<PAGE> 1
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 September 30, 2000
-----------------------------------
Commission File Number 000-19914
-----------------------------------
COTT CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
CANADA None
------------------------------------ -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
207 Queen's Quay W, Toronto, Ontario M5J 1A7
--------------------------------------------------------------
(Address of principal executive offices) (Postal Code)
(416) 203-3898
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
There were 59,851,292 shares of common stock outstanding as of September 30,
2000.
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the three and nine months ended September
30, 2000 and October 2, 1999................................................................. Page 2
Consolidated Balance Sheets as of September 30, 2000 and January 1, 2000.......................... Page 3
Consolidated Statements of Shareowners' Equity as of September 30, 2000 and October 2, 1999 ...... Page 4
Consolidated Statements of Cash Flows for the nine months ended September 30,
2000 and October 2, 1999.......................................................................... Page 5
Notes to the Consolidated Financial Statements.................................................... Page 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................................. Page 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings......................................................................... Page 15
Item 6. Exhibits and Reports on Form 10-Q......................................................... Page 15
Signatures........................................................................................ Page 16
</TABLE>
1
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COTT CORPORATION
Consolidated Statements of Income
--------------------------------------------------------------------------------
(in millions of U.S. dollars, except per share amounts)
Unaudited
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
------------------------------- -------------------------------
SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, OCTOBER 2,
2000 1999 2000 1999
------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
SALES $ 262.1 $ 261.0 $ 763.5 $ 781.5
Cost of sales 220.0 221.7 639.6 668.0
--------- ---------- --------- ---------
GROSS PROFIT 42.1 39.3 123.9 113.5
Selling, general and administrative
expenses 21.8 26.9 69.4 73.1
--------- ---------- --------- ---------
OPERATING INCOME 20.3 12.4 54.5 40.4
Other expenses (income), net (0.7) (5.7) (0.7) (5.5)
Interest expense, net 7.2 8.9 23.0 27.0
--------- ---------- --------- ---------
INCOME BEFORE INCOME TAXES AND
EQUITY INCOME 13.8 9.2 32.2 18.9
Income taxes - note 2 (5.9) (0.9) (13.4) (3.0)
Equity income - 0.4 - 0.9
--------- ---------- --------- ---------
INCOME FROM CONTINUING OPERATIONS 7.9 8.7 18.8 16.8
Cumulative effect of change in
accounting principle, net of tax - - - (2.1)
--------- ---------- --------- ---------
NET INCOME - note 3 $ 7.9 $ 8.7 $ 18.8 $ 14.7
========= ========== ========= =========
PER SHARE DATA - note 4
INCOME PER COMMON SHARE - BASIC
Income from continuing operations $ 0.13 $ 0.15 $ 0.31 $ 0.28
Cumulative effect of change in
accounting principle $ - $ - $ - $ (0.03)
Net income $ 0.13 $ 0.15 $ 0.31 $ 0.25
INCOME PER COMMON SHARE - DILUTED
Income from continuing operations $ 0.12 $ 0.13 $ 0.28 $ 0.26
Cumulative effect of change in
accounting principle $ - $ - $ - $ (0.03)
Net income $ 0.12 $ 0.13 $ 0.28 $ 0.23
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 3
COTT CORPORATION
Consolidated Balance Sheets
--------------------------------------------------------------------------------
(in millions of U.S. dollars)
<TABLE>
<CAPTION>
SEPTEMBER 30, JANUARY 1,
2000 2000
----------- ----------
Unaudited Audited
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 61.7 $ 2.6
Accounts receivable 105.3 97.6
Inventories - note 5 64.4 67.3
Prepaid expenses 2.0 4.4
----------- ----------
233.4 171.9
PROPERTY, PLANT AND EQUIPMENT - note 6 238.6 266.4
GOODWILL 100.1 108.1
INVESTMENT AND OTHER ASSETS 36.8 43.2
----------- ----------
$ 608.9 $ 589.6
=========== ==========
LIABILITIES
CURRENT LIABILITIES
Short-term borrowings $ 0.9 $ 1.8
Current maturities of long-term debt 9.7 1.6
Accounts payable and accrued liabilities 119.3 104.8
Discontinued operations 0.7 1.0
----------- ----------
130.6 109.2
LONG-TERM DEBT 305.1 322.0
OTHER LIABILITIES 23.2 16.1
----------- ----------
458.9 447.3
----------- ----------
SHAREOWNERS' EQUITY
CAPITAL STOCK
Common shares - 59,851,292 (1999 - 59,837,392) shares issued 189.1 189.0
Second preferred shares, Series 1 - 4,000,000 shares issued 40.0 40.0
DEFICIT (44.5) (63.3)
ACCUMULATED OTHER COMPREHENSIVE INCOME (34.6) (23.4)
----------- ----------
150.0 142.3
----------- ----------
$ 608.9 $ 589.6
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
COTT CORPORATION
Consolidated Statements of Shareowners' Equity
--------------------------------------------------------------------------------
(in millions of U.S. dollars)
Unaudited
<TABLE>
<CAPTION>
NUMBER OF COMMON PREFERRED DEFICIT ACCUMULATED TOTAL
COMMON SHARES SHARES OTHER EQUITY
SHARES COMPREHENSIVE
(in thousands) INCOME
------ --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 2, 1999 59,837 $ 189.0 $ 40.0 $ (81.8) $ (25.2) $ 122.0
Comprehensive income - note 3
Currency translation adjustment - - - - 3.6 3.6
Net income - - - 14.7 - 14.7
------ --------- -------- --------- --------- ---------
Balance at October 2, 1999 59,837 $ 189.0 $ 40.0 $ (67.1) $ (21.6) $ 140.3
====== ========= ======== ========= ========= =========
Balance at January 1, 2000 59,837 $ 189.0 $ 40.0 $ (63.3) $ (23.4) $ 142.3
Options exercised 14 0.1 - - - 0.1
Comprehensive income - note 3
Currency translation adjustment - - - - (11.2) (11.2)
Net income - - - 18.8 - 18.8
------ --------- -------- --------- --------- ---------
Balance at September 30, 2000 59,851 $ 189.1 $ 40.0 $ (44.5) $ (34.6) $ 150.0
====== ========= ======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
COTT CORPORATION
Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------
(in millions of U.S. dollars)
Unaudited
<TABLE>
<CAPTION>
For the nine months ended
--------------------------
SEPTEMBER 30, OCTOBER 2,
2000 1999
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations $ 18.8 $ 16.8
Depreciation and amortization 29.1 29.9
Deferred income taxes 12.9 -
Equity income - (0.9)
Gain on disposal of equity investment - (5.9)
Loss on disposal of property, plant and equipment - 0.1
Other non-cash items 1.0 0.3
Net change in non-cash working capital from continuing operations -
note 7 9.9 3.2
--------- ---------
Cash provided by operating activities 71.7 43.5
--------- ---------
INVESTING ACTIVITIES
Additions to property, plant and equipment (17.4) (14.9)
Proceeds from disposal of businesses 15.9 38.0
Proceeds from disposal of property, plant and equipment 0.8 1.1
Other (3.0) (2.9)
--------- ---------
Cash provided by (used in) investing activities (3.7) 21.3
--------- ---------
FINANCING ACTIVITIES
Payments of long-term debt (5.6) (33.2)
Short-term borrowings (0.3) (21.4)
Other (2.0) -
--------- ---------
Cash used in financing activities (7.9) (54.6)
--------- ---------
Net cash used in discontinued operations (0.2) (0.5)
Effect of exchange rate changes on cash and cash equivalents (0.8) 0.6
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 59.1 10.3
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2.6 28.1
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 61.7 $ 38.4
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
COTT CORPORATION
Notes to the Consolidated Financial Statements
--------------------------------------------------------------------------------
Unaudited
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements have been prepared in accordance
with United States ("U.S.") generally accepted accounting principles ("GAAP")
for interim financial information. Accordingly, they do not include all
information and notes presented in the annual consolidated financial statements
in conformity with U.S. GAAP. In the opinion of management, the statements
reflect all adjustments that are necessary for a fair statement of the results
for the interim periods presented. All such adjustments are of a normal
recurring nature.
Certain comparative amounts have been restated to conform to the financial
statement presentation adopted in the current year.
The results for the interim periods presented are not necessarily indicative of
the results that may be expected for the full fiscal year.
Consolidated financial statements in accordance with Canadian GAAP, in U.S.
dollars, are made available to all shareowners and filed with various regulatory
authorities.
NOTE 2 - INCOME TAXES
The following table reconciles income taxes calculated at the basic Canadian
corporate rates with the income tax provision:
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
----------------------------------- -----------------------------------
(in millions of U.S. dollars) SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, OCTOBER 2,
2000 1999 2000 1999
--------------- -------------- --------------- -------------
<S> <C> <C> <C> <C>
Income tax provision based on
Canadian statutory rates $ (5.9) $ (4.0) $ (13.8) $ (8.2)
Foreign tax rate differential 0.6 5.6 1.7 13.4
Manufacturing and processing
deduction 0.2 0.6 0.4 0.3
Tax benefit on losses recognized
(not recognized) - (2.4) - (7.0)
Non-deductible items (0.8) (0.7) (1.7) (1.5)
--------------- -------------- --------------- -------------
$ (5.9) $ (0.9) $ (13.4) $ (3.0)
=============== ============== =============== =============
</TABLE>
6
<PAGE> 7
COTT CORPORATION
Notes to the Consolidated Financial Statements
--------------------------------------------------------------------------------
Unaudited
NOTE 3 - COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
------------------------------------ ------------------------------------
(in millions of U.S. dollars) SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, OCTOBER 2,
2000 1999 2000 1999
--------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
Net income $ 7.9 $ 8.7 $ 18.8 $ 14.7
Foreign currency translation
(net of $0.5 million impact of
1999 divestitures) (3.8) 2.0 (11.2) 3.6
--------------- -------------- ---------------- --------------
$ 4.1 $ 10.7 $ 7.6 $ 18.3
=============== ============== ================ ==============
</TABLE>
NOTE 4 - INCOME PER SHARE
Basic net income per common share is computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
net income per share includes the effect of exercising stock options and
converting the preferred shares, only if dilutive.
The following table reconciles the basic weighted average number of shares
outstanding to the diluted weighted average number of shares outstanding:
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
------------------------------------ ------------------------------------
(in thousands) SEPTEMBER 30, OCTOBER 2, SEPTEMBER 30, OCTOBER 2,
2000 1999 2000 1999
----------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Weighted average number of shares
outstanding - basic 59,850 59,837 59,848 59,837
Dilutive effect of stock options 319 18 349 13
Dilutive effect of second preferred
shares 6,286 6,286 6,286 6,286
----------------- --------------- ----------------- ---------------
Adjusted weighted average number
of shares outstanding - diluted 66,455 66,141 66,483 66,136
----------------- --------------- ----------------- ---------------
</TABLE>
As of September 30, 2000, the Company has the following equity instruments
outstanding: 59,851,292 common shares, 5,463,010 common share stock options and
4,000,000 second preferred shares convertible into 5,698,064 common shares and
entitled to 5,698,064 votes.
7
<PAGE> 8
COTT CORPORATION
Notes to the Consolidated Financial Statements
--------------------------------------------------------------------------------
Unaudited
NOTE 5 - INVENTORIES
<TABLE>
<CAPTION>
(in millions of U.S. dollars) SEPTEMBER 30, JANUARY 1,
2000 2000
----------------- ---------------
<S> <C> <C>
Raw materials $ 22.0 $ 29.4
Finished goods 34.1 29.4
Other 8.3 8.5
----------------- ---------------
$ 64.4 $ 67.3
================= ===============
</TABLE>
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
(in millions of U.S. dollars) SEPTEMBER 30, JANUARY 1,
2000 2000
----------------- ---------------
<S> <C> <C>
Cost $ 438.6 $ 464.3
Accumulated depreciation (200.0) (197.9)
----------------- ---------------
$ 238.6 $ 266.4
================= ===============
</TABLE>
NOTE 7 - NET CHANGE IN NON-CASH WORKING CAPITAL
The changes in non-cash working capital components, net of effects of unrealized
foreign exchange gains and losses, are as follows:
<TABLE>
<CAPTION>
(in millions of U.S. dollars) SEPTEMBER 30, OCTOBER 2,
2000 1999
----------------- ---------------
<S> <C> <C>
Decrease (increase) in accounts receivable $ (8.4) $ 0.6
Decrease (increase) in inventories (0.9) -
Decrease (increase) in prepaid expenses 0.1 0.3
Decrease (increase) in income taxes recoverable (2.1) 1.8
Increase (decrease) in accounts payable and accrued liabilities 21.2 0.5
----------------- ---------------
$ 9.9 $ 3.2
================= ===============
</TABLE>
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company is subject to various claims and legal proceedings with respect to
matters such as governmental regulations, income taxes, and other actions
arising out of the normal course of business. Management believes that the
resolution of these matters will not have a material adverse effect on the
Company's financial position or results from operations.
8
<PAGE> 9
COTT CORPORATION
Notes to the Consolidated Financial Statements
--------------------------------------------------------------------------------
Unaudited
NOTE 9 - SEGMENT REPORTING
The Company produces, packages and distributes retailer brand and branded
bottled and canned beverages primarily to regional and national grocery,
mass-merchandise and wholesale chains in Canada, the United Kingdom and the
United States. The Company manages its beverage business by geographic segments
as described below:
FOR THE THREE MONTHS ENDED:
<TABLE>
<CAPTION>
UNITED UNITED CORPORATE
SEPTEMBER 30, 2000 CANADA KINGDOM STATES & OTHER TOTAL
------------ ------------- ------------ ------------ -----------
(in millions of U.S. dollars)
<S> <C> <C> <C> <C> <C>
External sales $ 43.2 $ 37.0 $ 176.2 $ 5.7 $ 262.1
Intersegment sales 4.3 - 1.1 (5.4) -
Depreciation and amortization 1.9 2.3 5.3 0.3 9.8
Operating income (loss) 4.6 1.2 16.8 (2.3) 20.3
Additions to property, plant and
equipment 0.4 0.9 4.1 0.1 5.5
</TABLE>
<TABLE>
<CAPTION>
UNITED UNITED CORPORATE
OCTOBER 2, 1999 CANADA KINGDOM STATES & OTHER TOTAL
------------ ------------ ------------ ------------ -----------
(in millions of U.S. dollars)
<S> <C> <C> <C> <C> <C>
External sales $ 46.1 $ 47.6 $ 161.0 $ 6.3 $ 261.0
Intersegment sales 4.8 - 1.5 (6.3) -
Depreciation and amortization 2.1 2.4 4.9 0.2 9.6
Operating income (loss) 3.9 (0.3) 11.1 (2.3) 12.4
Additions to property, plant and
equipment 0.4 3.1 4.3 - 7.8
</TABLE>
9
<PAGE> 10
COTT CORPORATION
Notes to the Consolidated Financial Statements
--------------------------------------------------------------------------------
Unaudited
NOTE 9 - SEGMENT REPORTING (continued)
FOR THE NINE MONTHS ENDED:
<TABLE>
<CAPTION>
UNITED UNITED CORPORATE
SEPTEMBER 30, 2000 CANADA KINGDOM STATES & OTHER TOTAL
------------ ------------- ------------ ------------ -----------
(in millions of U.S. dollars)
<S> <C> <C> <C> <C> <C>
External sales $ 128.3 $ 108.7 $ 510.5 $ 16.0 $ 763.5
Intersegment sales 11.4 - 3.4 (14.8) -
Depreciation and amortization 6.0 6.9 15.0 1.2 29.1
Operating income (loss) 12.3 2.5 46.9 (7.2) 54.5
Total assets 140.7 159.0 319.1 (9.9) 608.9
Additions to property, plant and
equipment 1.1 2.5 12.4 1.4 17.4
</TABLE>
<TABLE>
<CAPTION>
UNITED UNITED CORPORATE
OCTOBER 2, 1999 CANADA KINGDOM STATES & OTHER TOTAL
------------ ------------ ------------ ------------ -----------
(in millions of U.S. dollars)
<S> <C> <C> <C> <C> <C>
External sales $ 131.8 $ 142.4 $ 474.4 $ 32.9 $ 781.5
Intersegment sales 15.8 - 4.5 (20.3) -
Depreciation and amortization 6.5 7.8 14.2 1.4 29.9
Operating income (loss) 10.6 1.9 32.1 (4.2) 40.4
Total assets (January 1, 2000) 137.0 173.4 332.1 (52.9) 589.6
Additions to property, plant and
equipment 1.6 4.5 8.4 0.4 14.9
</TABLE>
The comparative figures have been restated to include a corporate cost
allocation to the business segments.
Intersegment sales and total assets under the Corporate & Other caption include
the elimination of intersegment sales, receivables and investments.
For the nine months ended September 30, 2000, sales to two major customers
accounted for 33% and 12%, respectively, of the Company's total sales (27% and
12% - October 2, 1999).
10
<PAGE> 11
COTT CORPORATION
Notes to the Consolidated Financial Statements
--------------------------------------------------------------------------------
Unaudited
NOTE 10 - SUBSEQUENT EVENT
Effective October 18, 2000, the Company acquired substantially all the assets of
Concord Beverage Company, a retailer brand and branded soft drink manufacturing
operation in the northeast United States. The acquisition price was $71.7
million, $32.9 million of which was paid from cash-on-hand. The balance was
financed through the Company's current credit facility and two promissory notes
payable to the vendor totalling $17.9 million, bearing interest at 7% per annum
and due in one year. The estimated annual impact of the acquisition on the
Company's net sales is $80 million.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Cott Corporation is the world's largest supplier of retailer brand soft drinks,
with manufacturing, distribution, marketing, product development and customer
service facilities in Canada, the United Kingdom and the United States. The
Company is focused on growing sales and building volume with key customers,
reducing costs and improving margins and continuing to drive innovation in the
retailer brand beverage category.
OVERVIEW
In its seventh consecutive profitable quarter, Cott Corporation's net income for
the three months ended September 30, 2000 nearly tripled as compared with the
results, before a one-time gain on sale of an investment, for the similar period
in 1999. For the first nine months of 2000, net income was $18.8 million. This
was an increase of 72% over the prior year before the one-time gain and a change
in accounting principle.
Effective October 18, 2000, the Company acquired the assets of the Concord
Beverage Company from the Honickman Group for $71.7 million, of which
approximately half was paid in cash with the remainder being financed. Concord
Beverage Company was the largest stand-alone retailer brand bottling operation
in the United States. The acquisition provides the Company with a solid base of
new customers in the Northeast U.S. market, increased market share and the
highly regarded "Vintage" brand of seltzer products.
Net sales of $262.1 million were up slightly versus last year, reflecting the
strategic customer and product rationalization undertaken over the past two
years and the weakness in the pound sterling compared with the U.S. dollar. For
the quarter, sales volumes to the core top 15 customers worldwide, who account
for approximately 75% of the business, grew 9% versus last year, significantly
outpacing category growth in the markets served by the Company. Cott has
recently added two important U.K. retailers to its customer portfolio, primarily
as a result of new product innovations.
Gross margin for the quarter increased to 16.1% from 15.1% last year. The
emphasis on reducing costs and improving efficiencies led all three core
segments to improve their margins.
Operating cash flow, after capital expenditures, of $54.3 million was $25.7
million ahead of last year and resulted in reduced net interest expense due to
lower net debt levels. Net debt at $254.0 million as of September 30, 2000 was
$68.8 million lower than January 1, 2000 and $55.8 million below net debt levels
one year ago.
RESULTS OF OPERATIONS
Net income for the quarter was $7.9 million or $0.12 per diluted share compared
with the $8.7 million or $0.13 per diluted share reported in 1999. After
excluding a one-time gain last year of $5.9 million or $0.09 per diluted share
arising from the sale of an investment, net income per diluted share tripled
versus the similar period in 1999. For the first nine months of 2000, the
Company reported net income of $18.8 million. As compared with last year,
excluding the one-time gain of $5.9 million or $0.09 per diluted share and the
cumulative effect of a change in accounting principle of $2.1 million or $0.03
per diluted share in 1999, this was an increase of 72%.
12
<PAGE> 13
SALES - Net sales were $262.1 million for the third quarter, in line with $261.0
million in 1999. For the first nine months of 2000 net sales were $763.5
million, flat with last year after removing the effect of divestitures. The
Company's "Focus on Core" strategy resulted in improved customer service in core
markets and contributed to the third quarter's 9% increase in sales volume to
the top 15 customers. Year-to-date sales volume to the top 15 customers was up
8%.
Net sales in Canada of $43.2 million for the quarter were down 6% from 1999,
driven by the unseasonably cool summer weather and rationalization of low margin
export and water business. Year-to-date net sales were down 3% and equivalent
case volume declined 8%. However, sales volume to the top five Canadian
customers, excluding the impact of the rationalized water sales, rose 2%
compared with last year.
Net sales in the U.K. declined to $37.0 million from $47.6 million in 1999.
Equivalent case volume was down 11%, primarily due to the weakness in the U.K.
market and customer rationalization efforts. Continued downward pricing pressure
and the weakness of the pound sterling compared to the U.S. dollar further
decreased net sales. For the first nine months, net sales dropped to $108.7
million from $142.4 million. After removing the impact of the divested business,
equivalent case volume was down 12%.
Net sales in the U.S. rose to $176.2 million from $161.0 million last year, an
increase of 9% for the quarter. Equivalent case volume increased 7%. Sales
volume to the division's top ten customers was up by 19%, more that offsetting
the impact of the rationalization program. Net sales to date in 2000 were $510.5
million, up 8% from last year, and equivalent case volume rose 5%.
GROSS PROFIT - Gross profit for the quarter was 16.1%, a 1.0 percentage point
improvement from the third quarter last year, reflecting the Company's success
in implementing its "Fix the Cost Structure" strategy and the continued focus on
reducing cost and improving productivity. For the nine-month period, gross
profit was 16.2%, up 1.7 percentage points from 1999. Margin improvements were
realized across the three core segments and were driven by an improved customer
and product mix, and by operating efficiency gains.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A") - SG&A for the quarter was
$21.8 million, compared with $26.9 million last year. Reductions in SG&A were
primarily due to lower employee costs, the change in the timing of management
incentive accruals in 2000, improved cost controls and the impact of the
weakened pound sterling compared with the U.S. dollar. For the first nine
months, SG&A was $69.4 million compared with $73.1 million last year, down
principally as a result of reorganization and improved cost control in the U.K.
INTEREST EXPENSE - Net interest expense was $7.2 million in the quarter as
compared with $8.9 million for the third quarter of 1999. Year-to-date net
interest expense totaled $23.0 million, down $4.0 million from last year.
Interest on long-term debt decreased $0.4 million for the quarter and $1.7
million for the nine-month period as a result of lower average long-term debt
balances compared with last year. Significant debt repayments were made
throughout 1999. The remaining decrease results from lower short-term interest
expense and increased interest income as cash flow improvements led to higher
average net cash balances over the quarter and nine-month periods.
13
<PAGE> 14
INCOME TAXES - The Company recorded an income tax provision of $5.9 million for
the quarter and $13.4 million for the nine-month period as compared with $0.9
million and $3.0 million for the respective periods last year. For the first
nine months the overall effective tax rate was 42% compared with 16% in 1999.
This was primarily as a result of a change in mix of earnings by tax
jurisdiction.
FINANCIAL CONDITION - Operating cash flow after capital expenditures for the
nine-month period was $54.3 million as compared with $28.6 million in 1999. The
operating cash flow, as well as $15.9 million in proceeds relating to the sale
of blow molding assets in the second quarter, was used to repay debt and
resulted in a $59.1 million increase in cash for the first nine months of 2000.
Cash and cash equivalents totaled $61.7 million as of September 30, 2000.
Under current credit facilities the Company is provided maximum credit of $59.2
million depending on available collateral. At September 30, 2000, approximately
$55.8 million of credit was available.
CAPITAL EXPENDITURES - Capital expenditures for the first three quarters of 2000
were $17.4 million compared with $14.9 million in 1999. Significant capital
expenditures included $3.1 million to install a new filling line and $1.8
million to upgrade an existing line in U.S. manufacturing facilities. In
addition $1.3 million was spent towards a project to update and standardize
information and accounting systems throughout the company. Capital expenditures
have been limited to those projects with an internal rate of return above 30%,
in addition to those required for essential maintenance, safety and regulatory
compliance.
LONG-TERM DEBT - As of September 30, 2000, the Company's long-term debt totaled
$314.8 million as compared with $323.6 million at the end of 1999 and $343.4
million one year ago. At quarter end, debt consisted of $276.4 million in senior
unsecured notes and $38.4 million of other term debt. The Company is exposed to
minimal interest rate risk as substantially all debt is at fixed rates.
Management believes the Company has the financial resources to meet its ongoing
cash requirements for operations and capital expenditures as well as its other
financial obligations.
OUTLOOK - The carbonated soft drink industry continues to experience positive
growth. Expectations for market growth in Cott's three core geographic markets,
Canada, the United Kingdom and the United States, extend through the next
several years. With the U.K. reorganization in the first quarter, this unit is
regaining momentum and has positioned itself to handle the competitive business
environment. Facing intense price competition from heavily promoted global and
regional brands, the Company's major opportunity for growth depends on
management's execution of critical strategies and on retailers' continued
commitment to their retailer brand soft drink programs. Risks and uncertainties
include stability of procurement costs for such items as sweetener, packaging
materials and other ingredients, national brand pricing and promotional
strategies and fluctuations in currency versus the U.S. dollar. The Company's
exposure to raw material price fluctuations is minimized by the existence of
long-term contracts for certain key raw materials.
RISKS AND UNCERTAINTIES - Sales to the top two customers in the nine-month
period in 2000 accounted for 45% of the Company's total sales volumes. The loss
of any significant customer or any significant portion of the Company's sales
could have a material adverse effect on the Company's operating results and cash
flows.
FORWARD LOOKING STATEMENTS - This report may contain forward-looking statements
reflecting management's current expectations regarding future results of
operations, economic performance, financial condition and achievements of the
Company. Forward-looking statements, specifically
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those concerning future performance, are subject to certain risks and
uncertainties, and actual results may differ materially. These risks and
uncertainties are detailed from time to time in the Company's filings with the
appropriate securities commissions, and include, without limitation, stability
of procurement costs for raw and packaging materials, competitive activities by
national, regional and retailer brand beverage manufacturers, fluctuations in
currency versus the U.S. dollar, the uncertainties of litigation, and retailers'
continued commitment to their retailer brand beverage programs. The foregoing
list of factors in not exhaustive.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the legal proceedings described in the Company's Form 10-K
for the fiscal year ended January 1, 2000 and in the Company's Form 10-Qs for
the quarterly periods ended April 1, 2000 and July 1, 2000. The legal
proceedings (a) between the Company, Destination Products International, Inc.
(now Interim BCB, LLC and wholly-owned by the Company) and Rositas, Inc., and
(b) between the Company and Trinity Plastic Products Inc. have each been settled
on a basis that was not material to the Company. In the action previously
commenced by Channelmark Corporation, the trial has been postponed and is now
scheduled to begin on February 5, 2001.
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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: October 26, 2000
/s/ Raymond P. Silcock
-----------------------------------
Raymond P. Silcock
Executive Vice President &
Chief Financial Officer
(On behalf of the Company)
Date: October 26, 2000
/s/ Tina Dell'Aquila
-----------------------------------
Tina Dell'Aquila
Vice President, Controller
(Principal accounting officer)
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