum contractual obligations expected under the normal course of business.
5 The contractual obligations table excludes the Company’s ASC 740 uncertain tax positions of $9.4 million because the Company cannot make a reliable estimate as to when such amounts will be settled.
Our total debt as of December 30,
20172023 and December 31,
20162022 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 30, 2017 | | | December 31, 2016 | |
(in millions of U.S. dollars) | | Principal | | | Unamortized
Debt
Costs | | | Net | | | Principal | | | Unamortized
Debt
Costs | | | Net | |
6.750% senior notes due in 2020 | | $ | — | | | | — | | | $ | — | | | $ | 625.0 | | | $ | 9.3 | | | $ | 615.7 | |
10.000% senior notes due in 20211 | | | 269.9 | | | | — | | | | 269.9 | | | | 384.2 | | | | — | | | | 384.2 | |
5.375% senior notes due in 2022 | | | 525.0 | | | | 6.0 | | | | 519.0 | | | | 525.0 | | | | 7.1 | | | | 517.9 | |
5.500% senior notes due in 2024 | | | 539.1 | | | | 9.5 | | | | 529.6 | | | | 474.1 | | | | 9.8 | | | | 464.3 | |
5.500% senior notes due in 2025 | | | 750.0 | | | | 11.0 | | | | 739.0 | | | | — | | | | — | | | | — | |
ABL facility | | | 220.3 | | | | — | | | | 220.3 | | | | 207.0 | | | | — | | | | 207.0 | |
GE Term Loan | | | 2.0 | | | | — | | | | 2.0 | | | | 4.3 | | | | 0.2 | | | | 4.1 | |
Other debt financing | | | 0.8 | | | | — | | | | 0.8 | | | | — | | | | — | | | | — | |
Capital leases | | | 6.4 | | | | — | | | | 6.4 | | | | 5.8 | | | | — | | | | 5.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total debt | | | 2,313.5 | | | | 26.5 | | | | 2,287.0 | | | | 2,225.4 | | | | 26.4 | | | | 2,199.0 | |
Less: Short-term borrowings and current debt: | | | | | | | | | | | | | | | | | | | | | | | | |
ABL facility | | | 220.3 | | | | — | | | | 220.3 | | | | 207.0 | | | | — | | | | 207.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total short-term borrowings required to be repaid or extinguished as part of divestiture | | | 220.3 | | | | — | | | | 220.3 | | | | 207.0 | | | | — | | | | 207.0 | |
GE Term Loan - current maturities | | | 2.0 | | | | — | | | | 2.0 | | | | 2.3 | | | | — | | | | 2.3 | |
Other debt financing | | | 0.8 | | | | — | | | | 0.8 | | | | — | | | | — | | | | — | |
Capital leases - current maturities | | | 2.3 | | | | — | | | | 2.3 | | | | 2.9 | | | | — | | | | 2.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total current debt | | | 225.4 | | | | — | | | | 225.4 | | | | 212.2 | | | | — | | | | 212.2 | |
Less: Debt required to be repaid or extinguished as part of divestiture | | | | | | | | | | | | | | | | | | | | | | | | |
6.750% senior notes due in 2020 | | | — | | | | — | | | | — | | | | 625.0 | | | | 9.3 | | | | 615.7 | |
5.375% senior notes due in 2022 | | | 525.0 | | | | 6.0 | | | | 519.0 | | | | 525.0 | | | | 7.1 | | | | 517.9 | |
GE Term Loan | | | — | | | | — | | | | — | | | | 2.0 | | | | 0.2 | | | | 1.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total debt to be required to be repaid or extinguished as part of divestiture | | | 525.0 | | | | 6.0 | | | | 519.0 | | | | 1,152.0 | | | | 16.6 | | | | 1,135.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total long-term debt | | $ | 1,563.1 | | | $ | 20.5 | | | $ | 1,542.6 | | | $ | 861.2 | | | $ | 9.8 | | | $ | 851.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
1. | The outstanding aggregate principal amount and unamortized premium of our DSS Notes was $250.0 million and $19.9 million at December 30, 2017, and $350.0 million and $34.2 million at December 31, 2016, respectively. |
Asset-Based Lending
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 30, 2023 | | December 31, 2022 |
| (in millions of U.S. dollars) | Principal | | Unamortized Debt Costs | | Net | | Principal | | Unamortized Debt Costs | | Net |
| | | | | | | | | | | |
| 3.875% senior notes due in 2028 | $ | 499.4 | | | $ | 4.8 | | | $ | 494.6 | | | $ | 479.1 | | | $ | 5.6 | | | $ | 473.5 | |
| 4.375% senior notes due in 2029 | 750.0 | | | 7.2 | | | 742.8 | | | 750.0 | | | 8.6 | | | 741.4 | |
| Revolving Credit Facility | — | | | — | | | — | | | 197.0 | | | — | | | 197.0 | |
| | | | | | | | | | | |
| Short-term borrowings | — | | | — | | | — | | | 8.8 | | | — | | | 8.8 | |
| Finance leases | 47.6 | | | — | | | 47.6 | | | 48.3 | | | — | | | 48.3 | |
| | | | | | | | | | | |
| Total debt | $ | 1,297.0 | | | $ | 12.0 | | | $ | 1,285.0 | | | $ | 1,483.2 | | | $ | 14.2 | | | $ | 1,469.0 | |
| Less: Short-term borrowings and current debt: | | | | | | | | | | | |
| Revolving Credit Facility | $ | — | | | $ | — | | | $ | — | | | $ | 197.0 | | | $ | — | | | $ | 197.0 | |
| | | | | | | | | | | |
| Short-term borrowings | — | | | — | | | — | | | 8.8 | | | — | | | 8.8 | |
| Finance leases - current maturities | 14.2 | | | — | | | 14.2 | | | 10.9 | | | — | | | 10.9 | |
| | | | | | | | | | | |
| Total current debt | $ | 14.2 | | | $ | — | | | $ | 14.2 | | | $ | 216.7 | | | $ | — | | | $ | 216.7 | |
| Total long-term debt | $ | 1,282.8 | | | $ | 12.0 | | | $ | 1,270.8 | | | $ | 1,266.5 | | | $ | 14.2 | | | $ | 1,252.3 | |
Revolving Credit Facility
We had an ABL facility with JPMorgan Chase Bank N.A.
On March 6, 2020, the Company entered into a credit agreement (the “Credit Agreement”) among the Company, as Agent since 2008 to provide financing for our operations. We have amendedparent borrower, Primo Water Holdings Inc. and refinancedcertain other subsidiary borrowers, certain other subsidiaries of the ABL facilityCompany from time to time designated as subsidiary borrowers, Bank of America, N.A., as administrative agent and collateral agent, and the lenders from time to time party thereto.
The Credit Agreement provides for a senior secured revolving credit facility in an initial aggregate committed amount of $350.0 million (the “Revolving Credit Facility”), which may be increased by incremental credit extensions from time to time in the form of term loans or additional revolving credit commitments. The Revolving Credit Facility has a five year maturity date and includes letter of credit and swing line loan sub facilities.
Initial borrowings under the Revolving Credit Facility were used to refinance in full and terminate our previously existing asset-based lending credit facility (the “ABL Facility”). Certain letters of credit outstanding under the ABL Facility were rolled over under the Revolving Credit Facility. We incurred
relatedapproximately $3.4 million of financing fees
$12.4in connection with the Revolving Credit Facility. The Revolving Credit Facility was considered to be a modification of the ABL Facility under GAAP. These new financing fees along with $1.8 million of
which have been capitalized andunamortized deferred
andcosts of the ABL Facility are being amortized using the straight-line method over the duration of the
amended ABL facility.Revolving Credit Facility.
As of December 30, 2017, we had $220.3 million of2023, there were no outstanding borrowings under the ABL facility. The commitment fee was 0.375% per annum of the unused commitment, which, taking into account $46.0 million ofRevolving Credit Facility. Outstanding letters of credit was $233.7totaled $66.7 million, resulting in total utilization under the Revolving Credit Facility of $66.7 million. Accordingly, unused availability under the Revolving Credit Facility as of December 30, 2017. 2023 amounted to $283.3 million.
The
weighted averageweighted-average effective interest rate
aton the outstanding borrowings under the Revolving Credit Facility as of December 30,
2017 on our outstanding LIBOR loans2023 and December 31, 2022 was
3.1%.—% and 5.9%, respectively. The effective interest rates are based on our aggregate availability.
On January
13, 2023, we entered into the Second LIBOR Transition Amendment to the Credit Agreement, which replaced interest rate calculations based on LIBOR with calculations based on SOFR. As of December 30,
2018, in connection with2023, borrowings under the
closingCredit Agreement bore interest at a rate per annum equal to either: (a) a euro currency rate as determined under the Credit Agreement, plus the applicable margin, or (b) a term SOFR rate, as determined under the Credit Agreement, plus the applicable margin, (c) a base rate equal to the highest of
(i) Bank of America’s prime rate, (ii) 0.5% per annum above the
Transaction, we usedfederal funds rate, and (iii) the term SOFR rate, as determined under the Credit Agreement, for a
portion ofone month interest period, plus 1.0%, plus the
proceedsapplicable margin, or (d) an alternative currency daily or term rate, as determined under the Credit Agreement, plus the applicable margin. The applicable margin for euro currency, term SOFR, and alternative currency rate loans ranges from
the Transaction1.375% to
repay in full our $262.5 million outstanding balance on the ABL facility. Additionally, we amended and restated the Amended and Restated Credit Agreement. The ABL facility, as amended and restated, provides us with financing in the United States, Canada, the United Kingdom, Luxembourg2.000% and the
Netherlands. Cott and its subsidiaries, Cott Holdings Inc.applicable margin for base rate loans ranges from 0.375% to 1.000%,
DSS, S&D, Aimia and Aquaterra, are borrowersin each case depending on our consolidated total leverage ratio. Unutilized commitments under the
ABL facility. The ABL facility isCredit Agreement are subject to a
revolving facility of upcommitment fee ranging from 0.20% to
$250.0 million with a maturity date of August 3, 2021. JPMorgan Chase Bank, N.A. serves as administrative agent and administrative collateral agent and JPMorgan Chase Bank, N.A., London Branch serves as U.K. security trustee. Availability under the ABL facility is dependent0.30% per annum depending on our consolidated total leverage ratio, payable on a
borrowing base calculated as a percentage of the value of eligible inventory, accounts receivable and property, plant and equipment in the manner set forth in the credit agreement. Subject to certain conditions, the ABL facility may be increased up to an additional $100.0 million at our option if lenders agree to increase their commitments. The debt under the ABL facility is guaranteed by most of our U.S., Canadian, U.K. and Luxembourg subsidiaries and certain of our Dutch subsidiaries.5.500%quarterly basis.
4.375% Senior Notes due in
20252029
On
March 22, 2017,April 30, 2021, we issued $750.0 million of
our 2025 Notes4.375% senior notes due April 30, 2029 (the “2029 Notes”) to qualified purchasers in a private placement offering under Rule 144A under the Securities Act
of 1933, as amended (the “Securities Act”), and outside the United States to
non-U.S. purchasers pursuant to Regulation S under the Securities Act and other applicable laws. The
20252029 Notes were issued by our wholly-owned subsidiary
CottPrimo Water Holdings Inc.
, The 2029 Notes are guaranteed by the Company and
mostcertain subsidiaries that are currently obligors under the $350.0 million senior secured revolving credit facility and the €450.0 million of
our U.S., Canadian, U.K., Luxembourg and Dutch subsidiaries guarantee the 2025 Notes.3.875% senior notes due October 31, 2028. The
20252029 Notes will mature on April
1, 202530, 2029 and interest is payable semi-annually on April
1st30th and October
1st31st of each year commencing on October
1, 2017.31, 2021. The proceeds of the
20252029 Notes,
along with available cash on hand, were used to redeem in full the
2020$750.0 million of 5.500% senior notes due April 1, 2025 (the “2025 Notes”). The redemption of the 2025 Notes
redeem $100.0included $20.6 million
aggregate principal amountin premium payments, accrued interest of
our DSS Notes$3.6 million, and
to pay related fees and expenses.the write-off of $6.6 million in deferred financing fees.
We incurred
$11.7approximately $11.2 million of financing fees
in connection withfor the issuance of the
20252029 Notes. The financing fees are being amortized using the effective interest method over an eight-year period, which represents the term to maturity of the
20252029 Notes.
5.500%
3.875% Senior Notes due in
2024In June 2016,2028
On October 22, 2020, we issued €450.0 million (U.S. $539.1($499.4 million at the exchange raterates in effect on December 30, 2017)2023) of our 2024 Notes3.875% senior notes due October 31, 2028 (the “2028 Notes”) to qualified purchasers in a private placement offering under Rule 144A under the Securities Act, and outside the United States to non-U.S. purchasers pursuant to Regulation S under the Securities Act and other applicable laws. The 20242028 Notes were initially issued by our wholly-owned subsidiary Cott Finance Corporation. In connection withPrimo Water Holdings Inc. The 2028 Notes are guaranteed by the closing of the Eden Acquisition, we assumed all of the obligations of Cott Finance Corporation under the 2024 Notes,Company and most of our U.S., Canadian, U.K. Luxembourg and Dutchcertain subsidiaries that are currently obligors under the 2022 NotesRevolving Credit Facility and the 2020 Notes entered into a supplemental indenture to guarantee the 20242029 Notes. The 20242028 Notes will mature on July 1, 2024October 31, 2028 and interest is payable semi-annually on January 1stApril 30th and July 1stOctober 31st of each year commencing on April 30, 2021.
Foreign Exchange Forward Contract
On January 1, 2017. 2, 2024, the Company entered into foreign exchange forward contracts with a notional amount of €450.0 million and a maturity date of October 31, 2025.The proceeds ofCompany is utilizing the 2024 Notes were usedderivative financial instrument to fund a portion of the purchase price of the Eden Acquisition and to pay related fees and expenses.We incurred approximately $11.3 million of financing fees for the issuance of the 2024 Notes and $11.0 million of bridge financing commitment fees and professional fees in connectionhedge foreign exchange risk associated with the Eden Acquisition. The financing fees are being amortized using the effective interest method over an eight-year period, which represents the term to maturity of the 2024Company’s 2028 Notes. The bridge financing commitment fees and professional fees were recorded in SG&A expenses for the year ended December 31, 2016 in our Consolidated Statement of Operations.
5.375% Senior Notes due in 2022
In June 2014, we issued $525.0 million of 5.375% senior notes due 2022. The issuer of the notes was our wholly-owned U.S. subsidiary Cott Beverages Inc. (“CBI”), and we and most of our U.S., Canadian and U.K. subsidiaries guaranteed the obligations.
We incurred $9.6 million of financing fees in connection with the issuance of the 2022 Notes. The financing fees were being amortized using the effective interest method over an eight-year period, which represented the term to maturity of the 2022 Notes.
On January 30, 2018, in connection with the closing of the Transaction, we used a portion of the proceeds from the Transaction to redeem in full the 2022 Notes. The redemption of the 2022 Notes included $21.2 million in premium payments and $2.2 million in accrued interest.
10.00% Senior Notes due in 2021
In August 2013, DSS (formerly DS Waters of America, Inc.) issued $350.0 million of 10.00% senior secured notes. In connection with the acquisition of DSS, our wholly-owned U.S. subsidiary CBI, and we and most of our U.S., Canadian and U.K. subsidiaries became guarantors of the obligations.
The DSS Notes were recorded at their fair value of $406.0 million as part of the acquisition of DSS. The difference between the fair value and the principal amount of $350.0 million was being amortized as a component of interest expense over the remaining contractual term of the DSS Notes. We incurred approximately $26.5 million of consent solicitation fees and bridge financing commitment fees.
On May 5, 2017, we used a portion of the proceeds from the issuance of the 2025 Notes to redeem $100.0 million in aggregate principal amount of the DSS Notes. The partial redemption of the DSS Notes included $7.7 million in premium payments, accrued interest of $1.8 million and thewrite-off of $9.2 million of unamortized premium.
On January 30, 2018, in connection with the closing of the Transaction, we used a portion of the proceeds from the Transaction to redeem all of the remaining $250.0 million aggregate principal amount of the DSS Notes. The redemption of the 2022 Notes included $12.5 million in premium payments, and $10.3 million in accrued interest.
6.75% Senior Notes due in 2020
In December 2014, we issued $625.0 million of 6.75% senior notes due 2020. The issuer of the notes was our wholly-owned U.S. subsidiary CBI, and we and most of our U.S., Canadian and U.K. subsidiaries guaranteed the obligations.
We incurred $14.4 million of financing fees in connection with the issuance of the 2020 Notes. The financing fees were being amortized using the effective interest method over a five-year period, which represented the term to maturity of the 2020 Notes.
On April 5, 2017 and March 22, 2017, we used a portion of the proceeds from the issuance of the 2025 Notes to purchase $422.7 million and $202.3 million in aggregate principal amount of the 2020 Notes. The redemption of the 2020 Notes included $14.3 million and $7.1 million in premium payments, accrued interest of $7.4 million and $3.1 million, thewrite-off of $5.8 million and $2.9 million in deferred financing fees, and other costs of $0.1 million.
GE Term Loan
In 2008, we entered into a capital lease finance arrangement with GE Capital for the lease of equipment. In 2013, we purchased the equipment subject to the lease for an aggregate purchase price of $10.7 million, with the financing for such purchase provided by GE Capital at 5.23% interest.
On January 30, 2018, in connection with the closing of the Transaction, we used a portion of the proceeds from the Transaction to pay the remaining $1.9 million outstanding balance of the GE Term Loan.
Credit Ratings and Covenant Compliance
Our objective is to maintain credit ratings that provide us with ready access to global capital and credit markets at favorable interest rates.
As of December 30,
2017,2023, the Company’s credit ratings were as follows:
| | | | | | | | | | | |
| Credit Ratings |
| | Credit Ratings |
| | Moody’s Rating | | Standard and Poor’s Rating |
Corporate credit rating | B1 | | B1 | BB+ |
20242028 Notes
| B1 | | B2 | BB+ |
20252029 Notes
| B1 | | B2 | BB+ |
Outlook | Stable | | Stable | Positive |
On January 30, 2018, in connection with the closing of the Transaction, Moody’s upgraded its rating on our senior unsecured notes to ‘B1’ from ‘B2’.
Any downgrade of our credit ratings by either Moody’s or
S&PStandard and Poor's could increase our future borrowing costs or impair our ability to access capital markets on terms commercially acceptable to us or at all.
Indentures
governing our outstanding notesGoverning Our Outstanding Notes
Under the indentures governing our outstanding 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. The covenants are substantially similar across the series of notes. As of December 30,
2017,2023, we were in compliance with all of the covenants under each series of notes. There have been no amendments to any such covenants of our outstanding notes since the date of their issuance or assumption, as applicable.
ABL
Revolving Credit Facility
Under the credit agreementCredit Agreement governing the ABL facility, CottRevolving Credit Facility, we and itsour restricted subsidiaries are subject to a number of business and financial covenants, including a minimum fixed chargeconsolidated secured leverage ratio and an interest coverage ratio. The consolidated secured leverage ratio must not be more than 3.50 to 1.00, with an allowable temporary increase to 4.00 to 1.00 for the quarter in which we consummate a material acquisition with a price not less than $125.0 million, for three quarters. The interest coverage ratio which measures our abilitymust not be less than 3.00 to cover financing expenses. As1.00. We were in compliance with these financial covenants as of December 30, 2017,2023.
In addition, the
minimum fixed charge coverage ratio of 1.0 to 1.0 was effective ifCredit Agreement has certain non-financial covenants, such as covenants regarding indebtedness, investments, and
when aggregate availability was less than the greater of 10% of the lenders’ commitments under the ABL facility or $37.5 million. If excess availability was less than the greater of 10% of the aggregate availability under the ABL facility or $37.5 million, the lenders would take dominion over the cash and would apply excess cash to reduce amounts owing under the facility.asset dispositions. We were in compliance with all of the applicable covenants
under the ABL facility as of December 30,
2017.On January 30, 2018, in connection with the closing of the Transaction, we amended and restated the Amended and Restated Credit Agreement, dated as of August 3, 2016, as amended, that governed our prior ABL facility. Under the credit agreement governing the ABL facility, as amended and restated, Cott and its restricted subsidiaries are subject to a number of business and financial covenants, including a minimum fixed charge coverage ratio, which measures our ability to cover financing expenses. The minimum fixed charge coverage ratio of 1.0 to 1.0 is effective if and when there exists an event of default or aggregate availability is less than the greater of 10% of the Line Cap under the ABL facility or $22.5 million. Line Cap is defined as an amount equal to the lesser of the lenders’ commitments or the borrowing base at such time. If an event of default exists or the excess availability is less than the greater of 10% of the aggregate availability under the ABL facility or $22.5 million, the lenders will take dominion over the cash and will apply excess cash to reduce amounts owing under the facility.
2023.
Issuer Purchases of Equity Securities
Common Share Repurchase Programs
On August 9, 2023, the Board of Directors approved a share repurchase program for up to $50.0 million of our outstanding common shares. Upon the closing of the European Divestiture on December 29, 2023, an incremental $25.0 million share repurchase was authorized, revising the total share repurchase authorization to $75.0 million. During the fourth quarterfiscal year ended December 30, 2023, we repurchased 131,409 common shares for $1.9 million through open market transactions under this repurchase plan. There can be no assurance as to the precise number of 2017, we did notcommon shares, if any, that will be repurchased under the repurchase plan in the future, or the aggregate dollar amount of common shares to be purchased in future periods. We may discontinue purchases at any time, subject to compliance with applicable regulatory requirements.
On August 9, 2022, the Board of Directors approved a share repurchase program for up to $100.0 million of our
outstanding common
shares.shares over a 12-month period that expired on August 14, 2023. During the fiscal year ended December 30, 2023, we repurchased 1,272,612 common shares for $19.0 million through open market transactions under this repurchase plan. During the fiscal year ended December 31, 2022, we repurchased 1,753,479 common shares for $23.8 million through open market transactions under this repurchase plan.
On May 4, 2021, the Board of Directors approved a share repurchase program for up to $50.0 million of our outstanding common shares over a 12-month period that expired on May 10, 2022. We repurchased 2,646,831 common shares for $43.5 million through open market transactions under this repurchase plan, all in the fiscal year ended January 1, 2022.
Shares purchased under these repurchase plans were subsequently canceled.
During
2017, 277,338the fiscal years ended December 30, 2023, December 31, 2022, and January 1, 2022, 307,042 shares,
(2016—408,744; 2015—91,934)253,968 shares, and 263,220 shares, respectively, of our previously-issued common shares were withheld from delivery to our employees to satisfy their tax obligations related to share-based awards.
Please refer to the table in Part II, Item 5 of this Annual Report on Form 10-K.
Capital
structureStructure
Since December 31,
2016,2022, equity has increased by
$11.9$158.4 million. The increase was due primarily to
net income of $238.1 million, share-based compensation costs of
$22.9$14.9 million, and
currency translation adjustmentsthe issuance of
$27.2common shares of $6.1 million, partially offset by common
shares repurchased and subsequently canceled of $26.0 million, common share dividend payments of
$33.7$51.8 million, and
distributions tonon-controlling interestsother comprehensive loss, net of
$7.7tax of $22.9 million.
Dividend
paymentsPayments
Common Share Dividend
The board
Our Board of
directorsDirectors declared a quarterly dividend of
$0.06$0.08 and $0.07 per common share in each quarter during
20172023 and
20162022, respectively, for an aggregate dividend payment of approximately
$33.7$51.8 million and
$31.7$45.7 million, respectively.
Cott intendsWe intend to pay a regular quarterly dividend on
itsour common shares subject to, among other things, the best interests of
itsour shareowners,
Cott’sour results of operations, cash balances and future cash requirements, financial condition, statutory regulations and covenants set forth in the
ABLRevolving Credit facility and indentures governing our outstanding notes as well as other factors that the
boardBoard of
directorsDirectors may deem relevant from time to time.
Preferred Share Dividend
The terms of the Preferred Shares required us to pay a quarterly dividend to the holders of the Preferred Shares. Prior to their redemption in June 2015, we paid approximately $5.9 million in dividends to the holders of record of the Preferred Shares.
Equity-Based Plans
In 2015, with the approval of our shareowners, we (i) amended the Amended and Restated Cott Corporation Equity Incentive Plan (the “Equity Incentive Plan”) to, among other things, increase the number of shares that may be issued under the Equity Incentive Plan, and (ii) adopted the Cott Corporation Employee Share Purchase Plan (the “ESPP”) to provide eligible employees of the Company and its designated subsidiaries with an opportunity to acquire an ownership interest in the Company through the purchase of Company common shares via payroll deductions.
We also adopted the Cott Corporation Dividend Reinvestment Plan in 2015, which allows eligible shareowners to acquire additional common shares via reinvestment of cash dividends paid by us.
Recent Accounting Pronouncements
Refer to Note 1 in the Consolidated Financial Statements for a summary of recently adopted and recently issued accounting standards and their related effects or anticipated effects on our consolidated results of operations and financial condition.
| | | | | |
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We do not trade market risk sensitive instruments.
Currency Exchange Rate Risk
We are exposed to changes in foreign currency exchange rates. Operations outside of the United States
are concentrated in Canada and accounted for
24.7%3.7% and 4.3% of
2017 revenueRevenue, net for the fiscal years ended December 30, 2023 and
20.0% of 2016 revenue, and are concentrated principally in the United Kingdom, Canada, and Europe.December 31, 2022, respectively. We translate the revenues and expenses of our foreign operations using average exchange rates prevailing during the period. The effect of a 10% change in the average foreign currency exchange rates among the U.S. dollar versus the Canadian dollar
pound sterling and Euro for the
fiscal year ended December 30,
2017,2023 would result in
changes to our
revenues in 2017 changing by $56.1Revenue, net and Gross profit of $6.6 million and
our gross profit in 2017 changing by $32.3 million.$4.1 million, respectively. This change would
not be material to our cash flows and our results of operations.
Debt Obligations and Interest Rates
We have exposure to interest rate risk from the outstanding principal amounts of our short-term borrowings on our
ABL facility.Revolving Credit Facility. Interest rates on our long-term debt are fixed and not subject to interest rate volatility. Our
ABL facilityRevolving Credit Facility is vulnerable to fluctuations in
the U.S. short-term baseeuro currency rates, Bank of America's prime rate, and the
LIBORfederal funds rate. Because we had
$220.3 million of ABLno outstanding borrowings
outstandingunder the Revolving Credit Facility as of December 30,
2017,2023, the weighted-average interest rate of the Revolving Credit Facility was —% and a 100 basis point increase in the current per annum interest rate for our
ABL facilityRevolving Credit Facility (excluding the
$46.0$66.7 million of outstanding letters of credit) would not result in additional interest expense. Because we had $197.0 million of Revolving Credit Facility borrowings outstanding as of December 31, 2022, a 100 basis point increase in the current per annum interest rate for our Revolving Credit Facility (excluding the $46.6 million of outstanding letters of credit) would result in additional interest expense of approximately
$2.2$2.0 million. The weighted average interest rate of our outstanding
ABL facilityRevolving Credit Facility at December
30, 201731, 2022 was
3.1%5.9%.
We regularly review the structure of our indebtedness and consider changes to the proportion of variable versus fixed rate debt through refinancing, interest rate swaps or other measures in response to the changing economic environment. Historically, we have not used derivative instruments to manage interest rate risk. If we use and fail to manage these derivative instruments successfully, or if we are unable to refinance our indebtedness or otherwise increase our debt capacity in response to changes in the marketplace, the expense associated with debt service could increase. This would negatively affect our financial condition and profitability.
The information below summarizes our market risks associated with
long-term debt obligations as of December 30,
2017.2023. The table presents principal cash flows and related interest rates by year. Interest rates disclosed represent the actual weighted average rates as of December 30,
2017. | | | | | | | | |
| | | Debt Obligations | |
(in millions of U.S. dollars, except percentage amounts) | | Outstanding debt
balance | | | Weighted average
interest rate | |
Debt maturing in: | | | | | | | | |
2018 | | $ | 225.4 | | | | 3.1 | % |
2019 | | | 1.8 | | | | 7.0 | % |
2020 | | | 1.0 | | | | 7.3 | % |
20211 | | | 250.6 | | | | 10.0 | % |
20221 | | | 525.4 | | | | 5.4 | % |
Thereafter | | | 1,289.4 | | | | 5.6 | % |
| | | | | | | | |
Total | | $ | 2,293.6 | | | | | |
| | | | | | | | |
1. | Includes $525.0 million and $250.0 million aggregate principal amount of our 2022 Notes and DSS Notes. On January 30, 2018, in connection with the closing of the Transaction, we used a portion of the proceeds to redeem or repay these amounts. |
2023:
| | | | | | | | | | | | | | |
| | | Debt Obligations |
| (in millions of U.S. dollars, except percentage amounts) | | Outstanding Debt
Balance | | Weighted-Average
Interest Rate |
| Debt maturing in: | | | | |
| 2024 | | $ | 14.2 | | | 5.5 | % |
| 2025 | | 14.5 | | | 5.5 | % |
| 2026 | | 12.4 | | | 5.5 | % |
| 2027 | | 4.3 | | | 5.5 | % |
| 2028 | | 501.3 | | | 3.9 | % |
| Thereafter | | 750.3 | | | 4.4 | % |
| Total | | $ | 1,297.0 | | | |
The competitive marketplace in which we operate may limit our ability to recover increased costs through higher prices. As a result, we are subject to market risk with respect to commodity price fluctuations principally related to our purchases of resin for PET, HDPE and polycarbonate bottles,
tea,glass for bottles and
green coffee.fuel. We manage some of our exposure to this risk through the use of supplier pricing agreements, which enable us to fix the purchase prices for certain
commodities, as well as derivative financial instruments.commodities. We estimate that a 10% increase in the market prices of these commodities over the current market prices would cumulatively increase our
cost of salesoperating costs during the next 12 months by approximately
$36.5$12.1 million. This change would be material to our cash flows and our results of operations.
Inflation and Supply Chain Disruption Risk
In 2022, we experienced highly inflationary cost increases in our underlying expenses, including transportation and labor costs. We were impacted by global supply chain disruption, which increased ocean freight voyage lead times for the shipment of our water dispensers to our branch locations and increased freight costs.
While transportation and labor costs for the year ended December 31, 2022 on aggregate increased by $148.7 million, offset by favorable impact of foreign exchange rates of $17.2 million, the Company was able to mitigate the impacts of inflation and supply chain disruptions. Our mitigation strategies, such as price increases and cost control efforts, have provided us the necessary flexibility to respond to the risks.
While we have taken steps to minimize the impact of these increased costs, global supply chain disruption may deteriorate and inflationary pressures may increase, which could adversely affect our business, financial condition, results of operations and cash flows.
Credit Risk
As of December 30, 2023 and December 31, 2022, our cash and cash equivalents were maintained at major financial institutions in the United States, and our current deposits are likely in excess of insured limits. We believe these institutions have sufficient assets and liquidity to conduct their operations in the ordinary course of business with little or no credit risk to us.
| | | | | |
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
See “Index to Consolidated Financial Statements.”
| | | | | |
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
| | | | | |
| ITEM 9A. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 30,
20172023 (the “Evaluation”). Based upon the Evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rule
13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) are effective.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rules
13a-15(f) and
15d-15(f). Management evaluates the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013). Management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 30,
2017,2023, and concluded that it was effective as of December 30,
2017.2023.
The effectiveness of our internal control over financial reporting as of December 30,
20172023 has been audited by PricewaterhouseCoopers LLP,
ouran independent registered
certified public accounting firm, who also audited our Consolidated Financial Statements included in this Annual Report on Form
10-K, as stated in their report which appears herein.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting during the
fiscal quarter ended December 30,
20172023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| | | | | |
| ITEM 9B. | OTHER INFORMATION |
During the fourth quarter of 2023, none of our directors or executive officers (as such term is defined in Rule 16a-1(f) promulgated under the Exchange Act) adopted or terminated any Rule 10b5-1 trading arrangement or any non-Rule 10b5-1 trading arrangement (as each term is defined in Item 408 of Regulation S-K).
| | | | | |
| ITEM 9C. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
| | | | | |
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information required by this item regarding directors is incorporated by reference to, and will be contained in, the “Election of Directors” section of our definitive proxy circularstatement for the 20182024 Annual and Special Meeting of Shareowners, which is expected to be filed within 120 days after December 30, 20172023 (the “2018“2024 Proxy Circular”Statement”). The information required by this item regarding audit committee financial expert disclosure is incorporated by reference to, and will be contained in, the “Corporate Governance” section of our 2018 Proxy Circular. The information required by this item regarding executive officers appears as the Supplemental Item in Part I. There have been no material changes to the procedures by which shareholders may recommend nominees to our boardBoard of directors.Directors.
The Audit Committee of our
boardBoard of
directorsDirectors is an “audit committee” for the purposes of Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The Audit Committee charter is posted on our website at
www.cott.com.www.primowatercorp.com. The members of the Audit Committee are
Graham Savage (Chairman)Susan E. Cates (Chair),
Gregory MonahanBritta Bomhard and
Kenneth C. Keller Jr.Eric Foss. As required by the NYSE rules, the
boardBoard of Directors has determined that each member of the Audit Committee is independent
and financially literate and that
Mr. SavageMs. Cates qualifies as an “audit committee financial expert” within the meaning of the rules of the U.S. Securities and Exchange Commission.
All of our directors, officers and employees must comply with our Code of Business Conduct and Ethics. In addition, our Chief Executive Officer, Chief Financial Officer and principal accounting officer and certain other employees have a further obligation to comply with our Code of Ethics for Senior Officers. Our Code of Business Conduct and Ethics and our Code of Ethics for Senior Officers are posted on our website,
www.cott.com,www.primowatercorp.com, and we intend to comply with obligations to disclose any amendment to, or waiver of, provisions of these codes by posting such information on our website.
Section 16(a) Beneficial ownership reporting compliance
The information required by this item is incorporated by reference to, and will be contained in, the “Section 16(a) Beneficial Ownership Reporting Compliance” section of our 2018 Proxy Circular.
| | | | | |
| ITEM 11. | EXECUTIVE COMPENSATION |
The information required by this item is incorporated by reference to, and will be contained in, the “Compensation of Executive
Officers” sectionOfficers,” “The Human Resources and Compensation Committee Report” and “Compensation Committee Interlocks and Insider Participation” sections of our
20182024 Proxy
Circular.Statement. | | | | | |
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREOWNER MATTERS |
The information required by this item is incorporated by reference to, and will be contained in, the “Principal Shareowners,” “Security Ownership of Directors and Management” and “Equity Compensation Plan Information” sections of our
20182024 Proxy
Circular.Statement. | | | | | |
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required by this item is incorporated by reference to, and will be contained in, the “Certain Relationships and Related Transactions” section of our
20182024 Proxy
Circular.Statement. | | | | | |
| ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required by this item is incorporated by reference to, and will be contained in, the “Independent Registered
Certified Public Accounting Firm” section of our
20182024 Proxy
Circular.Statement.
| | | | | |
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) | The documents filed as part of this report are as follows: |
(a)The documents filed as part of this report are as follows:
2. Financial Statement Schedule
3. Exhibits
| | | | | | | | | | | | |
| | | | | Incorporated by Reference | | Filed Herewith |
Exhibit No. | | Description of Exhibit | | Form | | Exhibit | | Filing
Date | | File No. | | |
| 2.1 | | Share Purchase Agreement, dated as of June 7, 2016, by and among Hydra Luxembourg Holdings S.à.r.l., Carbon Acquisition Co B.V. and Cott Corporation | | 8-K | | 2.1 | | 6/7/16 | | 001-31410 | | |
| | | | | | |
| 2.2 | | SPA Deed of Amendment, dated as of August 1, 2016, by and among Hydra Luxembourg Holdings S.à.r.l., Carbon Acquisition Co B.V. and Cott Corporation | | 8-K | | 2.1 | | 8/2/16 | | 001-31410 | | |
| | | | | | |
| 2.3 | | Stock and Membership Interest Purchase Agreement, dated as of August 3, 2016, by and among Cott Corporation, Sip Acquisition Company, S&D Coffee Holding Company, Alan P. Davis and E. Rhyne Davis, as Sellers’ Representative, and each of the Sellers party thereto | | 8-K | | 2.1 | | 8/4/16 | | 001-31410 | | |
| | | | | | |
| 2.4 | | Share Purchase Agreement, dated as of July 24, 2017, by and among Cott Corporation, Refresco Group N.V., Refresco US Holdings Inc. and certain other parties thereto | | 8-K | | 2.1 | | 7/24/17 | | 001-31410 | | |
| | | | | | |
| 3.1 | | Articles of Amalgamation of Cott Corporation | | 10-K | | 3.1 | | 2/28/07 | | 001-31410 | | |
| | | | | | |
| 3.2 | | Articles of Amendment to Articles of Amalgamation of Cott Corporation | | 8-K | | 3.1 | | 12/15/14 | | 001-31410 | | |
| | | | | | |
| 3.3 | | Second Amended and RestatedBy-lawNo. 2002-1 of Cott Corporation, as amended | | 10-Q | | 3.2 | | 5/8/14 | | 001-31410 | | |
| | | | | | | | | | | | |
| 4.1 | | Indenture, dated as of December 12, 2014, governing the 6.75% Senior Notes due 2020, by and among Cott Beverages Inc., Cott Corporation, the guarantors identified therein and Wells Fargo Bank, National Association, as trustee, paying agent, registrar, transfer agent and authenticating agent | | 8-K | | 4.3 | | 12/15/14 | | 001-31410 | | |
| | | | | | |
| 4.2 | | Form of 6.75% Senior Notes due 2020 (included as Exhibit A to Exhibit 4.1). | | 8-K | | 4.3 | | 12/15/14 | | 001-31410 | | |
| | | | | | |
| 4.3 | | (First) Supplemental Indenture, dated as of June 25, 2015, by and among Cott Beverages Inc., the guarantors party thereto and Wells Fargo Bank, National Association, as trustee in connection with the 6.75% Senior Notes due 2020 | | 8-K | | 4.1 | | 6/26/15 | | 001-31410 | | |
| | | | | | |
| 4.4 | | Form of Amended and Restated Indenture, dated as of December 12, 2014, governing the 10.000% Second-Priority Senior Secured Notes due 2021, by and among Cott Corporation, DS Services of America, Inc., DS Services Holdings, Inc., the other guarantors party thereto from time to time, and Wilmington Trust, National Association, as Trustee and Collateral Agent | | 8-K | | 4.6 | | 12/15/14 | | 001-31410 | | |
| | | | | | |
| 4.5 | | Indenture, dated as of June 24, 2014, governing the 5.375% Senior Notes due 2022, by and among the Cott Beverages Inc., Cott Corporation, the guarantors identified therein and Wells Fargo Bank, National Association, as trustee, paying agent, registrar, transfer agent and authenticating agent | | 8-K | | 4.1 | | 6/25/14 | | 001-31410 | | |
| | | | | | |
| 4.6 | | Form of 5.375% Senior Notes due 2022 (included as Exhibit A to Exhibit 4.5). | | 8-K | | 4.1 | | 6/25/14 | | 001-31410 | | |
| | | | | | |
| 4.7 | | Third Supplemental Indenture, dated as of June 25, 2015, by and among Cott Beverages, Inc., the guarantors party thereto and Wells Fargo Bank, National Association, as trustee, in connection with the 5.375% Senior Notes due 2022 | | 8-K | | 4.1 | | 6/25/15 | | 001-31410 | | |
| | | | | | |
| 4.8 | | Indenture, dated as of June 30, 2016, by and among Cott Finance Corporation, BNY Trust Company of Canada, as Canadian trustee, The Bank of New York Mellon, as U.S. trustee, paying agent, registrar, transfer agent and authenticating agent, and The Bank of New York Mellon, London Branch, as London paying agent, governing the 5.50% Senior Notes due 2024 | | 8-K | | 4.1 | | 6/30/16 | | 001-31410 | | |
| | | | | | |
| 4.9 | | Form of 5.50% Senior Notes due 2024 (included as Exhibit A to Exhibit 4.9). | | 8-K | | 4.1 | | 6/30/16 | | 001-31410 | | |
| | | | | | | | | | | | |
| 4.10 | | Indenture, dated as of March 22, 2017, by and among Cott Holdings Inc., the guarantors party thereto, BNY Trust Company of Canada, as Canadianco-trustee, and The Bank of New York Mellon, as U.S.co-trustee, paying agent, registrar, transfer agent and authenticating agent, governing the 5.500% Senior Notes due 2025 | | 8-K | | 4.1 | | 3/22/17 | | 001-31410 | | |
| | | | | | |
| 4.11 | | Form of 5.500% Senior Notes due 2025 (included as Exhibit A to Exhibit 4.10). | | 8-K | | 4.1 | | 3/22/17 | | 001-31410 | | |
| | | | | | |
| 10.11 | | Amendment and Restatement Agreement, dated as of August 3, 2016, to the Credit Agreement dated as of August 17, 2010, as amended, among Cott Corporation, Cott Beverages Inc., Cott Beverages Limited, Cliffstar LLC, DS Services of America, Inc. and the other Loan Parties party thereto, the Lenders party thereto, JPMorgan Chase Bank, N.A., London Branch as UK security trustee, JPMorgan Chase Bank, N.A., as administrative agent and administrative collateral agent, and each of the other parties party thereto | | 10-Q | | 10.4 | | 8/9/16 | | 001-31410 | | |
| | | | | | |
| 10.2 | | Second Amendment and Restatement Agreement, dated as of January 30, 2018, to the Credit Agreement dated as of August 17, 2010, as amended, among Cott Corporation, Cott Beverages Inc., Cott Beverages Limited, Cliffstar LLC, DS Services of America, Inc. and the other Loan Parties party thereto, the Lenders party thereto, JPMorgan Chase Bank, N.A., London Branch as UK security trustee, JPMorgan Chase Bank, N.A., as administrative agent and administrative collateral agent, and each of the other parties party thereto | | 8-K | | 10.2 | | 2/2/18 | | 001-31410 | | |
| | | | | | |
| 10.32 | | Employment Offer Letter to Jerry Fowden dated February 18, 2009 | | 8-K | | 10.1 | | 2/24/09 | | 001-31410 | | |
| | | | | | |
| 10.42 | | Employment Offer Letter to Jay Wells dated January 14, 2012 | | 10-Q | | 10.1 | | 5/7/12 | | 001-31410 | | |
| | | | | | |
| 10.52 | | First Amended and Restated Employment Agreement, dated as of December 16, 2014, between DS Services of America, Inc. and Thomas J. Harrington | | 10-K | | 10.23 | | 3/4/15 | | 001-31410 | | |
| | | | | | |
| 10.62 | | Employment Offer Letter to Ron Hinson dated November 6, 2017 | | 10-Q | | 10.1 | | 11/9/17 | | 001-31410 | | |
| | | | | | |
| 10.72 | | Employment Offer Letter to Marni Morgan Poe dated January 14, 2010 | | 10-Q | | 10.1 | | 5/12/10 | | 001-31410 | | |
| | | | | | |
| 10.82 | | Employment Offer Letter to Jason Ausher dated May 6, 2015 | | 10-Q | | 10.2 | | 8/5/15 | | 001-31410 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incorporated by Reference | Filed
Herewith |
| Exhibit No. | Description of Exhibit | | Form | | Exhibit | | Filing
Date | | File No. | |
2.1 (1) | | | 8-K | | 2.1 | | 11/2/2023 | | 001-31410 | |
2.2 (1) | | | 8-K | | 2.1 | | 1/2/2024 | | 001-31410 | |
| 3.1 | | | 10-Q | | 3.1 | | 8/6/2021 | | 001-31410 | |
| 3.2 | | | 8-K | | 3.1 | | 5/3/2023 | | 001-31410 | |
| 4.1 | | | 10-Q | | 4.1 | | 8/6/2021 | | 001-31410 | |
| 4.2 | Indenture, dated as of October 22, 2020, by and among Primo Water Holdings Inc., the guarantors party thereto, BNY Trust Company of Canada, as Canadian Trustee, The Bank of New York Mellon, as U.S. Trustee, Paying Agent, Registrar, Transfer Agent and Authenticating Agent, and The Bank of New York Mellon, London Branch, as London Paying Agent, governing the 3.875% Senior Notes due 2028 | | 8-K | | 4.1 | | 10/22/2020 | | 001-31410 | |
| 4.3 | | | 8-K | | 4.1 | | 10/22/2020 | | 001-31410 | |
| 4.4 | Indenture, dated as of April 30, 2021, by and among Primo Water Holdings Inc., the guarantors party thereto, BNY Trust Company of Canada, as Canadian Trustee and the Bank of New York Mellon, as U.S. Trustee, Paying Agent, Registrar, Transfer Agent and Authenticating Agent, governing the 4.375% Senior Notes due 2029 | | 8-K | | 4.1 | | 4/30/2021 | | 001-31410 | |
| 4.5 | Supplemental Indenture, dated as of October 24, 2023, by and among Primo Water Financing One LLC, as a Guarantor, Primo Water Holdings Inc., as Issuer, BNY Trust Company of Canada, as co-trustee and The Bank of New York Mellon, as co-trustee, governing the Indenture dated as of October 22, 2020 | | | | | | | | | * |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 4.6 | Supplemental Indenture, dated as of October 24, 2023, by and among Primo Water Financing One LLC, as a Guarantor, Primo Water Holdings Inc., as Issuer, BNY Trust Company of Canada, as co-trustee and The Bank of New York Mellon, as co-trustee, governing the Indenture dated as of April 30, 2021 | | | | | | | | | * |
| 4.7 | | | 8-K | | 4.1 | | 4/30/2021 | | 001-31410 | |
| 4.8 | | | 10-K | | 4.18 | | 3/3/2021 | | 001-31410 | |
10.1 (1) | Credit Agreement, dated as of March 6, 2020, by and among Primo Water Corporation, as parent borrower, Cott Holdings Inc. and Eden Springs Nederland B.V., as subsidiary borrowers, certain other subsidiaries of the Company designated as subsidiary borrowers from time to time, Bank of America, N.A., as administrative agent, collateral agent, lead arranger and bookrunner, and the lenders party thereto | | 8-K | | 10.1 | | 3/10/2020 | | 001-31410 | |
| 10.2 | | | 10-Q | | 10.1 | | 11/5/2021 | | 001-31410 | |
| 10.3 | | | 10-K | | 10.3 | | 3/1/2023 | | 001-31410 | |
10.4 (2) | | | 8-K | | 10.2 | | 8/3/2018 | | 001-31410 | |
10.5 (2) | | | 10-K | | 10.10 | | 3/3/2021 | | 001-31410 | |
10.6 (2) | | | 10-K | | 10.11 | | 3/3/2021 | | 001-31410 | |
10.7 (2) | | | 10-K | | 10.7 | | 3/1/2023 | | 001-31410 | |
10.8 (2) | | | 10-Q | | 10.1 | | 5/9/2019 | | 001-31410 | |
10.9 (2) | | | 10-Q | | 10.3 | | 5/7/2021 | | 001-31410 | |
10.10 (2) | | | | | | | | | | * |
10.11 (2) | | | 8-K | | 10.12 | | 9/30/2021 | | 001-31410 | |
10.12 (2) | | | 10-K | | 10.1 | | 3/1/2023 | | 001-31410 | |
10.13 (2) | | | 8-K | | 10.1 | | 1/24/2023 | | 001-31410 | |
10.14 (1)(2) | | | 8-K | | 10.1 | | 11/15/2023 | | 001-31410 | |
10.15 (2) | | | 10-Q | | 10.1 | | 8/11/2022 | | 001-31410 | |
10.16 (2) | | | 10-K | | 10.18 | | 3/3/2021 | | 001-31410 | |
10.17 (2) | | | DEF 14A | | Appendix B | | 3/28/2013 | | 001-31410 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
10.18 (2) | | | DEF 14A | | Appendix B | | 3/26/2015 | | 001-31410 | |
10.19 (2) | | | 10-Q | | 10.3 | | 8/9/2016 | | 001-31410 | |
10.20 (2) | | | 10-Q | | 10.6 | | 5/7/2020 | | 001-31410 | |
10.21 (2) | | | 10-K | | 10.20 | | 3/1/2023 | | 001-31410 | |
10.22 (2) | | | DEF 14A | | Appendix B | | 3/21/2018 | | 001-31410 | |
10.23 (2) | | | 10-Q | | 10.7 | | 5/7/2020 | | 001-31410 | |
10.24 (2) | | | 10-Q | | 10.3 | | 11/5/2020 | | 001-31410 | |
10.25 (2) | | | | | | | | | | * |
10.26 (2) | | | 10-Q | | 10.2 | | 8/11/2022 | | 001-31410 | |
10.27 (2) | | | 8-K | | 10.1 | | 12/11/2023 | | 001-31410 | |
10.28 (2) | | | 10-Q | | 10.3 | | 11/5/2021 | | 001-31410 | |
| 10.29 | Cooperation Agreement, dated May 3, 2023, by and among Primo Water Corporation, Legion Partners Holdings, LLC, Legion Partners, L.P. I, Legion Partners, L.P. II, Legion Partners, LLC, Legion Partners Asset Management, LLC, Christopher S. Kiper and Raymond T. White | | 8-K | | 10.1 | | 5/3/2023 | | 001-31410 | |
| 21.1 | | | | | | | | | | * |
| 23.1 | | | | | | | | | | * |
| 31.1 | | | | | | | | | | * |
| 31.2 | | | | | | | | | | * |
| 32.1 | | | | | | | | | | * |
| 32.2 | | | | | | | | | | * |
| 97 | | | | | | | | | | * |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
10.92101 | | Employment Offer Letter to Bradley Goist dated April 22, 2016 | | 10-Q | | 10.2 | | 8/9/16 | | 001-31410 | | |
| | | | | | |
10.102 | | Employment Offer Letter to Michael Creamer dated April 16, 2007 | | 10-K | | 10.19 | | 3/11/09 | | 001-31410 | | |
| | | | | | |
10.112 | | Employment Offer Letter to Steve Erdman dated March 17, 2017 | | | | | | | | | | * |
| | | | | | |
10.122 | | Employment Offer Letter to Carlos Baila dated September 17, 2012 | | 10-K | | 10.24 | | 2/27/13 | | 001-31410 | | |
| | | | | | |
10.132 | | Separation Agreement and General Release by and between Cott Corporation and Carlos Baila, dated January 30, 2018 | | 8-K | | 10.2 | | 2/2/18 | | 001-31410 | | |
| | | | | | |
10.142 | | Cott Corporation Severance andNon-Competition Plan, dated February 18, 2009 | | 8-K | | 10.2 | | 2/24/09 | | 001-31410 | | |
| | | | | | |
10.152 | | Amended and Restated Cott Corporation Equity Incentive Plan | | DEF 14A | | Appendix B | | 3/28/13 | | 001-31410 | | |
| | | | | | |
10.162 | | Amendment to Amended and Restated Cott Corporation Equity Incentive Plan | | DEF 14A | | Appendix B | | 3/26/15 | | 001-31410 | | |
| | | | | | |
10.172 | | Amendment to Amended and Restated Cott Corporation Equity Incentive Plan | | 10-Q | | 10.3 | | 8/9/16 | | 001-31410 | | |
| | | | | | |
10.182 | | The following financial statements from Primo Water Corporation’s Annual Report on Form of Restricted Share Unit Award Agreement with Time-Based Vesting under the Amended and Restated Cott Corporation Equity Incentive Plan | | 10-K | | 10.22 | | 2/29/16 | | 001-31410 | | |
| | | | | | |
10.192 | | Form of Restricted Share Unit Award Agreement with Performance-Based Vesting under the Amended and Restated Cott Corporation Equity Incentive Plan | | 10-K | | 10.23 | | 2/29/16 | | 001-31410 | | |
| | | | | | |
10.202 | | Form of Nonqualified Stock Option Agreement under the Amended and Restated Cott Corporation Equity Incentive Plan | | 10-K | | 10.24 | | 2/29/16 | | 001-31410 | | |
| | | | | | |
10.211 | | Supply Agreement executed December 21, 2010, effective January 1, 2011 between Crown Cork & Seal USA, Inc. and Cott Corporation | | 10-K/A | | 10.34 | | 1/31/12 | | 001-31410 | | |
| | | | | | |
10.221 | | Amendments to Supply Agreement dated November 20, 2015 between Crown Cork & Seal USA, Inc. and Cott Corporation | | 10-K/A | | 10.26 | | 4/18/16 | | 001-31410 | | |
| | | | | | |
21.1 | | List of Subsidiaries of Cott Corporation | | | | | | | | | | * |
| | | | | | |
23.1 | | Consent of Independent Registered Public Accounting Firm | | | | | | | | | | * |
| | | | | | | | | | | | |
31.1 | | Certification of the Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 for the fiscal year ended December 30, 20172023, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows, (v) Consolidated Statements of Equity, and (vi) Notes to the Consolidated Financial Statements. | | | | | | | | | | * |
| 104 | Cover Page Interactive Date File (formatted as Inline XBRL and contained in Exhibit 101) | | | | | |
| 31.2 | | Certification of the Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 for the year ended December 30, 2017. | | | | | | | | | * |
| | | | | | |
32.13 | | Certification of the Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002 for the year ended December 30, 2017. | | | | | | | | | | |
| | | | | | |
32.23 | | Certification of the Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002 for the year ended December 30, 2017. | | | | | | | | | | |
1. | Confidential treatment has been granted for portions of this exhibit. |
2. | Indicates a management contract______________________ 1 Schedules and exhibits or compensatory plan. |
All other schedules called for by the applicable SEC accounting regulations are not required under the related instructions or are inapplicable and, therefore,portions of this exhibit have been omitted.
omitted pursuant to Item 601(a) or 601(b) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished to the Securities and Exchange Commission upon request.2 Indicates a management contract or compensatory plan.
Pursuant to the requirements of Section 13 or 15(d) 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
Primo Water Corporation
| | |
| /s/ ROBBERT RIETBROEK |
| Robbert Rietbroek |
/s/ JERRY FOWDEN |
Jerry Fowden |
| Chief Executive Officer |
Date: February 28, 20182024 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
| | | | | | | | |
| /s/ ROBBERT RIETBROEK | | | | /s/ ARCHANA SINGH |
/S/ JERRY FOWDEN
Jerry Fowden
Robbert Rietbroek Chief Executive Officer, Director (Principal Executive Officer) Date: February 28, 20182024
| | | | /S/ BETTY JANE HESS
Betty Jane Hess
Archana Singh Date: February 28, 20182024
|
| /s/ DAVID HASS | | /s/ SUSAN E. CATES |
/S/ JAY WELLS
Jay Wells
David Hass (Principal Financial Officer) Date: February 28, 20182024
| | | | /S/GREGORY MONAHAN
Gregory Monahan
Susan E. Cates Date: February 28, 20182024 |
| /s/ JASON AUSHER | | /s/ BRITTA BOMHARD |
/S/ JASON AUSHER
(Principal Accounting Officer) Date: February 28, 20182024
| | | | /S/ MARIO PILOZZI
Mario Pilozzi
Britta Bomhard Date: February 28, 20182024 |
| /s/ JERRY FOWDEN | | /s/ERIC J. FOSS |
/S/ DAVID T. GIBBONS
David T. Gibbons
Jerry Fowden Date: February 28, 20182024
| | | | /S/ ANDREW PROZES
Andrew Prozes
Eric J. Foss Date: February 28, 20182024
|
| /s/ STEVEN P. STANBROOK | | /s/ BILLY D. PRIM |
/S/ KENNETH C. KELLER JR
Kenneth C. Keller Jr
Steven P. Stanbrook Date: February 28, 20182024 | | | | /S/ GRAHAM SAVAGE
Graham Savage
Billy D. Prim Date: February 28, 20182024 |
| /s/ DEREK R. LEWIS | | /s/ LORI T. MARCUS |
/S/ STEPHEN H. HALPERIN
Stephen H. Halperin
Derek R. Lewis Date: February 28, 20182024
| | | | /S/ ERIC ROSENFELD
Eric Rosenfeld
Lori T. Marcus Date: February 28, 20182024 |
| | |
| | |
COTT
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | |
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| | F – 3 |
| | F – 4 |
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
CottPrimo Water Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of CottPrimo Water Corporation and its subsidiaries (the “Company”) as of December 30, 20172023 and December 31, 2016,2022, and the related consolidated statements of operations, of comprehensive income, (loss),of equity and of cash flows for each of the three years in the period ended December 30, 2017,2023, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company’sCompany's internal control over financial reporting as of December 30, 2017,2023, based on criteria established inInternal Control—Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 30, 20172023 and December 31, 2016,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 30, 20172023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 30, 2017,2023, based on criteria established inInternal Control—Control - Integrated Framework (2013) issued by the COSO.
The
Company’sCompany's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the
Company’sCompany's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(“PCAOB”)(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Insurance Reserves
As described in Note 1 to the consolidated financial statements, the Company’s consolidated insurance reserves balance was $67.0 million as of December 30, 2023. The Company maintains insurance retention programs under its general liability, auto liability and workers’ compensation insurance programs. Management accrues for insurance reserves on an undiscounted basis based on known claims and estimated incurred but not reported claims not otherwise covered by insurance. The estimates are developed utilizing standard actuarial methods and are based on historical claims experience and actuarial assumptions, including loss development factors and expected ultimate loss selections.
The principal considerations for our determination that performing procedures relating to insurance reserves is a critical audit matter are (i) the significant judgment by management when developing the estimated insurance reserves; (ii) a high degree of auditor judgment and effort in performing procedures and evaluating audit evidence related to the standard actuarial methods and management’s significant assumptions related to the loss development factors and expected ultimate loss selections; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s estimate of insurance reserves, including controls over the standard actuarial methods and significant assumptions related to the loss development factors and expected ultimate loss selections and the completeness and accuracy of data related to historical claims experience. These procedures also included, among others, testing management’s process for developing the estimated insurance reserves. Testing management’s process involved (i) evaluating the appropriateness of the standard actuarial methods; (ii) testing the completeness and accuracy of data related to historical claims experience; and (iii) evaluating the reasonableness of the significant assumptions used by management related to the loss development factors and expected ultimate loss selections. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the Company’s standard actuarial methods and (ii) the reasonableness of the loss development factor and expected ultimate loss selection significant assumptions.
/s/PricewaterhouseCoopers LLP
Certified Public Accountants
We have served as the Company’s auditor since 2007.
COTT
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions of U.S. dollars, except share and per share amounts)
| | | | | | | | | | | | |
| | | For the Year Ended | |
| | | December 30, | | | December 31, | | | January 2, | |
| | | 2017 | | | 2016 | | | 2016 | |
Revenue, net | | $ | 2,269.7 | | | $ | 1,623.2 | | | $ | 1,187.3 | |
Cost of sales | | | 1,142.0 | | | | 773.1 | | | | 536.8 | |
| | | | | | | | | | | | |
Gross profit | | | 1,127.7 | | | | 850.1 | | | | 650.5 | |
Selling, general and administrative expenses | | | 1,042.7 | | | | 806.2 | | | | 608.4 | |
Loss on disposal of property, plant & equipment, net | | | 10.2 | | | | 6.6 | | | | 4.2 | |
Acquisition and integration expenses | | | 25.9 | | | | 27.8 | | | | 20.0 | |
| | | | | | | | | | | | |
Operating income | | | 48.9 | | | | 9.5 | | | | 17.9 | |
Other (income) expense, net | | | (3.0 | ) | | | 5.6 | | | | (12.8 | ) |
Interest expense, net | | | 85.5 | | | | 43.0 | | | | 30.1 | |
| | | | | | | | | | | | |
(Loss) income from continuing operations before income taxes | | | (33.6 | ) | | | (39.1 | ) | | | 0.6 | |
Income tax (benefit) expense | | | (30.0 | ) | | | 21.2 | | | | (15.1 | ) |
| | | | | | | | | | | | |
Net (loss) income from continuing operations | | $ | (3.6 | ) | | $ | (60.3 | ) | | $ | 15.7 | |
Net income (loss) from discontinued operations, net of income taxes (Note 2) | | | 10.7 | | | | (11.2 | ) | | | 4.9 | |
| | | | | | | | | | | | |
Net income (loss) | | $ | 7.1 | | | $ | (71.5 | ) | | $ | 20.6 | |
Less: Net income attributable tonon-controlling interests - discontinued operations | | | 8.5 | | | | 6.3 | | | | 6.1 | |
Less: Accumulated dividends on convertible preferred shares - continued operations | | | — | | | | — | | | | 4.5 | |
Less: Accumulated dividends onnon-convertible preferred shares - continued operations | | | — | | | | — | | | | 1.4 | |
Less: Foreign exchange impact on redemption of preferred shares - continued operations | | | — | | | | — | | | | 12.0 | |
| | | | | | | | | | | | |
Net loss attributable to Cott Corporation | | $ | (1.4 | ) | | $ | (77.8 | ) | | $ | (3.4 | ) |
| | | | | | | | | | | | |
Net (loss) income per common share attributable to | | | | | | | | | | | | |
Cott Corporation | | | | | | | | | | | | |
Basic: | | | | | | | | | | | | |
Continuing operations | | $ | (0.03 | ) | | $ | (0.47 | ) | | $ | (0.02 | ) |
Discontinued operations | | $ | 0.02 | | | $ | (0.14 | ) | | $ | (0.01 | ) |
Net income (loss) | | $ | (0.01 | ) | | $ | (0.61 | ) | | $ | (0.03 | ) |
Diluted: | | | | | | | | | | | | |
Continuing operations | | $ | (0.03 | ) | | $ | (0.47 | ) | | $ | (0.02 | ) |
Discontinued operations | | $ | 0.02 | | | $ | (0.14 | ) | | $ | (0.01 | ) |
Net income (loss) | | $ | (0.01 | ) | | $ | (0.61 | ) | | $ | (0.03 | ) |
Weighted average common shares outstanding (in thousands) | | | | | | | | | | | | |
Basic | | | 139,078 | | | | 128,290 | | | | 103,037 | |
Diluted | | | 139,078 | | | | 128,290 | | | | 103,037 | |
Dividends declared per common share | | $ | 0.24 | | | $ | 0.24 | | | $ | 0.24 | |
| | | | | | | | | | | | | | | | | |
| For the Fiscal Year Ended |
| December 30, 2023 | | December 31, 2022 | | January 1, 2022 |
| Revenue, net | $ | 1,771.8 | | | $ | 1,693.2 | | | $ | 1,576.4 | |
| Cost of sales | 634.8 | | | 674.0 | | | 685.4 | |
| Gross profit | 1,137.0 | | | 1,019.2 | | | 891.0 | |
| | | | | |
| Selling, general and administrative expenses | 976.0 | | | 883.8 | | | 769.8 | |
| Loss on disposal of property, plant and equipment, net | 9.1 | | | 7.4 | | | 9.1 | |
| Acquisition and integration expenses | 9.5 | | | 12.1 | | | 9.1 | |
| Impairment charges | — | | | 11.2 | | | — | |
| Gain on sale of property | (21.0) | | | (38.8) | | | — | |
| Operating income | 163.4 | | | 143.5 | | | 103.0 | |
| Other expense (income), net | 1.2 | | | (2.5) | | | 22.1 | |
| | | | | |
| Interest expense, net | 71.4 | | | 67.8 | | | 68.3 | |
| Income from continuing operations before income taxes | 90.8 | | | 78.2 | | | 12.6 | |
| Income tax expense | 27.0 | | | 19.5 | | | 7.7 | |
| Net income from continuing operations | $ | 63.8 | | | $ | 58.7 | | | $ | 4.9 | |
| Net income (loss) from discontinued operations, net of income taxes (Note 2) | 174.3 | | | (29.1) | | | (8.1) | |
| Net income (loss) | $ | 238.1 | | | $ | 29.6 | | | $ | (3.2) | |
| | | | | |
| Net income (loss) per common share | | | | | |
| Basic: | | | | | |
| Continuing operations | $ | 0.40 | | | $ | 0.36 | | | $ | 0.03 | |
| Discontinued operations | $ | 1.09 | | | $ | (0.18) | | | $ | (0.05) | |
| Net income (loss) | $ | 1.49 | | | $ | 0.18 | | | $ | (0.02) | |
| Diluted: | | | | | |
| Continuing operations | $ | 0.40 | | | $ | 0.36 | | | $ | 0.03 | |
| Discontinued operations | $ | 1.08 | | | $ | (0.18) | | | $ | (0.05) | |
| Net income (loss) | $ | 1.48 | | | $ | 0.18 | | | $ | (0.02) | |
| | | | | |
| Weighted-average common shares outstanding (in thousands) | | | | | |
| Basic | 159,452 | | | 160,763 | | | 160,778 | |
| Diluted | 160,619 | | | 161,885 | | | 160,778 | |
The accompanying notes are an integral part of these consolidated financial statements.
COTT
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS)(in millions of U.S. dollars)
| | | | | | | | | | | | |
| | | For the Year Ended | |
| | | December 30, | | | December 31, | | | January 2, | |
| | | 2017 | | | 2016 | | | 2016 | |
Net income (loss) | | $ | 7.1 | | | $ | (71.5 | ) | | $ | 20.6 | |
Other comprehensive income (loss): | | | | | | | | | | | | |
Currency translation adjustment | | | 27.2 | | | | (42.0 | ) | | | (23.0 | ) |
Pension benefit plan, net of tax1 | | | (2.4 | ) | | | (4.3 | ) | | | 2.3 | |
Unrealized (loss) gain on derivative instruments, net of tax2 | | | (1.3 | ) | | | 4.6 | | | | (4.9 | ) |
| | | | | | | | | | | | |
Total other comprehensive income (loss) | | | 23.5 | | | | (41.7 | ) | | | (25.6 | ) |
| | | | | | | | | | | | |
Comprehensive income (loss) | | $ | 30.6 | | | $ | (113.2 | ) | | $ | (5.0 | ) |
Less: Comprehensive income attributable tonon-controlling interests | | | 8.5 | | | | 6.3 | | | | 6.4 | |
Less: Accumulated dividends on convertible preferred shares | | | — | | | | — | | | | 4.5 | |
Less: Accumulated dividends onnon-convertible preferred shares | | | — | | | | — | | | | 1.4 | |
Less: Foreign exchange impact on redemption of preferred shares | | | — | | | | — | | | | 12.0 | |
| | | | | | | | | | | | |
Comprehensive income (loss) attributed to Cott Corporation | | $ | 22.1 | | | $ | (119.5 | ) | | $ | (29.3 | ) |
| | | | | | | | | | | | |
1. | Net of the effect of a $0.6 million tax benefit, $0.3 million tax benefit and $1.0 million tax expense for the years ended December 30, 2017, December 31, 2016 and January 2, 2016, respectively. |
2. | Net of the effect of a $2.5 million tax benefit for the year ended January 2, 2016. |
| | | | | | | | | | | | | | | | | |
| | For the Fiscal Year Ended |
| December 30, 2023 | | December 31, 2022 | | January 1, 2022 |
| Net income (loss) | $ | 238.1 | | | $ | 29.6 | | | $ | (3.2) | |
| Other comprehensive (loss) income: | | | | | |
| Currency translation adjustment | (20.9) | | | (16.0) | | | 18.2 | |
Pension benefit plan, net of tax1 | (2.0) | | | 2.9 | | | (0.6) | |
| | | | | |
| Total other comprehensive (loss) income | (22.9) | | | (13.1) | | | 17.6 | |
| Comprehensive income | $ | 215.2 | | | $ | 16.5 | | | $ | 14.4 | |
| | | | | |
| | | | | |
______________________
1 Net of the tax impact of $0.2 million, $0.3 million, and nil for the fiscal years ended December 30, 2023, December 31, 2022, and January 1, 2022, respectively.
The accompanying notes are an integral part of these consolidated financial statements.
COTT
CONSOLIDATED BALANCE SHEETS
(in millions of U.S. dollars, except share amounts)
| | | | | | | | |
| | | December 30, | | | December 31, | |
| | | 2017 | | | 2016 | |
ASSETS | | | | | | | | |
Current assets | | | | | | | | |
Cash & cash equivalents | | $ | 91.9 | | | $ | 78.1 | |
Accounts receivable, net of allowance of $7.8 ($6.3 as of December 31, 2016) | | | 285.0 | | | | 276.7 | |
Inventories | | | 127.6 | | | | 124.6 | |
Prepaid expenses and other current assets | | | 20.7 | | | | 22.1 | |
Current assets of discontinued operations | | | 408.7 | | | | 351.7 | |
| | | | | | | | |
Total current assets | | | 933.9 | | | | 853.2 | |
Property, plant & equipment, net | | | 584.2 | | | | 581.8 | |
Goodwill | | | 1,104.7 | | | | 1,048.3 | |
Intangible assets, net | | | 751.1 | | | | 759.0 | |
Deferred tax assets | | | 2.3 | | | | — | |
Other long-term assets, net | | | 39.4 | | | | 30.5 | |
Long-term assets of discontinued operations | | | 677.5 | | | | 666.9 | |
| | | | | | | | |
Total assets | | $ | 4,093.1 | | | $ | 3,939.7 | |
| | | | | | | | |
LIABILITIES AND EQUITY | | | | | | | | |
Current liabilities | | | | | | | | |
Short-term borrowings required to be repaid or extinguished as part of divestiture | | $ | 220.3 | | | $ | 207.0 | |
Current maturities of long-term debt | | | 5.1 | | | | 5.2 | |
Accounts payable and accrued liabilities | | | 412.9 | | | | 368.0 | |
Current liabilities of discontinued operations | | | 295.1 | | | | 229.9 | |
| | | | | | | | |
Total current liabilities | | | 933.4 | | | | 810.1 | |
Long-term debt | | | 1,542.6 | | | | 851.4 | |
Debt required to be repaid or extinguished as part of divestiture | | | 519.0 | | | | 1,135.4 | |
Deferred tax liabilities | | | 98.4 | | | | 155.0 | |
Other long-term liabilities | | | 68.2 | | | | 75.4 | |
Long-term liabilities of discontinued operations | | | 45.8 | | | | 38.6 | |
| | | | | | | | |
Total liabilities | | | 3,207.4 | | | | 3,065.9 | |
Commitments and contingencies - Note 18 | | | | | | | | |
Equity | | | | | | | | |
Common shares, no par - 139,488,805 shares issued (December 31, 2016 - 138,591,100 shares issued) | | | 917.1 | | | | 909.3 | |
Additionalpaid-in-capital | | | 69.1 | | | | 54.2 | |
(Accumulated deficit) retained earnings | | | (12.2 | ) | | | 22.9 | |
Accumulated other comprehensive loss | | | (94.4 | ) | | | (117.9 | ) |
| | | | | | | | |
Total Cott Corporation equity | | | 879.6 | | | | 868.5 | |
Non-controlling interests | | | 6.1 | | | | 5.3 | |
| | | | | | | | |
Total equity | | | 885.7 | | | | 873.8 | |
| | | | | | | | |
Total liabilities and equity | | $ | 4,093.1 | | | $ | 3,939.7 | |
| | | | | | | | |
| | | | | | | | | | | |
| December 30, 2023 | | December 31, 2022 |
| ASSETS | | | |
| Current assets | | | |
| Cash and cash equivalents | $ | 507.9 | | | $ | 78.8 | |
| Accounts receivable, net of allowance of $12.7 ($12.1 as of December 31, 2022) | 156.0 | | | 170.7 | |
| Inventories | 47.3 | | | 65.3 | |
| Prepaid expenses and other current assets | 26.0 | | | 35.9 | |
| Current assets of discontinued operations | 128.7 | | | 187.3 | |
| Total current assets | 865.9 | | | 538.0 | |
| Property, plant and equipment, net | 556.5 | | | 549.5 | |
| Operating lease right-of-use-assets | 136.0 | | | 143.2 | |
| Goodwill | 1,004.6 | | | 997.2 | |
| Intangible assets, net | 714.2 | | | 723.8 | |
| | | |
| Other long-term assets, net | 20.2 | | | 25.9 | |
| Long-term assets of discontinued operations | 225.6 | | | 689.4 | |
| Total assets | $ | 3,523.0 | | | $ | 3,667.0 | |
| | | |
| LIABILITIES AND EQUITY | | | |
| Current liabilities | | | |
| Short-term borrowings | $ | — | | | $ | 205.8 | |
| Current maturities of long-term debt | 14.2 | | | 10.9 | |
| Accounts payable and accrued liabilities | 276.4 | | | 282.6 | |
| Current operating lease obligations | 25.6 | | | 26.6 | |
| Current liabilities of discontinued operations | 109.9 | | | 164.7 | |
| Total current liabilities | 426.1 | | | 690.6 | |
| Long-term debt | 1,270.8 | | | 1,252.3 | |
| Operating lease obligations | 124.0 | | | 127.6 | |
| Deferred tax liabilities | 144.2 | | | 142.5 | |
| Other long-term liabilities | 64.4 | | | 55.4 | |
| Long-term liabilities of discontinued operations | 52.2 | | | 115.7 | |
| Total liabilities | 2,081.7 | | | 2,384.1 | |
| Commitments and contingencies (Note 19) | | | |
| Equity | | | |
| Common shares, no par value - 159,480,638 (December 31, 2022 - 159,752,299) shares issued | 1,288.6 | | | 1,283.2 | |
| Additional paid-in-capital | 90.6 | | | 91.3 | |
| Retained earnings (accumulated deficit) | 167.2 | | | (9.4) | |
| Accumulated other comprehensive loss | (105.1) | | | (82.2) | |
| Total Primo Water Corporation equity | 1,441.3 | | | 1,282.9 | |
| Total liabilities and equity | $ | 3,523.0 | | | $ | 3,667.0 | |
Approved by the Board of Directors:
/s/
Graham SavageSusan E. Cates
The accompanying notes are an integral part of these consolidated financial statements.
COTT
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions of U.S. dollars)
| | | | | | | | | | | | |
| | | For the Year Ended | |
| | | December 30, | | | December 31, | | | January 2, | |
| | | 2017 | | | 2016 | | | 2016 | |
Cash flows from operating activities of continuing operations: | | | | | | | | | | | | |
Net income (loss) | | $ | 7.1 | | | $ | (71.5 | ) | | $ | 20.6 | |
Net income (loss) from discontinued operations, net of income taxes | | | 10.7 | | | | (11.2 | ) | | | 4.9 | |
| | | | | | | | | | | | |
Net (loss) income from continuing operations | | | (3.6 | ) | | | (60.3 | ) | | | 15.7 | |
Adjustments to reconcile net (loss) income from continuing operations to cash flows provided by operating activities: | | | | | | | | | | | | |
Depreciation & amortization | | | 188.6 | | | | 151.1 | | | | 128.3 | |
Amortization of financing fees | | | 1.9 | | | | 0.5 | | | | — | |
Amortization of senior notes premium | | | (5.1 | ) | | | (5.9 | ) | | | (5.6 | ) |
Share-based compensation expense | | | 17.5 | | | | 7.0 | | | | 7.6 | |
(Benefit) provision for deferred income taxes | | | (33.9 | ) | | | 19.9 | | | | (22.0 | ) |
Unrealized commodity hedging (gain) loss, net | | | (0.3 | ) | | | 9.7 | | | | — | |
Gain on extinguishment of debt, net | | | (1.5 | ) | | | — | | | | — | |
Loss on disposal of property, plant & equipment, net | | | 10.2 | | | | 6.6 | | | | 4.2 | |
Othernon-cash items | | | 1.9 | | | | 9.7 | | | | (9.1 | ) |
Change in operating assets and liabilities, net of acquisitions: | | | | | | | | | | | | |
Accounts receivable | | | (8.0 | ) | | | (3.1 | ) | | | (3.8 | ) |
Inventories | | | (2.0 | ) | | | 12.9 | | | | 1.0 | |
Prepaid expenses and other current assets | | | 0.9 | | | | (4.6 | ) | | | 1.7 | |
Other assets | | | 2.1 | | | | (1.3 | ) | | | (3.3 | ) |
Accounts payable and accrued liabilities and other liabilities | | | 7.3 | | | | 3.3 | | | | 16.4 | |
| | | | | | | | | | | | |
Net cash provided by operating activities from continuing operations | | | 176.0 | | | | 145.5 | | | | 131.1 | |
| | | | | | | | | | | | |
Cash flows from investing activities of continuing operations: | | | | | | | | | | | | |
Acquisitions, net of cash received | | | (35.5 | ) | | | (959.4 | ) | | | (24.0 | ) |
Additions to property, plant & equipment | | | (121.3 | ) | | | (95.1 | ) | | | (69.6 | ) |
Additions to intangible assets | | | (5.6 | ) | | | (4.2 | ) | | | (3.0 | ) |
Proceeds from sale of property, plant & equipment and sale-leaseback | | | 7.8 | | | | 5.7 | | | | 30.0 | |
Other investing activities | | | 1.0 | | | | 0.4 | | | | — | |
| | | | | | | | | | | | |
Net cash used in investing activities from continuing operations | | | (153.6 | ) | | | (1,052.6 | ) | | | (66.6 | ) |
| | | | | | | | | | | | |
Cash flows from financing activities of continuing operations: | | | | | | | | | | | | |
Payments of long-term debt | | | (101.5 | ) | | | (0.5 | ) | | | — | |
Issuance of long-term debt | | | 750.0 | | | | 498.7 | | | | — | |
Premiums and costs paid upon extinguishment of long-term debt | | | (7.7 | ) | | | — | | | | — | |
Issuance of common shares | | | 3.5 | | | | 366.8 | | | | 143.1 | |
Financing fees | | | (11.1 | ) | | | (10.1 | ) | | | — | |
Preferred shares repurchased and cancelled | | | — | | | | — | | | | (148.8 | ) |
Common shares repurchased and cancelled | | | (3.8 | ) | | | (5.7 | ) | | | (0.8 | ) |
Dividends paid to common and preferred shareholders | | | (33.4 | ) | | | (31.4 | ) | | | (31.0 | ) |
Payment of contingent consideration for acquisitions | | | — | | | | (10.8 | ) | | | — | |
Other financing activities | | | 0.5 | | | | 0.1 | | | | — | |
| | | | | | | | | | | | |
Net cash provided by (used in) financing activities from continuing operations | | | 596.5 | | | | 807.1 | | | | (37.5 | ) |
| | | | | | | | | | | | |
Cash flows from discontinued operations: | | | | | | | | | | | | |
Operating activities of discontinued operations | | | 102.7 | | | | 124.3 | | | | 123.5 | |
Investing activities of discontinued operations | | | (44.7 | ) | | | (44.0 | ) | | | (33.1 | ) |
Financing activities of discontinued operations | | | (643.4 | ) | | | 68.6 | | | | (122.6 | ) |
| | | | | | | | | | | | |
Net cash (used in) provided by discontinued operations | | | (585.4 | ) | | | 148.9 | | | | (32.2 | ) |
| | | | | | | | | | | | |
Effect of exchange rate changes on cash | | | 6.3 | | | | (7.9 | ) | | | (3.9 | ) |
| | | | | | | | | | | | |
Net increase (decrease) in cash & cash equivalents and restricted cash | | | 39.8 | | | | 41.0 | | | | (9.1 | ) |
Cash & cash equivalents and restricted cash, beginning of period | | | 118.1 | | | | 77.1 | | | | 86.2 | |
| | | | | | | | | | | | |
Cash & cash equivalents, end of period | | | 157.9 | | | | 118.1 | | | | 77.1 | |
Cash & cash equivalents of discontinued operations, end of period | | | 66.0 | | | | 40.0 | | | | 55.3 | |
| | | | | | | | | | | | |
Cash & cash equivalents from continuing operations, end of period | | $ | 91.9 | | | $ | 78.1 | | | $ | 21.8 | |
| | | | | | | | | | | | |
SupplementalNon-cash Investing and Financing Activities: | | | | | | | | | | | | |
Additions to property, plant & equipment through accounts payable and accrued liabilities and other liabilities | | $ | 10.9 | | | $ | 3.1 | | | $ | 0.7 | |
Accrued deferred financing fees | | | 0.6 | | | | 0.5 | | | | — | |
Dividends payable issued through accounts payable and other accrued liabilities | | | 0.3 | | | | 0.3 | | | | — | |
Supplemental Disclosures of Cash Flow Information: | | | | | | | | | | | | |
Cash paid for interest | | $ | 81.6 | | | $ | 48.5 | | | $ | 34.9 | |
Cash paid for income taxes, net | | | 1.9 | | | | 3.3 | | | | 2.5 | |
| | | | | | | | | | | | | | | | | |
| For the Fiscal Year Ended |
| December 30, 2023 | | December 31, 2022 | | January 1, 2022 |
| Cash flows from operating activities of continuing operations: | | | | | |
| Net income (loss) | $ | 238.1 | | | $ | 29.6 | | | $ | (3.2) | |
| Net income (loss) from discontinued operations, net of income taxes | 174.3 | | | (29.1) | | | (8.1) | |
| Net income from continuing operations | 63.8 | | | 58.7 | | | 4.9 | |
| Adjustments to reconcile net income from continuing operations to cash flows from operating activities: | | | | | |
| Depreciation and amortization | 193.3 | | | 182.0 | | | 160.2 | |
| Amortization of financing fees | 3.4 | | | 3.3 | | | 3.4 | |
| Share-based compensation expense | 14.1 | | | 16.4 | | | 15.5 | |
| Provision for deferred income taxes | 1.5 | | | 17.3 | | | 4.4 | |
| Loss on extinguishment of long-term debt | — | | | — | | | 27.2 | |
| | | | | |
| Impairment charges | — | | | 11.2 | | | — | |
| Loss on disposal of property, plant and equipment, net | 9.1 | | | 7.4 | | | 9.1 | |
| Gain on sale of property | (21.0) | | | (38.8) | | | — | |
| Other non-cash items | 4.1 | | | 6.0 | | | 0.1 | |
| Change in operating assets and liabilities, net of acquisitions: | | | | | |
| Accounts receivable | 15.2 | | | (2.6) | | | (3.8) | |
| Inventories | 7.2 | | | (9.4) | | | (5.1) | |
| Prepaid expenses and other current assets | 3.0 | | | (4.4) | | | (5.4) | |
| Other assets | (0.7) | | | (3.7) | | | — | |
| Accounts payable and accrued liabilities and other liabilities | (3.8) | | | (5.1) | | | 0.8 | |
| Net cash provided by operating activities from continuing operations | 289.2 | | | 238.3 | | | 211.3 | |
| Cash flows from investing activities of continuing operations: | | | | | |
| Acquisitions, net of cash received | (34.6) | | | (10.3) | | | (30.7) | |
| Additions to property, plant and equipment | (139.2) | | | (162.1) | | | (115.2) | |
| Additions to intangible assets | (8.5) | | | (6.7) | | | (6.0) | |
| Proceeds from sale of property, plant and equipment | 0.4 | | | 2.7 | | | 0.8 | |
| | | | | |
| Proceeds from sale of property | 31.0 | | | 50.3 | | | — | |
| Other investing activities | 3.6 | | | (1.0) | | | (0.8) | |
| Net cash used in investing activities from continuing operations | (147.3) | | | (127.1) | | | (151.9) | |
| | | | | | | | | | | | | | | | | |
| Cash flows from financing activities of continuing operations: | | | | | |
| Payments of long-term debt | (11.5) | | | (12.1) | | | (760.4) | |
| Issuance of long-term debt | — | | | — | | | 750.0 | |
| Payments on short-term borrowings | (313.0) | | | (51.0) | | | (28.0) | |
| Proceeds from short-term borrowings | 116.0 | | | 37.0 | | | 134.2 | |
| Premiums and costs paid upon extinguishment of long-term debt | — | | | — | | | (20.6) | |
| Issuance of common shares | 6.1 | | | 2.5 | | | 25.5 | |
| Common shares repurchased and canceled | (26.0) | | | (27.7) | | | (48.1) | |
| Financing fees | — | | | — | | | (11.6) | |
| | | | | |
| Dividends paid to common and preferred shareholders | (51.7) | | | (45.4) | | | (38.9) | |
| Payment of contingent consideration for acquisitions | (1.5) | | | (3.5) | | | (1.8) | |
| Other financing activities | (8.8) | | | 8.8 | | | (4.5) | |
| Net cash used in financing activities from continuing operations | (290.4) | | | (91.4) | | | (4.2) | |
| Cash flows from discontinued operations: | | | | | |
| Operating activities of discontinued operations | 61.1 | | | 43.3 | | | 45.6 | |
| Investing activities of discontinued operations | 488.3 | | | (54.4) | | | (89.0) | |
| Financing activities of discontinued operations | 4.6 | | | (11.4) | | | 3.4 | |
| Net cash provided by (used in) discontinued operations | 554.0 | | | (22.5) | | | (40.0) | |
| Effect of exchange rate changes on cash | 2.4 | | | (3.1) | | | (1.9) | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | 407.9 | | | (5.8) | | | 13.3 | |
| Cash and cash equivalents and restricted cash, beginning of year | 122.6 | | | 128.4 | | | 115.1 | |
| Cash and cash equivalents and restricted cash, end of year | $ | 530.5 | | | $ | 122.6 | | | $ | 128.4 | |
| Cash and cash equivalents and restricted cash of discontinued operations, end of year | 22.6 | | | 43.8 | | | 46.3 | |
| Cash and cash equivalents and restricted cash of continuing operations, end of year | $ | 507.9 | | | $ | 78.8 | | | $ | 82.1 | |
| Supplemental Non-cash Investing and Financing Activities: | | | | | |
| | | | | |
| Additions to property, plant and equipment through accounts payable and accrued liabilities and other liabilities | $ | 21.0 | | | $ | 14.2 | | | $ | 15.7 | |
| | | | | |
| Dividends payable issued through accounts payable and other accrued liabilities | $ | 0.5 | | | $ | 0.6 | | | $ | 0.4 | |
| Inventory transfers to property, plant and equipment | $ | 12.0 | | | $ | — | | | $ | — | |
| Supplemental Disclosures of Cash Flow Information: | | | | | |
| Cash paid for interest | $ | 68.6 | | | $ | 64.9 | | | $ | 70.2 | |
| Cash paid for income taxes, net | $ | 26.8 | | | $ | 1.2 | | | $ | 5.7 | |
The accompanying notes are an integral part of these consolidated financial statements.
COTT
CONSOLIDATED STATEMENTS OF EQUITY
(in millions of U.S. dollars, except share amounts) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Cott Corporation Equity | | | | | | | |
| | | Number of | | | | | | | | | Retained | | | Accumulated | | | | | | | |
| | | Common | | | | | | Additional | | | Earnings | | | Other | | | Non- | | | | |
| | | Shares | | | Common | | | Paid-in- | | | (Accumulated | | | Comprehensive | | | Controlling | | | Total | |
| | | (In thousands) | | | Shares | | | Capital | | | deficit) | | | Loss | | | Interests | | | Equity | |
Balance at January 3, 2015 | | | 93,073 | | | $ | 388.3 | | | $ | 46.6 | | | $ | 158.1 | | | $ | (51.0 | ) | | $ | 6.9 | | | $ | 548.9 | |
Common shares repurchased and cancelled | | | (92 | ) | | | (0.8 | ) | | | — | | | | — | | | | — | | | | — | | | | (0.8 | ) |
Common shares issued - Equity Incentive Plan | | | 488 | | | | 2.5 | | | | (2.0 | ) | | | — | | | | — | | | | — | | | | 0.5 | |
Common shares issued - Equity issuance | | | 16,215 | | | | 144.6 | | | | — | | | | — | | | | — | | | | — | | | | 144.6 | |
Common shares issued - Dividend reinvestment plan | | | 11 | | | | 0.1 | | | | — | | | | — | | | | — | | | | — | | | | 0.1 | |
Share-based compensation | | | — | | | | — | | | | 10.3 | | | | — | | | | — | | | | — | | | | 10.3 | |
Common shares dividend | | | — | | | | — | | | | — | | | | (25.1 | ) | | | — | | | | — | | | | (25.1 | ) |
Redemption of preferred shares | | | — | | | | — | | | | — | | | | (12.0 | ) | | | — | | | | — | | | | (12.0 | ) |
Distributions tonon-controlling interests | | | — | | | | — | | | | — | | | | — | | | | — | | | | (8.5 | ) | | | (8.5 | ) |
Purchase of subsidiary shares fromnon-controlling interest | | | — | | | | — | | | | (3.7 | ) | | | — | | | | 0.7 | | | | 1.8 | | | | (1.2 | ) |
Comprehensive (loss) income | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | (23.3 | ) | | | 0.3 | | | | (23.0 | ) |
Pension benefit plan, net of tax | | | — | | | | — | | | | — | | | | — | | | | 2.3 | | | | — | | | | 2.3 | |
Unrealized loss on derivative instruments, net of tax | | | — | | | | — | | | | — | | | | — | | | | (4.9 | ) | | | — | | | | (4.9 | ) |
Preferred shares dividend | | | — | | | | — | | | | — | | | | (5.9 | ) | | | — | | | | — | | | | (5.9 | ) |
Net income | | | — | | | | — | | | | — | | | | 14.5 | | | | — | | | | 6.1 | | | | 20.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at January 2, 2016 | | | 109,695 | | | $ | 534.7 | | | $ | 51.2 | | | $ | 129.6 | | | $ | (76.2 | ) | | $ | 6.6 | | | $ | 645.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cumulative effect adjustment | | | — | | | | — | | | | — | | | | 2.8 | | | | — | | | | — | | | | 2.8 | |
Common shares repurchased and cancelled | | | (409 | ) | | | (5.7 | ) | | | — | | | | — | | | | — | | | | — | | | | (5.7 | ) |
Common shares issued - Equity Incentive Plan | | | 1,327 | | | | 15.1 | | | | (6.2 | ) | | | — | | | | — | | | | — | | | | 8.9 | |
Common shares issued - Equity issuance | | | 27,853 | | | | 363.6 | | | | — | | | | — | | | | — | | | | — | | | | 363.6 | |
Common shares issued - Dividend Reinvestment Plan | | | 23 | | | | 0.3 | | | | — | | | | — | | | | — | | | | — | | | | 0.3 | |
Common shares issued - Employee Stock Purchase Plan | | | 102 | | | | 1.3 | | | | (0.2 | ) | | | — | | | | — | | | | — | | | | 1.1 | |
Share-based compensation | | | — | | | | — | | | | 9.4 | | | | — | | | | — | | | | — | | | | 9.4 | |
Common shares dividend | | | — | | | | — | | | | — | | | | (31.7 | ) | | | — | | | | — | | | | (31.7 | ) |
Distributions tonon-controlling interests | | | — | | | | — | | | | — | | | | — | | | | — | | | | (7.6 | ) | | | (7.6 | ) |
Comprehensive (loss) income | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | (42.0 | ) | | | — | | | | (42.0 | ) |
Pension benefit plan, net of tax | | | — | | | | — | | | | — | | | | — | | | | (4.3 | ) | | | — | | | | (4.3 | ) |
Unrealized gain on derivative instruments, net of tax | | | — | | | | — | | | | — | | | | — | | | | 4.6 | | | | — | | | | 4.6 | |
Net (loss) income | | | — | | | | — | | | | — | | | | (77.8 | ) | | | — | | | | 6.3 | | | | (71.5 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2016 | | | 138,591 | | | $ | 909.3 | | | $ | 54.2 | | | $ | 22.9 | | | $ | (117.9 | ) | | $ | 5.3 | | | $ | 873.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Common shares repurchased and cancelled | | | (277 | ) | | | (3.8 | ) | | | — | | | | — | | | | — | | | | — | | | | (3.8 | ) |
Common shares issued - Equity Incentive Plan | | | 1,004 | | | | 9.4 | | | | (7.7 | ) | | | — | | | | — | | | | — | | | | 1.7 | |
Common shares issued - Dividend Reinvestment Plan | | | 34 | | | | 0.5 | | | | — | | | | — | | | | — | | | | — | | | | 0.5 | |
Common shares issued - Employee Stock Purchase Plan | | | 137 | | | | 1.7 | | | | (0.3 | ) | | | — | | | | — | | | | — | | | | 1.4 | |
Share-based compensation | | | — | | | | — | | | | 22.9 | | | | — | | | | — | | | | — | | | | 22.9 | |
Common shares dividends | | | — | | | | — | | | | — | | | | (33.7 | ) | | | — | | | | — | | | | (33.7 | ) |
Distributions tonon-controlling interests | | | — | | | | — | | | | — | | | | — | | | | — | | | | (7.7 | ) | | | (7.7 | ) |
Comprehensive income (loss) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | 27.2 | | | | — | | | | 27.2 | |
Pension benefit plan, net of tax | | | — | | | | — | | | | — | | | | — | | | | (2.4 | ) | | | — | | | | (2.4 | ) |
Unrealized loss on derivative instruments, net of tax | | | — | | | | — | | | | — | | | | — | | | | (1.3 | ) | | | — | | | | (1.3 | ) |
Net income | | | — | | | | — | | | | — | | | | (1.4 | ) | | | — | | | | 8.5 | | | | 7.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 30, 2017 | | | 139,489 | | | $ | 917.1 | | | $ | 69.1 | | | $ | (12.2 | ) | | $ | (94.4 | ) | | $ | 6.1 | | | $ | 885.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| Number of Common Shares (In thousands) | | Common Shares | | Additional Paid-in-Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Loss | | | | Total Equity |
| Balance as of January 2, 2021 | 160,406 | | | $ | 1,268.0 | | | $ | 84.5 | | | $ | 81.1 | | | $ | (86.7) | | | | | $ | 1,346.9 | |
| | | | | | | | | | | | | |
| Net loss | — | | | — | | | — | | | (3.2) | | | — | | | | | (3.2) | |
| Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | 17.6 | | | | | 17.6 | |
| Common shares dividends ($0.24 per common share) | — | | | — | | | — | | | (39.0) | | | — | | | | | (39.0) | |
| Share-based compensation | — | | | — | | | 17.5 | | | — | | | — | | | | | 17.5 | |
| | | | | | | | | | | | | |
| Common shares repurchased and canceled | (2,910) | | | (25.6) | | | — | | | (22.5) | | | — | | | | | (48.1) | |
| Common shares issued - Equity Incentive Plan | 3,124 | | | 42.6 | | | (15.8) | | | — | | | — | | | | | 26.8 | |
| Common shares issued - Dividend Reinvestment Plan | 1 | | | — | | | — | | | — | | | — | | | | | — | |
| Common shares issued - Employee Stock Purchase Plan | 111 | | | 1.9 | | | (0.3) | | | — | | | — | | | | | 1.6 | |
| Balance as of January 1, 2022 | 160,732 | | | $ | 1,286.9 | | | $ | 85.9 | | | $ | 16.4 | | | $ | (69.1) | | | | | $ | 1,320.1 | |
| Net income | — | | | — | | | — | | | 29.6 | | | — | | | | | 29.6 | |
| Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | (13.1) | | | | | (13.1) | |
| Common shares dividends ($0.28 per common share) | — | | | — | | | — | | | (45.7) | | | — | | | | | (45.7) | |
| Share-based compensation | — | | | — | | | 17.2 | | | — | | | — | | | | | 17.2 | |
| Common shares repurchased and canceled | (2,013) | | | (18.0) | | | — | | | (9.7) | | | — | | | | | (27.7) | |
| Common shares issued - Equity Incentive Plan | 906 | | | 12.4 | | | (11.5) | | | — | | | — | | | | | 0.9 | |
| Common shares issued - Dividend Reinvestment Plan | 1 | | | — | | | — | | | — | | | — | | | | | — | |
| Common shares issued - Employee Stock Purchase Plan | 126 | | | 1.9 | | | (0.3) | | | — | | | — | | | | | 1.6 | |
| Balance as of December 31, 2022 | 159,752 | | | $ | 1,283.2 | | | $ | 91.3 | | | $ | (9.4) | | | $ | (82.2) | | | | | $ | 1,282.9 | |
| Net income | — | | | — | | | — | | | 238.1 | | | — | | | | | 238.1 | |
| Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | (22.9) | | | | | (22.9) | |
| Common shares dividends ($0.32 per common share) | — | | | — | | | — | | | (51.8) | | | — | | | | | (51.8) | |
| Share-based compensation | — | | | — | | | 14.9 | | | — | | | — | | | | | 14.9 | |
| Common shares repurchased and canceled | (1,711) | | | (16.3) | | | — | | | (9.7) | | | — | | | | | (26.0) | |
| Common shares issued - Equity Incentive Plan | 1,314 | | | 20.0 | | | (15.4) | | | — | | | — | | | | | 4.6 | |
| Common shares issued - Dividend Reinvestment Plan | 2 | | | — | | | — | | | — | | | — | | | | | — | |
| Common shares issued - Employee Stock Purchase Plan | 124 | | | 1.7 | | | (0.2) | | | — | | | — | | | | | 1.5 | |
| Balance as of December 30, 2023 | 159,481 | | | $ | 1,288.6 | | | $ | 90.6 | | | $ | 167.2 | | | $ | (105.1) | | | | | $ | 1,441.3 | |
The accompanying notes are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements
On March 2, 2020, Cott Corporation completed the acquisition of Primo Water Corporation (“Legacy Primo” and such transaction, the “Legacy Primo Acquisition”). In connection with the closing of the Legacy Primo Acquisition, Cott Corporation changed its corporate name to Primo Water Corporation (“Primo”) and its ticker symbol on the New York Stock Exchange and Toronto Stock Exchange to “PRMW”. The Legacy Primo Acquisition is consistent with our strategy of transitioning to a pure-play water solutions provider. As used herein, “Cott,“Primo,” “the Company,” “our Company,” “Cott“Primo Water Corporation,” “we,” “us,” or “our” refers to CottPrimo Water Corporation, together with its consolidated subsidiaries. Cott
Primo is a route based service company withleading North America-focused pure-play water solutions provider that operates largely under a leading volume-based national presencerecurring revenue model in the large format water category (defined as 3 gallons or greater). This business strategy is commonly referred to as “razor-razorblade” because the initial sale of a product creates a base of users who frequently purchase complementary consumable products. The razor in Primo’s revenue model is its industry leading line-up of innovative water dispensers, which are sold through approximately 10,900 retail locations and online at various price points. The dispensers help increase household and business penetration which drives recurring purchases of Primo’s razorblade offering or water solutions. Primo’s razorblade offering is comprised of Water Direct, Water Exchange, and Water Refill. Through its Water Direct business, Primo delivers sustainable hydration solutions direct to customers, whether at home or to businesses. Through its Water Exchange business, customers visit retail locations and purchase a pre-filled bottle of water. Once consumed, empty bottles are exchanged at our recycling center displays, which provide a ticket that offers a discount toward the purchase of a new bottle. Water Exchange is available in approximately 17,500 retail locations. Through its Water Refill business, customers refill empty bottles at approximately 23,500 self-service refill drinking water stations. Primo also offers water filtration units across North America.
Primo’s water solutions expand consumer access to purified, spring and mineral water to promote a healthier, more sustainable lifestyle while simultaneously reducing plastic waste and pollution. Primo is committed to its water stewardship standards and is proud to partner with the International Bottled Water Association in North America
which ensures strict adherence to safety, quality, sanitation and
European home and office delivery (“HOD”) industry for bottled water and a leader in custom coffee roasting, blending of iced tea and extract solutionsregulatory standards for the
benefit of consumer protection. Environmental stewardship is a part of who we are, and we have worked to progressively achieve carbon neutrality throughout our organization. Our U.S.
foodservice industry. Our platform reaches over 2.4 million customers or delivery points acrossoperations achieved carbon neutral certification in 2020 under the Carbon Neutral Protocol, an international standard administered by Climate Impact Partners. In 2021, Primo announced its planned exit from the North
America and Europe supported by strategically located sales and distribution facilities and fleets, as well as wholesalers and distributors.American small-format retail water business. This
enables us to efficiently service residences, businesses, restaurant chains, hotels and motels,business was relatively small and
large retailers, and healthcare facilities.used predominantly single-use plastic bottles. The exit from this category reduced single-use retail water bottles from our production environment by more than 400 million, annually, while also improving overall margins. The exit was completed during the second quarter of 2022.
Note 1—Summary of Significant Accounting Policies
Basis of
presentationPresentation
These Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) using the U.S. dollar as the reporting currency, as the majority of our business and the majority of our
shareownersshareholders are in the United States.
At
Our fiscal year is based on either a 52- or 53-week period ending on the
beginning of 2017, our business operated through four reporting segments, Water and Coffee Solutions (which included our DS Services of America, Inc. (“DSS”), Aquaterra Corporation (“Aquaterra”), Eden Springs Europe B.V. (“Eden”) and S. & D. Coffee, Inc. (“S&D”) businesses), Cott North America, Cott United Kingdom (“Cott U.K.”) and All Other (which included our Mexico and Royal Crown International (“RCI”) operating segments).DuringSaturday closest to December 31. For the third quarter of 2017, we reviewed our reporting segments as a result of the Transaction (as defined below). Following such review, we reorganized our reporting segments into three reporting segments: Route Based Services (which includes our DSS, Aquaterra and Eden businesses), Coffee, Tea and Extract Solutions (which includes our S&D business) and All Other (which includes our Aimia Foods (“Aimia”) and Decantae Mineral Water Ltd. (“Decantae”) business, our RCI concentrate business, our Columbus, Georgia manufacturing facility and other miscellaneous expenses). Segment reporting results have been recast to reflect these changes for all periods presented. Our corporate oversight function is not treated as a segment; it includes certain general and administrative costs that are not allocated to any of the reporting segments.
For thefiscal years ended December 30, 2017,2023, December 31, 20162022 and January 2, 2016,1, 2022, we had 52 weeks of activity. For the year ended January 2, 2016, we had four additional shipping days in our Route Based Services reporting segment, which we estimate contributed $12.5 million of additional revenue and $0.1 million of additional operating income for the year ended January 2, 2016.
Basis of
consolidationConsolidation
The Consolidated Financial Statements include our accounts, our wholly-owned and majority-owned subsidiaries
and joint ventures that we control. All intercompany transactions and accounts have been eliminated in consolidation.
On
July 24, 2017, weNovember 2, 2023, Primo and Osmosis Buyer Limited, a company incorporated in England and a subsidiary of the Culligan Group (“Purchaser”), entered into a Share Purchase Agreement
with Refresco Group N.V., a Dutch public company (“Refresco”), pursuant to which we sold to Refresco, on January 30, 2018, our carbonated soft drinks (“CSDs”(the “Purchase Agreement”)
and juice businesses viaproviding for the sale of
our North America, United Kingdom (“U.K.”)Carbon Luxembourg S.à.r.l. and
Mexico business units (including the Canadian business) and our RCI finished goods export business (collectively, “Traditional Business” and such transaction, the “Transaction”certain of its subsidiaries (the "European Business").
The Transaction was structured as a sale of the assets of our Canadian business and a sale of the stock of the operating subsidiaries engaged in the Traditional Business in the other jurisdictions after weOn December 29, 2023, Primo completed
an internal reorganization. The aggregate deal consideration was $1.25 billion, paid at closing in cash, subject to adjustment for indebtedness, working capital, and other customary post-closing adjustments. Accordingly, as a result of the sale of the
TraditionalEuropean Business
for aggregate deal consideration of $575.0 million, adjusted for customary purchase price adjustments resulting in total cash consideration of $565.9 million (the “European Divestiture”). The European Divestiture did not include Primo's interests in Aimia Foods Limited (“Aimia”), Decantae Mineral Water Limited (“Decantae”), Fonthill Waters Ltd (“Fonthill”), John Farrer & Company Limited (“Farrers”), the portions of the Eden Springs Netherlands B.V. business located in the United Kingdom, Israel, and Portugal (collectively the "Remaining International Businesses"). The European Business and the Remaining International Businesses are collectively the "International Businesses." This deal is the first of several transactions that will occur in 2024 as part of a Board-approved plan to sell all of our international businesses representing a strategic shift
and having a major effect onin our
operations,operations. Accordingly, the
Traditional Business isInternational Businesses are presented herein as discontinued operations.
The Traditional Business excludes our Route Based Services and Coffee, Tea and Extract Solutions reporting segments, our Aimia, Decantae and RCI concentrate businesses and our Columbus, Georgia manufacturing facility.
For all periods presented, the operating results associated with the
Traditional BusinessInternational Businesses have been reclassified into net income (loss) from discontinued operations, net of income taxes in the Consolidated Statements of Operations and the assets and liabilities associated with this business have been reflected as current and long-term assets and liabilities of discontinued operations in the Consolidated Balance Sheets. Cash flows from the Company’s discontinued operations are presented in the Consolidated Statements of Cash Flows for all periods presented. The Notes to Consolidated Financial Statements are presented on a continuing operations basis unless otherwise noted.
In See Note 2 to the Form10-QConsolidated Financial Statements for additional information on discontinued operations.
Changes in Presentation
At the three and nine months ended September 30, 2017, the Company originally reported the $525.0 millionbeginning of 5.375% senior notes due 2022 (the “2022 Notes”2023, our business operated through two reporting segments: (i) North America, which included our DS Services of America, Inc. (“DSS”), the $625.0 million of 6.75% senior notes due 2020 (the “2020 Notes”Aquaterra Corporation (“Aquaterra”), the asset-based lending facility (the “ABL facility”Mountain Valley Spring Company (“Mountain Valley”) and certainthe businesses associated with the acquisition of Primo Water Corporation ("Legacy Primo"), and (ii) Europe, which included the European business of Eden Springs Netherlands B.V. (“Eden Europe”), and our Decantae and Fonthill businesses. The Other category included the Israel business of Eden ("Eden Israel"), and our Aimia and Farrers businesses, as well as our corporate oversight function and other debt as liabilitiesmiscellaneous expenses.
During the fourth quarter of
2023, we reviewed and realigned our reporting segments to exclude the businesses within discontinued
operations. However, since Refresco did not assumeoperations which reflects how the
debt upon closingbusiness will be managed and results will be evaluated by the Chief Executive Officer, who is the Company’s chief operating decision maker. Following such review, our one reporting segment is North America, which includes our DSS, Aquaterra, Mountain Valley and Legacy Primo businesses. The Other category includes our corporate oversight function and other miscellaneous expenses and the results of our business in Russia prior to the exit of the
salebusiness during the third quarter of
the Traditional Business, these items should not2022. Segment reporting results have been
classified as discontinued operations. Management has evaluated this misclassification and determined the amounts are not materialrecast to
the previously issued financial statements. The 2022 Notes, the 2020 Notes, and certain other debt are presented as “Debt required to be repaid or extinguished as part of divestiture” and the ABL facility is presented as “Short-term borrowings required to be repaid or extinguished as part of divestiture” on the accompanying Consolidated Balance Sheets.reflect these changes for all periods presented.
The preparation of these Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amount of revenue and expenses during the reporting period. Actual results could differ from those estimates. The Consolidated Financial Statements include estimates and assumptions that, in the opinion of management, were significant to the underlying amounts representing the future valuation of intangible assets, long-lived assets and goodwill,
insurance reserves, realization of deferred income tax assets,
and the resolution of tax
contingencies and projected benefit plan obligations.contingencies.
Revenue
recognitionRecognition
We recognize revenue, net of sales returns, when ownership passes to customers for products manufactured in our own plants and/or by third-parties on our behalf, and when prices to our customers are fixed or determinable and collection is reasonably assured. This may be upon shipment of goods or upon delivery to the customer, depending on contractual terms. Shipping and handling costs paid by the customer to us are included in revenue. Although we occasionally accept returns of products from our customers, historically returns have not been material.
We also recognize rental income on filtration, brewers and dispensing equipment at customer locations based on the terms of the related rental agreements, which are generally measured based on
28-day periods. Amounts billed to customers for rental in future periods are deferred and included in
accountsAccounts payable and accrued liabilities on the Consolidated Balance Sheets.
Sales
incentivesIncentives
We participate in various incentive programs with our customers, including volume-based incentives, contractual rebates and promotional allowances. Volume incentives are based on our customers achieving volume targets for a period of time. Volume incentives and contractual rebates are deducted from revenue and accrued as the incentives are earned and are based on management’s estimate of the total the customer is expected to earn and claim. Promotional allowances are accrued at the time of revenue recognition and are deducted from revenue based on either the volume shipped or the volume sold at the retailer location, depending on the terms of the allowance. We regularly review customer sales forecasts to ensure volume targets will be met and adjust incentive accruals and revenues accordingly.
We record costs associated with the manufacturing of our products in Cost of sales in the Consolidated Statements of Operations. Finished goods inventory costs include the cost of sales. direct labor and materials and the applicable share of overhead expense chargeable to production.
Shipping and handling costs incurred to store, prepare and move products between production facilities or from production facilities to branch locations or storage facilities are recorded in cost of sales. Shipping and handling costs incurred to deliver products from our Route Based Services and Coffee, Tea and Extract SolutionsNorth America reporting segment branch locations to theend-user consumer of those products are recorded in selling,Selling, general and administrative (“SG&A”) expenses. All otherexpenses in the Consolidated Statements of Operations. Shipping and handling costs included in SG&A were $456.5 million, $426.1 million, and $366.3 million for the fiscal years ended December 30, 2023, December 31, 2022, and January 1, 2022, respectively.
Other costs incurred in shipment of products from our production facilities to customer locations are reflected in costCost of sales. Shippingsales in the Consolidated Statements of Operations.
Selling, General and
handling costs included in SG&A were $440.8 million, $360.4 million, and $281.9 million for the years ended December 30, 2017, December 31, 2016, and January 2, 2016, respectively. Finished goods inventory costs include the cost of direct labor and materials and the applicable share of overhead expense chargeable to production.Selling, general and administrative expenses
Administrative Expenses
We record all other expenses not charged to production as SG&A expenses.
Advertising costs are expensed at the commencement of an advertising campaign and are recognized as a component of SG&A
expenses. Advertising costs are not significant to any reporting segment other than Route Based Services.expenses in the Consolidated Statements of Operations. Advertising costs expensed were approximately
$21.6$15.8 million,
$20.8$15.6 million, and
$18.0$14.1 million for the
fiscal years ended December 30,
2017,2023, December 31,
2016,2022, and January
2, 2016,1, 2022, respectively.
Share-based compensation
Share-Based Compensation
We have in effect equity incentive plans under which Time-based RSUs, Performance-based RSUs,non-qualified stock options and director share awards have been granted (as such terms are defined in Note 78 of the Consolidated Financial Statements). Share-based compensation expense for all share-based compensation awards is based on the grant-date fair value. We recognizedrecognize these compensation costs on a straight-line basis over the requisite service period of the award, which is generally the vesting term of two to three years, and account for forfeitures when they occur.
The fair value of the Company’s Time-based RSUs, certain Performance-based RSUs and director share awards are based on the closing market price of its common shares on the date of grant as stated on the NYSE. We estimate the fair value ofnon-qualified options as of the date of grant using the Black-Scholes option pricing model. This model considers, among other factors, the expected life of the award, the expected volatility of the Company’s share price, and expected dividends. We estimate the fair value of certain Performance-based RSUs that vest, in part, based on the achievement of our total shareholder return (”TSR”) relative to the TSR attained by companies within our defined peer group (“Relative TSR”) as of grant using the Monte Carlo Simulation model. This model considers, among other factors, the expected life of the award, the expected volatility of the Company’s share price, a risk-free interest rate and expected dividends.
The Company records share-based compensation expense in SG&A
expenses.expenses in the Consolidated Statements of Operations.
All excess tax benefits and tax deficiencies related to share-based compensation are recognized in results of operations at settlement or expiration of the award. The excess tax benefit or deficiency is calculated as the difference between the grant date price and the price of our common shares on the vesting or exercise date.
Cash and
cash equivalentsCash Equivalents
Cash and cash equivalents include all highly liquid investments with original maturities not exceeding three months at the time of purchase. The fair values of our cash and cash equivalents approximate the amounts shown on our Consolidated Balance Sheets due to their short-term nature.
Accounts Receivable, Net of Allowance for
doubtful accountsA portion of ourCredit Losses
All trade accounts receivable
isare uncollected amounts owed to us from transactions with our customers. Trade accounts receivable represent amounts billed to customers and not
expected to beyet collected,
due tonon-payment, bankruptcies and
deductions. Our accounting policy for theare presented net of allowance for
doubtful accounts requires us to reservecredit losses. We estimate an
amountallowance for credit losses based on
the evaluation of the aging of accounts receivable, detailed analysis of high-risk customers’ accounts,historical loss experience, adverse situations that may affect a customer's ability to pay, current conditions, reasonable and
the overall marketsupportable forecasts and
current economic
conditions of our customers. This evaluation considers the customeroutlook. Customer demographic, such as large
retailerscommercial customers as compared to small businesses or individual
customers. We consider our accounts receivable delinquent or past duecustomers, and the customer's geographic market are also considered when estimating credit losses. Historical loss experience was based on
payment terms established with each customer. Accounts receivableactual loss rates over a one year period. Additionally, we evaluate current conditions and review third-party economic forecasts on a quarterly basis to determine the impact on the allowance for credit losses. The assumptions used in determining an estimate of credit losses are
written off when the account is determined to be uncollectible.inherently subjective and actual results may differ significantly from estimated reserves.
Inventories are stated at the lower of cost, determined on the
first-in,first-out method,
or net realizable value. Returnable bottles are valued at the lower of cost, deposit value or net realizable value. Finished goods and
work-in-process include the inventory costs of raw materials, direct labor and manufacturing overhead costs. As a result, we use an inventory reserve to adjust our inventory costs down to a net realizable value and to reserve for estimated obsolescence of both raw materials and finished goods.
Customer
depositsDeposits
The Company generally collects deposits on
three- and five-gallonmulti-gallon bottles used by
its HODour water delivery customers. Such deposits are refunded only after customers return such bottles in satisfactory condition. The associated bottle deposit liability is estimated based on the number of water customers, average consumption and return rates and bottle deposit market rates. The Company analyzes these assumptions quarterly and adjusts the bottle deposit liability as necessary.
Property, Plant and Equipment, Net
Property, plant and equipment,
Property, plant and equipment net are stated at cost less accumulated depreciation. Depreciation is allocated between costCost of sales and SG&A expenses in the Consolidated Statement of Operations and is determined using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized using the straight-line method over the remaining life of the lease or useful life of the asset, whichever is shorter. Maintenance and repairs are charged to operating expense when incurred.
Leases
We have operating and finance leases for manufacturing and production facilities, branch distribution and warehouse facilities, vehicles and machinery and equipment. At inception, we determine whether an agreement represents a lease and, at commencement, we evaluate each lease agreement to determine whether the lease constitutes an operating or financing lease. Some of our lease agreements have renewal options, tenant improvement allowances, rent holidays and rent escalation clauses.
Right-of-use lease assets represent our right to use the underlying asset for the lease term, and the operating lease obligation represents our commitment to make the lease payments arising from the lease. We have elected not to recognize on the balance sheet leases with terms of one-year or less. We have also elected not to separate lease components from non-lease components for all fixed payments. Lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, we utilize the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received. The lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectations regarding the terms.
Goodwill represents the excess purchase price of acquired businesses over the fair value of the net assets acquired. Goodwill is not amortized, but instead is tested for impairment at least annually.
Prior period amounts have been recast to reflect the changes disclosed in the "Changes in Presentation" section of Note 1 to the Consolidated Financial Statements above.
The following table summarizes
our goodwill
on a reporting segment basis as of December 30,
20172023 and December 31,
2016: | | | | | | | | | | | | | | | | | | | | |
| | | Reporting Segment | | | | |
| | | Route | | | Coffee, Tea | | | | | | | |
| | | Based | | | and Extract | | | | | | | |
(in millions of U.S. dollars) | | Services | | | Solutions | | | All Other | | | Total | |
Balance January 2, 2016 | | $ | 579.1 | | | $ | | | | | — | | | $ | 52.6 | | | $ | 631.7 | |
Goodwill acquired during the year | | | 322.0 | | | | | | | | 117.1 | | | | — | | | | 439.1 | |
Foreign exchange | | | (14.6 | ) | | | | | | | — | | | | (7.9 | ) | | | (22.5 | ) |
| | | | | | | | | | | | | | | | | | | | |
Balance December 31, 2016 | | $ | 886.5 | | | | | | | $ | 117.1 | | | $ | 44.7 | | | $ | 1,048.3 | |
Goodwill acquired during the year | | | 8.5 | | | | | | | | | | | | 1.3 | | | | 9.8 | |
Adjustments1 | | | 0.1 | | | | | | | | 0.7 | | | | — | | | | 0.8 | |
Foreign exchange | | | 41.6 | | | | | | | | — | | | | 4.2 | | | | 45.8 | |
| | | | | | | | | | | | | | | | | | | | |
Balance December 30, 2017 | | $ | 936.7 | | | | | | | $ | 117.8 | | | $ | 50.2 | | | $ | 1,104.7 | |
| | | | | | | | | | | | | | | | | | | | |
1. | For the year ended December 30, 2017, we recorded adjustments to goodwill allocated to the Route Based Services and the Coffee, Tea and Extract Solutions segments in connection with the acquisitions of Eden and S&D (see Note 3 to the Consolidated Financial Statements). |
Cott2022:
| | | | | | | | | | | | | | | | | |
| (in millions of U.S. dollars) | North America | | Other | | Total |
| Goodwill as of January 1, 2022 | $ | 994.1 | | | $ | — | | | $ | 994.1 | |
| Goodwill acquired during the year | 4.4 | | | — | | | 4.4 | |
| Measurement period adjustments | 1.1 | | | — | | | 1.1 | |
| | | | | |
| | | | | |
| Foreign exchange | (2.4) | | | — | | | (2.4) | |
| Goodwill as of December 31, 2022 | $ | 997.2 | | | $ | — | | | $ | 997.2 | |
| Goodwill acquired during the year | 4.3 | | | 2.1 | | | 6.4 | |
| Measurement period adjustments | (0.1) | | | — | | | (0.1) | |
| | | | | |
| | | | | |
| Foreign exchange | 1.0 | | | 0.1 | | | 1.1 | |
| Goodwill as of December 30, 2023 | $ | 1,002.4 | | | $ | 2.2 | | | $ | 1,004.6 | |
The Company operates through fiveits North America operating segments: Route Based Services, Coffee, Tea and Extract Solutions, Aimia, RCI and Decantae. Route Based Services, Coffee, Tea and Extract Solutions aresegment, which is also its sole reportable segments and Aimia, RCI and Decantae are combined and disclosed in the All Other category. segment.
We test goodwill for impairment at least annually on the first day of the fourth quarter, based on our reporting unit carrying values, calculated as total assets lessnon-interest bearing liabilities, as of the end of the third quarter, or more frequently if we determine a triggering event has occurred during the year. Any impairment loss is recognized in our results of operations.
We evaluate goodwill for impairment on a reporting unit basis, which is an operating segment or a level below an operating segment, referred to as a component. A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and management regularly reviews the operating results of that component. However, two or more components of an operating segment
arecan be aggregated and deemed a single reporting unit if the components have similar economic characteristics. Our
Route Based ServicesNorth America operating segment was determined to have three
components,components: DSS, Aquaterra, and
Eden.Mountain Valley. We have determined that DSS and Aquaterra have similar economic characteristics and have aggregated them as a single reporting unit for the purpose of testing goodwill for impairment (“DSSAqua”).
ForTherefore, for the purpose of testing goodwill for impairment
in 2017,for the fiscal year ended December 30, 2023, we have determined our reporting units are DSSAqua
Eden, S&D, Aimia, RCI and
Decantae. DSSAqua and Eden are components of the Route Based Services operating segment. S&D is a component of the Coffee, Tea and Extract Solutions operating segment.Mountain Valley.
We had goodwill of
$1,104.7$1,004.6 million on our Consolidated Balance Sheet
atas of December 30,
2017,2023, which represents amounts for the DSSAqua
Eden, S&D, Aimia, RCI and
Decantae reporting units.In the fourth quarter of 2017, the Company early adopted Accounting Standard Update (“ASU”)2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” as part of the annual goodwill impairment testing. We have the option of performing a qualitative assessment to determine whether any further quantitative testing for a potential impairment is necessary. Our qualitative assessment will use judgments including, but not limited to, changes in the general economic environment, industry considerations, current economic performance compared to historical economic performance, entity-specific events and events affecting ourMountain Valley reporting units, where applicable. If we elect to bypass the qualitative assessment or if we determine, based uponas well as goodwill within our assessment of those qualitative factors that it is more likely than not that the fair value of the reporting unit is less than its net carrying value, a quantitative assessment is required. Quantitative testing requires the fair value of the reporting unit to be compared with its carrying value. If the reporting unit’s carrying value exceeds its fair value, an impairment charge is recognized for the difference.
Other category.
For purposes of the
2017 annual test
for the fiscal year ended December 30, 2023, we elected to perform a qualitative assessment for
our RCI and Decantaeall reporting units to assess whether it was more likely than not that the fair value of these reporting units exceeded their respective carrying values. In performing these assessments, management relied on a number of factors including, but not limited to, macroeconomic conditions, industry and market considerations, cost factors that would have a negative effect on earnings and cash flows, overall financial performance compared with forecasted projections in prior periods, and other relevant reporting unit events, the impact of which are all significant judgments and estimates. Based on these factors, management concluded that it was more likely than not that the fair values of
the RCI and Decantae reporting units were greater than their respective carrying amount, including goodwill, indicating no impairment. Goodwill allocated to the RCI and Decantae reporting units as of December 30, 2017 is $4.5 million and $1.7 million, respectively.For the DSSAqua, Eden, S&D and Aimia reporting units, we elected to bypass the qualitative assessment and performed a quantitative analysis due to a decline in 2017 actual versus projected operating results for DSSAqua and Aimia, and to establish a baseline reference for Eden and S&D as 2017 was the first full year of operations for these businesses. We determined the fair value of each reporting unit being evaluated using a mix of the income approach (which is based on the discounted cash flows of the reporting unit) and the guideline public company approach. We weighted the income approach and the guideline public company approach at 50% each to determine the fair value of each reporting unit. We believe using a combination of these approaches provides a more accurate valuation because it incorporates the expected cash generation of the Company in addition to how a third-party market participant would value the reporting unit. As the business is assumed to continue in perpetuity, the discounted future cash flows includes a terminal value. Critical assumptions used in our 2017 valuation of the reporting units include the weighted-average terminal growth rates of 2.5%, 1.5%, 2.5% and 2.0% and discount rates of 8.0%, 9.0%, 8.5% and 11.0% for our DSSAqua, Eden, S&D and Aimia reporting units, respectively. The terminal growth rate assumption incorporated into the discounted cash flow calculation reflects our long-term view of the market and industry, projected changes in the sale of our products, pricing of such products and operating profit margins. The discount rate was determined using various factors and sensitive assumptions, including bond yields, size premiums and tax rates. This rate was based on the weighted average cost of capital a market participant would use if evaluating the reporting unit as an investment. These assumptions are considered significant unobservable inputs and represent our best estimate of assumptions that market participants would use to determine the fair value of the respective reporting units. The key inputs into the discounted cash flow analysis were consistent with market data, where available, indicating that the assumptions used were in a reasonable range of observable market data.
Based on the quantitative assessment including consideration of the sensitivity of the assumptions made and methods used to determine fair value, industry trends and other relevant factors, we noted that the estimated fair values of DSSAqua, Eden, S&D and Aimia reporting units exceeded their carrying values by approximately 42.5%, 17.4%, 25.9% and 19.2%, respectively. Therefore no goodwill impairment charges were recorded in the fourth quarter ended December 30, 2017. Goodwill allocated to the DSSAqua, Eden, S&D and Aimia reporting units as of December 30, 2017 are $612.0 million, $324.7 million, $117.8 million and $44.0 million, respectively.
In addition, we note that goodwill held by reporting units in our Traditional Business totaled $136.8 million at December 30, 2017 and is included in long-term assets of discontinued operations on the Consolidated Balance Sheet. We elected to perform a qualitative assessment for our Traditional Business reporting units to assess whether it was more likely than not that the fair value of these reporting units exceeded their respective carrying values. In performing these assessments, management relied on a number of factors including, but not limited to, macroeconomic conditions, industry and market considerations, cost factors that would have a negative effect on earnings and cash flows, overall financial performance compared with forecasted projections in prior periods, the aggregate deal consideration of $1.25 billion for the sale of the Traditional Business and other relevant reporting unit events, all of which require the use of significant judgments and estimates. Based on these factors, management concluded that it was more likely than not that the fair values of the Traditional Business reporting units were greater than their respective carrying amounts, including goodwill, indicating no impairment.
impairment during the fiscal year ended December 30, 2023. As of December 30, 2023, goodwill allocated to the DSSAqua and Mountain Valley reporting units was $986.4 million and $16.0 million, respectively.
Each year during the fourth quarter, we
re-evaluate the assumptions used in our assessments, such as revenue growth rates,
operating profit marginsSG&A expenses, capital expenditures and discount rates, to reflect any significant changes in the business environment that could materially affect the fair value of our reporting units. Based on the evaluations performed in
2017,2023, we determined that the fair value of each of our reporting units exceeded their carrying amounts.
There are inherent uncertainties related to each of the above listed assumptions, and our judgment in applying them. Changes in the assumptions used in our qualitative assessment could result in impairment charges that could be material to our Consolidated Financial Statements in any given period.
Refer to Note 2 to the Consolidated Financial Statements for discussion regarding goodwill for the discontinued operations entities.
Intangible
assetsAssets, Net
As of December 30,
2017,2023, our intangible assets subject to amortization, net of accumulated amortization, were
$462.5$333.0 million, consisting principally of
$428.7$310.7 million of customer relationships that arose from acquisitions,
$15.8$13.8 million of software, and
$14.2$5.9 million of patents. Customer relationships are typically amortized
on an accelerated basis forover the period
overfor which we expect to receive the economic benefits.
With the S&D Acquisition, Eden Acquisition, and Aquaterra Acquisition, theThe customer relationship intangible assets acquired
customer relationshipsin our acquisitions are amortized over the expected remaining useful life of those relationships on a basis that reflects the pattern of realization of the estimated undiscounted
after-tax cash flows. We review the estimated useful life of these intangible assets annually, unless a review is required more frequently due
to a triggering event, such as a loss of a significant customer. Our review of the estimated useful life takes into consideration the specific net cash flows related to the intangible asset. The permanent loss of, or significant decline in sales to customers included in the intangible asset would result in either an impairment in the value of the intangible asset or an accelerated amortization of any remaining value and could lead to an impairment of the fixed assets that were used to service that customer.
In 2016, we recorded $11.4 million in customer relationships acquired with the Aquaterra Acquisition, $134.1 million in customer relationships acquired with the Eden Acquisition, and $113.7 million in customer relationships acquired with the S&D Acquisition. We did not record impairment charges for
otherour intangible assets
subject to amortization in
2017, 2016 or 2015.the fiscal years ended December 30, 2023, December 31, 2022, and January 1, 2022.
Our intangible assets with indefinite lives relate
primarily to
trademarks acquired in the
2001 acquisition of
intellectual property from Royal Crown Company, Inc., and include the right to manufacture our concentrates, with all related inventions, processes, technologies, technical and manufacturing information,know-how and the use of the Royal Crown brand outside of North America and Mexico (the “Rights”);Legacy Primo, trademarks acquired in the acquisition of DSS,
(the “DSS Trademarks”);one of the trademarks acquired in the acquisition of
Eden (the “Eden Trademarks”),Aquaterra, trademarks acquired in the acquisition of Mountain Valley, and trademarks acquired in the acquisition of
Aquaterra (the “Aquaterra Trademarks”Crystal Rock (collectively, the "Trademarks"). These assets have an aggregate net book value of
$288.6$379.7 million as of December 30,
2017.2023. There are no legal, regulatory, contractual, competitive, economic, or other factors that limit the useful life of these intangible assets.
The lifelives of the Rights, DSS Trademarks, Eden Trademarks, and Aquaterra Trademarks are considered to be indefinite and therefore these intangible assets are not amortized. Rather, they are tested for impairment at least annually or more frequently if we determine a triggering event has occurred
during the year. We compare the carrying amount of the intangible asset to its fair value and when the carrying amount is greater than the fair value, we recognize
in income an impairment loss.
During the fourth quarter of 2017, management concluded that it was more likely than not that the fair value of the Rights, DSS Trademarks, Eden Trademarks, and Aquaterra Trademarks were greater than their respective carrying value, indicating no impairment.We assessed qualitative factors to determine whether the existence of events or circumstances indicated that it was more likely than not that the fair value of the
Rights and the Aquaterra Trademarks were less than their respective carrying value. The qualitative factors we assessed included macroeconomic conditions, industry and market considerations, cost factors that would have a negative effect on earnings and cash flows, overall financial performance compared with forecasted projections in prior periods, and other relevant events, the impact of which are all significant
judgementsjudgments and estimates.
WeDuring the fourth quarter of 2023, we concluded that it was more likely than not that the fair value of the
Rights and the Aquaterra Trademarks were more than
itstheir carrying value and therefore we were not required to perform any additional testing.
To determine the fair value
There are inherent uncertainties related to each of the DSS Trademarksabove listed assumptions, and our judgment in applying them. Changes in the Eden Trademarks, we use a relief from royalty method of the income approach, which calculates a fair value royalty rateassumptions used in our qualitative assessment could result in impairment charges that is appliedcould be material to revenue forecasts associated with those trademarks. The resulting cash flows are discounted using a rateour Consolidated Financial Statements in any given period.
Refer to
reflect the risk of achieving the projected royalty savings attributableNote 2 to the
trademarks. The assumptions used to estimate the fair value of these trademarks are subjective and require significant management judgment, including estimated future revenues, the fair value royalty rate (which is estimated to be a reasonable market royalty charge that would be charged by a licensor of the trademarks) and the risk adjusted discount rate. Based on our impairment test, the estimated fair value of the DSS Trademarks and the Eden Trademarks exceeded the carrying value by approximately 18.0% and 28.0%, respectively. If actual revenues in future periods, are less than currently projectedConsolidated Financial Statements for discussion regarding intangible assets for the
DSS Trademarks and Eden Trademarks, these trademarks could be impaired.discontinued operations entities.
Impairment and
disposalDisposal of
long-lived assetsLong-Lived Assets
When adverse events occur, we compare the carrying amount of long-lived assets to the estimated undiscounted future cash flows at the lowest level of independent cash flows for the group of long-lived assets and recognize any impairment loss based on discounted cash flows in the Consolidated Statements of Operations, taking into consideration the timing of testing and the asset’s remaining useful life. The expected life and value of these long-lived assets is based on an evaluation of the competitive environment, history and future prospects as appropriate. We did not record impairments of long-lived assets in 2017 or 2016. during the fiscal years ended December 30, 2023, December 31, 2022, and January 1, 2022.
As part of normal business operations, we identify long-lived assets that are no longer productive and are disposed.dispose of them. We recognized losses on disposals of property, plant and equipment, net of $9.1 million, $7.4 million, and $9.1 million for the fiscal years ended December 30, 2023, December 31, 2022, and January 1, 2022, respectively. Losses on disposals of assets are presented separately as part of operating income in the Consolidated Statements of Operations.
During the second quarter of 2022, our Board of Directors approved the exit from our business in Russia. Accordingly, we recorded an impairment charge of $11.2 million during the second quarter to reduce the carrying value of the assets to the estimated fair value less costs to sell. The impairment charge of $11.2 million to reduce the carrying value of the Russia business to its estimated fair value less costs to sell is included within impairment charges on the Consolidated Statements of Operations as part of operating income. We recognized losses on disposal of property, plant & equipment, net of $10.2 million for the yeartwelve months ended December 31, 2022 and is included within the Other category. The exit of our business in Russia was completed during the third quarter of 2022.
Insurance Reserves
We maintain insurance retention programs under our general liability, auto liability, and workers' compensation insurance programs. We also carry excess coverage to mitigate catastrophic losses. We use an independent third-party actuary to assist in determining our insurance reserves. Insurance reserves are accrued on an undiscounted basis based on known claims and estimated incurred but not reported claims not otherwise covered by insurance. The estimates are developed utilizing standard actuarial methods and are based on historical claims experience and actuarial assumptions, including loss development factors and expected ultimate loss selections. The inherent uncertainty of future loss projections could cause actual claims to differ from our estimates. The Company recorded insurance reserves of $67.0 million and $58.7 million as of December 30,
2017 ($6.6 million—2023 and December 31,
2016; $4.2 million—January 2, 2016).Derivative financial instruments
We use derivative financial instruments to manage our exposure to movements in foreign currencies2022, respectively, within Accounts payable and certain commodity prices. All derivative instruments are recorded at fair valueaccrued liabilities and Other long-term liabilities in the Consolidated Balance Sheets. We do not use derivative financial instruments for trading or speculative purposes. We manage credit risk related to the derivative financial instrumentsSheets, of which $8.8 million and $12.3 million, respectively, was covered by requiring high credit standards for our counterpartiesinsurance and periodic settlements. Refer to Note 19 toincluded as a component of Accounts receivable, net of allowance and Other long-term assets in the Consolidated Financial Statements for further information on our derivative financial instruments.
Balance Sheets.
Foreign
currency translationCurrency Translation
The assets and liabilities of
non-U.S. active operations, all of which are self-sustaining, are translated to U.S. dollars at the exchange rates in effect at the balance sheet dates. Revenues and expenses are translated using average monthly exchange rates prevailing during the period. The resulting gains or losses are recorded in
accumulatedAccumulated other comprehensive
loss.loss in the Consolidated Balance Sheets.
We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying amount of assets and liabilities and their respective tax bases, using currently enacted income tax rates. A valuation allowance is established to reduce deferred income tax assets if, on the basis of available evidence, it is not more likely than not that all or a portion of any deferred tax assets will be realized. The consideration of available evidence requires significant management judgment including an assessment of the future periods in which the deferred tax assets and liabilities are expected to be realized and projections of future taxable income.
The ultimate realization of the deferred tax assets,
related toincluding net operating losses, is dependent upon the generation of future taxable income during the periods prior to their expiration. If our estimates and assumptions about future taxable income are not appropriate, the value of our deferred tax assets may not be recoverable, which may result in an increase to our valuation allowance that will impact current earnings.
We account for uncertain tax positions using a
two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, based on the technical merits. The second step requires management to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as we have to determine the probability of various possible outcomes. We
re-evaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision.
We recognize interest and penalties related to unrecognized tax benefits within the
incomeIncome tax
expense (benefit)
expense line in the
accompanying Consolidated Statements of Operations, and we include accrued interest and penalties within the
accounts payable and accruedOther long-term liabilities
or the prepaid expenses and other current assets line in the
accompanying Consolidated Balance Sheets.
Pension costs
We record annual amounts relating
Concentration of Credit Risk
The Company’s financial instruments that are exposed to
defined benefit pension plans based on calculations, which include various actuarial assumptions such as discount ratesconcentrations of credit risk consist primarily of cash and
assumed ratescash equivalents. As of
return on plan assets depending on the pension plan. Material changes in pension costs may occurDecember 30, 2023 and December 31, 2022, cash and cash equivalents were maintained at major financial institutions in the
future due to changesUnited States, and current deposits are in
excess of insured limits. The Company believes these
assumptions. Future annual amounts could be impacted by changes in the discount rate, changes in the expected long-term rate of return on plan assets, changes in the level of contributions to the plans and other factors. The funded status is the difference between the fair value of planinstitutions have sufficient assets and
the benefit obligation. Future actuarial gains or losses that are not recognized as net periodic benefits cost in the same periods will be recognized as a component of other comprehensive income.Recently adopted accounting pronouncements
Update ASU2015-11 – Inventory (Topic 330)
In July 2015, the FASB issued ASU2015-11 – Inventory (Topic 330)liquidity to simplify the accounting for inventory. The guidance requires entities to measure most inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling priceconduct their operations in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation.with little or no credit risk to the Company. The Company adoptedhas not experienced any losses in such accounts.
Recently Adopted Accounting Pronouncements
Update ASU 2020-04 – Reference Rate Reform (Topic 848)
In March 2020, the provisionsFASB issued guidance which provides expedients and exceptions to account for contracts, hedging relationships and other transactions that reference LIBOR or any other reference rates expected to be discontinued because of reference rate reform. This guidance is effective as of March 12, 2020 through December 31, 2022 (updated to December 31, 2024 by the December 2022 issuance of Accounting Standards Update ("ASU") 2022-06) and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2024. We elected to apply the debt agreement expedient and therefore will account for debt agreement amendments as if the modification was not substantial and thus a continuation of the existing contract. Effective January 13, 2023, we entered into the Second LIBOR Transition Amendment to the Credit Agreement, which transitioned the credit agreement from LIBOR to the Secured Overnight Financing Rate ("SOFR"). The amendment did not have a material impact on our Consolidated Financial Statements.
Update ASU 2021-08 – Business Combinations (Topic 805)
In October 2021, the FASB issued guidance that requires entities to use principles in ASC 606 to recognize and measure contract assets and liabilities in revenue contracts acquired in a business combination rather than fair value. For public entities, this guidance
is effective
January 1, 2017,for fiscal years beginning after December 15, 2022 for annual and
applied it prospectively to all periods presented.interim periods. The adoption of this standard did not have a material impact on our Consolidated Financial Statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
Update ASU
2017-04 2023-06 –
Intangibles—Goodwill and Other (Topic 350)In January 2017, the FASB amended its guidance regarding goodwill impairment. The amendments remove certain conditions of the goodwill impairment test and simplify the computation of impairment. The amendmentsDisclosure Improvements - Codification Amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted for any tests performed after January 1, 2017. The amendments in this update should be applied prospectively, with disclosure required asResponse to the nature ofSEC’s Disclosure Update and reason for the change in accounting principle upon transition. Simplification Initiative
In
the fourth quarter of 2017, the Company early adopted ASU2017-04 as part of the annual goodwill impairment testing.Update ASU2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
In August 2017, the FASB amended its guidance regarding the improvement of accounting for hedging transactions. This new standard simplifies and expands the eligible hedging strategies for financial andnon-financial risks. It also enhances the transparency of how hedging results are presented and disclosed. Further, the new standard provides partial relief on the timing of certain aspects of hedge documentation and eliminates the requirement to recognize hedge ineffectiveness separately in earnings. The guidance is designed to align hedge accounting with a company’s risk management activities and simplifies its application through targeted improvements by expanding the list of items eligible to be hedged and amending the methods used to measure the effectiveness of hedging relationships. Additionally it prescribes how hedging results should be presented and requires incremental disclosures. The amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company has early adopted, in an interim period, the targeted improvements to accounting for hedging activities. The transition date is October 1, 2017 (”Adoption Date”). The impacts to the Company at the Adoption Date are limited to S&D’s outstanding coffee futures contracts. Adoption of ASU2017-12 did not result in a cumulative adjustment to the opening balance of retained earnings and did not have any other material effect on the results of operations, financial position or cash flows of the Company.
Update ASU2017-13 – Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842) – Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments
In August 2017,2023, the FASB issued an updateguidance to itsmodify the disclosure and presentation requirements of a variety of codification topics by aligning them with the SEC’s regulations. This guidance that delays the mandatory adoption of Topic 606 and Topic 842 for certain entities, revises the guidance related to performance-based incentive fees in Topic 605 and revises the guidance related to leases in Topic 840 and Topic 842. The revisions to the lease guidance eliminate language specific to certain sale-leaseback arrangements, guarantees of lease residual assets and loans made by lessees to owner-lessors. Also included is an amendment to Topic 842 to retain the guidance in Topic 840 covering the impact of changes in tax rates on investments in leveraged leases. This standard, which is effective immediately, generally relates to the adoption of Topic 606 and Topic 842 and did not have a material impact on our Consolidated Financial Statements.
Recently issued accounting pronouncements
Update ASU2014-09 – Revenue from Contracts with Customers (Topic 606)
In May 2014, the FASB amended its guidance regarding revenue recognition and created a new Topic 606, Revenue from Contracts with Customers. The objectives for creating Topic 606 were to remove inconsistencies and weaknesses in revenue recognition, provide a more robust framework for addressing revenue issues, provide more useful information to users of the financial statements through improved disclosure requirements, simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer, and improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve the core principle, an entity should apply the following steps: 1) identify the contract(s) with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations in the contract; and 5) recognize revenue when (or as) the entity satisfies a performance obligation. For public entities, the amendments are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The amendments may be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the amendment recognized at the date of initial application.
We will adopt this guidance and related amendments as of December 31, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. The Company has elected the cumulative effect method. We will be required to comply with expanded disclosure requirements, including the disaggregation of revenues to depict the nature and uncertainty of types of revenues, contract assets and liabilities, current period revenues previously recorded as a liability, performance obligations, significant judgments and estimates affecting the amount and timing of revenue recognition, determination of transaction prices, and allocation of transaction prices to performance obligations.
During 2017, the Company completed its analysis of the impact of the standard on its contract types, and concluded the adoption of this standard will not have a material impact on our Consolidated Financial Statements. We have also modified current processes and controls to apply the requirements of the new standard. We do not believe such modifications are material to our internal controls over financial reporting.
Update ASU2016-02 – Leases (Topic 842)
In February 2016, the FASB issued an update to its guidance on lease accounting for lessees and lessors. This update revises accounting for operating leases by a lessee, among other changes, and requires a lessee to recognize a liability to make lease payments and an asset representing its right to use the underlying asset for the lease term in the balance sheet. The
distinction between finance and operating leases has not changed and the update does not significantly change the effect of finance and operating leases on the Consolidated Statements of Operations and the Consolidated Statements of Cash Flows. Additionally, this update requires both qualitative and specific quantitative disclosures. For public entities, the amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. A modified retrospective transition approach is required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.
no later than June 30, 2027. We are currently assessing the impact of adoption of this standard on our Consolidated Financial Statements. The Company is evaluating
Update ASU 2023-07 – Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures
In November 2023, the
standard’s applicabilityFASB issued guidance to
our various contractual arrangements. We currently believe thatimprove the
most significant changes relate to the recognition of new right of use assetsdisclosures about a public entity’s reportable segments and
lease liabilities for real estate and equipment leases, which will result in increases to our assets and liabilities on our Consolidated Balance Sheets. We believe that substantially all of our lessee lease arrangements will continue to be classified as operating leases under the new standard. Additionally, we had $19.9 million of deferred gains at December 31, 2016 associated with sale-leaseback transactions which are currently being amortized over the leaseback term. Upon adoption of this standard, we will be required to recognize the unamortized deferred gain at January 1, 2017 as a cumulative effect adjustment to equity. In addition, upon adoption of this standard, deferred gains related to the sale-leaseback transactions completed in 2017 of $7.9 million at December 30, 2017 will be recognized in net income (loss) from discontinued operations, net of income taxes in the Consolidated Statement of Operationsprovide for the
year ended December 30, 2017.The standard also requires lessors to classify leases as sales-type, direct financing or operating leases, similar to existing guidance. We believe that substantially alldisclosure of our lessor lease arrangements will continue to be classified as operating leases underadditional and more detailed information about a reportable segment’s expenses. This guidance is effective for the new standard.
Update ASU2016-13 – Financial Instruments – Credit Losses (Topic 326)
In June 2016, the FASB amended its guidance to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Entities will now use forward-looking information to better form their credit loss estimates. The amended guidance also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. The amendments in this update areCompany effective for fiscal years beginning after December 15, 2019, including2023, and interim periods within those fiscal years. Early adoption will be permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. This guidance will2024. The amendments in this update should be applied using a prospective or modified retrospective transition method, depending onretrospectively to all prior periods presented in the area covered in this update.financial statements. Early adoption is permitted. We are currently assessing the impact of adoption of this standard on our Consolidated Financial Statements.
Update ASU
2017-012023-09 – Business CombinationIncome Taxes (Topic 805)740) - Improvements to Income Tax Disclosures
In
January 2017,December 2023, the FASB
amended its guidance regarding business combinations. The amendment clarified the definition of a business with the objective of addingissued guidance to
assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals)enhance the transparency and decision usefulness of
assets or businesses. The amendments provide an analysis of fair value of assets acquiredincome tax disclosures through improvements to
determine when a set of assets is not a business, and uses more stringent criteriadisclosures primarily related to
inputs, substantive process,the rate reconciliation and
outputs to determine if a business exists. The amendments in this update areincome taxes paid information. This guidance is effective for
fiscal yearsthe Company for annual periods beginning after December 15,
2017, including interim periods within those fiscal years, with early2024. Early adoption
is permitted.
The amendments in this update should be applied prospectively on or after the effective date with no requirement for disclosures at transition. We are currently assessing the impact of adoption of this standard on our Consolidated Financial Statements.
Update ASU2017-07 – Compensation—Retirement Benefits (Topic 715)
In March 2017, the FASB issued an update to its guidance on presentation of net periodic pension cost and net periodic post-retirement pension cost, and requires the service cost component to be presented in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. The amendments in this update also allow only the service cost component to be eligible for capitalization when applicable. For public entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. At adoption, this update will be applied retrospectively for the presentation of the service cost component and other components of net periodic pension cost and net periodic post-retirement benefit cost in the income statement and prospectively, on or after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic post-retirement benefit in assets. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. We are currently assessing the impact of adoption of this standard on our Consolidated Financial Statements.
Update ASU2017-08 – Receivables—Nonrefundable Fees and Other Costs (Subtopic310-20)
In March 2017, the FASB amended its guidance on accounting for debt securities. The amendments shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public entities, the amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. At adoption, this update will be applied using a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. We are currently assessing the impact of adoption of this standard on our Consolidated Financial Statements.
Update ASU2017-09 – Stock Compensation – Scope of Modification Accounting (Topic 718)
In May 2017, the FASB amended its guidance regarding the scope of modification accounting for share-based compensation arrangements. The amendments provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. For public entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for public entities for reporting periods for which financial statements have not yet been issued. The amendments in this update should be applied prospectively to an award modified on or after the adoption date. We do not expect adoption of this standard to have a significant impact on our Consolidated Financial Statements.
Update ASU 2018-02 – Income Statement—Reporting Comprehensive Income (Topic 220)
In February 2018, the FASB amended its guidance which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the comprehensive tax legislation enacted by the U.S. government on December 22, 2017 commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”) and requires certain disclosures about stranded tax effects. For public entities, the amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted, and may be applied in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate tax rate in the Tax Act is recognized. We are currently assessing the impact of adoption of this standard on our Consolidated Financial Statements.
Note 2—Discontinued Operations
International Businesses
On
January 30, 2018,December 29, 2023, the Company completed the
sale of the Traditional Business to Refresco. The Transaction was structured as a sale of the assets of the Canadian business and a sale of the stock of the operating subsidiaries engaged in the Traditional Business in the other jurisdictions after the Company completed an internal reorganization. TheEuropean Divestiture for aggregate deal consideration
was $1.25 billion, paid at closingof $575.0 million, adjusted for customary purchase price adjustments resulting in
total cash
subjectconsideration of $565.9 million (see Note 1 to
adjustmentthe Consolidated Financial Statements). The proceeds from the European Divestiture were included in Investing activities of discontinued operations in the Consolidated Statements of Cash Flows for
indebtedness, working capital, and other customary post-closing adjustments.the fiscal year ended December 30, 2023. The
Traditional Business excludesEuropean Divestiture excluded the Remaining International Businesses. This deal is the first of several transactions that will occur in 2024 as part of a Board-approved plan to sell all of our
Company’s Route Based Services and Coffee, Tea and Extract Solutions reporting segments,international businesses representing a strategic shift in our
Aimia, Decantae and RCI concentrate businesses, and our Columbus, Georgia manufacturing facility.operations. Accordingly, the International Businesses are presented herein as discontinued operations for all periods presented.
In connection with the
closing of the Transaction,European Divestiture, the Company
used a portion ofand the
proceeds to redeem $525.0 million aggregate principal amount of the 2022 Notes, $250.0 million aggregate principal amount of the 10.000% senior secured notes due 2021 (the “DSS Notes”), and $262.5 million outstanding balance on the ABL facility.The Company and Refresco havePurchaser entered into a Transition Services Agreementtransition services agreement pursuant to which the Company and RefrescoPurchaser will provide certain information technology and shared service center services to each otherthe Company for various service periods, withperiods. For the longest service period being 18 months, including tax and accountingyear ended December 30, 2023, these services certain human resources services, communications systems and support, and insurance/risk management. Each party will be compensated for services rendered as set forth in the Transition Services Agreement. Each service period may be extended as set forth in the Transition Services Agreement, up to a maximum extension of 180 days.
In addition, the Company and Refresco have entered into certainCo-pack Manufacturing Agreements pursuant to which the Company and Refresco will manufacture and supply certain beverage products for each other and a Concentrate Supply Agreement pursuant to which the Company will supply concentrates to Refresco. Each party will be compensated for the products they supply as set forth in the applicable agreements. TheCo-pack Manufacturing Agreements provide for a term of 36 months and the Concentrate Supply Agreement provides for a term that is coterminous with the term of the Transition Services Agreement.
were not material.
The major components of
netNet income (loss) from discontinued operations, net of income taxes in the accompanying Consolidated Statements of Operations include the following:
| | | | | | | | | | | | |
| | | For the Year Ended | |
| | | December 30,
2017 | | | December 31,
2016 | | | January 2,
2016 | |
(in millions of U.S. dollars) | | | | | | | | | |
Revenue, net | | $ | 1,637.1 | | | $ | 1,658.6 | | | $ | 1,799.6 | |
Cost of sales | | | 1,428.4 | | | | 1,434.5 | | | | 1,554.6 | |
Operating income from discontinued operations | | | 49.9 | | | | 72.7 | | | | 81.5 | |
Loss from discontinued operations, before income taxes | | | (20.5 | ) | | | (6.8 | ) | | | (2.7 | ) |
Income tax (benefit) expense1 | | | (31.2 | ) | | | 4.4 | | | | (7.6 | ) |
Net income (loss) from discontinued operations, net of income taxes | | | 10.7 | | | | (11.2 | ) | | | 4.9 | |
Less: Net income attributable tonon-controlling interests | | | 8.5 | | | | 6.3 | | | | 6.1 | |
Net income (loss) attributable to Cott Corporation – discontinued operations 2 | | $ | 2.2 | | | $ | (17.5 | ) | | $ | (1.2 | ) |
1. | The Transaction is anticipated to result in a gain on sale which led to certain U.S. deferred tax liabilities being considered as a source of future taxable income. As a result, we recognized a tax benefit of approximately $26.9 million related to a corresponding U.S. valuation allowance release. |
2. | Net income (loss) attributable to Cott Corporation - discontinued operations is inclusive of interest expense on short-term borrowings and debt required to be repaid or extinguished as part of divestiture of $49.5 million for the year ended December 30, 2017 (December 31, 2016 - $81.2 million; January 2, 2016 - $80.9 million). |
| | | | | | | | | | | | | | | | | |
| For the Fiscal Year Ended |
| (in millions of U.S. dollars) | December 30, 2023 | | December 31, 2022 | | January 1, 2022 |
| Revenue, net | $ | 575.0 | | | $ | 521.9 | | | $ | 496.9 | |
| Cost of sales | 267.7 | | | 247.7 | | | 230.5 | |
| Gross profit | 307.3 | | | 274.2 | | | 266.4 | |
| Selling, general and administrative expenses | 271.2 | | | 267.6 | | | 264.5 | |
| Loss on disposal of property, plant and equipment, net | 0.7 | | | 1.1 | | | 0.2 | |
| Acquisition and integration expenses | 0.9 | | | 3.2 | | | 1.7 | |
| Impairment charges | 82.4 | | | 17.9 | | | — | |
| Operating loss from discontinued operations | (47.9) | | | (15.6) | | | — | |
| Other (income) expense, net | (19.4) | | | 11.3 | | | 5.8 | |
| Interest expense, net | 3.1 | | | 2.0 | | | 0.5 | |
| Gain on sale of discontinued operations | (214.7) | | | — | | | — | |
| Income (loss) from discontinued operations, before income taxes | $ | 183.1 | | | $ | (28.9) | | | $ | (6.3) | |
| Income tax expense | 8.8 | | | 0.2 | | | 1.8 | |
| Net income (loss) from discontinued operations, net of income taxes | $ | 174.3 | | | $ | (29.1) | | | $ | (8.1) | |
Assets and liabilities of discontinued operations presented in the accompanying Consolidated Balance Sheets as of December 30, 20172023 and December 31, 20162022 include the following:
| | | | | | | | | | | |
| December 30, 2023 | | December 31, 2022 |
| ASSETS | | | |
| Cash and cash equivalents | $ | 22.6 | | | $ | 43.8 | |
| Accounts receivable, net of allowance of $3.4 ($8.5 as of December 31, 2022) | 67.4 | | | 87.9 | |
| Inventories | 31.9 | | | 46.8 | |
| Prepaid expenses and other current assets | 6.8 | | | 8.8 | |
| Current assets of discontinued operations | $ | 128.7 | | | $ | 187.3 | |
| Property, plant and equipment, net | 83.7 | | | 164.9 | |
| Operating lease right-of-use-assets | 37.9 | | | 55.4 | |
| Goodwill | 48.5 | | | 295.8 | |
| Intangible assets, net | 61.5 | | | 170.9 | |
Other long-term assets, net 1 | (6.0) | | | 2.4 | |
| Long-term assets of discontinued operations | $ | 225.6 | | | $ | 689.4 | |
| LIABILITIES | | | |
| Short-term borrowings | $ | 18.4 | | | $ | 6.5 | |
| Current maturities of long-term debt | 3.5 | | | 6.6 | |
| Accounts payable and accrued liabilities | 83.4 | | | 142.5 | |
| Current operating lease obligations | 4.6 | | | 9.1 | |
| Current liabilities of discontinued operations | $ | 109.9 | | | $ | 164.7 | |
| Long-term debt | 9.2 | | | 31.5 | |
| Operating lease obligations | 33.6 | | | 46.9 | |
| Deferred tax liabilities | 7.0 | | | 27.5 | |
| Other long-term liabilities | 2.4 | | | 9.8 | |
| Long-term liabilities of discontinued operations | $ | 52.2 | | | $ | 115.7 | |
| | | | | | | | |
(in millions of U.S. dollars) | | December 30,
2017 | | | December 31,
2016 | |
ASSETS | | | | | | | | |
Cash & cash equivalents | | $ | 66.0 | | | $ | 40.0 | |
Accounts receivable, net | | | 143.2 | | | | 127.2 | |
Inventories | | | 191.2 | | | | 176.8 | |
Prepaid expenses and other current assets | | | 8.3 | | | | 7.7 | |
| | | | | | | | |
Current assets of discontinued operations | | | 408.7 | | | | 351.7 | |
Property, plant & equipment, net | | | 350.7 | | | | 348.1 | |
Goodwill | | | 136.8 | | | | 127.1 | |
Intangible assets, net | | | 176.2 | | | | 180.7 | |
Other long-term assets, net | | | 13.8 | | | | 11.0 | |
| | | | | | | | |
Long-term assets of discontinued operations | | $ | 677.5 | | | $ | 666.9 | |
| | | | | | | | |
LIABILITIES | | | | | | | | |
Current maturities of long-term debt | | | 0.5 | | | | 0.5 | |
Accounts payable and accrued liabilities | | | 294.6 | | | | 229.4 | |
| | | | | | | | |
Current liabilities of discontinued operations | | | 295.1 | | | | 229.9 | |
Long-term debt | | | 0.9 | | | | 1.2 | |
Deferred tax liabilities | | | 1.0 | | | | 2.8 | |
Other long-term liabilities | | | 43.9 | | | | 34.6 | |
| | | | | | | | |
Long-term liabilities of discontinued operations | | $ | 45.8 | | | $ | 38.6 | |
| | | | | | | | |
Cash flows
1 Includes the impairment recorded to reduce the carrying value of the Remaining International Businesses to the fair value less costs to sell.
In connection with the European Divestiture, the Company performed a goodwill impairment test on the Remaining International Businesses resulting in a goodwill impairment charge of $71.1 million and an intangible asset impairment charge of $4.3 million. This impairment was due to macroeconomic trends and the related impact on long-term forecasts. Upon the classification of the Remaining International Businesses as held for sale, the Company recorded an additional impairment loss of $7.0 million to reduce the carrying value of the International Businesses to fair value less costs to sell, resulting in a total impairment charge of $82.4 million that was recorded within Net income (loss) from discontinued operations, net of income tax on the Consolidated Statements of Operations for the fiscal year ended December 30, 2023. There was $3.0 million tax benefit recorded related to this charge for the fiscal year ended December 30, 2023.
During the second quarter of 2022, the decision to exit our business in Russia and the realignment of segments resulted in a triggering event for goodwill and intangible assets with indefinite lives requiring quantitative assessments for the combined Eden business (which, prior to realignment, included borrowingsthe Eden Europe and payments underEden Israel businesses) immediately before the ABL facilityrealignment of $3,004.1segments and for the Eden Europe and Israel businesses upon realignment of segments. As a result of these assessments, the Company recorded a goodwill impairment charge of $11.2 million due to a decrease in cash flows associated with the exit from our business in Russia and a trademark impairment charge of $6.7 million due primarily to a decrease in the royalty rate used in the quantitative analysis. The total impairment charge of $17.9 million was recorded in the results of discontinued operations for the fiscal year ended December 31, 2022.
Note 3—Leases
We have operating and finance leases for manufacturing and production facilities, branch distribution and warehouse facilities, vehicles and machinery and equipment. The remaining terms on our finance leases range from one year to 8 years, while our operating leases range from one year to 17 years, some of which may include options to extend the leases generally between one year and 10 years, and some of which may include options to terminate the leases within one year.
The components of lease expense were as follows:
| | | | | | | | | | | |
| For the Fiscal Year Ended |
| (in millions of U.S. dollars) | December 30, 2023 | | December 31, 2022 |
| Operating lease cost | $ | 39.9 | | | $ | 37.4 | |
| Short-term lease cost | 3.8 | | | $ | 2.8 | |
| Finance lease cost | | | |
| Amortization of right-of-use assets | $ | 11.7 | | | $ | 12.4 | |
| Interest on lease liabilities | 2.2 | | | 2.7 | |
| Total finance lease cost | $ | 13.9 | | | $ | 15.1 | |
| Sublease income | $ | 1.7 | | | $ | 1.4 | |
Supplemental cash flow information related to leases was as follows:
| | | | | | | | | | | |
| For the Fiscal Year Ended |
| (in millions of U.S. dollars) | December 30, 2023 | | December 31, 2022 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | |
| Operating cash flows from operating leases | $ | 39.1 | | | $ | 35.7 | |
| Operating cash flows from finance leases | $ | 2.2 | | | $ | 2.6 | |
| Financing cash flows from finance leases | $ | 11.5 | | | $ | 12.0 | |
| Right-of-use assets obtained in exchange for lease obligations: | | | |
| Operating leases | $ | 28.8 | | | $ | 42.4 | |
| Finance leases | $ | 10.9 | | | $ | 3.3 | |
Supplemental balance sheet information related to leases was as follows:
| | | | | | | | |
| (in millions of U.S. dollars, except lease term and discount rate) | December 30, 2023 | December 31, 2022 |
| Operating leases | | |
| Operating lease right-of-use assets | $ | 136.0 | | $ | 143.2 | |
| Current operating lease obligations | 25.6 | | 26.6 | |
| Operating lease obligations | 124.0 | | 127.6 | |
| Total operating lease obligations | $ | 149.6 | | $ | 154.2 | |
| | |
| Financing leases | | |
| Property, plant and equipment, net | $ | 45.0 | | $ | 45.7 | |
| Current maturities of long-term debt | 14.2 | | 10.9 | |
| Long-term debt | 33.4 | | 37.4 | |
| Total finance lease obligations | $ | 47.6 | | $ | 48.3 | |
| | | | | | | | | | | |
| Weighted-Average Remaining Lease Term | December 30, 2023 | | December 31, 2022 |
| Operating leases | 7.3 years | | 7.8 years |
| Finance leases | 3.4 years | | 4.4 years |
| | | |
| Weighted-Average Discount Rate | | | |
| Operating leases | 6.6 | % | | 6.5 | % |
| Finance leases | 5.5 | % | | 5.1 | % |
Maturities of operating lease obligations were as follows:
| | | | | |
| (in millions of U.S. dollars) | December 30, 2023 |
| 2024 | $ | 35.9 | |
| 2025 | 34.1 | |
| 2026 | 25.8 | |
| 2027 | 21.8 | |
| 2028 | 12.7 | |
| Thereafter | 63.8 | |
| Total lease payments | 194.1 | |
| Less imputed interest | (44.5) | |
| Present value of lease obligations | $ | 149.6 | |
Maturities of finance lease obligations were as follows:
| | | | | |
| (in millions of U.S. dollars) | December 30, 2023 |
| 2024 | $ | 16.7 | |
| 2025 | 16.2 | |
| 2026 | 13.1 | |
| 2027 | 4.6 | |
| 2028 | 2.0 | |
| Thereafter | 0.3 | |
| Total lease payments | 52.9 | |
| Less imputed interest | (5.3) | |
| Present value of lease obligations | $ | 47.6 | |
Note 4—Revenue
Our principal sources of revenue are from bottled water delivery direct to consumers primarily in North America from providing multi-gallon purified bottled water, self-service refill drinking water and water dispensers through retailers in North America for the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022.
Revenue is recognized, net of sales returns, when a customer obtains control of promised goods or services in an amount that reflects the consideration we expect to receive in exchange for those goods or services. We measure revenue based on the consideration specified in the customer arrangement, and revenue is recognized when the performance obligations in the customer arrangement are satisfied. A performance obligation is a contractual promise to transfer a distinct service to the customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when the customer receives the benefit of the performance obligation. Customers typically receive the benefit of our services as they are performed. Substantially all our customer contracts require that we be compensated for services performed to date. This may be upon shipment of goods or upon delivery to the customer, depending on contractual terms.
Shipping and handling costs paid by the customer to us are included in revenue and costs incurred by us for shipping and handling activities that are performed after a customer obtains control of the product are accounted for as fulfillment costs.
In addition, we exclude from net revenue and cost of sales taxes assessed by governmental authorities on revenue-producing transactions.
Although we occasionally accept returns of products from our customers, historically returns have not been material.
Contract Estimates
The nature of certain of the Company’s contracts give rise to variable consideration including cash discounts, volume-based rebates, point of sale promotions, and other promotional discounts to certain customers. For all promotional programs and discounts, the Company estimates the rebate or discount that will be granted to the customer and records an accrual upon invoicing. These estimated rebates or discounts are included in the transaction price of the Company’s contracts with customers as a reduction to net revenues and are included as accrued sales incentives in accounts payable and accrued liabilities in the Consolidated Balance Sheets. This methodology is consistent with the manner in which the Company historically estimated and recorded promotional programs and discounts. Accrued sales incentives were $7.7 million and $2,990.7$6.2 million respectively,as of December 30, 2023 and December 31, 2022, respectively.
We do not disclose the value of unsatisfied performance obligations for contracts (i) with an original expected length of one year or less or (ii) for which the Company recognizes revenue at the amount in which it has the right to invoice as the product is delivered.
Contract Balances
Contract liabilities relate primarily to advances received from the Company’s customers before revenue is recognized. These amounts are recorded as deferred revenue and are included in Accounts payable and accrued liabilities in the Consolidated Balance Sheets. The advances are expected to be earned as revenue within one year of receipt. Deferred revenues as of December 30, 2023 and December 31, 2022 were $5.2 million and $5.2 million, respectively. The amount of revenue recognized for the year ended December 30,
2017, $2,401.7 million and $2,318.9 million, respectively, for the year ended December 31, 2016, and $994.5 million and $1,101.8 million, respectively, for the year ended January 2, 2016.Note 3—Acquisitions
S&D Acquisition
On August 11, 2016, the Company acquired S&D, a premium coffee roaster and provider of customized coffee, tea and extract solutions (the “S&D Acquisition”). The initial purchase price paid by the Company in the S&D Acquisition2023 that was $354.1 million on a debt- and cash-free basis. Customary post-closing working capital adjustments were resolved in January 2017 by the payment of $0.5 million from the former owners of S&D to the Company. The S&D Acquisition was funded through a combination of incremental borrowings under the Company’s ABL facility and proceeds from our June 2016 Offering (as defined below).
The total consideration paid by Cott in the S&D Acquisition is summarized below:
| | | | |
(in millions of U.S. dollars) | | | |
Cash paid to sellers | | $ | 232.1 | |
Cash paid on behalf of sellers for sellers’ transaction expenses | | | 84.2 | |
Cash paid to retire outstanding debt on behalf of sellers | | | 37.8 | |
Working capital settlement | | | (0.5 | ) |
| | | | |
Total consideration | | $ | 353.6 | |
| | | | |
The S&D Acquisition supported the Company’s strategy to become a more diversified beverage provider across multiple channels and geographies, as well as expanding the Company’s existing coffee and tea categories. The Company has accounted for this transaction as a business combination which requires that assets acquired and liabilities assumed be measured at their acquisition date fair values.
The adjusted purchase price of $353.6 million was allocated to the assets acquired and liabilities assumed based on management’s estimates of their fair values as of the acquisition date. The excess of the adjusted purchase price over the aggregate fair values was recorded as goodwill. Measurement period adjustments recorded during the year ended December 30, 2017 included adjustments to property, plant and equipment and a related adjustment to deferred taxes based on the results of the validation procedures performed, as well as an adjustment to income taxes payable existing at the acquisition date. These measurement period adjustments did not have a material effect on our results of operations in prior periods.
The table below summarizes the originally reported estimated acquisition date fair values, measurement period adjustments recorded and the final purchase price allocation of the assets acquired and liabilities assumed:
| | | | | | | | | | | | |
(in millions of U.S. dollars) | | Originally
Reported | | | Measurement Period
Adjustments | | | Acquired
Value | |
Cash | | $ | 1.7 | | | $ | — | | | $ | 1.7 | |
Accounts receivable | | | 51.4 | | | | — | | | | 51.4 | |
Inventory | | | 62.5 | | | | — | | | | 62.5 | |
Prepaid expenses and other assets | | | 2.3 | | | | — | | | | 2.3 | |
Property, plant & equipment | | | 92.9 | | | | (0.7 | ) | | | 92.2 | |
Goodwill | | | 117.1 | | | | 0.7 | | | | 117.8 | |
Intangible assets | | | 119.0 | | | | — | | | | 119.0 | |
Other assets | | | 2.2 | | | | — | | | | 2.2 | |
Accounts payable and accrued liabilities | | | (46.7 | ) | | | (0.2 | ) | | | (46.9 | ) |
Deferred tax liabilities | | | (43.3 | ) | | | 0.2 | | | | (43.1 | ) |
Other long-term liabilities | | | (5.5 | ) | | | — | | | | (5.5 | ) |
| | | | | | | | | | | | |
Total | | $ | 353.6 | | | $ | — | | | $ | 353.6 | |
| | | | | | | | | | | | |
The amount of revenues and net loss related to the S&D Acquisition included in the Company’s Consolidated Statementdeferred revenue balance as of Operations for the year ended December 31, 2016 for the period from the acquisition date through2022 was $5.2 million.
The Company does not have any material contract assets as of December 30, 2023 and December 31, 2016 were $228.0 million and $2.8 million, respectively. During2022.
Disaggregated Revenue
In general, the
year ended December 31, 2016, the Company incurred $3.5 million of acquisition-related costs associated with the S&D Acquisition, which are included in acquisition and integration expenses in the Consolidated Statement of Operations for the year ended December 31, 2016. In connection with the S&D Acquisition, the Company granted 416,951 common shares to certain S&D employees which were fully vested upon issuance and had an aggregate grant date fair value of approximately $7.1 million.Eden Acquisition
On August 2, 2016, the Company acquired Eden, a leading provider of water and coffee solutions in Europe (the “Eden Acquisition”). The initial purchase price paid by the Company was €517.9 million (U.S. $578.5 million at the exchange rate in effect on the acquisition date), which represented the €470.0 million stated purchase price, €17.5 million of cash on hand, estimated working capital of €15.4 million, and other items of €15.0 million, paid at closing in cash. The initial purchase price was subject to adjustments upon the determination of actual working capital, net indebtedness and certain transaction related expenses, and these adjustment were resolved in January 2017 by the payment of €2.0 million (U.S. $2.2 million at the exchange rate in effect on the date of payment) made by the former owners of EdenCompany’s business segmentation is aligned according to the Company. The Eden Acquisition was ultimately funded through a combinationnature and economic characteristics of proceeds from the issuanceits products and customer relationships and provides meaningful disaggregation of €450 million (U.S. $539.1 million at the exchange rate in effect on December 30, 2017)each business segment’s results of 5.500% senior notes due July 1, 2024 (the “2024 Notes”) and cash on hand.
The total consideration paidoperations.
Further disaggregation of net revenue to external customers by
Cott in the Eden Acquisition is summarized below: | | | | |
(in millions of U.S. dollars) | | | |
Cash paid to sellers | | $ | 86.5 | |
Cash paid on behalf of sellers to retire outstanding indebtedness | | | 420.2 | |
Cash paid to retire sellers financing payables, net | | | 71.8 | |
Working capital settlement | | | (2.2 | ) |
| | | | |
Total consideration | | $ | 576.3 | |
| | | | |
The Eden Acquisition supported the Company’s strategy to become a more diversified beverage provider across multiple channels and geographies, as well as the Company’s continuing strategy to acquire higher margin HOD bottled water and coffee and tea categories. The Company has accounted for this transaction as a business combination in accordance with authoritative accounting guidance.
The adjusted purchase price of $576.3 million was allocated to the assets acquired and liabilities assumedgeographic area based on management’s estimates of their fair valuescustomer location is as of the acquisition date. The excess of the adjusted purchase price over the aggregate fair values was recorded as goodwill. Measurement period adjustments recorded during the year ended December 30, 2017 included adjustments to property, plant and equipment and a related adjustment to deferred taxes based on the results of the validation procedures performed, adjustments to accounts receivable, intangible assets and accrued liabilities based on a final review of fair values, and an adjustment to other long-term liabilities based on a final analysis of certain tax positions. These measurement period adjustments did not have a material effect on our results of operations in prior periods.
The table below summarizes the originally reported estimated acquisition date fair values, measurement period adjustments recorded and the final purchase price allocation of the assets acquired and liabilities assumed:
| | | | | | | | | | | | |
(in millions of U.S. dollars) | | Originally
Reported | | | Measurement Period
Adjustments | | | Acquired Value | |
Cash & cash equivalents | | $ | 19.6 | | | $ | — | | | $ | 19.6 | |
Accounts receivable | | | 95.4 | | | | (1.0 | ) | | | 94.4 | |
Inventories | | | 17.7 | | | | — | | | | 17.7 | |
Prepaid expenses and other current assets | | | 6.2 | | | | — | | | | 6.2 | |
Property, plant & equipment | | | 107.1 | | | | (8.2 | ) | | | 98.9 | |
Goodwill | | | 299.7 | | | | 0.1 | | | | 299.8 | |
Intangible assets | | | 213.2 | | | | (0.7 | ) | | | 212.5 | |
Other assets | | | 2.8 | | | | — | | | | 2.8 | |
Deferred tax assets | | | 19.5 | | | | — | | | | 19.5 | |
Current maturities of long-term debt | | | (2.7 | ) | | | — | | | | (2.7 | ) |
Accounts payable and accrued liabilities | | | (128.3 | ) | | | (0.5 | ) | | | (128.8 | ) |
Long-term debt | | | (3.1 | ) | | | — | | | | (3.1 | ) |
Deferred tax liabilities | | | (49.5 | ) | | | 3.5 | | | | (46.0 | ) |
Other long-term liabilities | | | (21.3 | ) | | | 6.8 | | | | (14.5 | ) |
| | | | | | | | | | | | |
Total | | $ | 576.3 | | | $ | — | | | $ | 576.3 | |
| | | | | | | | | | | | |
The amount of revenues and net loss related to the Eden Acquisition included in the Company’s Consolidated Statement of Operations for the year ended December 31, 2016 for the period from the acquisition date through December 31, 2016 were $156.9 million and $14.4 million, respectively. During the year ended December 31, 2016, the Company incurred $13.5 million of acquisition-related costs associated with the Eden Acquisition, which are included in acquisition and integration expenses in the Consolidated Statement of Operations for the year ended December 31, 2016.
Aquaterra Acquisition
On January 4, 2016, the Company acquired Aquaterra (the “Aquaterra Acquisition”). Aquaterra operates a Canadiandirect-to-consumer HOD bottled water and office coffee services business. The aggregate purchase price paid by the Company in the Aquaterra Acquisition was C$61.2 million (U.S. $44.0 million at the exchange rate in effect on the acquisition date). The purchase price was paid at closing in cash and was subject to a customary post-closing working capital adjustment. The post-closing adjustment was completed in May 2016 and resulted in the payment of $0.5 million by the former owners of Aquaterra to the Company.
This acquisition supported the Company’s strategy to become a more diversified beverage provider across multiple channels and geographies, as well as the Company’s strategy to acquire higher margin HOD bottled water and coffee and tea services categories. The Company has accounted for this transaction as a business combination in accordance with authoritative accounting guidance.
The adjusted purchase consideration of $44.0 million was allocated to the assets acquired and liabilities assumed based on their fair values as of the acquisition date. An allocation of the purchase price has been made to major categories of assets and liabilities based on management’s estimates of their fair values as of the acquisition date.
The table below summarizes the allocation of the purchase price to the fair value of the assets acquired and liabilities assumed:
| | | | |
(in millions of U.S. dollars) | | Acquired Value | |
Cash | | $ | 1.3 | |
Accounts receivable | | | 7.1 | |
Inventories | | | 2.1 | |
Prepaid expenses and other current assets | | | 0.4 | |
Property, plant & equipment | | | 12.3 | |
Goodwill | | | 21.2 | |
Intangible assets | | | 15.8 | |
Other assets | | | 0.8 | |
Accounts payable and accrued liabilities | | | (16.3 | ) |
Long-term debt | | | (0.4 | ) |
Other long-term liabilities | | | (0.3 | ) |
| | | | |
Total | | $ | 44.0 | |
| | | | |
The amount of revenues and net income related to the Aquaterra Acquisition included in the Company’s Consolidated Statement of Operations for the year ended December 31, 2016 for the period from the acquisition date through December 31, 2016 were $61.2 million and $1.1 million, respectively. During the year ended December 31, 2016, the Company incurred $1.3 million of acquisition-related costs associated with the Aquaterra Acquisition, which are included in acquisition and integration expenses in the Consolidated Statement of Operations for the year ended December 31, 2016.
Intangible Assets
In our determination of the estimated fair value of intangible assets, we consider, among other factors, the best use of acquired assets, analysis of historical financial performance and estimates of future performance of the acquired business’ products. The estimated fair values of identified intangible assets are calculated considering both market participant assumptions, using an income approach as well as estimates and assumptions provided by Cott management and management of the acquired business.
The estimated fair value of customer relationships represent futureafter-tax discounted cash flows that will be derived from sales to existing customers of the acquired business as of the date of acquisition.
The estimated fair value of trademarks and trade names represent the future projected cost savings associated with the premium and brand image obtained as a result of owning the trademark or trade name as opposed to obtaining the benefit of the trademark or trade name through a royalty or rental fee.
The estimated fair value ofnon-competition agreements represent the futureafter-tax discounted cash flows that are expected to be retained by the acquired business as a result of preventing certain employees or prior owners from competing with us in the specified restricted territories for a period of time subsequent to the date of acquisition or the date of termination of their employment with Cott, as the case may be.
S&D Acquisition
The following table sets forth the components of identified intangible assets associated with the S&D Acquisition and their estimated weighted average useful lives:
| | | | | | |
(in millions of U.S. dollars) | | Estimated Fair
Market Value | | | Weighted Average
Estimated
Useful Life |
Customer relationships | | $ | 113.7 | | | 17 years |
Non-competition agreements | | | 3.0 | | | 3 years |
Software | | | 2.3 | | | 2 years |
| | | | | | |
Total | | $ | 119.0 | | | |
| | | | | | |
Eden Acquisition
The following table sets forth the components of identified intangible assets associated with the Eden Acquisition and their estimated weighted average useful lives:
| | | | | | |
(in millions of U.S. dollars) | | Estimated Fair
Market Value | | | Estimated
Useful Life |
Customer relationships | | $ | 134.1 | | | 15 years |
Trademarks and trade names | | | 72.7 | | | Indefinite |
Software | | | 5.7 | | | 3-5 years |
| | | | | | |
Total | | $ | 212.5 | | | |
| | | | | | |
Aquaterra Acquisition
The following table sets forth the components of identified intangible assets associated with the Aquaterra Acquisition and their estimated weighted average useful lives:
| | | | | | |
(in millions of U.S. dollars) | | Estimated Fair
Market Value | | | Estimated
Useful Life |
Customer relationships | | $ | 11.4 | | | 12 years |
Trademarks and trade names | | | 4.4 | | | Indefinite |
| | | | | | |
Total | | $ | 15.8 | | | |
| | | | | | |
Goodwill
S&D Acquisition
The principal factor that resulted in recognition of goodwill in the S&D Acquisition was that the purchase price was based in part on cash flow projections assuming the reduction of administration costs and the integration of acquired customers and products into our operations, which is of greater value than on a standalone basis. The goodwill recognized as part of the S&D Acquisition was allocated to the Coffee, Tea and Extract Solutions reporting segment, none of which is expected to be tax deductible.
Eden Acquisition
The principal factor that resulted in recognition of goodwill in the Eden Acquisition was that the purchase price was based in part on cash flow projections assuming the reduction of administration costs and the integration of acquired customers and products into our operations, which is of greater value than on a standalone basis. The goodwill recognized as part of the Eden Acquisition was allocated to the Route Based Services reporting segment, a portion of which is expected to be tax deductible.
Aquaterra Acquisition
The principal factor that resulted in recognition of goodwill in the Aquaterra Acquisition was that the purchase price was based in part on cash flow projections assuming the reduction of administration costs and the integration of acquired customers and products into our operations, which is of greater value than on a standalone basis. The goodwill recognized as part of the Aquaterra Acquisition was allocated to the Route Based Services reporting segment, none of which is expected to be tax deductible.
Supplemental Pro Forma Data (unaudited)
The following unaudited pro forma financial information for the years ended December 31, 2016 and January 2, 2016, represent the combined results of operations as if the S&D Acquisition and Eden Acquisition had occurred on January 4, 2015. Unaudited pro forma consolidated results of operations for the Aquaterra Acquisition were not included in the combined results of our operations for the years ended December 31, 2016 and January 2, 2016 as the Company determined they were immaterial. The unaudited pro forma financial information results reflect certain adjustments related to these acquisitions such as increased amortization expense on acquired intangible assets resulting from the preliminary fair valuation of assets acquired. The unaudited pro forma financial information does not necessarily reflect the results of operations that would have occurred had we operated as a single entity during such periods.
| | | | | | | | |
| | | For the Year Ended | |
(in millions of U.S. dollars, except per share amounts) | | December 31,
2016 | | | January 2,
2016 | |
Revenue | | $ | 2,185.5 | | | $ | 2,157.4 | |
Net loss from continuing operations | | $ | (38.6 | ) | | $ | (28.6 | ) |
Net loss attributed to Cott Corporation | | $ | (58.2 | ) | | $ | (47.8 | ) |
Net loss per common share from continuing operations | | $ | (0.28 | ) | | $ | (0.25 | ) |
Net loss per common share attributed to Cott Corporation, diluted | | $ | (0.42 | ) | | $ | (0.41 | ) |
follows:
| | | | | | | | | | | | | | | | | |
| For the Fiscal Year Ended |
| (in millions of U.S. dollars) | December 30, 2023 | | December 31, 2022 | | January 1, 2022 |
| United States | $ | 1,706.2 | | | $ | 1,620.0 | | | $ | 1,493.0 | |
| Canada | 65.6 | | | 65.8 | | | 69.9 | |
| All other countries | — | | | 7.4 | | | 13.5 | |
| Total | $ | 1,771.8 | | | $ | 1,693.2 | | | $ | 1,576.4 | |
Note
4—5—Other
(Income) Expense
(Income), Net
The following table summarizes other
expense (income)
expense,, net for the
fiscal years ended December 30,
2017,2023, December 31,
20162022 and January
2, 2016: | | | | | | | | | | | | |
| | | For the Year Ended | |
(in millions of U.S. dollars) | | December 30,
2017 | | | December 31,
2016 | | | January 2,
2016 | |
Foreign exchange (gains) losses | | $ | (1.7 | ) | | $ | 1.9 | | | $ | (12.3 | ) |
Realized commodity hedging gains | | | — | | | | (5.8 | ) | | | — | |
Unrealized commodity hedging loss (gain), net | | | — | | | | 9.7 | | | | — | |
Gain on extinguishment of long-term debt | | | (1.5 | ) | | | — | | | | — | |
Other losses (gains), net | | | 0.2 | | | | (0.2 | ) | | | (0.5 | ) |
| | | | | | | | | | | | |
Total | | $ | (3.0 | ) | | $ | 5.6 | | | $ | (12.8 | ) |
| | | | | | | | | | | | |
1, 2022:
| | | | | | | | | | | | | | | | | |
| For the Fiscal Year Ended |
| (in millions of U.S. dollars) | December 30, 2023 | | December 31, 2022 | | January 1, 2022 |
| Foreign exchange losses (gains), net | $ | 5.7 | | | $ | 0.9 | | | $ | (0.5) | |
| Tariff refunds | (3.1) | | | — | | | — | |
| Gain on sale of business | — | | | (0.7) | | | — | |
| Loss on extinguishment of long-term debt | — | | | — | | | 27.2 | |
| Other gains, net | (1.4) | | | (2.7) | | | (4.6) | |
| Total | $ | 1.2 | | | $ | (2.5) | | | $ | 22.1 | |
Note
5—6—Interest Expense,
Net
The following table summarizes interest expense, net for the
fiscal years ended December 30,
2017,2023, December 31,
20162022 and January
2, 2016: | | | | | | | | | | | | |
| | | For the Year Ended | |
(in millions of U.S. dollars) | | December 30,
2017 | | | December 31,
2016 | | | January 2,
2016 | |
Interest on long-term debt | | $ | 83.1 | | | $ | 42.9 | | | $ | 30.1 | |
Other interest expense, net | | | 2.4 | | | | 0.1 | | | | — | |
| | | | | | | | | | | | |
Total | | $ | 85.5 | | | $ | 43.0 | | | $ | 30.1 | |
| | | | | | | | | | | | |
1, 2022:
| | | | | | | | | | | | | | | | | |
| For the Fiscal Year Ended |
| (in millions of U.S. dollars) | December 30, 2023 | | December 31, 2022 | | January 1, 2022 |
| Interest on long-term debt | $ | 51.7 | | | $ | 50.8 | | | $ | 56.3 | |
| Interest on short-term debt | 14.1 | | | 9.3 | | | 4.1 | |
| Other interest expense, net | 5.6 | | | 7.7 | | | 7.9 | |
| Total | $ | 71.4 | | | $ | 67.8 | | | $ | 68.3 | |
Provision (Benefit)
Provision for Income Taxes
(Loss) income
Income (loss) from continuing operations, before income taxes consisted of the following:
| | | | | | | | | | | | |
| | | For the Year Ended | |
(in millions of U.S. dollars) | | December 30,
2017 | | | December 31,
2016 | | | January 2,
2016 | |
Canada | | $ | (29.1 | ) | | $ | (25.4 | ) | | $ | 17.3 | |
Outside Canada | | | (4.5 | ) | | | (13.7 | ) | | | (16.7 | ) |
| | | | | | | | | | | | |
(Loss) income from continuing operations, before income taxes | | $ | (33.6 | ) | | $ | (39.1 | ) | | $ | 0.6 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| For the Fiscal Year Ended |
| (in millions of U.S. dollars) | December 30, 2023 | | December 31, 2022 | | January 1, 2022 |
| Canada | $ | (54.9) | | | $ | (1.3) | | | $ | (30.1) | |
| Outside Canada | 145.7 | | | 79.5 | | | 42.7 | |
| Income (loss) from continuing operations, before income taxes | $ | 90.8 | | | $ | 78.2 | | | $ | 12.6 | |
Income tax
(benefit) expense consisted of the following:
| | | | | | | | | | | | | | | | |
| | | For the Year Ended | |
(in millions of U.S. dollars) | | December 30,
2017 | | | December 31,
2016 | | | January 2,
2016 | |
Current | | | | | | | | | | | | | | | | |
Canada | | $ | — | | | $ | | | | | — | | | $ | 4.0 | |
Outside Canada | | | 3.9 | | | | | | | | 1.3 | | | | 2.9 | |
| | | | | | | | | | | | | | | | |
| | $ | 3.9 | | | | | | | $ | 1.3 | | | $ | 6.9 | |
| | | | | | | | | | | | | | | | |
Deferred | | | | | | | | | | | | | | | | |
Canada | | $ | — | | | | | | | $ | 8.7 | | | $ | (1.2 | ) |
Outside Canada | | | (33.9 | ) | | | | | | | 11.2 | | | | (20.8 | ) |
| | | | | | | | | | | | | | | | |
| | $ | (33.9 | ) | | | | | | $ | 19.9 | | | $ | (22.0 | ) |
| | | | | | | | | | | | | | | | |
Income tax (benefit) expense | | $ | (30.0 | ) | | | | | | $ | 21.2 | | | $ | (15.1 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| For the Fiscal Year Ended |
| (in millions of U.S. dollars) | December 30, 2023 | | December 31, 2022 | | January 1, 2022 |
| Current | | | | | |
| Canada | $ | — | | | $ | — | | | $ | — | |
| Outside Canada | 25.5 | | | 2.2 | | | 3.3 | |
| $ | 25.5 | | | $ | 2.2 | | | $ | 3.3 | |
| Deferred | | | | | |
| Canada | $ | — | | | $ | — | | | $ | — | |
| Outside Canada | 1.5 | | | 17.3 | | | 4.4 | |
| $ | 1.5 | | | $ | 17.3 | | | $ | 4.4 | |
| Income tax expense | $ | 27.0 | | | $ | 19.5 | | | $ | 7.7 | |
The following table reconciles income taxes calculated at the basic Canadian corporate rates with the income tax provision: | | | | | | | | | | | | |
| | | For the Year Ended | |
(in millions of U.S. dollars) | | December 30,
2017 | | | December 31,
2016 | | | January 2,
2016 | |
Income tax (benefit) expense based on Canadian statutory rates | | $ | (8.7 | ) | | $ | (10.1 | ) | | $ | 0.1 | |
Foreign tax rate differential | | | (1.3 | ) | | | (1.3 | ) | | | (0.5 | ) |
Local taxes | | | (0.2 | ) | | | (1.1 | ) | | | (1.5 | ) |
Nontaxable interest income | | | (11.3 | ) | | | (7.9 | ) | | | (5.5 | ) |
Impact of intercompany transactions and dividends | | | (9.2 | ) | | | (10.6 | ) | | | (13.8 | ) |
Nontaxable capital gains | | | (3.7 | ) | | | — | | | | (1.4 | ) |
Dividend income | | | — | | | | 1.1 | | | | 0.9 | |
Change in enacted tax rates | | | (32.7 | ) | | | (0.6 | ) | | | 1.3 | |
Change in valuation allowance | | | 45.8 | | | | 48.6 | | | | (0.8 | ) |
Change in uncertain tax positions | | | (2.4 | ) | | | (0.2 | ) | | | (0.7 | ) |
Equity compensation | | | 1.1 | | | | 0.6 | | | | 0.9 | |
Permanent differences | | | (0.6 | ) | | | 1.8 | | | | 0.7 | |
Outside basis differences on discontinued operations | | | (3.8 | ) | | | — | | | | — | |
Adjustments to deferred taxes | | | (3.4 | ) | | | — | | | | 5.5 | |
Other items | | | 0.4 | | | | 0.9 | | | | (0.3 | ) |
| | | | | | | | | | | | |
Income tax (benefit) expense | | $ | (30.0 | ) | | $ | 21.2 | | | $ | (15.1 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| For the Fiscal Year Ended |
| (in millions of U.S. dollars) | December 30, 2023 | | December 31, 2022 | | January 1, 2022 |
| Income tax expense (benefit) based on Canadian statutory rates | $ | 24.1 | | | $ | 20.7 | | | $ | 3.3 | |
| Foreign tax rate differential | (13.4) | | | (9.0) | | | (7.1) | |
| Local taxes | 8.9 | | | 4.0 | | | 1.6 | |
| Nontaxable interest income | (3.4) | | | (3.4) | | | (3.9) | |
| Impairment expense | — | | | 0.9 | | | — | |
| Impact of intercompany transactions and dividends | (0.5) | | | (2.3) | | | 0.2 | |
| Income tax credits | (1.8) | | | (0.2) | | | (0.3) | |
| Change in enacted tax rates | (1.3) | | | 0.5 | | | (0.4) | |
| Change in valuation allowance | 16.8 | | | 7.0 | | | 8.6 | |
| Change in uncertain tax positions | (5.5) | | | 0.6 | | | 1.5 | |
| Equity compensation | 1.4 | | | 1.4 | | | 2.2 | |
| Permanent differences | 1.0 | | | 0.6 | | | 0.8 | |
| Adjustments to prior year taxes | 0.1 | | | (1.8) | | | 1.2 | |
| Other items | 0.6 | | | 0.5 | | | — | |
| Income tax expense | $ | 27.0 | | | $ | 19.5 | | | $ | 7.7 | |
Deferred Tax Assets and Liabilities
Deferred income tax assets and liabilities were recognized on temporary differences between the financial and tax bases of existing assets and liabilities as follows:
| | | | | | | | |
(in millions of U.S. dollars) | | December 30,
2017 | | | December 31,
2016 | |
Deferred tax assets | | | | | | | | |
Net operating loss carryforwards | | $ | 181.6 | | | $ | 204.1 | |
Capital loss carryforwards | | | 4.5 | | | | 1.1 | |
Liabilities and reserves | | | 35.7 | | | | 42.5 | |
Stock options | | | 7.0 | | | | 5.5 | |
Inventories | | | 4.5 | | | | 5.2 | |
Interest expense | | | 25.4 | | | | 31.1 | |
Outside basis differences on discontinued operations | | | 3.8 | | | | — | |
Other | | | 4.9 | | | | 9.4 | |
| | | | | | | | |
| | | 267.4 | | | | 298.9 | |
| | | | | | | | |
Deferred tax liabilities | | | | | | | | |
Property, plant & equipment | | | (69.2 | ) | | | (104.5 | ) |
Intangible assets | | | (165.2 | ) | | | (231.7 | ) |
| | | | | | | | |
| | | (234.4 | ) | | | (336.2 | ) |
| | | | | | | | |
Valuation allowance | | | (129.1 | ) | | | (117.7 | ) |
| | | | | | | | |
Net deferred tax liability | | $ | (96.1 | ) | | $ | (155.0 | ) |
| | | | | | | | |
The following changes were made to the December 31, 2016 presentation of the temporary differences to conform with the current period presentation: Deferred tax assets associated with disallowed interest deductions were reclassed from net operating loss carryforwards to interest expense and the deferred tax asset associated with the unamortized premium on the DSS Notes was reclassed from intangible assets to interest expense.
On December 22, 2017, the U.S. government enacted the Tax Act, which significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35% to 21%, limiting various business deductions and repealing the corporate alternative minimum tax. Many provisions in the Tax Act are generally effective in tax years beginning after December 31, 2017. U.S. GAAP requires the impact of tax legislation to be recognized in the period in which the law was enacted. As a result of the Tax Act, we recorded tax benefits in the fourth quarter of 2017 of $32.2 million due to a re-measurement of the U.S deferred tax assets and liabilities and $1.3 million due to the repeal of the corporate alternative minimum tax. The tax benefits represent provisional amounts and our current best estimates. The provisional amounts incorporate assumptions made based upon our current interpretation of the Tax Act and may be refined through the fourth quarter of 2018 as we receive additional clarification and implementation guidance.
As a result of adopting ASU2016-09 in 2016 on a modified retrospective basis, with a cumulative effect adjustment to opening retained earnings, the table of deferred tax assets and liabilities shown above includes deferred tax assets at December 31, 2016 that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting.
| | | | | | | | | | | |
| (in millions of U.S. dollars) | December 30, 2023 | | December 31, 2022 |
| Deferred tax assets | | | |
| Net operating loss carryforwards | $ | 108.0 | | | $ | 116.1 | |
| Capital loss carryforwards | 17.8 | | | 15.2 | |
| Liabilities and reserves | 28.6 | | | 23.3 | |
| Stock options | 9.3 | | | 10.4 | |
| Inventories | 2.2 | | | 2.2 | |
| Interest expense | 26.6 | | | 25.5 | |
| | | |
| Right of use lease obligations | 41.3 | | | 43.8 | |
| | | |
| 233.8 | | | 236.5 | |
| Deferred tax liabilities | | | |
| Property, plant and equipment | (54.0) | | | (66.1) | |
| Intangible assets | (151.1) | | | (154.0) | |
| Right of use assets | (37.4) | | | (40.6) | |
| | | |
| Other | (3.7) | | | (2.5) | |
| (246.2) | | | (263.2) | |
| Valuation allowance | (131.6) | | | (115.5) | |
| Net deferred tax liability | $ | (144.0) | | | $ | (142.2) | |
As of December 30, 2017,2023, we have outside tax basis differences, including undistributed earnings, in our foreign subsidiaries. For 2017, we recorded a2023, deferred tax asset of $3.8 million with a corresponding valuation allowance for the reversal of certain outside basis differences related to the divestiture of the Traditional Business. Deferred taxes have not been recorded on the remaining undistributed earnings because theour foreign subsidiary hassubsidiaries have the ability to repatriate funds to itstheir respective parent companytax-efficiently or the undistributed earnings are indefinitely reinvested under the accounting guidance. In order to arrive at this conclusion, we considered factors including, but not limited to, past experience, domestic cash requirements, cash requirements to satisfy the ongoing operations, capital expenditures and other financial obligations of our subsidiaries. It is not practicable to determine the excess book basis over
outside tax basis in the shares or the amount of incremental taxes that might arise if these earnings were to be remitted. The amount of tax payable could be significantly impacted by the jurisdiction in which a distribution was made, the amount of the distribution, foreign withholding taxes under applicable tax laws when distributed, relevant tax treaties and foreign tax credits. We repatriated earnings of
$27.5$87.3 million
nil, and
$17.3$17.0 million to Canada
in 2017, 2016during the fiscal years ended December 30, 2023 and
2015,December 31, 2022, respectively, incurring no tax expense.
As of December 30,
2017,2023, we have operating loss carryforwards totaling
$785.0$411.5 million, capital loss carryforwards totaling
$17.8$67.0 million, and
tax credit carryforwards totaling
$4.1 million.nil. The operating loss carryforward amount was attributable to Canadian operating loss carryforwards of
$129.6$302.3 million that will expire from
20272024 to
2038;2043; U.S. federal and state operating loss carryforwards of
$459.2$63.6 million and
$19.6$8.5 million, respectively, that will
predominantly expire from
20182024 to
2038; Dutch operating loss carryfowards of $102.1 million that will expire from 2018 to 2024; and various other2036; U.S. federal operating loss carryforwards of
$74.5$36.4 million that
will expire from 2018 to 2038.have indefinite lives; and United Kingdom operating loss carryforwards of $0.7 million that have indefinite lives.
The capital loss carryforward is attributable
primarily to Canadian capital losses of
$12.9 million and Israeli capital losses of $4.9$67.0 million, all with indefinite lives.
The credit carryforward is attributable to a refundable U.S. federal alternative minimum tax credit carryforward of $1.3 million, other U.S. federal credit carryforwards with a limited carryforward life of $0.9 million, and U.S. state credit carryforwards of $1.9 million that will expire from 2018 to 2022.In general, under Section 382 and 383 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), a U.S. corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its
pre-change net operating losses (“NOLs”) or tax credits to offset future taxable income. Therefore, current or future changes in our Canadian stock ownership, many of which are outside of our control, could result in a U.S. ownership change under Section 382 and 383 of the Code. If we undergo a U.S. ownership change, our ability to utilize U.S. federal or state NOLs or tax credits could be limited. We monitor changes in our ownership on an ongoing basis and do not believe we had a change of control limitation as of December 30,
2017.2023.
We establish a valuation allowance to reduce deferred tax assets if, based on the weight of the available evidence, both positive and negative, for each respective tax jurisdiction, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Due to recent cumulative losses, it was determined
in 2016 that it is more likely than not we will not realize the benefit of net operating loss carryforwards and other net deferred assets in
the U.S., Canada, and certain jurisdictions within the Eden business.Canada. The balance of the valuation allowance was
$129.1$131.6 million and
$117.7$115.5 million for the
fiscal years ended December 30,
20172023 and December 31,
2016,2022, respectively. The valuation allowance increase in
20172023 was
related primarily
related to losses
generated in tax jurisdictions with existing valuation
allowances, but this increase was largely offset with valuation allowance reductions related to U.S. tax reform and recent acquisitions.allowances.
Additionally, we have determined that it is more likely than not that the benefit from our capital losses in Canada
and Israel will not be realized in the future due to the uncertainty regarding potential future capital gains in the jurisdiction. In recognition of this risk, we have provided a valuation allowance of
$4.5$17.8 million on our capital losses.
The Transaction is anticipated to generate a taxable gain on sale in the U.S. which could result in a U.S. valuation allowance release and recognition of a material income tax benefit within the next twelve months.
Unrecognized Tax Benefits
A reconciliation of the beginning and ending amount of our unrecognized tax benefits is as follows:
| | | | | | | | | | | | |
| | | For the Year Ended | |
(in millions of U.S. dollars) | | December 30,
2017 | | | December 31,
2016 | | | January 2,
2016 | |
Unrecognized tax benefits at beginning of year | | $ | 28.6 | | | $ | 9.9 | | | $ | 12.3 | |
Additions based on tax positions taken during a prior period | | | 0.2 | | | | 0.2 | | | | 0.2 | |
Reductions based on tax positions taken during a prior period | | | (6.3 | ) | | | — | | | | (1.6 | ) |
Settlement on tax positions taken during a prior period | | | (1.0 | ) | | | (4.5 | ) | | | (0.6 | ) |
Tax rate change | | | (4.5 | ) | | | — | | | | — | |
Lapse in statute of limitations | | | (3.2 | ) | | | (0.1 | ) | | | (1.8 | ) |
Additions based on tax positions taken during the current period | | | 1.7 | | | | 24.0 | | | | 1.9 | |
Foreign exchange | | | 0.7 | | | | (0.9 | ) | | | (0.5 | ) |
| | | | | | | | | | | | |
Unrecognized tax benefits at end of year | | $ | 16.2 | | | $ | 28.6 | | | $ | 9.9 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| For the Fiscal Year Ended |
| (in millions of U.S. dollars) | December 30, 2023 | | December 31, 2022 | | January 1, 2022 |
| Unrecognized tax benefits at beginning of year | $ | 15.9 | | | $ | 16.4 | | | $ | 13.8 | |
| Additions based on tax positions taken during a prior period | 1.0 | | | — | | | 1.1 | |
| | | | | |
| | | | | |
| | | | | |
| Additions related to acquired entities | — | | | — | | | 1.7 | |
| Lapse in statute of limitations | (9.7) | | | (1.8) | | | (1.9) | |
| Additions based on tax positions taken during the current period | 1.9 | | | 1.8 | | | 1.7 | |
| | | | | |
| Foreign exchange | 0.3 | | | (0.5) | | | — | |
| Unrecognized tax benefits at end of year | $ | 9.4 | | | $ | 15.9 | | | $ | 16.4 | |
As of December 30,
2017,2023, we had
$16.2$9.4 million of unrecognized tax benefits, a net decrease of
$12.4$6.5 million from
$28.6$15.9 million as of December 31,
2016.2022. If we recognized our tax positions, approximately
$6.2$3.1 million would favorably impact the effective tax rate. We believe it is reasonably possible that our unrecognized tax benefits will decrease or be recognized in the next twelve months by up to
$3.6$2.0 million due to the settlement of certain tax positions and lapses in statutes of limitation in various tax jurisdictions.
We recognize interest and penalties related to unrecognized tax benefits in the provision for income taxes.
We recovered nil ofThere were net interest and penalties
of $1.0 million, nil and nil recovered during the
fiscal years ended December 30,
2017,2023, December 31,
20162022 and January
2, 2016.1, 2022, respectively. The amount of interest and penalties recognized
inon the Consolidated Balance Sheets
for 2017as of December 30, 2023 and
2016December 31, 2022 were a liability of $0.7 million and
$1.8$1.7 million, respectively.
Years through 2009
We are subject to taxation in Canada, the United States, and other foreign jurisdictions. With few exceptions, we are no longer subject to income tax examination for years prior to 2020. To the extent that income tax attributes such as net operating losses and tax credits have been
audited by the U.S. Internal Revenue Service, though the statutes are still open back to 2008 due to certain net operating loss carryforwards. Yearscarried forward from years prior to
2012 are closed2020, those attributes can still be audited when utilized on returns subject to
audit by U.S. state jurisdictions.audit. We are currently under audit in Canada by the Canada Revenue Agency (“CRA”) for tax years
2013 to 2015. Years prior to 2012 are closed to audit by the CRA. We are currently under audit in Israel for the 2013 to 2015 tax years2016, 2017, 2019 and
in Poland for the 2014 and 2016 tax years.2021.
Note
7—Share-based8—Share-Based Compensation
Our shareowners approved our Amended and Restated
CottPrimo Water Corporation Equity Incentive Plan (the “Amended and Restated Equity Plan”) in
its current form in May
2015. Awards under2016, and approved the Primo Water Corporation 2018 Equity Incentive Plan (“2018 Equity Plan” and together with the Amended and Restated Equity Plan,
the “Equity Plans”) in May 2018. Awards under the Equity Plans may be in the form of incentive stock options,
non-qualified stock options, restricted shares, restricted share units, performance shares, performance units, stock appreciation rights, and stock payments to employees, directors and outside consultants. The
Amended and Restated Equity
Plan isPlans are administered by the Human Resources and Compensation Committee (“HRCC”)
of the Board of Directors or any other
boardBoard committee as may be designated by the
boardBoard of Directors from time to time. Under the Amended and Restated Equity Plan, 20,000,000
shares are reserved for future issuance, and under the 2018 Equity Plan, 8,000,000 shares are reserved for future issuance, subject to adjustment upon a share split, share dividend, recapitalization, and other similar transactions and events. Shares that are issued under the
Amended and Restated Equity
PlanPlans are applied to reduce the maximum number of shares remaining available for issuance under the
Amended and Restated Equity
Plan;Plans; provided that the total number of shares available for issuance under the
Amended and Restated Plan isEquity Plans are reduced two shares for each share issued pursuant to a “full-value” award (i.e., an award other than
ana stock option or stock appreciation right).
Shares to be issued pursuant to Time-based RSUs, Performance-based RSUs, or stock options that are forfeited, expired, or are
cancelledcanceled or settled without the issuance of shares return to the pool of shares available for issuance under the
Amended and Restated Equity
Plan.Plans. As of December 30,
2017,2023, there were
2,432,533approximately 819,000 shares available for future issuance under the Amended and Restated Equity
Plan, and approximately 1,406,000 shares available for future issuance under the 2018 Equity Plan.
The table below summarizes the share-based compensation expense for the
fiscal years ended December 30,
2017,2023, December 31,
2016,2022, and January
2, 2016.1, 2022. Share-based compensation expense is recorded in SG&A expenses in the Consolidated Statements of Operations. As referenced below: (i) “Performance-based RSUs” represent restricted share units with performance-based vesting, (ii) “Time-based RSUs” represent restricted share units with time-based vesting, (iii) “Stock options” represent
non-qualified stock options, (iv) “Director share awards” represent common shares issued in consideration of the annual
boardBoard retainer fee to
non-management members of our
board of directors,Board, and (v) the “ESPP” represents the
CottPrimo Water Corporation Employee Share Purchase Plan, under which common shares are issued to eligible employees at a discount through payroll deductions.
| | | | | | | | | | | | |
| | | For the Year Ended | |
(in millions of U.S. dollars) | | December 30,
2017 | | | December 31,
2016 | | | January 2,
2016 | |
Stock options | | $ | 5.5 | | | $ | 3.7 | | | $ | 1.9 | |
Performance-based RSUs | | | 12.0 | | | | 1.3 | | | | 4.9 | |
Time-based RSUs | | | 4.2 | | | | 3.3 | | | | 2.4 | |
Director share awards | | | 1.1 | | | | 0.9 | | | | 1.0 | |
Employee Share Purchase Plan | | | 0.1 | | | | 0.2 | | | | 0.1 | |
| | | | | | | | | | | | |
Total 1 | | $ | 22.9 | | | $ | 9.4 | | | $ | 10.3 | |
| | | | | | | | | | | | |
1. | Includes $5.4 | | | | | | | | | | | | | | | | | | | For the Fiscal Year Ended | | (in millions of U.S. dollars) | December 30, 2023 | | December 31, 2022 | | January 1, 2022 | | Stock options | $ | 0.2 | | | $ | 0.8 | | | $ | 3.0 | | | Performance-based RSUs | 9.3 | | | 6.5 | | | 7.4 | | | Time-based RSUs | 3.9 | | | 8.4 | | | 5.5 | | | Director share awards | 1.3 | | | 1.2 | | | 1.3 | | | | | | | | | ESPP | 0.2 | | | 0.3 | | | 0.3 | | Total 1 | $ | 14.9 | | | $ | 17.2 | | | $ | 17.5 | |
______________________ 1 Includes $0.8 million, $0.8 million, $2.4 million and $2.7 million of share-based compensation expense from our discontinued operations, which were included in net income (loss) from discontinued operations, net of income taxes on the Consolidated Statements of Operations for the years ended December 30, 2017, December 31, 2016 and January 2, 2016, respectively. |
During the third quarter of 2017, in connection with the sale of the Traditional Business and upon a determination by the HRCC, outstanding awards granted to Traditional Business employees vested as follows: outstanding time-based RSUs vested in full, outstanding unvested stock options vested in full (and remain exercisable for three years from the date of closing of the Transaction), and outstanding performance-based RSUs vested in full, assuming achievement of the applicablepre-tax income level at the “target” level. As a result, an additional $1.2$2.0 million of share-based compensation expense was recorded for the year ended December 30, 2017 andfrom our discontinued operations, which is included in netNet income (loss) from discontinued operations, net of income taxes on the Consolidated StatementStatements of Operations.
Operations for the fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022, respectively.
The tax benefit recognizedrecognized related to share-based compensation expense for the fiscal yearyears ended December 30, 2017 2023, December 31, 2022, and January 1, 2022 was $0.5 $3.0 million, (December 31, 2016 - $2.8 million; January 2, 2016 - $2.7 million).$3.4 million, and $2.2 million, respectively.
As of December 30, 2017,2023, the unrecognized share-based compensation expense and weighted averagethe weighted-average number of years over which we expect it to recognize it as compensation expensebe recognized were as follows: | | | | | | | | |
(in millions of U.S. dollars, except years) | | Unrecognized share-based
compensation expense
as of December 30, 2017 | | | Weighted average years
expected to recognize
compensation | |
Stock options | | $ | 5.3 | | | | 1.6 | |
Performance-based RSUs | | | 12.8 | | | | 2.0 | |
Time-based RSUs | | | 3.7 | | | | 1.6 | |
| | | | | | | | |
Total | | $ | 21.8 | | | | | |
| | | | | | | | |
| | | | | | | | | | | |
| (in millions of U.S. dollars, except years) | Unrecognized share-based compensation expense as of December 30, 2023 | | Weighted-average years expected to recognize compensation |
| | | |
| Performance-based RSUs | $ | 11.9 | | | 2.4 years |
| Time-based RSUs | 4.3 | | | 2.0 years |
| Total | $ | 16.2 | | | |
During 2017, 2016the fiscal years ended December 30, 2023 and 2015December 31, 2022, no stock options were granted to employees. During the fiscal year endedJanuary 1, 2022, approximately 734,500, 2,975,500, and 684,00018,000 stock options were granted to certain employees under the Amended and Restated Equity PlanPlans at a weighted-average exercise price of $17.50, $11.15, and $9.22$17.79 per share, respectively.share. The weighted-average grant date fair value of the stock options granted during the year endedJanuary 1, 2022 was estimated to be $4.82, $2.84, and $4.31$5.47 per share in 2017, 2016 and 2015, respectively, using the Black-Scholes option pricing model. The contractual term of ana stock option granted is fixed by the Amended and Restated Equity planPlan and cannot exceed ten years from the grant date. The grant date fair value of each optionstock options granted during 2017, 2016 and 2015the fiscal year endedJanuary 1, 2022 was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: | | | | | | | | | | | | |
| | | For the Year Ended | |
| | | December 30,
2017 | | | December 31,
2016 | | | January 2,
2016 | |
Risk-free interest rate | | | 2.3 | % | | | 1.9 | % | | | 2.0 | % |
Average expected life (years) | | | 6.0 | | | | 6.2 | | | | 10.0 | |
Expected volatility | | | 29.2 | % | | | 30.7 | % | | | 58.7 | % |
Expected dividend yield | | | 1.4 | % | | | 2.2 | % | | | 3.0 | % |
| | | | | | | |
| | | For the Fiscal Year Ended |
| | | January 1, 2022 |
| Risk-free interest rate | | | 1.2 | % |
| Average expected life (years) | | | 6.0 |
| Expected volatility | | | 35.9 | % |
| Expected dividend yield | | | 1.4 | % |
The following table summarizes the activity for
Company stock options:
| | | | | | | | | | | | | | | | |
| | | Stock
Options
(in thousands) | | | Weighted
average
exercise
price | | | Weighted
average
contractual term
(years) | | | Aggregate
intrinsic
value
(in thousands) | |
Outstanding at January 3, 2015 | | | 1,221 | | | $ | 7.77 | | | | 7.6 | | | $ | 400.7 | |
| | | | | | | | | | | | | | | | |
Granted | | | 684 | | | | 9.22 | | | | | | | | | |
Exercised | | | (113 | ) | | | 4.94 | | | | | | | | 637.4 | |
Forfeited or expired | | | (35 | ) | | | 8.56 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding at January 2, 2016 | | | 1,757 | | | $ | 8.50 | | | | 8.0 | | | $ | 4,373.8 | |
| | | | | | | | | | | | | | | | |
Granted | | | 2,976 | | | | 11.15 | | | | | | | | | |
Exercised | | | (238 | ) | | | 7.29 | | | | | | | | 2,304.7 | |
Forfeited or expired | | | (21 | ) | | | 9.99 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding at December 31, 2016 | | | 4,474 | | | $ | 10.32 | | | | 8.8 | | | $ | 5,623.3 | |
| | | | | | | | | | | | | | | | |
Granted | | | 734 | | | | 17.50 | | | | | | | | | |
Exercised | | | (169 | ) | | | 9.21 | | | | | | | | 1,092.9 | |
Forfeited or expired | | | (33 | ) | | | 10.28 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding at December 30, 2017 | | | 5,006 | | | $ | 11.41 | | | | 8.1 | | | $ | 26,952.3 | |
| | | | | | | | | | | | | | | | |
Exercisable at December 30, 2017 | | | 2,402 | | | $ | 9.74 | | | | 6.1 | | | $ | 16,647.8 | |
| | | | | | | | | | | | | | | | |
Vested or expected to vest at December 30, 2017 | | | 5,006 | | | $ | 11.41 | | | | 7.8 | | | $ | 26,952.3 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of Stock options (in thousands) | | Weighted-average exercise price | | Weighted-average contractual term (years) | | Aggregate intrinsic value (in thousands) |
| Outstanding as of January 2, 2021 | 7,270 | | | $ | 13.07 | | | 6.5 | | $ | 20,659.3 | |
| Granted | 18 | | | 17.79 | | | | | |
| Exercised | (2,382) | | | 10.32 | | | | | 17,439.4 | |
| Forfeited or expired | (51) | | | 13.62 | | | | | |
| Outstanding as of January 1, 2022 | 4,855 | | | $ | 14.42 | | | 6.0 | | $ | 15,588.1 | |
| | | | | | | |
| Exercised | (126) | | | 10.65 | | | | | 729.9 | |
| Forfeited or expired | (205) | | | 14.51 | | | | | |
| Outstanding as of December 31, 2022 | 4,524 | | | $ | 14.52 | | | 5.2 | | $ | 6,482.0 | |
| | | | | | | |
| Exercised | (364) | | | 13.48 | | | | | 771.5 | |
| Forfeited or expired | (479) | | | 16.89 | | | | | |
| Outstanding as of December 30, 2023 | 3,681 | | | $ | 14.31 | | | 4.5 | | $ | 4,502.4 | |
| Exercisable as of December 30, 2023 | 3,677 | | | $ | 14.31 | | | 4.5 | | $ | 4,502.4 | |
| Vested or expected to vest as of December 30, 2023 | 3,681 | | | $ | 14.31 | | | 4.5 | | $ | 4,502.4 | |
The aggregate intrinsic value amounts in the table above represent the difference between the closing price of our common shares on the New York Stock Exchange on December 29,
2017,2023, December 30, 2022, and December 31, 2021 which was
$16.66 (December 30, 2016—$11.33; December 31, 2015—$10.99),$15.05, $15.54, and $17.63, respectively, and the exercise price, multiplied by the number of
in-the-money stock options as of the same date.
Stock options granted during the year ended December 30, 2017 vest in three equal annual installments on the first, second and third anniversaries of the date of grant.
The total amount of cash received from the exercise of stock options was $1.6 million during the fiscal yearyears ended December 30, 2017 with no associated tax benefit realized. The total amount of cash received from the exercise of stock options was $1.7 million during the fiscal year ended2023, December 31, 20162022, and January 1, 2022 was $4.6 million, $0.8 million, and $23.8 million, respectively, with an associated tax benefit of $0.1 million, nil, and $1.3 million. The total amount of cash received from the exercise of stock options was $0.5 million, during the fiscal year ended January 2, 2016 with no associated tax benefit realized. respectively.
The total fair value of options that vested during the fiscal years ended December 30, 2023, December 31, 2022, and January 1, 2022 was $4.2 million, $8.3 million, and $16.7 million, respectively.
Other Awards
During the year ended December 30,
2017 was $16.4 million (December 31, 2016 — $1.6 million; January 2, 2016 — $1.5 million).Other Awards
In 2017,2023, we granted 84,06076,024 common shares to thenon-management members of our boardBoard of directorsDirectors under the Amended and Restated Equity PlanPlans with a grant date fair value of approximately $1.1$1.3 million. The common shares were issued in consideration of the directors’ annual boardBoard retainer fee and were vested upon issuance.
Additionally, in 2017,
During the year ended December 30, 2023, we granted 33,03028,000 Performance-based RSUs subject to the prior year vesting schedule and objectives. We also granted 412,000 Performance-based RSUs, which vest at the end of a three-year performance period beginning on the first day of our 2024 fiscal year and ending on the last day of our 20192026 fiscal year and 202,269 Performance-based RSUs, which vest on the last day of our 2020 fiscal year.("2024 Performance Awards"). The number of shares ultimately awarded will be based upon the performance percentage,payout rate, which can range from 0% to 200% of the awards granted. The Performance-based RSUsDuring 2023, the HRCC determined that the 2024 Performance Awards will vest primarilybased on the Company’s achievement of a specified level of cumulativepre-tax incomeaverage annual return on invested capital ("ROIC") and Relative TSR for the applicable performance period.period (the “Performance Objectives”). The number of Performance-based RSUs that may vest, and the related unrecognized compensation cost is subject to change based on the level of targetedpre-tax income that isPerformance Objectives achieved during the vesting period. The Company alsoAdditionally, we granted 134,840231,000 Time-based RSUs, which vest over two to three years in three equal annual installments on the first, second and third anniversaries of the date of grant and are based uponinclude a service condition. | | | | | | | | | | | | | | | | | | | | |
| | | | | | Number of
Performance-
based RSUs
(in thousands) | | | Weighted Average
Grant-Date
Fair Value | | | Number of
Time-based
RSUs
(in thousands) | | | Weighted Average
Grant-Date
Fair Value | |
Balance at January 3, 2015 | | | | | | | 1,782 | | | | 7.01 | | | | 664 | | | | 8.63 | |
| | | | | | | | | | | | | | | | | | | | |
Awarded | | | | | | | 320 | | | | 9.22 | | | | 213 | | | | 9.22 | |
Awarded in connection with modification | | | | | | | 55 | | | | 7.90 | | | | — | | | | — | |
Issued | | | | | | | (255 | ) | | | 6.87 | | | | (10 | ) | | | 8.60 | |
Forfeited | | | | | | | (24 | ) | | | 8.61 | | | | (40 | ) | | | 8.67 | |
| | | | | | | | | | | | | | | | | | | | |
Balance at January 2, 2016 | | | | | | | 1,878 | | | | 7.41 | | | | 827 | | | | 8.78 | |
| | | | | | | | | | | | | | | | | | | | |
Awarded | | | | | | | 835 | | | | 11.18 | | | | 503 | | | | 11.18 | |
Awarded in connection with acquisitions1 | | | | | | | 584 | | | | 15.81 | | | | 514 | | | | 16.52 | |
Issued2 | | | | | | | — | | | | — | | | | (1,027 | ) | | | 12.01 | |
Cancelled | | | | | | | (224 | ) | | | 9.29 | | | | — | | | | — | |
Forfeited | | | | | | | (10 | ) | | | 9.24 | | | | (17 | ) | | | 8.50 | |
| | | | | | | | | | | | | | | | | | | | |
Outstanding at December 31, 2016 | | | | | | | 3,063 | | | $ | 9.89 | | | | 800 | | | $ | 11.10 | |
| | | | | | | | | | | | | | | | | | | | |
Awarded | | | | | | | 235 | | | | 17.06 | | | | 135 | | | | 17.50 | |
Awarded in connection with modification | | | | | | | 64 | | | | 11.32 | | | | — | | | | — | |
Issued | | | | | | | (320 | ) | | | 8.00 | | | | (409 | ) | | | 10.55 | |
Forfeited | | | | | | | (143 | ) | | | 15.18 | | | | (24 | ) | | | 12.28 | |
| | | | | | | | | | | | | | | | | | | | |
Outstanding at December 30, 2017 | | | | | | | 2,899 | | | | 9.15 | | | | 502 | | | | 13.14 | |
| | | | | | | | | | | | | | | | | | | | |
Vested or expected to vest at December 30, 2017 | | | | | | | 2,235 | | | $ | 12.21 | | | | 493 | | | $ | 13.13 | |
| | | | | | | | | | | | | | | | | | | | |
1. | Represents shares that were awarded to Eden and S&D employees in connection with the Eden Acquisition and S&D Acquisition. |
2. | Includes 416,951 common shares granted to certain S&D employees in connection with the S&D Acquisition; the common shares were fully vested upon issuance. |
The grant date fair value of the 2024 Performance Awards was estimated at the grant date using the Monte-Carlo simulation model with the following weighted-average assumptions: | | | | | |
| For the Fiscal Year Ended |
| December 30, 2023 |
| Risk-free interest rate | 4.3 | % |
| Average expected life (years) | 3.07 |
| Expected volatility | 28.5 | % |
| Beginning TSR price | $ | 14.67 |
The risk-free rate is based on the U.S. Treasury yield in effect at the grant date with a term equal to the simulation period used in the Monte-Carlo simulation model. The simulation period is equal to the performance periods associated with the performance shares. Volatility is based on the Company's historical data. Beginning TSR price is equal to the average closing price for the last eight trading days immediately prior to the grant date.
The following table summarizes the activity for the Company's other awards:
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of Performance-based RSUs (in thousands) | | Weighted-average grant date fair value | | Number of Time-based RSUs (in thousands) | | Weighted-average grant date fair value |
| Balance as of January 2, 2021 | 1,185 | | | $ | 15.27 | | | 548 | | | $ | 14.75 | |
| Awarded | 484 | | | 17.06 | | | 665 | | | 16.50 | |
| Awarded in connection with modification | 119 | | | 17.46 | | | — | | | — | |
| Issued | (467) | | | 17.46 | | | (266) | | | 14.59 | |
| Forfeited | (75) | | | 15.02 | | | (62) | | | 14.88 | |
| Balance as of January 1, 2022 | 1,246 | | | $ | 15.65 | | | 885 | | | $ | 16.10 | |
| Awarded | 529 | | | 15.20 | | | 413 | | | 15.10 | |
| Awarded in connection with modification | 44 | | | 14.61 | | | — | | | — | |
| Issued | (319) | | | 14.61 | | | (420) | | | 15.74 | |
| Forfeited | (49) | | | 16.10 | | | (29) | | | 16.42 | |
| Outstanding as of December 31, 2022 | 1,451 | | | $ | 15.65 | | | 849 | | | $ | 15.78 | |
| Awarded | 440 | | | 18.46 | | | 231 | | | 14.72 | |
| Awarded in connection with modification | 228 | | | 13.88 | | | — | | | — | |
| Issued | (515) | | | 13.88 | | | (460) | | | 15.54 | |
| Forfeited | (101) | | | 16.26 | | | (76) | | | 15.52 | |
| Outstanding as of December 30, 2023 | 1,503 | | | $ | 16.61 | | | 544 | | | $ | 15.29 | |
| Vested or expected to vest as of December 30, 2023 | 1,865 | | | $ | 16.55 | | | 544 | | | $ | 15.29 | |
The total fair value of Performance-based RSUs vested and issued during the fiscal years ended December 30, 20172023, December 31, 2022 and January 2, 2016 were $2.61, 2022 was $7.1 million, $4.7 million and $1.8 million. There were no Performance-based RSUs vested and issued during the year ended December 31, 2016. $8.1 million, respectively.
The total fair value of Time-based RSUs vested and issued during the
fiscal years ended December 30,
2017,2023, December 31,
2016,2022, and January
2, 2016 were $4.31, 2022 was $7.1 million,
$12.3$6.6 million, and
$0.1 million.$3.9 million, respectively.
Employee Share Purchase Plan
The Company has maintained the
CottPrimo Water Corporation Employee Share Purchase Plan (the “ESPP”) since 2015. The ESPP qualifies as an “employee share purchase plan” under Section 423 of the Internal Revenue Code of 1986 (“IRC”), as amended. Substantially all employees are eligible to participate in the ESPP and may elect to participate at the beginning of any quarterly offering period. The ESPP authorizes the issuance, and the purchase by eligible employees, of up to 3,000,000 shares of
CottPrimo common shares through payroll deductions.
As of December 30, 2023, 2,091,606 shares remained available for issuance under the ESPP. Eligible employees who choose to participate may purchase
CottPrimo common shares at 90% of market value on the first or last day of the quarterly offering period, whichever is lower. The minimum contribution which an eligible employee may make under the ESPP is 1% of the employee’s eligible compensation, with the maximum contribution limited to 15% of the employee’s eligible compensation. At the end of each quarterly offering period for which the employee participates, the total amount of each employee’s payroll deduction for that offering period will be used to purchase
CottPrimo common shares. The Company recognized
$0.1 million, $0.2 million,
$0.3 million and
$0.1$0.3 million of share-based compensation expense in SG&A expenses in the Consolidated
StatementStatements of Operations for
2017, 2016 and 2015, respectively. Atthe years ended December 30,
2017, 2,735,506 shares remained available for issuance under the ESPP.2023, December 31, 2022, and January 1, 2022, respectively.
Note
8—9—Common Shares and Net
Income (Loss)
Income per Common Share
On JuneAugust 9, 2023, the Board of Directors approved a share repurchase program for up to $50.0 million of our outstanding common shares. Upon the closing of the European Divestiture on December 29, 2016,2023, an incremental $25.0 million share repurchase was authorized, revising the total share repurchase authorization to $75.0 million. During the fiscal year ended December 30, 2023, we completed a public offering, on a bought deal basis, of 15,088,000repurchased 131,409 common shares atfor $1.9 million through open market transactions under this repurchase plan.
On August 9, 2022, the Board of Directors approved a
price of $15.25 per share
repurchase program for
total gross proceedsup to
us of $230.1 million (the “June 2016 Offering”). We incurred and recorded $9.2$100.0 million of
underwriter commissions and $1.1 million in professional fees in connection with the June 2016 Offering. The net proceeds of the June 2016 Offering were used to repay borrowings under our
ABL facility, to finance the S&D Acquisition and for general corporate purposes.On March 9, 2016, we completed a public offering, on a bought deal basis, of 12,765,000outstanding common shares atover a price12-month period that expired on August 14, 2023. During the fiscal year ended December
30, 2023, we repurchased 1,272,612 common shares for $19.0 million through open market transactions under this repurchase plan. During the fiscal year ended December 31, 2022, we repurchased 1,753,479 common shares for $23.8 million through open market transactions under this repurchase plan.
On May 4, 2021, the Board of $11.80 perDirectors approved a share repurchase program for total gross proceedsup to us of $150.6 million (the “March 2016 Offering”). We incurred and recorded $6.0$50.0 million of underwriter commissions and $0.8our outstanding common shares over a 12-month period that expired on May 10, 2022. We repurchased 2,646,831 common shares for $43.5 million through open market transactions under this repurchase plan, all in professional fees in connection with the March 2016 Offering. The net proceeds of the March 2016 Offeringfiscal year ended January 1, 2022.
Shares purchased under these repurchase plans were
used to repay borrowings under our ABL facility and for general corporate purposes.subsequently canceled.
Net
Income (Loss)
Income Per Common Share
Basic net
income (loss)
income per common share is calculated by dividing net
(loss) income
attributable to Cott Corporation(loss) by the
weighted averageweighted-average number of common shares outstanding during the periods presented. Diluted net
income (loss)
income per common share is calculated by dividing diluted net
(loss) income
attributable to Cott Corporation(loss) by the
weighted averageweighted-average number of common shares outstanding adjusted to include the effect, if dilutive, of the exercise of
in-the-money stock options, Performance-based RSUs, and Time-based RSUs during the periods presented.
Set forth below is a reconciliation of the numerator and denominator for the diluted net
income (loss)
income per common share computations for the periods indicated:
| | | | | | | | | | | | |
| | | For the Year Ended | |
| | | December 30,
2017 | | | December 31,
2016 | | | January 2,
2016 | |
Numerator (in millions): | | | | | | | | | | | | |
Net (loss) income attributable to Cott Corporation | | | | | | | | | | | | |
Continuing operations | | $ | (3.6 | ) | | $ | (60.3 | ) | | $ | (2.2 | ) |
Discontinued operations | | | 2.2 | | | | (17.5 | ) | | | (1.2 | ) |
| | | | | | | | | | | | |
Net losses | | | (1.4 | ) | | | (77.8 | ) | | | (3.4 | ) |
| | | | | | | | | | | | |
Basic Earnings Per Share | | | | | | | | | | | | |
Denominator (in thousands): | | | | | | | | | | | | |
Weighted average common shares outstanding - basic | | | 139,078 | | | | 128,290 | | | | 103,037 | |
Basic Earnings Per Share: | | | | | | | | | | | | |
Continuing operations | | | (0.03 | ) | | | (0.47 | ) | | | (0.02 | ) |
Discontinued operations | | | 0.02 | | | | (0.14 | ) | | | (0.01 | ) |
| | | | | | | | | | | | |
Net losses | | | (0.01 | ) | | | (0.61 | ) | | | (0.03 | ) |
| | | | | | | | | | | | |
Diluted Earnings Per Share | | | | | | | | | | | | |
Denominator (in thousands): | | | | | | | | | | | | |
Weighted average common shares outstanding - basic | | | 139,078 | | | | 128,290 | | | | 103,037 | |
Dilutive effect of Stock Options | | | — | | | | — | | | | — | |
Dilutive effect of Performance based RSUs | | | — | | | | — | | | | — | |
Dilutive effect of Time-based RSUs | | | — | | | | — | | | | — | |
| | | | | | | | | | | | |
Weighted average common shares outstanding - diluted | | | 139,078 | | | | 128,290 | | | | 103,037 | |
Diluted Earnings Per Share: | | | | | | | | | | | | |
Continued operations | | | (0.03 | ) | | | (0.47 | ) | | | (0.02 | ) |
Discontinued operations | | | 0.02 | | | | (0.14 | ) | | | (0.01 | ) |
| | | | | | | | | | | | |
Net losses | | | (0.01 | ) | | | (0.61 | ) | | | (0.03 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| For the Fiscal Year Ended |
| December 30, 2023 | | December 31, 2022 | | January 1, 2022 |
| Numerator (in millions): | | | | | |
| Continuing operations | $ | 63.8 | | | $ | 58.7 | | | $ | 4.9 | |
| Discontinued operations | 174.3 | | | (29.1) | | | (8.1) | |
| Net income (loss) | $ | 238.1 | | | $ | 29.6 | | | $ | (3.2) | |
| Basic Earnings Per Share | | | | | |
| Denominator (in thousands): | | | | | |
| Weighted-average common shares outstanding - basic | 159,452 | | | 160,763 | | | 160,778 | |
| Basic Earnings Per Share: | | | | | |
| Continuing operations | $ | 0.40 | | | $ | 0.36 | | | $ | 0.03 | |
| Discontinued operations | $ | 1.09 | | | $ | (0.18) | | | $ | (0.05) | |
| Net income (loss) | $ | 1.49 | | | $ | 0.18 | | | $ | (0.02) | |
| Diluted Earnings Per Share | | | | | |
| Denominator (in thousands): | | | | | |
| Weighted-average common shares outstanding - basic | 159,452 | | | 160,763 | | | 160,778 | |
| Dilutive effect of Stock options | 238 | | | 261 | | | — | |
| Dilutive effect of Performance-based RSUs | 467 | | | 445 | | | — | |
| Dilutive effect of Time-based RSUs | 462 | | | 416 | | | — | |
| Weighted-average common shares outstanding - diluted | 160,619 | | | 161,885 | | | 160,778 | |
| Diluted Earnings Per Share: | | | | | |
| Continued operations | $ | 0.40 | | | $ | 0.36 | | | $ | 0.03 | |
| Discontinued operations | $ | 1.08 | | | $ | (0.18) | | | $ | (0.05) | |
| Net income (loss) | $ | 1.48 | | | $ | 0.18 | | | $ | (0.02) | |
The following table summarizes anti-dilutive securities excluded from the computation of diluted net
income (loss)
income per common share for the periods indicated:
| | | | | | | | | | | | |
| | | For the Year Ended | |
(in thousands) | | December 30,
2017 | | | December 31,
2016 | | | January 2,
2016 | |
Stock options | | | 5,006 | | | | 4,474 | | | | 1,757 | |
Performance-based RSUs1 | | | 2,235 | | | | 2,070 | | | | 1,631 | |
Time-based RSUs2 | | | 493 | | | | 800 | | | | 827 | |
1. | Performance-based RSUs represent the number of shares expected to be issued based on the estimated achievement ofpre-tax income for these awards. |
2. | Time-based RSUs represent the number of shares expected to be issued based on known employee retention information. |
| | | | | | | | | | | | | | | | | |
| | For the Fiscal Year Ended |
| (in thousands) | December 30, 2023 | | December 31, 2022 | | January 1, 2022 |
| Stock options | 2,138 | | | 2,838 | | | 4,855 | |
Performance-based RSUs 1 | 1,469 | | | 979 | | | 1,524 | |
Time-based RSUs 2 | — | | | — | | | 885 | |
______________________
1 Performance-based RSUs represent the number of shares expected to be issued based on the estimated achievement of the performance metric for these awards.
2 Time-based RSUs represent the number of shares expected to be issued based on known employee retention information.
Note
9—10—Segment Reporting
Our broad portfolio of products
includeincludes bottled water,
coffee, brewed tea, water dispensers,
coffeepurified bottled water, self-service refill drinking water, filtration units, premium spring, sparkling and
tea brewers, speciality coffee, liquid coffee or tea concentrate, single cup coffee, cold brewed coffee, iced blend coffee or tea beverages, blended teas, hot tea, sparkling tea, coffee or tea extract solutions, filtration equipment, hot chocolate, soups, malt drinks, creamers/whiteners, cereals, beverage concentratesflavored essence water, mineral water, and
mineral water.Atcoffee.
During the
beginningfourth quarter of
2017,2023, we reviewed and realigned our
business operated through four reporting
segments: Water and Coffee Solutions (which includedsegments to exclude the businesses within discontinued operations. Our sole reporting segment is North America, which includes our DSS, Aquaterra,
EdenMountain Valley, and
S&D businesses), Cott North America, Cott U.K.Legacy Primo businesses. The Other category includes our corporate oversight function, other miscellaneous expenses, and
All Other (which includedthe results of our
Mexico and RCI operating segments).Duringbusiness in Russia prior to the exit of the business during the third quarter of 2017, we reviewed our reporting segments as a result of the Transaction. Following such review, we reorganized our reporting segments into three reporting segments: Route Based Services (which includes our DSS, Aquaterra and Eden businesses), Coffee, Tea and Extract Solutions (which includes our S&D business) and All Other (which includes our Aimia, Decantae, and RCI concentrate businesses, our Columbus, Georgia manufacturing facility and other miscellaneous expenses). Our corporate oversight function is not treated as a segment. This function includes certain general and administrative costs that are not allocated to any of the reporting segments. Our segment2022.
Segment reporting results have been recast to reflect these changes for all periods presented.
| | | | | | | | | | | | | | | | | | | | |
| | | December 30, 2017 | |
(in millions of U.S. dollars) | | Route
Based
Services | | | Coffee, Tea
and Extract
Solutions | | | All
Other | | | Corporate | | | Total | |
Revenue, net1 | | $ | 1,501.7 | | | $ | 602.2 | | | $ | 165.8 | | | $ | — | | | $ | 2,269.7 | |
Depreciation and amortization | | | 158.3 | | | | 22.7 | | | | 7.6 | | | | — | | | | 188.6 | |
Operating income (loss) | | | 77.0 | | | | 15.7 | | | | 1.2 | | | | (45.0 | ) | | | 48.9 | |
Property, plant & equipment, net | | | 482.2 | | | | 89.1 | | | | 12.9 | | | | — | | | | 584.2 | |
Goodwill | | | 936.7 | | | | 117.8 | | | | 50.2 | | | | — | | | | 1,104.7 | |
Intangible assets, net | | | 564.5 | | | | 110.8 | | | | 75.8 | | | | — | | | | 751.1 | |
Total segment assets2 | | | 2,343.4 | | | | 455.7 | | | | 207.8 | | | | — | | | | 3,006.9 | |
Additions to property, plant & equipment | | | 99.1 | | | | 19.0 | | | | 3.2 | | | | — | | | | 121.3 | |
1. | All Other includes $41.1 million of related party concentrate sales to discontinued operations for the year ended December 30, 2017. |
2. | Excludes intersegment receivables, investments and notes receivable. |
| | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2016 | |
(in millions of U.S. dollars) | | Route
Based
Services | | | Coffee, Tea
and Extract
Solutions | | | All
Other | | | Corporate | | | Total | |
Revenue, net1 | | $ | 1,224.3 | | | $ | 228.0 | | | $ | 170.9 | | | $ | — | | | $ | 1,623.2 | |
Depreciation and amortization | | | 136.0 | | | | 8.0 | | | | 7.1 | | | | — | | | | 151.1 | |
Operating income (loss) | | | 41.2 | | | | 5.3 | | | | 8.0 | | | | (45.0 | ) | | | 9.5 | |
Property, plant & equipment, net | | | 480.2 | | | | 91.0 | | | | 10.6 | | | | — | | | | 581.8 | |
Goodwill | | | 886.5 | | | | 117.1 | | | | 44.7 | | | | — | | | | 1,048.3 | |
Intangible assets, net | | | 569.6 | | | | 116.6 | | | | 72.8 | | | | — | | | | 759.0 | |
Total segment assets2 | | | 2,287.1 | | | | 463.2 | | | | 170.8 | | | | — | | | | 2,921.1 | |
Additions to property, plant & equipment | | | 87.7 | | | | 6.0 | | | | 1.4 | | | | — | | | | 95.1 | |
1. | All Other includes $37.4 million of related party concentrate sales to discontinued operations for the year ended December 31, 2016. |
2. | Excludes intersegment receivables, investments and notes receivable. |
| | | | | | | | | | | | | | | | | | | | |
| | | January 2, 2016 | |
(in millions of U.S. dollars) | | Route
Based
Services | | | Coffee, Tea
and Extract
Solutions | | | All
Other | | | Corporate | | | Total | |
Revenue, net1 | | $ | 1,021.2 | | | $ | — | | | $ | 166.1 | | | $ | — | | | | 1,187.3 | |
Depreciation and amortization | | | 119.9 | | | | — | | | | 8.4 | | | | — | | | | 128.3 | |
Operating (loss) income | | | 39.0 | | | | — | | | | 8.8 | | | | (29.9 | ) | | | 17.9 | |
Additions to property, plant & equipment | | | 66.9 | | | | — | | | | 2.7 | | | | — | | | | 69.6 | |
1. | All Other includes $36.8 million of related party concentrate sales to discontinued operations for the year ended January 2, 2016. |
| | | | | | | | |
Reconciliation of Segment Assets to Total Assets (in millions of U.S. dollars) | | December 30, 2017 | | | December 31, 2016 | |
Segment assets1 | | $ | 3,006.9 | | | $ | 2,921.1 | |
Assets of discontinued operations1 | | | 1,086.2 | | | | 1,018.6 | |
| | | | | | | | |
Total assets | | $ | 4,093.1 | | | $ | 3,939.7 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | For the Fiscal Year Ended December 30, 2023 |
| (in millions of U.S. dollars) | North America | | | | Other | | | | Total |
| Revenue, net | $ | 1,771.2 | | | | | $ | 0.6 | | | | | $ | 1,771.8 | |
| Depreciation and amortization | 191.9 | | | | | 1.4 | | | | | 193.3 | |
| Operating income (loss) | 222.2 | | | | | (58.8) | | | | | 163.4 | |
| Property, plant and equipment, net | 551.6 | | | | | 4.9 | | | | | 556.5 | |
| Goodwill | 1,002.4 | | | | | 2.2 | | | | | 1,004.6 | |
| Intangible assets, net | 711.3 | | | | | 2.9 | | | | | 714.2 | |
Total segment assets1 | 2,704.1 | | | | | 464.6 | | | | | 3,168.7 | |
| Additions to property, plant and equipment | 137.0 | | | | | 2.2 | | | | | 139.2 | |
______________________1 Excludes intersegment receivables, investments and notes receivable.
| | | | | | | | | | | | | | | | | | | | | |
| | For the Fiscal Year Ended December 31, 2022 |
| (in millions of U.S. dollars) | North America | | | | Other | | | | Total |
| Revenue, net | $ | 1,685.6 | | | | | $ | 7.6 | | | | | $ | 1,693.2 | |
| Depreciation and amortization | 179.6 | | | | | 2.4 | | | | | 182.0 | |
| Operating income (loss) | 203.7 | | | | | (60.2) | | | | | 143.5 | |
| Property, plant and equipment, net | 547.8 | | | | | 1.7 | | | | | 549.5 | |
| Goodwill | 997.2 | | | | | — | | | | | 997.2 | |
| Intangible assets, net | 720.0 | | | | | 3.8 | | | | | 723.8 | |
Total segment assets1 | 2,746.1 | | | | | 44.2 | | | | | 2,790.3 | |
| Additions to property, plant and equipment | 160.0 | | | | | 2.1 | | | | | 162.1 | |
______________________1 Excludes intersegment receivables, investments and notes receivable.
| | | | | | | | | | | | | | | | | |
| | For the Fiscal Year Ended January 1, 2022 |
| (in millions of U.S. dollars) | North America | | Other | | Total |
| Revenue, net | $ | 1,562.9 | | | $ | 13.5 | | | $ | 1,576.4 | |
| Depreciation and amortization | 156.9 | | | 3.3 | | | 160.2 | |
| Operating income (loss) | 146.0 | | | (43.0) | | | 103.0 | |
| Additions to property, plant and equipment | 113.5 | | | 1.7 | | | 115.2 | |
| | | | | | | | | | | |
Reconciliation of Segment Assets to Total Assets (in millions of U.S. dollars) | December 30, 2023 | | December 31, 2022 |
| Segment assets | $ | 3,168.7 | | | $ | 2,790.3 | |
| Assets of discontinued operations | 354.3 | | | 876.7 | |
| Total assets | $ | 3,523.0 | | | $ | 3,667.0 | |
Credit risk arises from the potential default of a customer in meeting its financial obligations to us. Concentrations of credit exposure may arise with a group of customers that have similar economic characteristics or that are located in the same geographic region. The ability of such customers to meet obligations would be similarly affected by changing economic, political or other conditions. We are not currently aware of any facts that would create a material credit risk.
Our Traditional Business experienced some customer concentration. Following the closing of the Transaction on January 30, 2018, we
We have limited customer concentration
of whichas no customer accounts for more than 10% of our net revenues.
Revenues are attributed to countries based on
the location of
the customer. Revenues generated from sales to external customers by geographic area were as follows:
| | | | | | | | | | | | |
| | | For the Year Ended | |
(in millions of U.S. dollars) | | December 30,
2017 | | | December 31,
2016 | | | January 2,
2016 | |
United States | | $ | 1,709.0 | | | $ | 1,299.0 | | | $ | 1,085.6 | |
United Kingdom | | | 160.0 | | | | 130.3 | | | | 101.7 | |
Canada | | | 61.8 | | | | 61.2 | | | | — | |
All other countries | | | 338.9 | | | | 132.7 | | | | — | |
| | | | | | | | | | | | |
Total | | $ | 2,269.7 | | | $ | 1,623.2 | | | $ | 1,187.3 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| For the Fiscal Year Ended |
| (in millions of U.S. dollars) | December 30, 2023 | | December 31, 2022 | | January 1, 2022 |
| United States | $ | 1,706.2 | | | $ | 1,620.0 | | | $ | 1,493.0 | |
| | | | | |
| Canada | 65.6 | | | 65.8 | | | 69.9 | |
| All other countries | — | | | 7.4 | | | 13.5 | |
| Total | $ | 1,771.8 | | | $ | 1,693.2 | | | $ | 1,576.4 | |
Revenues by channel by reporting segment were as follows:
| | | | | | | | | | | | | | | | |
| | | For the Year Ended December 30, 2017 | |
(in millions of U.S. dollars) | | Route
Based
Services | | | Coffee, Tea
and Extract
Solutions | | | All
Other | | | Total | |
Revenue, net | | | | | | | | | | | | | | | | |
Home and office bottled water delivery | | $ | 990.6 | | | $ | — | | | $ | — | | | $ | 990.6 | |
Coffee and tea services | | | 184.2 | | | | 501.7 | | | | 2.6 | | | | 688.5 | |
Retail | | | 166.7 | | | | — | | | | 65.3 | | | | 232.0 | |
Other | | | 160.2 | | | | 100.5 | | | | 97.9 | | | | 358.6 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 1,501.7 | | | $ | 602.2 | | | $ | 165.8 | | | $ | 2,269.7 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | For the Year Ended December 31, 2016 | |
(in millions of U.S. dollars) | | Route
Based
Services | | | Coffee,
Tea and
Extract
Solutions | | | All
Other | | | Total | |
Revenue, net | | | | | | | | | | | | | | | | |
Home and office bottled water delivery | | $ | 799.4 | | | $ | — | | | $ | — | | | $ | 799.4 | |
Coffee and tea services | | | 146.8 | | | | 187.8 | | | | 2.6 | | | | 337.2 | |
Retail | | | 164.6 | | | | — | | | | 51.7 | | | | 216.3 | |
Other | | | 113.5 | | | | 40.2 | | | | 116.6 | | | | 270.3 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 1,224.3 | | | $ | 228.0 | | | $ | 170.9 | | | $ | 1,623.2 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | For the Year Ended January 2, 2016 | |
(in millions of U.S. dollars) | | Route
Based
Services | | | Coffee,
Tea and
Extract
Solutions | | | All
Other | | | Total | |
Revenue, net | | | | | | | | | | | | | | | | |
Home and office bottled water delivery | | $ | 651.3 | | | $ | — | | | $ | — | | | $ | 651.3 | |
Coffee and tea services | | | 121.3 | | | | — | | | | — | | | | 121.3 | |
Retail | | | 149.4 | | | | — | | | | 61.8 | | | | 211.2 | |
Other | | | 99.2 | | | | — | | | | 104.3 | | | | 203.5 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 1,021.2 | | | $ | — | | | $ | 166.1 | | | $ | 1,187.3 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| For the Fiscal Year Ended December 30, 2023 |
| (in millions of U.S. dollars) | North America | | | | Other | | | | Total |
| Revenue, net | | | | | | | | | |
| Water Direct/Water Exchange | $ | 1,345.3 | | | | | $ | — | | | | | $ | 1,345.3 | |
| Water Refill/Water Filtration | 226.9 | | | | | — | | | | | 226.9 | |
| Other Water | 51.9 | | | | | — | | | | | 51.9 | |
| Water Dispensers | 57.5 | | | | | — | | | | | 57.5 | |
| Other | 89.6 | | | | | 0.6 | | | | | 90.2 | |
| Total | $ | 1,771.2 | | | | | $ | 0.6 | | | | | $ | 1,771.8 | |
| | | | | | | | | | | | | | | | | | | | | |
| For the Fiscal Year Ended December 31, 2022 |
| (in millions of U.S. dollars) | North America | | | | Other | | | | Total |
| Revenue, net | | | | | | | | | |
| Water Direct/Water Exchange | $ | 1,242.8 | | | | | $ | 7.4 | | | | | $ | 1,250.2 | |
| Water Refill/Water Filtration | 192.0 | | | | | — | | | | | 192.0 | |
| Other Water | 73.8 | | | | | — | | | | | 73.8 | |
| Water Dispensers | 70.5 | | | | | — | | | | | 70.5 | |
| Other | 106.5 | | | | | 0.2 | | | | | 106.7 | |
| Total | $ | 1,685.6 | | | | | $ | 7.6 | | | | | $ | 1,693.2 | |
| | | | | | | | | | | | | | | | | | | | | |
| For the Fiscal Year Ended January 1, 2022 |
| (in millions of U.S. dollars) | North America | | | | Other | | | | Total |
| Revenue, net | | | | | | | | | |
| Water Direct/Water Exchange | $ | 1,051.0 | | | | | $ | 13.5 | | | | | $ | 1,064.5 | |
| Water Refill/Water Filtration | 180.5 | | | | | — | | | | | 180.5 | |
| Other Water | 162.6 | | | | | — | | | | | 162.6 | |
| Water Dispensers | 65.4 | | | | | — | | | | | 65.4 | |
| Other | 103.4 | | | | | — | | | | | 103.4 | |
| Total | $ | 1,562.9 | | | | | $ | 13.5 | | | | | $ | 1,576.4 | |
Property, plant
&and equipment, net by geographic area as of December 30,
20172023 and December 31,
20162022 were as follows:
| | | | | | | | |
(in millions of U.S. dollars) | | December 30,
2017 | | | December 31
2016 | |
United States | | $ | 452.3 | | | $ | 459.4 | |
Canada | | | 14.2 | | | | 14.2 | |
All other countries1 | | | 117.7 | | | | 108.2 | |
| | | | | | | | |
Total | | $ | 584.2 | | | $ | 581.8 | |
| | | | | | | | |
1. | No individual country is greater than 10% of total property, plant and equipment as of December 30, 2017 and December 31, 2016. |
| | | | | | | | | | | | | |
| (in millions of U.S. dollars) | December 30, 2023 | | December 31, 2022 | | |
| United States | $ | 535.5 | | | $ | 526.4 | | | |
| Canada | 20.4 | | | 23.0 | | | |
| All other countries | 0.6 | | | 0.1 | | | |
| Total | $ | 556.5 | | | $ | 549.5 | | | |
Note
10—11—Accounts Receivable, Net
The following table summarizes accounts receivable, net as of December 30,
20172023 and December 31,
2016: | | | | | | | | |
(in millions of U.S. dollars) | | December 30, 2017 | | | December 31, 2016 | |
Trade receivables | | $ | 275.5 | | | $ | 255.2 | |
Allowance for doubtful accounts | | | (7.8 | ) | | | (6.3 | ) |
Other | | | 17.3 | | | | 27.8 | |
| | | | | | | | |
Total | | $ | 285.0 | | | $ | 276.7 | |
| | | | | | | | |
2022:
| | | | | | | | | | | |
| (in millions of U.S. dollars) | December 30, 2023 | | December 31, 2022 |
| Trade receivables | $ | 159.1 | | | $ | 168.7 | |
| Allowance for doubtful accounts | (12.7) | | | (12.1) | |
| Other | 9.6 | | | 14.1 | |
| Total | $ | 156.0 | | | $ | 170.7 | |
The following table summarizes inventories as of December 30,
20172023 and December 31,
2016: | | | | | | | | |
(in millions of U.S. dollars) | | December 30, 2017 | | | December 31, 2016 | |
Raw materials | | $ | 68.1 | | | $ | 56.5 | |
Finished goods | | | 34.3 | | | | 42.7 | |
Resale items | | | 21.8 | | | | 22.0 | |
Other | | | 3.4 | | | | 3.4 | |
| | | | | | | | |
Total | | $ | 127.6 | | | $ | 124.6 | |
| | | | | | | | |
2022:
| | | | | | | | | | | |
| (in millions of U.S. dollars) | December 30, 2023 | | December 31, 2022 |
| Raw materials | $ | 30.4 | | | $ | 46.9 | |
| Finished goods | 6.8 | | | 7.3 | |
| Resale items | 10.1 | | | 11.1 | |
| | | |
| Total | $ | 47.3 | | | $ | 65.3 | |
Note
12—13—Property, Plant
&and Equipment, Net
The following table summarizes property, plant and equipment, net as of December 30,
20172023 and December 31,
2016: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 30, 2017 | | | December 31, 2016 | |
(in millions of U.S. dollars) | | Estimated
Useful Life
in Years | | | Cost | | | Accumulated
Depreciation | | | Net | | | Cost | | | Accumulated
Depreciation | | | Net | |
Land | | | n/a | | | $ | 82.9 | | | $ | — | | | $ | 82.9 | | | $ | 82.0 | | | $ | — | | | $ | 82.0 | |
Buildings | | | 10-40 | | | | 88.9 | | | | 14.8 | | | | 74.1 | | | | 102.7 | | | | 10.2 | | | | 92.5 | |
Machinery and equipment | | | 5-15 | | | | 142.3 | | | | 53.5 | | | | 88.8 | | | | 120.8 | | | | 31.6 | | | | 89.2 | |
Plates, films and molds | | | 1-10 | | | | 0.4 | | | | 0.3 | | | | 0.1 | | | | 0.3 | | | | 0.2 | | | | 0.1 | |
Vehicles and transportation equipment | | | 3-15 | | | | 87.3 | | | | 41.3 | | | | 46.0 | | | | 85.3 | | | | 28.9 | | | | 56.4 | |
Leasehold improvements1 | | | | | | | 34.1 | | | | 8.5 | | | | 25.6 | | | | 18.4 | | | | 4.8 | | | | 13.6 | |
IT Systems | | | 3-7 | | | | 12.4 | | | | 6.4 | | | | 6.0 | | | | 10.6 | | | | 3.9 | | | | 6.7 | |
Furniture and fixtures | | | 3-10 | | | | 11.3 | | | | 4.1 | | | | 7.2 | | | | 7.2 | | | | 2.4 | | | | 4.8 | |
Customer equipment2 | | | 3-7 | | | | 303.1 | | | | 90.9 | | | | 212.2 | | | | 255.4 | | | | 61.5 | | | | 193.9 | |
Returnable bottles3 | | | 3-5 | | | | 51.8 | | | | 16.4 | | | | 35.4 | | | | 54.4 | | | | 16.6 | | | | 37.8 | |
Capital leases4 | | | | | | | 6.6 | | | | 0.7 | | | | 5.9 | | | | 5.1 | | | | 0.3 | | | | 4.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | | | | $ | 821.1 | | | $ | 236.9 | | | $ | 584.2 | | | $ | 742.2 | | | $ | 160.4 | | | $ | 581.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
1. | Leasehold improvements are amortized over the shorter of their estimated useful lives or the related lease life. |
2. | Customer equipment for the Route Based Services reporting segment consists of coolers, brewers, refrigerators, water purification devices and storage racks held on site at customer locations. |
3. | Returnable bottles are those bottles on site at Route Based Services customer locations. |
4. | Our recorded assets under capital leases relate to machinery and equipment, IT systems, customer equipment and vehicles and transportation equipment. |
2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 30, 2023 | | December 31, 2022 |
| (in millions of U.S. dollars) | Estimated Useful Life in Years | | Cost | | Accumulated Depreciation | | Net | | Cost | | Accumulated Depreciation | | Net |
| Land | n/a | | $ | 79.5 | | | $ | — | | | $ | 79.5 | | | $ | 76.7 | | | $ | — | | | $ | 76.7 | |
| Buildings | 10 - 40 | | 79.5 | | | 38.4 | | | 41.1 | | | 77.0 | | | 35.2 | | | 41.8 | |
| Machinery and equipment | 5 - 15 | | 120.4 | | | 64.0 | | | 56.4 | | | 104.5 | | | 59.5 | | | 45.0 | |
| Plates, films and molds | 1 - 10 | | 0.8 | | | 0.4 | | | 0.4 | | | 0.8 | | | 0.4 | | | 0.4 | |
| Vehicles and transportation equipment | 3 - 15 | | 128.8 | | | 88.0 | | | 40.8 | | | 112.0 | | | 79.1 | | | 32.9 | |
Leasehold improvements 1 | | | 16.8 | | | 11.1 | | | 5.7 | | | 14.6 | | | 10.3 | | | 4.3 | |
| IT systems | 3 - 7 | | 22.7 | | | 16.9 | | | 5.8 | | | 20.2 | | | 14.8 | | | 5.4 | |
| Furniture and fixtures | 3 - 10 | | 6.4 | | | 5.7 | | | 0.7 | | | 6.3 | | | 5.4 | | | 0.9 | |
Customer equipment 2 | 2 - 15 | | 456.2 | | | 221.2 | | | 235.0 | | | 449.4 | | | 197.8 | | | 251.6 | |
Returnable bottles 3 | 1.5 - 5 | | 125.1 | | | 79.0 | | | 46.1 | | | 100.6 | | | 55.8 | | | 44.8 | |
Finance leases 4 | | | 91.2 | | | 46.2 | | | 45.0 | | | 80.3 | | | 34.6 | | | 45.7 | |
| Total | | | $ | 1,127.4 | | | $ | 570.9 | | | $ | 556.5 | | | $ | 1,042.4 | | | $ | 492.9 | | | $ | 549.5 | |
______________________
1Leasehold improvements are amortized over the shorter of their estimated useful lives or the related lease life.
2Customer equipment consists of coolers, refill equipment, brewers, refrigerators, water purification devices and storage racks held on site at customer locations.
3Returnable bottles are those bottles on site at customer locations.
4Our recorded assets under finance leases relate to machinery and equipment, customer equipment, IT systems and vehicles and transportation equipment.
The amounts above include
construction in progressconstruction-in-progress of
$11.3$4.6 million and
$3.0$1.4 million
for 2017 and 2016,as of December 30, 2023, December 31, 2022, respectively.
Depreciation expense, which includes depreciation recorded for assets under capitalfinance leases, was $152.7 million, $140.0 million, and $120.7 million for the years ended December 30, 2023, December 31, 2022, and January 1, 2022, respectively.
Property Sales
For the year ended December 30, 20172023, the Company completed the sale of five owned real properties for an aggregate sales price, net of closing costs, of $31.0 million, resulting in a gain of $21.0 million included within gain on sale of property on the Consolidated Statements of Operations.
During the second quarter of 2022, we classified four of our owned real properties as held for sale. On December 29, 2022, the Company completed the sale of two of the properties for an aggregate sales price, net of closing costs, of $50.1 million. As of December 31, 2022, $4.6 million of the proceeds were being held in escrow for the future purchase of property which was $120.0completed during 2023. These funds were included in cash and cash equivalents on the Consolidated Balance Sheet as of December 31, 2022. The transactions qualified for sale recognition under the sale-leaseback accounting requirements and the Company recorded a gain of $38.8 million (2016 - $97.8 million; 2015 - $81.6 million)included within gain on sale of property on the Consolidated Statements of Operations.
As part of the transactions, we entered into a leaseback of each of the properties (for a term of three years and five years, respectively).
The leases are classified as operating leases and the Company recorded aggregate right-of-use assets and liabilities of $11.6 million. The Company entered into a sublease for one of the properties which resulted in an impairment of the right-of-use asset of $5.2 million recorded within selling, general and administrative expenses on the Consolidated Statements of Operations.
As of December 30, 2023 and December 31, 2022, we had $3.2 million and $10.3 million, respectively, related to properties held for sale which is included within prepaid expenses and other current assets on the Consolidated Balance Sheets.
Note
13—14—Intangible
assetsAssets, Net
The following table summarizes intangible assets,
net as of December 30,
20172023 and December 31,
2016: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 30, 2017 | | | December 31, 2016 | |
(in millions of U.S. dollars) | | Cost | | | Accumulated
Amortization | | | Net | | | Cost | | | Accumulated
Amortization | | | Net | |
Intangibles | | | | | | | | | | | | | | | | | | | | | | | | |
Not subject to amortization | | | | | | | | | | | | | | | | | | | | | | | | |
Rights1 | | $ | 24.5 | | | | — | | | $ | 24.5 | | | $ | 24.5 | | | | — | | | $ | 24.5 | |
Trademarks | | | 264.1 | | | | — | | | | 264.1 | | | | 257.1 | | | | — | | | | 257.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total intangibles not subject to amortization | | $ | 288.6 | | | | — | | | $ | 288.6 | | | $ | 281.6 | | | | — | | | $ | 281.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Subject to amortization | | | | | | | | | | | | | | | | | | | | | | | | |
Customer relationships | | | 583.4 | | | | 154.7 | | | | 428.7 | | | | 552.3 | | | | 94.3 | | | | 458.0 | |
Patents | | | 15.2 | | | | 1.0 | | | | 14.2 | | | | — | | | | — | | | | — | |
Software | | | 28.8 | | | | 13.0 | | | | 15.8 | | | | 20.5 | | | | 6.3 | | | | 14.2 | |
Other | | | 8.0 | | | | 4.2 | | | | 3.8 | | | | 7.3 | | | | 2.1 | | | | 5.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total intangibles subject to amortization | | $ | 635.4 | | | $ | 172.9 | | | $ | 462.5 | | | $ | 580.1 | | | $ | 102.7 | | | $ | 477.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total intangible assets | | $ | 924.0 | | | $ | 172.9 | | | $ | 751.1 | | | $ | 861.7 | | | $ | 102.7 | | | $ | 759.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
1. | Relates to the 2001 acquisition of the Rights. |
2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 30, 2023 | | December 31, 2022 |
| (in millions of U.S. dollars) | Cost | | Accumulated Amortization | | Net | | Cost | | Accumulated Amortization | | Net |
| Intangible Assets | | | | | | | | | | | |
| Not subject to amortization | | | | | | | | | | | |
| Trademarks | $ | 379.7 | | | $ | — | | | $ | 379.7 | | | $ | 379.7 | | | $ | — | | | $ | 379.7 | |
| Intellectual Property | 1.5 | | | — | | | 1.5 | | | 1.4 | | | — | | | 1.4 | |
| Total intangible assets not subject to amortization | $ | 381.2 | | | $ | — | | | $ | 381.2 | | | $ | 381.1 | | | $ | — | | | $ | 381.1 | |
| Subject to amortization | | | | | | | | | | | |
| Customer relationships | $ | 603.8 | | | $ | 293.1 | | | $ | 310.7 | | | $ | 583.4 | | | $ | 265.0 | | | $ | 318.4 | |
| Patents | 19.2 | | | 13.3 | | | 5.9 | | | 19.2 | | | 11.0 | | | 8.2 | |
| Software | 54.7 | | | 40.9 | | | 13.8 | | | 46.3 | | | 33.3 | | | 13.0 | |
| Other | 8.4 | | | 5.8 | | | 2.6 | | | 7.8 | | | 4.7 | | | 3.1 | |
| Total intangible assets subject to amortization | $ | 686.1 | | | $ | 353.1 | | | $ | 333.0 | | | $ | 656.7 | | | $ | 314.0 | | | $ | 342.7 | |
| Total intangible assets | $ | 1,067.3 | | | $ | 353.1 | | | $ | 714.2 | | | $ | 1,037.8 | | | $ | 314.0 | | | $ | 723.8 | |
Amortization expense of intangible assets was
$68.6$40.6 million,
during 2017 (2016 - $53.3 million; 2015 - $46.7 million).$42.0 million, and $39.5 million for the years ended December 30, 2023, December 31, 2022, and January 1, 2022, respectively.
The
following table summarizes the estimated amortization expense for intangible assets subject to amortization over the next five
years is: | | | | |
(in millions of U.S. dollars) | | | |
2018 | | $ | 67.8 | |
2019 | | | 60.3 | |
2020 | | | 51.3 | |
2021 | | | 44.4 | |
2022 | | | 38.7 | |
Thereafter | | | 200.0 | |
| | | | |
Total | | $ | 462.5 | |
| | | | |
years:
| | | | | |
| (in millions of U.S. dollars) | |
| 2024 | $ | 38.1 | |
| 2025 | 30.0 | |
| 2026 | 29.5 | |
| 2027 | 24.7 | |
| 2028 | 20.4 | |
| Thereafter | 190.3 | |
| Total | $ | 333.0 | |
Note
14—15—Accounts Payable and Accrued Liabilities
The following table summarizes accounts payable and accrued liabilities as of December 30,
20172023 and December 31,
2016: | | | | | | | | |
(in millions of U.S. dollars) | | December 30, 2017 | | | December 31, 2016 | |
Trade payables | | $ | 197.2 | | | $ | 185.9 | |
Accrued compensation | | | 47.6 | | | | 38.4 | |
Accrued sales incentives | | | 6.9 | | | | 1.0 | |
Accrued interest | | | 18.7 | | | | 11.6 | |
Payroll, sales and other taxes | | | 12.9 | | | | 9.0 | |
Accrued deposits | | | 66.9 | | | | 51.9 | |
Other accrued liabilities | | | 62.7 | | | | 70.2 | |
| | | | | | | | |
Total | | $ | 412.9 | | | $ | 368.0 | |
| | | | | | | | |
2022:
| | | | | | | | | | | |
| (in millions of U.S. dollars) | December 30, 2023 | | December 31, 2022 |
| Trade payables | $ | 94.3 | | | $ | 108.0 | |
| Accrued compensation | 48.3 | | | 39.9 | |
| Accrued sales incentives | 7.7 | | | 6.2 | |
| Accrued interest | 8.6 | | | 9.0 | |
| Payroll, sales and other taxes | 9.8 | | | 11.3 | |
| Accrued deposits | 52.2 | | | 47.1 | |
| | | |
| Insurance reserves | 18.7 | | | 16.9 | |
| | | |
| Other accrued liabilities | 36.8 | | | 44.2 | |
| Total | $ | 276.4 | | | $ | 282.6 | |
Our total debt as of December 30,
20172023 and December 31,
20162022 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 30, 2017 | | | December 31, 2016 | |
(in millions of U.S. dollars) | | Principal | | | Unamortized
Debt
Costs | | | Net | | | Principal | | | Unamortized
Debt
Costs | | | Net | |
6.750% senior notes due in 2020 | | $ | — | | | | — | | | $ | — | | | $ | 625.0 | | | $ | 9.3 | | | $ | 615.7 | |
10.000% senior notes due in 20211 | | | 269.9 | | | | — | | | | 269.9 | | | | 384.2 | | | | — | | | | 384.2 | |
5.375% senior notes due in 2022 | | | 525.0 | | | | 6.0 | | | | 519.0 | | | | 525.0 | | | | 7.1 | | | | 517.9 | |
5.500% senior notes due in 2024 | | | 539.1 | | | | 9.5 | | | | 529.6 | | | | 474.1 | | | | 9.8 | | | | 464.3 | |
5.500% senior notes due in 2025 | | | 750.0 | | | | 11.0 | | | | 739.0 | | | | — | | | | — | | | | — | |
ABL facility | | | 220.3 | | | | — | | | | 220.3 | | | | 207.0 | | | | — | | | | 207.0 | |
GE Term Loan | | | 2.0 | | | | — | | | | 2.0 | | | | 4.3 | | | | 0.2 | | | | 4.1 | |
Other debt financing | | | 0.8 | | | | — | | | | 0.8 | | | | — | | | | — | | | | — | |
Capital leases | | | 6.4 | | | | — | | | | 6.4 | | | | 5.8 | | | | — | | | | 5.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total debt | | | 2,313.5 | | | | 26.5 | | | | 2,287.0 | | | | 2,225.4 | | | | 26.4 | | | | 2,199.0 | |
Less: Short-term borrowings and current debt: | | | | | | | | | | | | | | | | | | | | | | | | |
ABL facility | | | 220.3 | | | | — | | | | 220.3 | | | | 207.0 | | | | — | | | | 207.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total short-term borrowings required to be repaid or extinguished as part of divestiture | | | 220.3 | | | | — | | | | 220.3 | | | | 207.0 | | | | — | | | | 207.0 | |
GE Term Loan - current maturities | | | 2.0 | | | | — | | | | 2.0 | | | | 2.3 | | | | — | | | | 2.3 | |
Other debt financing | | | 0.8 | | | | — | | | | 0.8 | | | | — | | | | — | | | | — | |
Capital leases -current maturities | | | 2.3 | | | | — | | | | 2.3 | | | | 2.9 | | | | — | | | | 2.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total current debt | | | 225.4 | | | | — | | | | 225.4 | | | | 212.2 | | | | — | | | | 212.2 | |
Less: Debt required to be repaid or extinguished as part of divestiture | | | | | | | | | | | | | | | | | | | | | | | | |
6.750% senior notes due in 2020 | | | — | | | | — | | | | — | | | | 625.0 | | | | 9.3 | | | | 615.7 | |
5.375% senior notes due in 2022 | | | 525.0 | | | | 6.0 | | | | 519.0 | | | | 525.0 | | | | 7.1 | | | | 517.9 | |
GE Term Loan | | | — | | | | — | | | | — | | | | 2.0 | | | | 0.2 | | | | 1.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total debt to be required to be repaid or extinguished as part of divestiture | | | 525.0 | | | | 6.0 | | | | 519.0 | | | | 1,152.0 | | | | 16.6 | | | | 1,135.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total long-term debt | | $ | 1,563.1 | | | $ | 20.5 | | | $ | 1,542.6 | | | $ | 861.2 | | | $ | 9.8 | | | $ | 851.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
1. | The outstanding aggregate principal amount and unamortized premium of our DSS Notes was $250.0 million and $19.9 million at December 30, 2017, and $350.0 million and $34.2 million at December 31, 2016, respectively. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 30, 2023 | | December 31, 2022 |
| (in millions of U.S. dollars) | Principal | | Unamortized Debt Costs | | Net | | Principal | | Unamortized Debt Costs | | Net |
| | | | | | | | | | | |
| 3.875% senior notes due in 2028 | $ | 499.4 | | | $ | 4.8 | | | $ | 494.6 | | | $ | 479.1 | | | $ | 5.6 | | | $ | 473.5 | |
| 4.375% senior notes due in 2029 | 750.0 | | | 7.2 | | | 742.8 | | | 750.0 | | | 8.6 | | | 741.4 | |
| Revolving Credit Facility | — | | | — | | | — | | | 197.0 | | | — | | | 197.0 | |
| | | | | | | | | | | |
| Short-term borrowings | — | | | — | | | — | | | 8.8 | | | — | | | 8.8 | |
| Finance leases | 47.6 | | | — | | | 47.6 | | | 48.3 | | | — | | | 48.3 | |
| | | | | | | | | | | |
| Total debt | $ | 1,297.0 | | | $ | 12.0 | | | $ | 1,285.0 | | | $ | 1,483.2 | | | $ | 14.2 | | | $ | 1,469.0 | |
| Less: Short-term borrowings and current debt: | | | | | | | | | | | |
| Revolving Credit Facility | $ | — | | | $ | — | | | $ | — | | | $ | 197.0 | | | $ | — | | | $ | 197.0 | |
| | | | | | | | | | | |
| Short-term borrowings | — | | | — | | | — | | | 8.8 | | | — | | | 8.8 | |
| Finance leases - current maturities | 14.2 | | | — | | | 14.2 | | | 10.9 | | | — | | | 10.9 | |
| | | | | | | | | | | |
| Total current debt | $ | 14.2 | | | $ | — | | | $ | 14.2 | | | $ | 216.7 | | | $ | — | | | $ | 216.7 | |
| Total long-term debt | $ | 1,282.8 | | | $ | 12.0 | | | $ | 1,270.8 | | | $ | 1,266.5 | | | $ | 14.2 | | | $ | 1,252.3 | |
The long-term debt payments, (whichwhich include current maturities of long-term debt)debt, required in each of the next five years and thereafter are as follows: | | | | |
(in millions of U.S. dollars) | | Long Term Debt
(incl. current) | |
2018 | | $ | 225.4 | |
2019 | | | 1.8 | |
2020 | | | 1.0 | |
2021 | | | 250.6 | |
2022 | | | 525.4 | |
Thereafter | | | 1,289.4 | |
| | | | |
| | $ | 2,293.6 | |
| | | | |
Asset-Based Lending
| | | | | |
| (in millions of U.S. dollars) | Long-Term Debt (including current) |
| 2024 | $ | 14.2 | |
| 2025 | 14.5 | |
| 2026 | 12.4 | |
| 2027 | 4.3 | |
| 2028 | 501.3 | |
| Thereafter | 750.3 | |
| $ | 1,297.0 | |
Revolving Credit Facility
In
On March 2008, we6, 2020, the Company entered into a credit agreement with JPMorgan Chase Bank N.A.(the “Credit Agreement”) among the Company, as Agent that created an ABL facility to provide financing for our operations. We have amendedparent borrower, Primo Water Holdings Inc. and refinancedcertain other subsidiary borrowers, certain other subsidiaries of the ABL facilityCompany from time to time designated as subsidiary borrowers, Bank of America, N.A., as administrative agent and collateral agent, and the lenders from time to time party thereto.
The Credit Agreement provides for a senior secured revolving credit facility in an initial aggregate committed amount of $350.0 million (the “Revolving Credit Facility”), which may be increased by incremental credit extensions from time to time in the form of term loans or additional revolving credit commitments. The Revolving Credit Facility has a five year maturity date and includes letter of credit and swing line loan sub facilities.
Initial borrowings under the Revolving Credit Facility were used to refinance in full and terminate our previously existing asset-based lending credit facility (the “ABL Facility”). Certain letters of credit outstanding under the ABL Facility were rolled over under the Revolving Credit Facility. We incurred
relatedapproximately $3.4 million of financing fees
$12.4in connection with the Revolving Credit Facility. The Revolving Credit Facility was considered to be a modification of the ABL Facility under GAAP. These new financing fees along with $1.8 million of
which have been capitalized andunamortized deferred
andcosts of the ABL Facility are being amortized using the straight-line method over the duration of the
amended ABL facility.Revolving Credit Facility.
As of December 30, 2017, we had $220.3 million of2023, there were no outstanding borrowings under the ABL facility. The commitment fee was 0.375% per annum of the unused commitment, which, taking into account $46.0 million ofRevolving Credit Facility. Outstanding letters of credit was $233.7totaled $66.7 million, resulting in total utilization under the Revolving Credit Facility of $66.7 million. Accordingly, unused availability under the Revolving Credit Facility as of December 30, 2017. 2023 amounted to $283.3 million.
The
weighted averageweighted-average effective interest rate
aton the outstanding borrowings under the Revolving Credit Facility as of December 30,
2017 on our outstanding LIBOR loans2023 and December 31, 2022 was
3.1%.—% and 5.9%, respectively. The effective interest rates are based on our aggregate availability.
On January
13, 2023, we entered into the Second LIBOR Transition Amendment to the Credit Agreement, which replaced interest rate calculations based on LIBOR with calculations based on SOFR. As of December 30,
2018, in connection with2023, borrowings under the
closingCredit Agreement bore interest at a rate per annum equal to either: (a) a euro currency rate as determined under the Credit Agreement, plus the applicable margin, or (b) a term SOFR rate, as determined under the Credit Agreement, plus the applicable margin, (c) a base rate equal to the highest of
(i) Bank of America’s prime rate, (ii) 0.5% per annum above the
Transaction, we usedfederal funds rate, and (iii) the term SOFR rate, as determined under the Credit Agreement, for a
portion ofone month interest period, plus 1.0%, plus the
proceedsapplicable margin, or (d) an alternative currency daily or term rate, as determined under the Credit Agreement, plus the applicable margin. The applicable margin for euro currency, term SOFR, and alternative currency rate loans ranges from
the Transaction1.375% to
repay $262.5 million of our outstanding balance on the ABL facility. Additionally, we amended and restated the Amended and Restated Credit Agreement. The ABL facility, as amended and restated, provides us with financing in the United States, Canada, the United Kingdom, Luxembourg2.000% and the
Netherlands. Cott and its subsidiaries, Cott Holdings Inc.applicable margin for base rate loans ranges from 0.375% to 1.000%,
DSS, S&D, Aimia and Aquaterra, are borrowersin each case depending on our consolidated total leverage ratio. Unutilized commitments under the
ABL facility. The ABL facility isCredit Agreement are subject to a
revolving facility of upcommitment fee ranging from 0.20% to
$250.0 million with a maturity date of August 3, 2021. JPMorgan Chase Bank, N.A. serves as administrative agent and administrative collateral agent and JPMorgan Chase Bank, N.A., London Branch serves as U.K. security trustee. Availability under the ABL facility is dependent0.30% per annum depending on our consolidated total leverage ratio, payable on a
borrowing base calculated as a percentage of the value of eligible inventory, accounts receivable and property, plant and equipment in the manner set forth in the credit agreement. Subject to certain conditions, the ABL facility may be increased up to an additional $100.0 million at our option if lenders agree to increase their commitments. The debt under the ABL facility is guaranteed by most of our U.S., Canadian, U.K. and Luxembourg subsidiaries and certain of our Dutch subsidiaries.5.500%quarterly basis.
4.375% Senior Notes due in
20252029
On
March 22, 2017,April 30, 2021, we issued $750.0 million of
our 2025 Notes4.375% senior notes due April 30, 2029 (the “2029 Notes”) to qualified purchasers in a private placement offering under Rule 144A under the Securities Act
of 1933, as amended (the “Securities Act”), and outside the United States to
non-U.S. purchasers pursuant to Regulation S under the Securities Act and other applicable laws. The
20252029 Notes were issued by our wholly-owned subsidiary
CottPrimo Water Holdings Inc.
, The 2029 Notes are guaranteed by the Company and
mostcertain subsidiaries that are currently obligors under the $350.0 million senior secured revolving credit facility and the €450.0 million of
our U.S., Canadian, U.K., Luxembourg and Dutch subsidiaries guarantee the 2025 Notes.3.875% senior notes due October 31, 2028. The
20252029 Notes will mature on April
1, 202530, 2029 and interest is payable semi-annually on April
1st30th and October
1st31st of each year commencing on October
1, 2017.31, 2021. The proceeds of the
20252029 Notes,
along with available cash on hand, were used to redeem in full the
2020$750.0 million of 5.500% senior notes due April 1, 2025 (the “2025 Notes”). The redemption of the 2025 Notes
redeem $100.0included $20.6 million
aggregate principal amountin premium payments, accrued interest of
our DSS Notes$3.6 million, and
to pay related fees and expenses.the write-off of $6.6 million in deferred financing fees.
We incurred
$11.7approximately $11.2 million of financing fees
in connection withfor the issuance of the
20252029 Notes. The financing fees are being amortized using the effective interest method over an eight-year period, which represents the term to maturity of the
20252029 Notes.
5.500%
3.875% Senior Notes due in
2024In June 2016,2028
On October 22, 2020, we issued €450.0 million
(U.S. $539.1($499.4 million at
the exchange
raterates in effect on December 30,
2017)2023) of
our 2024 Notes3.875% senior notes due October 31, 2028 (the “2028 Notes”) to qualified purchasers in a private placement offering under Rule 144A
under the Securities Act, and
outside the United States to non-U.S. purchasers pursuant to Regulation S under the Securities Act and other applicable laws. The
20242028 Notes were
initially issued by our wholly-owned subsidiary
Cott Finance Corporation. In connection withPrimo Water Holdings Inc. The 2028 Notes are guaranteed by the
closing of the Eden Acquisition, we assumed all of the obligations of Cott Finance Corporation under the 2024 Notes,Company and
most of our U.S., Canadian, U.K. Luxembourg and Dutchcertain subsidiaries that are currently obligors under the
2022 NotesRevolving Credit Facility and the
2020 Notes entered into a supplemental indenture to guarantee the 20242029 Notes. The
20242028 Notes will mature on
July 1, 2024October 31, 2028 and interest is payable semi-annually on
January 1stApril 30th and
July 1stOctober 31st of each year commencing on
January 1, 2017. The proceeds of the 2024 Notes were used to fund a portion of the purchase price of the Eden Acquisition and to pay related fees and expenses.April 30, 2021.
We incurred approximately
$11.3$8.5 million of financing fees for the issuance of the
2024 Notes and $11.0 million of bridge financing commitment fees and professional fees in connection with the Eden Acquisition.2028 Notes. The financing fees are being amortized using the effective interest method over
an eight-yeara period
of eight years, which represents the term to maturity of the
20242028 Notes.
The bridge financing commitment fees and professional fees were recorded in SG&A expenses for the year ended December 31, 2016 in our Consolidated Statement of Operations.5.375% Senior Notes due in 2022
In June 2014, we issued $525.0 million of 5.375% senior notes due 2022. The issuer of the notes was our wholly-owned U.S. subsidiary Cott Beverages Inc. (“CBI”), and we and most of our U.S., Canadian and U.K. subsidiaries guaranteed the obligations.
We incurred $9.6 million of financing fees in connection with the issuance of the 2022 Notes. The financing fees were being amortized using the effective interest method over an eight-year period, which represented the term to maturity of the 2022 Notes.
On January 30, 2018, in connection with the closing of the Transaction, we used a portion of the proceeds from the Transaction to redeem the 2022 Notes. The redemption of the 2022 Notes included $21.2 million in premium payments and $2.2 million in accrued interest.
10.00% Senior Notes due in 2021
In August 2013, DSS (formerly DS Waters of America, Inc.) issued $350.0 million of 10.00% senior secured notes. In connection with the acquisition of DSS, our wholly-owned U.S. subsidiary CBI, and we and most of our U.S., Canadian and U.K. subsidiaries became guarantors of the obligations.
The DSS Notes were recorded at their fair value of $406.0 million as part of the acquisition of DSS. The difference between the fair value and the principal amount of $350.0 million was being amortized as a component of interest expense over the remaining contractual term of the DSS Notes. We incurred approximately $26.5 million of consent solicitation fees and bridge financing commitment fees.
On May 5, 2017, we used a portion of the proceeds from the issuance of the 2025 Notes to redeem $100.0 million in aggregate principal amount of the DSS Notes. The partial redemption of the DSS Notes included $7.7 million in premium payments, accrued interest of $1.8 million and thewrite-off of $9.2 million of unamortized premium.
On January 30, 2018, in connection with the closing of the Transaction, we used a portion of the proceeds from the Transaction to redeem the remaining $250.0 million aggregate principal amount of the DSS Notes. The redemption of the 2022 Notes included $12.5 million in premium payments and $10.3 million in accrued interest.
6.75% Senior Notes due in 2020
In December 2014, we issued $625.0 million of 6.75% senior notes due January 1, 2020. The issuer of the notes was our wholly-owned U.S. subsidiary CBI, and we and most of our U.S., Canadian and U.K. subsidiaries guaranteed the obligations.
We incurred $14.4 million of financing fees in connection with the issuance of the 2020 Notes. The financing fees were being amortized using the effective interest method over a five-year period, which represented the term to maturity of the 2020 Notes.
On April 5, 2017 and March 22, 2017, we used a portion of the proceeds from the issuance of the 2025 Notes to purchase $422.7 million and $202.3 million in aggregate principal amount of the 2020 Notes. The redemption of the 2020 Notes included $14.3 million and $7.1 million in premium payments, accrued interest of $7.4 million and $3.1 million, thewrite-off of $5.8 million and $2.9 million in deferred financing fees, and other costs of $0.1 million.
GE Term Loan
In January 2008, we entered into a capital lease finance arrangement with GE Capital for the lease of equipment. In September 2013, we purchased the equipment subject to the lease for an aggregate purchase price of $10.7 million, with the financing for such purchase provided by GE Capital at 5.23% interest.
On January 30, 2018, in connection with the closing of the Transaction, we used a portion of the proceeds from the Transaction to pay the remaining $1.9 million outstanding balance of the GE Term Loan.
Indentures
governing our outstanding notesGoverning Our Outstanding Notes
Under the indentures governing our outstanding 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. The covenants are substantially similar across the series of notes. As of December 30,
2017,2023, we were in compliance with all of the covenants under each series of notes. There have been no amendments to any covenants of our outstanding notes since the date of their issuance or assumption, as applicable.
ABL
Revolving Credit Facility
Under the credit agreement governing the ABL facility, Cott and its restricted subsidiaries are subject to a number of business and
The Credit Agreement has two financial covenants, including a minimum fixed chargeconsolidated secured leverage ratio and an interest coverage ratio. The consolidated secured leverage ratio must not be more than 3.50 to 1.00, with an allowable temporary increase to 4.00 to 1.00 for the quarter in which the Company consummates a material acquisition with a price not less than $125.0 million, for three quarters. The interest coverage ratio which measures our abilitymust not be less than 3.00 to cover financing expenses. As1.00. The Company was in compliance with these financial covenants as of December 30, 2017,2023.
In addition, the
minimum fixed charge coverage ratio of 1.0 to 1.0Credit Agreement has certain non-financial covenants, such as covenants regarding indebtedness, investments, and asset dispositions. The Company was
effective if and when aggregate availability was less than the greater of 10% of the lenders’ commitments under the ABL facility or $37.5 million. If excess availability was less than the greater of 10% of the aggregate availability under the ABL facility or $37.5 million, the lenders would take dominion over the cash and would apply excess cash to reduce amounts owing under the facility. We were in compliance with all
of the applicable covenants
under the ABL facility as of December 30,
2017.On January 30, 2018, in connection with the closing of the Transaction, we amended and restated the Amended and Restated Credit Agreement, dated as of August 3, 2016, as amended, which governed our prior ABL facility. Under the credit agreement governing the ABL facility, as amended and restated, Cott and its restricted subsidiaries are subject to a number of business and financial covenants, including a minimum fixed charge coverage ratio, which measures our ability to cover financing expenses. The minimum fixed charge coverage ratio of 1.0 to 1.0 is effective if and when there exists an event of default or aggregate availability is less than the greater of 10% of the Line Cap under the ABL facility or $22.5 million. Line Cap is defined as an amount equal to the lesser of the lenders’ commitments or the borrowing base at such time. If an event of default exists or the excess availability is less than the greater of 10% of the aggregate availability under the ABL facility or $22.5 million, the lenders will take dominion over the cash and will apply excess cash to reduce amounts owing under the facility.
2023.
Note
16—17—Retirement Plans
The Company maintains certain defined contribution (“DC”) retirement plans covering qualifying employees. The total expense with respect to these DC plans was
$2.0$7.4 million, $6.4 million, and $5.7 million for the
yearfiscal years ended December 30,
2017 (2016—$4.7 million; 2015—$4.5 million).2023, December 31, 2022, and January 1, 2022, respectively.
The Company also maintains severalmaintained defined benefit (“DB”) plans acquired as a part of acquisitions covering certain U.S. andnon-U.S.employees referred to as the(the " U.S. and International Plans, respectively.Plan"). Retirement benefits are based on years of service multiplied by a monthly benefit factor. Pension costs are funded in accordance with the provisions of the applicable law. Our
Effective as of December 31, 2021, the U.S. Plan
is closed to newwas terminated. In accordance with the amended plan documents, we made distributions for all plan participants and
frozen. The Company uses a December 30, 2017 measurement date fordistributed all
DB plans. Any variation differences based on one day of trading are deemed immaterial.Inplan assets during the third quarter of 2017, our Eden business relocated its corporate headquarters from Switzerland to Spain, which resulted in the dismissal or relocation of certainnon-U.S. employees of the International Plans. As a result of the dismissal or relocation of the certainnon-U.S. employees, we recorded a gain on pension curtailment of approximately $4.5 million to SG&A expenses, in the Consolidated Statement of Operations for thefiscal year ended December 30, 2017.
2023.
Obligations and Funded Status
The following table summarizes the change in the projected benefit obligation, change in plan assets and unfunded status of the
DB plansU.S. Plan as of December 30,
20172023 and December 31,
2016: | | | | | | | | | | | | |
| | | December 30, 2017 | |
(in millions of U.S. dollars) | | U.S. | | | International | | | Total | |
Change in Projected Benefit Obligation | | | | | | | | | | | | |
Projected benefit obligation at beginning of year | | $ | 8.3 | | | $ | 30.5 | | | $ | 38.8 | |
Business combinations | | | — | | | | — | | | | — | |
Service cost | | | — | | | | 1.9 | | | | 1.9 | |
Interest cost | | | 0.3 | | | | 0.3 | | | | 0.6 | |
Benefit payments | | | (0.4 | ) | | | (3.0 | ) | | | (3.4 | ) |
Actuarial losses | | | 0.2 | | | | (0.1 | ) | | | 0.1 | |
Settlement gains | | | — | | | | — | | | | — | |
Curtailment gains | | | — | | | | (18.2 | ) | | | (18.2 | ) |
Translation gains | | | — | | | | 1.4 | | | | 1.4 | |
| | | | | | | | | | | | |
Projected benefit obligation at end of year | | $ | 8.4 | | | $ | 12.8 | | | $ | 21.2 | |
| | | | | | | | | | | | |
Change in Plan Assets | | | | | | | | | | | | |
Plan assets beginning of year | | $ | 6.3 | | | $ | 20.4 | | | $ | 26.7 | |
Business combinations | | | — | | | | — | | | | — | |
Employer contributions | | | 0.3 | | | | 0.9 | | | | 1.2 | |
Plan participant contributions | | | — | | | | 0.4 | | | | 0.4 | |
Benefit payments | | | (0.4 | ) | | | (2.5 | ) | | | (2.9 | ) |
Curtailment losses | | | — | | | | (14.2 | ) | | | (14.2 | ) |
Actual return on plan assets | | | 0.9 | | | | 0.6 | | | | 1.5 | |
Translation losses | | | — | | | | 1.0 | | | | 1.0 | |
| | | | | | | | | | | | |
Fair value at end of year | | $ | 7.1 | | | $ | 6.6 | | | $ | 13.7 | |
| | | | | | | | | | | | |
Funded Status of Plan | | | | | | | | | | | | |
Projected benefit obligation | | $ | (8.4 | ) | | $ | (12.8 | ) | | $ | (21.2 | ) |
Fair value of plan assets | | | 7.1 | | | | 6.6 | | | | 13.7 | |
| | | | | | | | | | | | |
Unfunded status | | $ | (1.3 | ) | | $ | (6.2 | ) | | $ | (7.5 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | December 31, 2016 | |
(in millions of U.S. dollars) | | U.S. | | | International | | | Total | |
Change in Projected Benefit Obligation | | | | | | | | | | | | |
Projected benefit obligation at beginning of year | | $ | 10.3 | | | $ | — | | | $ | 10.3 | |
Business combinations | | | — | | | | 29.3 | | | | 29.3 | |
Service cost | | | — | | | | 2.1 | | | | 2.1 | |
Interest cost | | | 0.4 | | | | 0.3 | | | | 0.7 | |
Benefit payments | | | (2.3 | ) | | | (0.5 | ) | | | (2.8 | ) |
Actuarial losses | | | — | | | | 0.4 | | | | 0.4 | |
Settlement gains | | | (0.1 | ) | | | — | | | | (0.1 | ) |
Translation gains | | | — | | | | (1.1 | ) | | | (1.1 | ) |
| | | | | | | | | | | | |
Projected benefit obligation at end of year | | $ | 8.3 | | | $ | 30.5 | | | $ | 38.8 | |
| | | | | | | | | | | | |
Change in Plan Assets | | | | | | | | | | | | |
Plan assets beginning of year | | $ | 7.7 | | | $ | — | | | $ | 7.7 | |
Business combinations | | | — | | | | 19.5 | | | | 19.5 | |
Employer contributions | | | 0.4 | | | | 0.6 | | | | 1.0 | |
Plan participant contributions | | | — | | | | 0.2 | | | | 0.2 | |
Benefit payments | | | (2.3 | ) | | | (0.2 | ) | | | (2.5 | ) |
Actual return on plan assets | | | 0.4 | | | | 0.9 | | | | 1.3 | |
Translation losses | | | — | | | | (0.6 | ) | | | (0.6 | ) |
| | | | | | | | | | | | |
Fair value at end of year | | $ | 6.2 | | | $ | 20.4 | | | $ | 26.6 | |
| | | | | | | | | | | | |
Funded Status of Plan | | | | | | | | | | | | |
Projected benefit obligation | | $ | (8.3 | ) | | $ | (30.5 | ) | | $ | (38.8 | ) |
Fair value of plan assets | | | 6.2 | | | | 20.4 | | | | 26.6 | |
| | | | | | | | | | | | |
Unfunded status | | $ | (2.1 | ) | | $ | (10.1 | ) | | $ | (12.2 | ) |
| | | | | | | | | | | | |
2022:
| | | | | | | | | | | | | | |
| (in millions of U.S. dollars) | December 30, 2023 | | December 31, 2022 | | | |
| Change in Projected Benefit Obligation | | | | | | |
| Projected benefit obligation at beginning of year | $ | 7.3 | | | $ | 9.4 | | | | |
| | | | | | |
| | | | | | |
| Interest cost | 0.2 | | | 0.1 | | | | |
| | | | | | |
| Benefit payments | (7.4) | | | (0.6) | | | | |
| Actuarial gains | — | | | (1.6) | | | | |
| Settlement gains | (0.1) | | | — | | | | |
| | | | | | |
| | | | | | |
| Projected benefit obligation at end of year | $ | — | | | $ | 7.3 | | | | |
| Change in Plan Assets | | | | | | |
| Plan assets beginning of year | $ | 7.1 | | | $ | 9.2 | | | | |
| | | | | | |
| Employer contributions | 0.3 | | | — | | | | |
| | | | | | |
| Benefit payments | (7.4) | | | (0.6) | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Actual return on plan assets | — | | | (1.5) | | | | |
| | | | | | |
| Fair value at end of year | $ | — | | | $ | 7.1 | | | | |
| Funded Status of Plan | | | | | | |
| Projected benefit obligation | $ | — | | | $ | (7.3) | | | | |
| Fair value of plan assets | — | | | 7.1 | | | | |
| Unfunded status | $ | — | | | $ | (0.2) | | | | |
The accumulated benefit obligation for the U.S.
Plans equaled $8.4Plan was nil and $7.3 million
as of December 30, 2023 and
$8.3 million at the end of 2017 and 2016,December 31, 2022, respectively.
The accumulated benefit obligation for the International Plans equaled $12.8 million and $30.5 million at the end of 2017 and 2016, respectively.Periodic Pension Costs
The components of net periodic pension cost were as follows:
| | | | | | | | | | | | |
| | | December 30, 2017 | |
(in millions of U.S. dollars) | | U.S. | | | International | | | Total | |
Service cost | | $ | — | | | $ | 1.9 | | | $ | 1.9 | |
Interest cost | | | (0.3 | ) | | | 0.3 | | | | — | |
Expected return on plan assets | | | 0.4 | | | | (0.3 | ) | | | 0.1 | |
Amortization of prior service costs | | | — | | | | — | | | | — | |
Recognized net loss due to settlement | | | — | | | | — | | | | — | |
Amortization of net actuarial loss | | | — | | | | — | | | | — | |
Curtailment gain | | | — | | | | (4.5 | ) | | | (4.5 | ) |
Employees contribution | | | — | | | | (0.4 | ) | | | (0.4 | ) |
| | | | | | | | | | | | |
Net periodic pension cost | | $ | 0.1 | | | $ | (3.0 | ) | | $ | (2.9 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | December 31, 2016 | |
(in millions of U.S. dollars) | | U.S. | | | International | | | Total | |
Service cost | | $ | — | | | $ | 2.1 | | | $ | 2.1 | |
Interest cost | | | (0.4 | ) | | | 0.2 | | | | (0.2 | ) |
Expected return on plan assets | | | 0.6 | | | | (0.2 | ) | | | 0.4 | |
Amortization of prior service costs | | | — | | | | — | | | | — | |
Recognized net loss due to settlement | | | (0.1 | ) | | | — | | | | (0.1 | ) |
Amortization of net actuarial loss | | | — | | | | — | | | | — | |
Employees contribution | | | — | | | | (0.2 | ) | | | (0.2 | ) |
| | | | | | | | | | | | |
Net periodic pension cost | | $ | 0.1 | | | $ | 1.9 | | | $ | 2.0 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | January 2, 2016 | |
(in millions of U.S. dollars) | | U.S. | | | International | | | Total | |
Interest cost | | | 0.4 | | | | — | | | | 0.4 | |
Expected return on plan assets | | | (0.5 | ) | | | — | | | | (0.5 | ) |
| | | | | | | | | | | | |
Net periodic pension cost | | $ | (0.1 | ) | | $ | — | | | $ | (0.1 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| (in millions of U.S. dollars) | December 30, 2023 | | December 31, 2022 | | January 1, 2022 | | | | |
| | | | | | | | | |
| Interest cost | $ | 0.2 | | | $ | 0.1 | | | $ | 0.2 | | | | | |
| Expected return on plan assets | (0.1) | | | (0.1) | | | (0.2) | | | | | |
| | | | | | | | | |
| Recognized net loss due to settlement | 0.5 | | | — | | | — | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Net periodic pension cost | $ | 0.6 | | | $ | — | | | $ | — | | | | | |
Accumulated Other Comprehensive
Loss(Loss) Income
Amounts included in accumulated other comprehensive
loss,(loss) income, net of tax,
atyear-endas of the periods presented which have not yet been recognized in net periodic benefit cost were as follows:
| | | | | | | | | | | | |
| | | December 30, 2017 | |
(in millions of U.S. dollars) | | U.S. | | | International | | | Total | |
Unrecognized net actuarial loss | | | (0.6 | ) | | | (16.2 | ) | | | (16.8 | ) |
| | | | | | | | | | | | |
Total accumulated other comprehensive loss | | $ | (0.6 | ) | | $ | (16.2 | ) | | $ | (16.8 | ) |
| | | | | | | | | | | | |
| |
| | | December 31, 2016 | |
(in millions of U.S. dollars) | | U.S. | | | International | | | Total | |
Unrecognized net actuarial loss | | | (1.2 | ) | | | (13.2 | ) | | | (14.4 | ) |
| | | | | | | | | | | | |
Total accumulated other comprehensive loss | | $ | (1.2 | ) | | $ | (13.2 | ) | | $ | (14.4 | ) |
| | | | | | | | | | | | |
| |
| | | January 2, 2016 | |
(in millions of U.S. dollars) | | U.S. | | | International | | | Total | |
Unamortized prior service cost | | $ | (0.1 | ) | | $ | — | | | $ | (0.1 | ) |
Unrecognized net actuarial loss | | | (1.4 | ) | | | (8.6 | ) | | | (10.0 | ) |
| | | | | | | | | | | | |
Total accumulated other comprehensive loss | | $ | (1.5 | ) | | $ | (8.6 | ) | | $ | (10.1 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| (in millions of U.S. dollars) | December 30, 2023 | | December 31, 2022 | | January 1, 2022 | | | | |
| Unrecognized net actuarial loss | $ | — | | | $ | (0.6) | | | $ | (0.6) | | | | | |
| Total accumulated other comprehensive loss | $ | — | | | $ | (0.6) | | | $ | (0.6) | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
The following table summarizes the weighted averageweighted-average actuarial assumptions used to determine the projected benefit obligation: | | | | | | | | | | | | |
| | | For the Year Ended | |
| | | December 30,
2017 | | | December 31,
2016 | | | January 2,
2016 | |
U.S. Plans | | | | | | | | | | | | |
Discount rate | | | 3.5 | % | | | 3.8 | % | | | 4.0 | % |
Expected long-term rate of return on plan assets | | | 7.0 | % | | | 7.0 | % | | | 7.3 | % |
International Plans | | | | | | | | | | | | |
Discount rate | | | 2.0 | % | | | 1.7 | % | | | — | % |
Expected long-term rate of return on plan assets | | | 3.1 | % | | | 2.6 | % | | | — | % |
Rate of compensation increase | | | 1.4 | % | | | 1.0 | % | | | — | % |
CPI Inflation factor | | | 0.3 | % | | | 0.3 | % | | | — | % |
| | | | | | | | | | | | | | | | | |
| For the Fiscal Year Ended |
| December 30, 2023 | | December 31, 2022 | | January 1, 2022 |
| U.S. Plans | | | | | |
| Discount rate | — | % | | 4.9 | % | | 2.5 | % |
| Expected long-term rate of return on plan assets | — | % | | 1.0 | % | | 2.0 | % |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
The following table summarizes the
weighted averageweighted-average actuarial assumptions used to determine net periodic benefit cost:
| | | | | | | | | | | | |
| | | For the Year Ended | |
| | | December 30, 2017 | | | December 31, 2016 | | | January 2, 2016 | |
U.S. Plans | | | | | | | | | | | | |
Discount rate | | | 3.8 | % | | | 4.0 | % | | | 4.1 | % |
Expected long-term rate of return on plan assets | | | 7.0 | % | | | 7.0 | % | | | 7.3 | % |
International Plans | | | | | | | | | | | | |
Discount rate | | | 2.0 | % | | | 1.7 | % | | | — | % |
Expected long-term rate of return on plan assets | | | 3.1 | % | | | 1.0 | % | | | — | % |
Inflation factor | | | 0.3 | % | | | 0.3 | % | | | — | % |
| | | | | | | | | | | | | | | | | |
| For the Fiscal Year Ended |
| December 30, 2023 | | December 31, 2022 | | January 1, 2022 |
| U.S. Plans | | | | | |
| Discount rate | 5.1 | % | | 1.0 | % | | 2.0 | % |
| Expected long-term rate of return on plan assets | 1.0 | % | | 1.0 | % | | 2.0 | % |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
The Company utilizes a yield curve analysis to determine the discount rates for its DB plan obligations. The yield curve considers pricing and yield information for high quality corporate bonds with maturities matched to estimated payouts of future pension benefits. The Company evaluates its assumption regarding the estimated long-term rate of return on plan assets based on historical experience, future expectations of investment returns, asset allocations, and its investment strategy. The Company’s long-term rate of return on plan assets reflect expectations of projected
weighted averageweighted-average market returns of plan assets. Changes in expected returns on plan assets also reflect any adjustments to the Company’s targeted asset allocation.
Plan Assets and Asset Mix
Our DB plans weighted-average asset allocations by asset category were as follows:
| | | | | | | | |
| | | December 30,
2017 | | | December 31,
2016 | |
U.S. Plans | | | | | | | | |
Equity securities | | | 61.4 | % | | | 60.7 | % |
Fixed income investments | | | 38.6 | % | | | 39.3 | % |
International Plans | | | | | | | | |
Cash and cash equivalents | | | 0.3 | % | | | 2.4 | % |
Equity securities | | | 64.2 | % | | | 76.1 | % |
Fixed income investments | | | 29.2 | % | | | 8.8 | % |
Real estate | | | 6.3 | % | | | 12.7 | % |
Plan Assets
Our investment policy is that plan assets will be managed utilizing an investment philosophy and approach characterized by all of the following, listed in priority order: (1) emphasis on total return, (2) emphasis on high-quality securities, (3) sufficient income and stability of income, (4) safety of principal with limited volatility of capital through proper diversification and (5) sufficient liquidity. The target allocation percentages for
In connection with termination of the U.S.
Plans’Plan and the distribution of all plan assets
range between 55% to 65% in equity securities and 35% to 45% in fixed income investments. The target allocation percentages for the International Plans’ assets range between 50% to 80% in equity securities, 20% to 50% in fixed income investments, 0% to 30% in real estate and 0% to 15% in alternative investments. None of our equity or debt securities are included in plan assets.Cash Flows
We expect to contribute $0.8 million to the DB plans during the 2018 fiscal year.
The following benefit payments are expected to be paid in the periods indicated below:
| | | | | | | | | | | | |
(in millions of U.S. dollars) | | U.S. | | | International | | | Total | |
Expected benefit payments | | | | | | | | | | | | |
FY 2018 | | $ | 0.4 | | | $ | 1.1 | | | $ | 1.5 | |
FY 2019 | | | 0.4 | | | | 0.7 | | | | 1.1 | |
FY 2020 | | | 0.4 | | | | 0.6 | | | | 1.0 | |
FY 2021 | | | 0.5 | | | | 0.5 | | | | 1.0 | |
FY 2022 | | | 0.5 | | | | 0.4 | | | | 0.9 | |
FY 2023 through FY 2027 | | | 2.5 | | | | 1.8 | | | | 4.3 | |
The fair values of the Company’s U.S.fiscal year ended December 30, 2023, there were no plan assets are measured daily at their net asset value and valued at $7.1 million and $6.2 million atas of December 30, 20172023. The U.S. Plan assets were 100% allocated to cash and cash equivalents as of December 31, 2016, respectively.
The fair values of the Company’s International plan assets at December 30, 2017 and December 31, 2016 were as follows:
| | | | | | | | | | | | |
| | | December 30, 2017 | |
(in millions of U.S. dollars) | | Level 1 | | | Level 2 | | | Level 3 | |
Mutual funds: | | | | | | | | | | | | |
Non-U.S. equity securities | | | 1.6 | | | | — | | | | — | |
Other | | | — | | | | 0.4 | | | | — | |
Fixed income: | | | | | | | | | | | | |
Non-U.S. bonds | | | 2.3 | | | | — | | | | — | |
Insurance contract | | | — | | | | 1.9 | | | | — | |
Real estate: | | | | | | | | | | | | |
Real estate | | | — | | | | 0.4 | | | | — | |
| | | | | | | | | | | | |
Total | | $ | 3.9 | | | $ | 2.7 | | | $ | — | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | December 31, 2016 | |
(in millions of U.S. dollars) | | Level 1 | | | Level 2 | | | Level 3 | |
Cash and cash equivalents: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 0.5 | | | $ | — | | | $ | — | |
Mutual funds: | | | | | | | | | | | | |
Non-U.S. equity securities | | | 2.5 | | | | — | | | | — | |
Other | | | — | | | | 1.3 | | | | — | |
Fixed income: | | | | | | | | | | | | |
Non-U.S. bonds | | | 11.7 | | | | — | | | | | |
Insurance contract | | | — | | | | 1.8 | | | | — | |
Real estate: | | | | | | | | | | | | |
Real estate | | | — | | | | 2.6 | | | | | |
| | | | | | | | | | | | |
Total | | $ | 14.7 | | | $ | 5.7 | | | $ | — | |
| | | | | | | | | | | | |
2022.
Note
17—18—Consolidated Accumulated Other Comprehensive (Loss) Income
Changes in consolidated accumulated other comprehensive (loss) income (“AOCI”) by component for the
fiscal years ended December 30,
2017,2023, December 31,
20162022 and January
2, 20161, 2022 were as follows:
| | | | | | | | | | | | | | | | |
(in millions of U.S. dollars)1 | | Gains and Losses
on Derivative
Instruments | | | Pension
Benefit
Plan Items | | | Currency
Translation
Adjustment Items | | | Total | |
Balance at January 3, 2015 | | $ | 0.2 | | | $ | (12.4 | ) | | $ | (38.8 | ) | | $ | (51.0 | ) |
| | | | | | | | | | | | | | | | |
OCI before reclassifications | | | (5.6 | ) | | | 1.9 | | | | (23.3 | ) | | | (27.0 | ) |
Amounts reclassified from AOCI | | | 0.7 | | | | 0.4 | | | | — | | | | 1.1 | |
| | | | | | | | | | | | | | | | |
Net current-period OCI | | | (4.9 | ) | | | 2.3 | | | | (23.3 | ) | | | (25.9 | ) |
Purchase of subsidiary shares fromnon-controlling interest | | | — | | | | — | | | | 0.7 | | | | 0.7 | |
| | | | | | | | | | | | | | | | |
Balance January 2, 2016 | | $ | (4.7 | ) | | $ | (10.1 | ) | | $ | (61.4 | ) | | $ | (76.2 | ) |
| | | | | | | | | | | | | | | | |
OCI before reclassifications | | | 10.9 | | | | (4.8 | ) | | | (42.0 | ) | | | (35.9 | ) |
Amounts reclassified from AOCI | | | (6.3 | ) | | | 0.5 | | | | — | | | | (5.8 | ) |
| | | | | | | | | | | | | | | | |
Net current-period OCI | | | 4.6 | | | | (4.3 | ) | | | (42.0 | ) | | | (41.7 | ) |
| | | | | | | | | | | | | | | | |
Balance December 31, 2016 | | $ | (0.1 | ) | | $ | (14.4 | ) | | $ | (103.4 | ) | | $ | (117.9 | ) |
| | | | | | | | | | | | | | | | |
OCI before reclassifications | | | — | | | | (2.7 | ) | | | 27.2 | | | | 24.5 | |
Amounts reclassified from AOCI | | | (1.3 | ) | | | 0.3 | | | | — | | | | (1.0 | ) |
| | | | | | | | | | | | | | | | |
Net current-period OCI | | | (1.3 | ) | | | (2.4 | ) | | | 27.2 | | | | 23.5 | |
| | | | | | | | | | | | | | | | |
Balance December 30, 2017 | | $ | (1.4 | ) | | $ | (16.8 | ) | | $ | (76.2 | ) | | $ | (94.4 | ) |
| | | | | | | | | | | | | | | | |
1. | All amounts are net of tax. |
| | | | | | | | | | | | | | | | | | | |
(in millions of U.S. dollars) 1 | | | Pension Benefit Plan Items | | Currency Translation Adjustment Items | | Total |
| Balance as of January 2, 2021 | | | $ | (1.1) | | | $ | (85.6) | | | $ | (86.7) | |
| OCI before reclassifications | | | (0.6) | | | 18.2 | | | 17.6 | |
| Amounts reclassified from AOCI | | | — | | | — | | | — | |
| Net current-period OCI | | | (0.6) | | | 18.2 | | | 17.6 | |
| Balance as of January 1, 2022 | | | $ | (1.7) | | | $ | (67.4) | | | $ | (69.1) | |
| OCI before reclassifications | | | 2.9 | | | (15.7) | | | (12.8) | |
| Amounts reclassified from AOCI | | | — | | | (0.3) | | | (0.3) | |
| Net current-period OCI | | | 2.9 | | | (16.0) | | | (13.1) | |
| Balance as of December 31, 2022 | | | $ | 1.2 | | | $ | (83.4) | | | $ | (82.2) | |
| OCI before reclassifications | | | (1.8) | | | (10.7) | | | (12.5) | |
| Amounts reclassified from AOCI | | | (0.2) | | | (10.2) | | | (10.4) | |
| Net current-period OCI | | | (2.0) | | | (20.9) | | | (22.9) | |
| Balance as of December 30, 2023 | | | $ | (0.8) | | | $ | (104.3) | | | $ | (105.1) | |
______________________
1 All amounts are net of tax.
The following table summarizes the amounts reclassified from AOCIto total net income (loss) for the fiscal years ended December 30, 2017,2023, December 31, 20162022 and January 1, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions of U.S. dollars) | For the Fiscal Year Ended | | Affected Line Item in the Statement Where Net Income Is Presented |
Details About AOCI Components1 | December 30, 2023 | | December 31, 2022 | | January 1, 2022 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Amortization of pension benefit plan items | | | | | | | |
| Recognized net actuarial gain | $ | 0.2 | | | $ | — | | | $ | — | | | Gain on sale of discontinued operations and Other expense (income), net 2 |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| $ | 0.2 | | | $ | — | | | $ | — | | | Net of tax |
| Foreign currency translation adjustments | $ | 10.2 | | | $ | 0.3 | | | $ | — | | | Gain on sale of discontinued operations and Impairment charges 3 |
| | | | | | | |
| Total reclassifications for the period | $ | 10.4 | | | $ | 0.3 | | | $ | — | | | Net of tax |
______________________
1 Amounts in parenthesis indicate debits.
2 2016: | | | | | | | | | | | | | | |
(in millions of U.S. dollars) | | For the Year Ended | | | Affected Line Item in the Statement Where Net Income Is Presented |
Details About AOCI Components1 | | December 30,
2017 | | | December 31,
2016 | | | January 2,
2016 | | |
Gains and losses on derivative instruments | | | | | | | | | | | | | | |
Foreign currency and commodity hedges | | $ | 1.3 | | | $ | 6.4 | | | $ | (1.5 | ) | | Cost of sales |
| | | | | | | | | | | | | | |
| | $ | 1.3 | | | $ | 6.4 | | | $ | (1.5 | ) | | Total before taxes |
| | | — | | | | (0.1 | ) | | | 0.8 | | | Tax (expense) or benefit |
| | | | | | | | | | | | | | |
| | $ | 1.3 | | | $ | 6.3 | | | $ | (0.7 | ) | | Net of tax |
| | | | | | | | | | | | | | |
Amortization of pension benefit plan items | | | | | | | | | | | | | | |
Prior service costs 2 | | $ | — | | | $ | (0.1 | ) | | $ | (0.1 | ) | | |
Actuarial (losses)/gains 2 | | | (0.3 | ) | | | (0.4 | ) | | | (0.4 | ) | | |
| | | | | | | | | | | | | | |
| | | (0.3 | ) | | | (0.5 | ) | | | (0.5 | ) | | Total before taxes |
| | | — | | | | — | | | | 0.1 | | | Tax (expense) or benefit |
| | | | | | | | | | | | | | |
| | $ | (0.3 | ) | | $ | (0.5 | ) | | $ | (0.4 | ) | | Net of tax |
| | | | | | | | | | | | | | |
Total reclassifications for the period | | $ | 1.0 | | | $ | 5.8 | | | $ | (1.1 | ) | | Net of tax |
| | | | | | | | | | | | | | |
1. | Amounts in parenthesis indicate debits. |
2. | These AOCI components are included in the computation of net periodic pension cost. |
Includes $0.6 million related to the recognition of unrealized losses resulting from the distribution of the assets of the U.S. defined benefit plan included in Other expense (income), net on the Consolidated Statement of Operations. In addition, it includes $0.8 million related to the recognition of unrealized gains resulting from the sale of the European Business included in Net income (loss) from discontinued operations, net of income taxes on the Consolidated Statement of Operations. Amounts are net of the tax impact of $0.2 million. 3 For the year ended December 30, 2023, the amount relates to the foreign currency translation balances recognized in earnings in connection with the sale of the European Business included in Net income (loss) from discontinued operations, net of income taxes on the Consolidated Statement of Operations. For the year ended December 31, 2022, the foreign currency translation balance recognized was included in Impairment charges on the Consolidated Statement of Operations.
Note
18—19—Commitments and Contingencies
We lease buildings, machinery and equipment, computer hardware and furniture and fixtures. All contractual increases and rent free periods included in the lease contract are taken into account when calculating the minimum lease payment and are recognized on a straight-line basis over the lease term. Certain leases have renewal periods and contingent rentals, which are not included in the table below. The minimum annual payments under operating leases are as follows:
| | | | |
(in millions of U.S. dollars) | | | |
2018 | | $ | 45.9 | |
2019 | | | 39.6 | |
2020 | | | 32.7 | |
2021 | | | 26.9 | |
2022 | | | 22.7 | |
Thereafter | | | 98.9 | |
Operating lease expenses were:
| | | | |
(in millions of U.S. dollars) | | | |
Year ended December 30, 2017 | | $ | 54.3 | |
Year ended December 31, 2016 | | $ | 32.3 | |
Year ended January 2, 2016 | | $ | 20.5 | |
| | | | |
| | $ | 107.1 | |
| | | | |
Operating lease expenses are shown net of sublease income of $0.7 million for 2017. As of December 30, 2017, we had commitments for capital expenditures of approximately $0.1 million.
We are subject to various claims and legal proceedings with respect to matters such as governmental regulations, and other actions arising out of the normal course of business. Management believes that the resolution of these matters will not have a material adverse effect on our financial position, results of operations, or cash flow.
In May 2014, we completed the Aimia Acquisition, which included deferred consideration of £19.9 million (U.S. $33.5 million), which was paid by us on September 15, 2014 and aggregate contingent consideration of up to £16.0 million which was payable upon the achievement of certain measures related to Aimia’s performance during the twelve months ending July 1, 2016. The aggregate contingent consideration was £12.0 million, offset by an existing receivable of £3.9 million due to the Company from the former owners of Aimia, for a final total cash payment of £8.1 million (U.S. $10.8 million at the exchange rate in effect on the date of payment) that was paid during the third quarter of 2016.
We had
$46.0$66.7 million, $46.6 million, and $59.4 million in standby letters of credit outstanding as of December 30,
2017 ($42.4 million—2023, December 31,
2016; $45.6 million—2022, and January
2, 2016).1, 2022, respectively.
We have future purchase obligations of
$135.5$8.1 million that consist of commitments for
the purchase of inventory, energy transactions, and payments related to
inventory and professional
fees and information technology outsourcing agreements. These obligations represent the minimum contractual obligations expected under the normal course of business.
In July 2017, we entered into a Share Repurchase Agreement with Refresco Group B.V., a Dutch company (“Refresco”), pursuant to which we sold to Refresco, in January 2018, our carbonated soft drinks and juice businesses and our Royal Crown International finished goods export business (collectively, the “Traditional Business” and such transaction, the “Traditional Business Divestiture”). After completion of the Transaction, the Company continuesTraditional Business Divestiture, we have continued to provide contractual payment guarantees to threetwo third-party lessors of certain real property used in the Traditional Business.this business. The leases were conveyed to Refrescothe buyer as part of the Transaction,sale, but the Company’sour guarantee was not released by the landlord. The threetwo lease agreements mature in 2027 2028 and 2029.2028. The maximum potential amount of undiscounted future payments under the guarantee ofis approximately $42.0$10.8 million as of December 30, 20172023 and was calculated based on the minimum lease payments of the leases over the remaining term of the agreements. The Transactionsale documents require Refrescothe buyer to pay all post-closing obligations under these conveyed leases, and to reimburse the Companyus if the landlord calls on a guarantee. RefrescoThe buyer has also agreed to a covenant to negotiate with the landlords for a release of the Company’s guarantees; discussions are ongoing.Note 19—Hedging Transactions and Derivative Financial Instruments
our guarantees. We are directly and indirectly affected by changes in foreign currency market conditions. These changes in market conditions may adversely impact our financial performance and are referredcurrently do not believe it is probable we would be required to as market risks. When deemed appropriate by management, we use derivatives as a risk management tool to mitigate the potential impactperform under any of foreign currency market risks.
We use various types of derivative instruments including, but not limited to, forward contracts and swap agreements for certain commodities. Forward contracts are agreements to buythese guarantees or sell a quantity of a currency at a predetermined future date, and at a predetermined rate or price. A swap agreement is a contract between two parties to exchange cash flows based on specified underlying notional amounts, assets and/or indices.
All derivatives are carried at fair value in the Consolidated Balance Sheets in the line item accounts receivable, net or accounts payable and accrued liabilities. The carrying values of the derivatives reflect the impact of legally enforceable agreements with the same counterparties. These allow us to net settle positive and negative positions (assets and liabilities) arising from different transactions with the same counterparty.
The accounting for gains and losses that result from changes in the fair values of derivative instruments depends on whether the derivatives have been designated and qualify as hedging instruments and the types of hedging relationships. Derivatives can be designated as fair value hedges, cash flow hedges or hedges of net investments in foreign operations. The changes in the fair values of derivatives that have been designated and qualify for fair value hedge accounting are recorded in the same line item in our Consolidated Statements of Operations as the changes in the fair value of the hedged items attributable to the risk being hedged. The changes in fair values of derivatives that have been designated and qualify as cash flow hedges are recorded in AOCI and are reclassified into the line item in the Consolidated Statements of Operations in which the hedged items are recorded in the same period the hedged items affect earnings. Due to the high degree of effectiveness between the hedging instruments and the underlying exposures being hedged, fluctuations in the value of the derivative instruments are generally offset by changes in the fair values or cash flowsany of the underlying exposures being hedged. The changes in fair values of derivatives that were not designated and/or did not qualify as hedging instruments are immediately recognized into earnings. We classify cash inflows and outflows related to derivative and hedging instruments with the appropriate cash flows section associated with the item being hedged.
For derivatives that will be accounted for as hedging instruments, we formally designate and document, at inception, the financial instrument as a hedge of a specific underlying exposure, the risk management objective and the strategy for undertaking the hedge transaction. In addition, we formally assess both at the inception and at least quarterly thereafter, whether the financial instruments used in hedging transactions are highly effective at offsetting changes in either the fair values or cash flows of the related underlying exposures.
We estimate the fair values of our derivatives based on quoted market prices or pricing models using current market rates (see Note 20 to the Consolidated Financial Statements). The notional amounts of the derivative financial instruments do not necessarily represent amounts exchanged by the parties and, therefore, are not a direct measure of our exposure to the financial risks described above. The amounts exchanged are calculated by reference to the notional amounts and by other terms of the derivatives, such as interest rates, foreign currency exchange rates or other financial indices. We do not view the fair values of our derivatives in isolation, but rather in relation to the fair values or cash flows of the underlying hedged transactions. All of our derivatives areover-the-counter instruments with liquid markets.
Credit Risk Associated with Derivatives
We have established strict counterparty credit guidelines and enter into transactions only with financial institutions of investment grade or better. We monitor counterparty exposures regularly and review promptly any downgrade in counterparty credit rating. We mitigatepre-settlement risk by being permitted to net settle for transactions with the same counterparty. To minimize the concentration of credit risk, we enter into derivative transactions with a portfolio of financial institutions. Based on these factors, we consider the risk of counterparty default to be minimal.
Cash Flow Hedging Strategy
We use cash flow hedges to minimize the variability in cash flows of assets or liabilities or forecasted transactions caused by fluctuations in commodity prices. The changes in fair values of hedges that are determined to be ineffective are immediately reclassified from AOCI into earnings. We did not discontinue any cash flow hedging relationships during the years ended December 30, 2017 or December 31, 2016, respectively. Substantially all outstanding hedges as of December 30, 2017 are expected to settle in the next twelve months.
We have entered into coffee futures contracts to hedge exposure to price fluctuations on green coffee associated with fixed-price sales contracts with customers, which generally range from three to twelve months in length. These derivative instruments have been designated and qualified as a part of our commodity cash flow hedging program effective January 1, 2017. The objective of this hedging program is to reduce the variability of cash flows associated with future purchases of green coffee.
The notional amount for the coffee futures contracts that were designated and qualified for our commodity cash flow hedging program was 48.1 million pounds as of December 30, 2017. We did not elect hedge accounting for our coffee futures contracts in 2016. The notional amounts for the coffee futures contracts not designated or qualifying as hedging instruments was 44.9 million pounds as of December 31, 2016. Approximately $1.3 million of realized gains, representing the effective portion of the cash-flow hedge, were subsequently reclassified from AOCI to earnings and recognized in cost of sales in the Consolidated Statement of Operations for the year ended December 30, 2017.
The fair value of the Company’s derivative liabilities included in accounts payable and accrued liabilities was $1.2 million and $6.1 million as of December 30, 2017 and December 31, 2016, respectively. We had no derivative assets as of December 30, 2017 and December 31, 2016. Set forth below is a reconciliation of the Company’s derivatives by contract type for the period indicated:
| | | | | | | | | | | | | | | | |
(in millions of U.S. dollars) | | December 30, 2017 | | | December 31, 2016 | |
Derivative Contract | | Assets | | | Liabilities | | | Assets | | | Liabilities | |
Coffee futures1 | | $ | — | | | $ | 1.2 | | | $ | — | | | $ | 6.1 | |
| | | | | | | | | | | | | | | | |
| | $ | — | | | $ | 1.2 | | | $ | — | | | $ | 6.1 | |
| | | | | | | | | | | | | | | | |
1. | The fair value of the coffee futures excludes amounts in the related margin accounts. As of December 30, 2017 and December 31, 2016, the aggregate margin account balances were $5.3 million and $9.2 million, respectively and are included in cash & cash equivalents on the Consolidated Balance Sheet. |
Coffee futures are subject to enforceable master netting arrangements and are presented net in the reconciliation above. The fair value of the coffee futures assets and liabilities which are shown on a net basis are reconciled in the table below:
| | | | | | | | |
(in millions of U.S. dollars) | | December 30, 2017 | | | December 31, 2016 | |
Coffee futures assets | | $ | 0.6 | | | $ | 1.4 | |
Coffee futures liabilities | | | (1.8 | ) | | | (7.5 | ) |
| | | | | | | | |
Net liability | | $ | (1.2 | ) | | $ | (6.1 | ) |
| | | | | | | | |
The location and amount of gains or losses recognized in the Consolidated Statements of Operations for cash flow hedging relationships relationship, presented on apre-tax basis, for the year ended December 30, 2017, is shown in the table below:
| | | | |
| | | For the year ended
December 30, 2017 | |
(in millions of U.S. dollars) | | Cost of sales | |
Total amounts of income and expense line items presented in the Consolidated Statements of Operations in which the effects of cash flow hedges are recorded | | $ | 1,142.0 | |
Gain on cash flow hedging relationship | | | | |
Coffee futures: | | | | |
Gain reclassfied from AOCI into income | | $ | 1.3 | |
The settlement of our derivative instruments resulted in a credit to cost of sales of $1.3 million for the year ended December 30, 2017.
obligations.
Note 20—Fair Value Measurements
ASC No.
FASB Accounting Standards Codification Topic 820,Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Additionally, the inputs used to measure fair value are prioritized based on a three-level hierarchy. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
•Level 1—Quoted prices in active markets for identical assets or liabilities.
•Level 2—Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
•Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
We have certain assets and liabilities such as our derivative instruments that are required to be recorded at fair value on a recurring basis in accordance with U.S. GAAP.
Our derivative assets and liabilities represent Level 2 instruments. Level 2 instruments are valued based on observable inputs for quoted prices for similar assets and liabilities in active markets. The fair value
Fair Value of
the derivative liabilities as of December 30, 2017 and December 31, 2016 was $1.2 million and $6.1 million, respectively. We had no derivative assets as of December 30, 2017 and December 31, 2016.Fair value of financial instruments
Financial Instruments
The carrying amounts reflected in the Consolidated Balance Sheets for cash and cash equivalents, receivables, payables, short-term borrowings and long-term debt approximate their respective fair values, except as otherwise indicated. The carrying values and estimated fair values of our significant outstanding debt as of December 30,
20172023 and December 31,
20162022 were as follows:
| | | | | | | | | | | | | | | | |
| | | December 30, 2017 | | | December 31, 2016 | |
(in millions of U.S. dollars) | | Carrying
Value | | | Fair
Value | | | Carrying
Value | | | Fair
Value | |
6.750% senior notes due in 20201, 3 | | $ | — | | | $ | — | | | $ | 615.7 | | | $ | 647.7 | |
10.000% senior notes due in 20211, 2 | | | 269.9 | | | | 283.4 | | | | 384.2 | | | | 383.7 | |
5.375% senior notes due in 20221, 3 | | | 519.0 | | | | 539.9 | | | | 517.9 | | | | 534.2 | |
5.500% senior notes due in 20241, 3 | | | 529.6 | | | | 574.0 | | | | 464.3 | | | | 505.5 | |
5.500% senior notes due in 20251, 3 | | | 739.0 | | | | 759.3 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Total | | $ | 2,057.5 | | | $ | 2,156.6 | | | $ | 1,982.1 | | | $ | 2,071.1 | |
| | | | | | | | | | | | | | | | |
1. | The fair values were based on the trading levels and bid/offer prices observed by a market participant and are considered Level 2 financial instruments. |
2. | Includes unamortized premium of $19.9 million and $34.2 million at December 30, 2017 and December 31, 2016, respectively. |
3. | Carrying value of our significant outstanding debt is net of unamortized debt issuance costs as of December 30, 2017 and December 31, 2016 (see Note 15 to the Consolidated Financial Statements). |
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 30, 2023 | | December 31, 2022 |
| (in millions of U.S. dollars) | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| | | | | | | |
3.875% senior notes due in 2028 1, 2 | $ | 494.6 | | | $ | 477.5 | | | $ | 473.5 | | | $ | 418.7 | |
4.375% senior notes due in 2029 1, 2 | 742.8 | | | 683.1 | | | 741.4 | | | 642.2 | |
| Total | $ | 1,237.4 | | | $ | 1,160.6 | | | $ | 1,214.9 | | | $ | 1,060.9 | |
______________________
1 The fair values were based on the trading levels and bid/offer prices observed by a market participant and are considered Level 2 financial instruments.
2 Carrying value of our significant outstanding debt is net of unamortized debt issuance costs as of December 30, 2023 and December 31, 2022 (see Note 16 to the Consolidated Financial Statements).
Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis
In addition to assets and liabilities that are measured at fair value on a recurring basis, we are also required to measure certain items at fair value on a non-recurring basis. These assets can include goodwill, intangible assets, property, plant and equipment, lease-related right-of-use assets, and long-lived assets that have been reduced to fair value when they are held for sale. If certain triggering events occur, or if an annual impairment test is required, we would evaluate these non-financial assets for impairment. If an impairment were to occur, the asset would be recorded at the estimated fair value, using primarily unobservable Level 3 inputs.
During the second quarter of 2022, the assets held for sale of our business in Russia were measured at the lower of carrying value or fair value less costs to sell as discussed in more detail in Note 1 to the Consolidated Financial Statements. The Company's measurement of fair value less costs to sell was based on the total consideration expected to be received by the Company as outlined in the disposition agreement which is a Level 2 input.
During the second quarter of 2022, as a result of the exit of our Russia business and realignment of segments, we identified a triggering event indicating possible impairment of goodwill and intangible assets. See Note 1 to the Consolidated Financial Statements for additional information on goodwill and intangible asset impairment. The determination of the estimated fair values of the reporting units included unobservable Level 3 inputs. We did not identify impairment of our property, plant and equipment, lease-related right-of-use assets, or long-lived assets except as noted above related to the Russia assets held for sale.
Note 21—Quarterly Financial Information (unaudited) | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 30, 2017 | |
(in millions of U.S. dollars, except per share amounts) | | First
Quarter | | | Second
Quarter | | | Third
Quarter | | | Fourth
Quarter | | | Total | |
Revenue, net | | $ | 536.9 | | | $ | 580.6 | | | $ | 580.9 | | | $ | 571.3 | | | $ | 2,269.7 | |
Cost of sales | | | 268.1 | | | | 293.5 | | | | 288.1 | | | | 292.3 | | | | 1,142.0 | |
| | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 268.8 | | | | 287.1 | | | | 292.8 | | | | 279.0 | | | | 1,127.7 | |
SG&A expenses | | | 255.0 | | | | 260.0 | | | | 262.8 | | | | 264.9 | | | | 1,042.7 | |
Loss (gain) on disposal of property plant and equipment, net | | | 1.3 | | | | 3.9 | | | | (0.4 | ) | | | 5.4 | | | | 10.2 | |
Acquisition and integration expenses | | | 7.3 | | | | 6.7 | | | | 3.2 | | | | 8.7 | | | | 25.9 | |
| | | | | | | | | | | | | | | | | | | | |
Operating income | | | 5.2 | | | | 16.5 | | | | 27.2 | | | | — | | | | 48.9 | |
| | | | | | | | | | | | | | | | | | | | |
Net (loss) income from continuing operations | | | (10.2 | ) | | | (4.5 | ) | | | 1.6 | | | | 9.5 | | | | (3.6 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net (loss) income from discontinued operations, | | | | | | | | | | | | | | | | | | | | |
net of income taxes | | | (24.2 | ) | | | (17.8 | ) | | | 43.0 | | | | 9.7 | | | | 10.7 | |
| | | | | | | | | | | | | | | | | | | | |
Less: Net income attributable tonon-controlling interests - discontinued operations | | | 2.0 | | | | 2.3 | | | | 2.1 | | | | 2.1 | | | | 8.5 | |
| | | | | | | | | | | | | | | | | | | | |
Net (loss) income attributable to Cott Corporation | | $ | (36.4 | ) | | $ | (24.6 | ) | | $ | 42.5 | | | $ | 17.1 | | | $ | (1.4 | ) |
| | | | | | | | | | | | | | | | | | | | |
Per share data: | | | | | | | | | | | | | | | | | | | | |
Net (loss) income per common share attributable to Cott Corporation | | | | | | | | | | | | | | | | | | | | |
Basic: | | | | | | | | | | | | | | | | | | | | |
Continuing operations | | $ | (0.07 | ) | | $ | (0.03 | ) | | $ | 0.01 | | | $ | 0.07 | | | $ | (0.03 | ) |
| | | | | | | | | | | | | | | | | | | | |
Discontinued operations | | $ | (0.19 | ) | | $ | (0.15 | ) | | $ | 0.29 | | | $ | 0.05 | | | $ | 0.02 | |
| | | | | | | | | | | | | | | | | | | | |
Net (loss) income | | $ | (0.26 | ) | | $ | (0.18 | ) | | $ | 0.30 | | | $ | 0.12 | | | $ | (0.01 | ) |
| | | | | | | | | | | | | | | | | | | | |
Diluted: | | | | | | | | | | | | | | | | | | | | |
Continuing operations | | $ | (0.07 | ) | | $ | (0.03 | ) | | $ | 0.01 | | | $ | 0.07 | | | $ | (0.03 | ) |
| | | | | | | | | | | | | | | | | | | | |
Discontinued operations | | $ | (0.19 | ) | | $ | (0.15 | ) | | $ | 0.29 | | | $ | 0.05 | | | $ | 0.02 | |
| | | | | | | | | | | | | | | | | | | | |
Net (loss) income | | $ | (0.26 | ) | | $ | (0.18 | ) | | $ | 0.30 | | | $ | 0.12 | | | $ | (0.01 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2016 | |
(in millions of U.S. dollars, except per share amounts) | | First
Quarter | | | Second
Quarter | | | Third
Quarter | | | Fourth
Quarter | | | Total | |
Revenue, net | | $ | 305.1 | | | $ | 320.2 | | | $ | 476.7 | | | $ | 521.2 | | | $ | 1,623.2 | |
Cost of sales | | | 140.3 | | | | 141.1 | | | | 229.0 | | | | 262.7 | | | | 773.1 | |
| | | | | | | | | | | | | | | | | | | | |
Gross profit | | | 164.8 | | | | 179.1 | | | | 247.7 | | | | 258.5 | | | | 850.1 | |
SG&A expenses | | | 159.4 | | | | 163.0 | | | | 225.3 | | | | 258.5 | | | | 806.2 | |
Loss on disposal of property, plant and equipment, net | | | 1.8 | | | | 1.4 | | | | 1.4 | | | | 2.0 | | | | 6.6 | |
Acquisition and integration expenses | | | 1.4 | | | | 11.7 | | | | 7.4 | | | | 7.3 | | | | 27.8 | |
| | | | | | | | | | | | | | | | | | | | |
Operating income (loss) | | | 2.2 | | | | 3.0 | | | | 13.6 | | | | (9.3 | ) | | | 9.5 | |
| | | | | | | | | | | | | | | | | | | | |
Net income (loss) from continuing operations | | | 1.4 | | | | (3.0 | ) | | | (4.0 | ) | | | (54.7 | ) | | | (60.3 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net (loss) income from discontinued operations, net of income taxes | | | (2.8 | ) | | | 11.9 | | | | 2.9 | | | | (23.2 | ) | | | (11.2 | ) |
| | | | | | | | | | | | | | | | | | | | |
Less: Net income attributable tonon-controlling interests - discontinued operations | | | 1.4 | | | | 1.5 | | | | 1.5 | | | | 1.9 | | | | 6.3 | |
| | | | | | | | | | | | | | | | | | | | |
Net (loss) income attributable to Cott Corporation | | $ | (2.8 | ) | | $ | 7.4 | | | $ | (2.6 | ) | | $ | (79.8 | ) | | $ | (77.8 | ) |
| | | | | | | | | | | | | | | | | | | | |
Per share data: | | | | | | | | | | | | | | | | | | | | |
Net (loss) income per common share attributable to | | | | | | | | | | | | | | | | | | | | |
Cott Corporation | | | | | | | | | | | | | | | | | | | | |
Basic: | | | | | | | | | | | | | | | | | | | | |
Continuing operations | | $ | 0.01 | | | $ | (0.02 | ) | | $ | (0.03 | ) | | $ | (0.40 | ) | | $ | (0.47 | ) |
| | | | | | | | | | | | | | | | | | | | |
Discontinued operations | | $ | (0.03 | ) | | $ | 0.08 | | | $ | 0.01 | | | $ | (0.18 | ) | | $ | (0.14 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net (loss) income | | $ | (0.02 | ) | | $ | 0.06 | | | $ | (0.02 | ) | | $ | (0.58 | ) | | $ | (0.61 | ) |
| | | | | | | | | | | | | | | | | | | | |
Diluted: | | | | | | | | | | | | | | | | | | | | |
Continuing operations | | $ | 0.01 | | | $ | (0.02 | ) | | $ | (0.03 | ) | | $ | (0.40 | ) | | $ | (0.47 | ) |
| | | | | | | | | | | | | | | | | | | | |
Discontinued operations | | $ | (0.03 | ) | | $ | 0.08 | | | $ | 0.01 | | | $ | (0.18 | ) | | $ | (0.14 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net (loss) income | | $ | (0.02 | ) | | $ | 0.06 | | | $ | (0.02 | ) | | $ | (0.58 | ) | | $ | (0.61 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Fiscal Year Ended December 30, 2023 |
| (in millions of U.S. dollars, except per share amounts) | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Total |
| Revenue, net | $ | 412.5 | | | $ | 450.6 | | | $ | 470.0 | | | $ | 438.7 | | | $ | 1,771.8 | |
| Cost of sales | 153.5 | | | 159.8 | | | 166.7 | | | 154.8 | | | 634.8 | |
| Gross profit | 259.0 | | | 290.8 | | | 303.3 | | | 283.9 | | | 1,137.0 | |
| Selling, general and administrative expenses | 234.6 | | | 246.6 | | | 244.8 | | | 250.0 | | | 976.0 | |
| Loss on disposal of property plant and equipment, net | 1.3 | | | 0.9 | | | 1.6 | | | 5.3 | | | 9.1 | |
| Acquisition and integration expenses | 1.7 | | | 1.9 | | | 2.4 | | | 3.5 | | | 9.5 | |
| Gain on sale of property | — | | | — | | | (5.3) | | | (15.7) | | | (21.0) | |
| | | | | | | | | |
| Operating income | 21.4 | | | 41.4 | | | 59.8 | | | 40.8 | | | 163.4 | |
| Other (income) expense, net | (0.3) | | | 0.6 | | | (4.0) | | | 4.9 | | | 1.2 | |
| Interest expense, net | 18.2 | | | 18.8 | | | 17.8 | | | 16.6 | | | 71.4 | |
| Income from continuing operations before taxes | 3.5 | | | 22.0 | | | 46.0 | | | 19.3 | | | 90.8 | |
| Income tax expense | 0.3 | | | 8.4 | | | 12.3 | | | 6.0 | | | 27.0 | |
| Net income from continuing operations | 3.2 | | | 13.6 | | | 33.7 | | | 13.3 | | | 63.8 | |
| Net income (loss) from discontinued operations, net of income taxes | 2.6 | | | 7.7 | | | (0.3) | | | 164.3 | | | 174.3 | |
| | | | | | | | | |
| Net income | $ | 5.8 | | | $ | 21.3 | | | $ | 33.4 | | | $ | 177.6 | | | $ | 238.1 | |
| | | | | | | | | |
| Net income per common share | | | | | | | | | |
| Basic: | | | | | | | | | |
| Continuing operations | $ | 0.02 | | | $ | 0.09 | | | $ | 0.21 | | | $ | 0.08 | | | $ | 0.40 | |
| Discontinued operations | $ | 0.02 | | | $ | 0.04 | | | $ | — | | | $ | 1.03 | | | $ | 1.09 | |
| Net income | $ | 0.04 | | | $ | 0.13 | | | $ | 0.21 | | | $ | 1.11 | | | $ | 1.49 | |
| Diluted: | | | | | | | | | |
| Continuing operations | $ | 0.02 | | | $ | 0.09 | | | $ | 0.21 | | | $ | 0.08 | | | $ | 0.40 | |
| Discontinued operations | $ | 0.02 | | | $ | 0.04 | | | $ | — | | | $ | 1.03 | | | $ | 1.08 | |
| Net income | $ | 0.04 | | | $ | 0.13 | | | $ | 0.21 | | | $ | 1.11 | | | $ | 1.48 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Fiscal Year Ended December 31, 2022 |
| (in millions of U.S. dollars, except per share amounts) | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Total |
| Revenue, net | $ | 399.9 | | | $ | 440.3 | | | $ | 447.9 | | | $ | 405.1 | | | $ | 1,693.2 | |
| Cost of sales | 165.9 | | | 177.1 | | | 174.6 | | | 156.4 | | | 674.0 | |
| Gross profit | 234.0 | | | 263.2 | | | 273.3 | | | 248.7 | | | 1,019.2 | |
| Selling, general and administrative expenses | 211.6 | | | 222.9 | | | 228.0 | | | 221.3 | | | 883.8 | |
| Loss on disposal of property, plant and equipment, net | 1.4 | | | 0.2 | | | 2.5 | | | 3.3 | | | 7.4 | |
| Acquisition and integration expenses | 3.0 | | | 4.0 | | | 2.5 | | | 2.6 | | | 12.1 | |
| Impairment charges | — | | | 11.2 | | | — | | | — | | | 11.2 | |
| Gain on sale of property | — | | | — | | | — | | | (38.8) | | | (38.8) | |
| Operating income | 18.0 | | | 24.9 | | | 40.3 | | | 60.3 | | | 143.5 | |
| Other (income) expense, net | (1.4) | | | (0.9) | | | 2.0 | | | (2.2) | | | (2.5) | |
| Interest expense, net | 16.4 | | | 16.6 | | | 16.6 | | | 18.2 | | | 67.8 | |
| Income from continuing operations before taxes | 3.0 | | | 9.2 | | | 21.7 | | | 44.3 | | | 78.2 | |
| Income tax expense | 2.2 | | | 1.2 | | | 6.6 | | | 9.5 | | | 19.5 | |
| Net income from continuing operations | 0.8 | | | 8.0 | | | 15.1 | | | 34.8 | | | 58.7 | |
| Net (loss) income from discontinued operations, net of income taxes | (7.5) | | | (30.5) | | | (13.8) | | | 22.7 | | | (29.1) | |
| Net (loss) income | $ | (6.7) | | | $ | (22.5) | | | $ | 1.3 | | | $ | 57.5 | | | $ | 29.6 | |
| | | | | | | | | |
| Net (loss) income per common share | | | | | | | | | |
| Basic: | | | | | | | | | |
| Continuing operations | $ | — | | | $ | 0.05 | | | $ | 0.09 | | | $ | 0.22 | | | $ | 0.36 | |
| Discontinued operations | $ | (0.04) | | | $ | (0.19) | | | $ | (0.08) | | | $ | 0.14 | | | $ | (0.18) | |
| Net (loss) income | $ | (0.04) | | | $ | (0.14) | | | $ | 0.01 | | | $ | 0.36 | | | $ | 0.18 | |
| Diluted: | | | | | | | | | |
| Continuing operations | $ | — | | | $ | 0.05 | | | $ | 0.09 | | | $ | 0.22 | | | $ | 0.36 | |
| Discontinued operations | $ | (0.04) | | | $ | (0.19) | | | $ | (0.08) | | | $ | 0.14 | | | $ | (0.18) | |
| Net (loss) income | $ | (0.04) | | | $ | (0.14) | | | $ | 0.01 | | | $ | 0.36 | | | $ | 0.18 | |
Note 22—Subsequent Events
On January 30, 2018,2, 2024, the Company completed the Transaction. The Transaction was structured asentered into foreign exchange forward contracts with a sale of the assets of our Canadian business and a sale of the stock of the operating subsidiaries engaged in the Traditional Business in the other jurisdictions after we completed an internal reorganization. The aggregate consideration was approximately $1.25 billion,paid at closing in cash, subject to adjustment for indebtedness, working capital, and other customary post-closing adjustments. We used the cash proceeds from the Transaction to retire $525.0 million aggregate principalnotional amount of the 2022 Notes, retire the remaining $250.0€450.0 million aggregate principal amount of the DSS Notes, repay $262.5 million of the outstanding balance on our ABL facility, and repay $1.9 million in aggregate principal outstanding on our GE Term Loan. Additionally, in connection with the closing of the Transaction on January 30, 2018, we further amended and restated the Amended and Restated Credit Agreement, dated as of August 3, 2016, as amended, which governed our prior ABL facility. The ABL facility, as amended and restated, is a revolving facility of up to $250.0 million, which may be increased up to an additional $100.0 million at our option if lenders agree to increase their commitments, with a maturity date of October 31, 2025.
The Company is utilizing the derivative financial instrument to hedge foreign exchange risk associated with the Company’s 2028 Notes. Since the fiscal year ended December 30, 2023, we repurchased 377,441 common shares for $5.6 million through open market transactions under the repurchase plan approved by the Board of Directors on August
3, 2021.9, 2023.
On February
12, 2018, the Company entered into a definitive agreement to acquire Crystal Rock Holdings, Inc. (“Crystal Rock”), adirect-to-consumer home and office water, coffee, filtration and office supply service business serving customers throughout New York and New England, for approximately $35 million.Under the terms of the merger agreement, a wholly-owned subsidiary of Cott commenced a tender offer on February 20, 2018 to acquire all of the outstanding shares of Crystal Rock’s common stock at a price of $0.97 per share in cash. The consummation of the tender offer is subject to several conditions, including a minimum tender of a majority of outstanding shares of Crystal Rock common stock on a fully diluted basis, and other customary conditions. Following consummation of the tender offer, such subsidiary will merge with and into Crystal Rock, such that, following the merger, Crystal Rock will become a wholly-owned subsidiary of Cott.
The acquisition of Crystal Rock is expected to close in March 2018, subject to the conditions to the tender offer and other customary closing conditions.
On February 28, 2018,21, 2024, the Board of Directors declared a dividend of $0.06$0.09 per common share, payable in cash on March 28, 201825, 2024 to shareownersshareholders of record at the close of business on March 13, 2018.
8, 2024.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
| | | | | | | | | | | | | | | | | | | | | | | | |
(in millions of U.S. dollars) | | Year Ended December 30, 2017 | |
Description | | Balance at
Beginning
of Year | | | Reduction
in Sales | | | Charged to Costs
and Expenses | | | Charged
to Other
Accounts | | | Deductions1 | | | Balance
at End of Year | |
Reserves deducted in the balance sheet from the asset to which they apply | | | | | | | | | | | | | | | | | | | | | | | | |
Allowances for losses on: | | | | | | | | | | | | | | | | | | | | | | | | |
Accounts receivables | | $ | (6.3 | ) | | $ | 0.1 | | | $ | (16.2 | ) | | $ | 10.8 | | | $ | 3.8 | | | $ | (7.8 | ) |
Inventories | | | (1.3 | ) | | | — | | | | (0.4 | ) | | | — | | | | 0.2 | | | | (1.5 | ) |
Deferred tax assets | | | (117.7 | ) | | | — | | | | (17.6 | ) | | | 6.2 | | | | — | | | | (129.1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | (125.3 | ) | | $ | 0.1 | | | $ | (34.2 | ) | | $ | 17.0 | | | $ | 4.0 | | | $ | (138.4 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
(in millions of U.S. dollars) | | Year Ended December 31, 2016 | |
Description | | Balance at
Beginning
of Year | | | Reduction
in Sales | | | Charged to Costs
and Expenses | | | Charged
to Other
Accounts | | | Deductions1 | | | Balance
at End of Year | |
Reserves deducted in the balance sheet from the asset to which they apply | | | | | | | | | | | | | | | | | | | | | | | | |
Allowances for losses on: | | | | | | | | | | | | | | | | | | | | | | | | |
Accounts receivables | | $ | (5.6 | ) | | $ | — | | | $ | (12.1 | ) | | $ | 12.0 | | | $ | (0.6 | ) | | $ | (6.3 | ) |
Inventories | | | (0.1 | ) | | | — | | | | (0.1 | ) | | | (1.2 | ) | | | 0.1 | | | | (1.3 | ) |
Deferred tax assets2 | | | (1.2 | ) | | | — | | | | (61.3 | ) | | | (55.2 | ) | | | — | | | | (117.7 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | (6.9 | ) | | $ | — | | | $ | (73.5 | ) | | $ | (44.4 | ) | | $ | (0.5 | ) | | $ | (125.3 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
(in millions of U.S. dollars) | | Year Ended January 2, 2016 | |
Description | | Balance at
Beginning
of Year | | | Reduction
in Sales | | | Charged to Costs
and Expenses | | | Charged
to Other
Accounts | | | Deductions1 | | | Balance
at End of Year | |
Reserves deducted in the balance sheet from the asset to which they apply | | | | | | | | | | | | | | | | | | | | | | | | |
Allowances for losses on: | | | | | | | | | | | | | | | | | | | | | | | | |
Accounts receivables | | $ | (1.6 | ) | | $ | — | | | $ | (14.8 | ) | | $ | 12.2 | | | $ | (1.4 | ) | | $ | (5.6 | ) |
Inventories | | | (0.1 | ) | | | — | | | | (0.1 | ) | | | — | | | | 0.1 | | | | (0.1 | ) |
Deferred tax assets | | | (0.9 | ) | | | — | | | | (0.3 | ) | | | — | | | | — | | | | (1.2 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | (2.6 | ) | | $ | — | | | $ | (15.2 | ) | | $ | 12.2 | | | $ | (1.3 | ) | | $ | (6.9 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
1. | Deductions primarily represent uncollectible accounts written off. |
2. | Amounts charged to other accounts include $27.3 million and $23.8 million of valuation allowances recorded through purchase accounting during 2016 related to the Aquaterra Acquisition and Eden Acquisition, respectively. |
F-54
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions of U.S. dollars) | For the Fiscal Year Ended December 30, 2023 |
| Description | Balance at Beginning of Year | | Reduction in Sales | | Charged to Costs and Expenses | | Charged to Other Accounts | | Deductions 1 | | Balance at End of Year |
| Reserves deducted in the balance sheet from the asset to which they apply | | | | | | | | | | | |
| Allowances for losses on: | | | | | | | | | | | |
| Accounts receivables | $ | (12.1) | | | $ | — | | | $ | (20.0) | | | $ | — | | | $ | 19.4 | | | $ | (12.7) | |
| Inventories | (0.1) | | | — | | | (1.5) | | | — | | | 0.6 | | | (1.0) | |
| Deferred tax assets | (115.5) | | | — | | | (15.2) | | | (0.9) | | | — | | | (131.6) | |
| $ | (127.7) | | | $ | — | | | $ | (36.7) | | | $ | (0.9) | | | $ | 20.0 | | | $ | (145.3) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions of U.S. dollars) | For the Fiscal Year Ended December 31, 2022 |
| Description | Balance at Beginning of Year | | Reduction in Sales | | Charged to Costs and Expenses | | Charged to Other Accounts | | Deductions 1 | | Balance at End of Year |
| Reserves deducted in the balance sheet from the asset to which they apply | | | | | | | | | | | |
| Allowances for losses on: | | | | | | | | | | | |
| Accounts receivables | $ | (13.5) | | | $ | 0.1 | | | $ | (17.6) | | | $ | — | | | $ | 18.9 | | | $ | (12.1) | |
| Inventories | (0.1) | | | — | | | — | | | — | | | — | | | (0.1) | |
| Deferred tax assets | (112.6) | | | — | | | (5.4) | | | 2.5 | | | — | | | (115.5) | |
| $ | (126.2) | | | $ | 0.1 | | | $ | (23.0) | | | $ | 2.5 | | | $ | 18.9 | | | $ | (127.7) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions of U.S. dollars) | For the Fiscal Year Ended January 1, 2022 |
| Description | Balance at Beginning of Year | | Reduction in Sales | | Charged to Costs and Expenses | | Charged to Other Accounts | | Deductions 1 | | Balance at End of Year |
| Reserves deducted in the balance sheet from the asset to which they apply | | | | | | | | | | | |
| Allowances for losses on: | | | | | | | | | | | |
| Accounts receivables | $ | (12.5) | | | $ | — | | | $ | (9.4) | | | $ | — | | | $ | 8.4 | | | $ | (13.5) | |
| Inventories | — | | | — | | | (0.2) | | | — | | | 0.1 | | | (0.1) | |
| Deferred tax assets | (105.1) | | | — | | | (7.6) | | | 0.1 | | | — | | | (112.6) | |
| $ | (117.6) | | | $ | — | | | $ | (17.2) | | | $ | 0.1 | | | $ | 8.5 | | | $ | (126.2) | |
______________________
1 Deductions primarily represent uncollectible accounts written off.