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: April 1, 2006
-------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________ to ________
Commission File Number: 000-19914
---------
COTT CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
CANADA NONE
------------------------------- -------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
207 QUEEN'S QUAY WEST, SUITE 340,
TORONTO, ONTARIO M5J 1A7
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (416) 203-3898
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.:
Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
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 April 1, 2006
----- ----------------------------
Common Stock, no par value per share 71,713,630 shares
1
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the three months ended
April 1, 2006 and April 2, 2005 .............................. Page 3
Consolidated Balance Sheets as of April 1, 2006 and
December 31, 2005 ............................................ Page 4
Consolidated Statements of Shareowners' Equity as of April 1, 2006
and April 2, 2005 ............................................ Page 5
Consolidated Statements of Cash Flows for the three months ended
April 1, 2006 and April 2, 2005 .............................. Page 6
Notes to Consolidated Financial Statements ................... Page 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................... Page 19
Item 3. Quantitative and Qualitative Disclosures about Market Risk ... Page 23
Item 4. Controls and Procedures ...................................... Page 23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ............................................ Page 24
Item 1A. Risk Factors ................................................ Page 24
Signatures ........................................................... Page 26
Item 6. Financial Statement Schedules and Exhibits ................... Page 27
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COTT CORPORATION
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(in millions of U.S. dollars, except per share amounts)
Unaudited
For the three
months ended
-------------------
APRIL 1, APRIL 2,
2006 2005
-------- --------
SALES $394.2 $395.5
Cost of sales 341.5 339.5
------ ------
GROSS PROFIT 52.7 56.0
Selling, general and administrative expenses 39.9 36.9
Loss (gain) on disposal of property, plant and equipment 0.1 (0.7)
Unusual items - note 2
Restructuring 1.6 --
Asset impairments 1.4 (0.2)
Other 2.0 --
------ ------
OPERATING INCOME 7.7 20.0
Other (income) expense, net (0.2) 0.6
Interest expense, net 8.2 6.5
Minority interest 1.0 0.9
------ ------
(LOSS) INCOME BEFORE INCOME TAXES (1.3) 12.0
Income tax expense - note 4 0.8 3.7
------ ------
NET (LOSS) INCOME - note 5 $ (2.1) $ 8.3
====== ======
PER SHARE DATA - note 6
(LOSS) INCOME PER COMMON SHARE
Basic $(0.03) $ 0.12
Diluted $(0.03) $ 0.12
The accompanying notes are an integral part of these consolidated financial
statements.
3
COTT CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions of U.S. dollars)
Unaudited
APRIL 1, DECEMBER 31,
2006 2005
-------- ------------
ASSETS
CURRENT ASSETS
Cash $ 10.8 $ 21.7
Accounts receivable 185.1 191.1
Inventories - note 7 171.6 144.2
Prepaid expenses and other assets - note 8 12.1 9.5
Deferred income taxes 8.6 7.3
-------- --------
388.2 373.8
PROPERTY, PLANT AND EQUIPMENT - note 9 384.1 394.2
GOODWILL 150.5 150.3
INTANGIBLES AND OTHER ASSETS - note 10 256.6 260.4
DEFERRED INCOME TAXES 0.3 0.4
-------- --------
$1,179.7 $1,179.1
======== ========
LIABILITIES
CURRENT LIABILITIES
Short-term borrowings - note 11 $ 151.6 $ 157.9
Current maturities of long-term debt 0.8 0.8
Accounts payable and accrued liabilities 187.9 182.5
Deferred income taxes 0.2 0.2
-------- --------
340.5 341.4
LONG-TERM DEBT 272.3 272.3
DEFERRED INCOME TAXES 62.5 61.0
-------- --------
675.3 674.7
-------- --------
MINORITY INTEREST 22.4 22.5
SHAREOWNERS' EQUITY
CAPITAL STOCK
Common shares - 71,713,630 shares issued 273.0 273.0
ADDITIONAL PAID-IN-CAPITAL 21.1 18.4
RETAINED EARNINGS 184.1 186.2
ACCUMULATED OTHER COMPREHENSIVE INCOME 3.8 4.3
-------- --------
482.0 481.9
-------- --------
$1,179.7 $1,179.1
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4
COTT CORPORATION
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
(in millions of U.S. dollars)
Unaudited
NUMBER OF ACCUMULATED
COMMON ADDITIONAL OTHER
SHARES COMMON PAID-IN- RETAINED COMPREHENSIVE TOTAL
(in thousands) SHARES CAPITAL EARNINGS INCOME (LOSS) EQUITY
------------------------------------------------------------------------
Balance at January 1, 2005 71,440 $269.4 $17.6 $161.6 $ 8.7 $457.3
Options exercised, including tax benefit
of $0.3 million 99 0.9 0.3 -- -- 1.2
Comprehensive income - note 6
Currency translation adjustment -- -- -- -- (3.1) (3.1)
Unrealized gains on cash flow
hedges -- -- -- -- 0.2 0.2
Net income -- -- -- 8.3 -- 8.3
---------------------------------------------------------------------
Balance at April 2, 2005 71,539 $270.3 $17.9 $169.9 $ 5.8 $463.9
=====================================================================
Balance at December 31, 2005 71,712 $273.0 $18.4 $186.2 $ 4.3 $481.9
Options exercised, including tax benefit 2 -- -- -- -- --
Stock compensation expense -- -- 2.7 -- -- 2.7
Comprehensive income - note 5
Currency translation adjustment -- -- -- -- (0.6) (0.6)
Unrealized gains on cash flow hedges -
note 8 -- -- -- -- 0.1 0.1
Net loss -- -- -- (2.1) -- (2.1)
--------------------------------------------------------------------
Balance at April 1, 2006 71,714 $273.0 $21.1 $184.1 $ 3.8 $482.0
====================================================================
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
--------------------------
APRIL 1, APRIL 2,
2006 2005
-------- --------
OPERATING ACTIVITIES
Net (loss) income $ (2.1) $ 8.3
Depreciation and amortization 19.3 16.8
Amortization of financing fees 0.3 --
Stock compensation expense 2.7 --
Deferred income taxes 0.2 (0.2)
Minority interest 1.0 0.9
Loss (gain) on disposal of property, plant and equipment 0.1 (0.7)
Asset impairments 1.4 (0.2)
Other non-cash items 0.3 0.6
Net change in non-cash working capital - note 12 (15.8) (4.2)
------ ------
Cash provided by operating activities 7.4 21.3
------ ------
INVESTING ACTIVITIES
Additions to property, plant and equipment (8.3) (28.1)
Proceeds from disposition of property, plant and equipment 0.7 1.0
Other investing activities (2.4) (1.5)
------ ------
Cash used in investing activities (10.0) (28.6)
------ ------
FINANCING ACTIVITIES
Payments of long-term debt (0.2) (0.2)
Short-term borrowings (7.0) (4.9)
Distributions to subsidiary minority shareowner (1.1) (1.1)
Issue of common shares -- 0.9
Financing costs -- (2.1)
Other financing activities (0.1) (0.1)
------ ------
Cash used in financing activities (8.4) (7.5)
------ ------
Effect of exchange rate changes on cash 0.1 (0.4)
------ ------
NET DECREASE IN CASH (10.9) (15.2)
CASH, BEGINNING OF PERIOD 21.7 26.6
------ ------
CASH, END OF PERIOD $ 10.8 $ 11.4
====== ======
The accompanying notes are an integral part of these consolidated financial
statements.
6
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 1
Summary of Significant Accounting Policies
BASIS OF PRESENTATION
The interim consolidated financial statements have been prepared in accordance
with United States ("U.S.") generally accepted accounting principles ("GAAP")
for interim financial information. Accordingly, they do not include all
information and notes presented in the annual consolidated financial statements
in conformity with U.S. GAAP. In our opinion, the financial statements reflect
all adjustments that are necessary for a fair presentation of the results for
the interim periods presented. All such adjustments are of a normal recurring
nature. These financial statements should be read in conjunction with the most
recent annual consolidated financial statements. The accounting policies used in
these interim consolidated financial statements are consistent with those used
in the annual consolidated financial statements, except for the Stock-Based
Compensation as outlined below.
The presentation of these interim consolidated financial statements in
conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements and
accompanying notes. We review long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amounts may not be
recoverable. Determining whether an impairment has occurred requires various
estimates and assumptions including estimates of cash flows that are directly
related to the potentially impaired asset, the useful life over which cash flows
will occur and their amounts. The measurement of an impairment loss requires an
estimate of fair value, which is also based on estimates of future cash flows.
Material recognition, measurement, and presentation differences between U.S.
GAAP and Canadian GAAP are disclosed in note 16.
Stock-Based Compensation
Effective January 1, 2006, we adopted Statement of Financial Accounting Standard
("SFAS") 123R, Share-Based Payments, using the modified prospective approach and
therefore have not restated results for prior periods. Under this prospective
approach, stock-based compensation expense for the first quarter of fiscal 2006
includes compensation expense for all stock-based compensation awards granted
prior to, but not yet vested as of January 1, 2006, based on the grant date fair
value estimated in accordance with the original provision of SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). Stock-based compensation
expense for all stock-based compensation awards granted after January 1, 2006 is
based on the grant-date fair value estimated in accordance with the provisions
of SFAS 123R. We recognize these compensation costs net of a forfeiture rate on
a straight-line basis over the requisite service period of the award, which is
generally the option vesting term of three years. We estimated the forfeiture
rate for the first quarter of fiscal 2006 based on our historical experience
with forfeitures during the preceding three fiscal years. For the interim period
ending April 1, 2006, net income includes compensation expense of $2.7 million,
or $2.0 million net of tax of $0.7 million, which equates to $0.03 per basic and
diluted share. If the change had been reported retroactively, comparative
figures for the three month period ended April 2, 2005 would show income before
taxes of $9.2 million, income tax expense of $3.0 million and net income of $6.2
million or $0.09 per basic and diluted share as described in note 13.
Inventory Costs
In the first quarter of 2006, we also adopted SFAS 151, Inventory Costs. The
statement requires that the allocation of fixed production overheads to
inventory be based on the normal capacity of the production facilities;
unallocated overheads resulting from abnormally low production and certain other
costs are to be recognized as an expense in the period in which they are
incurred. There was no material impact from the adoption of this standard.
7
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 2
Unusual Items
For the three months ended
--------------------------
APRIL 1, APRIL 2,
(IN MILLIONS OF U.S. DOLLARS) 2006 2005
----------------------------- -------- --------
Restructuring $1.6 $ --
Asset impairments 1.4 (0.2)
Other 2.0 --
---- -----
$5.0 $(0.2)
==== =====
In September 2005 we announced our plan to realign the management of our
Canadian and U.S. businesses to a North American basis, rationalize product
offerings, eliminate under performing assets and increase focus on high
potential accounts. In conjunction with this plan, we closed our Lachine, Quebec
juice plant in February 2006 and in March 2006 we closed our Columbus, Ohio soft
drink plant to bring production capacity in line with the needs of our
customers.
Restructuring
We recorded restructuring charges of $1.6 million including $1.1 million for
severance and contract termination costs relating to the closures of our
Columbus, Ohio soft drink plant and our Lachine, Quebec juice plant. The
remaining restructuring cost of $0.5 million relates to consulting fees.
Restructuring charges of $0.8 million remain accrued as at April 1, 2006.
Asset impairments
We recorded an impairment loss of $1.4 million related to the closure of our
Columbus, Ohio soft drink plant, all relating to the writedown of property,
plant and equipment and information technology software.
Other
Other unusual items are primarily legal and other fees relating to the United
Kingdom ("U.K.") Competition Commission review of our acquisition of 100% of the
shares of Macaw (Holdings) Limited, the parent company of Macaw (Soft Drinks)
Limited (the "Macaw Acquisition") in the U.K.
We are currently evaluating various actions to reduce costs and are developing
detailed plans which may result in additional exit and other costs being
incurred. In the near term, we may incur additional charges relating to contract
termination costs associated with the closure of our Columbus, Ohio soft drink
plant and our Lachine, Quebec juice plant. These additional charges will be part
of the previously announced $60 to $80 million total anticipated charges
relating to our North American realignment plan.
We may also rationalize products and production capacity but have not yet
completed our analysis nor have we completed our detailed plans. Accordingly,
the ultimate amount of any asset impairment charges or change in useful lives of
assets that may result is uncertain. It is reasonably possible that our
estimates of future cash flows, the useful lives, or both related to certain
equipment and intangibles will be significantly reduced in the near term. As a
result, the carrying value of the related assets may also be reduced materially
in the near term.
NOTE 3
Business Seasonality
Our net loss for the first quarter ending April 1, 2006 is not necessarily
indicative of the results that may be expected for the full year due to business
seasonality. Operating results are impacted by business seasonality, which
normally leads to
8
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
higher sales in the second and third quarters versus the first and fourth
quarters of the year. Conversely, fixed costs such as depreciation, amortization
and interest, are not impacted by seasonal trends.
NOTE 4
Income Taxes
The following table reconciles income taxes calculated at the basic Canadian
corporate rates with the income tax provision:
For the three months ended
--------------------------
APRIL 1, APRIL 2,
(IN MILLIONS OF U.S. DOLLARS) 2006 2005
----------------------------- -------- --------
Income tax (recovery) provision based on Canadian statutory rates $(0.5) $ 4.2
Foreign tax rate differential (1.1) (0.8)
Non-deductible expenses and other items 1.2 0.3
Increase in valuation allowance 1.2 --
----- -----
$ 0.8 $ 3.7
===== =====
NOTE 5
Comprehensive (Loss) Income
For the three months ended
--------------------------
APRIL 1, APRIL 2,
(IN MILLIONS OF U.S. DOLLARS) 2006 2005
----------------------------- -------- --------
Net (loss) income $(2.1) $ 8.3
Foreign currency translation (0.6) (3.1)
Unrealized gains on cash flow hedges - note 8 0.1 0.2
------ -----
$ (2.6) $ 5.4
====== =====
NOTE 6
(Loss) Income Per Share
Basic net (loss) income per common share is computed by dividing net (loss)
income by the weighted average number of common shares outstanding during the
period. Diluted net (loss) income per share is calculated using the weighted
average number of common shares outstanding adjusted to include the effect that
would occur if in-the-money stock options were exercised.
The following table reconciles the basic weighted average number of shares
outstanding to the diluted weighted average number of shares outstanding:
9
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
For the three months ended
--------------------------
APRIL 1, APRIL 2,
(IN THOUSANDS) 2006 2005
-------------- -------- --------
Weighted average number of shares outstanding - basic 71,712 71,504
Dilutive effect of stock options 43 415
Adjusted weighted average number of shares outstanding - diluted ------ ------
71,755 71,919
====== ======
At April 1, 2006, options to purchase 4,420,764 shares of common stock at a
weighted average exercise price of C$43.53 per share were outstanding, but were
not included in the computation of diluted net loss per share because the
options' exercise price was greater than the average market price of our common
stock during the period.
As of April 1, 2006, we had 71,713,630 common shares and 4,538,655 common share
options outstanding. Of our common share options outstanding, 2,298,394 options
were exercisable as of April 1, 2006.
During the first quarter ended April 1, 2006, no common share options were
issued and 2,000 common share options were exercised at an exercise price of
C$5.95.
NOTE 7
Inventories
APRIL 1, DECEMBER 31,
2006 2005
-------- ------------
(in millions of U.S. dollars)
Raw materials $ 67.0 $ 63.9
Finished goods 86.7 62.9
Other 17.9 17.4
------ ------
$171.6 $144.2
====== ======
10
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 8
Derivative Financial Instruments
We enter into cash flow hedges to mitigate exposure to declines in the value of
the Canadian dollar attributable to certain forecasted U.S. dollar raw material
purchases of the Canadian business. The hedges consist of monthly foreign
exchange options to buy U.S. dollars at fixed rates per Canadian dollar and
mature at various dates through December 28, 2006. The fair market value of the
foreign exchange options is included in prepaid expenses and other assets.
At April 1, 2006, the hedges consisted of foreign exchange options to buy U.S.
dollars at fixed rates per Canadian dollar at a cost of $0.6 million. The fair
value of the options of $0.2 million ($0.9 million - April 2, 2005) has been
included in prepaid expenses and other assets and the unrealized loss of $0.4
million ($0.2 million unrealized gain - April 2, 2005) is recorded in other
comprehensive income, reflecting a $0.1 million ($0.2 million - April 2, 2005)
change in the unrealized loss in comprehensive income in the first quarter.
NOTE 9
Property, Plant and Equipment
APRIL 1, DECEMBER 31,
(IN MILLIONS OF U.S. DOLLARS) 2006 2005
----------------------------- -------- ------------
Cost $ 684.1 $ 680.8
Accumulated depreciation (300.0) (286.6)
------- -------
$ 384.1 $ 394.2
======= =======
NOTE 10
Intangibles and Other Assets
APRIL 1, 2006 DECEMBER 31, 2005
------------------------------ ------------------------------
ACCUMULATED ACCUMULATED
(IN MILLIONS OF U.S. DOLLARS) COST AMORTIZATION NET COST AMORTIZATION NET
----------------------------- ------ ------------ ------ ------ ------------ ------
INTANGIBLES
Not subject to amortization
Rights $ 80.4 $ -- $ 80.4 $ 80.4 $ -- $ 80.4
---------------------------------------------------------------
Subject to amortization
Customer relationships 166.8 43.1 123.7 166.7 40.1 126.6
Trademarks 29.0 9.8 19.2 29.0 9.3 19.7
Information technology 50.8 25.7 25.1 49.1 24.1 25.0
Other 3.6 1.0 2.6 3.6 1.0 2.6
------------------------------ ------------------------------
250.2 79.6 170.6 248.4 74.5 173.9
------------------------------ ------------------------------
330.6 79.6 251.0 328.8 74.5 254.3
------------------------------ ------------------------------
OTHER ASSETS
Financing costs 4.6 1.5 3.1 4.6 1.2 3.4
Other 5.4 2.9 2.5 5.4 2.7 2.7
------------------------------ ------------------------------
10.0 4.4 5.6 10.0 3.9 6.1
------------------------------ ------------------------------
$340.6 $84.0 $256.6 $338.8 $78.4 $260.4
============================== ==============================
11
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Amortization expense of intangible assets was $6.0 million for the period ended
April 1, 2006 ($4.9 million - April 2, 2005).
NOTE 11
Short-Term Borrowings
Short-term borrowings include bank overdrafts, and borrowings under our credit
facilities and receivables securitization facility.
The credit facilities are collateralized by substantially all our personal
property with certain exceptions including the receivables sold as part of our
receivables securitization facility discussed below.
In general, borrowings under the credit facilities bear interest at either a
floating or fixed rate for the applicable currency plus a margin based on our
consolidated total leverage ratio. A facility fee of between 0.15% and 0.375%
per annum is payable on the entire line of credit. The level of the facility fee
is dependent on financial covenants.
As at April 1, 2006, credit of $83.6 million was available after borrowings of
$136.4 million and standby letters of credit of $5.0 million. The weighted
average interest rate was 6.02% on these facilities as of April 1, 2006.
The amount of funds available under the receivables securitization facility is
based upon the amount of eligible receivables and various reserves required by
the facility. Accordingly, availability may fluctuate over time given changes in
eligible receivables balances and calculation of reserves, but will not exceed
the $75.0 million program limit. This facility bears interest at a variable
rate, based on the cost of borrowing of an unaffiliated entity, Park Avenue
Receivables Company, LLC and certain other financial institutions (the
"Purchasers"). A fee of between 0.20% and 0.40% per annum is currently payable
on the unused portion of the facility. The level of the facility fee is
dependent on financial covenants. As of April 1, 2006, $43.9 million of eligible
receivables, net of reserves, were available for purchase and $5.0 million was
outstanding, under this facility, at a weighted average interest rate of 5.58%.
NOTE 12
Net Change in Non-Cash Working Capital
The changes in non-cash working capital components, net of effects of unrealized
foreign exchange gains and losses, are as follows:
For the three
months ended
-------------------
APRIL 1, APRIL 2,
2006 2005
-------- --------
(in millions of
U.S. dollars)
Decrease (increase) in accounts receivable $ 8.4 $(18.4)
Increase in inventories (27.4) (18.2)
(Increase) decrease in prepaid expenses and other assets (2.5) 0.6
Increase in accounts payable and accrued liabilities 5.7 31.8
------ ------
$(15.8) $ (4.2)
====== ======
12
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 13
Stock-Based Compensation
Effective January 1, 2006, we adopted the fair value recognition provisions of
SFAS 123R, using the modified prospective approach and therefore have not
restated prior periods' results. Under this prospective approach, stock-based
compensation expense for the first quarter of fiscal 2006 includes compensation
expense for all stock-based compensation awards granted prior to, but not yet
vested as of January 1, 2006, based on the grant date fair value estimated in
accordance with the original provision of SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). Stock-based compensation expense for all
stock-based compensation awards granted after January 1, 2006 is based on the
grant-date fair value estimated in accordance with the provisions of SFAS 123R.
We recognize these compensation costs net of a forfeiture rate on a
straight-line basis over the requisite service period of the award, which is
generally the option vesting term of three years. We estimated the forfeiture
rate for the first quarter of fiscal 2006 based on our historical experience
with forfeitures during the preceding three fiscal years. For the interim period
ending April 1, 2006, net income includes compensation expense of $2.7 million,
or $2.0 million net of tax of $0.7 million, which equates to $0.03 per basic and
diluted share.
The pro forma table below reflects net earnings and basic and diluted net
earnings per share for fiscal 2005, had we applied the fair value recognition
provisions of SFAS 123, as follows:
FOR THE THREE
(IN MILLIONS OF U.S. DOLLARS, MONTHS ENDED
EXCEPT PER SHARE AMOUNTS) APRIL 2, 2005
----------------------------- -------------
NET INCOME
As reported $ 8.3
Compensation expense (2.1)
-----
Pro forma $ 6.2
=====
NET INCOME PER SHARE - BASIC
As reported $0.12
Pro forma $0.09
NET INCOME PER SHARE - DILUTED
As reported $0.12
Pro forma $0.09
The pro forma compensation expense has been tax effected to the extent it
relates to stock options granted in jurisdictions where the related benefits are
deductible for income tax purposes.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
FOR THE THREE
MONTHS ENDED
APRIL 2,
2005
-------------
Risk-free interest rate 3.3% -- 3.7%
Average expected life (years) 4
Expected volatility 40.0%
Expected dividend yield --
There were no options granted during the first quarter of fiscal 2006.
13
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Option activity was as follows:
WEIGHTED WEIGHTED AVERAGE
AVERAGE REMAINING
EXERCISE CONTRACTUAL TERM
SHARES PRICE (IN YEARS)
--------- -------- ----------------
Balance at January 1, 2005 4,205,965 $30.90
Granted 142,500 29.67
Exercised (99,200) 13.80
Forfeited (93,700) 34.83
--------- ------ ---
Outstanding at April 2, 2005 4,155,565 31.18 4.7
--------- ------ ---
Exercisable at April 2, 2005 1,780,264 $23.51 4.7
--------- ------ ---
Balance at December 31, 2005 4,604,655 $30.69
Granted -- --
Exercised (2,000) 5.95
Forfeited (64,000) 30.20
--------- ------ ---
Outstanding at April 1, 2006 4,538,655 42.59 4.5
--------- ------ --
-Exercisable at April 1, 2006 2,298,394 $28.09 4.5
--------- ------ ---
Outstanding options at April 1, 2006 are as follows:
Options Outstanding Options Exercisable
-------------------------- ------------------------------
Remaining Weighted Average Weighted Average
Number Contractual ExercisePrice Number Exercise Price
Range of Exercise Prices (C$) Outstanding Life (Years) (C$) Exercisable (C$)
--------------------------------------------------------------------------------------------------------------
$5.95 - $16.10 124,491 1.9 $ 9.85 124,491 $ 9.85
$16.68 - $24.25 809,964 3.2 $19.75 669,438 $19.80
$26.00 - $33.30 2,325,050 4.8 $29.97 1,102,390 $30.49
$35.21 - $43.64 1,279,150 4.9 $41.02 402,075 $40.98
-----------------------------------------------------------------------------
4,538,655 4.5 $42.59 2,298,394 $28.09
=============================================================================
Total compensation expense related to non-vested awards not yet recognized is
expected to be $16.5 million. The weighted average period over which this is
expected to be recognized is 1.1 years.
NOTE 14
Contingencies
We are subject to various claims and legal proceedings with respect to matters
such as governmental regulations, income taxes, and other actions arising out of
the normal course of business. Management believes that the resolution of these
matters will not have a material adverse effect on our financial position or
results from operations.
In January 2005, we were named as one of many defendants in a class action suit
alleging the unauthorized use by the defendants of container deposits and the
imposition of recycling fees on customers. In February 2005 similar class action
claims were filed in a number of other Canadian provinces. The litigation is at
a very preliminary stage and the merits of the case have not been determined.
See also Note 17.
14
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
NOTE 15
Segment Reporting
We produce, package and distribute retailer brand and branded bottled and canned
beverages to regional and national grocery, mass-merchandise and wholesale
chains in North America, the U.K. & Europe and International business segments.
The International segment includes our Mexican business, our Royal Crown
International business and our business in Asia. The concentrate assets, sales
and related expenses have been included in the Corporate & Other segment.
BUSINESS SEGMENTS
UNITED
NORTH KINGDOM CORPORATE &
AMERICA & EUROPE INTERNATIONAL OTHER TOTAL
-----------------------------------------------------------
(in millions of U.S. dollars)
FOR THE THREE MONTHS ENDED
APRIL 1, 2006
External sales $309.5 $ 65.4 $17.9 $ 1.4 $ 394.2
Depreciation and amortization 13.7 3.9 0.4 1.3 19.3
Operating income (loss) before unusual items 15.1 1.8 2.9 (7.1) 12.7
Unusual items - note 2
Restructuring 1.2 -- -- 0.4 1.6
Asset impairment 1.2 -- -- 0.2 1.4
Other -- 2.0 -- -- 2.0
Additions to property, plant and equipment 6.5 1.8 -- -- 8.3
AS OF APRIL 1, 2006
Property, plant and equipment 258.3 108.3 9.9 7.6 384.1
Goodwill 74.0 66.8 4.6 5.1 150.5
Intangibles and other assets 131.8 25.9 0.9 98.0 256.6
Total assets 712.3 300.5 81.8 85.1 1,179.7
==========================================================
15
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
UNITED
NORTH KINGDOM CORPORATE &
AMERICA & EUROPE INTERNATIONAL OTHER TOTAL
-----------------------------------------------------------
(in millions of U.S. dollars)
FOR THE THREE MONTHS ENDED
APRIL 2, 2005
External sales $335.4 $ 43.6 $15.7 $ 0.8 $ 395.5
Depreciation and amortization 13.7 2.1 0.3 0.7 16.8
Operating income (loss) before unusual items 19.2 1.9 2.3 (3.6) 19.8
Unusual items - asset impairments -- (0.2) -- -- (0.2)
Additions to property, plant and equipment 23.1 4.7 0.2 0.1 28.1
AS OF DECEMBER 31, 2005
Property, plant and equipment 266.2 109.4 10.3 8.3 394.2
Goodwill 74.1 66.6 4.5 5.1 150.3
Intangibles and other assets 136.0 26.3 1.1 97.0 260.4
Total assets 710.5 307.7 83.1 77.8 1,179.1
----------------------------------------------------------
Total assets under the Corporate & Other caption include the elimination of
intersegment receivables and investments.
Credit risk arises from the potential default of a customer in meeting its
financial obligations with us. Concentrations of credit exposure may arise with
a group of customers which have similar economic characteristics or that are
located in the same geographic region. The ability of such customers to meet
obligations would be similarly affected by changing economic, political or other
conditions.
For the quarter ended April 1, 2006, sales to Wal-Mart Stores, Inc. accounted
for 42% (April 2, 2005 - 41%) of our total sales.
Revenues by geographic area are as follows:
For the
three months ended
-------------------
APRIL 1, APRIL 2,
(IN MILLIONS OF U.S. DOLLARS) 2006 2005
----------------------------- -------- --------
United States $276.5 $300.3
Canada 40.6 41.1
United Kingdom 63.2 41.8
Other countries 13.9 12.3
------ ------
$394.2 $395.5
====== ======
Revenues are attributed to countries based on the location of the plant.
Property, plant and equipment, goodwill, and intangibles and other assets by
geographic area are as follows:
16
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
APRIL 1, DECEMBER 31,
(IN MILLIONS OF U.S. DOLLARS) 2006 2005
----------------------------- -------- ------------
United States $481.4 $491.7
Canada 96.8 98.2
United Kingdom 201.0 202.3
Other countries 12.0 12.7
------ ------
$791.2 $804.9
====== ======
NOTE 16
Differences Between United States and Canadian Accounting Principles and
Practices
These consolidated financial statements have been prepared in accordance with
U.S. GAAP which differs in certain respects from those principles and practices
that we would have followed had our consolidated financial statements been
prepared in accordance with Canadian GAAP.
(a) In fiscal 2005, under U.S. GAAP, we elected not to record compensation
expense for options issued to employees with an exercise price equal to the
market value of the options. Effective January 1, 2006, we adopted SFAS
123R, Share-Based Payments, which requires us to recognize compensation
expense for all types of stock options, using the modified prospective
approach. As a result, there was no difference in compensation expense
recorded for Canadian GAAP in the first quarter of 2006. Compensation
expense of $2.8 million, $2.1 million net of tax of $0.7 million, was
recorded in the first quarter of 2005. We recognize these compensation
costs net of a forfeiture rate on a straight-line basis over the requisite
service period of the award, which is generally the option vesting term of
three years. We estimated the forfeiture rate for the first quarter of
fiscal 2006 based on our historical experience with forfeitures during the
preceding three fiscal years. As a result, compensation expense of $2.7
million ($2.8 million - April 2, 2005), $2.0 million ($2.1 million - April
2, 2005) net of tax of $0.7 million ($0.7 million - April 2, 2005) was
recorded in the first quarter of 2006.
(b) Under U.S. GAAP, costs of start-up activities and organization costs are
expensed as incurred. Under Canadian GAAP these costs, if they meet certain
criteria, can be capitalized and amortized over the future benefit period.
(c) Under U.S. GAAP, the adoption of the U.S. dollar in 1998 as the
presentation and reporting currency was implemented retroactively, such
that prior period financial statements are translated under the current
rate method using the foreign exchange rates in effect on those dates.
Under Canadian GAAP, the change in presentation and reporting currency was
implemented by translating all prior year financial statement amounts at
the foreign exchange rate on January 31, 1998. As a result, there is a
difference in the share capital, retained earnings and cumulative
translation adjustment amounts under Canadian GAAP as compared to U.S.
GAAP.
Under Canadian GAAP, these differences would have been reported in the
consolidated statements of income, consolidated balance sheets, consolidated
statements of shareowners' equity and consolidated statements of cash flows as
follows:
17
COTT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
CONSOLIDATED BALANCE SHEETS
APRIL 1, 2006 December 31, 2005
------------------- -------------------
U.S. CANADIAN U.S. Canadian
(IN MILLIONS OF U.S. DOLLARS) GAAP GAAP GAAP GAAP
----------------------------- -------- -------- -------- --------
Property, plant & equipment (b) $ 384.1 $ 384.1 $ 394.2 $ 394.2
Goodwill (b) 150.5 151.0 150.3 150.8
Total assets 1,179.7 1,180.2 1,179.1 1,179.6
Deferred income taxes- net (a), (b) 53.8 47.3 53.5 47.0
Total liabilities 675.3 668.8 674.7 668.2
Capital stock (a), (c) 273.0 266.6 273.0 263.9
Additional paid-in-capital (a) 21.1 25.2 18.4 25.2
Retained earnings (a), (b), (c) 184.1 151.0 186.2 153.1
Accumulated other comprehensive income (c) 3.8 46.2 4.3 46.7
Total shareowners' equity 482.0 489.0 481.9 488.9
RECONCILIATION OF CONSOLIDATED STATEMENTS OF INCOME (LOSS)
For the three months ended
-----------------------------
(IN MILLIONS OF U.S. DOLLARS) APRIL 1, 2006 April 2, 2005
----------------------------- ------------- -------------
Net (loss) income under U.S. GAAP $ (2.1) $ 8.3
Cost of sales (b) -- (0.1)
Stock compensation expense (a) -- (2.8)
Recovery of income taxes (a), (b) -- 0.7
------ -----
Net (loss) income under Canadian GAAP $ (2.1) $ 6.1
====== =====
NET INCOME (LOSS) PER COMMON SHARE, CANADIAN GAAP
Basic $(0.03) $0.09
Diluted $(0.03) $0.08
====== =====
RECONCILIATION OF CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended
-----------------------------
(IN MILLIONS OF U.S. DOLLARS) APRIL 1, 2006 April 2, 2005
----------------------------- ------------- -------------
Cash provided by operating activities U.S. GAAP $7.4 $21.3
Net income (a), (b) -- (2.2)
Depreciation & amortization (b) -- 0.1
Deferred income taxes (a), (b) -- (0.7)
Other non-cash items (a) -- 2.8
---- -----
Cash provided by operating activities Canadian GAAP $7.4 $21.3
==== =====
NOTE 17
Subsequent Events
The U.K. Office of Fair Trading ("OFT") referred the Macaw Acquisition to the
U.K. Competition Commission for further investigation. On April 28, 2006, we
received final clearance of the Macaw Acquisition from the Competition
Commission.
NOTE 18
Certain of the comparative figures have been reclassified to conform to the
current year's presentation.
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We are one of the world's largest suppliers of retailer brand beverages.
RESULTS OF OPERATIONS
APRIL 1, 2006 April 2, 2005
--------------------- ---------------------
MILLIONS PERCENT MILLIONS PERCENT
OF DOLLARS OF SALES OF DOLLARS OF SALES
---------- -------- ---------- --------
Sales $394.2 100.0% $395.5 100.0%
Cost of sales 341.5 86.6% 339.5 85.8%
------ ----- ------ -----
Gross margin 52.7 13.4% 56.0 14.2%
SG&A 39.9 10.1% 36.9 9.3%
Loss (gain) on disposal of property,
plant and equipment 0.1 -- (0.7) 0.2%
Unusual items 5.0 1.3% (0.2) 0.1%
------ ----- ------ -----
Operating income 7.7 2.0% 20.0 5.1%
Other (income) expense (0.2) 0.1% 0.6 0.2%
Interest expense 8.2 2.1% 6.5 1.6%
Minority interest 1.0 0.3% 0.9 0.2%
Income taxes 0.8 0.2% 3.7 0.9%
------ ----- ------ -----
Net (loss) income $ (2.1) 0.5% $ 8.3 2.1%
====== ===== ====== =====
Depreciation & amortization 19.3 4.9% 16.8 4.2%
====== ===== ====== =====
We reported a net loss of $2.1 million or $(0.03) per diluted share for the
first quarter ended April 1, 2006, compared with net income of $8.3 million, or
$0.12 per diluted share, for the first quarter of 2005. The decrease was
primarily due to:
o increased packaging costs, primarily PET resin, not fully recovered
through price increases;
o higher fixed costs resulting from new production capacity in the U.S;
and
o changes in product and packaging mix.
SALES -Sales in the first quarter of 2006 were $394.2 million, a decrease of
0.3% from $395.5 million in the first quarter of 2005. The impact of foreign
exchange on sales was negligible. Sales decreased 5.4% when excluding the impact
of foreign exchange and our August 2005 acquisition of 100% of the outstanding
shares of Macaw (Holdings) Limited, the parent company of Macaw (Soft Drinks)
Limited (the "Macaw Acquisition"). Total 8-ounce equivalent case volume was 295
million cases in the first quarter of 2006, an increase of 8.3% compared to the
first quarter of 2005. Excluding the impact of the Macaw Acquisition, 8-ounce
equivalent case volume was up 3.3% compared with the first quarter of 2005. The
sale of concentrates is a high volume but low dollar component of our overall
sales, which partially explains why revenue slightly decreased but total 8-ounce
equivalent volume increased in the first quarter of 2006 compared to the first
quarter of 2005.
19
NORTH UK &
(IN MILLIONS OF DOLLARS) COTT AMERICA EUROPE INTER-NATIONAL
------------------------ ------ ------- ------ --------------
Change in sales $ (1.3) $(25.9) $ 21.8 $ 2.2
Impact of acquisitions (20.1) -- (20.1) --
Impact of foreign exchange 0.2 (2.5) 3.2 (0.6)
------ ------ ------ -----
Change excluding acquisitions & exchange $(21.2) $(28.4) $ 4.9 $ 1.6
------ ------ ------ -----
Percentage change excluding acquisitions & exchange (5)% (8)% 12% 10%
------ ------ ------ -----
In North America, sales were $309.5 million in the first quarter of 2006, a
decrease of 7.7% from the first quarter of 2005. Excluding the impact of foreign
exchange, sales decreased by 8.4%. This decline was mainly due to a structural
change in our business arrangement with one of our self-manufacturing customers.
The related sales are now in the form of concentrates rather than filled
beverages. This lowers our revenue but has minimal earnings impact. Other
factors impacting North American sales were product and customer
rationalization, continued carbonated soft drink ("CSD") softness and lower
bottled water sales.
In the U.K. and Europe, sales were $65.4 million in the first quarter of 2006,
an increase of 50% from the first quarter of 2005. Excluding the impact of the
Macaw Acquisition, sales increased 3.9%. Excluding the impact of the Macaw
Acquisition and foreign exchange, sales increased 12.1%.
The International segment includes our Mexican operations, our Royal Crown
International division and our business in Asia. Sales by this segment were
$17.9 million in the first quarter of 2006, an increase of 14% when compared
with the first quarter of 2005. This increase was primarily from Mexico where
sales in the first quarter were $11.8 million, an increase of $1.3 million when
compared with sales in the first quarter of 2005 primarily due to increased
volume.
GROSS PROFIT - Gross profit as a percentage of sales decreased to 13.4% for the
first quarter of 2006 from 14.2% in the first quarter of 2005. The gross margin
decline was due to higher ingredient and packaging costs and increased
capacity-related fixed costs, partially offset by selling price increases.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A") - SG&A was $39.9 million
in the first quarter of 2006, an increase of $3 million from the first quarter
of 2005, largely due to stock option expenses of $2.7 million. The additional
SG&A costs resulting from the Macaw Acquisition were largely offset by our
company-wide cost control actions. As a percentage of sales, SG&A increased to
10.1% in the first quarter of 2006 from 9.3% in the first quarter of 2005.
STOCK-BASED COMPENSATION - Effective January 1, 2006, we adopted Statement of
Financial Accounting Standard ("SFAS 123R"), Share-Based Payments, using the
modified prospective approach and therefore have not restated results for prior
periods. Under this prospective approach, stock-based compensation expense for
the first quarter of fiscal 2006 includes compensation expense for all
stock-based compensation awards granted prior to, but not yet vested as of
January 1, 2006, based on the grant date fair value estimated in accordance with
the original provision of SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). Stock-based compensation expense for all stock-based
compensation awards granted after January 1, 2006 is based on the grant-date
fair value estimated in accordance with the provisions of SFAS 123R. We
recognize these compensation costs net of a forfeiture rate on a straight-line
basis over the requisite service period of the award, which is generally the
option vesting term of three years. We estimated the forfeiture rate for the
first quarter of fiscal 2006 based on our historical experience with forfeitures
during the preceding three fiscal years. For the interim period ending April 1,
2006, net income includes compensation expense of $2.7 million, or $2.0 million
net of tax of $0.7 million, which equates to $0.03 per basic and diluted share.
If the change had been reported retroactively, comparative figures for the three
month period ended April 2, 2005 would show income before taxes of $9.2 million,
income tax expense of $3.0 million and net income of $6.2 million or $0.09 per
basic and diluted share.
UNUSUAL ITEMS - In the first quarter of 2006, we recorded charges for unusual
items of $5 million on a pre-tax basis or $0.06 per diluted share after tax. In
the first quarter of 2005, the only unusual item was a $0.2 million gain.
Of the $5 million of unusual items recorded in the first quarter of 2006, $1.6
million relates to restructuring charges, $1.4 million relates to asset
impairments and $2 million relates to legal and other fees relating to the U.K
Competition Commission review of the Macaw Acquisition.
20
Restructuring charges of $1.6 million includes $1.1 million for severance and
contract termination costs relating to the closures of our Columbus, Ohio soft
drink plant and our Lachine, Quebec juice plant. The remaining restructuring
cost of $0.5 million relates to consulting fees.
Asset impairments of $1.4 million are related to the closure of our Columbus,
Ohio soft drink plant, all relating to the writedown of property, plant and
equipment and information technology software
OPERATING INCOME - Operating income was $7.7 million in the first quarter of
2006 including unusual items of $5 million, as compared with $20 million in the
first quarter of 2005 which included unusual items of $0.2 million gain.
INTEREST EXPENSE - Net interest expense was $8.2 million in the first quarter of
2006, up from $6.5 million in the first quarter of 2005 primarily resulting from
the Macaw Acquisition.
INCOME TAXES - We recorded an income tax provision of $0.8 million in the first
quarter of 2006. This compares with an income tax provision of $3.7 million in
the first quarter of 2005. The income tax provision was impacted primarily by
our inability to recognize the tax benefit of our losses in Canada.
FINANCIAL CONDITION
OPERATING ACTIVITIES - Cash used in operating activities in the first quarter of
2006 was $0.9 million, after capital expenditures of $8.3 million, as compared
to the first quarter of 2005 in which cash used in operating activities was $6.8
million, after capital expenditures of $28.1 million.
Cash decreased from $21.7 million to $10.8 million in the first quarter of 2006.
CAPITAL RESOURCES AND LONG-TERM DEBT - Our sources of capital include operating
cash flows, short term borrowings under current credit and receivables
securitization facilities, issuance of public and private debt and issuance of
equity securities. We believe we have adequate financial resources to meet our
ongoing cash requirements for operations and capital expenditures, as well as
our other financial obligations based on our operating cash flows and currently
available credit.
Our senior secured credit facilities allow for revolving credit borrowings of up
to $225.0 million provided we are in compliance with the covenants and
conditions of the agreement. As of April 1, 2006 credit of $83.6 million was
available after borrowings of $136.4 million, standby letters of credit of
$5 million. The weighted average interest rate was 6.02% on these facilities as
of April 1, 2006.
The receivables securitization facility allows for borrowing up to $75.0 million
based on the amount of eligible receivables and various reserves required by the
facility. As of April 1, 2006, $43.9 million of eligible receivables, net of
reserves, were available for purchase and $5 million was outstanding at a
weighted average interest rate of 5.58%.
As of April 1, 2006, long-term debt totaled $273.1 million compared with $273.1
million at the end of 2005. At the end of the first quarter of 2006, debt
consisted of $270.7 million in 8% senior subordinated notes with a face value of
$275.0 million and $2.4 million of other debt.
CANADIAN GAAP - Under Canadian GAAP, in the first quarter of 2006, we reported a
net loss of $2.1 million and total assets of $1,180.2 million compared to net
loss and total assets under U.S. GAAP of $2.1 million and $1,179.7 million,
respectively, in the first quarter of 2006.
There was no material U.S./Canadian GAAP differences in the first quarter of
2006.
OUTLOOK
We continue to expect 2006 to be a challenging year. Sales of CSDs are expected
to be flat as compared with 2005 as the decline in sales of regular CSDs is
offset by higher sales of diet CSDs. Strong growth is expected for bottled water
and non-carbonated beverages.
21
To be successful, we will need to take a more disciplined, strategic approach to
pricing, work to strategically reduce costs, aggressively improve the efficiency
of our overall supply chain including bottled water profitability and increase
our penetration into the non-carbonated beverages category.
We continue to move forward with our North American realignment plan we
announced in September 2005. We are leveraging management strengths across a
broader territory and maximizing opportunities and processes to improve supply
chain efficiencies and financial performance. To date, we have recorded charges
of $19.9 million relating to this plan and $20 million for customer relationship
impairment and could incur additional pre-tax charges, including asset
impairments, severance and other costs, of $20 to $40 million. The $20 to $40
million in charges are those remaining to be taken as part of the previously
announced $60 to $80 million total anticipated charges and are not in addition
to the previously announced $60 to $80 million in total anticipated charges.
While we are considering various actions including product and capacity
rationalization, we have not completed our detailed plans and the requisite
analyses to estimate the remaining charges to specific categories. As a result,
the ultimate amount and timing of the charges is uncertain.
Our business strategy also involves continuing to expand outside of North
America. We continue to view Mexico as a strong long-term growth opportunity and
are working closely with our customers to grow the retailer brand beverage
segment in this market. Our U.K. division intends to continue to enhance its
performance through product innovation and a customer-centric focus to identify
opportunities. On April 28, 2006, the U.K. Competition Commission gave final
approval to the Macaw Acquisition and we are integrating Macaw business into our
U.K. business. This acquisition has added additional production capacity and
aseptic beverage capabilities to our U.K. business unit.
FORWARD-LOOKING STATEMENTS - In addition to historical information, this report
and the reports and documents incorporated by reference in this report contain
statements relating to future events and our future results. These statements
are "forward-looking" within the meaning of the Private Securities Litigation
Reform Act of 1995 and include, but are not limited to, statements that relate
to projections of sales, earnings, earnings per share, cash flows, capital
expenditures or other financial items, discussions of estimated future revenue
enhancements and cost savings. These statements also relate to our business
strategy, goals and expectations concerning our market position, future
operations, margins, profitability, liquidity and capital resources. Generally,
words such as "anticipate", "believe", "continue", "could", "estimate",
"expect", "intend", "may", "plan", "predict", "project", "should" and similar
terms and phrases are used to identify forward-looking statements in this report
and in the documents incorporated in this report by reference. These
forward-looking statements are made as of the date of this report.
Although we believe the assumptions underlying these forward-looking
statements are reasonable, any of these assumptions could prove to be inaccurate
and, as a result, the forward-looking statements based on those assumptions
could be incorrect. Our operations involve risks and uncertainties, many of
which are outside of our control, and any one or any combination of these risks
and uncertainties could also affect whether the forward-looking statements
ultimately prove to be correct.
The following are some of the factors that could affect our financial
performance, including but not limited to sales, earnings and cash flows, or
could cause actual results to differ materially from estimates contained in or
underlying the forward-looking statements:
o loss of key customers, particularly Wal-Mart, and the commitment of
retailer brand beverage customers to their own retailer brand beverage
programs;
o increases in competitor consolidations and other market-place competition,
particularly among branded beverage products;
o our ability to identify acquisition and alliance candidates and to
integrate into our operations the businesses and product lines that we
acquire or become allied with;
o our ability to secure additional production capacity either through
acquisitions, or third party manufacturing arrangements;
o increase in interest rates;
o our ability to restore plant efficiencies and lower logistics costs;
o fluctuations in the cost and availability of beverage ingredients and
packaging supplies, and our ability to maintain favorable arrangements and
relationships with our suppliers;
o our ability to pass on increased costs to our customers;
22
o unseasonably cold or wet weather, which could reduce demand for our
beverages;
o our ability to protect the intellectual property inherent in new and
existing products;
o adverse rulings, judgments or settlements in our existing litigation and
regulatory reviews, and the possibility that additional litigation or
regulatory reviews will be brought against us;
o product recalls or changes in or increased enforcement of the laws and
regulations that affect our business;
o currency fluctuations that adversely affect the exchange between the U.S.
dollar on one hand and the pound sterling, the Canadian dollar and other
currencies on the other;
o changes in tax laws and interpretations of tax laws;
o changes in consumer tastes and preferences and market demand for new and
existing products;
o interruption in transportation systems, labor strikes, work stoppages and
other interruptions or difficulties in the employment of labor or
transportation in our markets; and
o changes in general economic and business conditions.
Many of these factors are described in greater detail in this report and in
other filings that we make with the U.S. Securities and Exchange Commission
("SEC") and Canadian securities regulatory authorities. We undertake no
obligation to update any information contained in this report or to publicly
release the results of any revisions to forward-looking statements to reflect
events or circumstances of which we may become aware of after the date of this
report. Undue reliance should not be placed on forward-looking statements.
All future written and oral forward-looking statements attributable to us
or persons acting on our behalf are expressly qualified in their entirety by the
foregoing.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to Item 7A: Quantitative and Qualitative Disclosures about
Market Risk described in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2005.
In the first quarter of 2006, we entered into cash flow hedges to mitigate
exposure to declines in the value of the Canadian dollar attributable to certain
forecasted U.S. dollar raw material purchases of the Canadian business segment.
The hedges consist of monthly foreign exchange options to buy U.S. dollars at
fixed rates per Canadian dollar and mature at various dates through December 28,
2006. The fair market value of the foreign exchange options is included in
prepaid expenses and other assets.
Changes in the fair value of the cash flow hedge instruments are recognized in
accumulated other comprehensive income. Amounts recognized in accumulated other
comprehensive income and prepaid expenses and other assets are recorded in
earnings in the same periods in which the forecasted purchases or payments
affect earnings. At April 1, 2006, the fair value of the options was $0.2
million ($0.9 million - April 2, 2005) and we recorded $0.1 million unrealized
gain in comprehensive income in the first quarter of 2006. See "Note 8
Derivative Financial Instruments."
Our sales outside the U.S. are concentrated principally in the U.K. and Canada.
We believe that our foreign currency exchange rate risk has been immaterial
given the historic stability of the U.S. dollar with respect to the foreign
currencies to which we have our principal exposure. However, there can be no
assurance that these exchange rates will remain stable or that our exposure to
foreign currency exchange rate risk will not increase in the future.
ITEM 4. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934, as amended) are effective,
based on their evaluation of these controls and procedures as of the end of the
period covered by this report. There have been no changes in our internal
control over financial reporting or in other factors during the quarter ended
April 1, 2006 that could materially affect, or are likely to materially affect,
our internal control over financial reporting.
23
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the legal proceedings described in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2005. On April 28, 2006, the
U.K. Competition Commission gave final clearance to the Macaw Acquisition.
ITEM 1A. RISK FACTORS
Reference is made to the detailed description of risk factors our Annual Report
on Form 10-K for the fiscal year ended December 31, 2005. Risks and
uncertainties include national brand pricing strategies, commitment of major
customers to retailer brand programs, stability of procurement costs for items
such as sweetener, packaging materials and other ingredients, the successful
integration of new acquisitions, the ability to protect intellectual property
and fluctuations in interest rates and foreign currencies versus the U.S.
dollar.
The Risk Factors included in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2005 have not changed materially other than as set forth
below.
IF THE COMPETITION COMMISSION IN THE U.K. DOES NOT APPROVE THE MACAW
ACQUISITION, WE MIGHT BE REQUIRED TO SELL ALL OR PART OF THIS BUSINESS AND MAY
NOT RECOVER OUR FULL COST.
This Risk Factor is no longer applicable as the Competition Commission approved
the Macaw Acquisition on April 28, 2006.
Sales to our top customer (Wal-Mart Stores, Inc.) in the first three months of
2006 and 2005 accounted for 42% and 41%, respectively, of our total sales. Sales
to the top ten customers in the first three months of 2006 and 2005 accounted
for 63% and 68%, respectively, of our total sales. The loss of any significant
customer, or customers which in the aggregate represent a significant portion of
our sales, could have a material adverse effect on our operating results and
cash flows.
ITEM 6. FINANCIAL STATEMENT SCHEDULES AND EXHIBITS
1. Financial Statement Schedules
Schedule III - Consolidating Financial Statements
2. Exhibits
24
Number Description
------ -----------
3.1 Articles of Incorporation of Cott (incorporated by reference to Exhibit
3.1 to our Form 10-K dated March 31, 2000).
3.2 By-laws of Cott (incorporated by reference to Exhibit 3.2 to our Form
10-K dated March 8, 2002).
31.1 Certification of the President and Chief Executive Officer pursuant to
section 302 of the Sarbanes-Oxley Act of 2002 for the quarterly period
ended April 1, 2006 (filed herewith).
31.2 Certification of the Executive Vice President & Chief Financial Officer
pursuant to section 302 of the Sarbanes-Oxley Act of 2002 for the
quarterly period ended April 1, 2006 (filed herewith).
32.1 Certification of the President and Chief Executive Officer pursuant to
section 906 of the Sarbanes-Oxley Act of 2002 for the quarterly period
ended April 1, 2006 (furnished herewith).
32.2 Certification of the Executive Vice President & Chief Financial Officer
pursuant to section 906 of the Sarbanes-Oxley Act of 2002 for the
quarterly period ended April 1, 2006 (furnished herewith).
In accordance with SEC Release No. 33-8238, Exhibits 32.1 and 32.2 are to be
treated as "accompanying" this report rather than "filed" as part of the report.
25
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, 2006 /s/ B. Clyde Preslar
----------------------------------------
B. Clyde Preslar
Executive Vice President &
Chief Financial Officer
(On behalf of the Company)
Date: May 11, 2006 /s/ Tina Dell'Aquila
----------------------------------------
Tina Dell'Aquila
Vice President, Controller & Assistant
Secretary
(Principal accounting officer)
26
SCHEDULE III - CONSOLIDATING FINANCIAL STATEMENTS
Cott Beverages Inc., a wholly owned subsidiary of Cott Corporation, has entered
into financing arrangements that are guaranteed by Cott Corporation and certain
other wholly owned subsidiaries of Cott Corporation (the "Guarantor
Subsidiaries"). Such guarantees are full, unconditional and joint and several.
The following supplemental financial information sets forth on an unconsolidated
basis, balance sheets, statements of income and cash flows for Cott Corporation,
Cott Beverages Inc., Guarantor Subsidiaries and Cott Corporation's other
subsidiaries (the "Non-guarantor Subsidiaries"). The supplemental financial
information reflects the investments of Cott Corporation and Cott Beverages Inc.
in their respective subsidiaries using the equity method of accounting.
COTT CORPORATION
CONSOLIDATING STATEMENTS OF (LOSS) INCOME
(in millions of U.S. dollars, unaudited)
FOR THE THREE MONTHS ENDED APRIL 1, 2006
----------------------------------------------------------------------------------------
COTT COTT GUARANTOR NON-GUARANTOR ELIMINATION
CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
----------------------------------------------------------------------------------------
SALES $44.1 $262.1 $77.7 $27.3 $(17.0) $394.2
Cost of sales 36.7 229.7 68.8 23.3 (17.0) 341.5
----------------------------------------------------------------------------------
GROSS PROFIT 7.4 32.4 8.9 4.0 -- 52.7
Selling, general and administrative
expenses 11.4 19.2 7.5 1.8 -- 39.9
Loss (gain) on disposal of property,
plant and equipment -- 0.1 -- -- -- 0.1
Unusual items
Restructuring and other 0.5 1.1 2.0 -- 3.6
Asset impairments 0.2 1.2 -- -- -- 1.4
----------------------------------------------------------------------------------
OPERATING (LOSS) INCOME (4.7) 10.8 (0.6) 2.2 -- 7.7
Other expense (income), net -- 0.6 (0.4) 4.8 (5.2) (0.2)
Interest expense (income), net -- 8.0 -- 0.2 -- 8.2
Minority interest -- -- -- 1.0 -- 1.0
----------------------------------------------------------------------------------
(LOSS) INCOME BEFORE INCOME TAXES AND
EQUITY INCOME (4.7) 2.2 (0.2) (3.8) 5.2 (1.3)
Income taxes -- 0.2 0.3 0.3 -- 0.8
Equity income 2.6 0.5 2.9 -- (6.0) --
----------------------------------------------------------------------------------
NET (LOSS) INCOME $(2.1) $ 2.5 $ 2.4 $(4.1) $ (0.8) $ (2.1)
==================================================================================
27
COTT CORPORATION
CONSOLIDATING BALANCE SHEETS
(in millions of U.S. dollars, unaudited)
AS OF APRIL 1, 2006
----------------------------------------------------------------------------------------
COTT COTT BEVERAGES GUARANTOR NON-GUARANTOR ELIMINATION
CORPORATION INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
----------------------------------------------------------------------------------------
ASSETS
Current assets
Cash $ 4.5 $ -- $ 3.7 $ 2.6 $ -- $ 10.8
Accounts receivable 28.3 27.2 62.0 103.9 (36.3) 185.1
Inventories 23.2 92.4 50.4 5.6 -- 171.6
Prepaid expenses and other assets 2.1 2.2 5.6 2.2 -- 12.1
Deferred income taxes -- 8.1 0.1 0.4 -- 8.6
-----------------------------------------------------------------------------------
58.1 129.9 121.8 114.7 (36.3) 388.2
Property, plant and equipment 51.8 188.9 133.3 10.1 -- 384.1
Goodwill 23.5 46.0 81.0 -- -- 150.5
Intangibles and other assets 16.6 162.9 37.4 39.7 -- 256.6
Due from affiliates 62.6 67.4 170.8 41.9 (342.7) --
Investments in subsidiaries 397.7 73.4 65.5 137.6 (674.2) --
Deferred income taxes -- -- 0.3 -- -- 0.3
-----------------------------------------------------------------------------------
$610.3 $ 668.5 $ 610.1 $344.0 $(1,053.2) $1,179.7
===================================================================================
LIABILITIES
CURRENT LIABILITIES
Short-term borrowings $ -- $ 12.5 $ 134.1 $ 5.0 $ -- $ 151.6
Current maturities of long-term debt -- 0.8 -- -- -- 0.8
Accounts payable and accrued
liabilities 33.1 118.0 61.8 16.4 (41.4) 187.9
Deferred income taxes -- -- 0.2 -- -- 0.2
-----------------------------------------------------------------------------------
33.1 131.3 196.1 21.4 (41.4) 340.5
Long-term debt -- 272.3 -- -- -- 272.3
Due to affiliates 95.2 117.9 59.9 69.7 (342.7) --
Deferred income taxes -- 39.4 17.6 5.5 -- 62.5
-----------------------------------------------------------------------------------
128.3 560.9 273.6 96.6 (384.1) 675.3
-----------------------------------------------------------------------------------
Minority interest -- -- -- 22.4 -- 22.4
SHAREOWNERS' EQUITY
Capital stock
Common shares 273.0 275.8 599.5 175.0 (1,050.3) 273.0
Additional paid-in-capital 21.1 -- -- -- -- 21.1
Retained earnings (deficit) 184.1 (168.2) (179.0) (8.5) 355.7 184.1
Accumulated other comprehensive income 3.8 -- (84.0) 58.5 25.5 3.8
-----------------------------------------------------------------------------------
482.0 107.6 336.5 225.0 (669.1) 482.0
-----------------------------------------------------------------------------------
$610.3 $ 668.5 $ 610.1 $344.0 $(1,053.2) $1,179.7
===================================================================================
28
COTT CORPORATION
CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions of U.S. dollars, unaudited)
FOR THE THREE MONTHS ENDED APRIL 1, 2006
----------------------------------------------------------------------------------------
COTT COTT BEVERAGES GUARANTOR NON-GUARANTOR ELIMINATION
CORPORATION INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
----------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net (loss) income $(2.1) $ 2.5 $ 2.4 $(4.1) $(0.8) $ (2.1)
Depreciation and amortization 3.1 9.5 5.4 1.3 -- 19.3
Amortization of financing fees -- 0.1 0.1 0.1 -- 0.3
Stock compensation expense 2.7 -- -- -- -- 2.7
Deferred income taxes -- 0.3 (0.2) 0.1 -- 0.2
Minority interest -- -- -- 1.0 -- 1.0
Equity (loss) income, net of
distributions (2.6) 0.6 (2.9) -- 4.9 --
Loss on disposal of property, plant and
equipment -- 0.1 -- -- -- 0.1
Asset impairments -- 1.4 -- -- -- 1.4
Other non-cash items -- 0.3 -- -- -- 0.3
Net change in non-cash working capital (1.9) (12.9) (0.6) 4.8 (5.2) (15.8)
----------------------------------------------------------------------------------
Cash provided by (used in) operating
activities (0.8) 1.9 4.2 3.2 (1.1) 7.4
----------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to property, plant and
equipment (0.7) (5.2) (2.4) -- -- (8.3)
Proceeds from disposal of property,
plant and equipment -- 0.6 0.1 -- -- 0.7
Advances to affiliates (1.7) -- (2.1) -- 3.8 --
Investment in subsidiary -- -- -- -- -- --
Other investing activities (1.2) (1.2) -- -- -- (2.4)
----------------------------------------------------------------------------------
Cash used in investing activities (3.6) (5.8) (4.4) -- 3.8 (10.0)
----------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payments of long-term debt -- (0.2) -- -- -- (0.2)
Short-term borrowings -- 2.1 (4.1) (5.0) -- (7.0)
Advances from affiliates -- 2.1 1.7 -- (3.8) --
Distributions to subsidiary minority
shareowner -- -- -- (1.1) -- (1.1)
Issue of common shares -- -- -- -- -- --
Financing costs -- -- -- -- -- --
Dividends paid -- -- -- (1.1) 1.1 --
Other financing activities -- (0.1) -- -- -- (0.1)
----------------------------------------------------------------------------------
Cash provided by (used in) financing
activities -- 3.9 (2.4) (7.2) (2.7) (8.4)
----------------------------------------------------------------------------------
Effect of exchange rate changes on cash 0.1 -- -- -- -- 0.1
----------------------------------------------------------------------------------
NET DECREASE IN CASH (4.3) -- (2.6) (4.0) -- (10.9)
CASH, BEGINNING OF PERIOD 8.8 -- 6.3 6.6 -- 21.7
----------------------------------------------------------------------------------
CASH, END OF PERIOD $ 4.5 $ -- $ 3.7 $ 2.6 $ -- $ 10.8
==================================================================================
29
COTT CORPORATION
CONSOLIDATING STATEMENTS OF INCOME
(in millions of U.S. dollars, unaudited)
FOR THE THREE MONTHS ENDED APRIL 2, 2005
----------------------------------------------------------------------------------------
COTT COTT BEVERAGES GUARANTOR NON-GUARANTOR ELIMINATION
CORPORATION INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
----------------------------------------------------------------------------------------
SALES $43.5 $274.6 $56.4 $27.1 $ (6.1) $395.5
Cost of sales 38.0 235.7 48.6 23.3 (6.1) 339.5
----------------------------------------------------------------------------------
GROSS PROFIT 5.5 38.9 7.8 3.8 -- 56.0
Selling, general and administrative
expenses 9.6 20.3 5.2 1.8 -- 36.9
Loss (gain) on disposal of property,
plant and equipment -- 0.1 (0.8) -- -- (0.7)
Unusual items - asset impairments -- -- (0.2) -- -- (0.2)
----------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (4.1) 18.5 3.6 2.0 -- 20.0
Other expense (income), net 0.5 (0.5) 0.6 -- -- 0.6
Interest expense (income), net -- 8.5 (1.9) (0.1) -- 6.5
Minority interest -- -- -- 0.9 -- 0.9
----------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES AND
EQUITY INCOME (LOSS) (4.6) 10.5 4.9 1.2 -- 12.0
Income taxes 1.4 (4.1) (0.6) (0.4) -- (3.7)
Equity income (loss) 11.5 1.7 7.3 -- (20.5)
----------------------------------------------------------------------------------
NET INCOME $ 8.3 $ 8.1 $11.6 $ 0.8 $(20.5) $ 8.3
==================================================================================
30
COTT CORPORATION
CONSOLIDATING BALANCE SHEETS
(in millions of U.S. dollars)
AS OF DECEMBER 31, 2005
----------------------------------------------------------------------------------------
COTT COTT BEVERAGES GUARANTOR NON-GUARANTOR ELIMINATION
CORPORATION INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
----------------------------------------------------------------------------------------
ASSETS
Current assets
Cash $ 8.8 $ -- $ 6.3 $ 6.6 $ -- $ 21.7
Accounts receivable 35.6 26.5 70.2 103.2 (44.4) 191.1
Inventories 18.8 76.6 43.6 5.2 -- 144.2
Prepaid expenses and other 1.3 2.2 4.7 1.3 -- 9.5
Deferred income taxes -- 7.2 0.1 -- -- 7.3
-----------------------------------------------------------------------------------
64.5 112.5 124.9 116.3 (44.4) 373.8
Property, plant and equipment 53.0 195.6 135.1 10.5 -- 394.2
Goodwill 23.5 46.0 80.8 -- -- 150.3
Intangibles and other assets 17.0 164.1 38.4 40.9 -- 260.4
Due from affiliates 60.8 60.0 168.8 41.9 (331.5) --
Investments in subsidiaries 395.2 75.4 62.6 137.8 (671.0) --
Deferred income taxes -- -- 0.4 -- -- 0.4
-----------------------------------------------------------------------------------
$614.0 $ 653.6 $ 611.0 $347.4 $(1,046.9) $1,179.1
===================================================================================
LIABILITIES
Current liabilities
Short-term borrowings $ -- $ 10.4 $ 137.5 $ 10.0 $ -- $ 157.9
Current maturities of long-term debt -- 0.8 -- -- -- 0.8
Accounts payable and accrued
liabilities 36.7 109.6 63.6 17.0 (44.4) 182.5
Deferred income taxes -- -- 0.2 -- -- 0.2
-----------------------------------------------------------------------------------
36.7 120.8 201.3 27.0 (44.4) 341.4
Long-term debt -- 272.3 -- -- -- 272.3
Due to affiliates 95.4 115.8 58.1 62.2 (331.5) --
Deferred income taxes -- 38.2 17.7 5.1 -- 61.0
-----------------------------------------------------------------------------------
132.1 547.1 277.1 94.3 (375.9) 674.7
-----------------------------------------------------------------------------------
Minority interest -- -- -- 22.5 -- 22.5
SHAREOWNERS' EQUITY
Capital stock
Common shares 273.0 275.8 599.5 175.0 (1,050.3) 273.0
Additional paid-in-capital 18.4 -- -- -- -- 18.4
Retained earnings (deficit) 186.2 (169.3) (181.4) (3.4) 354.1 186.2
Accumulated other comprehensive income 4.3 -- (84.2) 59.0 25.2 4.3
-----------------------------------------------------------------------------------
481.9 106.5 333.9 230.6 (671.0) 481.9
-----------------------------------------------------------------------------------
$614.0 $ 653.6 $ 611.0 $347.4 $(1,046.9) $1,179.1
===================================================================================
31
COTT CORPORATION
CONSOLIDATING STATEMENTS OF CASH FLOWS
(in millions of U.S. dollars, unaudited)
FOR THE THREE MONTHS ENDED APRIL 2, 2005
----------------------------------------------------------------------------------------
COTT COTT BEVERAGES GUARANTOR NON-GUARANTOR ELIMINATION
CORPORATION INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
----------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $ 8.3 $ 8.1 $11.6 $ 0.8 $ (20.5) $ 8.3
Depreciation and amortization 3.6 8.4 3.5 1.3 -- 16.8
Deferred income taxes (1.5) 1.1 -- 0.2 -- (0.2)
Minority interest -- -- -- 0.9 -- 0.9
Equity (loss) income, net of
distributions (11.4) (0.6) (7.3) -- 19.3 --
Gain (loss) on disposal of property,
plant and equipment -- 0.1 (0.8) -- -- (0.7)
Asset impairments -- -- (0.2) -- -- (0.2)
Other non-cash items 0.3 (0.4) 1.0 0.2 (0.5) 0.6
Net change in non-cash working capital 14.1 0.8 (9.6) (10.1) 0.6 (4.2)
----------------------------------------------------------------------------------
Cash provided by (used in) operating
activities 13.4 17.5 (1.8) (6.7) (1.1) 21.3
----------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to property, plant and
equipment (4.5) (17.2) (6.2) (0.2) -- (28.1)
Advances to affiliates (7.6) 10.0 -- -- (2.4) --
Investment in subsidiary (15.0) -- -- -- 15.0 --
Other investing activities (1.5) 1.0 0.1 (0.1) -- (0.5)
----------------------------------------------------------------------------------
Cash used in investing activities (28.6) (6.2) (6.1) (0.3) 12.6 (28.6)
----------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payments of long-term debt -- (0.2) -- -- -- (0.2)
Short-term borrowings 0.1 (9.8) 4.8 -- -- (4.9)
Advances from affiliates -- -- (2.4) -- 2.4 --
Distributions to subsidiary minority
shareowner -- -- -- (1.1) -- (1.1)
Issue of common shares 0.9 -- 15.0 -- (15.0) 0.9
Financing costs -- (2.1) -- -- -- (2.1)
Dividends paid -- -- -- (1.1) 1.1 --
Other financing activities -- -- (0.1) -- -- (0.1)
----------------------------------------------------------------------------------
Cash provided by (used in) financing
activities 1.0 (12.1) 17.3 (2.2) (11.5) (7.5)
----------------------------------------------------------------------------------
Effect of exchange rate changes on cash (0.2) -- (0.1) (0.1) -- (0.4)
----------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (14.4) (0.8) 9.3 (9.3) -- (15.2)
CASH, BEGINNING OF PERIOD 14.7 -- -- 11.9 -- 26.6
----------------------------------------------------------------------------------
CASH, END OF PERIOD $ 0.3 $ (0.8) $ 9.3 $ 2.6 $ -- $ 11.4
==================================================================================
32