Note 16—Retirement Plans

Cott primarily maintains defined contribution retirement plans covering qualifying employees. The total expense with respect to these plans was $9.4 million for the year ended January 2, 2016 ($4.1 million—January 3, 2015; $4.8 million—December 28, 2013).

We also maintain four defined benefit (“DB”) plans acquired as a part of prior acquisitions. One DB plan covers certain employees at one plant in the United States under a collective bargaining agreement. In connection with the DSS Acquisition, we assumed the obligations associated with a DB plan covering certain employees of DS Services of America, Inc. These two DB plans are referred to collectively as the U.S. Plans. DB plans covering certain employees of Cott Beverages Limited and Cooke Bros. Limited in the United Kingdom are referred to collectively as the U.K. Plans. Retirement benefits for employees covered by the U.S. Plans and U.K Plans are based on years of service multiplied by a monthly benefit factor. Pension costs are funded in accordance with the provisions of the applicable law. All DB plans are closed to new participants. All DB plans are frozen. The plan covering certain employees of Cott Beverages Limited was frozen during the year ended January 3, 2015. We use a January 2, 2016 measurement date for all DB plans. Any valuation differences based on one day of trading are deemed immaterial.

Obligations and Funded Status

The following table summarizes the change in the projected benefit obligation, change in plan assets and unfunded status of the four DB plans as of January 2, 2016 and January 3, 2015:


(in millions of U.S. dollars)	January 2, 2016			January 3, 2015
Change in Projected Benefit Obligation
Projected benefit obligation at beginning of year	$	77.9		$	62.5
Transfer in		—			10.5
Service cost		—			0.2
Interest cost		2.8			2.7
Benefit payments		(1.7	)		(1.9	)
Actuarial (gains) losses		(5.5	)		8.5
Settlement losses		—			0.1
Curtailment gains		—			(0.9	)
Translation gains		(2.8	)		(3.8	)

Projected benefit obligation at end of year	$	70.7		$	77.9

Change in Plan Assets
Plan assets beginning of year	$	59.1		$	49.6
Transfer in		—			7.1
Employer contributions		3.0			2.2
Benefit payments		(1.6	)		(1.8	)
Actual return on plan assets		(0.4	)		4.7
Translation gains		(2.2	)		(2.7	)

Fair value at end of year	$	57.9		$	59.1

Funded Status of Plan
Projected benefit obligation	$	(70.7	)	$	(77.9	)
Fair value of plan assets		57.9			59.1

Unfunded status	$	(12.8	)	$	(18.8	)

The accumulated benefit obligation for the DB plans equaled $70.7 million and $77.9 million at the end of 2015 and 2014, respectively.

Periodic Pension Costs

The components of net periodic pension cost were as follows:


	For the Year Ended
	January 2,			January 3,			December 28,
(in millions of U.S. dollars)	2016			2015			2013
Service cost	$	—		$	0.2		$	0.5
Interest cost		2.8			2.7			2.4
Expected return on plan assets		(3.2	)		(3.0	)		(2.4	)
Amortization of prior service costs		0.1			0.1			0.1
Amortization of net actuarial loss		0.4			0.3			0.3

Net periodic pension cost	$	0.1		$	0.3		$	0.9

Accumulated Other Comprehensive Loss

Amounts included in accumulated other comprehensive income, net of tax, at year-end which have not yet been recognized in net periodic benefit cost were as follows:


	For the Year Ended
	January 2,			January 3,			December 28,
(in millions of U.S. dollars)	2016			2015			2013
Unamortized prior service cost	$	(0.1	)	$	(0.1	)	$	(0.2	)
Unrecognized net actuarial loss		(10.0	)		(12.3	)		(8.2	)

Total accumulated other comprehensive loss	$	(10.1	)	$	(12.4	)	$	(8.4	)

Actuarial Assumptions

The following table summarizes the weighted average actuarial assumptions used to determine the projected benefit obligation:


	For the Year Ended
	January 2, 2016			January 3, 2015			December 28, 2013
U.K. Plans
Discount rate		3.9	%		3.6	%		4.5	%
Rate of compensation increase		n/a			n/a			3.4	%¹
CPI Inflation factor		2.0	%		1.9	%		2.4	%
U.S. Plans
Discount rate		4.0	%		3.9	%		4.4	%
Rate of compensation increase		n/a			n/a			n/a

^1.

Applicable to the plan covering certain employees of Cott Beverages Limited. This plan closed to future benefit accruals during the year ended January 3, 2015, which resulted in a curtailment gain. As a result, no assumption for rate of compensation increase was necessary in estimating the projected benefit obligation at January 3, 2015.

The following table summarizes the weighted average actuarial assumptions used to determine net periodic benefit cost:


	For the Year Ended
	January 2, 2016			January 3, 2015			December 28, 2013
U.K. Plans
Discount rate		3.8	%		4.5	%		4.6	%
Expected long-term rate of return on plan assets		5.2	%		6.2	%		5.7	%
Inflation factor		1.9	%		2.4	%		2.5	%
U.S. Plans
Discount rate		3.9	%		4.2	%		3.5	%
Expected long-term rate of return on plan assets		7.2	%		7.2	%		7.0	%

The Company utilizes a yield curve analysis to determine the discount rates for its DB plan obligations. The yield curve considers pricing and yield information for high quality corporate bonds with maturities matched to estimated payouts of future pension benefits. The Company evaluates its assumption regarding the estimated long-term rate of return on plan assets based on historical experience, future expectations of investment returns, asset allocations, and its investment strategy. The Company’s long-term rate of return on plan assets reflect expectations of projected weighted average market returns of plan assets. Changes in expected returns on plan assets also reflect any adjustments to the Company’s targeted asset allocation.

Asset Mix

Our DB plans weighted-average asset allocations by asset category were as follows:


	January 2, 2016			January 3, 2015
Cash and cash equivalents		4.4	%		3.2	%
Equity securities		48.0	%		57.6	%
Fixed income investments		47.6	%		39.2	%

Plan Assets

Our investment policy is that plan assets will be managed utilizing an investment philosophy and approach characterized by all of the following, but listed in priority order: (1) emphasis on total return, (2) emphasis on high-quality securities, (3) sufficient income and stability of income, (4) safety of principal with limited volatility of capital through proper diversification and (5) sufficient liquidity. (The target allocation percentages for the U.K. Plans’ assets range between 60% to 80% in equity securities and 20% to 40% in fixed income investments. The target allocation percentages for the U.S. Plans’ assets range between 45% to 55% in equity securities, 35% to 45% in fixed income investments, and 5% to 15% in extended asset class investments. None of our equity or debt securities are included in plan assets.)

Cash Flows

We expect to contribute $2.7 million to the DB plans during the 2016 fiscal year.

The following benefit payments are expected to be paid in the periods indicated below:


(in millions of U.S. dollars)
Expected benefit payments
FY 2016	$	1.8
FY 2017		1.9
FY 2018		2.0
FY 2019		1.9
FY 2020		2.0
through FY 2021		11.0

The fair values of the Company’s pension plan assets at January 2, 2016 were as follows:

January 2, 2016

(in millions of U.S. dollars)

Level 1

Level 2

Level 3

Cash and cash equivalents:

Cash and cash equivalents

2.5

—

Equities:

International mutual funds

5.3

0.9

—

U.S. mutual funds

1.9

3.6

—

Balanced

15.3

0.4

—

Property

0.3

—

Other

0.1

—

Fixed income:

Mutual funds

22.9

2.9

—

Insurance contract

—

1.8

—

Total

48.3

9.6

—

The fair values of the Company’s pension plan assets at January 3, 2015 were as follows:


	January 3, 2015
(in millions of U.S. dollars)	Level 1		Level 2		Level 3
Cash and cash equivalents:
Cash and cash equivalents	$	1.9	$	—	$	—
Equities:
International mutual funds		5.4		1.0		—
Index mutual funds		6.8		—		—
U.S. mutual funds		1.4		3.5		—
Balanced		15.4		0.4		—
Property		0.1		—		—
Other		0.1		—		—
Fixed income:
Mutual funds		18.0		3.2		—
Insurance contract		—		1.9		—

Total	$	49.1	$	10.0	$	—