-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Piqg1hCco29ctnMHa65C+cJoP3Nza9snZRaadXLpBlBK9eeoGigDXoySDl6l96zU UOtphTL2IUR/vN7ZzLT9fQ== 0000909567-05-001766.txt : 20051110 0000909567-05-001766.hdr.sgml : 20051110 20051110131925 ACCESSION NUMBER: 0000909567-05-001766 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20051001 FILED AS OF DATE: 20051110 DATE AS OF CHANGE: 20051110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COTT CORP /CN/ CENTRAL INDEX KEY: 0000884713 STANDARD INDUSTRIAL CLASSIFICATION: BOTTLED & CANNED SOFT DRINKS CARBONATED WATERS [2086] IRS NUMBER: 000000000 FISCAL YEAR END: 0125 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-31410 FILM NUMBER: 051192938 BUSINESS ADDRESS: STREET 1: 207 QUEENS QUAY W STREET 2: SUITE 340 CITY: TORONTO ONTARIO CANA STATE: A6 ZIP: 00000 BUSINESS PHONE: 4162033898 MAIL ADDRESS: STREET 1: 207 QUEENS QUAY W STREET 2: SUITE 340 CITY: TORONTO ONTARIO STATE: A6 ZIP: 00000 10-Q 1 t18567e10vq.txt 10-Q ================================================================================ 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 October 1, 2005 ------------------------------------- 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 West, Suite 340, 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 [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [X] No [ ] Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes [ ] No [X] There were 71,709,630 shares of common stock outstanding as of October 31, 2005. ================================================================================ TABLE OF CONTENTS PART I -- FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Income (loss) for the three and nine month periods ended October 1, 2005 and October 2, 2004............................................ Page 3 Consolidated Balance Sheets as of October 1, 2005 and January 1, 2005............................................ Page 4 Consolidated Statements of Shareowners' Equity as of October 1, 2005 and October 2, 2004........................ Page 5 Consolidated Statements of Cash Flows for the three and nine month periods ended October 1, 2005 and October 2, 2004.... Page 6 Notes to the Consolidated Financial Statements ............... Page 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .................................... Page 23 Item 3. Quantitative and Qualitative Disclosures about Market Risk ... Page 29 Item 4. Controls and Procedures ...................................... Page 29 PART II -- OTHER INFORMATION Item 1. Legal Proceedings ............................................ Page 30 Item 6. Financial Statement Schedules and Exhibits ................... Page 30 Signatures ............................................................ Page 31 2 PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS COTT CORPORATION CONSOLIDATED STATEMENTS OF INCOME (LOSS) - -------------------------------------------------------------------------------- (in millions of U.S. dollars, except per share amounts) Unaudited
For the For the three months ended nine months ended ---------------------- ------------------------- OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2, 2005 2004 2005 2004 ---------- ---------- ----------- ---------- SALES $ 469.9 $ 442.4 $ 1,358.1 $ 1,277.0 Cost of sales 404.5 371.4 1,156.0 1,050.1 ---------- ---------- ----------- ---------- GROSS PROFIT 65.4 71.0 202.1 226.9 Selling, general and administrative expenses 34.2 33.3 106.6 106.1 Unusual items -- note 2 Restructuring 2.0 -- 2.0 -- Asset impairments 23.7 (0.2) 23.5 (0.7) ---------- ---------- ----------- ---------- OPERATING INCOME 5.5 37.9 70.0 121.5 Other expense (income), net (0.4) -- (0.6) 0.3 Interest expense, net 7.7 6.4 20.8 19.6 Minority interest 1.1 1.0 3.4 3.2 ---------- ---------- ----------- ---------- INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY LOSS (2.9) 30.5 46.4 98.4 Income tax recovery (expense) -- note 4 1.1 (8.3) (14.9) (31.2) Equity loss -- (0.1) -- (0.3) ---------- ---------- ----------- ---------- NET INCOME (LOSS) -- note 5 $ (1.8) $ 22.1 $ 31.5 $ 66.9 ========== ========== =========== ========== PER SHARE DATA -- note 6 NET INCOME (LOSS) PER COMMON SHARE Basic $ (0.03) $ 0.31 $ 0.44 $ 0.94 Diluted $ (0.03) $ 0.31 $ 0.44 $ 0.93
The accompanying notes are an integral part of these consolidated financial statements. 3 COTT CORPORATION CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------- (in millions of U.S. dollars)
OCTOBER 1, JANUARY 1, 2005 2005 --------- --------- Unaudited ASSETS CURRENT ASSETS Cash $ 8.8 $ 26.6 Accounts receivable 222.1 184.3 Inventories -- note 7 140.2 122.8 Prepaid expenses and other assets -- note 8 13.2 9.7 --------- --------- 384.3 343.4 PROPERTY, PLANT AND EQUIPMENT -- note 9 401.2 313.7 GOODWILL -- note 10 157.7 88.8 INTANGIBLES AND OTHER ASSETS -- note 11 264.7 276.1 --------- --------- $ 1,207.9 $ 1,022.0 ========= ========= LIABILITIES CURRENT LIABILITIES Short-term borrowings -- note 12 $ 154.5 $ 71.4 Current maturities of long-term debt 0.8 0.8 Accounts payable and accrued liabilities 201.2 145.2 --------- --------- 356.5 217.4 LONG-TERM DEBT 272.4 272.5 DEFERRED INCOME TAXES 65.0 51.0 --------- --------- 693.9 540.9 --------- --------- MINORITY INTEREST 23.3 23.8 SHAREOWNERS' EQUITY CAPITAL STOCK Common shares -- 71,709,630 shares issued 291.4 287.0 RETAINED EARNINGS 193.1 161.6 ACCUMULATED OTHER COMPREHENSIVE INCOME 6.2 8.7 --------- --------- 490.7 457.3 --------- --------- $ 1,207.9 $ 1,022.0 ========= =========
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 COMMON RETAINED ACCUMULATED OTHER TOTAL COMMON SHARES EARNINGS COMPREHENSIVE EQUITY SHARES INCOME (LOSS) (in thousands) ------------------------------------------------------------------------- Balance at January 3, 2004 70,259 $267.9 $ 83.3 $ (6.1) $345.1 Options exercised, including tax benefit of $4.8 million 1,085 17.6 -- -- 17.6 Comprehensive income (loss)-- note 5 Currency translation adjustment -- -- -- 3.5 3.5 Unrealized losses on cash flow hedges -- note 8 -- -- -- (0.6) (0.6) Net income -- -- 66.9 -- 66.9 ------------------------------------------------------------------------- Balance at October 2, 2004 71,344 $285.5 $150.2 $ (3.2) $432.5 ========================================================================= Balance at January 1, 2005 71,440 $287.0 $161.6 $ 8.7 $457.3 Options exercised, including tax benefit of $0.9 million 270 4.4 -- -- 4.4 Comprehensive income (loss) -- note 5 Currency translation adjustment -- -- -- (2.7) (2.7) Unrealized gains on cash flow hedges -- note 8 -- -- -- 0.2 0.2 Net income -- -- 31.5 -- 31.5 ------------------------------------------------------------------------- Balance at October 1, 2005 71,710 $291.4 $193.1 $ 6.2 $490.7 =========================================================================
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 For the three months ended nine months ended ------------------------ ------------------------ OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2, 2005 2004 2005 2004 --------- --------- --------- --------- OPERATING ACTIVITIES Net income (loss) $ (1.8) $ 22.1 $ 31.5 $ 66.9 Depreciation and amortization 18.3 14.7 51.0 44.7 Amortization of financing fees 0.2 0.2 0.5 0.5 Deferred income taxes -- 2.4 3.3 6.7 Minority interest 1.1 1.0 3.4 3.2 Equity loss -- 0.1 -- 0.3 Asset impairments 23.7 -- 23.5 -- Other non-cash items 0.3 0.2 1.0 0.8 Net change in non-cash working capital -- note 13 13.9 17.5 (3.6) (47.9) --------- --------- --------- --------- Cash provided by operating activities 55.7 58.2 110.6 75.2 --------- --------- --------- --------- INVESTING ACTIVITIES Additions to property, plant and equipment (14.1) (19.3) (68.9) (38.7) Acquisition of production capacity -- (3.8) -- (3.8) Business acquisitions (135.1) -- (135.1) (17.7) Other investing activities (2.0) (1.2) (4.1) (1.1) --------- --------- --------- --------- Cash used in investing activities (151.2) (24.3) (208.1) (61.3) --------- --------- --------- --------- FINANCING ACTIVITIES Payments of long-term debt (0.3) (0.7) (0.7) (3.2) Short-term borrowings 91.0 (22.9) 85.5 (16.5) Distributions to subsidiary minority shareowner (2.0) (2.1) (3.9) (4.3) Issue of common shares 1.1 2.9 3.5 12.8 Financing costs (1.2) -- (3.8) -- Other financing activities (0.1) (0.1) (0.3) (0.3) --------- --------- --------- --------- Cash provided by (used in) financing activities 88.5 (22.9) 80.3 (11.5) --------- --------- --------- --------- Effect of exchange rate changes on cash (0.1) 0.4 (0.6) 0.2 --------- --------- --------- --------- NET INCREASE (DECREASE) IN CASH (7.1) 11.4 (17.8) 2.6 CASH, BEGINNING OF PERIOD 15.9 9.6 26.6 18.4 --------- --------- --------- --------- CASH, END OF PERIOD $ 8.8 $ 21.0 $ 8.8 $ 21.0 ========= ========= ========= =========
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 the opinion of management, the financial 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. 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. Material recognition, measurement, and presentation differences between U.S. GAAP and Canadian GAAP are disclosed in note 18. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS On December 16, 2004, the Financial Accounting Standards Board issued SFAS123R, Share-Based Payments requiring companies to recognize compensation expense for all types of stock options. On April 14, 2005 the Financial Accounting Standards Board approved a new rule that deferred the effective date of SFAS123R. We are required to adopt this standard for our interim period ending April 1, 2006. We are currently evaluating the impact of SFAS123R on our results of operations and believe that adoption of SFAS123R will have a material impact on our financial statements. As discussed in note 14, had compensation expense for the plans been determined based on the fair value at the grant date consistent with SFAS No. 123, net income per Common Share for the nine months ended October 1, 2005 would have been $0.36 instead of $0.44 per diluted common share. In July 2005, the Financial Accounting Standards Board issued an Exposure Draft on Uncertain Tax Positions - an Interpretation of FASB Statement 109. The Exposure Draft contains proposed guidance on the recognition and measurement of uncertain tax positions. It also addresses the accrual of any interest and penalties related to the uncertain tax positions and the classification of liabilities resulting from uncertain tax positions in the balance sheet. The Exposure Draft contains a proposed effective date of December 15, 2005. If passed, we will adopt this exposure draft for our year ending December 31, 2005. We are currently evaluating the impact of this Exposure Draft on our results of operations. In November 2004, the Financial Accounting Standards Board issued SFAS151, 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. We will adopt this standard for our interim period ending April 1, 2006. We are currently evaluating the impact of SFAS151 on our financial statements. 7 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Unaudited NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) ESTIMATES The preparation of these consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. 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 based on cash flow estimates and the application of an appropriate discount rate. NOTE 2 -- UNUSUAL ITEMS As a result of declining sales and margins with certain customers, we conducted an impairment analysis of the customer relationship assets by comparing estimated future cash flows at the lowest level of cash flows that were separately identifiable to the carrying value of the asset. This analysis showed that the estimated future cash flows were not sufficient to recover the carrying value on certain customer relationship assets and accordingly, during the third quarter we recorded asset impairment charges of $20.0 million in order to write down the customer relationship assets to their fair value. Fair value was determined by discounting estimated future cash flows related to the customer relationship assets. Certain equipment and our remaining investment in an equity investee were written down by $3.7 million. We also recorded restructuring charges of $2.0 million for severance payments. 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. We may also rationalize products and production capacity but have not yet completed our analysis nor have we completed our detailed plans and 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 the company's 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 income for the quarter ended October 1, 2005 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 leads to 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. 8 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Unaudited 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 For the nine months ended ------------------------------------- -------------------------------------- OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2, 2005 2004 2005 2004 --------------- ----------------- --------------- ------------------ (in millions of U.S. dollars) (in millions of U.S. dollars) Income tax recovery (provision) based on Canadian statutory rates $ 1.0 $ (10.6) $ (16.0) $ (34.1) Foreign tax rate differential 1.6 0.3 2.5 0.5 Non-deductible and other items (1.5) 2.0 (1.4) 2.4 --------------- ----------------- --------------- ------------------ $ 1.1 $ (8.3) $ (14.9) $ (31.2) =============== ================= =============== ==================
NOTE 5 -- COMPREHENSIVE INCOME
For the three months ended For the nine months ended ------------------------------------- -------------------------------------- OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2, 2005 2004 2005 2004 --------------- ----------------- --------------- ------------------ (in millions of U.S. dollars) (in millions of U.S. dollars) Net income (loss) $ (1.8) $ 22.1 $ 31.5 $ 66.9 Foreign currency translation 5.1 5.1 (2.7) 3.5 Unrealized gains (losses) on cash flow hedges (0.5) (0.1) 0.2 (0.6) --------------- ----------------- --------------- ------------------ $ 2.8 $ 27.1 $ 29.0 $ 69.8 =============== ================= =============== ==================
NOTE 6 -- NET INCOME (LOSS) PER COMMON SHARE Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common 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. 9 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Unaudited NOTE 6 -- NET INCOME (LOSS) PER COMMON SHARE (continued) The following table reconciles the basic weighted average number of common shares outstanding to the diluted weighted average number of common shares outstanding:
For the three months ended For the nine months ended ----------------------------------- ------------------------------------ OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2, 2005 2004 2005 2004 ---------------- ---------------- ---------------- ---------------- (in thousands) (in thousands) Weighted average number of shares outstanding -- basic 71,703 71,294 71,600 70,870 Dilutive effect of stock options - 949 341 1,236 ---------------- ---------------- ---------------- ---------------- Adjusted weighted average number of shares outstanding -- diluted 71,703 72,243 71,941 72,106 ================ ================ ================ ================
At October 1, 2005, options to purchase 3,693,650 shares (1,437,000 -- October 2, 2004) of common stock at a weighted average exercise price of C$33.94 per share (C$41.14 -- October 2, 2004) were outstanding, but were not included in the computation of diluted net income per share because the options' exercise price was greater than the average market price of the common stock. As of October 1, 2005, we had 71,709,630 common shares and 4,547,805 common share options outstanding. Of the common share options outstanding, 2,349,294 options were exercisable as of October 1, 2005. During the third quarter ended October 1, 2005, 1,009,250 of common share options were issued at a weighted average price of C$29.06 and 79,010 common share options were exercised at a weighted average exercise price of C$16.99. NOTE 7 -- INVENTORIES
OCTOBER 1, JANUARY 1, 2005 2005 ---------- ---------- (in millions of U.S. dollars) Raw materials $ 62.5 $ 47.9 Finished goods 61.3 59.9 Other 16.4 15.0 -------- -------- $ 140.2 $ 122.8 ======== ========
NOTE 8 -- DERIVATIVE FINANCIAL INSTRUMENTS We enter into cash flow hedges to mitigate exposure to declines in the value of the Canadian dollar and pound sterling attributable to certain forecasted U.S. dollar raw material purchases of the Canadian and United Kingdom ("U.K.") and European business segments. The hedges consist of monthly foreign exchange options to buy U.S. dollars at fixed rates per Canadian dollar and pound sterling 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. 10 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Unaudited NOTE 8 -- DERIVATIVE FINANCIAL INSTRUMENTS (continued) 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 October 1, 2005, the fair value of the foreign exchange options was $0.7 million ($0.3 million -- October 2, 2004) and we recorded $0.5 million unrealized loss in comprehensive income for the third quarter ($0.1 million -- October 2, 2004) and $0.2 million unrealized gain in comprehensive income ($0.6 million unrealized loss -- October 2, 2004) for the nine months ending October 1, 2005. NOTE 9 -- PROPERTY, PLANT AND EQUIPMENT
OCTOBER 1, JANUARY 1, 2005 2005 ---------- ---------- (in millions of U.S. dollars) Cost $ 690.0 $ 570.3 Accumulated depreciation (288.8) (256.6) -------- -------- $ 401.2 $ 313.7 ======== ========
NOTE 10 -- GOODWILL
OCTOBER 1, JANUARY 1, 2005 2005 ---------- ---------- (in millions of U.S. dollars) Balance at beginning of period $ 88.8 $81.6 Business acquisitions -- note 15 69.4 5.7 Foreign exchange (0.5) 1.5 ------ ----- $157.7 $88.8 ====== =====
11 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Unaudited NOTE 11 -- INTANGIBLES AND OTHER ASSETS
OCTOBER 1, 2005 JANUARY 1, 2005 ------------------------------ ------------------------------ COST ACCUMULATED NET COST ACCUMULATED NET AMORTIZATION AMORTIZATION ------------------------------ ------------------------------ (in millions of U.S. dollars) (in millions of U.S. dollars) INTANGIBLES Not subject to amortization Rights $ 80.4 $ -- $ 80.4 $ 80.4 $ -- $ 80.4 ------------------------------ ------------------------------ Subject to amortization Customer relationships 167.2 37.3 129.9 164.7 31.5 133.2 Trademarks 29.1 8.8 20.3 30.0 7.3 22.7 Information technology 47.0 22.8 24.2 40.4 18.4 22.0 Other 3.5 0.9 2.6 3.6 0.6 3.0 ------------------------------ ------------------------------ 246.8 69.8 177.0 238.7 57.8 180.9 ------------------------------ ------------------------------ 327.2 69.8 257.4 319.1 57.8 261.3 ------------------------------ ------------------------------ OTHER ASSETS Financing costs 5.0 0.9 4.1 5.6 4.6 1.0 Other 5.6 2.4 3.2 15.5 1.7 13.8 ------------------------------ ------------------------------ 10.6 3.3 7.3 21.1 6.3 14.8 ------------------------------ ------------------------------ $ 337.8 $ 73.1 $ 264.7 $ 340.2 $ 64.1 $ 276.1 ============================== ==============================
Amortization expense of intangible assets was $5.6 million for the quarter ended October 1, 2005 ($4.4 million -- October 2, 2004). During the quarter we also recorded impairment charges of $20.0 million. Amortization expense of intangible assets for the first nine months ended of 2005 was $16.1 million ($13.2 million - -- October 2, 2004). NOTE 12 -- SHORT-TERM BORROWINGS On March 31, 2005, we entered into committed senior secured credit facilities that provide for financing in the United States, Canada, the United Kingdom, and Mexico. The facilities replaced our former committed senior secured credit facility in the United States and Canada and our demand bank credit facility in the United Kingdom. The facilities terminate, and the debt under the senior secured credit agreement is due, on March 31, 2010. These multicurrency facilities were amended on August 10, 2005 to increase the facilities to $225 from $100 million, to add Macaw (Soft Drinks) Limited as a co-borrower, to consent to the acquisition of Macaw (Holdings) Limited and its subsidiary, and to increase the Maximum Facility Amount to $350 million. The amended facilities allow for revolving credit borrowings in a principal amount of up to $225 million and are currently comprised of two separate facilities: (1) a $220 million multicurrency facility made by certain lenders to us and our indirect wholly-owned subsidiaries, Cott Beverages Inc., Macaw (Soft Drinks) Limited and Cott Beverages Limited as co-borrowers, and (2) a $5 million Mexican facility made by certain lenders to our indirect 90% owned subsidiary Cott Embottelladores de Mexico, S.A. de C.V. ("CEMSA"). Each facility includes subfacilities for swingline loans and letters of credit. The $225 million facilities can be increased up to an additional $125 million at our option if the lenders agree to increase their commitments or new lenders join the facility and we satisfy certain conditions. Within such $125 million of extra availability, and subject to certain other limitations, we can establish additional revolving loan facilities in an aggregate amount not to exceed $30 million to be provided in various currencies as agreed upon for additional subsidiaries designated by us. Wachovia Bank, National Association acts as administrative agent and security trustee for lenders under these facilities. 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 12 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Unaudited NOTE 12 -- SHORT-TERM BORROWINGS (continued) consolidated total leverage ratio. As at October 1, 2005, credit of $83.8 million was available after borrowings of $136.3 million and standby letters of credit of $4.9 million. The weighted average interest rate was 5.77% on these facilities as of October 1, 2005. On April 1, 2005, our principal U.S. operating subsidiaries (the "Originators") entered into a receivables securitization facility under which they agreed to sell substantially all of their receivables generated from their ordinary course operations, as well as certain related assets, to a new special purpose indirect subsidiary of ours, Cott USA Receivables Corporation, which in turn sells and assigns undivided interests in the receivables and related assets to an unaffiliated entity, Park Avenue Receivables Company, LLC ("PARCO") and certain other financial institutions (together with PARCO, the "Purchasers") in exchange for cash in amounts determined by the parties, subject to specified conditions. The transfers to the Purchasers are treated as a financing for purposes of our consolidated financial statements; however, the presentation of consolidated financial statements does not itself imply that the assets of any consolidated entity (including any special-purpose entity formed for a particular project) are available to pay the liabilities of any other consolidated entity, or that the liabilities of any consolidated entity (including any special-purpose entity formed for a particular project) are obligations of any other consolidated entity. The transfers of the receivables and related assets to the Purchasers are governed by a Receivables Purchase Agreement, dated April 1, 2005, by and among Cott USA Receivables Corporation, Cott Beverages Inc., the Purchasers and JPMorgan Chase Bank, N.A. ("JPMorgan"), acting for itself and the Purchasers. The agreement contains representations, warranties, covenants, and indemnities customary for facilities of this type. The facility does not contain any covenants that the Company views as materially constraining its activities or (except for Cott USA Receivables Corporation) the activities of its subsidiaries. The amount of funds available under the receivables 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 million program limit. As of October 1, 2005, $55.6 million of eligible receivables, net of reserves, were available for purchase. As of October 1, 2005 $5 million was outstanding, under this facility, at a weighted average interest rate of 4.42%. NOTE 13 -- 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 For the nine months ended ------------------------------ ----------------------------- OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2, 2005 2004 2005 2004 -------------- ---------- ----------- ------------ (in millions of U.S. dollars) (in millions of U.S. dollars) Increase (decrease) in accounts receivable $ 23.4 $ 38.7 $ (24.1) $ (30.1) Increase (decrease) in inventories 6.8 2.8 (10.6) (31.0) Increase (decrease) in prepaid and other expenses (1.4) 0.8 (3.7) (3.5) Increase (decrease) in accounts payable and accrued liabilities (14.9) (24.8) 34.8 16.7 ------- ------- ------- ------- $ 13.9 $ 17.5 $ (3.6) $ (47.9) ======= ======= ======= =======
13 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Unaudited NOTE 14 -- STOCK OPTION PLANS Pursuant to the SFAS No. 123, Accounting for Stock-Based Compensation, we have elected to account for our employee stock option plan under APB opinion No. 25, Accounting for Stock Issued to Employees. Under this method of accounting, compensation expense is measured as the excess, if any, of the market value of our common stock at the award date over the amount the employee must pay for the stock (exercise price). Our policy is to award stock options with an exercise price equal to the closing price of our common stock on the Toronto Stock Exchange on the last trading day immediately before the date of award, and accordingly, no compensation expense has been recognized for stock options issued under this plan. Had compensation expense for the plans been determined based on the fair value at the grant date consistent with SFAS No. 123, our net income and net income per common share would have been as follows:
For the three months ended For the nine months ended ------------------------------ ------------------------------ OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2, 2005 2004 2005 2004 ---------- -------------- ---------- ------------- (in millions of U.S. dollars, (in millions of U.S. dollars, except per share amounts) except per share amounts) NET INCOME (LOSS) As reported $(1.8) $ 22.1 $ 31.5 $ 66.9 Compensation expense (2.0) (2.2) (5.5) (6.2) ----- ------ ------ ------ Pro forma $(3.8) $ 19.9 $ 26.0 $ 60.7 ===== ====== ====== ====== NET INCOME PER SHARE -- BASIC As reported $(0.03) $ 0.31 $ 0.44 $ 0.94 Pro forma $(0.05) $ 0.28 $ 0.36 $ 0.86 NET INCOME PER SHARE -- DILUTED As reported $(0.03) $ 0.31 $ 0.44 $ 0.93 Pro forma $(0.05) $ 0.28 $ 0.36 $ 0.84
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:
OCTOBER 1, OCTOBER 2, 2005 2004 ----------- ----------- Risk-free interest rate 3.3% - 3.7% 3.3% - 3.9% Average expected life (years) 4 4 Expected volatility 40.0% 45.0% Expected dividend yield -- --
14 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Unaudited NOTE 15 -- BUSINESS ACQUISITIONS Effective August 10, 2005 we acquired 100% of the shares of Macaw (Holdings) Limited, the parent company of Macaw (Soft Drinks) Limited, the largest privately owned manufacturer of retailer brand carbonated soft drinks in the United Kingdom. The acquisition of Macaw represents a significant strategic investment in our U.K. business. We expect that the additional production capacity and Macaw's manufacturing capability in the fast-growing aseptic beverage segment will enable us to expand the variety of products and packages we offer and enhance the service we provide to our customers. This acquisition has been accounted for using the purchase method. The results of operations have been included in our consolidated statements of income from the effective date of purchase. The purchase price for the acquisition was $135.1 million (75.4 million pound sterling) including acquisition costs of $2.4 million (1.3 million pound sterling). The acquisition was financed under our global credit facilities, which were increased from $100.0 million to $225.0 million in connection with this transaction. The goodwill recognized on the transaction is not deductible for tax purposes. The preliminary purchase price allocation is as follows based on the fair values of the net assets acquired:
AUGUST 10, 2005 -------------------- (in millions of U.S. dollars) Current assets $ 23.2 Property, plant & equipment 50.1 Customer relationships 24.9 Goodwill 69.4 ------- 167.6 ------- Current liabilities 20.4 Deferred income taxes 12.1 32.5 ------- Purchase cost $ 135.1 -------
15 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Unaudited NOTE 15 -- BUSINESS ACQUISITIONS (continued) The following unaudited pro forma information for the nine months ended October 1, 2005 and October 2, 2004 presents the consolidated results of operations of the Company as if the acquisition of Macaw had occurred as of January 1, 2005. Pro forma information does not include the synergies that we anticipate should result from the acquisition.
OCTOBER 1, OCTOBER 2, 2005 2004 ----------- ----------- (in millions of U.S. dollars, except per share amounts) SALES As reported $ 1,358.1 $ 1,277.0 Pro forma 1,417.3 1,358.1 NET INCOME As reported 31.5 66.9 Pro forma 28.1 64.7 NET INCOME PER SHARE -- BASIC As reported 0.44 0.94 Pro forma 0.39 0.91 NET INCOME PER SHARE -- DILUTED As reported 0.44 0.93 Pro forma 0.39 0.89
NOTE 16 -- CONTINGENCIES In January 2005, we were named as one of many defendants in a class action lawsuit alleging the unauthorized use by the defendants of container deposits and the imposition of recycling fees on customers. This litigation is at a very preliminary stage and the merits of the case have not been determined. In addition, 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. We believe that the resolution of these matters will not have a material adverse effect on our financial position or results from operations. 16 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Unaudited NOTE 17 -- 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 the U.S., Canada, 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
FOR THE THREE UNITED MONTHS ENDED UNITED KINGDOM CORPORATE OCTOBER 1, 2005 STATES CANADA & EUROPE INTERNATIONAL & OTHER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ (in millions of U.S. dollars) External sales $ 320.2 $ 56.4 $ 73.8 $ 18.4 $ 1.1 $ 469.9 Intersegment sales 0.2 4.0 -- -- (4.2) -- Depreciation and amortization 11.5 2.3 3.5 0.3 0.7 18.3 Asset impairments 20.0 3.7 -- -- -- 23.7 Operating income (loss) 1.5 (0.4) 4.5 2.4 (2.5) 5.5 Property, plant and equipment 212.8 56.6 114.9 9.6 7.3 401.2 Goodwill 55.6 24.4 68.0 4.6 5.1 157.7 Intangibles and other assets 137.4 3.1 27.6 1.1 95.5 264.7 Total assets 602.9 133.6 310.1 79.9 81.4 1,207.9 Additions to property, plant and equipment 10.5 1.3 1.9 -- 0.4 14.1 - ------------------------------------------------------------------------------------------------------------------------------------
17 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Unaudited NOTE 17 -- SEGMENT REPORTING (continued)
FOR THE THREE UNITED MONTHS ENDED UNITED KINGDOM CORPORATE OCTOBER 2, 2004 STATES CANADA & EUROPE INTERNATIONAL & OTHER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ (in millions of U.S. dollars) External sales $ 325.3 $ 49.8 $ 51.1 $ 15.5 $ 0.7 $ 442.4 Intersegment sales 0.3 4.3 -- -- (4.6) -- Depreciation and amortization 10.0 2.1 1.9 0.3 0.4 14.7 Operating income (loss) 29.8 2.9 4.4 1.9 (1.1) 37.9 Property, plant and equipment (as of January 1, 2005) 174.9 53.0 68.7 9.6 7.5 313.7 Goodwill (as of January 1, 2005) 55.6 23.5 -- 4.6 5.1 88.8 Intangibles and other assets (as of January 1, 2005) 179.3 3.4 3.9 1.2 88.3 276.1 Total assets (as of January 1, 2005) 591.1 131.3 135.6 85.3 78.7 1,022.0 Additions to property, plant and equipment 15.3 2.1 1.0 0.6 0.3 19.3 Acquisition of production capacity 3.8 -- -- -- -- 3.8 - ------------------------------------------------------------------------------------------------------------------------------------
FOR THE NINE UNITED MONTHS ENDED UNITED KINGDOM CORPORATE OCTOBER 1, 2005 STATES CANADA & EUROPE INTERNATIONAL & OTHER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ (in millions of U.S. dollars) External sales $ 968.9 $ 157.2 $ 175.3 $ 54.1 $ 2.6 $ 1,358.1 Intersegment sales 0.2 10.1 -- -- (10.3) -- Depreciation and amortization 32.5 7.6 7.8 1.0 2.1 51.0 Asset impairments 20.0 3.7 (0.2) -- -- 23.5 Operating income (loss) 56.5 5.5 9.7 7.5 (9.2) 70.0 Additions to property, plant and equipment 49.3 8.4 9.7 0.5 1.0 68.9 - ------------------------------------------------------------------------------------------------------------------------------------
18 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Unaudited NOTE 17 -- SEGMENT REPORTING (continued)
FOR THE NINE UNITED MONTHS ENDED UNITED KINGDOM CORPORATE OCTOBER 2, 2004 STATES CANADA & EUROPE INTERNATIONAL & OTHER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ (in millions of U.S. dollars) External sales $ 938.8 $ 144.5 $ 145.5 $ 46.3 $ 1.9 $ 1,277.0 Intersegment sales 0.3 16.3 -- -- (16.6) -- Depreciation and amortization 29.9 6.4 6.0 0.9 1.5 44.7 Operating income (loss) 100.8 9.6 9.8 8.4 (7.1) 121.5 Additions to property, plant and equipment 28.6 4.0 3.1 1.4 1.6 38.7 Acquisition of production capacity 3.8 -- -- -- -- 3.8 - ------------------------------------------------------------------------------------------------------------------------------------
Intersegment sales and total assets under the Corporate & Other caption include the elimination of intersegment sales, 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 nine months ended October 1, 2005, sales to one major customer accounted for 41% (40% -- October 2, 2004) of our total sales. Revenues by geographic area are as follows:
For the three months ended For the nine months ended ----------------------------- ------------------------------ OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2, 2005 2004 2005 2004 ----------- -------------- ---------- ---------- (in millions of U.S. dollars) (in millions of U.S. dollars) United States $ 327.5 $ 330.6 $ 988.2 $ 957.3 Canada 56.3 49.8 157.2 144.5 United Kingdom 71.8 49.3 169.5 139.8 Other Countries 14.3 12.7 43.2 35.4 -------- ---------- ---------- ---------- $ 469.9 $ 442.4 $ 1,358.1 $ 1,277.0 ======== ========== ========== ==========
Revenues are attributed to countries based on the location of the plant. 19 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Unaudited NOTE 17 -- SEGMENT REPORTING (continued) Property, plant and equipment, goodwill, and intangibles and other assets by geographic area are as follows:
OCTOBER 1, JANUARY 1, 2005 2005 ----------- ----------- (in millions of U.S. dollars) United States $ 505.0 $ 508.9 Canada 95.7 86.3 United Kingdom 210.5 72.5 Other countries 12.4 10.9 -------- -------- $ 823.6 $ 678.6 ======== ========
NOTE 18 -- DIFFERENCES BETWEEN UNITED STATES AND CANADIAN ACCOUNTING PRINCIPLES AND PRACTICES These consolidated financial statements have been prepared in accordance with U.S. GAAP, which differ 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) Under U.S. GAAP, we have elected not to record compensation expense for options issued to employees with an exercise price equal to the market value of the options. Under Canadian GAAP, effective January 1, 2004, stock options issued to employees subsequent to January 1, 2002 are recognized in net income based on their fair value. As a result, compensation expense of $7.4 million ($6.8 million -- October 2, 2004), $5.5 million ($5.1 million -- October 2, 2004) net of tax of $1.9 million ($1.7 million -- October 2, 2004), was recorded in the first nine months of 2005. This policy was adopted on a retroactive basis with no restatement of comparative figures and as a result $5.6 million was charged to opening retained earnings as at January 3, 2004. Contributed surplus of $22.9 ($12.8 million -- October 2, 2004) was recorded to reflect the charge for unexercised options. Share capital of $1.3 million was recorded to reflect the options exercised for the period ending October 2, 2004. Of the options exercised during the period, all were granted prior to January 1, 2002. (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. 20 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Unaudited NOTE 18 -- DIFFERENCES BETWEEN UNITED STATES AND CANADIAN ACCOUNTING PRINCIPLES AND PRACTICES (continued) 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 flow as follows:
OCTOBER 1, 2005 JANUARY 1, 2005 ------------------------------ -------------------------------- U.S. GAAP CANADIAN GAAP U.S. GAAP CANADIAN GAAP ---------- ------------- ---------- ------------- CONSOLIDATED BALANCE SHEETS (in millions of U.S. dollars) (in millions of U.S. dollars) Property, plant & equipment (b) $ 401.2 $ 401.3 $ 313.7 $ 314.1 Goodwill (b) 157.7 158.2 88.8 89.3 Total assets 1,207.9 1,208.5 1,022.0 1,023.9 Deferred income taxes (a),(b) 65.0 59.2 51.0 47.2 Total liabilities 693.9 688.1 540.9 537.1 Capital stock (a),(c) 291.4 263.9 287.0 259.5 Contributed Surplus (a) -- 22.9 -- 15.5 Retained earnings (a), (b), (c) 193.1 161.7 161.6 135.9 Accumulated other comprehensive income (c) 6.2 48.6 8.7 51.1 Total shareowners' equity 490.7 497.1 457.3 462.0
Income reconciliation for Income reconciliation for the three months ended the nine months ended -------------------------- ---------------------------- OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2, 2005 2004 2005 2004 CONSOLIDATED STATEMENTS OF ---------- ---------- ---------- ---------- INCOME (LOSS) (in millions of U.S. dollars) (in millions of U.S. dollars) Net (loss) income under U.S. GAAP $ (1.8) $ 22.1 $ 31.5 $ 66.9 Cost of sales (b) (0.1) (0.1) (0.3) (0.3) Stock compensation expense (a) (2.2) (2.8) (7.4) (6.8) Recovery of income taxes (a),(b) 0.6 0.8 2.0 1.8 ------ ------ ------ ------ Net income (loss) under Canadian GAAP $ (3.5) $ 20.0 $ 25.8 $ 61.6 ====== ====== ====== ====== Basic income (loss) per common share, Canadian GAAP $(0.05) $ 0.28 $ 0.36 $ 0.87 Diluted income (loss) per common share, Canadian GAAP $(0.05) $ 0.28 $ 0.36 $ 0.85
21 COTT CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Unaudited NOTE 18. DIFFERENCES BETWEEN UNITED STATES AND CANADIAN ACCOUNTING PRINCIPLES AND PRACTICES (continued)
Cash flow reconciliation Cash flow reconciliation for the three months ended for the nine months ended -------------------------- -------------------------- OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2, 2005 2004 2005 2004 ---------- ---------- ---------- ---------- CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions of U.S. dollars) (in millions of U.S. dollars) Cash provided by operating activities U.S. GAAP $ 55.7 $ 58.2 $ 110.6 $ 75.2 Net income (a),(b) (1.7) (2.1) (5.7) (5.3) Depreciation & amortization (b) 0.1 0.1 0.3 0.3 Deferred income taxes (a),(b) (0.6) (0.8) (2.0) (1.8) Other non-cash items (a) 2.2 2.8 7.4 6.8 ------- ------- -------- ------- Cash provided by operating activities Canadian GAAP $ 55.7 $ 58.2 $ 110.6 $ 75.2 ======= ======= ======== =======
22 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS We recorded asset impairment and restructuring charges of $25.7 million on a pre-tax basis (or $0.24 per diluted share after taxes) in the quarter, resulting in a net loss of $1.8 million or $0.03 per diluted share. This compared to net income of $22.1 million or $0.31 per share in last year's third quarter. For the first nine months of 2005, net income decreased 53% to $31.5 million or $0.44 per diluted share, from $66.9 million or $0.93 per diluted share in the same period last year. The decrease was due to the asset impairment and restructuring charges; continued carbonated soft drink ("CSD") softness in North America as indicated by the ACNielsen data which states that the U.S. Food and Mass Merchandising Channels including Wal-Mart have experienced a 1.8% decline in CSD volume for the nine months ended October 1, 2005; higher packaging and raw material costs; higher fixed costs resulting from recently-added production capacity, including the start-up of our new Texas plant; and changes in product mix toward lower margin bottled water, particularly in the U.S. SALES -- Sales for the third quarter of 2005 were $469.9 million, an increase of 6.2% from $442.4 million in the third quarter of 2004. Sales increased 5.1% after excluding the impact of foreign exchange. Sales increased 1.1% when also excluding the acquisition of Macaw (Holdings) Limited, the parent company of Macaw (Soft Drinks) Limited (the "Macaw Acquisition") in August 2005 and certain of the assets of Metro Beverage Co. (the "Metro Acquisition") in October 2004. Total 8oz equivalent case volume was 329.3 million cases in the third quarter of 2005, up 9% from 302.0 million cases in the third quarter of 2004. Excluding the Macaw and Metro acquisitions and concentrate sales, volume was 225.6 million 8oz equivalent cases, up 2.1% from 220.9 million 8 oz equivalent cases in the third quarter of 2004. The increase is due primarily to an increase in volumes to our customers in the U.K. and International business units. The Macaw and Metro acquisitions contributed 15.2 million 8oz equivalent cases to sales volume in the third quarter of 2005. Sales of concentrates in the third quarter of 2005 were 88.5 million 8oz equivalent cases, up 28.8% from 68.7 million 8oz equivalent cases in the third quarter of 2004. The increase is primarily driven by timing differences in customer ordering patterns. Concentrate manufacturing is a high volume but low dollar component of our overall sales. Sales for the first nine months of 2005 increased to $1,358.1 million, 6.4% higher than the same period last year and up 2.6% when the impact of acquisitions and foreign exchange rates are excluded. The impact of acquisitions for the first half of the year includes the Macaw and Metro Acquisitions as well as the acquisition of certain of the assets of The Cardinal Companies of Elizabethtown, LLC (the "Cardinal Acquisition"). The Cardinal Acquisition was completed in March 2004. As such, the effect of the acquisition on our comparative results, on a quarterly basis, is limited to our first quarter results. Total 8oz equivalent case volume was 927.6 million cases for the first nine months of 2005, up 3.0% from the first nine months of 2004 where case volume was 900.7 million cases. Excluding concentrate sales, volume was 694.1 million 8oz equivalent cases for the first nine months of 2005, an increase of 2.1% compared to the first nine months of 2004. Sales in the U.S. during the third quarter of 2005 were $320.2 million, down 1.6% from $325.3 million in the third quarter of 2004. Excluding the Metro Acquisition, sales decreased 2.7% for the quarter. The third quarter decline in sales was primarily driven by the softness of the CSD market in the U.S. In the first nine months of 2005, sales of $968.9 million grew by 3.2% compared with the first nine months of 2004. Excluding acquisitions, sales in the first nine months of 2005 increased 1.4% as compared to the first nine months of 2004. The year to date increase in sales was primarily driven by price increases to our customers to recover raw material cost increases. 23 Sales in Canada were $56.4 million for the third quarter of 2005, up 13.3% from $49.8 million in the third quarter of 2004 and down 3.5% excluding the impact of foreign exchange rates. The third quarter decrease is primarily attributable to a continuing decline in volume to our customers which is a result of the softness in the CSD market. For the first nine months of the year, sales of $157.2 million were 8.8% higher than $144.5 million for the same period last year, and consistent with prior year when the effect of foreign exchange rates is taken into account. Sales in the U.K. and Europe were $73.8 million for the third quarter of 2005, up 44.4% from $51.1 million in the third quarter of 2004 and up 18.5% when excluding the impact of foreign exchange and the Macaw Acquisition. For the first nine months of 2005, sales of $175.3 million were up 20.5% from the same period in 2004. Excluding the impact of foreign exchange rates and the Macaw Acquisition, sales were up 9.5%. The rise in sales is primarily attributable to increased volumes. The International business unit includes Mexico, Royal Crown International and the Asia business. Sales by this business unit were $18.4 million for the third quarter of 2005, up 18.7% from $15.5 million in the third quarter of 2004. For the first nine months of the year, sales of $54.1 million were 16.8% higher than $46.3 million for the same period last year. Much of this business unit's growth was driven by increased volumes in our Mexican division, which accounted for $1.7 million of the increase in the third quarter and $7.9 million of the increase in the first nine months of 2005. GROSS PROFIT -- Gross profit for the third quarter of 2005 was $65.4 million, or 13.9% of sales, down from 16.0% of sales in the third quarter of 2004. Gross profit in the first nine months of 2005 was $202.1 million, or 14.9% of sales, compared to gross profit of $226.9 million, or 17.8% of sales, in the first nine months of 2004. The third quarter and year-to-date gross profit decline was largely a consequence of CSD softness in North America; higher packaging and raw material costs; higher fixed costs resulting from recently added production capacity; and changes in product mix towards an increase in lower margin bottled water, particularly in the US. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A") -- SG&A was $34.2 million for the third quarter of 2005, an increase of $0.9 million, or 2.7%, from $33.3 million for the third quarter of 2004. For the first nine months of 2005, SG&A of $106.6 million was $0.5 million, or 0.5%, higher than the same period in 2004. As a percentage of sales, SG&A declined to 7.3% during the third quarter of 2005, down from 7.5% for the same period last year and to 7.8% for the first nine months of the year, down from 8.3% for the same period last year. UNUSUAL ITEMS -- For the third quarter ended October 1, 2005, we recorded asset impairments of $23.7 million on a pre-tax basis, reflecting adjustments of $20.0 million to the carrying value of customer relationships and $3.7 million reflecting the write down of certain equipment and our remaining investment in an equity investee. As a result of continuing decline in sales and margin relating to certain customers we reviewed related long-lived assets for impairment. This review indicated that the customer relationship assets were impaired and as a result the carrying value was written down to its estimated fair value. We also recorded restructuring charges of $2.0 million for severance payments as part of the plan we announced on September 29, 2005 to realign the management of our Canadian and United States businesses to a North American basis. We made the determination on October 19, 2005 as to the amounts and character of these charges in connection with the preparation of its financial statements for the third quarter ended October 1, 2005. 24 INTEREST EXPENSE -- Net interest expense was $7.7 million for the third quarter of 2005, up 20.3% from $6.4 million in the third quarter of 2004. This increase was due to an increase in borrowings to finance the Macaw Acquisition. Net interest expense for the first nine months of 2005 was $20.8 million, up 6.1% from $19.6 million in the first nine months of 2004. INCOME TAXES -- As a result of the decline in the CSD volume in North America for the third quarter ended October 1, 2005 we recorded an income tax recovery of $1.1 million compared to an income tax provision of $8.3 million for the same quarter last year. For the first nine months of 2005 we recorded an income tax provision of $14.9 million as compared with $31.2 million for the same period last year. For the first nine months of 2005, the overall effective tax rate was 32.1%, which is consistent with the effective tax rate for the first nine months of 2004, which was 31.7%. FINANCIAL CONDITION -- Cash provided by operating activities for the first nine months of 2005 was $41.7 million after capital expenditures of $68.9 million, as compared to the first nine months of 2004 in which cash provided by operating activities was $36.5 million after capital expenditures of $38.7 million. Cash flow from operations increased in the first nine months of 2005 due to an increase in non-cash working capital of $3.6 million versus an increase in non-cash working capital of $47.9 million for the nine months ended October 2, 2004. The lower increase for the first nine months of 2005 was primarily due to a lower working capital investment required as a result of the growth rate decline in the U.S. This was partially offset by the capital expenditures incurred as a result of the new Texas plant. Cash decreased $17.8 million in the first nine months of 2005 to $8.8 million as of October 1, 2005. INVESTING ACTIVITIES -- On August 10, 2005 we acquired 100% of the shares of Macaw (Holdings) Limited, the parent company of Macaw (Soft Drinks) Limited, the largest privately owned manufacturer of retailer brand carbonated soft drinks in the United Kingdom. The purchase price for the acquisition was $135.1 million (75.4 million pound sterling) including acquisition costs of $2.4 million (1.3 million pound sterling). The acquisition was financed under our global credit facilities, which were increased from $100.0 million to $225.0 million in connection with this transaction. On March 17, 2004, we acquired certain of the assets of The Cardinal Companies of Elizabethtown, LLC in Kentucky, including a bottling facility. The total purchase price for the acquisition was $17.7 million, including estimated acquisition costs of $0.3 million. The acquisition was funded from cash flow from operations and short-term borrowings. CAPITAL RESOURCES AND LONG-TERM DEBT -- Our sources of capital include operating cash flows, short term borrowings under current credit 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. On March 31, 2005, we entered into committed senior secured credit facilities that provide for financing in the United States, Canada, the United Kingdom, and Mexico. The facilities replaced our former committed senior secured credit facility in the United States and Canada and our demand bank credit facility in the United Kingdom. The facilities terminate, and the debt under the senior secured credit agreement is due, on March 31, 2010. These multicurrency facilities were amended on August 10, 2005 to increase the facilities to $225 from $100 million, to add Macaw (Soft Drinks) Limited as a co-borrower, to consent to the acquisition of Macaw (Holdings) Limited and its subsidiary, and to increase the Maximum Facility Amount to $350 million. The amended facilities allow for revolving credit borrowings in a principal amount of up to $225 million and are currently comprised of two separate facilities: (1) a $220 million multicurrency facility made by certain lenders to us and our indirect wholly-owned subsidiaries, Cott Beverages Inc., Macaw (Soft Drinks) Limited and Cott Beverages Limited as co-borrowers, and (2) a $5 million Mexican facility made by certain lenders to our indirect 90% owned subsidiary Cott Embottelladores de Mexico, S.A. de C.V. ("CEMSA"). Each facility includes subfacilities for swingline loans and letters of credit. The 25 $225 million facilities can be increased up to an additional $125 million at our option if the lenders agree to increase their commitments or new lenders join the facility and we satisfy certain conditions. Within such $125 million of extra availability, and subject to certain other limitations, we can establish additional revolving loan facilities in an aggregate amount not to exceed $30 million to be provided in various currencies as agreed upon for additional subsidiaries designated by us. Wachovia Bank, National Association acts as administrative agent and security trustee for lenders under the facilities. 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. As at October 1, 2005, credit of $83.8 million was available after borrowings of $136.3 million and standby letters of credit of $4.9 million. The weighted average interest rate was 5.77% on these facilities as of October 1, 2005. On April 1, 2005, our principal U.S. operating subsidiaries (the "Originators") entered into a receivables securitization facility under which they agreed to sell substantially all of their receivables generated from their ordinary course operations, as well as certain related assets, to a new special purpose indirect subsidiary of ours, Cott USA Receivables Corporation, which in turn sells and assigns undivided interests in the receivables and related assets to an unaffiliated entity, Park Avenue Receivables Company, LLC ("PARCO") and certain other financial institutions (together with PARCO, the "Purchasers") in exchange for cash in amounts determined by the parties, subject to specified conditions. The transfers to the Purchasers are treated as a financing for purposes of our consolidated financial statements; however, the presentation of consolidated financial statements does not itself imply that the assets of any consolidated entity (including any special-purpose entity formed for a particular project) are available to pay the liabilities of any other consolidated entity, or that the liabilities of any consolidated entity (including any special-purpose entity formed for a particular project) are obligations of any other consolidated entity. The transfers of the receivables and related assets to the Purchasers are governed by a Receivables Purchase Agreement, dated April 1, 2005, by and among Cott USA Receivables Corporation, Cott Beverages Inc., the Purchasers and JPMorgan Chase Bank, N.A. ("JPMorgan"), acting for itself and the Purchasers. The agreement contains representations, warranties, covenants, and indemnities customary for facilities of this type. The facility does not contain any covenants that the Company views as materially constraining its activities or (except for Cott USA Receivables Corporation) the activities of its subsidiaries. The amount of funds available under the receivables 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 million program limit. As of October 1, 2005, $55.6 million of eligible receivables, net of reserves, were available for purchase. As of October 1, 2005 $5 million was outstanding, under this facility, at a weighted average interest rate of 4.42%. CANADIAN GAAP -- Under Canadian GAAP, in the first nine months of 2005, we reported net income of $25.8 million and total assets of $1,208.5 million compared to net income and total assets under U.S. GAAP of $31.5 million and $1,207.9 million, respectively, in the first nine months of 2005. The main U.S./Canadian GAAP difference in the first nine months of 2005 was the accounting of stock options. Under Canadian GAAP, effective January 1, 2004, stock options issued to employees subsequent to January 1, 2002 are recognized in net income based on their fair value. As a result, compensation expense of $7.4 million, $5.5 million after tax of $1.9 million, was recorded in the first nine months of 2005 and $5.6 million was charged to opening retained earnings as this policy was adopted on a prospective basis. Under U.S. GAAP, we have elected not to record compensation expense for options issued to employees with an exercise price equal to the market value of the options. OUTLOOK -- Our ongoing focus is to increase sales, market share and profitability for Cott and for our customers. While the CSD industry continues to experience weakness in major markets, we believe that there are significant opportunities for retailer brand beverage growth in the U.S. and the U.K. 26 In the first quarter, we implemented a back-to-basics approach that focused on improving logistics, managing inventories to appropriate levels and increasing plant efficiencies. On September 29, 2005, we announced a plan to realign the management of our Canadian and U.S. businesses to a North American basis to leverage management strengths across a broader territory and maximize opportunities and processes to improve supply chain efficiencies and position the North American business to become more profitable and more responsive to customers' needs. In connection with this plan, we anticipate recording additional pre-tax charges of approximately $34 to 54 million over the 12 to 18 month period following the announcement. We expect that the largest of these charges will be related to asset impairment and that there will also be charges for severance and other costs. 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. In addition to initiatives related to the recent North American management restructuring, our business strategy involves continuing to expand outside of the U.S. market. 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 that market. Our U.K. division intends to continue to enhance its performance through product innovation and a customer-centric focus to identify opportunities. The acquisition of Macaw has added additional production capacity and aseptic beverage capabilities to our U.K. business unit. Under applicable U.K. law, we were not required to seek pre-clearance of the Macaw Acquisition by the U.K. Office of Fair Trading ("OFT"). We are currently in discussions with the OFT regarding the competitive effects of the acquisition in an effort to secure a decision from the OFT not to refer the transaction to the Competition Commission for a further investigation. As part of its review of the transaction, the OFT has asked us to undertake to refrain from further integrating the Macaw business into the Cott business in the U.K. The fact that such request has been made does not impact the decision as to whether the transaction would be referred to the Competition Commission. The undertakings will expire if a decision is taken by the OFT not to refer the transaction to the Competition Commission. If the transaction is so referred, then undertakings in this or a similar form will remain in force until the Competition Commission reaches a final decision. RISKS AND UNCERTAINTIES -- Risks and uncertainties include a continuation of the decline in CSD sales in the U.S., an increased or expanding reliance on sales of lower-margin products, the successful implementation of our plan to realign our operations on a North American basis, the increase in procurement costs for items such as sweetener, packaging and other ingredients and our ability to pass those increases on to our customers, the successful integration of new acquisitions, national brand pricing strategies, the commitment of major customers to retailer brand programs, our ability to expand outside of the U.S. market, the ability to protect intellectual property and fluctuations in interest rates and foreign currencies versus the U.S. dollar. Sales to our top customer (Wal-Mart Stores, Inc.) in the first nine months of 2005 and 2004 accounted for 41% and 40%, respectively, of our total sales. Sales to the top ten customers in the first nine months of 2005 and 2004 accounted for 67% 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, or a significant reduction in orders from such customers, could have a material adverse effect on our operating results and cash flows. 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 27 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 success of our plan to realign our operations on a North American basis and the possibility of unanticipated charges in connection with the plan; 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; 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 the possibility that additional litigation 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 28 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 January 1, 2005 and to Item 3: Quantitative and Qualitative Disclosures about Market Risk found in our Quarterly Report on Form 10-Q for the quarter ended July 2, 2005. In the first nine months of 2005, we entered into cash flow hedges to mitigate exposure to declines in the value of the Canadian dollar and British pound attributable to certain forecasted U.S. dollar raw material purchases of the Canada and U.K. and Europe business segments. The hedges consist of monthly foreign exchange options to buy U.S. dollars at fixed rate per Canadian dollar and British pound and mature at various dates through to 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 and other expenses are recorded in earnings in the same periods in which the forecasted purchases or payments affect earnings. At October 1, 2005, the fair value of the foreign exchange options was $0.7 million ($0.3 million -- October 2, 2004) and we recorded $0.5 million unrealized loss in comprehensive income for the third quarter ($0.1 million -- October 2, 2004) and $0.2 million unrealized gain in comprehensive income ($0.6 million unrealized loss -- October 2, 2004) for the nine months ending October 1, 2005. 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 exchange rates 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 October 1, 2005 that could materially affect, or are likely to materially affect, our internal control over financial reporting. 29 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 January 1, 2005. With respect to the North American Container, Inc. ("NAC") litigation, pending final agreement and approval by the court on specific language, NAC has agreed, in principle, to dismiss all remaining claims. ITEM 6. FINANCIAL STATEMENT SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K 1. Financial Statement Schedules Schedule III -- Consolidating Financial Statements 2. Exhibits Number Description ------ ----------- 2.1 Agreement Relating to the Sale and Purchase of the Whole of the Issued Share Capital of Macaw (Holdings) Limited, dated August 10, 2005, between Andrew Cawthray and Others and Martyn Rose and Cott Beverages Limited (incorporated by reference to Exhibit 2.1 to our Form 8-K dated August 16, 2005). 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). 10.1 First Amendment, Consent and Joinder Agreement, dated August 10, 2005, by and among Cott Corporation, Cott Beverages Inc., Cott Beverages Limited, Macaw (Soft Drinks) Limited, Cott Embotelladores de Mexico, S.A. de C.V., certain Cott Corporation subsidiaries, the Lenders specified therein and Wachovia Bank, National Association (incorporated by reference to Exhibit 10.1 to our Form 8-K dated August 16, 2005). 10.2 Employment Agreement of B. Clyde Preslar dated July 22, 2005 (including Confidentiality and Restrictive Covenants) (filed herewith). 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 October 1, 2005 (filed herewith). 31.2 Certification of the Executive Vice President and Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 for the quarterly period ended October 1, 2005 (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 October 1, 2005. 32.2 Certification of the Executive Vice President and Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002 for the quarterly period ended October 1, 2005. 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. 30 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: November 10, 2005 /s/ B. Clyde Preslar ------------------------------- B. Clyde Preslar Executive Vice President and Chief Financial Officer (On behalf of the Company) Date: November 10, 2005 /s/ Tina Dell'Aquila ------------------------------- Tina Dell'Aquila Vice President, Controller and Assistant Secretary (Principal accounting officer) 31 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 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 INCOME (LOSS) - -------------------------------------------------------------------------------- (in millions of U.S. dollars, unaudited)
FOR THE THREE MONTHS ENDED OCTOBER 1, 2005 --------------------------------------------------------------------------------------------------- COTT COTT GUARANTOR NON-GUARANTOR ELIMINATION CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED --------------------------------------------------------------------------------------------------- SALES $ 60.4 $ 293.8 $ 94.9 $ 29.9 $ (9.1) $ 469.9 Cost of sales 51.7 252.8 83.5 25.6 (9.1) 404.5 --------------------------------------------------------------------------------------------------- GROSS PROFIT 8.7 41.0 11.4 4.3 -- 65.4 Selling, general and administrative expenses 9.6 17.3 5.2 2.1 -- 34.2 Unusual items Restructuring 0.2 1.8 -- -- -- 2.0 Asset impairments 3.7 20.0 -- -- -- 23.7 --------------------------------------------------------------------------------------------------- OPERATING INCOME (LOSS) (4.8) 1.9 6.2 2.2 -- 5.5 Other expense (income), net (0.2) (6.9) (0.9) 6.8 0.8 (0.4) Interest expense (income), net -- 8.1 (1.1) 0.7 -- 7.7 Minority interest -- -- -- 1.1 -- 1.1 --------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY INCOME (4.6) 0.7 8.2 (6.4) (0.8) (2.9) Income tax recovery (expense) 0.6 1.7 (0.8) (0.4) 1.1 Equity income 2.4 (1.3) 24.9 -- (26.0) -- --------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ (1.6) $ 1.1 $ 32.3 $ (6.8) $ (26.8) $ (1.8) ===================================================================================================
32 COTT CORPORATION CONSOLIDATING STATEMENTS OF INCOME (LOSS) - -------------------------------------------------------------------------------- (in millions of U.S. dollars, unaudited)
FOR THE NINE MONTHS ENDED OCTOBER 1, 2005 --------------------------------------------------------------------------------------------------- COTT COTT GUARANTOR NON-GUARANTOR ELIMINATION CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED --------------------------------------------------------------------------------------------------- SALES $ 167.3 $ 900.3 $ 221.7 $ 91.3 $ (22.5) $ 1,358.1 Cost of sales 141.9 765.8 193.2 77.6 (22.5) 1,156.0 --------------------------------------------------------------------------------------------------- GROSS PROFIT 25.4 134.5 28.5 13.7 -- 202.1 Selling, general and administrative expenses 28.9 56.2 15.9 5.6 -- 106.6 Unusual items Restructuring 0.2 1.8 -- -- -- 2.0 Asset impairments 3.7 20.0 (0.2) -- -- 23.5 --------------------------------------------------------------------------------------------------- OPERATING INCOME (LOSS) (7.4) 56.5 12.8 8.1 -- 70.0 Other expense (income), net (0.3) (25.3) (1.3) 28.5 (2.2) (0.6) Interest expense (income), net (0.1) 24.7 (5.0) 1.2 -- 20.8 Minority interest -- -- -- 3.4 -- 3.4 --------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY INCOME (7.0) 57.1 19.1 (25.0) 2.2 46.4 Income taxes recovery (expense) 1.1 (12.8) (2.5) (0.7) -- (14.9) Equity income (loss) 37.5 3.4 51.7 -- (92.6) -- --------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ 31.6 $ 47.7 $ 68.3 $ (25.7) $ (90.4) $ 31.5 ===================================================================================================
33 COTT CORPORATION CONSOLIDATING BALANCE SHEETS - -------------------------------------------------------------------------------- (in millions of U.S. dollars, unaudited)
AS OF OCTOBER 1, 2005 --------------------------------------------------------------------------------------------------- COTT COTT GUARANTOR NON-GUARANTOR ELIMINATION CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED --------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash $ 4.1 $ (0.2) $ 3.6 $ 1.3 $ -- $ 8.8 Accounts receivable 35.5 46.0 78.6 111.1 (49.1) 222.1 Inventories 21.2 80.5 33.0 5.5 -- 140.2 Prepaid expenses 2.2 4.5 6.1 0.4 -- 13.2 --------------------------------------------------------------------------------------------------- 63.0 130.8 121.3 118.3 (49.1) 384.3 Property, plant and equipment 51.9 210.2 129.3 9.8 -- 401.2 Goodwill 23.6 60.3 73.8 -- -- 157.7 Intangibles and other assets 15.6 177.3 29.9 41.9 -- 264.7 Due from affiliates 55.7 102.4 153.7 41.8 (353.6) -- Investments in subsidiaries 404.6 72.4 139.7 138.2 (754.9) -- --------------------------------------------------------------------------------------------------- $ 614.4 $ 753.4 $ 647.7 $ 350.0 $ (1,157.6) $ 1,207.9 =================================================================================================== LIABILITIES CURRENT LIABILITIES Short-term borrowings $ 3.4 $ 13.9 $ 132.0 $ 5.2 $ -- $ 154.5 Current maturities of long-term debt -- 0.8 -- -- -- 0.8 Accounts payable and accrued liabilities 35.3 125.8 78.6 12.8 (51.3) 201.2 --------------------------------------------------------------------------------------------------- 38.7 140.5 210.6 18.0 (51.3) 356.5 Long-term debt -- 272.4 -- -- -- 272.4 Due to affiliates 81.8 113.7 49.4 108.7 (353.6) -- Deferred income taxes 3.2 43.5 18.4 (0.1) -- 65.0 --------------------------------------------------------------------------------------------------- 123.7 570.1 278.4 126.6 (404.9) 693.9 --------------------------------------------------------------------------------------------------- Minority interest -- -- -- 23.3 -- 23.3 SHAREOWNERS' EQUITY Capital stock Common shares 291.4 302.8 602.2 168.6 (1,073.6) 291.4 Retained earnings (deficit) 193.1 (119.5) (146.0) (34.3) 299.8 193.1 Accumulated other comprehensive income (loss) 6.2 -- (86.9) 65.8 (21.1) 6.2 --------------------------------------------------------------------------------------------------- 490.7 183.3 369.3 200.1 (752.7) 490.7 --------------------------------------------------------------------------------------------------- $ 614.4 $ 753.4 $ 647.7 $ 350.0 $ (1,157.6) $ 1,207.9 ===================================================================================================
34 COTT CORPORATION CONSOLIDATING STATEMENTS OF CASH FLOWS (in millions of U.S. dollars, unaudited)
FOR THE NINE MONTHS ENDED OCTOBER 1, 2005 ----------------------------------------------------------------------------------------- COTT COTT GUARANTOR NON-GUARANTOR ELIMINATION CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED ----------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 31.6 $ 47.7 $ 68.3 $ (25.7) $ (90.4) $ 31.5 Depreciation and amortization 8.8 28.1 10.2 3.9 -- 51.0 Amortization of financing fees -- 0.2 0.1 0.2 -- 0.5 Deferred income taxes (1.2) 5.3 (0.4) (0.4) -- 3.3 Minority interest -- -- -- 3.4 -- 3.4 Equity income (loss), net of distributions (37.5) 1.0 (51.7) -- 88.2 -- Asset impairments 3.7 20.4 -- -- -- 24.1 Other non-cash items (0.2) 1.6 (2.1) 1.1 -- 0.4 Net change in non-cash working capital from continuing operations 18.7 (4.7) (12.1) (3.3) (2.2) (3.6) ----------------------------------------------------------------------------------------- Cash provided by (used in) operating activities 23.9 99.6 12.3 (20.8) (4.4) 110.6 ----------------------------------------------------------------------------------------- INVESTING ACTIVITIES Additions to property, plant and equipment (8.4) (47.1) (12.8) (0.6) -- (68.9) Business acquisitions -- -- (135.1) -- -- (135.1) Advances to affiliates (11.9) 0.1 (1.2) -- 13.0 -- Investment in subsidiary (15.0) -- (15.0) -- 30.0 -- Other (6.1) 1.4 1.5 (0.9) -- (4.1) ----------------------------------------------------------------------------------------- Cash used in investing activities (41.4) (45.6) (162.6) (1.5) 43.0 (208.1) ----------------------------------------------------------------------------------------- FINANCING ACTIVITIES Payments of long-term debt -- (0.7) -- -- -- (0.7) Short-term borrowings 3.3 (52.7) 129.7 5.2 -- 85.5 Advances from affiliates -- 1.2 11.9 (0.1) (13.0) -- Distributions to subsidiary minority shareowner -- -- -- (3.9) -- (3.9) Issue of common shares 3.5 -- 15.0 15.0 (30.0) 3.5 Dividends paid -- -- -- (4.4) 4.4 -- Financing costs -- (3.8) -- -- -- (3.8) Other -- 1.8 (2.1) -- -- (0.3) ----------------------------------------------------------------------------------------- Cash provided by (used in) financing activities 6.8 (54.2) 154.5 11.8 (38.6) 80.3 ----------------------------------------------------------------------------------------- Effect of exchange rate changes on cash 0.1 -- (0.6) (0.1) -- (0.6) ----------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH (10.6) (0.2) 3.6 (10.6) -- (17.8) CASH, BEGINNING OF PERIOD 14.7 -- -- 11.9 -- 26.6 ----------------------------------------------------------------------------------------- CASH, END OF PERIOD $ 4.1 $ (0.2) $ 3.6 $ 1.3 $ -- $ 8.8 =========================================================================================
35 COTT CORPORATION CONSOLIDATING STATEMENTS OF INCOME (LOSS) - -------------------------------------------------------------------------------- (in millions of U.S. dollars, unaudited)
FOR THE THREE MONTHS ENDED OCTOBER 2, 2004 ----------------------------------------------------------------------------------------------- COTT COTT GUARANTOR NON-GUARANTOR ELIMINATION CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED ----------------------------------------------------------------------------------------------- SALES $ 54.1 $ 302.7 $ 66.8 $ 27.4 $ (8.4) $ 442.4 Cost of sales 46.4 254.6 56.0 22.8 (8.4) 371.4 ----------------------------------------------------------------------------------------------- GROSS PROFIT 7.7 48.1 10.8 4.4 -- 71.0 Selling, general and administrative expenses 10.4 16.3 4.8 1.8 -- 33.3 Unusual items Asset impairments (0.2) -- -- -- -- (0.2) ----------------------------------------------------------------------------------------------- OPERATING INCOME (LOSS) (2.5) 31.8 6.0 2.6 -- 37.9 Other expense, net -- 0.8 (0.8) -- -- -- Interest expense (income), net -- 8.2 (1.8) -- -- 6.4 Minority interest -- -- -- 1.0 -- 1.0 ----------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY INCOME (2.5) 22.8 8.6 1.6 -- 30.5 Income taxes recovery (expense) 2.7 (9.6) (1.3) (0.1) -- (8.3) Equity income (loss) 21.9 3.2 14.3 -- (39.5) (0.1) ----------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ 22.1 $ 16.4 $ 21.6 $ 1.5 $ (39.5) $ 22.1 ===============================================================================================
FOR THE NINE MONTHS ENDED OCTOBER 2, 2004 -------------------------------------------------------------------------------------------------- COTT COTT GUARANTOR NON-GUARANTOR ELIMINATION CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED -------------------------------------------------------------------------------------------------- SALES $ 160.8 $ 873.4 $ 189.4 $ 81.1 $ (27.7) $ 1,277.0 Cost of sales 133.2 716.7 160.8 67.1 (27.7) 1,050.1 -------------------------------------------------------------------------------------------------- GROSS PROFIT 27.6 156.7 28.6 14.0 -- 226.9 Selling, general and administrative expenses 33.5 51.4 15.6 5.6 -- 106.1 Unusual items Asset impairments (0.2) -- (0.5) -- -- (0.7) -------------------------------------------------------------------------------------------------- OPERATING INCOME (LOSS) (5.7) 105.3 13.5 8.4 -- 121.5 Other expense, net 0.7 0.9 (1.3) -- -- 0.3 Interest expense (income), net -- 24.5 (4.8) (0.1) -- 19.6 Minority interest -- -- -- 3.2 -- 3.2 -------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY INCOME (6.4) 79.9 19.6 5.3 -- 98.4 Income taxes recovery (expense) 4.2 (32.2) (3.0) (0.2) -- (31.2) Equity income (loss) 69.1 7.7 51.0 -- (128.1) (0.3) -------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ 66.9 $ 55.4 $ 67.6 $ 5.1 $ (128.1) $ 66.9 ==================================================================================================
36 COTT CORPORATION CONSOLIDATING BALANCE SHEETS - -------------------------------------------------------------------------------- (in millions of U.S. dollars)
AS OF JANUARY 1, 2005 ---------------------------------------------------------------------------------------------------- COTT COTT GUARANTOR NON-GUARANTOR ELIMINATION CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED ---------------------------------------------------------------------------------------------------- ASSETS Current assets Cash $ 14.7 $ -- $ -- $ 11.9 $ -- $ 26.6 Accounts receivable 52.2 109.3 49.4 12.9 (39.5) 184.3 Inventories 20.9 72.4 24.6 4.9 -- 122.8 Prepaid expenses and other assets 3.0 3.3 3.0 0.4 -- 9.7 ---------------------------------------------------------------------------------------------------- 90.8 185.0 77.0 30.1 (39.5) 343.4 Property, plant and equipment 48.3 162.0 93.7 9.7 -- 313.7 Goodwill 22.8 51.8 14.2 -- -- 88.8 Intangibles and other assets 11.6 203.7 16.8 44.0 -- 276.1 Due from affiliates 47.0 4.7 152.4 41.8 (245.9) -- Investments in subsidiaries 354.0 74.2 65.2 133.4 (626.8) -- ---------------------------------------------------------------------------------------------------- $ 574.5 $ 681.4 $ 419.3 $ 259.0 $ (912.2) $ 1,022.0 ==================================================================================================== LIABILITIES Current liabilities Short-term borrowings $ -- $ 66.5 $ 4.9 $ -- $ -- $ 71.4 Current maturities of long-term debt -- 0.8 -- -- -- 0.8 Accounts payable and accrued liabilities 31.7 82.5 52.5 18.0 (39.5) 145.2 ---------------------------------------------------------------------------------------------------- 31.7 149.8 57.4 18.0 (39.5) 217.4 Long-term debt -- 272.5 -- -- -- 272.5 Due to affiliates 80.4 112.6 45.9 7.0 (245.9) -- Deferred income taxes 5.1 38.1 7.6 0.2 -- 51.0 ---------------------------------------------------------------------------------------------------- 117.2 573.0 110.9 25.2 (285.4) 540.9 ---------------------------------------------------------------------------------------------------- Minority interest -- -- -- 23.8 -- 23.8 SHAREOWNERS' EQUITY Capital stock Common shares 287.0 275.8 587.2 153.6 (1,016.5) 287.0 Retained earnings (deficit) 161.6 (167.4) (214.3) (4.2) 385.9 161.6 Accumulated other comprehensive income 8.7 -- (64.5) 60.6 3.9 8.7 ---------------------------------------------------------------------------------------------------- 457.3 108.4 308.4 210.0 (626.8) 457.3 ---------------------------------------------------------------------------------------------------- $ 574.5 $ 681.4 $ 419.3 $ 259.0 $ (912.2) $ 1,022.0 ====================================================================================================
37 COTT CORPORATION CONSOLIDATING STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------- (in millions of U.S. dollars, unaudited)
FOR THE NINE MONTHS ENDED OCTOBER 2, 2004 ------------------------------------------------------------------------------------------------- COTT COTT GUARANTOR NON-GUARANTOR ELIMINATION CORPORATION BEVERAGES INC. SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED ------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income 66.9 55.4 67.6 5.1 (128.1) 66.9 Depreciation and amortization 7.0 23.2 10.7 3.8 -- 44.7 Amortization of financing fees -- 0.5 -- -- -- 0.5 Deferred income taxes (2.3) 8.0 3.0 (2.0) -- 6.7 Minority interest -- -- -- 3.2 -- 3.2 Equity income (loss), net of distributions (69.1) (3.2) (51.0) -- 123.6 0.3 Asset impairments (0.2) -- (0.5) -- -- (0.7) Other non-cash items 1.1 (0.8) 0.5 0.7 -- 1.5 Net change in non-cash working capital from continuing operations (14.0) (27.9) (2.9) (3.1) -- (47.9) ------------------------------------------------------------------------------------------------- Cash provided by (used in) operating activities (10.6) 55.2 27.4 7.7 (4.5) 75.2 ------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Additions to property, plant and equipment (3.5) (27.4) (6.0) (1.8) -- 38.7 Business acquisitions -- (17.7) -- -- -- (17.7) Acquisition of production capacity -- (3.8) -- -- -- (3.8) Advances to affiliates 3.5 -- (9.8) -- 6.3 -- Investment in subsidiary (5.0) -- -- -- 5.0 -- Other (1.9) 0.3 0.2 0.3 -- (1.1) ------------------------------------------------------------------------------------------------- Cash used in investing activities (6.9) (48.6) (15.6) (1.5) 11.3 (61.3) ------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Payments of long-term debt -- (1.1) (1.9) (0.2) -- (3.2) Short-term borrowings -- (16.2) (0.3) -- -- (16.5) Advances from affiliates -- 9.8 (3.5) -- (6.3) -- Distributions to subsidiary minority shareowner -- -- -- (4.3) -- (4.3) Issue of common shares 12.8 -- 5.0 -- (5.0) 12.8 Dividends paid -- -- -- (4.5) 4.5 -- Other -- -- (0.3) -- -- (0.3) ------------------------------------------------------------------------------------------------- Cash provided by (used in) financing activities 12.8 (7.5) (1.0) (9.0) (6.8) (11.5) ------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash 0.3 -- -- (0.1) -- 0.2 ------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH (4.4) (0.9) 10.8 (2.9) -- 2.6 CASH, BEGINNING OF PERIOD 13.4 (0.6) 0.1 5.5 -- 18.4 ------------------------------------------------------------------------------------------------- CASH, END OF PERIOD 9.0 (1.5) 10.9 2.6 -- 21.0 =================================================================================================
38 EXHIBIT INDEX 2.1 Agreement Relating to the Sale and Purchase of the Whole of the Issued Share Capital of Macaw (Holdings) Limited, dated August 10, 2005, between Andrew Cawthray and Others and Martyn Rose and Cott Beverages Limited (incorporated by reference to Exhibit 2.1 to our Form 8-K dated August 16, 2005). 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). 10.1 First Amendment, Consent and Joinder Agreement, dated August 10, 2005, by and among Cott Corporation, Cott Beverages Inc., Cott Beverages Limited, Macaw (Soft Drinks) Limited, Cott Embotelladores de Mexico, S.A. de C.V., certain Cott Corporation subsidiaries, the Lenders specified therein and Wachovia Bank, National Association (incorporated by reference to Exhibit 10.1 to our Form 8-K dated August 16, 2005). 10.2 Employment Agreement of B. Clyde Preslar dated July 22, 2005 (including Confidentiality and Restrictive Covenants) (filed herewith). 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 October 1, 2005 (filed herewith). 31.2 Certification of the Executive Vice President and Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 for the quarterly period ended October 1, 2005 (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 October 1, 2005. 32.2 Certification of the Executive Vice President and Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002 for the quarterly period ended October 1, 2005. 39 EX-10.2 2 t18567exv10w2.txt EX-10.2 EXHIBIT 10.2 EMPLOYMENT AGREEMENT OF B. CLYDE PRESLAR DATED JULY 22, 2005 (INCLUDING CONFIDENTIALITY AND RESTRICTIVE COVENANTS) July 22, 2005 CLYDE PRESLAR PRIVATE AND CONFIDENTIAL Dear Clyde, I am very pleased that you have decided to join the Cott Corporation team. This letter will outline some of the terms and conditions of your employment with Cott Corporation. Please note that this is not a contract of employment or a promise of employment for any specific term. Your title will be Executive Vice President and Chief Financial Officer and you will report to me in my capacity as President & Chief Executive Officer. Your start date is yet to be agreed. Your base salary will be $330,000 per year paid on a semi-monthly basis. Your performance evaluations and salary reviews will generally be conducted on an annual basis and any increase would be a part of the annual review process. You will be entitled to participate in the Cott Executive bonus plan. In summary this plan would entitle you to a target bonus of 100% of your base salary and provides for the opportunity to earn bonus beyond the 100% amount, up to a level of 200% of your base salary, based on Company and personal performance. Bonus awards for performance above 100% of your bonus will be paid in Cott Corp. shares. These shares will be held in trust in the Executive Investment Share Purchase Plan and vest over a 3-year period. For further details of the trust please contact Sher Zaman, Director of Corporate Human Resources at our Toronto Queen's Quay office. For the year 2005 your bonus payment will be effective from 1st July 2005 (6 months). You will receive a car allowance equivalent to $16,000 per year. On commencement of employment and within your first pay payment you will also be eligible for a Sign On Bonus of $285,000 (less appropriate withholdings). Please note that the Sign On Bonus is payable back to the company (on a pro-ratad basis) should you leave the company within 12 months. You will be expected to relocate to Tampa, Florida within 6 (six) months of your start date. A copy of the relocation details are attached. For the first six months of your employment Cott will pay for accommodation and weekly travel from your home to Tampa, FLA for you or your wife. Subject to approval of the Cott Corporation Human Resources and Compensation Committee, on your date of hire you will be granted 100,000 stock options with the strike price determined at the close of the Toronto Stock Exchange on the last trading day before your start date. These options will vest over a period of (3) three years, at a rate of 30%, 30%, and 40% at the end of years (1) one, (2) two, and 3 (three) respectively. If your employment is terminated then please refer to the attached document. Effective on your date of hire you will be eligible for Cott's Benefit Program. Our Benefit Program includes health, disability and life insurance benefits. You should note that our health insurance plan does have a pre-existing illness provision, which limits the amount payable for pre-existing illnesses for 12 consecutive months beginning on your enrollment date. However, if you have been covered for health insurance by your prior employer, you may have creditable prior coverage. In order to help determine that please provide a HIPAA certificate from your prior employer. Employee contributions are required for our Program. Once you are eligible to participate in the Cott Cafeteria Plan (discussed below), your contributions will be deducted from your paycheck on a pre-tax basis. On your start date with Cott, you will be eligible to participate in Cott's Cafeteria Plan. Benefits provided under our Cafeteria Plan are pre-tax deductions for medical premiums, a Health Care Reimbursement Account and a Dependent Care Reimbursement Account. If you participate in the Cafeteria Plan, payroll deductions for the benefits you select under the plan are made on a pre-tax basis. Please review the Summary Plan Description for additional information. In addition, on the first day of a quarter following at least six months of employment, you will be eligible for Cott's 401 (K) Savings and Retirement Plan. You will also be eligible to participate in the Employee Share Purchase Plan after completing ninety (90) days of employment. Your regular annual entitlement of four (4) weeks vacation will commence in 2005. You are encouraged to take your vacation time in the calendar year it is earned. All earned vacation must be taken by March 31st of the year following the one, which it is earned; otherwise it may be forfeited. If you should leave the Company, the value of any unearned vacation taken by you will be considered a debt to the Company. PLEASE SEE THE ENCLOSED CHECKLIST OF FORMS AND DATES THE FORMS ARE DUE TO BE TURNED IN TO HR DEPARTMENT. To comply with the Immigration Reform and Control Act of 1986, the company must verify your identity and authorization to work in the United States. Therefore, please bring with you on your first day, either one original document from the list A or one original document from the list B and one original document from the list C. Acceptable documents are listed on the backside of the enclosed INS Form I-9. If you have any difficulty in this regard, please call me immediately. Upon acceptance of this offer, you acknowledge and agree that Cott has the right to disclose confidential information regarding you to any third party as required by law. Clyde, I am excited about having you join us. You have a lot to contribute to our company. I know that you can look forward to joining a dynamic and challenging organization with rewarding career opportunities. PLEASE INDICATE YOUR ACCEPTANCE OF THIS OFFER BY RETURNING ONE SIGNED ORIGINAL OF BOTH THE OFFER LETTER AND CONFIDENTIALITY AGREEMENT TO ME. Yours truly, /s/ John Sheppard John Sheppard President & Chief Executive Officer Attached: Relocation Policy Confidentiality Agreement I accept this offer of employment and the terms identified herein. /S/ B. CLYDE PRESLAR 22 JULY, 2005 - -------------------- ------------- CLYDE PRESLAR DATE TERMINATION OF EMPLOYMENT TERMINATION BY THE CORPORATION FOR JUST CAUSE Cott may terminate this Agreement and your employment hereunder without payment of any compensation either by way of anticipated earnings or damages of any kind at any time for Just Cause or your death. "Just Cause" shall mean: I. gross misconduct or dishonesty in the discharge of your duties hereunder; II. theft, misappropriation or fraud against the company or its property; III. alcoholism or addiction to a substance which materially impairs your ability to perform your duties hereunder; IV. wilful breach of fiduciary duties; V. gross negligence in the performance of your duties; or VI. if you commit a wilful and material breach of this Agreement, unless, in the case of an act or omission described in clause (iv) or (v) above, you remedy same, after notice from the Cott, within a period which is reasonable in the circumstances. TERMINATION BY THE EMPLOYER WITHOUT CAUSE. If your employment is terminated by Cott, including delivery by Cott of a Notice of Termination, for any reason other than for Just Cause then Cott shall pay forthwith to you directly a lump sum amount (less appropriate withholdings) equal to: 24 months' of (A) Current Base Salary, (B) Bonus (based on current year targets capped at 100% payout) TERMINATION UPON A CHANGE OF CONTROL. If, following a Change in Control, your employment is terminated without Just Cause, you shall be entitled to the payments described above also. Also, immediately following a Change in Control, all amounts, entitlements or benefits in which you are a participant and are not vested shall become fully vested. For the purposes of this agreement, a "Change of Control" shall mean: (i) the occurrence, at any time during the Term of any person or group of persons acting jointly or in concert acquiring more than 50% of the outstanding voting shares in the Corporation, whether by way of takeover bid, merger, amalgamation or otherwise; (ii) a sale by the Corporation of all or substantially all of the Corporation's undertaking and assets; or (iii) the voluntary liquidation, dissolution or winding-up of the Corporation, in connection with which a distribution is made to the holders of the Corporation's common shares. RETURN OF PROPERTY. Upon any termination of employment, you shall forthwith deliver or cause to be delivered to the company all books, documents, computer disks, and diskettes and other electronic data, effects, money, securities, or other property belonging to the company or for which the company is liable to others, which are in the possession, charge, control or custody of yourself. RELEASE. You acknowledge and agree that the payments described above shall be in full satisfaction of all terms of termination of your employment, including termination pay and severance pay pursuant to the Employment Standards Act (Ontario) as amended from time to time. You shall not be entitled to any further termination payments, damages or compensation whatsoever. As condition precedent to any payments being made you agrees to deliver to the company prior to any such payment, a full and final release from all actions or claims in connection therewith in favour of the company, its affiliates, subsidiaries, directors, officers, employees and agents, in the form satisfactory to the company, acting reasonably. RELOCATION ASSISTANCE Please find details about the relocation assistance available as part of this offer of employment. HOME FINDING TRIP Employees will be reimbursed for reasonable expenses, submitted on an approved expense report including receipts for those expenses incurred during a 3 x 5-day home finding trip. All travel must be booked through the company travel agency. These expenses may include: o Round trip economy class (coach fare) airfare by commercial travel for employee and spouse. Other family members may be included with prior approval from the employee's Manager. o Car rental, parking and toll charges (if applicable). o Lodging, meals, telephone, laundry charges, Hotel and meal expenses should be consistent with Cott's travel and expense policy. IN-TRANSIT TRAVEL Reimbursement will be made for reasonable one-way travel. If upon arrival in the new location you are required to spend a night in a hotel reimbursement of one night's lodging plus meal expenses for the employee and family will be reimbursed. HOME SELLING EXPENSES: In the event that the employee owns a property that is not a vacation or income producing property, and it is deemed to be the employee's principal residence, Cott will reimburse for the customary, non recurring, legally required selling costs incurred for those items that would normally be paid by the seller. Specifically these are; o Real Estate commission (not to exceed 6% unless the rate is customarily higher in the employee's area). o Attorney's fees related to the closing or escrow. o Land transfer taxes. o Mortgage loan pre-payment penalty fees to a maximum of three months. o Recording and processing fees o Title insurance fees o Inspection fees (termite, well/water, structural) up to $500.00 o Up to $250.00 for professional services associated with the sale including additional required surveys. HOME PURCHASE EXPENSES The following are the customary, non-recurring, and legally required purchase costs you will be reimbursed for related to the purchase of a home at the new location. This reimbursement applies to employees who were homeowners at the prior location. Cott will reimburse the following customary closing costs incurred for those items that are normally paid by the buyer: o Appraisal and/or Title insurance fees o Document preparation fees o Recording fees o Real estate transfer tax o Survey fees o Inspection fees (termite, well/water, structural) up to $500.00 o All mortgage application fees o Land transfer taxes o Loan origination fee up to 1%. o Notary fees The closing expenses which are not eligible for reimbursement by Cott include: interest buy down points, hazard, fire, flood or any other type of homeowner insurance premiums, prorated interest on mortgage, prorated rent, prorated utility billings, home warranties, mortgage finder's fee, closing costs on construction loans, building permits and/or inspections required by governmental agencies. DUPLICATE CARRYING COSTS In the event the new property closes before the sale of the principal residence, Cott will reimburse duplicate carrying costs, specifically, mortgage, interest and property taxes for a period of up to 90 days. You are strongly encouraged to coordinate the closing and purchase dates. Duplicate carrying costs will be reimbursed on the lesser of the two properties. PHYSICAL GOODS MOVE Cott has contracted with several professional moving carriers to transport personal and household goods to the new home. The following services will be covered: o Packing, loading and shipment of your personal and household belongings from your principal residence to your new residence or to storage. o Insurance required to protect the household and personal belongings during the move. This will be arranged through the moving company. The following items are NOT covered: o Boats, trailers, recreational vehicles, mobile homes, pets, satellite dishes, large gym or fitness equipment, workshop equipment, large machinery, live plants, perishable items, chemicals, lumber, firewood, paint, playground equipment, hot tubs, storage sheds, disassembly or assembly of equipment/items, crating (unless prior approval granted) and special services e.g., piano tuning. SHIPMENT OF VEHICLES Transportation of up to a maximum of two (2) family automobiles to the new location by the most economical means available are included, however, if relocation is to another continent, this provision may not apply. STORAGE Through our moving carriers, Cott will pay for the cost of storing household goods for a period not to exceed sixty (60) days. Cott will pay for the movement of goods out of storage and into a permanent residence. This includes warehouse-handling costs in and out of storage and delivery out of storage. INSURANCE Insurance for your household goods while in transit will be provided through a designated insurance provider or directly through the moving carrier. This insurance covers your household goods through packing, transit, storage in-transit and unloading. All claims should be filed directly with the moving carrier and/or insurance provider. TEMPORARY LIVING EXPENSES Temporary living expenses may be reimbursed if you are required to report to your new assignment, or to vacate your former residence before your new residence is available. You may be reimbursed for: o Reasonable and actual lodging/rent, meals, laundry and telephone charges for a period not to exceed 6 months. o For temporary housing, other than hotels, you are encouraged to submit grocery bills instead of restaurant receipts. o Weekly travel from your home to Tampa, FLA for you or your wife. LEASE CANCELLATION EXPENSES Before approving any lease cancellation reimbursement for either accommodation or vehicles, the hiring Manager and the Senior Vice President, Corporate Resources must agree upon and approve the reasonableness of the expenses. Settlement of a leased home or apartment or vehicle may be based on one of the following: o The amount to be paid to the landlord/leasing company for cancellation of the lease. o Such other equitable arrangements as agreed to by Cott. RELOCATION ALLOWANCE Cott will provide a relocation allowance of 1 months salary (net) payable after the move has been completed. This allowance is generally used to cover the incidental costs incurred during a relocation for which the employee is not required to retain receipts. This allowance may be used for such things as: o Utilities hook-up and connection charges. o Appliance hook-up. o Drivers' licensing when relocating to a different province/state/country. o Transportation of pets. o Installation/removal or cleaning of drapes and/or carpeting. o Extra labour such as maid service. o Shipment of other personal vehicles not included with the personal belongings, such as boats, recreational vehicles. 3.7 TERMINATION OF EMPLOYMENT In the event that your employment is terminated whether voluntarily or involuntarily with Cott within 12 months of your start date you will forfeit any remaining Relocation Policy benefits as of the date of termination. If Cott terminates you within 12 months of joining, Cott will provide you with an option to transfer back to your place of origin. Your relocation will include those items listed above (but will exclude the relocation allowance) that are in keeping with your original relocation assistance. 3.8 EXPENSE REPORT During your relocation you will be required to track your expenses for those items other than those covered by the relocation allowance. Such expenses as the house-hunting trip, temporary housing, family travel, etc., will be submitted for reimbursement on a Relocation Expense Report. This is the only expense report that will be approved for relocation expenses. Relocation expenses must never be mixed with regular business expenses. Completed expense reports should be signed by your manager and then submitted to Kitty Howard - Compensation Manager, Columbus, GA. Reimbursement to the employee may take 4-6 weeks from the initial submission of a claim. CONFIDENTIALITY UNDERTAKING AND RESTRICTIVE COVENANT TO: Cott Beverages Inc. ("Cott"), its subsidiaries, parents, affiliates and associated companies (collectively and individually, the "Corporation") FROM: CLYDE PRESLAR (the "Executive") - -------------------------------------------------------------------------------- FOR GOOD AND VALUABLE CONSIDERATION, including without limitation the Executive's employment with the Corporation and the wages and salary and other benefits received and to be received by the Executive in respect of such employment, and in particular, but without limitation, the grant to the Executive of options to purchase common shares of Cott Corporation, the receipt and sufficiency of which consideration the Executive hereby acknowledges: 1. CONFIDENTIALITY The Executive acknowledges that in the course of carrying out, performing and fulfilling his obligations to the Corporation, the Executive has had and will have access to and has been and will be entrusted with information that would reasonably be considered confidential to the Corporation, the disclosure of which to competitors of the Corporation or to the general public, will be highly detrimental to the best interests of the Corporation. Such information ("Confidential Information") includes, without limitation, trade secrets, know-how, marketing plans and techniques, cost and pricing figures, customer lists, supplier lists, software, and information relating to employees, suppliers, customers and persons in contractual relationships with the Corporation. Except as may be required in the course of carrying out his duties to the Corporation, the Executive covenants and agrees that he will not disclose, so long as he is employed by the Corporation or at any time thereafter, any of such Confidential Information to any person, other than to the directors, officers, employees or agents of the Corporation that have a need to know such Confidential Information, nor shall the Executive use or exploit, directly or indirectly, such Confidential Information for any purpose other than for the purposes of the Corporation, nor will he disclose nor use for any purpose, other than for those of the Corporation any other information which he may acquire during his employment with respect to the business and affairs of the Corporation. Notwithstanding all of the foregoing, the Executive shall be entitled to disclose such Confidential Information if required pursuant to a subpoena or order issued by a court, arbitrator or governmental body, agency or official, provided that the Executive shall first have: (a) notified the Corporation; (b) consulted with the Corporation on the advisability of taking steps to resist such requirements; and (c) if the disclosure is required or deemed advisable, cooperate with the Corporation in an attempt to obtain an order or other assurance that such Confidential Information will be accorded confidential treatment. 2. INVENTIONS The Executive acknowledges and agrees that all right, title and interest in and to any information, trade secrets, advances, discoveries, improvements, research materials and data bases made or conceived by the Executive prior to or during his employment relating to the business or affairs of the Corporation, shall belong exclusively to the Corporation. The Executive waives any and all moral rights he may have in respect of any such items and acknowledges that all of them shall be considered to be "works for hire" and owned by the Corporation. In connection with the foregoing, the Executive agrees to execute any assignments and/or acknowledgements as may be requested by the Corporation from time to time. 3. CORPORATE OPPORTUNITIES Any business opportunities related to the business of the Corporation which become known to the Executive during his employment must be fully disclosed and made available to the Corporation by the Executive, and the Executive agrees not to take or attempt to take any action if the result would be to divert from the Corporation any opportunity which is within the scope of its business. 4. PROPERTY Upon termination of the Executive's employment, for whatever reason, the Executive will return to the Corporation all property belonging to the Corporation, including without limitation, all Confidential Information, keys, manuals, customer lists, computer software and hardware, correspondence, files, records (howsoever maintained), money, cards and supplies which may be in the Executive's possession or control. 5. RESTRICTIVE COVENANTS (a) The Executive will not at any time, without the prior written consent of the Corporation, during the Term of this Agreement or for a period of 24 months after the termination of this Agreement or the Executive's employment (regardless of the reason for such termination), either individually or in partnership, jointly or in conjunction with any other person or persons, firm, association, syndicate, company or corporation, whether as agent, shareholder, employee, consultant, or in any manner whatsoever, directly or indirectly: (i) anywhere in the Territory, engage in, carry on or otherwise have any interest in, advise, lend money to, guarantee the debts or obligations of, permit the Executive's name to be used in connection with any business which is competitive to the Business or which provides the same or substantially similar services as the Business; (ii) for the purpose of competing with any business of the Corporation, solicit, interfere with, accept any business from or render any services to anyone who is a client or a prospective client of the Corporation or any Affiliate at the time the Executive ceased to be employed by the Corporation or who was a client during the 12 months immediately preceding such time; (iii) solicit or offer employment to any person employed or engaged by the Corporation or any Affiliate at the time the Executive ceased to be employed by the Corporation or who was an employee during the 12 month period immediately preceding such time. (b) For the purposes of this Agreement: (i) "Territory" shall mean Canada, the United States, Mexico and the United Kingdom; (ii) "Business" shall mean the business of manufacturing, selling and distributing non-alcoholic beverages. (c) Nothing in this Agreement, shall prohibit or restrict the Executive from holding or becoming beneficially interested in up to one (1%) percent of any class of securities in any corporation provided that such class of securities are listed on a recognized stock exchange in Canada or the United States. 6. GENERAL PROVISIONS (a) The Executive acknowledges and agrees that in the event of a breach of the covenants, provisions and restrictions in this Undertaking, the Corporation's remedy in the form of monetary damages will be inadequate and that the Corporation shall be and is hereby authorized and entitled, in addition to all other rights and remedies available to it, to apply for and obtain from a court of competent jurisdiction interim and permanent injunctive relief and an accounting of all profits and benefits arising out of such breach. (b) The parties acknowledge that the restrictions in this Undertaking are reasonable in all of the circumstances. If any of the restrictions are determined to be unenforceable as going beyond what is reasonable in the circumstances for the protection of the interests of the Corporation but would be valid, for example, if the scope of their time periods or geographic areas were limited, the parties consent to the court making such modifications as may be required and such restrictions shall apply with such modifications as may be necessary to make them valid and effective. (c) Each and every provision of Sections 1, 2, 3, 4 and 5 and this Section 6 shall survive the termination of the Executive's employment (regardless of the reason for such termination). (d) This Undertaking will be construed and interpreted in accordance with the laws of the State of Florida and the federal laws of the United States applicable therein. EXECUTED AS OF THIS 22ND DAY OF JULY, 2005. /S/ B. CLYDE PRESLAR L/S - --------------------------- CLYDE PRESLAR EX-31.1 3 t18567exv31w1.txt EX-31.1 EXHIBIT 31.1 CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. I, John K. Sheppard, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Cott Corporation; 2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and d) Disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's third fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. November 10, 2005 /s/ John K. Sheppard ----------------------------------- John K. Sheppard President & Chief Executive Officer EX-31.2 4 t18567exv31w2.txt EX-31.2 EXHIBIT 31.2 CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. I, B. Clyde Preslar, certify that: 1) I have reviewed this quarterly report on Form 10-Q of Cott Corporation; 2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and d) Disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's third fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. November 10, 2005 /s/ B. Clyde Preslar ----------------------------- B. Clyde Preslar Executive Vice President and Chief Financial Officer EX-32.1 5 t18567exv32w1.txt EX-32.1 EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. The undersigned, John K. Sheppard, President and Chief Executive Officer of Cott Corporation (the "Company"), has executed this certification in connection with the filing with the Securities and Exchange Commission of the Company's Quarterly Report on Form 10-Q for the quarter ended October 1, 2005 (the "Report"). The undersigned hereby certifies that to the best of his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. IN WITNESS WHEREOF, the undersigned has executed this certification as of the 10th day of November, 2005. /s/ John K. Sheppard - ----------------------------------- John K. Sheppard President & Chief Executive Officer EX-32.2 6 t18567exv32w2.txt EX-32.2 EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. The undersigned, B. Clyde Preslar, Executive Vice President and Chief Financial Officer of Cott Corporation (the "Company"), has executed this certification in connection with the filing with the Securities and Exchange Commission of the Company's Quarterly Report on Form 10-Q for the quarter ended October 1, 2005 (the "Report"). The undersigned hereby certifies that to the best of her knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. IN WITNESS WHEREOF, the undersigned has executed this certification as of the 10th day of November, 2005. /s/ B. Clyde Preslar - --------------------------- B. Clyde Preslar Executive Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----