Acquisitions

Mountain Valley Acquisition

On October 15, 2018, DSS, a wholly owned subsidiary of the Company, acquired Mountain Valley, a growing American brand of spring and sparkling bottled water delivered to homes and offices throughout the U.S. (the “Mountain Valley Acquisition”). The purchase price paid by DSS in the Mountain Valley Acquisition was $80.4 million on a debt and cash free basis, subject to adjustments for closing date cash, working capital, indebtedness and certain expenses. The Mountain Valley Acquisition was funded through a combination of incremental borrowings under the Company’s ABL facility and cash on hand.

The total consideration paid by DSS in the Mountain Valley Acquisition is summarized below:



(in millions of U.S. dollars)
Cash paid to sellers	$	62.5
Cash paid on behalf of sellers for sellers' transaction expenses	1.8
Cash paid to retire outstanding debt on behalf of sellers	16.1
Total consideration	$	80.4

The Mountain Valley Acquisition supported the Company’s strategy to expand the Company’s existing home and office bottled water category into premium spring, sparkling and flavored water. The Company has accounted for this transaction as a business combination which requires that assets acquired and liabilities assumed be measured at their acquisition date fair values.

A preliminary allocation of the purchase price of $80.4 million has been made to the major categories of assets acquired and liabilities assumed based on management's estimates of their fair values as of the acquisition date. The excess of the purchase price over the aggregate fair values was recorded as goodwill. The table below presents the preliminary purchase price allocation of the estimated acquisition date fair values of the assets acquired and liabilities assumed:



(in millions of U.S. dollars)	Acquired Value
Cash and cash equivalents	$	8.2
Accounts receivable	4.2
Inventory	2.3
Prepaid expenses and other assets	0.2
Property, plant and equipment	38.5
Goodwill	20.5
Intangible assets	25.8
Accounts payable and accrued liabilities	(19.3		)
Total	$	80.4

The assets and liabilities acquired with the Mountain Valley Acquisition are recorded at their estimated fair values per preliminary valuations and management estimates and are subject to change when formal valuations and other studies are finalized. The fair values of acquired property, plant and equipment, customer relationships, and deferred taxes are provisional pending validation and receipt of the final valuations for those assets. The fair value of the assumed customer bottle deposit liability included in accounts payable and accrued liabilities is provisional pending management review. In addition, consideration for potential loss contingencies, including uncertain tax positions, are still under review.

The amount of revenues and net income related to the Mountain Valley Acquisition included in the Company’s Consolidated Statement of Operations for the period from the acquisition date through December 29, 2018 were $10.1 million and $1.2 million, respectively. During the year ended December 29, 2018, the Company incurred $1.0 million of acquisition-related costs associated with the Mountain Valley Acquisition, which are included in acquisition and integration expenses in the Consolidated Statement of Operations for the year ended December 29, 2018.

Crystal Rock Acquisition

On March 21, 2018, the Company completed the acquisition of Crystal Rock Holdings, Inc., a direct-to-consumer home and office water, coffee and filtration business serving customers throughout New York and New England (“Crystal Rock”). The transaction was structured as a merger following a cash tender offer for all outstanding shares of Crystal Rock, with Crystal Rock becoming a wholly-owned indirect subsidiary of the Company (the "Crystal Rock Acquisition"). The aggregate consideration paid was $37.7 million and includes the purchase price paid to the Crystal Rock shareholders of $20.7 million, $0.8 million in costs paid on behalf of the sellers for the seller's transaction costs and $16.2 million of assumed debt and accrued interest obligations of the acquired company that was paid by the Company.

The total consideration paid by the Company in the Crystal Rock Acquisition is summarized below:



(in millions of U.S. dollars)
Cash paid to sellers	$	20.7
Cash paid on behalf of sellers for sellers' transaction expenses	0.8
Total consideration	$	21.5

The Crystal Rock Acquisition strengthens the Company's presence in New York and New England. The Company has accounted for this transaction as a business combination which requires that assets acquired and liabilities assumed be measured at their acquisition date fair values.

The purchase price of $21.5 million, net of debt, was allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The excess of the purchase price over the aggregate fair values was recorded as goodwill. Measurement period adjustments recorded during the year ended December 29, 2018 included adjustments to property, plant and equipment and intangible assets based on review of valuations, adjustments to deferred taxes and other long-term liabilities based on analysis of certain tax positions, as well as adjustments to accounts receivable, inventory, prepaid expenses, other assets and accounts payable and accrued liabilities based on review of their fair values as of the acquisition date. These measurement period adjustments did not have a material effect on our results of operations in prior periods.

The table below summarizes the originally reported estimated acquisition date fair values, measurement period adjustments recorded and the adjusted purchase price allocation of the assets acquired and liabilities assumed:



(in millions of U.S. dollars)	Originally Reported			Measurement Period Adjustments			Acquired Value
Cash and cash equivalents	$	1.6		$	—		$	1.6
Accounts receivable	6.5			(0.1		)	6.4
Inventory	2.3			(0.1		)	2.2
Prepaid expenses and other current assets	1.2			1.0			2.2
Property, plant and equipment	9.4			(0.5		)	8.9
Goodwill	16.7			(3.0		)	13.7
Intangible assets	13.3			(0.7		)	12.6
Other assets	0.8			(0.7		)	0.1
Short-term borrowings	(4.1		)	—			(4.1		)
Current maturities of long-term debt	(1.6		)	—			(1.6		)
Accounts payable and accrued liabilities	(5.2		)	(1.5		)	(6.7		)
Long-term debt	(10.4		)	—			(10.4		)
Deferred tax liabilities	(6.5		)	4.0			(2.5		)
Other long-term liabilities	(2.5		)	1.6			(0.9		)
Total	$	21.5		$	—		$	21.5

The assets and liabilities acquired with the Crystal Rock Acquisition are recorded at their estimated fair values per management’s estimates and are subject to change when formal valuations and other studies are finalized. The fair values of acquired property, plant and equipment, customer relationships, trademarks and trade names, and deferred taxes are provisional pending validation and receipt of the final valuations for those assets. In addition, consideration for potential loss contingencies, including uncertain tax positions, are still under review.

The amount of revenues related to the Crystal Rock Acquisition included in the Company’s Consolidated Statement of Operations for the period from the acquisition date through December 29, 2018 was $42.3 million. During the year ended December 29, 2018, the Company incurred $3.6 million of acquisition-related costs associated with the Crystal Rock Acquisition, which are included in acquisition and integration expenses in the Consolidated Statement of Operations for the year ended December 29, 2018. During the second quarter of 2018, Crystal Rock was integrated within our DSS business, therefore it is impracticable to determine the amount of net income related to the Crystal Rock Acquisition included in the Company's Statement of Operations for the period from the acquisition date through December 29, 2018.

Intangible Assets

In our determination of the estimated fair value of intangible assets, we consider, among other factors, the best use of acquired assets, analysis of historical financial performance and estimates of future performance of the acquired business’ products. The estimated fair values of identified intangible assets are calculated considering both market participant assumptions, using an income approach as well as estimates and assumptions provided by Cott management and management of the acquired business. Assumptions include, but are not limited to, expected revenue growth, weighted-average terminal growth rate, risk adjusted discount rate and fair value royalty rate.

The estimated fair value of customer relationships represent future after-tax discounted cash flows that will be derived from sales to existing customers of the acquired business as of the date of acquisition.

The estimated fair value of trademarks and trade names represent the future projected cost savings associated with the premium and brand image obtained as a result of owning the trademark or trade name as opposed to obtaining the benefit of the trademark or trade name through a royalty or rental fee.

Mountain Valley Acquisition

The following table sets forth the components of identified intangible assets associated with the Mountain Valley Acquisition and their estimated weighted average useful lives:



(in millions of U.S. dollars)	Estimated Fair Market Value		Weighted Average Estimated Useful Life
Customer relationships	$	9.2	20 years
Trademarks and trade names	16.6		Indefinite
Total	$	25.8

Crystal Rock Acquisition

The following table sets forth the components of identified intangible assets associated with the Crystal Rock Acquisition and their estimated weighted average useful lives:



(in millions of U.S. dollars)	Estimated Fair Market Value		Weighted Average Estimated Useful Life
Customer relationships	$	8.4	11 years
Trademarks and trade names	4.2		Indefinite
Total	$	12.6

Goodwill

Mountain Valley Acquisition

The principal factor that resulted in recognition of goodwill in the Mountain Valley Acquisition was that the purchase price was based in part on cash flow projections assuming the reduction of administration costs and the integration of acquired customers and products into our operations, which is of greater value than on a standalone basis. The goodwill recognized as part of the Mountain Valley Acquisition was allocated to the Route Based Services reporting segment and is expected to be tax deductible.

Crystal Rock Acquisition

The principal factor that resulted in recognition of goodwill in the Crystal Rock Acquisition was that the purchase price was based in part on cash flow projections assuming the reduction of administration costs and the integration of acquired customers and products into our operations, which is of greater value than on a standalone basis. The goodwill recognized as part of the Crystal Rock Acquisition was allocated to the Route Based Services reporting segment, none of which is expected to be tax deductible.