UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 2, 2005
------------
Commission File Number 000-19914
---------
COTT
CORPORATION
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(Exact name of registrant as specified in its charter)
CANADA None
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
207 Queen's Quay West, Suite 340, Toronto, Ontario M5J 1A7
----------------------------------------------------------
(Address of principal executive offices) (Postal Code)
(416)203-3898
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes X No
----- -----
There were 71,690,620 shares of common stock outstanding as of July 31, 2005.
1
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the three and six
month periods ended July 2, 2005 and July 3, 2004........ Page 3
Consolidated Balance Sheets as of July 2, 2005 and
January 1, 2005.......................................... Page 4
Consolidated Statements of Shareowners' Equity as of
July 2, 2005 and July 3, 2004............................ Page 5
Consolidated Statements of Cash Flows for the three and six
month periods ended July 2, 2005 and July 3, 2004........ Page 6
Notes to the Consolidated Financial Statements.............. Page 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... Page 19
Item 3. Quantitative and Qualitative Disclosures about Market
Risk..................................................... Page 24
Item 4. Controls and Procedures..................................... Page 25
PART II - OTHER INFORMATION
Item 1. Legal Proceedings........................................... Page 26
Item 4. Submission of Matters to a Vote of Security Holders......... Page 26
Item 6. Financial Statement Schedules and Exhibits.................. Page 26
Signatures............................................................ Page 28
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COTT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in millions of U.S. dollars, except per share amounts)
Unaudited
For the three months ended For the six months ended
-------------------------- ------------------------
JULY 2, JULY 3, JULY 2, JULY 3,
2005 2004 2005 2004
------- ------- ------- -------
SALES $492.7 $463.7 $888.2 $834.6
Cost of sales 412.0 378.2 751.5 678.7
------ ------ ------ ------
GROSS PROFIT 80.7 85.5 136.7 155.9
Selling, general and administrative
expenses 35.5 34.1 72.4 72.8
Unusual items -- (0.5) (0.2) (0.5)
------ ------ ------ ------
OPERATING INCOME 45.2 51.9 64.5 83.6
Other expense, net (0.1) -- (0.2) 0.3
Interest expense, net 6.6 6.6 13.1 13.2
Minority interest 1.4 1.2 2.3 2.2
------ ------ ------ ------
INCOME BEFORE INCOME TAXES AND EQUITY LOSS 37.3 44.1 49.3 67.9
Income taxes - note 3 (12.3) (14.6) (16.0) (22.9)
Equity loss -- (0.1) -- (0.2)
------ ------ ------ ------
NET INCOME - note 4 $ 25.0 $ 29.4 $ 33.3 $ 44.8
====== ====== ====== ======
PER SHARE DATA - note 5
NET INCOME PER COMMON SHARE
Basic $ 0.35 $ 0.41 $ 0.47 $ 0.63
Diluted $ 0.35 $ 0.41 $ 0.46 $ 0.62
The accompanying notes are an integral part of these
consolidated financial statements.
3
COTT CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions of U.S. dollars)
JULY 2, JANUARY 1,
2005 2005
--------- ----------
Unaudited
ASSETS
CURRENT ASSETS
Cash $ 15.9 $ 26.6
Accounts receivable 226.9 184.3
Inventories - note 6 138.3 122.8
Prepaid expenses and other assets 12.4 9.7
-------- --------
393.5 343.4
PROPERTY, PLANT AND EQUIPMENT - note 8 350.9 313.7
GOODWILL 88.4 88.8
INTANGIBLES AND OTHER ASSETS - note 9 259.7 276.1
-------- --------
$1,092.5 $1,022.0
======== ========
LIABILITIES
CURRENT LIABILITIES
Short-term borrowings - note 10 $ 65.5 $ 71.4
Current maturities of long-term debt 0.8 0.8
Accounts payable and accrued liabilities 188.9 145.2
-------- --------
255.2 217.4
LONG-TERM DEBT 272.4 272.5
DEFERRED INCOME TAXES 54.2 51.0
-------- --------
581.8 540.9
-------- --------
MINORITY INTEREST 24.2 23.8
SHAREOWNERS' EQUITY
CAPITAL STOCK
Common shares - 71,630,620 shares issued 290.0 287.0
RETAINED EARNINGS 194.9 161.6
ACCUMULATED OTHER COMPREHENSIVE INCOME 1.6 8.7
-------- --------
486.5 457.3
-------- --------
$1,092.5 $1,022.0
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
4
COTT CORPORATION
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
(in millions of U.S. dollars)
Unaudited
NUMBER OF
COMMON ACCUMULATED OTHER
SHARES COMMON RETAINED COMPREHENSIVE TOTAL
(in thousands) SHARES EARNINGS INCOME (LOSS) EQUITY
-------------- ------ -------- ----------------- ------
Balance at January 3, 2004 70,259 $267.9 $ 83.3 $(6.1) $345.1
Options exercised, including tax
benefit of $4.0 million 862 13.9 -- -- 13.9
Comprehensive income (loss)- note 4
Currency translation adjustment -- -- -- (1.6) (1.6)
Unrealized losses on cash flow
hedges - note 7 -- -- -- (0.5) (0.5)
Net income -- -- 44.8 -- 44.8
------ ------ ------ ----- ------
Balance at July 3, 2004 71,121 $281.8 $128.1 $(8.2) $401.7
====== ====== ====== ===== ======
Balance at January 1, 2005 71,440 $287.0 $161.6 $ 8.7 $457.3
Options exercised, including tax
benefit of $0.6 million 191 3.0 -- -- 3.0
Comprehensive income (loss) - note 4
Currency translation adjustment -- -- -- (7.8) (7.8)
Unrealized gains on cash flow
hedges - note 7 -- -- -- 0.7 0.7
Net income -- -- 33.3 -- 33.3
------ ------ ------ ----- ------
Balance at July 2, 2005 71,631 $290.0 $194.9 $ 1.6 $486.5
====== ====== ====== ===== ======
The accompanying notes are an integral part of these
consolidated financial statements.
5
COTT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions of U.S. dollars)
Unaudited
For the three months ended For the six months ended
--------------------------- ---------------------------
JULY 2, 2005 JULY 3, 2004 JULY 2, 2005 JULY 3, 2004
------------ ------------ ------------ ------------
OPERATING ACTIVITIES
Net income $ 25.0 $ 29.4 $ 33.3 $ 44.8
Depreciation and amortization 15.9 15.0 32.7 30.0
Amortization of financing fees 0.3 0.1 0.3 0.3
Deferred income taxes 3.5 4.6 3.3 4.3
Minority interest 1.4 1.2 2.3 2.2
Equity loss -- 0.1 -- 0.2
Other non-cash items 0.8 0.3 0.5 0.6
Net change in non-cash working capital -
note 11 (13.3) (52.7) (17.5) (65.4)
------ ------ ------ ------
Cash provided by (used in) operating
activities 33.6 (2.0) 54.9 17.0
------ ------ ------ ------
INVESTING ACTIVITIES
Additions to property, plant and equipment (26.7) (10.0) (54.8) (19.5)
Acquisitions -- -- -- (17.7)
Other investing activities (1.6) 2.2 (2.1) 0.2
------ ------ ------ ------
Cash used in investing activities (28.3) (7.8) (56.9) (37.0)
------ ------ ------ ------
FINANCING ACTIVITIES
Payments of long-term debt (0.2) (0.3) (0.4) (2.5)
Short-term borrowings (0.6) 4.3 (5.5) 6.4
Distributions to subsidiary minority
shareowner (0.8) (1.0) (1.9) (2.2)
Issue of common shares 1.5 7.7 2.4 9.9
Financing costs (0.5) -- (2.6) --
Other financing activities (0.1) (0.1) (0.2) (0.2)
------ ------ ------ ------
Cash provided by (used in) financing
activities (0.7) 10.6 (8.2) 11.4
------ ------ ------ ------
Effect of exchange rate changes on cash (0.1) (0.2) (0.5) (0.2)
------ ------ ------ ------
NET INCREASE (DECREASE) IN CASH 4.5 0.6 (10.7) (8.8)
CASH, BEGINNING OF PERIOD 11.4 9.0 26.6 18.4
------ ------ ------ ------
CASH, END OF PERIOD $ 15.9 $ 9.6 $ 15.9 $ 9.6
====== ====== ====== ======
The accompanying notes are an integral part of these
consolidated financial statements.
6
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The interim consolidated financial statements have been prepared in accordance
with United States ("U.S.") generally accepted accounting principles ("GAAP")
for interim financial information. Accordingly, they do not include all
information and notes presented in the annual consolidated financial statements
in conformity with U.S. GAAP. In the opinion of management, the financial
statements reflect all adjustments that are necessary for a fair statement of
the results for the interim periods presented. All such adjustments are of a
normal recurring nature.
These financial statements should be read in conjunction with the most recent
annual consolidated financial statements. The accounting policies used in these
interim consolidated financial statements are consistent with those used in the
annual consolidated financial statements.
Material recognition, measurement, and presentation differences between U.S.
GAAP and Canadian GAAP are disclosed in note 15.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On December 16, 2004, the Financial Accounting Standards Board issued SFAS123R,
Share-Based Payments requiring companies to recognize compensation expense for
all types of stock options. On April 14, 2005 the Financial Accounting Standards
Board approved a new rule that deferred the effective date of SFAS123R. We are
required to adopt this standard for our interim period ending April 1, 2006. We
are currently evaluating the impact of SFAS123R on our results of operations and
believe that adoption of SFAS123R will have a material impact on our financial
statements.
In July 2005, the Financial Accounting Standards Board issued an Exposure Draft
on Uncertain Tax Positions - an Interpretation of FASB Statement 109. The
Exposure Draft contains proposed guidance on the recognition and measurement of
uncertain tax positions. It also addresses the accrual of any interest and
penalties related to the uncertain tax positions and the classification of
liabilities resulting from uncertain tax positions in the balance sheet. The
Exposure Draft contains a proposed effective date of December 15, 2005. If
passed, we will adopt this exposure draft for our year ending December 31, 2005.
We are currently evaluating the impact of this Exposure Draft on our results of
operations.
In November 2004, the Financial Accounting Standards Board issued SFAS151,
Inventory Costs. The Statement requires that the allocation of fixed production
overheads to inventory be based on the normal capacity of the production
facilities; unallocated overheads resulting from abnormally low production and
certain other costs are to be recognized as an expense in the period in which
they are incurred. We will adopt this standard for our interim period ending
April 1, 2006. We are currently evaluating the impact of SFAS151 on our results
of operations.
ESTIMATES
The preparation of these consolidated financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying
notes. Actual results could differ from those estimates.
SIGNIFICANT NON-RECURRING ITEMS
During the quarter, we benefited from a $4.9 million payment reflecting the
settlement of a class action lawsuit against suppliers of high fructose corn
syrup. The payment was recorded as a reduction to cost of sales.
7
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 2 - BUSINESS SEASONALITY
Our net income for the three and six month periods ended July 2, 2005 are not
necessarily indicative of the results that may be expected for the full year due
to business seasonality. Operating results are impacted by business seasonality,
which leads to higher sales in the second and third quarters versus the first
and fourth quarters of the year. Conversely, fixed costs such as depreciation,
amortization and interest, are not impacted by seasonal trends.
NOTE 3 - INCOME TAXES
The following table reconciles income taxes calculated at the basic Canadian
corporate rates with the income tax provision:
For the three months ended For the six months ended
-------------------------- ------------------------
JULY 2, JULY 3, JULY 2, JULY 3,
2005 2004 2005 2004
------- ------- ------- -------
(in millions of (in millions of
U.S. dollars) U.S. dollars)
Income tax provision based on
Canadian statutory rates $(12.8) $(15.2) $(17.0) $(23.5)
Foreign tax rate differential 0.1 -- 0.9 0.2
Non-deductible and other items 0.4 0.6 0.1 0.4
------ ------ ------ ------
$(12.3) $(14.6) $(16.0) $(22.9)
====== ====== ====== ======
NOTE 4 - COMPREHENSIVE INCOME
For the three months ended For the six months ended
-------------------------- ------------------------
JULY 2, JULY 3, JULY 2, JULY 3,
2005 2004 2005 2004
------- ------- ------- -------
(in millions of (in millions of
U.S. dollars) U.S. dollars)
Net income $25.0 $29.4 $33.3 $44.8
Foreign currency translation (4.7) (0.9) (7.8) (1.6)
Unrealized gains (losses) on
cash flow hedges 0.5 (0.5) 0.7 (0.5)
----- ----- ----- -----
$20.8 $28.0 $26.2 $42.7
===== ===== ===== =====
NOTE 5 - NET INCOME PER COMMON SHARE
Basic net income per common share is computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
net income per common share is calculated using the weighted average number of
common shares outstanding adjusted to include the effect that would occur if
in-the-money stock options were exercised.
8
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 5 - NET INCOME PER COMMON SHARE (continued)
The following table reconciles the basic weighted average number of common
shares outstanding to the diluted weighted average number of common shares
outstanding:
For the three months ended For the six months ended
-------------------------- ------------------------
JULY 2, JULY 3, JULY 2, JULY 3,
2005 2004 2005 2004
------- ------- ------- -------
(in thousands) (in thousands)
Weighted average number of shares
outstanding - basic 71,593 70,926 71,549 70,658
Dilutive effect of stock options 322 1,307 368 1,380
------ ------ ------ ------
Adjusted weighted average number
of shares outstanding - diluted 71,915 72,233 71,917 72,038
====== ====== ====== ======
At July 2, 2005, options to purchase 2,677,525 shares (2,500 - July 3, 2004) of
common stock at a weighted average exercise price of C$36.18 per share (C$43.64
- - July 3, 2004) were outstanding, but were not included in the computation of
diluted net income per share because the options' exercise price was greater
than the average market price of the common stock.
As of July 2, 2005, Cott had 71,630,620 common shares and 3,864,690 common share
options outstanding. Of the common share options outstanding, 1,845,014 options
were exercisable as of July 2, 2005.
During the second quarter ended July 2, 2005, 22,500 of common share options
were issued at a weighted average price of C$28.81 and 91,400 common share
options were exercised at a weighted average exercise price of C$16.67.
NOTE 6 - INVENTORIES
JULY 2, JANUARY 1,
2005 2005
------- ----------
(in millions of
U.S. dollars)
Raw materials $ 56.0 $ 47.9
Finished goods 66.7 59.9
Other 15.6 15.0
------ ------
$138.3 $122.8
====== ======
NOTE 7 - DERIVATIVE FINANCIAL INSTRUMENTS
We enter into cash flow hedges to mitigate exposure to declines in the value of
the Canadian dollar and pound sterling attributable to certain forecasted U.S.
dollar raw material purchases of the Canadian and United Kingdom ("U.K.") and
European business segments. The hedges consist of monthly foreign exchange
options to buy U.S. dollars at fixed rates per Canadian dollar and pound
sterling and mature at various dates through December 30, 2005. The fair market
value of the foreign exchange options is included in prepaid expenses and other
assets.
9
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 7 - DERIVATIVE FINANCIAL INSTRUMENTS (continued)
Changes in the fair value of the cash flow hedge instruments are recognized in
accumulated other comprehensive income. Amounts recognized in accumulated other
comprehensive income and prepaid expenses and other assets are recorded in
earnings in the same periods in which the forecasted purchases or payments
affect earnings. At July 2, 2005, the fair value of the foreign exchange options
was $0.8 million ($0.5 million - July 3, 2004) and we recorded $0.7 million
unrealized gains ($0.5 million unrealized loss - July 3, 2004) in comprehensive
income for the period ending July 2, 2005.
NOTE 8 - PROPERTY, PLANT AND EQUIPMENT
JULY 2, JANUARY 1,
2005 2005
------- ----------
(in millions of
U.S. dollars)
Cost $ 622.3 $ 570.3
Accumulated depreciation (271.4) (256.6)
------- -------
$ 350.9 $ 313.7
======= =======
NOTE 9 - INTANGIBLES AND OTHER ASSETS
JULY 2, 2005 JANUARY 1, 2005
------------------------------ ------------------------------
ACCUMULATED ACCUMULATED
COST AMORTIZATION NET COST AMORTIZATION NET
------ ------------ ------ ------ ------------ ------
(in millions of U.S. dollars) (in millions of U.S. dollars)
INTANGIBLES
Not subject to amortization
Rights $ 80.4 $ -- $ 80.4 $ 80.4 $ -- $ 80.4
------ ----- ------ ------ ----- ------
Subject to amortization
Customer relationships 165.5 37.0 128.5 164.7 31.5 133.2
Trademarks 29.0 8.2 20.8 30.0 7.3 22.7
Information technology 43.8 20.9 22.9 40.4 18.4 22.0
Other 3.6 0.8 2.8 3.6 0.6 3.0
------ ----- ------ ------ ----- ------
241.9 66.9 175.0 238.7 57.8 180.9
------ ----- ------ ------ ----- ------
322.3 66.9 255.4 319.1 57.8 261.3
------ ----- ------ ------ ----- ------
OTHER ASSETS
Financing costs 4.0 0.7 3.3 5.6 4.6 1.0
Other 3.1 2.1 1.0 15.5 1.7 13.8
------ ----- ------ ------ ----- ------
7.1 2.8 4.3 21.1 6.3 14.8
------ ----- ------ ------ ----- ------
$329.4 $69.7 $259.7 $340.2 $64.1 $276.1
====== ===== ====== ====== ===== ======
Amortization expense of intangible assets was $10.2 million for the period ended
July 2, 2005 ($8.9 million - July 3, 2004).
10
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 10 - SHORT-TERM BORROWINGS
On March 31, 2005, we entered into new committed senior secured credit
facilities that provide for financing in the United States, Canada, the United
Kingdom, and Mexico. The new facilities replaced our former committed senior
secured credit facility in the United States and Canada and our demand bank
credit facility in the United Kingdom. The new facilities terminate, and the
debt under the senior secured credit agreement is due, on March 31, 2010. The
new facilities allow for revolving credit borrowings in a principal amount of up
to $100 million and are initially comprised of two separate facilities: (1) a
$95 million multicurrency facility made by certain lenders to us and our
indirect wholly-owned subsidiaries, Cott Beverages Inc. and Cott Beverages
Limited as co-borrowers, and (2) a $5 million Mexican facility made by certain
lenders to our indirect 90% owned subsidiary Cott Embottelladores de Mexico,
S.A. de C.V. ("CEMSA"). Each facility includes subfacilities for swingline loans
and letters of credit. The $100 million facilities can be increased up to an
additional $150 million at our option if the lenders agree to increase their
commitments or new lenders join the facility and we satisfy certain conditions.
Within such $150 million of extra availability, and subject to certain other
limitations, we can establish additional revolving loan facilities in an
aggregate amount not to exceed $30 million to be provided in various currencies
as agreed upon for additional subsidiaries designated by us. Wachovia Bank,
National Association acts as administrative agent and security trustee for
lenders under the new facilities. In general, borrowings under the credit
facilities bear interest at either a floating or fixed rate for the applicable
currency plus a margin based on our consolidated total leverage ratio. As at
July 2, 2005, credit of $86.6 million was available after borrowings of $8.5
million and standby letters of credit of $4.9 million. The weighted average
interest rate was 5.85% on this facility as of July 2, 2005.
On April 1, 2005, our principal U.S. operating subsidiaries (the "Originators")
entered into a receivables securitization facility under which they agreed to
sell substantially all of their receivables generated from their ordinary course
operations, as well as certain related assets, to a new special purpose indirect
subsidiary of ours, Cott USA Receivables Corporation, which will in turn sell
and assign undivided interests in the receivables and related assets to an
unaffiliated entity, Park Avenue Receivables Company, LLC ("PARCO") and certain
other financial institutions (together with PARCO, the "Purchasers") in exchange
for cash in amounts determined by the parties, subject to specified conditions.
The transfers to the Purchasers will be treated as a financing for purposes of
our consolidated financial statements; however, the presentation of consolidated
financial statements does not itself imply that the assets of any consolidated
entity (including any special-purpose entity formed for a particular project)
are available to pay the liabilities of any other consolidated entity, or that
the liabilities of any consolidated entity (including any special-purpose entity
formed for a particular project) are obligations of any other consolidated
entity. The transfers of the receivables and related assets to the Purchasers
are governed by a Receivables Purchase Agreement, dated April 1, 2005, by and
among Cott USA Receivables Corporation, Cott Beverages Inc., the Purchasers and
JPMorgan Chase Bank, N.A. ("JPMorgan"), acting for itself and the Purchasers.
The agreement contains representations, warranties, covenants, and indemnities
customary for facilities of this type. The facility does not contain any
covenants that the Company views as materially constraining its activities or
(except for Cott USA Receivables Corporation) the activities of its
subsidiaries.
The amount of funds available under the receivables facility will be based upon
the amount of eligible receivables and various reserves required by the
facility. Accordingly, availability may fluctuate over time given changes in
eligible receivables balances and calculation of reserves, but will not exceed
the $75 million program limit. As of July 2, 2005, $60.8 million of eligible
receivables, net of reserves, were available for purchase. As of July 2, 2005
$40 million was outstanding, under this facility, at a weighted average interest
rate of 3.89%.
11
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 11 - NET CHANGE IN NON-CASH WORKING CAPITAL
The changes in non-cash working capital components, net of effects of unrealized
foreign exchange gains and losses, are as follows:
For the three months ended For the six months ended
-------------------------- ------------------------
JULY 2, JULY 3, JULY 2, JULY 3,
2005 2004 2005 2004
------- ------- ------- -------
(in millions of (in millions of
U.S. dollars) U.S. dollars)
Increase in accounts receivable $(29.1) $(49.7) $(47.5) $(68.8)
Decrease (increase) in inventories 0.8 (9.4) (17.4) (33.8)
Increase in prepaid and other expenses (2.9) (3.3) (2.3) (4.3)
Increase in accounts payable and
accrued liabilities 17.9 9.7 49.7 41.5
------ ------ ------ ------
$(13.3) $(52.7) $(17.5) $(65.4)
====== ====== ====== ======
NOTE 12 - STOCK OPTION PLANS
Pursuant to the SFAS No. 123, Accounting for Stock-Based Compensation, we have
elected to account for our employee stock option plan under APB opinion No. 25,
Accounting for Stock Issued to Employees. Under this method of accounting,
compensation expense is measured as the excess, if any, of the market value of
our common stock at the award date over the amount the employee must pay for the
stock (exercise price). Our policy is to award stock options with an exercise
price equal to the closing price of our common stock on the Toronto Stock
Exchange on the last trading day immediately before the date of award, and
accordingly, no compensation expense has been recognized for stock options
issued under this plan. Had compensation expense for the plans been determined
based on the fair value at the grant date consistent with SFAS No. 123, our net
income and net income per common share would have been as follows:
For the three months ended For the six months ended
----------------------------- -----------------------------
JULY 2, JULY 3, JULY 2, JULY 3,
2005 2004 2005 2004
------- ------- ------- -------
(in millions of U.S. dollars, (in millions of U.S. dollars,
except per share amounts) except per share amounts)
NET INCOME
As reported $25.0 $29.4 $33.3 $44.8
Compensation expense (1.7) (2.3) (3.8) (4.0)
----- ----- ----- -----
Pro forma $23.3 $27.1 $29.5 $40.8
===== ===== ===== =====
NET INCOME PER SHARE - BASIC
As reported $0.35 $0.41 $0.47 $0.63
Pro forma $0.33 $0.38 $0.41 $0.58
NET INCOME PER SHARE - DILUTED
As reported $0.35 $0.41 $0.46 $0.62
Pro forma $0.32 $0.38 $0.41 $0.57
12
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 12 - STOCK OPTION PLANS (continued)
The pro forma compensation expense has been tax effected to the extent it
relates to stock options granted in jurisdictions where the related benefits are
deductible for income tax purposes.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
JULY 2, 2005 JULY 3, 2004
------------ ------------
Risk-free interest rate 3.3% - 3.7% 3.3% - 3.9%
Average expected life (years) 4 4
Expected volatility 40.0% 45.0%
Expected dividend yield -- --
NOTE 13 - CONTINGENCIES
In January 2005, we were named as one of many defendants in a class action suit
alleging the unauthorized use by the defendants of container deposits and the
imposition of recycling fees on customers. This litigation is at a very
preliminary stage and the merits of the case have not been determined.
In addition, 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. We believe that the resolution of
these matters will not have a material adverse effect on our financial position
or results from operations.
NOTE 14 - SEGMENT REPORTING
We produce package and distribute retailer brand and branded bottled and canned
beverages to regional and national grocery, mass-merchandise and wholesale
chains in the U.S., Canada, the U.K. & Europe and International business
segments. The International segment includes our Mexican business, our Royal
Crown International business and our business in Asia. The concentrate assets,
sales and related expenses have been included in the Corporate & Other segment.
13
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 14 - SEGMENT REPORTING (continued)
BUSINESS SEGMENTS
UNITED
KINGDOM
FOR THE THREE MONTHS UNITED & CORPORATE
ENDED JULY 2, 2005 STATES CANADA EUROPE INTERNATIONAL & OTHER TOTAL
- ----------------------- ------ ------ ------- ------------- --------- --------
(in millions of U.S. dollars)
External sales $354.4 $ 59.7 $ 57.9 $20.0 $ 0.7 $ 492.7
Intersegment sales -- 3.5 -- -- (3.5) --
Depreciation and
amortization 10.5 2.1 2.2 0.4 0.7 15.9
Operating income (loss) 36.9 5.5 3.1 2.8 (3.1) 45.2
Property, plant and
equipment 209.8 56.3 67.8 9.9 7.1 350.9
Goodwill 55.7 23.0 -- 4.6 5.1 88.4
Intangibles and other
assets 161.3 1.0 3.3 1.2 92.9 259.7
Total assets 652.2 144.4 147.4 80.5 68.0 1,092.5
Additions to property,
plant and equipment 20.3 2.6 2.9 0.3 0.6 26.7
UNITED
KINGDOM
FOR THE THREE MONTHS UNITED & CORPORATE
ENDED JULY 3, 2004 STATES CANADA EUROPE INTERNATIONAL & OTHER TOTAL
- ----------------------- ------ ------ ------- ------------- --------- --------
(in millions of U.S. dollars)
External sales $340.4 $ 54.9 $ 51.7 $16.1 $ 0.6 $ 463.7
Intersegment sales -- 6.3 -- -- (6.3) --
Depreciation and
amortization 10.1 2.2 2.1 -- 0.6 15.0
Operating income (loss) 39.9 6.3 3.8 3.7 (1.8) 51.9
Property, plant and
equipment (as of
January 1, 2005) 174.9 53.0 68.7 9.6 7.5 313.7
Goodwill (as of
January 1, 2005) 55.6 23.5 -- 4.6 5.1 88.8
Intangibles and other
assets (as of
January 1, 2005) 179.3 3.4 3.9 1.2 88.3 276.1
Total assets (as of
January 1, 2005) 591.1 131.3 135.6 85.3 78.7 1,022.0
Additions to property,
plant and equipment 6.8 0.9 1.0 0.3 1.0 10.0
14
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 14 - SEGMENT REPORTING (continued)
UNITED
KINGDOM
FOR THE SIX MONTHS UNITED & CORPORATE
ENDED JULY 2, 2005 STATES CANADA EUROPE INTERNATIONAL & OTHER TOTAL
- ----------------------- ------ ------ ------- ------------- --------- --------
(in millions of U.S. dollars)
External sales $648.7 $100.8 $101.5 $35.7 $ 1.5 $888.2
Intersegment sales -- 6.0 -- -- (6.0) --
Depreciation and
amortization 21.0 5.3 4.3 0.7 1.4 32.7
Operating income
(loss) before
unusual items 54.9 5.9 5.1 5.0 (6.6) 64.3
Unusual items -- -- (0.2) -- -- (0.2)
Additions to property,
plant and equipment 38.8 7.2 7.6 0.5 0.7 54.8
UNITED
KINGDOM
FOR THE SIX MONTHS UNITED & CORPORATE
ENDED JULY 3, 2004 STATES CANADA EUROPE INTERNATIONAL & OTHER TOTAL
- ----------------------- ------ ------ ------- ------------- --------- --------
(in millions of U.S. dollars)
External sales $613.5 $94.7 $94.4 $30.8 $ 1.2 $834.6
Intersegment sales -- 12.0 -- -- (12.0) --
Depreciation and
amortization 19.9 4.3 4.1 0.6 1.1 30.0
Operating income (loss) 71.0 6.7 5.4 6.4 (5.9) 83.6
Additions to property,
plant and equipment 13.3 1.9 2.1 0.8 1.4 19.5
Intersegment sales and total assets under the Corporate & Other caption include
the elimination of intersegment sales, receivables and investments.
Credit risk arises from the potential default of a customer in meeting its
financial obligations with us. Concentrations of credit exposure may arise with
a group of customers which have similar economic characteristics or that are
located in the same geographic region. The ability of such customers to meet
obligations would be similarly affected by changing economic, political or other
conditions.
For the six months ended July 2, 2005, sales to one major customer accounted for
41% (July 3, 2004 - 40%) of our total sales.
15
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 14 - SEGMENT REPORTING (continued)
Revenues by geographic area are as follows:
For the three months ended For the six months ended
-------------------------- ------------------------
JULY 2, JULY 3, JULY 2, JULY 3,
2005 2004 2005 2004
------- ------- ------- -------
(in millions of (in millions of
U.S. dollars) U.S. dollars)
United States $360.4 $347.2 $660.7 $626.7
Canada 59.7 54.9 100.8 94.7
United Kingdom 55.9 49.5 97.7 90.5
Other Countries 16.7 12.1 29.0 22.7
------ ------ ------ ------
$492.7 $463.7 $888.2 $834.6
====== ====== ====== ======
Revenues are attributed to countries based on the location of the plant.
Property, plant and equipment, goodwill, and intangibles and other assets by
geographic area are as follows:
JULY 2, 2005 JANUARY 1, 2005
------------ ---------------
(in millions of U.S. dollars)
United States $527.0 $508.9
Canada 89.8 86.3
United Kingdom 71.1 72.5
Other countries 11.1 10.9
------ ------
$699.0 $678.6
====== ======
NOTE 15 - DIFFERENCES BETWEEN UNITED STATES AND CANADIAN ACCOUNTING PRINCIPLES
AND PRACTICES
These consolidated financial statements have been prepared in accordance with
U.S. GAAP which differ in certain respects from those principles and practices
that we would have followed had our consolidated financial statements been
prepared in accordance with Canadian GAAP.
(a) Under U.S. GAAP, we have elected not to record compensation expense for
options issued to employees with an exercise price equal to the market
value of the options. Under Canadian GAAP, effective January 1, 2004, stock
options issued to employees subsequent to January 1, 2002 are recognized in
net income based on their fair value. As a result, compensation expense of
$5.2 million ($4.0 million - July 3, 2004), $3.8 million ($3.1 million -
July 3, 2004) net of tax of $1.3 million ($0.9 million - July 3, 2004), was
recorded in the first six months of 2005. This policy was adopted on a
retroactive basis with no restatement of comparative figures and as a
result $5.6 million was charged to opening retained earnings as at January
3, 2004. Contributed surplus of $20.7 ($10.3 million - July 3, 2004) was
recorded to reflect the charge for unexercised options. Share capital of
$1.0 million was recorded to reflect the options exercised for the period
ending July 3, 2004. Of the options exercised during the period, all were
granted prior to January 1, 2002.
16
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 15. DIFFERENCES BETWEEN UNITED STATES AND CANADIAN ACCOUNTING PRINCIPLES
AND PRACTICES (continued)
(b) Under U.S. GAAP, costs of start-up activities and organization costs are
expensed as incurred. Under Canadian GAAP these costs, if they meet certain
criteria, can be capitalized and amortized over the future benefit period.
(c) Under U.S. GAAP, the adoption of the U.S. dollar in 1998 as the
presentation and reporting currency was implemented retroactively, such
that prior period financial statements are translated under the current
rate method using the foreign exchange rates in effect on those dates.
Under Canadian GAAP, the change in presentation and reporting currency was
implemented by translating all prior year financial statement amounts at
the foreign exchange rate on January 31, 1998. As a result, there is a
difference in the share capital, retained earnings and cumulative
translation adjustment amounts under Canadian GAAP as compared to U.S.
GAAP.
Under Canadian GAAP, these differences would have been reported in the
consolidated statements of income, consolidated balance sheets, consolidated
statements of shareowners' equity and consolidated statements of cash flow as
follows:
JULY 2, 2005 JANUARY 1, 2005
------------------------- -------------------------
U.S. GAAP CANADIAN GAAP U.S. GAAP CANADIAN GAAP
--------- ------------- --------- -------------
(in millions of (in millions of
U.S. dollars) U.S. dollars)
CONSOLIDATED BALANCE SHEETS
Property, plant &
equipment (b) $ 350.9 $ 351.1 $ 313.7 $ 314.1
Goodwill (b) 88.4 88.9 88.8 89.3
Total assets 1,092.5 1,093.2 1,022.0 1,023.9
Deferred income taxes (a), (b) 54.2 49.0 51.0 47.2
Total liabilities and minority
interest 581.8 576.6 540.9 537.1
Capital stock (a), (c) 290.0 262.5 287.0 259.5
Contributed Surplus (a) -- 20.7 -- 15.5
Retained earnings (a), (b), (c) 194.9 165.2 161.6 135.9
Accumulated other comprehensive
income (c) 1.6 44.0 8.7 51.1
Total shareowners' equity 486.5 492.4 457.3 462.0
17
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 15. DIFFERENCES BETWEEN UNITED STATES AND CANADIAN ACCOUNTING PRINCIPLES
AND PRACTICES (continued)
Income reconciliation for the Income reconciliation for the
three months ended six months ended
----------------------------- -----------------------------
JULY 2, JULY 3, JULY 2, JULY 3,
2005 2004 2005 2004
------- ------- ------- -------
(in millions of U.S. dollars) (in millions of U.S. dollars)
CONSOLIDATED STATEMENTS OF INCOME
Net income under U.S. GAAP $25.0 $29.4 $33.3 $44.8
Cost of sales (b) (0.1) (0.1) (0.2) (0.2)
Stock compensation expense (a) (2.4) (2.4) (5.2) (4.0)
Recovery of income taxes (a),(b) 0.7 0.6 1.4 1.0
----- ----- ----- -----
Net income under Canadian GAAP $23.2 $27.5 $29.3 $41.6
===== ===== ===== =====
Basic income per common share, Canadian
GAAP $0.32 $0.39 $0.41 $0.59
Diluted income per common share,
Canadian GAAP $0.32 $0.38 $0.41 $0.58
Cash flow reconciliation for the Cash flow reconciliation for the
three months ended six months ended
-------------------------------- --------------------------------
JULY 2, JULY 3, JULY 2, JULY 3,
2005 2004 2005 2004
------- ------- ------- -------
(in millions of U.S. dollars) (in millions of U.S. dollars)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash provided by (used in) operating
activities U.S. GAAP $33.6 $(2.0) $54.9 $17.0
Net income (a), (b) (1.8) (1.9) (4.0) (3.2)
Depreciation & amortization (b) 0.1 0.1 0.2 0.2
Deferred income taxes (a), (b) (0.7) (0.6) (1.4) (1.0)
Other non-cash items (a) 2.4 2.4 5.2 4.0
----- ----- ----- -----
Cash provided by (used in) operating
activities Canadian GAAP $33.6 $(2.0) $54.9 $17.0
===== ===== ===== =====
NOTE 16. SUBSEQUENT EVENTS
On August 10, 2005 we acquired 100% of the shares of Macaw (Holdings) Limited,
the parent company of Macaw (Soft Drinks) Limited, the largest privately owned
manufacturer of retailer brand carbonated soft drinks in the United Kingdom. The
purchase price for the acquisition was approximately $135.0 million (75.7
million pound sterling). The acquisition has been financed under our global
credit facility, which was increased from $100.0 million to $225.0 million in
connection with this transaction. This will leave $75 million available under
the credit facility.
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
We reported net income of $25.0 million or $0.35 per diluted share for the
second quarter ended July 2, 2005, down 15% as compared with $29.4 million, or
$0.41 per diluted share, for the second quarter of 2004. For the first half of
2005, net income decreased 26% to $33.3 million or $0.46 per diluted share, from
$44.8 million or $0.62 per diluted share in the same period last year. The
decrease was due to higher fixed costs resulting from recently-added production
capacity, including the start-up of our new Texas plant, and changes in product
mix toward lower margin bottled water, particularly in the U.S.
SALES - Sales for the second quarter of 2005 were $492.7 million, an increase of
6.3% from $463.7 million in the second quarter of 2004. Sales increased 4.7%
after excluding the impact of foreign exchange. Sales increased 3.5% when also
excluding the acquisition of certain of the assets of Metro Beverage Co. (the
"Metro Acquisition") in October 2004.
Total 8oz equivalent case volume was 326.0 million cases in the second quarter
of 2005, down 1% from 328.6 million cases in the second quarter of 2004.
Excluding The Metro Acquisition and concentrate sales, volume was 246.7 million
8oz equivalent cases, down 7.5% compared to the second quarter of 2004. The
Metro Acquisition contributed 3.0 million 8oz equivalent cases to sales volume
in the second quarter of 2005. Sales of concentrates were down 6.7% in the
second quarter as a result of shipment delays to certain customers. Concentrate
manufacturing is a high volume but low dollar component of our overall sales.
Sales for the first half of 2005 increased to $888.2 million, 6.4% higher than
the same period last year and up 3.4% when the impact of acquisitions and
foreign exchange rates are excluded. The impact of acquisitions for the first
half of the year includes the Metro Acquisition as well as the acquisition of
certain of the assets of the Cardinal Companies of Elizabethtown (the "Cardinal
Acquisition"). The Cardinal Acquisition was completed in March 2004. As such,
the affect of the acquisition on our comparative results, on a quarterly basis,
is limited to our first quarter results.
Total 8oz equivalent case volume was 598.3 million cases for the first half of
2005. This is largely unchanged from the first half of 2004 where case volume
was 598.7. Excluding concentrate sales, volume was 453.3 million 8oz equivalent
cases for the first half of 2005, an increase of 1.5% compared to the first half
of 2004.
Sales in the U.S. during the second quarter of 2005 increased to $354.4 million,
up 4.1% from $340.4 million in the second quarter of 2004. Excluding The Metro
Acquisition sales increased 2.4% for the quarter. In the first half of 2005,
sales of $648.7 million grew by 5.7% compared with the first half of 2004.
Excluding acquisitions, sales in the first half of 2005 increased 3.6% as
compared to the first half of 2004. The increase in sales was primarily driven
by increased volume and price increases to our customers to recover raw material
cost increases.
Sales in Canada were $59.7 million for the second quarter of 2005, up 8.7% from
$54.9 million in the second quarter of 2004 and down 0.5% excluding the impact
of foreign exchange rates. For the first half of the year, sales of $100.8
million were 6.4% higher than $94.7 million for the same period last year, and
down 1.9% when the effect of foreign exchange rates is taken into account. The
decrease is primarily attributable to a continuing decline in volume to our
customers.
Sales in the U.K. and Europe of $57.9 million in the second quarter of 2005
increased 12% from $51.7 million in the same period in 2004. Excluding the
impact of the strengthened U.K. pound, sales increased
19
9.2%. For the first half of 2005, sales of $101.5 million were up 7.5% from the
same period in 2004. Excluding the impact of foreign exchange rates, sales were
up 4.7%. The rise in sales is primarily attributable to increased volumes.
The International business unit includes Mexico, Royal Crown International and
the Asia business. Sales by this business unit were $20.0 million for the second
quarter of 2005, up 24.2% from $16.1 million in the second quarter of 2004. For
the first half of the year, sales of $35.7 million were 15.9% higher than $30.8
million for the same period last year. Much of the growth for this division was
largely driven by growth in our Mexican business unit, which accounted for $4.6
million of the increase in the second quarter and $6.2 million of the increase
in the first half of 2005 primarily attributable to increased volume.
GROSS PROFIT - Gross profit for the second quarter of 2005 was $80.7 million, or
16.4% of sales, down from 18.4% of sales in the second quarter of 2004. During
the quarter, we benefited from a $4.9 million payment reflecting the settlement
of a class action lawsuit against suppliers of high fructose corn syrup. Gross
profit excluding the impact of the settlement would have been 15.4%. The gross
profit decline was largely a consequence of two key factors. First, changes in
product mix, towards an increase in lower margin bottled water, particularly in
the US. Second, higher fixed costs resulted from recently added production
capacity. Gross profit in the first half of 2005 was $136.7 million, or 15.4% of
sales, compared to gross profit of $155.9 million, or 18.7% of sales, in the
first half of 2004. Gross profit for the first half of the year reflects the
impact of increased ingredient and packaging costs and the timing of price
increases passed through to our customers partially offset by increased plant
efficiencies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A") - SG&A was $35.5 million
for the second quarter of 2005, an increase of $1.4 million, or 4.1%, from $34.1
million for the second quarter of 2004. For the first six months of 2005, SG&A
of $72.4 million was $0.4 million, or 0.5%, lower than the same period in 2004.
As a percentage of sales, SG&A declined to 7.2% during the second quarter of
2005, down from 7.4% for the same period last year and to 8.2% during the first
half of the year, down from 8.7% for the same period last year.
INTEREST EXPENSE - Net interest expense was $6.6 million for the second quarter
of 2005. This was consistent with the first quarter of 2004. Net interest
expense for the first six months of 2005 was $13.1 million, down slightly from
$13.2 million in the first half of 2004. This decrease was primarily due to
lower borrowings on our credit facilities during 2005.
INCOME TAXES - We recorded an income tax provision of $12.3 million for the
second quarter and $16.0 million for the first half of 2005 as compared with
$14.6 million and $22.9 million, respectively, for the same periods last year.
For the first half of 2005, the overall effective tax rate was 32.5%, which is
1.2% lower than the effective tax rate for the first half of 2004, which was
33.7%. The decrease in the effective tax rate in the first half of 2005 was
primarily due to the impact of lower income in the U.S.
FINANCIAL CONDITION - Cash provided by operating activities for the first half
of 2005 was $0.1 million, after capital expenditures of $54.8 million, as
compared to the first half of 2004 in which cash used in operating activities
was $2.5 million, after capital expenditures of $19.5 million. Cash from
operations increased due to an increase in the net change in working capital of
$48.5 million primarily related to volume growth in the U.S. This was partially
offset by the capital expenditures incurred as a result of the construction of
our new Texas plant.
Cash decreased $10.7 million in the first half of 2005 to $15.9 million as of
July 2, 2005.
INVESTING ACTIVITIES - No acquisitions were completed in the first half of 2005.
On March 17, 2004, we acquired certain of the assets of The Cardinal Companies
of Elizabethtown, LLC in Kentucky, including a bottling facility. The total
purchase price for the acquisition was $17.7 million, including estimated
20
acquisition costs of $0.3 million. The acquisition was funded from cash flow
from operations and short-term borrowings.
CAPITAL RESOURCES AND LONG-TERM DEBT - Our sources of capital include operating
cash flows, short term borrowings under current credit facilities, issuance of
public and private debt and issuance of equity securities. We believe we have
adequate financial resources to meet our ongoing cash requirements for
operations and capital expenditures, as well as our other financial obligations
based on our operating cash flows and currently available credit.
On March 31, 2005, we entered into new committed senior secured credit
facilities that provide for financing in the United States, Canada, the United
Kingdom, and Mexico. The new facilities replaced our former committed senior
secured credit facility in the United States and Canada and our demand bank
credit facility in the United Kingdom. The new facilities terminate, and the
debt under the senior secured credit agreement is due, on March 31, 2010. The
new facilities allow for revolving credit borrowings in a principal amount of up
to $100 million and are initially comprised of two separate facilities: (1) a
$95 million multicurrency facility made by certain lenders to us and our
indirect wholly-owned subsidiaries, Cott Beverages Inc. and Cott Beverages
Limited as co-borrowers, and (2) a $5 million Mexican facility made by certain
lenders to our indirect 90% owned subsidiary Cott Embottelladores de Mexico,
S.A. de C.V. ("CEMSA"). Each facility includes subfacilities for swingline loans
and letters of credit. The $100 million facilities can be increased up to an
additional $150 million at our option if lenders agree to increase their
commitments or new lenders join the facility and we satisfy certain conditions.
Within such $150 million of extra availability, and subject to certain other
limitations, we can establish additional revolving loan facilities in an
aggregate amount not to exceed $30 million to be provided in various currencies
as agreed upon for additional subsidiaries designated by us. Wachovia Bank,
National Association acts as administrative agent and security trustee for
lenders under the new facilities. In general, borrowings under the credit
facilities bear interest at either a floating or fixed rate for the applicable
currency plus a margin based on our consolidated total leverage ratio. As at
July 2, 2005, credit of $86.6 million was available after borrowings of $8.5
million and standby letters of credit of $4.9 million. The weighted average
interest rate was 5.85% on this facility as of July 2, 2005.
On April 1, 2005, our principal U.S. operating subsidiaries (the "Originators")
entered into a receivables securitization facility under which they agreed to
sell substantially all of their receivables generated from their ordinary course
operations, as well as certain related assets, to a new special purpose indirect
subsidiary of ours, Cott USA Receivables Corporation, which will in turn sell
and assign undivided interests in the receivables and related assets to an
unaffiliated entity, Park Avenue Receivables Company, LLC ("PARCO") and certain
other financial institutions (together with PARCO, the "Purchasers") in exchange
for cash in amounts determined by the parties, subject to specified conditions.
The transfers to the Purchasers will be treated as a financing for purposes of
our consolidated financial statements; however, the presentation of consolidated
financial statements does not itself imply that the assets of any consolidated
entity (including any special-purpose entity formed for a particular project)
are available to pay the liabilities of any other consolidated entity, or that
the liabilities of any consolidated entity (including any special-purpose entity
formed for a particular project) are obligations of any other consolidated
entity. The transfers of the receivables and related assets to the Purchasers
are governed by a Receivables Purchase Agreement, dated April 1, 2005, by and
among Cott USA Receivables Corporation, Cott Beverages Inc., the Purchasers and
JPMorgan Chase Bank, N.A. ("JPMorgan"), acting for itself and the Purchasers.
The agreement contains representations, warranties, covenants, and indemnities
customary for facilities of this type. The facility does not contain any
covenants that the Company views as materially constraining its activities or
(except for Cott USA Receivables Corporation) the activities of its
subsidiaries.
The amount of funds available under the receivables facility will be based upon
the amount of eligible receivables and various reserves required by the
facility. Accordingly, availability may fluctuate over time given changes in
eligible receivables balances and calculation of reserves, but will not exceed
the
21
$75 million program limit. As of July 2, 2005, $60.8 million of eligible
receivables, net of reserves, were available for purchase. As of July 2, 2005
$40 million was outstanding, under this facility, at a weighted average interest
rate of 3.89%.
As of July 2, 2005, long-term debt totaled $273.2 million compared with $273.3
million at the end of 2004. At the end of the second quarter of 2005, debt
consisted of $270.1 million in 8% senior subordinated notes with a face value of
$275 million and $3.1 million of other debt.
CANADIAN GAAP - Under Canadian GAAP, in the first six months of 2005 and 2004,
we reported net income of $29.3 million and total assets of $1,093.2 million
compared to net income and total assets under U.S. GAAP of $33.3 million and
$1,092.5 million, respectively, in the first six months of 2005.
The main U.S./Canadian GAAP difference in the first six months of 2005 was the
accounting of stock options. Under Canadian GAAP, effective January 1, 2004,
stock options issued to employees subsequent to January 1, 2002 are recognized
in net income based on their fair value. As a result, compensation expense of
$5.2 million, $3.8 million after tax of $1.4 million, was recorded in the first
half of 2005 and $5.6 million was charged to opening retained earnings as this
policy was adopted on a prospective basis. Under U.S. GAAP, we have elected not
to record compensation expense for options issued to employees with an exercise
price equal to the market value of the options.
SUBSEQUENT EVENTS - On August 10, 2005 we acquired 100% of the shares of Macaw
(Holdings) Limited, the parent company of Macaw (Soft Drinks) Limited, the
largest privately owned manufacturer of retailer brand carbonated soft drinks in
the United Kingdom. The purchase price for the acquisition was approximately
$135.0 million (75.7 million pound sterling). The acquisition has been financed
under our global credit facility, which was increased from $100.0 million to
$225.0 million in connection with this transaction. This will leave $75 million
available under the credit facility.
OUTLOOK - Our ongoing focus is to increase sales, market share and profitability
for Cott and for our customers. In the U.S. the carbonated soft drink ("CSD")
industry continues to experience weakness. We believe that there are significant
opportunities for growth in the U.S. market for retailer brands. As we continue
to implement our back-to-basics approach, we are focusing on effective
logistics, managing inventory to appropriate levels and increasing plant
efficiencies. Our Canadian division intends to focus on entering new segments,
new product innovation, new packaging capabilities and executing on our new
channel strategy to help grow its business. Our U.K. division intends to
continue to enhance its performance through product innovation and a
customer-centric focus to identify opportunities. We continue to view Mexico as
a strong long-term growth opportunity.
In connection with the purchase of Macaw (Holdings) Limited, on August 10, 2005
we released revised guidance indicating that in 2005 we expect sales growth of
between 8% and 10% and earnings per share, on a diluted basis, to be between
$1.06 and $1.11. EBITDA is now expected to be between $215 million and $220
million as further explained below. Capital expenditures for the year are
projected to be $100 million. We undertake no obligation to update this or any
information contained in this report or to publicly release the results of any
revisions to forward-looking statements to reflect events or circumstances of
which we may become aware of after the date of this report.
For the year ended December 31, 2005 - Guidance
<Caption>
(in millions of U.S. dollars)
NET INCOME $77 - $80
Depreciation and amortization $66
Interest expense, net $29
Income taxes and other $43 - $45
-----------
EBITDA $215 - $220
===========
NON - GAAP MEASURES - EBITDA is defined as net income before interest, income
taxes, depreciation and amortization. We use operating income as a primary
measure of performance and cash flow from operations as our primary measure of
liquidity. Nevertheless, we present EBITDA in our filings for several reasons.
We use multiples of EBITDA and discounted cash flows in determining the value of
our operations. In addition, we use "cash return on assets", a financial measure
calculated by dividing our annualized EBITDA by our aggregate operating assets,
for the purposes of calculating performance-related bonus compensation for our
management employees, because that measure reflects the ability of management to
generate cash while preserving assets. Finally, we include EBITDA in our filings
because we believe that our current and potential investors use multiples of
EBITDA to make investment decisions
22
about us. Investors should not consider EBITDA an alternative to net income, nor
to cash provided by operating activities, nor any other indicators of
performance or liquidity which have been determined in accordance with U.S. or
Canadian GAAP. Our method of calculating EBITDA may differ from the methods used
by other companies and, accordingly, our EBITDA may not be comparable to
similarly titled measures used by other companies. A reconciliation of the
Non-GAAP financial measures is found above and also available in the Investor
Relations/Financial Reports section of our website.
RISKS AND UNCERTAINTIES - Risks and uncertainties include national brand pricing
strategies, commitment of major customers to retailer brand programs, stability
of procurement costs for items such as sweetener, packaging materials and other
ingredients, the successful integration of new acquisitions, the ability to
protect intellectual property and fluctuations in interest rates and foreign
currencies versus the U.S. dollar.
Sales to our top customer (Wal-Mart Stores, Inc.) in the first six months of
2005 and 2004 accounted for 41% and 40%, respectively, of our total sales. Sales
to the top ten customers in the first six months of 2005 and 2004 accounted for
67% and 68%, respectively, of our total sales. The loss of any significant
customer, or customers which in the aggregate represent a significant portion of
our sales, could have a material adverse effect on our operating results and
cash flows.
FORWARD-LOOKING STATEMENTS - In addition to historical information, this report
and the reports and documents incorporated by reference in this report contain
statements relating to future events and our future results. These statements
are "forward-looking" within the meaning of the Private Securities Litigation
Reform Act of 1995 and include, but are not limited to, statements that relate
to projections of sales, earnings, earnings per share, cash flows, capital
expenditures or other financial items, discussions of estimated future revenue
enhancements and cost savings. These statements also relate to our business
strategy, goals and expectations concerning our market position, future
operations, margins, profitability, liquidity and capital resources. Generally,
words such as "anticipate", "believe", "continue", "could", "estimate",
"expect", "intend", "may", "plan", "predict", "project", "should" and similar
terms and phrases are used to identify forward-looking statements in this report
and in the documents incorporated in this report by reference. These
forward-looking statements are made as of the date of this report.
Although we believe the assumptions underlying these forward-looking statements
are reasonable, any of these assumptions could prove to be inaccurate and, as a
result, the forward-looking statements based on those assumptions could be
incorrect. Our operations involve risks and uncertainties, many of which are
outside of our control, and any one or any combination of these risks and
uncertainties could also affect whether the forward-looking statements
ultimately prove to be correct.
The following are some of the factors that could affect our financial
performance, including but not limited to sales, earnings and cash flows, or
could cause actual results to differ materially from estimates contained in or
underlying the forward-looking statements:
- loss of key customers, particularly Wal-Mart, and the commitment of
retailer brand beverage customers to their own retailer brand beverage
programs;
- increases in competitor consolidations and other market-place
competition, particularly among branded beverage products;
- our ability to identify acquisition and alliance candidates and to
integrate into our operations the businesses and product lines that we
acquire or become allied with;
- our ability to secure additional production capacity either through
acquisitions, or third party manufacturing arrangements;
- our ability to restore plant efficiencies and lower logistics costs;
- fluctuations in the cost and availability of beverage ingredients and
packaging supplies, and our
23
ability to maintain favorable arrangements and relationships with its
suppliers;
- unseasonably cold or wet weather, which could reduce demand for our
beverages;
- our ability to protect the intellectual property inherent in new and
existing products;
- adverse rulings, judgments or settlements in our existing litigation,
and the possibility that additional litigation will be brought against
us;
- product recalls or changes in or increased enforcement of the laws and
regulations that affect our business;
- currency fluctuations that adversely affect the exchange between the
U.S. dollar on one hand and the pound sterling, the Canadian dollar
and other currencies on the other;
- changes in tax laws and interpretations of tax laws;
- changes in consumer tastes and preferences and market demand for new
and existing products;
- interruption in transportation systems, labor strikes, work stoppages
and other interruptions or difficulties in the employment of labor or
transportation in our markets; and
- changes in general economic and business conditions.
Many of these factors are described in greater detail in this report and in
other filings that we make with the U.S. Securities and Exchange Commission
("SEC") and Canadian securities regulatory authorities. We undertake no
obligation to update any information contained in this report or to publicly
release the results of any revisions to forward-looking statements to reflect
events or circumstances of which we may become aware of after the date of this
report. Undue reliance should not be placed on forward-looking statements.
All future written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the
foregoing.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to Item 7A: Quantitative and Qualitative Disclosures about
Market Risk described in our Annual Report on Form 10-K for the fiscal year
ended January 1, 2005 and to Item 3: Quantitative and Qualitative Disclosures
about Market Risk found in our Quarterly Report on Form 10-Q for the quarter
ended April 2, 2005.
In the first half of 2005, we entered into cash flow hedges to mitigate exposure
to declines in the value of the Canadian dollar and British pound attributable
to certain forecasted U.S. dollar raw material purchases of the Canada and U.K.
and Europe business segments. The hedges consist of monthly foreign exchange
options to buy U.S. dollars at fixed rate per Canadian dollar and British pound
and mature at various dates through to December 30, 2005. The fair market value
of the foreign exchange options is included in prepaid expenses and other
assets.
Changes in the fair value of the cash flow hedge instruments are recognized in
accumulated other comprehensive income. Amounts recognized in accumulated other
comprehensive income and prepaid and other expenses are recorded in earnings in
the same periods in which the forecasted purchases or payments affect earnings.
At July 2, 2005, the fair value of the options was $0.8 million ($0.5 million -
July 3, 2004) and we recorded $0.7 million unrealized gains ($0.5 million
unrealized loss - July 3, 2004) in comprehensive income for the period ending
July 2, 2005. See "Note 7 Derivative Financial Instruments."
24
Our sales outside the U.S. are concentrated principally in the U.K. and Canada.
We believe that our foreign currency exchange rate risk has been immaterial
given the historic stability of the U.S. dollar exchange rates with respect to
the foreign currencies to which we have our principal exposure. However, there
can be no assurance that these exchange rates will remain stable or that our
exposure to foreign currency exchange rate risk will not increase in the future.
ITEM 4. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934, as amended) are effective,
based on their evaluation of these controls and procedures as of the end of the
period covered by this report. There have been no changes in our internal
control over financial reporting or in other factors during the quarter ended
July 2, 2005 that could materially affect, or are likely to materially affect,
our internal control over financial reporting.
25
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the legal proceedings described in our Annual Report on
Form 10-K for the fiscal year ended January 1, 2005.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual and Special Meeting of the Cott's Shareholders was held on April
21, 2005.
(b) The meeting was held to consider and vote on the following matters:
AGAINST/ BROKER
MATTERS SUBMITTED TO A VOTE FOR WITHHELD NON-VOTES
- ------------------------------- ---------- --------- ---------
To elect directors for a period
of one year:
Colin J. Adair 47,955,480 3,325,435 --
W. John Bennett 51,527,040 23,875 --
Serge Gouin 51,248,980 31,935 --
Stephen H. Halperin 50,903,505 377,410 --
Betty Jane Hess 51,249,290 31,625 --
Philip B. Livingston 51,256,340 24,575 --
Christine A. Magee 51,249,690 31,225 --
Andrew Prozes 51,254,140 26,775 --
John K. Sheppard 51,241,430 39,485 --
Donald G. Watt 50,911,140 369,775 --
Frank E. Weise III 50,910,330 370,585 --
--
---------- --------- ---
To appoint
PricewaterhouseCoopers LLP
as auditors 51,257,844 11,282 --
---------- --------- ---
ITEM 6. FINANCIAL STATEMENT SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K
1. Financial Statement Schedules
Schedule III - Consolidating Financial Statements
2. Exhibits
Number Description
------ -----------
3.1 Articles of Incorporation of Cott (incorporated by reference to
Exhibit 3.1 to our Form 10-K dated March 31, 2000).
3.2 By-laws of Cott (incorporated by reference to Exhibit 3.2 to our
Form 10-K dated March 8, 2002).
31.1 Certification of the President and Chief Executive Officer
pursuant to section 302 of the Sarbanes-Oxley Act of 2002 for the
quarterly period ended July 2, 2005 (filed herewith).
26
31.2 Certification of the Vice President, Controller & Assistant
Secretary and Interim Chief Financial Officer pursuant to
section 302 of the Sarbanes-Oxley Act of 2002 for the quarterly
period ended July 2, 2005 (filed herewith).
32.1 Certification of the President and Chief Executive Officer
pursuant to section 906 of the Sarbanes-Oxley Act of 2002 for the
quarterly period ended July 2, 2005.
32.2 Certification of the Vice President, Controller & Assistant
Secretary and Interim Chief Financial Officer pursuant to
section 906 of the Sarbanes-Oxley Act of 2002 for the quarterly
period ended July 2, 2005.
In accordance with SEC Release No. 33-8238, Exhibits 32.1 and 32.2 are to
be treated as "accompanying" this report rather than "filed" as part of the
report.
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COTT CORPORATION
(Registrant)
Date: August 10, 2005 /s/ Tina Dell'Aquila
----------------------------------------
Tina Dell'Aquila
Vice President,
Controller & Assistant Secretary and
Interim Chief Financial Officer
(On behalf of the Company and as the
principal accounting officer)
28
SCHEDULE III - CONSOLIDATING FINANCIAL STATEMENTS
Cott Beverages Inc., a wholly owned subsidiary of Cott Corporation, has entered
into financing arrangements that are guaranteed by Cott and certain other wholly
owned subsidiaries of Cott Corporation (the "Guarantor Subsidiaries"). Such
guarantees are full, unconditional and joint and several.
The following supplemental financial information sets forth on an unconsolidated
basis, balance sheets, statements of income and cash flows for Cott Corporation,
Cott Beverages Inc., Guarantor Subsidiaries and Cott Corporation's other
subsidiaries (the "Non-guarantor Subsidiaries"). The supplemental financial
information reflects the investments of Cott Corporation and Cott Beverages Inc.
in their respective subsidiaries using the equity method of accounting.
COTT CORPORATION
CONSOLIDATING STATEMENTS OF INCOME
(in millions of U.S. dollars, unaudited)
FOR THE THREE MONTHS ENDED JULY 2, 2005
----------------------------------------------------------------------------------------
COTT COTT GUARANTOR NON-GUARANTOR ELIMINATION
CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
----------- -------------- ------------ ------------- ----------- ------------
SALES $63.4 $331.9 $10.3 $ 94.9 $ (7.8) $492.7
Cost of sales 52.2 277.3 8.8 81.5 (7.8) 412.0
----- ------ ----- ------ ------ ------
GROSS PROFIT 11.2 54.6 1.5 13.4 -- 80.7
Selling, general and
administrative expenses 9.7 18.6 1.2 6.0 -- 35.5
Unusual items -- -- -- -- -- --
----- ------ ----- ------ ------ ------
OPERATING INCOME (LOSS) 1.5 36.0 0.3 7.4 -- 45.2
Other expense (income), net (0.6) (18.0) (0.2) 21.7 (3.0) (0.1)
Interest expense (income), net (0.1) 8.1 (2.0) 0.6 -- 6.6
Minority interest -- -- -- 1.4 -- 1.4
----- ------ ----- ------ ------ ------
INCOME (LOSS) BEFORE INCOME
TAXES AND EQUITY INCOME 2.2 45.9 2.5 (16.3) 3.0 37.3
Income taxes (0.9) (10.4) -- (1.0) -- (12.3)
Equity income 23.6 3.0 19.5 -- (46.1) --
----- ------ ----- ------ ------ ------
NET INCOME $24.9 $ 38.5 $22.0 $(17.3) $(43.1) $ 25.0
===== ====== ===== ====== ====== ======
29
COTT CORPORATION
CONSOLIDATING STATEMENTS OF INCOME
(in millions of U.S. dollars, unaudited)
FOR THE SIX MONTHS ENDED JULY 2, 2005
----------------------------------------------------------------------------------------
COTT COTT GUARANTOR NON-GUARANTOR ELIMINATION
CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
----------- -------------- ------------ ------------- ----------- ------------
SALES $106.9 $606.5 $20.6 $167.6 $(13.4) $888.2
Cost of sales 90.2 513.0 17.6 144.1 (13.4) 751.5
------ ------ ----- ------ ------ ------
GROSS PROFIT 16.7 93.5 3.0 23.5 -- 136.7
Selling, general and
administrative expenses 19.3 38.9 2.1 12.1 -- 72.4
Unusual items -- -- -- (0.2) -- (0.2)
------ ------ ----- ------ ------ ------
OPERATING INCOME (LOSS) (2.6) 54.6 0.9 11.6 -- 64.5
Other expense (income), net (0.1) (18.4) (0.4) 21.7 (3.0) (0.2)
Interest expense (income), net (0.1) 16.6 (4.0) 0.6 -- 13.1
Minority interest -- -- -- 2.3 -- 2.3
------ ------ ----- ------ ------ ------
INCOME (LOSS) BEFORE INCOME
TAXES AND EQUITY INCOME (2.4) 56.4 5.3 (13.0) 3.0 49.3
Income taxes 0.5 (14.5) -- (2.0) -- (16.0)
Equity income (loss) 35.1 4.7 26.8 -- (66.6) --
------ ------ ----- ------ ------ ------
NET INCOME (LOSS) $ 33.2 $ 46.6 $32.1 $(15.0) $(63.6) $ 33.3
====== ====== ===== ====== ====== ======
30
COTT CORPORATION
CONSOLIDATING BALANCE SHEETS
(in millions of U.S. dollars, unaudited)
AS OF JULY 2, 2005
----------------------------------------------------------------------------------------
COTT COTT GUARANTOR NON-GUARANTOR ELIMINATION
CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
----------- -------------- ------------ ------------- ----------- ------------
ASSETS
CURRENT ASSETS
Cash $ 5.5 $ (0.4) $ -- $ 10.8 $ -- $ 15.9
Accounts receivable 45.1 37.2 25.5 448.9 (329.8) 226.9
Inventories 24.2 82.9 -- 31.2 -- 138.3
Prepaid expenses 2.2 4.3 0.6 5.3 -- 12.4
------ -------- ------ ------ --------- --------
77.0 124.0 26.1 496.2 (329.8) 393.5
Property, plant and equipment 51.9 207.6 8.9 82.5 -- 350.9
Goodwill 22.3 60.3 5.1 0.7 -- 88.4
Intangibles and other assets 11.6 201.1 -- 47.0 -- 259.7
Due from affiliates 54.2 370.3 113.3 271.1 (809.3) --
Investments in subsidiaries 401.8 76.1 115.3 -- (593.2) --
------ -------- ------ ------ --------- --------
$618.8 $1,039.8 $268.7 $897.5 $(1,732.3) $1,092.5
====== ======== ====== ====== ========= ========
LIABILITIES
CURRENT LIABILITIES
Short-term borrowings $ 3.8 $ 18.1 $ -- $ 43.6 $ -- $ 65.5
Current maturities of
long-term debt -- 0.8 -- -- -- 0.8
Accounts payable and
accrued liabilities 43.8 413.2 7.7 57.0 (332.8) 188.9
------ -------- ------ ------ --------- --------
47.6 432.1 7.7 100.6 (332.8) 255.2
Long-term debt -- 272.4 -- -- -- 272.4
Due to affiliates 79.8 111.5 195.7 422.3 (809.3) --
Deferred income taxes 4.9 41.8 -- 7.5 -- 54.2
------ -------- ------ ------ --------- --------
132.3 857.8 203.4 530.4 (1,142.1) 581.8
------ -------- ------ ------ --------- --------
Minority interest -- -- -- 24.2 -- 24.2
SHAREOWNERS' EQUITY
Capital stock
Common shares 290.0 275.8 167.7 466.4 (909.9) 290.0
Retained earnings (deficit) 194.9 (120.8) (102.4) (101.8) 325.0 194.9
Accumulated other
comprehensive income (loss) 1.6 27.0 -- (21.7) (5.3) 1.6
------ -------- ------ ------ --------- --------
486.5 182.0 65.3 342.9 (590.2) 486.5
------ -------- ------ ------ --------- --------
$618.8 $1,039.8 $268.7 $897.5 $(1,732.3) $1,092.5
====== ======== ====== ====== ========= ========
31
COTT CORPORATION
CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions of U.S. dollars, unaudited)
FOR THE SIX MONTHS ENDED JULY 2, 2005
----------------------------------------------------------------------------------------
COTT COTT GUARANTOR NON-GUARANTOR ELIMINATION
CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
----------- -------------- ------------ ------------- ----------- ------------
OPERATING ACTIVITIES
Net income $33.2 $ 46.6 $ 32.1 $(15.0) $(63.6) $ 33.3
Depreciation and amortization 6.1 18.1 1.4 7.1 -- 32.7
Amortization of financing fees -- 0.2 -- 0.1 -- 0.3
Deferred income taxes (0.6) 3.7 -- 0.2 -- 3.3
Minority interest -- -- -- 2.3 -- 2.3
Equity income (loss), net of
distributions (35.1) (2.4) (26.8) -- 64.3 --
Other non-cash items -- 1.3 (0.9) 0.1 -- 0.5
Net change in non-cash
working capital from
continuing operations 17.1 49.6 (30.2) (51.0) (3.0) (17.5)
----- ----- ------ ------ ------ ------
Cash provided by (used in)
operating activities 20.7 117.1 (24.4) (56.2) (2.3) 54.9
----- ----- ------ ------ ------ ------
INVESTING ACTIVITIES
Additions to property, plant
and equipment (7.1) (37.6) (1.7) (8.4) -- (54.8)
Acquisitions and equity
investments
Advances to affiliates (9.8) (5.0) (4.1) -- 18.9 --
Investment in subsidiary (15.0) -- (15.0) -- 30.0 --
Other (4.1) (29.4) 32.3 (0.9) -- (2.1)
----- ----- ------ ------ ------ ------
Cash used in investing
activities (36.0) (72.0) 11.5 (9.3) 48.9 (56.9)
----- ----- ------ ------ ------ ------
FINANCING ACTIVITIES
Payments of long-term debt -- (0.4) -- -- -- (0.4)
Short-term borrowings 3.8 (48.3) (0.1) 39.1 -- (5.5)
Advances from affiliates -- 4.0 -- 14.8 (18.8) --
Distributions to subsidiary
minority shareowner -- -- -- (1.9) -- (1.9)
Issue of common shares 2.4 -- 15.0 15.0 (30.0) 2.4
Dividends paid -- -- -- (2.2) 2.2 --
Financing costs -- (2.6) -- -- -- (2.6)
Other -- 1.8 (2.0) -- -- (0.2)
----- ----- ------ ------ ------ ------
Cash provided by (used in)
financing activities 6.2 (45.5) 12.9 64.8 (46.6) (8.2)
----- ----- ------ ------ ------ ------
Effect of exchange rate
changes on cash (0.1) -- -- (0.4) -- (0.5)
----- ----- ------ ------ ------ ------
NET INCREASE (DECREASE) IN CASH (9.2) (0.4) -- (1.1) -- (10.7)
CASH, BEGINNING OF PERIOD 14.7 -- -- 11.9 -- 26.6
----- ----- ------ ------ ------ ------
CASH, END OF PERIOD $ 5.5 $(0.4) $ -- $ 10.8 $ -- $ 15.9
===== ===== ====== ====== ====== ======
32
COTT CORPORATION
CONSOLIDATING STATEMENTS OF INCOME
(in millions of U.S. dollars, unaudited)
FOR THE THREE MONTHS ENDED JULY 3, 2004
----------------------------------------------------------------------------------------
COTT COTT GUARANTOR NON-GUARANTOR ELIMINATION
CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
----------- -------------- ------------ ------------- ----------- ------------
SALES $61.2 $316.7 $13.0 $82.8 $(10.0) $463.7
Cost of sales 49.6 259.5 10.4 68.7 (10.0) 378.2
----- ------ ----- ----- ------ ------
GROSS PROFIT 11.6 57.2 2.6 14.1 -- 85.5
Selling, general and
administrative expenses 9.4 16.4 1.2 7.1 -- 34.1
Unusual items -- -- -- (0.5) -- (0.5)
----- ------ ----- ----- ------ ------
OPERATING INCOME 2.2 40.8 1.4 7.5 -- 51.9
Other expense, net 0.4 -- (0.2) (0.2) -- --
Interest expense (income), net -- 8.4 (1.7) (0.1) -- 6.6
Minority interest -- -- -- 1.2 -- 1.2
----- ------ ----- ----- ------ ------
INCOME BEFORE INCOME TAXES AND
EQUITY INCOME 1.8 32.4 3.3 6.6 -- 44.1
Income taxes (0.3) (13.1) -- (1.2) -- (14.6)
Equity income 27.9 2.8 20.4 -- (51.2) (0.1)
----- ------ ----- ----- ------ ------
NET INCOME $29.4 $ 22.1 $23.7 $ 5.4 $(51.2) $ 29.4
===== ====== ===== ===== ====== ======
FOR THE SIX MONTHS ENDED JULY 3, 2004
----------------------------------------------------------------------------------------
COTT COTT GUARANTOR NON-GUARANTOR ELIMINATION
CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
----------- -------------- ------------ ------------- ----------- ------------
SALES $106.7 $570.7 $23.7 $151.5 $(18.0) $834.6
Cost of sales 86.8 462.1 19.7 128.1 (18.0) 678.7
------ ------ ----- ------ ------ ------
GROSS PROFIT 19.9 108.6 4.0 23.4 -- 155.9
Selling, general and
administrative expenses 23.1 35.1 2.1 12.5 -- 72.8
Unusual items -- -- -- (0.5) -- (0.5)
------ ------ ----- ------ ------ ------
OPERATING INCOME (3.2) 73.5 1.9 11.4 -- 83.6
Other expense, net 0.7 0.1 (0.4) (0.1) -- 0.3
Interest expense (income), net -- 16.3 (3.1) -- -- 13.2
Minority interest -- -- -- 2.2 -- 2.2
------ ------ ----- ------ ------ ------
INCOME BEFORE INCOME TAXES AND
EQUITY INCOME (3.9) 57.1 5.4 9.3 -- 67.9
Income taxes 1.5 (22.6) -- (1.8) -- (22.9)
Equity income (loss) 47.2 4.5 36.7 -- (88.6) (0.2)
------ ------ ----- ------ ------ ------
NET INCOME $ 44.8 $ 39.0 $42.1 $ 7.5 $(88.6) $ 44.8
====== ====== ===== ====== ====== ======
33
COTT CORPORATION
CONSOLIDATING BALANCE SHEETS
(in millions of U.S. dollars)
AS OF JANUARY 1, 2005
----------------------------------------------------------------------------------------
COTT COTT GUARANTOR NON-GUARANTOR ELIMINATION
CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
----------- -------------- ------------ ------------- ----------- ------------
ASSETS
Current assets
Cash $ 14.7 $ -- $ -- $ 11.9 $ -- $ 26.6
Accounts receivable 52.2 109.3 17.5 44.2 (38.9) 184.3
Inventories 20.9 72.4 5.9 23.6 -- 122.8
Prepaid expenses and other
assets 3.0 3.3 0.8 2.6 -- 9.7
------ ------- ------- ------ ------- --------
90.8 185.0 24.2 82.3 (38.9) 343.4
Property, plant and equipment 48.3 162.0 20.0 83.4 -- 313.7
Goodwill 22.8 51.8 13.5 0.7 -- 88.8
Intangibles and other assets 11.6 203.7 11.7 49.1 -- 276.1
Due from affiliates 47.0 4.7 109.4 276.7 (437.8) --
Investments in subsidiaries 354.0 74.2 46.6 -- (474.8) --
------ ------- ------- ------ ------- --------
$574.5 $ 681.4 $ 225.4 $492.2 $(951.5) $1,022.0
====== ======= ======= ====== ======= ========
LIABILITIES
Current liabilities
Short-term borrowings $ -- $ 66.5 $ 0.1 $ 4.8 $ -- $ 71.4
Current maturities of
long-term debt -- 0.8 -- -- -- 0.8
Accounts payable and
accrued liabilities 31.7 82.5 9.8 60.1 (38.9) 145.2
------ ------- ------- ------ ------- --------
31.7 149.8 9.9 64.9 (38.9) 217.4
Long-term debt -- 272.5 -- -- -- 272.5
Due to affiliates 80.4 112.6 197.3 47.5 (437.8) --
Deferred income taxes 5.1 38.1 -- 7.8 -- 51.0
------ ------- ------- ------ ------- --------
117.2 573.0 207.2 120.2 (476.7) 540.9
------ ------- ------- ------ ------- --------
Minority interest -- -- -- 23.8 -- 23.8
SHAREOWNERS' EQUITY
Capital stock
Common shares 287.0 275.8 152.7 451.4 (879.9) 287.0
Retained earnings (deficit) 161.6 (167.4) (134.5) (84.5) 386.4 161.6
Accumulated other
comprehensive income 8.7 -- -- (18.7) 18.7 8.7
------ ------- ------- ------ ------- --------
457.3 108.4 (18.2) 348.2 (474.8) 457.3
------ ------- ------- ------ ------- --------
$574.5 $ 681.4 $ 225.4 $492.2 $(951.5) $1,022.0
====== ======= ======= ====== ======= ========
34
COTT CORPORATION
CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions of U.S. dollars, unaudited)
FOR THE SIX MONTHS ENDED JULY 3, 2004
----------------------------------------------------------------------------------------
COTT COTT GUARANTOR NON-GUARANTOR ELIMINATION
CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
----------- -------------- ------------ ------------- ----------- ------------
OPERATING ACTIVITIES
Net income $ 44.8 $ 39.0 $ 42.1 $ 7.5 $(88.6) $ 44.8
Depreciation and amortization 4.7 15.6 2.9 6.8 -- 30.0
Amortization of financing fees -- 0.3 -- -- -- 0.3
Deferred income taxes (1.6) 4.2 -- 1.7 -- 4.3
Minority interest -- -- -- 2.2 -- 2.2
Equity income (loss), net of
distributions (47.2) (2.1) (36.7) -- 86.2 0.2
Other non-cash items 0.6 (0.5) -- 0.5 -- 0.6
Net change in non-cash
working capital from
continuing operations (22.9) (38.9) (4.4) 0.8 -- (65.4)
------ ------ ------ ------ ------ ------
Cash provided by (used in)
operating activities (21.6) 17.6 3.9 19.5 (2.4) 17.0
------ ------ ------ ------ ------ ------
INVESTING ACTIVITIES
Additions to property, plant
and equipment (2.6) (15.1) (1.0) (3.7) -- (22.4)
Acquisitions and equity
investments -- (17.7) -- -- -- (17.7)
Advances to affiliates 3.5 -- (8.1) -- 4.6 --
Investment in subsidiary (5.0) -- -- -- 5.0 --
Other 0.6 1.9 0.2 0.4 -- 3.1
------ ------ ------ ------ ------ ------
Cash used in investing
activities (3.5) (30.9) (8.9) (3.3) 9.6 (37.0)
------ ------ ------ ------ ------ ------
FINANCING ACTIVITIES
Payments of long-term debt -- (0.7) -- (1.8) -- (2.5)
Short-term borrowings 2.0 4.5 0.1 (0.2) -- 6.4
Advances from affiliates -- 8.1 -- (3.5) (4.6) --
Distributions to subsidiary
minority shareowner -- -- -- (2.2) -- (2.2)
Issue of common shares 9.9 -- 5.0 -- (5.0) 9.9
Dividends paid -- -- -- (2.4) 2.4 --
Other -- -- (0.2) -- -- (0.2)
------ ------ ------ ------ ------ ------
Cash provided by (used in)
financing activities 11.9 11.9 4.9 (10.1) (7.2) 11.4
------ ------ ------ ------ ------ ------
Effect of exchange rate
changes on cash (0.2) -- -- -- -- (0.2)
------ ------ ------ ------ ------ ------
NET INCREASE (DECREASE) IN
CASH (13.4) (1.4) (0.1) 6.1 -- (8.8)
CASH, BEGINNING OF PERIOD 13.4 (0.6) 0.1 5.5 -- 18.4
------ ------ ------ ------ ------ ------
CASH, END OF PERIOD $ -- $ (2.0) $ -- $ 11.6 $ -- $ 9.6
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