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FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 1, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 000-19914
COTT CORPORATION
(Exact name of registrant as specified in its charter)
CANADA None
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
207 Queen's Quay West
Toronto, Ontario M5J 1A7
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (416) 203-3898
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common shares without nominal The Toronto Stock Exchange
or par value Nasdaq
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(Title of each class) (Name of each exchange on which registered)
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 last 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K 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 in this form 10-K or any
amendment to this form 10-K. [ X ]
The aggregate market value of the common equity held by non-affiliates of the
registrant as of March 20, 2000, (based on the closing sale price of the
registrant's common stock as reported on the NASDAQ on such date) was
$328,148,258.
The number of shares outstanding of the registrant's common stock as of March
20, 2000 was 59,837,392.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Annual Report to Shareowners for the year ended
January 1, 2000, (the "Company's 1999 Annual Report to Shareowners") are
incorporated by reference in Part I, II and IV.
Portions of the Company's Proxy Circular for the Annual Meeting of Shareowners
to be held on May 3, 2000 are incorporated by reference in Part III.
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF THE BUSINESS(1)
Cott Corporation was incorporated under the laws of Canada on July 25, 1955
under the name Cott Beverages (Canada) Ltd., and amalgamated with Stewart
Bottling Company (Limited) on February 1, 1966. On May 22, 1969, the name was
changed to Cott Beverages Ltd., and on June 7, 1991 the name was changed to Cott
Corporation. On January 3, 1999, the Company amalgamated with Atlantic Beverages
Ltd., Cott Beverages Inc., Cott Beverages West Ltd., Bessey Juices Inc. and
3566170 Canada Limited (each such entity being, directly or indirectly,
wholly-owned by the Company), and continued as Cott Corporation. The Company's
common shares ("Common Shares") were split on three occasions during the 1990's:
three for one (on December 18, 1991); two for one (on July 29, 1992); and two
for one (on July 30, 1993).
The Company's governing statute is the Canada Business Corporations Act. Its
registered office is located at 333 Avro Avenue, Pointe-Claire, Quebec, Canada
H9R 5W3 and its executive office is located at 207 Queen's Quay West, Suite 340,
Toronto, Ontario, Canada M5J 1A7.
The Company is a leading supplier of premium quality retailer brand carbonated
soft drinks ("CSD"). The Company's product line also includes clear, sparkling
flavored beverages, juices and juice-based products, bottled water, and iced
teas. The Company's products are principally sold under customer controlled
private labels, but also under the Company's own control brands and licensed
brand names. The Company operates its Canadian beverages business through its
Cott Beverages Canada division and its United Kingdom and United States
beverages businesses through its indirect, wholly owned significant
subsidiaries: Cott Beverages Ltd. and BCB USA Corp., respectively.
NARRATIVE DESCRIPTION OF THE BUSINESS
During the last few years, following the terminal illness of the Company's
former Chief Executive Officer, Gerald Pencer, the Company has gone through a
period of transition. Challenges resulting from this transitional period have
been identified and addressed by a new management team. Since mid-1998, the
Company has hired a new Chief Executive Officer, Chief Financial Officer and
Chief Information Officer, as well as Presidents for two of the Company's
divisions, each of whom has brought significant strengths and turnaround
experience to the Company. This team has set aggressive goals designed to
generate shareowner value. Three fundamental strategies have been adopted to
facilitate the achievement of these goals: (i) focus on the CSD business in the
Company's core geographic markets of Canada, the United Kingdom and the United
States; (ii) optimize the Company's cost structure; and (iii) strengthen the
management team.
______________________
[FN]
(1) Unless otherwise indicated, all references to cases are eight ounce
equivalent cases and all references to currency are in United States (U.S.)
dollars. References to "1997" apply to the fiscal year ended January 31,
1998. In October 1998, the Company decided to report its financial results
on a calendar year basis, which resulted in an 11-month fiscal period that
ended on January 2, 1999, which is referred to as "1998". References to
"1999" apply to the fiscal year that ended January 1, 2000. References to
"2000" apply to the fiscal year that will end on December 30, 2000. Unless
the context otherwise indicates, references herein to the "Company" mean
Cott Corporation together with all of its subsidiaries.
</FN>
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The Company manufactures virtually all of its Canadian and United Kingdom
beverages in facilities that are either owned or leased by the Company.
Approximately 75% of the Company's United States beverages are produced in
facilities that are either owned or leased by the Company or by a third party
manufacturer with whom the Company has a long-term contract packing agreement.
The Company relies on third parties to produce and distribute products in areas
or markets where the Company does not have its own production facilities or when
the Company requires additional production capacity.
Since 1994, a series of acquisitions have expanded and strengthened the
Company's production and distribution capabilities in its core geographic
markets.
- the acquisition (in January 1994) of a 51% interest in Benjamin Shaw
(Pontefract) Limited ("Ben Shaw"), a company formed to acquire the
canning operation of Rutland Trust plc's existing soft drink
subsidiary, Benjamin Shaw & Sons Limited. In June 1995, the Company
purchased the remaining 49% interest in Ben Shaw, which remains an
integral part of the Company's United Kingdom operations;
- the acquisition (in May 1994) of the assets of Vess Beverages, Inc.
and Vess Specialty Packaging Company (including the Company's
manufacturing facilities in St. Louis, Missouri and Sikeston,
Missouri);
- the acquisition (in November 1996) of the private label CSD and spring
water businesses of Brio Beverages Inc., including a beverage
manufacturing plant and equipment in Surrey, British Columbia, Canada;
- the acquisition (in January 1997) of the rights to the private label
CSD business of Premium Beverage Packers, Inc. ("Premium") including a
long-term contract packing agreement with Premium, which secured for
the Company approximately 75% of Premium's CSD production capacity at
its plant in Wyommissing, Pennsylvania. In November 1999, the Company
modified its arrangement with Premium and settled its obligation under
the January 1997 acquisition agreement;
- the acquisition (in March 1997) of the shares of Texas Beverage
Packers, Inc., a CSD manufacturer with a plant located in San Antonio,
Texas;
- the construction of two new beverage production facilities, one in
Wilson, North Carolina and one in Tampa, Florida, which have been
fully operational since June 1997 and August 1997, respectively;
- the construction of a polyethylene terephthalate ("PET") preform
manufacturing plant in Leland, North Carolina, which has been fully
operational since January 1998. PET preforms, which are produced at
this facility, are blown into PET bottles in four of the Company's
manufacturing plants in North America. In February 2000, the Company
announced its intent to sell its PET preform manufacturing plant and
its bottle blowing assets in three of the four plants to
Schmalbach-Lubeca Plastic Containers USA, Inc. ("Schmalbach"). The
sale will likely be completed in the spring of 2000. This decision is
a further step in the Company's ongoing strategic alignment of its
resources and reflects a desire to free-up cash assets for deployment
in its core business. In conjunction with this sale, the Company will
enter into a long-term supply agreement with Schmalbach for the supply
of PET bottles in the United States; and
- the acquisition (in the fall of 1997) of 100% of the outstanding share
capital of Hero Drinks Group (UK) Limited ("Hero"), through which the
Company acquired Hero's state of the art manufacturing facilities,
including the production of PET bottles, along with Hero's established
customer base.
These acquisitions have transformed the Company from one that was dependent on
third party manufacturing for much of its production to one that today produces
approximately 81% of its beverages in facilities that are owned or leased by the
Company or by a third party with whom the Company has a long-term packing
agreement.
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The Company's strategy to focus on its core business resulted in the decision to
divest the following non-strategic operations:
- the Company's Australian beverage operations, which were sold in April
1999;
- the Company's frozen food business, which was sold in May 1999;
- the Company's packaging design business, which was sold in May 1999
(subject to an agreement by which the new owners committed to provide
ongoing creative services to the Company at competitive rates over a
ten year period);
- the Company's Featherstone CSD manufacturing plant and related
business in the United Kingdom, which were sold in May 1999; and,
- a minority interest in Menu Foods Limited (a pet food manufacturer),
which was sold in August 1999.
In prior years, the Company disposed of its bottling operations in Norway and
South Africa, its beer and snack food businesses, and sold its joint-venture
interest in the "Virgin" soft drink business.
Recognizing the need for sustained long-term growth combined with increased
efficiency, the Company began a restructuring of its worldwide operations in the
fall of 1998 to centralize organizations in its three core markets. In January
1999, in order to simplify the corporate structure, the Company completed a
reorganization involving various of its Canadian and United States operating
subsidiaries. One of the results of that reorganization is that the Company now
operates its Canadian beverages business through its Cott Beverages Canada
division. Also in January 1999, the Company's principal United States beverage
operating company, Cott Beverages USA, Inc., merged with its subsidiaries
(continuing as Cott Beverages USA, Inc.), and in January, 2000 that entity
changed its name to BCB USA Corp. The Company now operates its United States
beverage business as "Cott Beverages USA, a division of BCB USA Corp."
In addition to changes in the Company's management and strategic focus, in July
of 1998 the Company's shareowner composition underwent a transition. The Company
and various members of the Pencer family completed a transaction involving
Thomas H. Lee Company and various parties related thereto (collectively, "THL")
whereby THL purchased an aggregate of:
- 10,000,000 Common Shares together with an option (the "Option") to
purchase an additional 5,000,000 Common Shares; and
- 4,000,000 Convertible Participating Voting Second Preferred Shares,
Series 1 ("Preferred Shares"), which are entitled to voting rights
together with the Common Shares on an as converted basis.
As a result of the transaction, assuming conversion of the Preferred Shares and
the exercise of the Option, THL owns approximately 30% of the Company's
outstanding Common Shares. Additionally, in November 1999, THL was granted the
right to purchase up to an additional 5% of the Company's outstanding voting
shares on the open market, which upon completion would bring its percentage
holding of the Company's outstanding voting shares to no more than 35%,
calculated on a fully diluted basis. As consideration for the grant of this
right, pursuant to the November agreement, THL has, on its own behalf and on
behalf of entities that are related to or affiliated with THL ("THL Entities"),
granted to the Chairman of the Board of the Company a proxy to vote that number
of voting shares of the Company to ensure that at no time will the THL Entities
have voting rights in respect of more than 35% of the outstanding voting shares
of the Company, calculated on a fully diluted basis. THL, on its own behalf and
on behalf of the THL Entities, has also agreed not to exercise any options to
acquire additional Common Shares of the Company if, after giving effect to such
exercise, the THL Entities would have the power to vote or hold more than 35% of
the outstanding voting shares of the Company, calculated on a fully diluted
basis.
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FINANCIAL INFORMATION ABOUT SEGMENTS
For financial information about segments see note 25 to the Company's
consolidated financial statements, found on pages 40 and 41 of the Company's
1999 Annual Report to Shareowners, which is incorporated herein by reference.
MARKET FOR SECURITIES
The Company's Common Shares are listed on The Toronto Stock Exchange and are
quoted through the Nasdaq National Market.
PRINCIPAL PRODUCTS AND PRINCIPAL MARKETS
The Company's principal markets are in Canada, the United Kingdom and the United
States, and the Company is the fourth largest soft drink manufacturer in the
world. While the majority of the Company's products are produced as private
label for retail customers, the Company also sells proprietary products that
include the Company's own and licensed brands.
In 1999, sales of beverages represented 99.7% of the Company's total sales
revenues, as compared to 99.2% in 1998 and 99.3% in 1997. Sales of beverages in
Canada for 1999 totaled $169.2 million. The Company believes that sales growth
may be achieved in Canada through increased penetration with existing customers.
Sales of beverages in the United Kingdom for 1999 totaled $186.1 million. The
Company believes that growth opportunities are available in the United Kingdom
as it increases its presence in the non-cola and alternative beverage segment.
The Company's sales of beverages in the United States totaled $596.8 million in
1999. The Company believes that the opportunity exists to increase sales of
beverages in the United States through organic growth with existing customers
and by obtaining new customers.
The Company distributes its beverages in a variety of ways. Sales in Canada and
the United States are either: (i) picked up by customers at the Company's
facilities; (ii) distributed to store locations using third party distributors;
or (iii) delivered by the Company or a common carrier to either the customer's
distribution centers or directly to retail locations. In the United Kingdom,
product is delivered to the customer's distribution centers or directly to
stores, utilizing third-party carriers, although a few customers collect
directly from the point of manufacture.
NEW PRODUCTS
The Company introduced several new products during 1999 including: President's
Choice(TM) lemon iced tea for Loblaws in Canada and CHUBBY(TM) CSDs produced
under license in Canada; low-acid fruit drinks, organic fruit carbonated drinks,
premium lemonades and high energy adult drinks in the United Kingdom; and
reverse osmosis bottled water in the United States.
RAW MATERIALS
In January 1994, the Company entered into a long-term worldwide concentrate
supply contract (the "RC Agreement") with Royal Crown Company Inc. ("RCC"). The
RC Agreement, which is for a term of 21 years from January, 1994 (with perpetual
6 year extensions thereafter) provides that RCC will supply private label
concentrates exclusively to the Company and that the Company will purchase all
of its requirements for cola concentrates and at least 75% of its total
requirements for cola and non-cola concentrates from RCC, for use by the Company
in its private label and proprietary label CSD. If the RC Supply agreement is
terminated because of a breach by RCC or because RCC elects not to extend the RC
Agreement, the Company will own all formulae developed for it or its customers
that are in use at the time.
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In addition to concentrates, the principal raw materials required for the
Company's manufacturing operations are PET bottles, cans, sweeteners, labels,
cartons and trays, bottle caps and carbon dioxide. The Company has a variety of
suppliers for many of its materials, and has had long standing relationships
with many of its raw material suppliers. Although the Company typically enters
into annual supply arrangements with its suppliers, and does not have long-term
contracts with most of them, it does have long-term agreements with suppliers of
certain key raw materials, such as cans, sweeteners, and PET bottles. With the
exception of the unique formulations provided by RCC, the Company believes that
alternate supplies are readily available at comparable prices in the event it is
unable to source materials from any of its suppliers. The majority of the
Company's raw materials are purchased subject to agreements that allow for
adjustments in prices that reflect the suppliers' raw material cost changes. The
remaining raw materials are subject to fixed prices for a term of one year,
after which the Company typically negotiates new terms based upon prevailing
market conditions. Should the Company's cost of raw materials increase, there is
no assurance that the Company can increase prices to its customers to reflect
such increases, nor can there by any assurance that such price increases will
take effect at the same time as the Company's raw material costs increase.
Although none of the raw materials used by the Company is in short supply, the
supply of specific raw materials may be adversely affected by governmental
controls, labor disputes, weather conditions or national emergency conditions.
TRADE SECRETS, TRADEMARKS AND LICENSES
The bulk of the Company's sales of beverages are to private label customers who
own the trademarks associated with those products. The Company is the registered
owner of certain trademarks, most notably "COTT"(TM) in Canada. The Company is
licensed to use certain trademarks, including: "CHUBBY"(TM) in Canada and
"RC"(TM) in certain regions of Canada; and "BENSHAWS"(TM), "HERO"(TM) and
"CARTERS"(TM) in the United Kingdom. The Company sells beverages under the
"Stars & StripEs"(TM) mark in the United States and an application to register
this trademark is pending. The Company does not own and is not licensed to
market soft drink products in the United States under the "Cott"(TM) trademark
or brand name, which is owned in the United States by an unrelated party.
SEASONALITY OF SALES
Sales of beverages are somewhat seasonal, with the highest sales volumes
generally occurring in the second and third fiscal quarters (corresponding to
the warmer months of the year). Accordingly, the Company's sales volume can be
affected by weather conditions in its core markets. The Company believes that it
has adequate production capacity to meet future sales demands for beverages
during peak periods.
CUSTOMERS
The Company's customers include many of the largest national and regional
grocery, mass-merchandise and drugstore chains, wholesale and convenience store
chains, in its core markets of Canada, the United Kingdom and the United States.
During 1999, sales to Wal-Mart Stores, Inc. and Safeway, Inc., accounted for
approximately 41%, in the aggregate, of the Company's total consolidated sales.
The Company considers its commercial relationships with these customers, which
have both been ongoing for more than 7 years, to be satisfactory. The loss of
any significant customer, or customers which in the aggregate represent a
significant portion of the Company's sales, could have a material adverse effect
on the Company's operating results and cash flows.
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COMPETITION
The markets for the Company's products are extremely competitive. The companies
that produce and market the major national brand beverages located in the
Company's core geographies possess significantly greater financial and marketing
resources than the Company. Private label beverages sold by the Company's
customers compete for access to shelf space with branded beverage products on
the basis of quality and price. Even though such shelf space is primarily
controlled by the Company's customers, there is no guarantee that they will
allocate space to their own private label products. In addition, should any of
the national brand companies enter the private label segment of the beverage
market, the Company's operating results and cash flow could also be materially
adversely affected. The Company also competes with other non-alcoholic beverage
manufacturers.
The Company also faces competition from other private label beverage
manufacturers in the United States and the United Kingdom, some of which possess
substantial regional bottling facilities. According to industry sources, the
consolidation of the North American CSD industry in recent years has resulted in
the closure of a number of manufacturing facilities and the rationalization of
production into the remaining large, and in some cases newly constructed,
manufacturing facilities. Although this has reduced the number of competitors
supplying private label CSD, it has intensified competition by creating larger,
more financially secure competitors.
The Company differentiates itself from other private label beverage suppliers by
offering its customers competitive pricing, superior service, efficient
distribution methods, manufacturing innovation, premium quality products,
category management and strategies for packaging and marketing. The Company's
private label programs are designed to enhance the profitability of each
customer's product category. Quality and consistency of taste are ensured by
access to premium quality cola and other concentrates, primarily through the RC
Agreement.
RESEARCH AND DEVELOPMENT
The Company maintains a research facility in Columbus, Georgia where new
beverages are developed and customized for customers. The Company believes that
the provision of these services and the expansion of its product lines are key
to innovation, and is an important part of the Company's business strategy.
During 1999, the Company spent approximately $1.9 million on product research
and development.
GOVERNMENTAL CONTROLS AND ENVIRONMENTAL MATTERS
In producing and distributing the beverages in the Company's core markets, the
Company must comply with various laws and regulations that address a variety of
issues such as food quality, environmental protection, transportation,
labelling, occupational health and safety and advertising in each of its core
markets.
The Ontario Environmental Protection Act (the "Ontario Act") provides that a
minimum percentage of a bottler's soft drink sales within specified areas in
Ontario must be made in refillable containers. In order to comply with these
requirements, the Company, like other industry participants, would have to
significantly increase its sales in refillable containers. While attempts to
improve sales in refillable containers are being undertaken, the requirements of
the Ontario Act are not being met by the Company or other industry participants.
These provincial restrictions are currently not being enforced by the Ontario
government. If enforced, the requirements of the Ontario Act relating to sales
in refillable containers could result in significantly reduced margins in the
750 ml refillable glass package as well as potential fines for non-compliance
and the possible prohibition of sales of soft drinks in non-refillable
containers in Ontario. Although the Company continues to work with industry
groups to review possible alternatives to propose to the government in
connection with requirements relating to sales in refillable containers, the
success of such efforts cannot be predicted, and such requirements are
ultimately beyond industry control.
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The Company is subject to other environmental legislation in the jurisdictions
in which it carries on business. The Company's beverage manufacturing operations
do not use or generate a significant amount of toxic or hazardous substances.
The Company has not been notified of any enforcement actions against it under
environmental legislation, and is not aware of any environmental contamination
at any of its properties, which could result in material clean-up costs.
Management believes that its current practices and procedures for the control
and disposition of such wastes comply in all material respects with applicable
laws, and with the exception of the Ontario Act, that the Company is in
compliance in all material respects with the existing legislation in its core
markets.
EMPLOYEES
As of January 1, 2000, the Company had approximately 2,048 employees, of which
an estimated 696 are located in Canada, 481 are located in the United Kingdom,
continental Europe and elsewhere and 871 are located in the United States. The
Company, through its divisions and subsidiaries, has entered into numerous
collective bargaining agreements that management believes contain terms that are
typical in the beverage industry. Management currently believes that as these
agreements expire they will be renegotiated on terms satisfactory to the
Company. The Company considers its relations with its employees to be
satisfactory.
ITEM 2. PROPERTIES
The Company operates six beverage production facilities in Canada; four of which
are owned (of which one has security against it) and two of which are leased by
the Company. In the United Kingdom, the Company owns and operates two beverage
production facilities (both of which have security against them). In the United
States, the Company operates six beverage production facilities, four of which
are owned and two of which are leased. Total square footage of the production
facilities operated by the Company is approximately 934,317 in Canada; 416,000
in the United Kingdom; and 1,113,920 in the United States. Lease terms for those
beverage production facilities that are leased expire between the years of 2002
and 2007. The Company believes that its facilities and production equipment,
together with its third-party bottling arrangements, provides it with sufficient
capacity to meet current intended purposes, and that they will be sufficient to
supply foreseeable demand from customers, even in peak months. In addition,
opportunities exist to accommodate increased demand through additional
production in the current facilities by increasing personnel and the number of
shifts.
ITEM 3. LEGAL PROCEEDINGS
The Company, and certain of its predecessors are named as defendants in an
action by 957508 Ontario Ltd., Bevpac Beverages Ltd., Frank Pirillo, Sam
Olivito, 916939 Ontario Ltd. and Management International Trading Company
Limited. The action, which commenced on or about September 15, 1997 in the
Ontario Court (General Division), claims damages of (Cdn.) $15,000,000 for
breach of contract and negligent misrepresentation and an account receivable of
(Cdn.) $124,000. The claim arises out of the alleged wrongful termination of
Bevpac Beverages Ltd. as a distributor for the Company. The Company in turn has
counterclaimed for amounts it claims are owing, including approximately: (Cdn.)
$600,000 due on a mortgage, (Cdn.) $350,000 due on promissory notes, trade
accounts due of (Cdn.) $400,000, (Cdn.) $178,000 for payment made pursuant to an
indemnity obligation on a lease and (Cdn.) $40,000 for unreturned pallets. The
Company has also claimed (Cdn.) $50,000 against Frank Pirillo pursuant to the
terms of a guarantee of the mortgage. No trial date has been set as yet but
discoveries in the action have been held and the trial will likely commence by
the end of 2000. The Company believes that it has a valid defense to the claims
made by the plaintiffs and that in any event any damages likely to be awarded to
the plaintiffs are not expected to be material, and will be offset by the
amounts owing to the defendants.
DPI (now Interim BCB, LLC and wholly-owned by the Company), and the Company are
named as defendants in an action by Channelmark Corporation ("Channelmark"),
commenced on or about October 16, 1997 in the United States District Court,
Minnesota. Channelmark alleges that DPI breached a contract regarding the
processing and
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marketing of chicken by-products and miscuts, fraudulently induced Channelmark
to enter into the contract, tortious interference with prospective advantage,
unfair competition, and related claims. In its complaint, Channelmark sought
unspecified damages in excess of $75,000. In its Initial Disclosure, filed in
accordance with Federal Rule of Civil Procedure 26, Channelmark claimed initial
unspecified damages of $3,500,000, which was subsequently increased to
$38,216,552. DPI has denied Channelmark's allegations, and has asserted a
counterclaim against Channelmark and its principals alleging breach of contract,
fraud, and breach of fiduciary duty, claiming damages in excess of $4,000,000.
Discovery has been completed, except for possible depositions of expert
witnesses. DPI and the Company served a summary judgment motion seeking
dismissal of Channelmark's Complaint. Channelmark and its principals served a
summary judgment motion seeking dismissal of DPI's Counterclaim. These motions
were heard by the Court on June 18, 1999, and a decision was rendered on March
21, 2000. In its Summary Judgment Order, the Court dismissed all of
Channelmark's fraud claims, except one, and its unfair competition claim. The
Court also dismissed DPI's Counterclaim alleging fraud and breach of fiduciary
duty. The Company believes that it has a valid defense to the remaining claims
made by the plaintiffs and that, in any event, any damages likely to be awarded
to the plaintiff are not expected to be material, and will be offset by the
amounts claimed by the Defendants on the Counterclaim.
In March, 1999, the Company, DPI (now Interim BCB, LLC and wholly-owned by the
Company) and an individual were named as defendants in an action by Rositas,
Inc., a corporation d/b/a Rosita Foods Inc. in a case filed in the Circuit Court
of Cook County, Illinois, in which plaintiff alleges various claims arising from
DPI's alleged failure to purchase certain products from the plaintiff.
Specifically, the plaintiff has alleged claims against the defendants for breach
of contract, detrimental reliance, promissory estoppel, intentional interference
with business and fraud. The plaintiff seeks damages in the amount of $4,540,000
plus research and development expenses, lost earnings, punitive damages and
miscellaneous and incidental costs. The action is still in its early stages.
Based upon information currently available, the Company believes that it has a
reasonable defense to the claim and that in any event, any damages likely to be
awarded to the plaintiff are not expected to be material.
In August 1999, the Company was named as a defendant in an action styled North
American Container, Inc. v. Plastipak Packaging Inc., et al., filed in the
United States District Court for the Northern District of Texas, Dallas
Division. The plaintiff, North American Container, Inc., has sued over forty
defendants, alleging, inter alia, that Cott USA Corporation has infringed a U.S.
patent relating to plastic containers. North American Container, Inc. has filed
a motion to substitute BCB USA Corp. for Cott USA Corporation as a defendant.
The plaintiff alleges that the infringement is willful, and seeks injunctive
relief, treble damages and recovery of attorneys' fees and costs. The case is in
the early stages, and discovery has not yet begun. As a result, the Company is
not in a position to state the anticipated outcome of this case at this time, as
the Company is still investigating the allegations and the potential defenses.
In December 1999, the Company was named as a defendant in an action styled
Trinity Plastic Products Inc. v Cott Corporation, filed in the Ontario Superior
Court of Justice. The plaintiff, Trinity Plastic Products Inc. claims (Cdn.)
$10,000,000 in damages for breach of contract and (Cdn.) $1,000,000 in punitive
and exemplary damages. The claim alleges a contractual obligation on the part of
the Company to pay the plaintiff a commission with respect to purchases of
shrink film purchased by the Company. The action is in the preliminary stages
and no examinations for discovery have been conducted. Based upon information
currently available, the Company believes that it has a reasonable defense to
the claim and that in any event, any damages likely to be awarded to the
plaintiff are not expected to be material.
The Company is engaged in various litigation matters in the ordinary course of
its business, none of which, individually or in the aggregate, the Company
considers to have a material adverse effect on the financial condition of the
Company and its subsidiaries taken as a whole.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREOWNER MATTERS
The Company's common shares are listed on The Toronto Stock Exchange under the
ticker symbol BCB; and on Nasdaq under the ticker symbol COTT.
The tables below sets forth for the periods indicated the high and low reported
sales prices per share.
THE TORONTO STOCK EXCHANGE (CDN. $)
1999 1998
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HIGH LOW HIGH LOW
---- --- ---- ---
First quarter 6.20 3.00 13.75 8.00
Second quarter 7.35 3.60 13.20 8.10
Third quarter 6.45 4.70 12.00 7.85
Fourth quarter 9.00 5.85 9.50 4.60
NASDAQ ($)
1999 1998
------------------ -------------------
HIGH LOW HIGH LOW
---- --- ---- ---
First quarter 4.13 1.97 9.75 5.58
Second quarter 4.94 2.38 8.88 5.56
Third quarter 4.94 3.16 8.13 5.19
Fourth quarter 6.25 3.97 6.17 3.00
The number of shareowners of record as of March 21, 2000 was 1,162. This number
was determined from records maintained by the Company's transfer agent and does
not include beneficial owners of the Company's securities whose securities are
held in the names of various dealers or clearing agencies.
The Company has not paid any cash dividends with respect to Common Shares since
June 1998 and the Company's Board of Directors has no present plans for
declaring any such dividends. See note 15 to the consolidated financial
statements for restrictions on dividend payments, on page 34 of the Company's
1999 Annual Report to Shareowners, incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
"Selected Financial Data" for the year 1995 through 1999, on page 43 of the
Company's 1999 Annual Report to Shareowners, is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results from
Operations" on pages 12 to 22 of the Company's 1999 Annual Report to
Shareowners, is incorporated herein by reference.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
"Quantitative and Qualitative Disclosures About Market Risk" on pages 20 and 21
of the Company's 1999 Annual Report to Shareowners, is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company, included in the
Company's 1999 Annual Report to Shareowners, are incorporated herein by
reference at the pages indicated:
1. Report of Independent Accountants (page 23)
2. Consolidated Statements of Income - Year ended January 1, 2000,
period ended January 2, 1999 and year ended January 31, 1998
(page 24)
3. Consolidated Balance Sheets - January 1, 2000 and January 2, 1999
(page 25)
4. Consolidated Statements of Shareowners' Equity - Year ended
January 1, 2000, period ended January 2, 1999 and year ended
January 31, 1998 (page 26)
5. Consolidated Statements of Cash Flows - Year ended January 1,
2000, period ended January 2, 1999 and year ended January 31,
1998 (page 27)
6. Notes to the Consolidated Financial Statements (page 28 - 41)
7. Quarterly Data (Unaudited) (page 42)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS
EXECUTIVE OFFICERS OF THE COMPANY
The following is a list of names and ages of all the executive officers of the
Company as of March 20, 2000, indicating all positions and offices with the
Company held by each such person. All officers have served in their present
capacities for the past five years except as otherwise stated
NAME AND MUNICIPALITY OF RINCIPAL YEAR BECAME
RESIDENCE OFFICE OCCUPATION AGE OFFICER
- ------------------------ -------------------------------------- -------------- --- -----------
Frank E. Weise III President, Chief Executive Officer and Officer of the 55 1998
Haverford, Pennsylvania Director Company
Mark Benadiba Executive Vice-President and Officer of the 46 1990
Toronto, Ontario President, Cott Beverages Canada Company
David G. Bluestein Executive Vice-President and Officer of the 54 1998
Ridgefield, Connecticut President, Cott Beverages USA Company
Paul R. Richardson Executive Vice-President, Global Officer of the 43 1994
Sarasota, Florida Procurement and Innovation Company
Raymond P. Silcock Executive Vice-President and Officer of the 49 1998
Philadelphia, Pennsylvania Chief Financial Officer Company
Neil A. Thompson Executive Vice-President and Officer of the 44 1999
Tewkesbury, Gloucester Managing Director, Cott United Company
United Kingdom Kingdom and Europe
Mark R. Halperin Senior Vice-President, Officer of the 42 1995
Toronto, Ontario General Counsel and Secretary Company
James S. Reynolds Senior Vice-President, Officer of the 49 1998
Waterloo, Ontario Chief Information Officer Company
Colin D. Walker Senior Vice-President, Officer of the 42 1998
London, Ontario Human Resources Company
Tina Dell'Aquila Vice-President, Controller Officer of the 37 1998
Toronto, Ontario Company
Catherine M. Brennan Vice-President, Treasurer Officer of the 42 1999
Toronto, Ontario Company
Ivan Grimaldi Vice-President, Purchasing Officer of the 42 2000
Laval, Quebec Company
Edmund P. O'Keeffe Vice-President, Strategic Planning Officer of the 36 1999
Toronto, Ontario Company
Prem Virmani Vice-President, Technical Services Officer of the 53 1991
Columbus, Georgia Company
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During the last five years, the above persons have been engaged in their
principal occupations or in other executive capacities with the companies
indicated opposite their names or with related or affiliated companies except as
follows: Frank E. Weise III who prior to April 1998 was Chairman of Confab Inc.
(manufacturer of retailer branded feminine hygiene and incontinence products)
and prior to January 1997 held various senior Vice-Presidents' positions with
Campbell Soup Company (national brand food products manufacturer), including
President of its Bakery and Confectionery Division and Chief Financial Officer;
David G. Bluestein who prior to September 1998 was President of IFF Flavors
(flavors and fragrances), prior to 1998 held several senior positions at
Duracell International, including President, North America; Paul R. Richardson
has held several senior management positions since joining Cott in 1994; Raymond
P. Silcock who prior to September 1998 was Chief Financial Officer of Delimex
Holding Inc. (a holding company) and prior to 1997 held various senior positions
at Campbell Soup Company (national brand food products manufacturer), most
recently Vice-President Finance at its Bakery and Confectionery Division; Neil
A. Thompson who prior to February 1999, was a Managing Director of Spillers
Petfoods (pet food company); Mark R. Halperin who prior to September 1998, held
the position of Vice President, General Counsel and Secretary; James S. Reynolds
who prior to September 1998, was a partner at Reylett Technology Management
(technology consulting) and who prior to December 1997 was Corporate VP, Chief
Information Officer Oshawa Group (retailer) and who prior to September 1997 was
Vice President, Corporate Information Services and Officer at Silcorp Limited
(retailer); Colin D. Walker who prior to September 1998, was Senior Manager,
Deloitte & Touche Consulting (consulting company) and prior to September 1997
was Vice-President, Human Resources of Imasco (consumer products and services)
and prior to April 1996 was Vice-President, Human Resources of Canada Trust
Company (trust company); Tina Dell'Aquila who prior to October 1997, was
Director, Corporate Accounting of Dominion Textile Inc. (textile company); and
Catherine M. Brennan who prior to February 1999, was a Treasurer and Senior
Director, Taxation of Nabisco Ltd. (food and beverage company); Edmund O'Keeffe
has held several senior management positions in Marketing since joining the
Company in October 1994.
Executive Officer Mark R. Halperin is the brother of Stephen H. Halperin, a
Director of the Company.
DIRECTORS OF THE COMPANY
For information with respect to the directors of the Company, see the "Election
of Directors" section of the Proxy Circular for the 2000 Annual Meeting of
Shareowners, which is incorporated herein by reference. Additionally, Mr.
Knowles is a director of Wendy's International Limited.
For information with respect to Section 16(a) of the Securities Exchange Act of
1934, reports for directors and executive officers of the Company, see the
"Section 16 (a) Beneficial Ownership Reporting Compliance" section of the Proxy
Circular for the 2000 Annual Meeting of Shareowners, which is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
For information with respect to executive compensation, see the "Executive
Compensation" section of the Proxy Circular for the 2000 Annual Meeting of
Shareowners, which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information with respect to security ownership of certain beneficial owners
and management, see the "Voting Shares and Principal Owners Thereof" and the
"Directors Table" sections of the Proxy Statement for the 2000 Annual Meeting of
Shareowners, which are incorporated herein by reference.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information with respect to certain relationships and related transactions,
see the "Certain Relationships and Related Transactions" section of the Proxy
Circular for the 2000 Annual Meeting of Shareowners, which is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT AND REPORTS ON FORM 8-K
1. Financial Statements:
See Index to Financial Statements (Item 8).
2. Financial Statements Schedules:
Report of Independent Accountants
Schedule II --- Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and, therefore,
have been omitted.
3. Exhibits:
Number Description
------ -----------
3.1 Articles of Incorporation of the Company
3.2 By-laws of the Company
4.1 Credit Agreement dated as of August 19, 1999, among the
Company, First Union (as Administrative Agent), National Bank
of Canada (as Canadian Agent) and other Financial Institutions
(as Lenders) named therein
4.2 Subscription Agreement dated as of June 12, 1998 for
Convertible Participating Voting Second Preferred Shares,
Series 1 of the Company (as Issuer).
4.3 Letter Agreement dated as of November 3, 1999, among the
Company and the Thomas H. Lee Company
4.4 Indenture dated as of June 25, 1995, among the Company (as
Issuer) and The Bank of New York (as Trustee). Filed as
Exhibit 7.1 to Form F-10, as filed with the SEC June 23, 1995,
registration number 33-93064
4.5 Indenture dated as of June 17, 1997, among the Company (as
Issuer) and Marine Midland Bank (as Trustee). Filed as Exhibit
7.1 to Form F-10 as filed with the SEC June 10, 1997,
registration number 333-6944
4.6 Credit Agreement, dated November 20, 1997 among Cott Beverages
Limited (formerly Cott UK Limited) (the Borrower) and Lloyds
TSB Bank plc (the Bank) (as amended on July 14, 1998 and on
July 5, 1999 and as amended and restated on March 27, 2000)
10.1 (*) Termination Agreement dated November 1, 1999, among Cott
Beverages, USA, Inc. and Premium Beverages Packers, Inc.
10.2 Acquisition Agreement dated November 20, 1997, among Cott UK
Limited, Cott Corporation and the Several Persons listed in
Schedule 1 to the Agreement relating to the acquisition of
Hero Drinks Group (U.K.) Limited
10.3 (*) Supply Agreement dated December 21, 1998, among Wal-Mart
Stores, Inc. and Cott Beverages USA, Inc.
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Number Description
------ -----------
10.4 (*) Concentrate Purchase Agreement dated as of January 28, 1994,
among BCB International Limited (since assigned to Cott
Corporation), Cott Corporation and Royal Crown Cola Co. (now
Royal Crown Company Inc.)
10.5 Employment Agreement of Frank E. Weise III dated June 11, 1998
10.6 Employment Agreement of David G. Bluestein dated August 28,
1998
10.7 Employment Agreement of Mark Benadiba dated October 7, 1997
and as amended
10.8 Employment Agreement of Paul R. Richardson dated August 23,
1999
10.9 Employment Agreement of Raymond P. Silcock dated August 17,
1998
10.10 1999 Executive Incentive Share Compensation Plan effective
January 3, 1999
13 Company's Annual Report to Shareowners for year ended
January 1, 2000
27 Financial Data Schedule
___________
[FN]
(*) Document is subject to request for confidential treatment.
</FN>
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Report of Independent Accountants on
Financial Statement Schedules
To the Board of Directors
of Cott Corporation
Our audits of the consolidated financial statements referred to in our report
dated February 17, 2000 appearing in the 1999 Annual Report to Shareholders of
Cott Corporation (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the financial statement schedules listed in Item 14(2) of this Form
10-K. In our opinion, these financial statement schedules present fairly, in all
material respects, the information set forth therein when read in conjunction
with the consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Toronto, Ontario
February 17, 2000
16
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SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Year ended January 1, 2000
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTION PERIOD
----------- ------ -------- -------- --------- ------
RESERVES DEDUCTED IN THE BALANCE
SHEET FROM THE ASSETS TO WHICH
THEY APPLY
Allowances for losses on:
Trade accounts receivables $ (7.5) $ (2.7) $ -- $ 1.5 $ (8.7)
Inventories (13.3) 1.1 -- 6.3 (5.9)
Property, plant and equipment (3.5) 0.3 -- 3.2 --
Goodwill -- (2.4) -- 1.2 (1.2)
Investment and other assets (0.5) (0.1) (1.0) 0.5 (1.1)
Deferred income taxes (20.2) 14.7 -- -- (5.5)
$ (45.0) $ 10.9 $ (1.0) $ 12.7 $ (22.4)
Period ended January 2, 1999
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTION PERIOD
----------- ------ -------- -------- --------- ------
RESERVES DEDUCTED IN THE BALANCE
SHEET FROM THE ASSETS TO WHICH
THEY APPLY
Allowances for losses on:
Trade accounts receivables $ (8.6) $ (3.9) $ -- $ 5.0 $ (7.5)
Inventories (3.4) (16.3) -- 6.4 (13.3)
Property, plant and equipment -- (18.9) -- 15.4 (3.5)
Goodwill -- (15.5) -- 15.5 --
Investment and other assets -- (2.2) -- 1.7 (0.5)
Deferred income taxes (3.6) (16.6) -- -- (20.2)
$ (15.6) $ (73.4) $ -- $ 44.0 $ (45.0)
Year ended January 31, 1998
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER DEDUCTION END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS (NOTE 1) PERIOD
----------- ------ -------- -------- --------- ------
RESERVES DEDUCTED IN THE BALANCE
SHEET FROM THE ASSETS TO WHICH
THEY APPLY
Allowances for losses on:
Trade accounts receivables $ (4.5) $ (6.6) $ -- $ 2.5 $ (8.6)
Inventories (1.6) (2.7) -- 0.9 (3.4)
Property, plant and equipment -- (0.3) -- 0.3 --
Deferred income taxes (2.8) (0.8) -- -- (3.6)
$ (8.9) $ (10.4) $ -- $ 3.7 $ (15.6)
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SIGNATURE
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 CORPORATION
(Registrant)
By:
/s/ Frank E. Weise III
----------------------
FRANK E. WEISE III
Chief Executive Officer and
a Director
Date: March 21, 2000
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/ Frank E. Weise III Date: March 21, 2000
- -----------------------------------------------
FRANK E. WEISE III
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Raymond P. Silcock Date: March 21, 2000
- -----------------------------------------------
RAYMOND P. SILCOCK
Chief Financial Officer
(Principal Financial Officer)
/s/ Tina Dell'Aquila Date: March 21, 2000
- -----------------------------------------------
TINA DELL'AQUILA
Vice President, Controller
(Principal Accounting Officer)
/s/ Serge Gouin Date: March 21, 2000
- -----------------------------------------------
SERGE GOUIN
Chairman of the Board of Directors and Director
/s/ Colin J. Adair Date: March 21, 2000
- -----------------------------------------------
COLIN J. ADAIR
Director
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/s/ W. John Bennett Date: March 21, 2000
- -----------------------------------------------
W. JOHN BENNETT
Director
/s/ C. Hunter Boll Date: March 21, 2000
- -----------------------------------------------
C. HUNTER BOLL
Director
/s/ Thomas M. Hagerty Date: March 21, 2000
- -----------------------------------------------
THOMAS M. HAGERTY
Director
/s/ Stephen H. Halperin Date: March 21, 2000
- -----------------------------------------------
STEPHEN H. HALPERIN
Director
/s/ David V. Harkins Date: March 21, 2000
- -----------------------------------------------------
DAVID V. HARKINS
Director
/s/ True H. Knowles Date: March 21, 2000
- -----------------------------------------------------
TRUE H. KNOWLES
Director
/s/ Fraser D. Latta Date: March 21, 2000
- -----------------------------------------------------
FRASER D. LATTA
Director
/s/ Donald G. Watt Date: March 21, 2000
- -----------------------------------------------------
DONALD G. WATT
Director
19