Company Quick10K Filing
Quick10K
Cott
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$15.18 136 $2,060
10-Q 2018-09-29 Quarter: 2018-09-29
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-30 Annual: 2017-12-30
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-07-01 Quarter: 2017-07-01
10-Q 2017-04-01 Quarter: 2017-04-01
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-10-01 Quarter: 2016-10-01
10-Q 2016-07-02 Quarter: 2016-07-02
10-Q 2016-04-02 Quarter: 2016-04-02
10-K 2016-01-02 Annual: 2016-01-02
8-K 2018-11-08 Officers, Regulation FD, Other Events, Exhibits
8-K 2018-08-02 Earnings, Officers, Other Events, Exhibits
8-K 2018-08-01 Officers, Exhibits
8-K 2018-05-03 Earnings, Shareholder Vote, Other Events, Exhibits
8-K 2018-05-01 Enter Agreement, Shareholder Rights, Exhibits
8-K 2018-03-01 Earnings, Officers, Other Events, Exhibits
8-K 2018-01-30 Enter Agreement, Leave Agreement, M&A, Off-BS Arrangement, Officers, Regulation FD, Exhibits
FMX Mexican Economic Development
BUD Anheuser-Busch Inbev
MNST Monster Beverage
KOF Coca Cola Femsa
TAP Molson Coors Brewing
FIZZ National Beverage
SAM Boston Beer
NBEV New Age Beverages
BREW Craft Brew Alliance
ROX Castle Brands
COT 2018-09-29
Part I - Financial Information
Item 1. Financial Statements (Unaudited)
Note 1-Business and Recent Accounting Pronouncements
Note 2-Revision of Previously Reported Financial Information
Note 4-Revenue
Note 5-Acquisitions
Note 6-Share-Based Compensation
Note 7-Income Taxes
Note 8-Common Shares and Net Income (Loss) per Common Share
Note 9-Segment Reporting
Note 10-Inventories
Note 11-Intangible Assets, Net
Note 12-Debt
Note 13-Accumulated Other Comprehensive (Loss) Income
Note 14-Commitments and Contingencies
Note 15-Hedging Transactions and Derivative Financial Instruments
Note 16-Fair Value Measurements
Note 17-Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 exhibit3112.htm
EX-31.2 exhibit3122.htm
EX-32.1 exhibit3212.htm
EX-32.2 exhibit3222.htm

Cott Earnings 2018-09-29

COT 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 q3201810-q.htm 10-Q Document


United States
Securities and Exchange Commission
Washington, D.C. 20549
 

FORM 10-Q
 
 
 
ý
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: September 29, 2018
¨
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                       to                      l

Commission File Number: 001-31410
 
 

COTT CORPORATION
(Exact name of registrant as specified in its charter)
 
 
CANADA
 
98-0154711
(State or Other Jurisdiction of
Incorporation or Organization)
 
(IRS Employer
Identification No.)
 
 
1200 BRITANNIA ROAD EAST
MISSISSAUGA, ONTARIO, CANADA
 
L4W 4T5
 
 
4221 WEST BOY SCOUT BOULEVARD SUITE 400
TAMPA, FLORIDA, UNITED STATES
 
33607
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code: (905) 795-6500 and (813) 313-1732
 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
ý
 
 
Accelerated filer
¨
Non-accelerated filer
¨
 
 
Smaller reporting company
¨
 
 
 
 
Emerging growth company
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ☐    No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at November 1, 2018
Common Shares, no par value per share
 
137,783,507 shares





TABLE OF CONTENTS
 


2



PART I – FINANCIAL INFORMATION
 
Item 1.
Financial Statements (unaudited)

Cott Corporation
Consolidated Statements of Operations
(in millions of U.S. dollars, except share and per share amounts)
Unaudited
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 29, 2018
 
September 30, 2017
 
September 29, 2018
 
September 30, 2017
Revenue, net
$
609.3

 
$
580.9

 
$
1,773.7

 
1,698.4

Cost of sales
298.8

 
288.1

 
888.3

 
849.7

Gross profit
310.5

 
292.8

 
885.4

 
848.7

Selling, general and administrative expenses
279.9

 
263.2

 
816.2

 
778.2

Loss (gain) on disposal of property, plant and equipment, net
1.2

 
(0.4
)
 
3.8

 
4.8

Acquisition and integration expenses
1.6

 
7.7

 
10.8

 
21.7

Operating income
27.8

 
22.3

 
54.6

 
44.0

Other income, net
(0.6
)
 
(3.4
)
 
(33.0
)
 
(6.0
)
Interest expense, net
18.9

 
23.2

 
58.3

 
62.1

Income (loss) from continuing operations before income taxes
9.5

 
2.5

 
29.3

 
(12.1
)
Income tax expense
1.0

 
0.9

 
4.0

 
1.0

Net income (loss) from continuing operations
$
8.5

 
$
1.6

 
$
25.3

 
$
(13.1
)
Net income from discontinued operations, net of income taxes (Note 3)
1.5

 
43.0

 
357.5

 
1.0

Net income (loss)
$
10.0

 
$
44.6

 
$
382.8

 
$
(12.1
)
Less: Net income attributable to non-controlling interests - discontinued operations

 
2.1

 
0.6

 
6.4

Net income (loss) attributable to Cott Corporation
$
10.0

 
$
42.5

 
$
382.2

 
$
(18.5
)
Net income (loss) per common share attributable to Cott Corporation
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Continuing operations
$
0.06

 
$
0.01

 
$
0.18

 
$
(0.09
)
Discontinued operations
$
0.01

 
$
0.29

 
$
2.56

 
$
(0.04
)
Net income (loss)
$
0.07

 
$
0.30

 
$
2.74

 
$
(0.13
)
Diluted:
 
 
 
 
 
 
 
Continuing operations
$
0.06

 
$
0.01

 
$
0.18

 
$
(0.09
)
Discontinued operations
$
0.01

 
$
0.29

 
$
2.51

 
$
(0.04
)
Net income (loss)
$
0.07

 
$
0.30

 
$
2.69

 
$
(0.13
)
Weighted average common shares outstanding (in thousands)
 
 
 
 
 
 
 
Basic
138,787

 
139,205

 
139,503

 
138,980

Diluted
141,176

 
141,003

 
141,963

 
138,980

Dividends declared per common share
$
0.06

 
$
0.06

 
$
0.18

 
$
0.18

The accompanying notes are an integral part of these consolidated financial statements.


3



Cott Corporation
Condensed Consolidated Statements of Comprehensive Income
(in millions of U.S. dollars)
Unaudited
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 29, 2018
 
September 30, 2017
 
September 29, 2018
 
September 30, 2017
Net income (loss)
$
10.0

 
$
44.6

 
$
382.8

 
$
(12.1
)
Other comprehensive (loss) income:
 
 
 
 
 
 
 
Currency translation adjustment
5.1

 
3.9

 
(3.6
)
 
26.1

Pension benefit plan, net of tax 1, 2

 
(0.2
)
 
16.9

 
(0.4
)
Loss on derivative instruments, net of tax 3
(5.7
)
 
0.5

 
(10.0
)
 
(0.5
)
Total other comprehensive (loss) income
(0.6
)
 
4.2

 
3.3

 
25.2

Comprehensive income
$
9.4

 
$
48.8

 
$
386.1

 
$
13.1

Less: Comprehensive income attributable to non-controlling interests

 
2.1

 
0.6

 
6.4

Comprehensive income attributable to Cott Corporation
$
9.4

 
$
46.7

 
$
385.5

 
$
6.7

______________________
1
Net of $3.6 million of associated tax impact that resulted in an increase to the gain on sale of discontinued operations for the nine months ended September 29, 2018.
2 
Net of the effect of $0.3 million tax benefit for the nine months ended September 30, 2017.
3 
Net of the effect of $2.0 million and $2.4 million tax benefit for the three and nine months ended September 29, 2018, respectively.

The accompanying notes are an integral part of these consolidated financial statements.

4



Cott Corporation
Consolidated Balance Sheets
(in millions of U.S. dollars, except share amounts)
Unaudited
 
September 29, 2018
 
December 30, 2017
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
175.7

 
$
91.9

Accounts receivable, net of allowance of $9.4 ($7.8 as of December 30, 2017)
331.9

 
285.0

Inventories
136.6

 
127.6

Prepaid expenses and other current assets
29.7

 
20.7

Current assets of discontinued operations

 
408.7

Total current assets
673.9

 
933.9

Property, plant and equipment, net
591.5

 
584.2

Goodwill
1,129.1

 
1,104.7

Intangible assets, net
732.4

 
751.1

Deferred tax assets
1.4

 
2.3

Other long-term assets, net
31.8

 
39.4

Long-term assets of discontinued operations

 
677.5

Total assets
$
3,160.1

 
$
4,093.1

LIABILITIES AND EQUITY
 
 
 
Current liabilities
 
 
 
Short-term borrowings
$
9.0

 
$

Short-term borrowings required to be repaid or extinguished as part of divestiture

 
220.3

Current maturities of long-term debt
3.1

 
5.1

Accounts payable and accrued liabilities
463.4

 
412.9

Current liabilities of discontinued operations

 
295.1

Total current liabilities
475.5

 
933.4

Long-term debt
1,262.9

 
1,542.6

Debt required to be repaid or extinguished as part of divestiture

 
519.0

Deferred tax liabilities
132.8

 
98.4

Other long-term liabilities
74.8

 
68.2

Long-term liabilities of discontinued operations

 
45.8

Total liabilities
1,946.0

 
3,207.4

Equity
 
 
 
Common shares, no par value - 138,105,592 (December 30, 2017 - 139,488,805) shares issued
911.3

 
917.1

Additional paid-in-capital
72.7

 
69.1

Retained earnings (accumulated deficit)
321.2

 
(12.2
)
Accumulated other comprehensive loss
(91.1
)
 
(94.4
)
Total Cott Corporation equity
1,214.1

 
879.6

Non-controlling interests

 
6.1

Total equity
1,214.1

 
885.7

Total liabilities and equity
$
3,160.1

 
$
4,093.1

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 Nine Months Ended
 
September 29, 2018
 
September 30, 2017
 
September 29, 2018
 
September 30, 2017
Cash flows from operating activities of continuing operations:
 
 
 
 
 
 
 
Net income (loss)
$
10.0

 
$
44.6

 
$
382.8

 
$
(12.1
)
Net income from discontinued operations, net of income taxes
1.5

 
43.0

 
357.5

 
1.0

Net income (loss) from continuing operations
8.5

 
1.6

 
25.3

 
(13.1
)
Adjustments to reconcile net income (loss) from continuing operations to cash flows from operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
49.6

 
49.4

 
145.7

 
141.8

Amortization of financing fees
0.9

 
0.6

 
2.6

 
1.4

Amortization of senior notes premium

 
(1.1
)
 
(0.4
)
 
(3.9
)
Share-based compensation expense
6.8

 
2.1

 
14.6

 
11.1

(Benefit) provision for deferred income taxes
0.1

 
(3.1
)
 
2.8

 
1.4

Commodity hedging (gain) loss, net

 
(0.4
)
 
0.3

 
(1.9
)
Gain on extinguishment of debt

 

 
(7.1
)
 
(1.5
)
Gain on sale of business

 

 
(6.0
)
 

Loss (gain) on disposal of property, plant and equipment, net
1.2

 
(0.4
)
 
3.8

 
4.8

Other non-cash items
0.8

 
(8.4
)
 
(1.3
)
 
(13.2
)
Change in operating assets and liabilities, net of acquisitions:
 
 
 
 
 
 
 
Accounts receivable
(21.8
)
 
(16.4
)
 
(41.0
)
 
(36.7
)
Inventories
4.3

 
(4.9
)
 
(9.4
)
 
(14.5
)
Prepaid expenses and other current assets
(0.8
)
 
2.5

 
(7.4
)
 
(0.3
)
Other assets
0.2

 
0.7

 
1.4

 
4.8

Accounts payable and accrued liabilities and other liabilities
28.4

 
24.0

 
22.2

 
58.5

Net cash provided by operating activities from continuing operations
78.2

 
46.2

 
146.1

 
138.7

Cash flows from investing activities of continuing operations:
 
 
 
 
 
 
 
Acquisitions, net of cash received
(0.4
)
 
(3.4
)
 
(67.0
)
 
(33.4
)
Additions to property, plant and equipment
(36.3
)
 
(38.2
)
 
(95.0
)
 
(97.1
)
Additions to intangible assets
(2.7
)
 
(3.4
)
 
(6.9
)
 
(6.0
)
Proceeds from sale of property, plant and equipment
0.8

 
3.1

 
3.7

 
6.0

Proceeds from sale of business, net of cash sold

 

 
12.8

 

Proceeds from sale of equity securities
7.9

 

 
7.9

 

Other investing activities
0.1

 
0.5

 
0.4

 
0.9

Net cash used in investing activities from continuing operations
(30.6
)
 
(41.4
)
 
(144.1
)
 
(129.6
)

6



Cash flows from financing activities of continuing operations:
 
 
 
 
 
 
 
Payments of long-term debt
(0.2
)
 
(0.3
)
 
(263.5
)
 
(101.9
)
Issuance of long-term debt

 

 

 
750.0

Borrowings under ABL
0.4

 

 
1.4

 

Payments under ABL
(0.4
)
 

 
(1.4
)
 

Premiums and costs paid upon extinguishment of long-term debt

 

 
(12.5
)
 
(7.7
)
Issuance of common shares
1.8

 
2.1

 
6.0

 
2.9

Common shares repurchased and canceled
(24.4
)
 
(0.1
)
 
(46.1
)
 
(1.9
)
Financing fees

 

 
(1.5
)
 
(11.1
)
Dividends paid to common shareholders
(8.3
)
 
(8.4
)
 
(25.1
)
 
(25.1
)
Payment of deferred consideration for acquisitions

 

 
(2.8
)
 

Other financing activities
1.9

 

 
4.0

 
0.5

Net cash (used in) provided by financing activities from continuing operations
(29.2
)
 
(6.7
)
 
(341.5
)
 
605.7

Cash flows from discontinued operations:
 
 
 
 
 
 
 
Operating activities of discontinued operations
(5.6
)
 
47.4

 
(93.6
)
 
56.1

Investing activities of discontinued operations

 
(13.3
)
 
1,228.6

 
(36.7
)
Financing activities of discontinued operations

 
(9.2
)
 
(769.7
)
 
(610.5
)
Net cash (used in) provided by discontinued operations
(5.6
)
 
24.9

 
365.3

 
(591.1
)
Effect of exchange rate changes on cash
0.5

 
2.0

 
(8.0
)
 
6.4

Net increase in cash, cash equivalents and restricted cash
13.3

 
25.0

 
17.8

 
30.1

Cash and cash equivalents and restricted cash, beginning of period
162.4

 
123.2

 
157.9

 
118.1

Cash and cash equivalents and restricted cash, end of period
175.7

 
148.2

 
175.7

 
148.2

Cash and cash equivalents and restricted cash of discontinued operations, end of period

 
66.2

 

 
66.2

Cash and cash equivalents and restricted cash from continuing operations, end of period
$
175.7

 
$
82.0

 
$
175.7

 
$
82.0

Supplemental Non-cash Investing and Financing Activities:
 
 
 
 
 
 
 
Accrued deferred financing fees
$

 
$

 
$

 
$
0.6

Dividends payable

 

 
0.4

 

Additions to property, plant and equipment through accounts payable and accrued liabilities and other liabilities
13.5

 
6.8

 
17.5

 
6.9

Supplemental Disclosures of Cash Flow Information:
 
 
 
 
 
 
 
Cash paid for interest
$
0.7

 
$
12.6

 
$
47.1

 
$
45.4

Cash paid (received) for income taxes, net
4.2

 
(0.1
)
 
6.4

 
1.7

The accompanying notes are an integral part of these consolidated financial statements.


7



Cott Corporation
Consolidated Statements of Equity
(in millions of U.S. dollars, except share amounts)
Unaudited
 
Cott Corporation Equity
 
 
 
 
 
Number of
Common
Shares
(In thousands)
 
Common
Shares
 
Additional
Paid-in-
Capital
 
Retained
Earnings
(Accumulated
Deficit)
 
Accumulated
Other
Comprehensive
Loss
 
Non-
Controlling
Interests
 
Total
Equity
Balance at December 31, 2016
138,591

 
$
909.3

 
$
54.2

 
$
22.9

 
$
(117.9
)
 
$
5.3

 
$
873.8

Common shares repurchased and canceled
(165
)
 
(1.9
)
 

 

 

 

 
(1.9
)
Common shares issued - Equity Incentive Plan
708

 
6.4

 
(5.0
)
 

 

 

 
1.4

Common shares issued - Dividend Reinvestment Plan
27

 
0.3

 

 

 

 

 
0.3

Common shares issued - Employee Stock Purchase Plan
108

 
1.4

 
(0.2
)
 

 

 

 
1.2

Share-based compensation

 

 
14.3

 

 

 

 
14.3

Common shares dividends

 

 

 
(25.1
)
 

 

 
(25.1
)
Distributions to non-controlling interests

 

 

 

 

 
(3.3
)
 
(3.3
)
Comprehensive income (loss)
 
 
 
 
 
 


 
 
 
 
 
 
Currency translation adjustment

 

 

 

 
26.1

 

 
26.1

Pension benefit plan, net of tax

 

 

 

 
(0.4
)
 

 
(0.4
)
Loss on derivative instruments, net of tax

 

 

 

 
(0.5
)
 

 
(0.5
)
Net (loss) income

 

 

 
(18.5
)
 

 
6.4

 
(12.1
)
Balance at September 30, 2017
139,269

 
$
915.5

 
$
63.3

 
$
(20.7
)
 
$
(92.7
)
 
$
8.4

 
$
873.8

Balance at December 30, 2017
139,489

 
$
917.1

 
$
69.1

 
$
(12.2
)
 
$
(94.4
)
 
$
6.1

 
$
885.7

Common shares repurchased and canceled
(2,930
)
 
(22.8
)
 

 
(23.3
)
 

 

 
(46.1
)
Common shares issued - Equity Incentive Plan
1,462

 
15.8

 
(10.9
)
 

 

 

 
4.9

Common shares issued - Dividend Reinvestment Plan
17

 
0.2

 

 

 

 

 
0.2

Common shares issued - Employee Stock Purchase Plan
68

 
1.0

 
(0.1
)
 

 

 

 
0.9

Share-based compensation

 

 
14.6

 

 

 

 
14.6

Common shares dividends

 

 

 
(25.5
)
 

 

 
(25.5
)
Distributions to non-controlling interests

 

 

 

 

 
(0.9
)
 
(0.9
)
Sale of subsidiary shares of non-controlling interests

 

 

 

 

 
(5.8
)
 
(5.8
)
Comprehensive (loss) income
 
 
 
 
 
 
 
 
 
 
 
 
 
Currency translation adjustment

 

 

 

 
(3.6
)
 

 
(3.6
)
Pension benefit plan, net of tax

 

 

 

 
16.9

 

 
16.9

Loss on derivative instruments, net of tax

 

 

 

 
(10.0
)
 

 
(10.0
)
Net income

 

 

 
382.2

 

 
0.6

 
382.8

Balance at September 29, 2018
138,106

 
$
911.3

 
$
72.7

 
$
321.2

 
$
(91.1
)
 
$

 
$
1,214.1



The accompanying notes are an integral part of these consolidated financial statements.


8



Cott Corporation
Notes to the Consolidated Financial Statements
Unaudited
Note 1—Business and Recent Accounting Pronouncements
Description of Business
As used herein, “Cott,” “the Company,” “our Company,” “Cott Corporation,” “we,” “us,” or “our” refers to Cott Corporation, together with its consolidated subsidiaries. Cott is a water, coffee, tea, extracts and filtration service company with a leading volume-based national presence in the North American and European home and office delivery industry for bottled water, and a leader in custom coffee roasting, iced tea blending, and extract solutions for the U.S. foodservice industry. Our platform reaches over 2.5 million customers or delivery points across North America and Europe and is supported by strategically located sales and distribution facilities and fleets, as well as wholesalers and distributors. This enables us to efficiently service residences, businesses, restaurant chains, hotels and motels, small and large retailers, and healthcare facilities.
Basis of Presentation
The accompanying interim unaudited Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of our results of operations for the interim periods reported and of our financial condition as of the date of the interim balance sheet have been included. The Consolidated Balance Sheet as of December 30, 2017 included herein was derived from the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 30, 2017 (our “2017 Annual Report”). This Quarterly Report on Form 10-Q should be read in conjunction with the annual audited Consolidated Financial Statements and accompanying notes in our 2017 Annual Report. The accounting policies used in these interim Consolidated Financial Statements are consistent with those used in the annual Consolidated Financial Statements.
The presentation of these interim 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.
Changes in Presentation
Our corporate oversight function is not treated as a segment; it includes certain general and administrative costs that are not allocated to any of our reporting segments. During the second quarter of 2018, we combined and disclosed the corporate oversight function in the All Other category. Our segment reporting results have been recast to reflect these changes for all periods presented. See Note 9 to the Consolidated Financial Statements for segment reporting.
On January 30, 2018, we sold our carbonated soft drinks and juice businesses via the sale of our North America, United Kingdom and Mexico business units (including the Canadian business) and our Royal Crown International (“RCI”) finished goods export business (collectively, “Traditional Business” and such transaction, the “Transaction”). As a result, the Company has reclassified the financial results of the Traditional Business to net (loss) income from discontinued operations, net of income taxes in the Consolidated Statements of Operations for the three and nine months ended September 30, 2017. Cash flows from the Company’s discontinued operations are presented in the Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2017. See Note 3 to the Consolidated Financial Statements for additional information on discontinued operations.
Subsequent to the completion of the Transaction, management re-evaluated the measure of profit for our reportable segments and determined that excluding corporate allocations from segment operating income was appropriate as these costs are not considered by management when evaluating performance. Operating income for the prior periods have been recast to reflect this change. See Note 9 to the Consolidated Financial Statements for segment reporting.
Significant Accounting Policies
Included in Note 1 of our 2017 Annual Report is a summary of the Company’s significant accounting policies. Provided below is a summary of additional accounting policies that are significant to the financial results of the Company.

9



Cost of sales
We record costs associated with the manufacturing of our products in cost of sales. Shipping and handling costs incurred to store, prepare and move products between production facilities or from production facilities to branch locations or storage facilities are recorded in cost of sales. Shipping and handling costs incurred to deliver products from our Route Based Services and Coffee, Tea and Extract Solutions reporting segment branch locations to the end-user consumer of those products are recorded in selling, general and administrative (“SG&A”) expenses. All other costs incurred in the shipment of products from our production facilities to customer locations are reflected in cost of sales. Shipping and handling costs included in SG&A expenses were $121.8 million and $358.6 million for the three and nine months ended September 29, 2018, respectively, and $123.2 million and $339.0 million for the three and nine months ended September 30, 2017, respectively. Finished goods inventory costs include the cost of direct labor and materials and the applicable share of overhead expense chargeable to production.
Goodwill
Goodwill represents the excess purchase price of acquired businesses over the fair value of the net assets acquired. Goodwill is not amortized, but instead is tested for impairment at least annually. The following table summarizes our goodwill on a reporting segment basis as of September 29, 2018:
 
Reporting Segment
 
 
(in millions of U.S. dollars)
Route
Based
Services
 
Coffee, Tea
and Extract
Solutions
 
All Other
 
Total
Balance at December 30, 2017
$
936.7

 
$
117.8

 
$
50.2

 
$
1,104.7

Goodwill acquired during the year
30.2

 

 
7.5

 
37.7

Adjustments 1
(2.7
)
 

 

 
(2.7
)
Foreign exchange
(9.0
)
 

 
(1.6
)
 
(10.6
)
Balance at September 29, 2018
$
955.2

 
$
117.8

 
$
56.1

 
$
1,129.1

 
 
 
 
 
 
 
 
______________________
1     During the nine months ended September 29, 2018, we recorded adjustments to goodwill allocated to the Route Based Services segment in connection with the acquisitions of Crystal Rock (see Note 5 to the Consolidated Financial Statements).
Recently adopted accounting pronouncements
Update ASU 2014-09 – Revenue from Contracts with Customers (Topic 606)
In May 2014, the Financial Accounting Standards Board (“FASB”) amended its guidance regarding revenue recognition and created a new Topic 606, Revenue from Contracts with Customers. The objectives for creating Topic 606 were to remove inconsistencies and weaknesses in revenue recognition, provide a more robust framework for addressing revenue issues, provide more useful information to users of the financial statements through improved disclosure requirements, simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer, and improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve the core principle, an entity should apply the following steps: 1) identify the contract(s) with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations in the contract; and 5) recognize revenue when (or as) the entity satisfies a performance obligation. For public entities, the amendments are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The amendments may be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the amendment recognized at the date of initial application.
Effective December 31, 2017, we adopted FASB Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 was applied using the modified retrospective method. Adoption of this standard did not result in a cumulative adjustment to the opening balance of retained earnings at December 31, 2017 and did not have any other material effect on the results of operations, financial position or cash flows of the Company for the three and nine months ended September 29, 2018 (see Note 4 to the Consolidated Financial Statements).

10



Update ASU 2017-01 – Business Combinations (Topic 805)
In January 2017, the FASB amended its guidance regarding business combinations. The amendment clarified the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments provide an analysis of fair value of assets acquired to determine when a set of assets is not a business, and uses more stringent criteria related to inputs, substantive process, and outputs to determine if a business exists. We adopted the guidance in this amendment effective December 31, 2017, and applied it prospectively to all periods presented. Adoption of this new standard may result in more transactions being accounted for as asset acquisitions versus business combinations; however, the impact on our Consolidated Financial Statements in future periods will depend on the facts and circumstances of future transactions.
Update ASU 2017-07 – Compensation—Retirement Benefits (Topic 715)
In March 2017, the FASB issued an update to its guidance on presentation of net periodic pension cost and net periodic post-retirement pension cost, and requires the service cost component to be presented in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. The amendments in this update also allow only the service cost component to be eligible for capitalization when applicable.
Effective December 31, 2017, we adopted the guidance in this amendment retrospectively. The new standard requires that only the service cost component of periodic benefit cost is recorded in SG&A expenses. All other components of net periodic benefit cost are excluded from operating income. Adoption of this standard resulted in a $4.9 million decrease to operating income for the three and nine months ended September 30, 2017.
Update ASU 2017-09 – Stock Compensation – Scope of Modification Accounting (Topic 718)
In May 2017, the FASB amended its guidance regarding the scope of modification accounting for share-based compensation arrangements. The amendments provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. For public entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for public entities for reporting periods for which financial statements have not yet been issued. We adopted the guidance in this amendment effective December 31, 2017, and applied it prospectively to all periods presented. The adoption of this standard did not have a material impact on our Consolidated Financial Statements.
Recently issued accounting pronouncements
Update ASU 2016-02 – Leases (Topic 842)
In February 2016, the FASB issued an update to its guidance on lease accounting for lessees and lessors. This update revises accounting for operating leases by a lessee, among other changes, and requires a lessee to recognize a liability to make lease payments and an asset representing its right to use the underlying asset for the lease term in the balance sheet. The distinction between finance and operating leases has not changed and the update does not significantly change the effect of finance and operating leases on the Consolidated Statements of Operations and the Consolidated Statements of Cash Flows. Additionally, this update requires both qualitative and specific quantitative disclosures. For public entities, the amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. A modified retrospective transition approach is required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.
We are currently assessing the impact of adoption of this standard on our Consolidated Financial Statements. The Company is evaluating the standard’s applicability to our various contractual arrangements. We currently believe that the most significant changes relate to the recognition of new right of use assets and lease liabilities for real estate and equipment leases, which will result in future increases to our assets and liabilities on our Consolidated Balance Sheets. We believe that substantially all of our lessee lease arrangements will continue to be classified as operating leases under the new standard. Additionally, we had $19.9 million of deferred gains at December 31, 2016 associated with sale-leaseback transactions which are currently being amortized over the leaseback term. Upon adoption of this standard, we will be required to recognize the unamortized deferred gain at January 1, 2017 as a cumulative effect adjustment to equity. In addition, upon adoption of this standard, deferred gains related to the sale-leaseback transactions completed in 2017 of $7.9 million at December 30, 2017 will be recognized in net income (loss) from discontinued operations, net of income taxes in the Consolidated Statement of Operations for the year ended December 30, 2017.

11



The standard also requires lessors to classify leases as sales-type, direct financing or operating leases, similar to existing guidance. We believe that substantially all of our lessor lease arrangements will continue to be classified as operating leases under the new standard.
Update ASU 2016-13 – Financial Instruments—Credit Losses (Topic 326)
In June 2016, the FASB amended its guidance to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Entities will now use forward-looking information to better form their credit loss estimates. The amended guidance also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption will be permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. This guidance will be applied using a prospective or modified retrospective transition method, depending on the area covered in this update. We are currently assessing the impact of adoption of this standard on our Consolidated Financial Statements.
Update ASU 2017-08 – Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20)
In March 2017, the FASB amended its guidance on accounting for debt securities. The amendments shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public entities, the amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. At adoption, this update will be applied using a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. We are currently assessing the impact of adoption of this standard on our Consolidated Financial Statements.
Update ASU 2018-02 – Income Statement—Reporting Comprehensive Income (Topic 220)
In February 2018, the FASB amended its guidance which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the comprehensive tax legislation enacted by the U.S. government on December 22, 2017 commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”) and requires certain disclosures about stranded tax effects. For public entities, the amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted, and may be applied in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate tax rate in the Tax Act is recognized. We are currently assessing the impact of adoption of this standard on our Consolidated Financial Statements.
Update ASU 2018-05 – Income Taxes—Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (Topic 740)
In March 2018, the FASB amended its guidance regarding Accounting Standards Codification Topic 740, Income Taxes (“ASC 740”). On December 22, 2017, the U.S. government enacted the Tax Act, which makes broad and complex changes to the U.S. tax code that will affect the Company’s fiscal year 2018. The U.S. Securities and Exchange Commission issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cut and Jobs Act (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for entities to complete the accounting under ASC 740. In accordance with SAB 118, an entity must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that an entity’s accounting for certain income tax effects of the Tax Act is incomplete, but it is able to determine a reasonable estimate, it must record a provisional estimate in its financial statements. If an entity cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. The Company has applied SAB 118, and has recorded a provisional estimate related to certain 2017 effects of the Tax Act, and has provided the required disclosures (see Note 7 to the Consolidated Financial Statements).

12



Update ASU 2018-07 – Compensation—Improvements to Nonemployee Share-Based Payment Accounting (Topic 718)
In June 2018, the FASB amended its guidance to expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amended guidance also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted. We do not expect the adoption of this guidance to have a material impact on our Consolidated Financial Statements.
Update ASU 2018-11 – Leases—Targeted Improvements (Topic 842)
In July 2018, the FASB amended its guidance on lease accounting for lessees and lessors. The amended guidance provides entities with an additional and optional transition method to adopt ASC 842, where the entity initially applies the new lease standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The amended guidance also provides lessors with a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component, instead to account for those components as a single component if the non-lease components otherwise would be accounted for under ASC 606 and both of the following are met: 1) the timing and pattern of transfer of the non-lease component or components and associated lease component are the same; and 2) the lease component, if accounted for separately, would be classified as an operating lease. If the non-lease component or components associated with the lease component are the predominant component of the combined component, an entity is required to account for the combined component in accordance with ASC 606. Otherwise, the entity must account for the combined component as an operating lease in accordance with ASC 842. For public entities that have not adopted ASC 842, the amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. We are currently assessing the impact of adoption of this standard on our Consolidated Financial Statements.
Update ASU 2018-13 – Fair Value Measurement (Topic 820)
In August 2018, the FASB amended its guidance on disclosure requirements for fair value measurement. The update amends existing fair value measurement disclosure requirements by adding, changing, or removing certain disclosures. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Implementation on a prospective or retrospective basis varies by specific disclosure requirement. Early adoption is permitted. The standard also allows for early adoption of any removed or modified disclosures upon issuance of this update while delaying adoption of the additional disclosures until their effective date. We are currently assessing the impact of adoption of this standard on our Consolidated Financial Statements.
Update ASU 2018-14 – Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20)
In August 2018, the FASB amended its guidance on disclosure requirements for defined benefit plans. The update amends existing annual disclosure requirements applicable to all employers that sponsor defined benefit pension and other postretirement plans by adding, removing, and clarifying certain disclosures. The amendments in this update are effective for fiscal years beginning after December 15, 2020, with early adoption permitted, and are to be applied on a retrospective basis to all periods presented. We are currently assessing the impact of adoption of this standard on our Consolidated Financial Statements.
Update ASU 2018-15 – Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40)
In August 2018, the FASB amended its guidance on customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. This update aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This update also requires customers to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted, including adoption in any interim period. The amendments in this update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We are currently assessing the impact of adoption of this standard on our Consolidated Financial Statements.


13



Note 2Revision of Previously Reported Financial Information
On January 30, 2018, the Company completed the sale of the Traditional Business (the "Transaction") to Refresco Group N.V., a Dutch company (“Refresco”). The Transaction was structured as a sale of the assets of the Canadian business and a sale of the stock of the operating subsidiaries engaged in the Traditional Business in the other jurisdictions. See Note 3 to the Consolidated Financial Statements for additional information. The aggregate deal consideration was approximately $1.25 billion, paid in cash at closing, resulting in a gain on sale of $427.6 million. During the third quarter of 2018, we identified an error in the entries recorded as part of the Transaction which resulted in an understatement of accounts payable and accrued liabilities and overstatement of currency translation adjustment, a component of accumulated other comprehensive loss, on our Consolidated Balance Sheet as of March 31, 2018 and June 30, 2018 of $10.3 million. The misstatement in these balances also impacted the currency translation adjustment reported on our Condensed Consolidated Statements of Comprehensive Income (Loss) and net cash provided by operating activities from continuing operations and operating activities of discontinued operations as reported in our Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and the six months ended June 30, 2018 as well as accumulated other comprehensive loss as reported in our Consolidated Statements of Equity as of March 31, 2018 and June 30, 2018. The error in the Consolidated Statement of Cash Flows resulted from incorrectly presenting cash from operations of continued operations as discontinued operations for the three months ended March 31, 2018 and six months ended June 30, 2018. No other financial statement line items were impacted by this error.
We have evaluated the error and determined it is not material to the previously issued financial statements and have elected to revise our previously issued consolidated statements as follows:
Consolidated Balance Sheets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2018
 
June 30, 2018
(in millions of U.S. dollars)
 
As Previously Reported
 
Adjustments
 
As Revised
 
As Previously Reported
 
Adjustments
 
As Revised
Accounts payable and accrued liabilities
 
439.8

 
10.3

 
450.1

 
421.5

 
10.3

 
431.8

Total current liabilities
 
445.6

 
10.3

 
455.9

 
430.2

 
10.3

 
440.5

Total liabilities
 
1,948.0

 
10.3

 
1,958.3

 
1,896.3

 
10.3

 
1,906.6

Accumulated other comprehensive loss
 
(62.7
)
 
(10.3
)
 
(73.0
)
 
(80.2
)
 
(10.3
)
 
(90.5
)
Total Cott Corporation Equity
 
1,263.8

 
(10.3
)
 
1,253.5

 
1,238.9

 
(10.3
)
 
1,228.6


Condensed Consolidated Statements of Comprehensive (Loss) Income
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended
March 31, 2018
 
For the Six Months Ended
June 30, 2018
(in millions of U.S. dollars)
 
As Previously Reported
 
Adjustments
 
As Revised
 
As Previously Reported
 
Adjustments
 
As Revised
Currency translation adjustment
 
18.6

 
(10.3
)
 
8.3

 
1.6

 
(10.3
)
 
(8.7
)
Total other comprehensive income
 
31.7

 
(10.3
)
 
21.4

 
14.2

 
(10.3
)
 
3.9



14



Consolidated Statements of Cash Flows
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended
March 31, 2018
 
For the Six Months Ended
June 30, 2018
(in millions of U.S. dollars)
 
As Previously Reported
 
Adjustments
 
As Revised
 
As Previously Reported
 
Adjustments
 
As Revised
Change in accounts payable and accrued liabilities
 
(2.6
)
 
10.3

 
7.7

 
(16.5
)
 
10.3

 
(6.2
)
Net cash provided by operating activities from continuing operations
 
22.6

 
10.3

 
32.9

 
57.6

 
10.3

 
67.9

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating activities of discontinued operations
 
(74.4
)
 
(10.3
)
 
(84.7
)
 
(77.7
)
 
(10.3
)
 
(88.0
)

Consolidated Statement of Equity
 
 
 
 
 
 
 
 
 
 
 
March 31, 2018
 
June 30, 2018
(in millions of U.S. dollars)
 
As Previously Reported
 
Adjustments
 
As Revised
 
As Previously Reported
 
Adjustments
 
As Revised
Currency translation adjustment
 
18.6

 
(10.3
)
 
8.3

 
1.6

 
(10.3
)
 
(8.7
)
Accumulated other comprehensive loss
 
(62.7
)
 
(10.3
)
 
(73.0
)
 
(80.2
)
 
(10.3
)
 
(90.5
)
Total Cott Corporation equity
 
1,263.8

 
(10.3
)
 
1,253.5

 
1,238.9

 
(10.3
)
 
1,228.6


We will continue to revise interim periods in future filings for certain amounts in the consolidated financial statements to correct these misstatements.

Note 3Discontinued Operations
On January 30, 2018, the Company completed the sale of the Traditional Business to Refresco. The Transaction was structured as a sale of the assets of the Canadian business and a sale of the stock of the operating subsidiaries engaged in the Traditional Business in the other jurisdictions after the Company completed an internal reorganization. The aggregate deal consideration was approximately $1.25 billion, paid in cash at closing, subject to adjustment for indebtedness, working capital, and other customary post-closing adjustments. As of September 29, 2018, $12.5 million of the total sale proceeds are being held in escrow by a third party escrow agent to secure potential indemnification claims. The escrow will be released, subject to any amounts for pending indemnification claims, on the eighteen month anniversary of the closing date of the Transaction. These funds are included in cash and cash equivalents on the Consolidated Balance Sheet as of September 29, 2018. The Traditional Business excludes our Route Based Services (which includes our DS Services of America, Inc. (“DSS”), Aquaterra Corporation and Eden Springs Europe B.V. businesses) and Coffee, Tea and Extract Solutions (which includes our S. & D. Coffee, Inc. business) reporting segments, our Aimia Foods, Decantae Mineral Water Ltd. and RCI concentrate businesses, and our Columbus, Georgia manufacturing facility.
The Company and Refresco have entered into a Transition Services Agreement pursuant to which the Company and Refresco will provide certain services to each other for various service periods, with the longest service period being 18 months, including tax and accounting services, certain human resources services, communications systems and support, and insurance/risk management. Each party will be compensated for services rendered as set forth in the Transition Services Agreement. Each service period may be extended as set forth in the Transition Services Agreement, up to a maximum extension of 180 days.
In addition, the Company and Refresco have entered into certain Co-pack Manufacturing Agreements pursuant to which the Company and Refresco will manufacture and supply certain beverage products for each other, and a Concentrate Supply Agreement pursuant to which the Company will supply concentrates to Refresco. Each party will be compensated for the products they supply as set forth in the applicable agreements. The Co-pack Manufacturing Agreements have a term of 36 months, and the Concentrate Supply Agreement has a term that is the same as the term of the Transition Services Agreement.

15



During the three and nine months ended September 29, 2018, the Company has paid Refresco $2.4 million and $6.6 million, respectively, for the contract manufacture of beverage products. In addition, during the three and nine months ended September 29, 2018, the Company has reimbursed Refresco $12.8 million and $47.2 million, respectively, for various operational expenses that were paid by Refresco on its behalf. During the three and nine months ended September 29, 2018, Refresco has paid the Company $21.1 million and $29.2 million, respectively, for the contract manufacture of beverage products.
The Company used a portion of the sale proceeds to (i) retire $525.0 million aggregate principal amount of the 5.375% senior notes due 2022 (the “2022 Notes”), (ii) retire the remaining $250.0 million aggregate principal amount of the 10.000% senior secured notes due 2021 (the “DSS Notes”), (iii) repay the $262.5 million outstanding balance on the asset-based lending facility (the “ABL facility”), and (iv) repay the remaining $1.9 million outstanding balance on the capital lease finance arrangement with General Electric Capital Corporation (the “GE Term Loan”).
The major components of net income from discontinued operations, net of income taxes in the accompanying Consolidated Statements of Operations include the following:
 
For the Three Months Ended
 
For the Nine Months Ended
(in millions of U.S. dollars)
September 29, 2018
 
September 30, 2017
 
September 29, 2018
 
September 30, 2017
Revenue, net
$

 
$
425.6

 
$
111.2

 
$
1,244.7

Cost of sales

 
371.3

 
98.4

 
1,093.4

Operating income from discontinued operations

 
13.9

 
2.0

 
33.6

Gain on sale of discontinued operations
0.6

 

 
427.6

 

Income (loss) from discontinued operations, before income taxes
0.6

 
12.1

 
402.2

 
(27.5
)
Income tax (benefit) expense 1
(0.9
)
 
(30.9
)
 
44.7

 
(28.5
)
Net income from discontinued operations, net of income taxes
1.5

 
43.0

 
357.5

 
1.0

Less: Net income attributable to non-controlling interests

 
2.1

 
0.6

 
6.4

Net income (loss) attributable to Cott Corporation – discontinued operations 2
$
1.5

 
$
40.9

 
$
356.9

 
$
(5.4
)
______________________
1
The net income (loss) from discontinued operations, before income taxes resulted in income tax benefit of $0.9 million and income tax expense of $44.7 million for the three and nine months ended September 29, 2018, respectively. The Transaction resulted in a taxable gain on sale in the United States, which utilized a significant portion of the existing U.S. net operating loss carry forwards. As a result, the Company is in a net deferred tax liability position in the United States and thus a tax benefit of approximately $25.0 million related to a release of the U.S. valuation allowance was recorded in the first quarter of 2018 and is offsetting the overall income tax expense related to discontinued operations. The Transaction resulted in a non-taxable gain on sale in the United Kingdom. No tax benefit resulted from the Transaction related to the taxable loss on sale in Canada due to the Company's valuation allowance position.
2
Net income (loss) attributable to Cott Corporation – discontinued operations is inclusive of interest expense on short-term borrowings and debt required to be repaid or extinguished as part of divestiture of $3.4 million for the nine months ended September 29, 2018 and $8.4 million and $38.5 million for the three and nine months ended September 30, 2017, respectively.
Cash flows from discontinued operations included borrowings and payments under the ABL facility of $262.4 million and $482.8 million for the nine months ended September 29, 2018, $789.0 million and $796.3 million for the three months ended September 30, 2017, and $2,246.3 million and $2,205.6 million for the nine months ended September 30, 2017, respectively.


16



Note 4—Revenue
We are a water, coffee, tea, extracts and filtration service company. Our principal source of revenue is from bottled water delivery to residential and business customers primarily in North America and Europe and the manufacture and distribution of coffee, tea and extracts to institutional and commercial customers in the United States. Revenue is recognized, net of sales returns, when a customer obtains control of promised goods or services in an amount that reflects the consideration we expect to receive in exchange for those goods or services. We measure revenue based on the consideration specified in the client arrangement, and revenue is recognized when the performance obligations in the client arrangement are satisfied. A performance obligation is a promise in a contract to transfer a distinct service to the customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when the customer receives the benefit of the performance obligation. Clients typically receive the benefit of our services as they are performed. Substantially all our client contracts require that we be compensated for services performed to date. This may be upon shipment of goods or upon delivery to the customer, depending on contractual terms. Shipping and handling costs paid by the customer to us are included in revenue and costs incurred by us for shipping and handling activities that are performed after a customer obtains control of the product are accounted for as fulfillment costs. In addition, we exclude from net revenue and cost of sales taxes assessed by governmental authorities on revenue-producing transactions. Although we occasionally accept returns of products from our customers, historically returns have not been material.
Contract Estimates
The nature of certain of the Company’s contracts give rise to variable consideration including cash discounts, volume-based rebates, point of sale promotions, and other promotional discounts to certain customers. For all promotional programs and discounts, the Company estimates the rebate or discount that will be granted to the customer and records an accrual upon invoicing. These estimated rebates or discounts are included in the transaction price of the Company’s contracts with customers as a reduction to net revenues and are included as accrued sales incentives in accounts payable and accrued liabilities in the Consolidated Balance Sheets. This methodology is consistent with the manner in which the Company historically estimated and recorded promotional programs and discounts. Accrued sales incentives were $8.6 million and $6.9 million at September 29, 2018 and December 30, 2017, respectively.
We do not disclose the value of unsatisfied performance obligations for contracts (i) with an original expected length of one year or less or (ii) for which the Company recognizes revenue at the amount in which it has the right to invoice as the product is delivered.
Contract Balances
Contract liabilities relate primarily to advances received from the Company’s customers before revenue is recognized. These amounts are recorded as deferred revenue and are included in accounts payable and accrued liabilities in the Consolidated Balance Sheets. The advances are expected to be earned as revenue within one year of receipt. Deferred revenues at September 29, 2018 and December 30, 2017 were $19.1 million and $21.8 million, respectively. The amount of revenue recognized in the three and nine months ended September 29, 2018 that was included in the December 30, 2017 deferred revenue balance was $3.2 million and $21.3 million, respectively.
The Company does not have any material contract assets as of September 29, 2018.
Disaggregated Revenue
In general, the Company’s business segmentation is aligned according to the nature and economic characteristics of its products and customer relationships and provides meaningful disaggregation of each business segment’s results of operations.
Further disaggregation of net revenue to external customers by geographic area based on customer location is as follows:
 
For the Three Months Ended
 
For the Nine Months Ended
(in millions of U.S. dollars)
September 29, 2018
 
September 30, 2017
 
September 29, 2018
 
September 30, 2017
United States
$
457.8

 
$
431.1

 
$
1,330.0

 
$
1,278.7

United Kingdom
41.7

 
40.5

 
126.8

 
118.1

Canada
16.7

 
16.8

 
48.8

 
47.0

All other countries
93.1

 
92.5

 
268.1

 
254.6

Total 1
$
609.3

 
$
580.9

 
$
1,773.7

 
$
1,698.4

______________________
1     Prior-period amounts are not adjusted under the modified-retrospective method of adoption.

17



Note 5—Acquisitions
Crystal Rock Acquisition
On March 21, 2018, the Company, through its wholly owned subsidiary, CR Merger Sub, Inc. (“Purchaser”), completed a cash tender offer for all outstanding shares of common stock of Crystal Rock Holdings, Inc., a direct-to-consumer home and office water, coffee and filtration business serving customers throughout New York and New England (“Crystal Rock”). On March 23, 2018 (“Crystal Rock Acquisition Date”), the Purchaser merged with and into Crystal Rock, with Crystal Rock becoming a wholly-owned indirect subsidiary of the Company (the “Crystal Rock Acquisition”). The aggregate consideration was approximately $37.7 million and includes the purchase price paid by the Company to the Crystal Rock shareholders of $20.7 million, $0.8 million in costs paid on behalf of the sellers for the seller’s transaction costs and $16.2 million of assumed debt and accrued interest obligations of the acquired company that was paid by the Company.
The total purchase price paid by Cott in the Crystal Rock Acquisition is summarized below:
(in millions of U.S. dollars)
 
 
Cash paid to sellers
 
$
20.7

Cash paid on behalf of sellers for sellers’ transaction expenses
 
0.8

Total consideration
 
$
21.5


The Crystal Rock Acquisition strengthens the Company’s presence in New York and New England. The Company has accounted for this transaction as a business combination.
The purchase price of $21.5 million, net of debt, was allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the Crystal Rock Acquisition Date. Measurement period adjustments recorded during the nine months ended September 29, 2018 included adjustments to property, plant and equipment and intangible assets based on the preliminary valuations, adjustments to deferred taxes and other long-term liabilities based on a preliminary analysis of certain tax positions, as well as adjustments to accounts receivable, inventory, prepaid expenses, other assets and accounts payable and accrued liabilities based on review of their fair values as of the Crystal Rock Acquisition Date. The measurement period adjustments did not have a material effect on our results of operations in prior periods.
The table below summarizes the originally reported estimated acquisition date fair values, measurement period adjustments recorded and the adjusted purchase price allocation of the assets acquired and liabilities assumed:
(in millions of U.S. dollars)
Originally
Reported
 
Measurement
Period
Adjustments
 
Acquired 
Value
Cash
$
1.6

 
$

 
$
1.6

Accounts receivable
6.5

 
(0.1
)
 
6.4

Inventory
2.3

 
(0.1
)
 
2.2

Prepaid expenses and other assets
1.2

 
0.3

 
1.5

Property, plant and equipment
9.4

 
(0.1
)
 
9.3

Goodwill
16.7

 
(2.7
)
 
14.0

Intangible assets
13.3

 
0.6

 
13.9

Other assets
0.8

 
(0.7
)
 
0.1

Short-term borrowings
(4.1
)
 

 
(4.1
)
Current maturities of long-term debt
(1.6
)
 

 
(1.6
)
Accounts payable and accrued liabilities
(5.2
)
 
(2.2
)
 
(7.4
)
Long-term debt
(10.4
)
 

 
(10.4
)
Deferred tax liabilities
(6.5
)
 
3.4

 
(3.1
)
Other long-term liabilities
(2.5
)
 
1.6

 
(0.9
)
Total
$
21.5

 
$

 
$
21.5



18



The assets and liabilities acquired with the Crystal Rock Acquisition are recorded at their estimated fair values per management’s estimates and are subject to change when formal valuations and other studies are finalized. The fair values of acquired property, plant and equipment, customer relationships, trademarks and trade names, and deferred taxes are provisional pending validation and receipt of the final valuations for those assets. In addition, consideration for potential loss contingencies, including uncertain tax positions, are still under review.
The amount of revenues related to the Crystal Rock Acquisition included in the Company’s Consolidated Statement of Operations for the period from the Crystal Rock Acquisition Date through September 29, 2018 was $30.5 million. During the nine months ended September 29, 2018, the Company incurred $2.9 million of acquisition-related costs associated with the Crystal Rock Acquisition, which are included within acquisition and integration expenses in the Consolidated Statement of Operations. During the second quarter of 2018, Crystal Rock was integrated within our DSS business, therefore it is impracticable to determine the amount of net income related to the Crystal Rock Acquisition included in the Company's Statement of Operations for the period from the Crystal Rock Acquisition Date through September 29, 2018.
Intangible Assets
In our preliminary determination of the fair value of the intangible assets, we considered, among other factors, the best use of acquired assets, analysis of historic financial performance and estimates of future performance of Crystal Rock’s products. The estimated fair values of identified intangible assets were calculated considering market participant expectations and using an income approach and estimates and assumptions provided by management. The following table sets forth the components of identified intangible assets associated with the Crystal Rock Acquisition and their estimated weighted average useful lives:
(in millions of U.S. dollars)
 
Estimated Fair
Market Value
 
Estimated
Useful Life
Customer relationships
 
$
9.7

 
11 years
Trademarks and trade names
 
4.2

 
Indefinite
Total
 
$
13.9

 
 
Customer relationships represent future projected revenue that will be derived from sales to existing customers of Crystal Rock.
Trademark and trade names represent the future projected cost savings associated with the premium and brand image obtained as a result of owning the trademark or trade name rather than through a royalty or rental fee.
Goodwill
The principal factor that resulted in recognition of goodwill was that the purchase price for the Crystal Rock Acquisition was based in part on cash flow projections assuming the reduction of administrative costs and the integration of acquired customers and products into our operations, which is of greater value than on a standalone basis. The goodwill recognized as part of the Crystal Rock Acquisition was allocated to the Route Based Services reporting segment, none of which is expected to be tax deductible.

Note 6—Share-based Compensation
During the nine months ended September 29, 2018, the Company granted 61,736 common shares with an aggregate grant date fair value of approximately $1.0 million to the non-management members of our Board of Directors under the Amended and Restated Cott Corporation Equity Incentive Plan. The common shares were issued in consideration of the directors’ annual board retainer fee and are fully vested upon issuance.
On August 1, 2018, in connection with the appointment of the Company’s chief executive officer to executive chairman of the Board effective December 30, 2018, the Board approved the modification of certain outstanding awards issued to the chief executive officer. The modified awards will continue to vest in accordance with their normal applicable vesting schedules regardless of continued service. The total incremental compensation expense associated with the modification was $5.5 million for the three and nine months ended September 29, 2018.

Note 7—Income Taxes
Income tax expense was $1.0 million and $4.0 million on pre-tax income from continuing operations of $9.5 million and $29.3 million for the three and nine months ended September 29, 2018, respectively, as compared to income tax expense of $0.9 million on pre-tax income from continuing operations of $2.5 million and income tax expense of $1.0 million on pre-tax loss from continuing operations of $12.1 million in the comparable prior year periods. The effective income tax rates for the

19



three and nine months ended September 29, 2018 were 10.5% and 13.7%, respectively, compared to 36.0% and (8.3)% in the comparable prior year periods.
The effective tax rates for the three and nine months ended September 29, 2018 varied from the effective tax rates for the three and nine months ended September 30, 2017 primarily due to losses incurred in the United States for which we have recognized a tax benefit in 2018.
On December 22, 2017, the U.S. government enacted the Tax Act, which significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35% to 21%, limiting various business deductions and repealing the corporate alternative minimum tax. Many provisions in the Tax Act are generally effective in tax years beginning after December 31, 2017. GAAP requires the impact of tax legislation to be recognized in the period in which the law was enacted. As a result of the Tax Act, the Company recorded tax benefits in the fourth quarter of 2017 of $32.2 million due to a re-measurement of the U.S deferred tax assets and liabilities and $1.3 million due to the repeal of the corporate alternative minimum tax. The tax benefits represent provisional amounts and our current best estimates. We have not made adjustments to our provisional estimate during the first nine months of 2018. The provisional amounts incorporate assumptions made based upon our current interpretation of the Tax Act and in accordance with SAB 118 may be refined through the fourth quarter of 2018 as we receive additional clarification and implementation guidance. As we finalize the accounting for the tax effects of the enactment of the Tax Act during the measurement period, we will reflect adjustments to the provisional amounts recorded and record additional tax effects in the periods such adjustments are identified.

Note 8—Common Shares and Net Income (Loss) per Common Share
Common Shares
On May 1, 2018, our Board of Directors approved a share repurchase program for up to $50.0 million of Cott’s outstanding common shares over a 12-month period commencing on May 7, 2018. Since that date, during the three and nine months ended September 29, 2018, we repurchased 1,560,736 and 2,556,117 common shares, respectively, for approximately $24.0 million and $40.0 million, respectively, through open market transactions. We are unable to predict the number of shares that ultimately will be repurchased under the share repurchase program, or the aggregate dollar amount of the shares to be purchased in future periods. We may discontinue purchases at any time, subject to compliance with applicable regulatory requirements. Shares purchased under the share repurchase program were canceled.
Net Income (Loss) per Common Share
Basic net income (loss) per common share is calculated by dividing net income (loss) attributable to Cott Corporation by the weighted average number of common shares outstanding during the periods presented. Diluted net income (loss) per common share is calculated by dividing net income (loss) attributable to Cott Corporation by the weighted average number of common shares outstanding adjusted to include the effect, if dilutive, of the exercise of in-the-money Stock Options, Performance-based RSUs, and Time-based RSUs during the periods presented. Set forth below is a reconciliation of the numerator and denominator for the diluted net income (loss) per common share computations for the periods indicated:


20



 
For the Three Months Ended
 
For the Nine Months Ended
 
September 29, 2018
 
September 30, 2017
 
September 29, 2018
 
September 30, 2017
Numerator (in millions of U.S. dollars):
 
 
 
 
 
 
 
Net income (loss) attributable to Cott Corporation
 
 
 
 
 
 
 
Continuing operations
$
8.5

 
$
1.6

 
$
25.3

 
$
(13.1
)
Discontinued operations
1.5

 
40.9

 
356.9

 
(5.4
)
Net income (loss)
10.0

 
42.5

 
382.2

 
(18.5
)
Basic Earnings Per Share
 
 
 
 
 
 
 
Denominator (in thousands):
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
138,787

 
139,205

 
139,503

 
138,980

Basic Earnings Per Share:
 
 
 
 
 
 
 
Continuing operations
0.06

 
0.01

 
0.18

 
(0.09
)
Discontinued operations
0.01

 
0.29

 
2.56

 
(0.04
)
Net income (loss)
0.07

 
0.30

 
2.74

 
(0.13
)
Diluted Earnings Per Share
 
 
 
 
 
 
 
Denominator (in thousands):
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
138,787

 
139,205

 
139,503

 
138,980

Dilutive effect of Stock Options
1,212

 
1,158

 
1,260

 

Dilutive effect of Performance-based RSUs
918

 
154

 
954

 

Dilutive effect of Time-based RSUs
259

 
486

 
246

 

Weighted average common shares outstanding - diluted
141,176

 
141,003

 
141,963

 
138,980

Diluted Earnings Per Share:
 
 
 
 
 
 
 
Continuing operations
0.06

 
0.01

 
0.18

 
(0.09
)
Discontinued operations
0.01

 
0.29

 
2.51

 
(0.04
)
Net income (loss)
0.07

 
0.30

 
2.69

 
(0.13
)
The following table summarizes anti-dilutive securities excluded from the computation of diluted net income (loss) per common share for the periods indicated:
 
For the Three Months Ended
 
For the Nine Months Ended
(in thousands)
September 29, 2018
 
September 30, 2017
 
September 29, 2018
 
September 30, 2017
Stock Options
1,141

 
198

 
1,086

 
4,286

Performance-based RSUs 1
327

 

 
327

 
1,703

Time-based RSUs

 

 

 
660

______________________
1
Performance-based RSUs represent the number of shares expected to be issued based primarily on the estimated achievement of cumulative pre-tax income targets for these awards.

Note 9—Segment Reporting
Our broad portfolio of products includes bottled water, coffee, brewed tea, water dispensers, coffee and tea brewers, specialty coffee, liquid coffee or tea concentrate, single cup coffee, cold brewed coffee, iced blend coffee or tea, blended teas, hot tea, sparkling tea, coffee or tea extract solutions, filtration equipment, hot chocolate, soups, malt drinks, creamers/whiteners, cereals, beverage concentrates and mineral water.

21



Our business operates through three reporting segments: Route Based Services; Coffee, Tea and Extract Solutions; and All Other. Our corporate oversight function is not treated as a segment; it includes certain general and administrative costs that are not allocated to any of the reporting segments. During the second quarter of 2018, we combined and disclosed the corporate oversight function in the All Other category. Our segment reporting results have been recast to reflect these changes for all periods presented.
Subsequent to the completion of the Transaction, management re-evaluated the measure of profit for our reportable segments and determined that excluding corporate allocations from segment operating income was appropriate as these costs are not considered by management when evaluating performance. Operating income (loss) for the prior periods have been recast to reflect this change and resulted in a $0.1 million decrease and a $0.5 million increase to operating income for the three and nine months ended September 30, 2017 in our Route Based Services reporting segment, a $0.2 million decrease to operating income for the three and nine months ended September 30, 2017 in our Coffee, Tea and Extract Solutions reporting segment, and a $0.3 million increase and a $0.3 million decrease to operating loss for the three and nine months ended September 30, 2017 in the All Other category, respectively.
(in millions of U.S. dollars)
Route
Based
Services
 
Coffee, Tea
and Extract
Solutions
 
All
Other
 
Eliminations
 
Total
For the Three Months Ended September 29, 2018
 
 
 
 
 
 
 
 
 
Revenue, net 1
$
423.7

 
$
140.2

 
$
47.1

 
$
(1.7
)
 
$
609.3

Depreciation and amortization
41.9

 
5.8

 
1.9

 

 
49.6

Operating income (loss)
37.5

 
5.0

 
(14.7
)
 

 
27.8

Additions to property, plant and equipment
29.5

 
4.4

 
2.4

 

 
36.3

For the Nine Months Ended September 29, 2018
 
 
 
 
 
 
 
 
 
Revenue, net 1
$
1,207.4

 
$
431.8

 
$
138.8

 
$
(4.3
)
 
$
1,773.7

Depreciation and amortization
122.8

 
17.2

 
5.7

 

 
145.7

Operating income (loss)
77.6

 
12.3

 
(35.3
)
 

 
54.6

Additions to property, plant and equipment
81.5

 
9.0

 
4.5

 

 
95.0

As of September 29, 2018
 
 
 
 
 
 
 
 
 
Total assets 2
$
2,411.6

 
$
461.7

 
$
286.8

 
$

 
$
3,160.1

______________________
1
Intersegment revenue between the Coffee, Tea and Extract Solutions and the Route Based Services reporting segments was $1.4 million and $4.0 million for the three and nine months ended September 29, 2018, respectively. Intersegment revenue between the All Other and the Route Based Services reporting segments was $0.3 million for the three and nine months ended September 29, 2018. All Other includes $4.2 million of related party concentrate sales to discontinued operations for the nine months ended September 29, 2018.
2 
Excludes intersegment receivables, investments and notes receivable.

22



(in millions of U.S. dollars)
Route
Based
Services
 
Coffee, Tea
and Extract
Solutions
 
All
Other
 
Eliminations
 
Total
For the Three Months Ended September 30, 2017
 
 
 
 
 
 
 
 
 
Revenue, net 1
$
397.3

 
$
143.4

 
$
40.2

 
$

 
$
580.9

Depreciation and amortization
41.7

 
6.0

 
1.7

 

 
49.4

Operating income (loss) 3
29.6

 
3.5

 
(10.8
)
 

 
22.3

Additions to property, plant and equipment
34.8

 
3.3

 
0.1

 

 
38.2

For the Nine Months Ended September 30, 2017
 
 
 
 
 
 
 
 
 
Revenue, net 1
$
1,134.9

 
$
440.2

 
$
123.3

 
$

 
$
1,698.4

Depreciation and amortization
119.1

 
17.2

 
5.5

 

 
141.8

Operating income (loss) 3
61.9

 
13.1

 
(31.0
)
 

 
44.0

Additions to property, plant and equipment
85.9

 
10.6

 
0.6

 

 
97.1

As of December 30, 2017
 
 
 
 
 
 
 
 
 
Total assets 2
$
2,343.4

 
$
455.7

 
$
207.8

 
$

 
$
3,006.9

______________________
1
All Other includes $9.6 million and $31.4 million of related party concentrate sales to discontinued operations for the three and nine months ended September 30, 2017, respectively.
2