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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 MARCH 31, 2001
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Commission File Number 000-19914
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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 W, Suite 340, Toronto, Ontario M5J 1A7
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(Address of principal executive offices) (Postal Code)
(416) 203-3898
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(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
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There were 60,119,792 shares of common stock outstanding as of April 30, 2001.
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the three months ended
March 31, 2001 and April 1, 2000..................................... Page 2
Consolidated Balance Sheets as of March 31, 2001 and
December 30, 2000.................................................... Page 3
Consolidated Statements of Shareowners' Equity as of
March 31, 2001 and April 1, 2000..................................... Page 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 2001 and April 1, 2000............................... Page 5
Notes to the Consolidated Financial Statement........................... Page 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... Page 10
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings............................................. Page 13
Signatures.............................................................. Page 13
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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
--------------------------
MARCH 31, APRIL 1,
2001 2000
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SALES ............................................... $ 229.0 $ 215.0
Cost of sales ....................................... 192.9 179.9
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GROSS PROFIT ........................................ 36.1 35.1
Selling, general and administrative expenses ........ 23.1 23.6
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OPERATING INCOME .................................... 13.0 11.5
Other income, net ................................... (2.0) (0.1)
Interest expense, net ............................... 6.7 8.1
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INCOME BEFORE INCOME TAXES .......................... 8.3 3.5
Income taxes -- note 2 .............................. (3.2) (1.5)
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NET INCOME -- note 3 ................................ $ 5.1 $ 2.0
======= =======
PER SHARE DATA -- note 4
NET INCOME PER COMMON SHARE
Basic ........................................... $ 0.09 $ 0.03
Diluted ......................................... $ 0.07 $ 0.03
The accompanying notes are an integral part of these
consolidated financial statements.
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COTT CORPORATION
Consolidated Balance Sheets
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(in millions of U.S. dollars)
MARCH 31, DECEMBER
2001 30, 2000
Unaudited Audited
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ASSETS
CURRENT ASSETS
Cash and cash equivalents ........................... $ 0.9 $ 7.2
Accounts receivable ................................. 102.8 109.0
Inventories -- note 5 ............................... 78.6 64.0
Prepaid expenses .................................... 2.2 2.2
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184.5 182.4
PROPERTY, PLANT AND EQUIPMENT -- note 6 ............. 241.1 245.0
GOODWILL ............................................ 110.9 115.2
INTANGIBLES AND OTHER ASSETS ........................ 77.2 79.0
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$ 613.7 $ 621.6
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LIABILITIES
CURRENT LIABILITIES
Short-term borrowings ............................... $ 36.5 $ 36.6
Current maturities of long-term debt ................ 3.6 1.6
Accounts payable and accrued liabilities ............ 109.5 114.5
Discontinued operations ............................. 0.6 0.6
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150.2 153.3
LONG-TERM DEBT ...................................... 277.1 279.6
OTHER LIABILITIES ................................... 33.2 30.2
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460.5 463.1
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SHAREOWNERS' EQUITY
CAPITAL STOCK
Common shares -- 60,108,492 shares issued ........... 190.5 189.1
Second preferred shares, Series 1 --
4,000,000 shares issued........................... 40.0 40.0
DEFICIT ............................................. (32.8) (37.9)
ACCUMULATED OTHER COMPREHENSIVE INCOME .............. (44.5) (32.7)
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153.2 158.5
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$ 613.7 $ 621.6
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The accompanying notes are an integral part of these
consolidated financial statements.
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COTT CORPORATION
Consolidated Statements of Shareowners' Equity
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(in millions of U.S. dollars)
Unaudited
NUMBER OF
COMMON ACCUMULATED
SHARES OTHER
(in COMMON PREFERRED COMPREHENSIVE TOTAL
thousands) SHARES SHARES DEFICIT INCOME EQUITY
---------- ------ --------- ------- ------------- ------
Balance at January 1, 2000 ......... 59,837 $189.0 $ 40.0 $(63.3) $(23.4) $142.3
Options exercised .................. 11 -- -- -- -- --
Comprehensive income -- note 3
Currency translation adjustment -- -- -- -- (1.9) (1.9)
Net loss ...................... -- -- -- 2.0 -- 2.0
------ ------ ------ ------ ------ ------
Balance at April 1, 2000 ........... 59,848 $189.0 $ 40.0 $(61.3) $(25.3) $142.4
====== ====== ====== ====== ====== ======
Balance at December 30, 2000 ....... 59,868 $189.1 $ 40.0 $(37.9) $(32.7) $158.5
Options exercised .................. 240 1.4 -- -- -- 1.4
Comprehensive income -- note 3
Currency translation adjustment -- -- -- -- (11.8) (11.8)
Net income .................... -- -- -- 5.1 -- 5.1
------ ------ ------ ------ ------ ------
Balance at March 31, 2001 .......... 60,108 $190.5 $ 40.0 $(32.8) $(44.5) $153.2
====== ====== ====== ====== ====== ======
The accompanying notes are an integral part of these
consolidated financial statements.
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COTT CORPORATION
Consolidated Statements of Cash Flows
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(in millions of U.S. dollars)
Unaudited
For the three months ended
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MARCH 31, APRIL 1,
2001 2000
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OPERATING ACTIVITIES
Net income .......................................... $ 5.1 $ 2.0
Depreciation and amortization ....................... 9.9 9.9
Deferred income taxes ............................... 3.1 1.3
Gain on sale of property, plant and equipment ....... -- (0.1)
Other non-cash items ................................ (1.4) 0.4
Net change in non-cash working capital from
continuing operations -- note 7 .................. (14.3) (11.2)
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Cash provided by operating activities ............... 2.4 2.3
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INVESTING ACTIVITIES
Additions to property, plant and equipment .......... (10.0) (6.8)
Proceeds from disposal of property,
plant and equipment .............................. 0.6 0.1
Other ............................................... (0.3) (1.3)
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Cash used in investing activities ................... (9.7) (8.0)
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FINANCING ACTIVITIES
Payments of long-term debt .......................... (0.3) (4.6)
Short-term borrowings ............................... -- 11.1
Issue of common shares .............................. 1.4 --
Other ............................................... -- (2.1)
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Cash provided by financing activities ............... 1.1 4.4
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Effect of exchange rate changes on cash
and cash equivalents ............................. (0.1) --
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NET DECREASE IN CASH AND CASH EQUIVALENTS ........... (6.3) (1.3)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ...... 7.2 2.6
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CASH AND CASH EQUIVALENTS, END OF PERIOD ............ $ 0.9 $ 1.3
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The accompanying notes are an integral part of these
consolidated financial statements.
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COTT CORPORATION
Notes to the Consolidated Financial Statements
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Unaudited
NOTE 1 -- BASIS OF PRESENTATION
The unaudited 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 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.
Certain comparative amounts have been restated to conform to the financial
statement presentation adopted in the current year.
The results for the interim periods presented are not necessarily indicative of
the results that may be expected for the full fiscal year.
Consolidated financial statements in accordance with Canadian GAAP, in U.S.
dollars, are made available to all shareowners and filed with various Canadian
regulatory authorities.
NOTE 2 -- INCOME TAXES
The following table reconciles income taxes calculated at the basic Canadian
corporate rates with the income tax provision:
MARCH 31, APRIL 1,
2001 2000
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(in millions of
U.S. dollars)
Income tax provision based on Canadian
statutory rates .................................. $ (3.6) $ (1.6)
Foreign tax rate differential ....................... 0.7 0.6
Manufacturing and processing deduction .............. 0.1 --
Increase in valuation allowance ..................... -- (0.1)
Non-deductible items ................................ (0.4) (0.4)
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$ (3.2) $ (1.5)
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COTT CORPORATION
Notes to the Consolidated Financial Statements
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Unaudited
NOTE 3 -- COMPREHENSIVE INCOME (LOSS)
MARCH 31, APRIL 1,
2001 2000
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(in millions of
U.S. dollars)
Net income........................................... $ 5.1 $ 2.0
Foreign currency translation......................... (11.8) (1.9)
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$ (6.7) $ 0.1
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NOTE 4 -- INCOME PER 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 share includes the effect of exercising stock options and
converting the preferred shares, only if dilutive.
The following table reconciles the basic weighted average number of shares
outstanding to the diluted weighted average number of shares outstanding:
MARCH 31, APRIL 1,
2001 2000
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(in thousands)
Weighted average number of shares
outstanding -- basic ............................. 59,991 59,845
Dilutive effect of stock options..................... 1,802 408
Dilutive effect of second preferred shares........... 6,286 6,286
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Adjusted weighted average number of shares
outstanding -- diluted............................ 68,079 66,539
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As of March 31, 2001, the Company had the following equity instruments
outstanding: 60,108,492 common shares, 5,009,460 common share options and
4,000,000 second preferred shares convertible into 5,837,419 common shares and
entitled to 5,837,419 votes.
NOTE 5 -- INVENTORIES
MARCH 31, DECEMBER 30,
2001 2000
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(in millions of
U.S. dollars)
Raw materials ....................................... $ 22.0 $ 21.3
Finished goods ...................................... 47.4 34.3
Other ............................................... 9.2 8.4
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$ 78.6 $ 64.0
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COTT CORPORATION
Notes to the Consolidated Financial Statements
- --------------------------------------------------------------------------------
Unaudited
NOTE 6 -- PROPERTY, PLANT AND EQUIPMENT
MARCH 31, DECEMBER 30,
2001 2000
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(in millions of
U.S. dollars)
Cost ................................................ $ 389.4 $ 390.1
Accumulated depreciation ............................ (148.3) (145.1)
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$ 241.1 $ 245.0
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NOTE 7 -- 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:
MARCH 31, APRIL 1,
2001 2000
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(in millions of
U.S. dollars)
Decrease (increase) in accounts receivable .......... $ 4.4 $ (7.2)
Decrease (increase) in inventories .................. (15.9) (4.1)
Decrease (increase) in prepaid expenses ............. (0.1) 0.5
Increase (decrease) in accounts payable
and accrued liabilities............................ (2.7) (0.4)
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$ (14.3) $ (11.2)
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NOTE 8 -- CONTINGENCIES
The Company is subject to various claims and legal proceedings with respect to
matters such as governmental regulations, income taxes, and other actions
arising out of the normal course of business. Management believes that the
resolution of these matters will not have a material adverse effect on the
Company's financial position or results from operations.
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COTT CORPORATION
Notes to the Consolidated Financial Statements
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Unaudited
NOTE 9 -- SEGMENT REPORTING
The Company produces, packages and distributes retailer brand and branded
bottled and canned soft drinks to regional and national grocery,
mass-merchandise and wholesale chains in the U.S., Canada and the United Kingdom
(U.K.) & Europe. The Company manages its beverage business by geographic
segments as described below:
BUSINESS SEGMENTS
FOR THE THREE MONTHS ENDED UNITED U.K. & CORPORATE
MARCH 31, 2001 STATES CANADA EUROPE & OTHER TOTAL
-------------------------- ------- ------- ------- --------- -------
(in millions of U.S. dollars)
External sales .................. $ 168.7 $ 33.9 $ 25.4 $ 1.0 $ 229.0
Intersegment sales .............. 0.4 1.4 -- (1.8) --
Depreciation and amortization ... 5.9 1.7 2.0 0.3 9.9
Operating income (loss) ......... 16.5 1.7 (1.5) (3.7) 13.0
Total assets .................... 441.9 136.8 140.6 (105.6) 613.7
Additions to property, plant and
equipment ....................... 6.6 1.1 1.3 1.0 10.0
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FOR THE THREE MONTHS ENDED UNITED U.K. & CORPORATE
APRIL 1, 2000 STATES CANADA EUROPE & OTHER TOTAL
-------------------------- ------- ------- ------- --------- -------
(in millions of U.S. dollars)
External sales .................. $ 143.7 $ 37.3 $ 32.7 $ 1.3 $ 215.0
Intersegment sales .............. 0.9 2.9 -- (3.8) --
Depreciation and amortization ... 4.9 2.1 2.4 0.5 9.9
Operating income (loss) ......... 12.1 2.3 (0.7) (2.2) 11.5
Total assets (December 30, 2000) 427.5 143.7 156.5 (106.1) 621.6
Additions to property, plant and
equipment ....................... 5.0 0.2 0.4 1.2 6.8
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The comparative figures have been restated to include a corporate cost
allocation to the business segments.
Intersegment sales and total assets under the Corporate & Other caption include
the elimination of intersegment sales, receivables and investments.
For the quarter ended March 31, 2001, sales to two major customers accounted for
36% and 11%, respectively, of the Company's total sales (34% and 12% -- April 1,
2000).
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cott Corporation is the world's largest supplier of retailer brand soft drinks,
with manufacturing, distribution, marketing, product development and customer
service facilities in the U.S., Canada, and the U.K. The Company is focused on
growing sales and building volume with key customers, reducing costs and
improving margins and continuing to drive innovation in the retailer brand
beverage category.
RESULTS OF OPERATIONS
The Company reported its ninth profitable quarter, posting a net income of $5.1
million or $0.07 per diluted share for the three months ended March 31, 2001
versus net income of $2.0 million or $0.03 per diluted share in the first
quarter of 2000. First quarter performance in 2001 reflects a favorable impact
of $0.02 per diluted share, principally arising from foreign exchange gains.
SALES -- Sales were up 6.5% to $229.0 million compared to $215.0 million for the
first quarter last year. Sales volume to the Company's top 15 customers,
representing approximately 75% of the Company's business, grew 5% versus first
quarter last year, continuing to outpace the take-home carbonated soft drink
category. Higher sales in the U.S. were offset by lower sales in Canada and the
U.K. as a result of weaker currencies and U.K. grocery price deflation, which
continued to depress prices in the Company's business.
Sales in the U.S. during the first quarter increased to $168.7 million, up 17.4%
from $143.7 million in 2000. Excluding sales resulting from the Concord
acquisition sales in the U.S. increased 3.8% over last year.
Sales in Canada were $33.9 million for the quarter, down 9.1% from 2000, due
to a combination of lower overall industry volume and a weaker Canadian
currency.
Sales in the U.K. declined 22.3% from 2000. Excluding the impact of a weaker
pound sterling, sales were down 14.5%. Grocery price deflation continues to
depress prices in the U.K. and combined with lower than anticipated sales of new
products, led to the disappointing results.
GROSS PROFIT -- Gross profit margin for the quarter was 15.8% compared with
16.3% with 2000. The decline reflected Concord related integration costs
incurred in the first quarter as well as the impact of continued deflationary
pricing pressure in the U.K. market.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A") -- SG&A was $23.1 million,
in line with last year, despite the incremental SG&A due to the Concord
acquisition.
INTEREST EXPENSE -- Net interest expense was $6.7 million for the quarter
compared to $8.1 million in 2000. This decrease is due to lower interest expense
resulting from the U.K. term debt repayment and more interest income on cash,
which will be used to fund the Company's strategy. These amounts were partially
offset by interest on debt used to finance the Concord acquisition.
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INCOME TAXES -- The Company recorded an income tax provision of $3.2 million for
the quarter, compared with a $1.5 million provision in the comparable period
last year, which reflected the increase in income before income taxes.
FINANCIAL CONDITION -- Cash flow generated by operations of $2.4 million in the
quarter was up slightly from $2.3 million in the first quarter of 2000. The
Company's cash and cash equivalents decreased $6.3 million during the first
quarter of 2001 from $7.2 million as of December 30, 2000 as it used its opening
cash and cash equivalents together with cash generated by operations to fund
capital expenditures and working capital requirements.
Under current credit facilities the Company is provided maximum credit of $54.2
million depending on available collateral. At March 31, 2001, approximately
$26.4 million of the committed credit facility and $12.1 million of the demand
credit facility in the U.K. were available.
CAPITAL EXPENDITURES -- Capital expenditures were $10.0 million compared with
$6.8 million in 2000. The continued low level of capital spending reflects
management's commitment to make the assets "sweat". The Company's capital
spending policy favors projects with an expected internal rate of return above
30% in addition to those required for essential maintenance, safety and
regulatory compliance. Spending in the first quarter of 2001 included a capital
expenditure for the installation of a purified drinking water system at
the manufacturing facilities in San Antonio, Texas and Tampa, Florida.
LONG-TERM DEBT -- As of March 31, 2001, the Company's long-term debt totaled
$280.7 million as compared with $281.2 million at the end of 2000 and $318.5
million one year ago. At quarter end, debt consisted of $276.4 million in senior
unsecured notes and $4.3 million of other term debt. The Company is exposed to
minimal interest rate risk as substantially all debt is at fixed rates.
Management believes the Company has the financial resources to meet its ongoing
cash requirements for operations and capital expenditures as well as its other
financial obligations.
OUTLOOK -- The carbonated soft drink industry continues to experience positive
growth. Expectations for market growth in Cott's three core geographic markets,
Canada, the United Kingdom and the United States, extend through the next
several years. Facing intense price competition from heavily promoted global and
regional brands, the Company's major opportunity for growth depends on
management's execution of critical strategies and on retailers' continued
commitment to their retailer brand soft drink programs. Risks and uncertainties
include stability of procurement costs for such items as sweetener, packaging
materials and other ingredients, national brand pricing and promotional
strategies and fluctuations in currency versus the U.S. dollar. The Company's
exposure to raw material price fluctuations is minimized by the existence of
long-term contracts for certain key raw materials.
RISKS AND UNCERTAINTIES -- Sales to the top two customers in the first quarter
of 2001 accounted for 47% (46% -- 2000) of the Company's total sales volumes.
The loss of any significant customer or any significant portion of the Company's
sales could have a material adverse effect on the Company's operating results
and cash flows.
FORWARD LOOKING STATEMENTS -- The Private Securities Litigation Reform Act of
1995 (the "Act") provides a safe harbor for forward-looking statements made by
or on behalf of the Company. The Company and its representatives may from time
to time make written or verbal forward-looking statements, including statements
contained in this report and other public filings. Generally, the words
"believe," "expect," "intend," "estimate," "anticipate," "will" and similar
expressions identify
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forward-looking statements. All statements which address operating performance,
events or developments that the Company expects or anticipates will occur in the
future -- including statements relating to operations, economic performance,
financial condition and achievements of the Company, statements relating to
objectives, business plans or strategies, and projected or anticipated benefits
or other consequences of such plans or strategies, statements expressing general
optimism about future operating results or of the performance of management --
are forward-looking statements within the meaning of the Act. The
forward-looking statements are and will be based on management's views and
assumptions, at the times such statements are made, regarding future events and
operating performance, and speak only as of such times. The Company undertakes
no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
The following are some of the factors that could affect the Company's 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:
o Increased competitor consolidations, market place competition, particularly
among branded beverage products, and competitive product and pricing
pressures could impact the Company's earnings, market share and volume
growth.
o Changes in laws and regulations, including changes in accounting standards,
taxation requirements (including tax rate changes, new tax laws and revised
tax law interpretations) and environmental laws in domestic or foreign
jurisdictions.
o Fluctuations in the cost and availability of raw materials and ingredients
and the ability to maintain favorable supplier arrangements and
relationships.
o Interest rate fluctuations and other capital market conditions, including
foreign currency rate fluctuations, which are subject to various factors,
including the impact of changes in worldwide and national economies,
foreign currency movements, pricing fluctuations for the Company's products
and changes in interest rates.
o Retailers' continued commitment to their retailer brand beverage programs.
o Changes in consumer tastes and preference and market demand for new and
existing products.
o The ability to integrate acquired businesses into its operations.
o The uncertainties of litigation, as well as other risks and uncertainties
detailed from time to time in the Company's other public filings.
o Changes in general economic and business conditions.
o The effectiveness and success of the Company's spending programs and
acquisition investments.
o Adverse weather conditions, which could reduce demand for the Company's
products.
The foregoing list of important factors is not exclusive or exhaustive. Many of
these factors are beyond the Company's ability to control or predict. The
Company cautions investors not to place undue reliance on forward-looking
statements.
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the legal proceedings described in the Company's Form 10-K
for the fiscal year ended December 30, 2000.
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: May 11, 2001 /s/ Raymond P. Silcock
----------------------------------------
Raymond P. Silcock
Executive Vice President &
Chief Financial Officer
(On behalf of the Company)
Date: May 11, 2001 /s/ Tina Dell'Aquila
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Tina Dell'Aquila
Vice President, Controller
(Principal accounting officer)
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