Note 3—Acquisitions

S&D Acquisition

On August 11, 2016, the Company acquired S&D, a premium coffee roaster and provider of customized coffee, tea and extract solutions (the “S&D Acquisition”). The initial purchase price paid by the Company in the S&D Acquisition was $354.1 million on a debt- and cash-free basis. Customary post-closing working capital adjustments were resolved in January 2017 by the payment of $0.5 million from the former owners of S&D to the Company. The S&D Acquisition was funded through a combination of incremental borrowings under the Company’s ABL facility and proceeds from our June 2016 Offering (as defined below).

The total consideration paid by Cott in the S&D Acquisition is summarized below:


(in millions of U.S. dollars)
Cash paid to sellers	$	232.1
Cash paid on behalf of sellers for sellers’ transaction expenses		84.2
Cash paid to retire outstanding debt on behalf of sellers		37.8
Working capital settlement		(0.5	)

Total consideration	$	353.6

The S&D Acquisition supported the Company’s strategy to become a more diversified beverage provider across multiple channels and geographies, as well as expanding the Company’s existing coffee and tea categories. The Company has accounted for this transaction as a business combination which requires that assets acquired and liabilities assumed be measured at their acquisition date fair values.

The adjusted purchase price of $353.6 million was allocated to the assets acquired and liabilities assumed based on management’s estimates of their fair values as of the acquisition date. The excess of the adjusted purchase price over the aggregate fair values was recorded as goodwill. Measurement period adjustments recorded during the year ended December 30, 2017 included adjustments to property, plant and equipment and a related adjustment to deferred taxes based on the results of the validation procedures performed, as well as an adjustment to income taxes payable existing at the acquisition date. These measurement period adjustments did not have a material effect on our results of operations in prior periods.

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


(in millions of U.S. dollars)	Originally Reported			Measurement Period Adjustments			Acquired Value
Cash	$	1.7		$	—		$	1.7
Accounts receivable		51.4			—			51.4
Inventory		62.5			—			62.5
Prepaid expenses and other assets		2.3			—			2.3
Property, plant & equipment		92.9			(0.7	)		92.2
Goodwill		117.1			0.7			117.8
Intangible assets		119.0			—			119.0
Other assets		2.2			—			2.2
Accounts payable and accrued liabilities		(46.7	)		(0.2	)		(46.9	)
Deferred tax liabilities		(43.3	)		0.2			(43.1	)
Other long-term liabilities		(5.5	)		—			(5.5	)

Total	$	353.6		$	—		$	353.6

The amount of revenues and net loss related to the S&D Acquisition included in the Company’s Consolidated Statement of Operations for the year ended December 31, 2016 for the period from the acquisition date through December 31, 2016 were $228.0 million and $2.8 million, respectively. During the year ended December 31, 2016, the Company incurred $3.5 million of acquisition-related costs associated with the S&D Acquisition, which are included in acquisition and integration expenses in the Consolidated Statement of Operations for the year ended December 31, 2016. In connection with the S&D Acquisition, the Company granted 416,951 common shares to certain S&D employees which were fully vested upon issuance and had an aggregate grant date fair value of approximately $7.1 million.

Eden Acquisition

On August 2, 2016, the Company acquired Eden, a leading provider of water and coffee solutions in Europe (the “Eden Acquisition”). The initial purchase price paid by the Company was €517.9 million (U.S. $578.5 million at the exchange rate in effect on the acquisition date), which represented the €470.0 million stated purchase price, €17.5 million of cash on hand, estimated working capital of €15.4 million, and other items of €15.0 million, paid at closing in cash. The initial purchase price was subject to adjustments upon the determination of actual working capital, net indebtedness and certain transaction related expenses, and these adjustment were resolved in January 2017 by the payment of €2.0 million (U.S. $2.2 million at the exchange rate in effect on the date of payment) made by the former owners of Eden to the Company. The Eden Acquisition was ultimately funded through a combination of proceeds from the issuance of €450 million (U.S. $539.1 million at the exchange rate in effect on December 30, 2017) of 5.500% senior notes due July 1, 2024 (the “2024 Notes”) and cash on hand.

The total consideration paid by Cott in the Eden Acquisition is summarized below:


(in millions of U.S. dollars)
Cash paid to sellers	$	86.5
Cash paid on behalf of sellers to retire outstanding indebtedness		420.2
Cash paid to retire sellers financing payables, net		71.8
Working capital settlement		(2.2	)

Total consideration	$	576.3

The Eden Acquisition supported the Company’s strategy to become a more diversified beverage provider across multiple channels and geographies, as well as the Company’s continuing strategy to acquire higher margin HOD bottled water and coffee and tea categories. The Company has accounted for this transaction as a business combination in accordance with authoritative accounting guidance.

The adjusted purchase price of $576.3 million was allocated to the assets acquired and liabilities assumed based on management’s estimates of their fair values as of the acquisition date. The excess of the adjusted purchase price over the aggregate fair values was recorded as goodwill. Measurement period adjustments recorded during the year ended December 30, 2017 included adjustments to property, plant and equipment and a related adjustment to deferred taxes based on the results of the validation procedures performed, adjustments to accounts receivable, intangible assets and accrued liabilities based on a final review of fair values, and an adjustment to other long-term liabilities based on a final analysis of certain tax positions. These measurement period adjustments did not have a material effect on our results of operations in prior periods.


(in millions of U.S. dollars)	Originally Reported			Measurement Period Adjustments			Acquired Value
Cash & cash equivalents	$	19.6		$	—		$	19.6
Accounts receivable		95.4			(1.0	)		94.4
Inventories		17.7			—			17.7
Prepaid expenses and other current assets		6.2			—			6.2
Property, plant & equipment		107.1			(8.2	)		98.9
Goodwill		299.7			0.1			299.8
Intangible assets		213.2			(0.7	)		212.5
Other assets		2.8			—			2.8
Deferred tax assets		19.5			—			19.5
Current maturities of long-term debt		(2.7	)		—			(2.7	)
Accounts payable and accrued liabilities		(128.3	)		(0.5	)		(128.8	)
Long-term debt		(3.1	)		—			(3.1	)
Deferred tax liabilities		(49.5	)		3.5			(46.0	)
Other long-term liabilities		(21.3	)		6.8			(14.5	)

Total	$	576.3		$	—		$	576.3

The amount of revenues and net loss related to the Eden Acquisition included in the Company’s Consolidated Statement of Operations for the year ended December 31, 2016 for the period from the acquisition date through December 31, 2016 were $156.9 million and $14.4 million, respectively. During the year ended December 31, 2016, the Company incurred $13.5 million of acquisition-related costs associated with the Eden Acquisition, which are included in acquisition and integration expenses in the Consolidated Statement of Operations for the year ended December 31, 2016.

Aquaterra Acquisition

On January 4, 2016, the Company acquired Aquaterra (the “Aquaterra Acquisition”). Aquaterra operates a Canadian direct-to-consumer HOD bottled water and office coffee services business. The aggregate purchase price paid by the Company in the Aquaterra Acquisition was C$61.2 million (U.S. $44.0 million at the exchange rate in effect on the acquisition date). The purchase price was paid at closing in cash and was subject to a customary post-closing working capital adjustment. The post-closing adjustment was completed in May 2016 and resulted in the payment of $0.5 million by the former owners of Aquaterra to the Company.

This acquisition supported the Company’s strategy to become a more diversified beverage provider across multiple channels and geographies, as well as the Company’s strategy to acquire higher margin HOD bottled water and coffee and tea services categories. The Company has accounted for this transaction as a business combination in accordance with authoritative accounting guidance.

The adjusted purchase consideration of $44.0 million was allocated to the assets acquired and liabilities assumed based on their fair values as of the acquisition date. An allocation of the purchase price has been made to major categories of assets and liabilities based on management’s estimates of their fair values as of the acquisition date.

The table below summarizes the allocation of the purchase price to the fair value of the assets acquired and liabilities assumed:


(in millions of U.S. dollars)	Acquired Value
Cash	$	1.3
Accounts receivable		7.1
Inventories		2.1
Prepaid expenses and other current assets		0.4
Property, plant & equipment		12.3
Goodwill		21.2
Intangible assets		15.8
Other assets		0.8
Accounts payable and accrued liabilities		(16.3	)
Long-term debt		(0.4	)
Other long-term liabilities		(0.3	)

Total	$	44.0

The amount of revenues and net income related to the Aquaterra Acquisition included in the Company’s Consolidated Statement of Operations for the year ended December 31, 2016 for the period from the acquisition date through December 31, 2016 were $61.2 million and $1.1 million, respectively. During the year ended December 31, 2016, the Company incurred $1.3 million of acquisition-related costs associated with the Aquaterra Acquisition, which are included in acquisition and integration expenses in the Consolidated Statement of Operations for the year ended December 31, 2016.

Intangible Assets

In our determination of the estimated fair value of intangible assets, we consider, among other factors, the best use of acquired assets, analysis of historical financial performance and estimates of future performance of the acquired business’ products. The estimated fair values of identified intangible assets are calculated considering both market participant assumptions, using an income approach as well as estimates and assumptions provided by Cott management and management of the acquired business.

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

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

The estimated fair value of non-competition agreements represent the future after-tax discounted cash flows that are expected to be retained by the acquired business as a result of preventing certain employees or prior owners from competing with us in the specified restricted territories for a period of time subsequent to the date of acquisition or the date of termination of their employment with Cott, as the case may be.

S&D Acquisition

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


(in millions of U.S. dollars)	Estimated Fair Market Value		Weighted Average Estimated Useful Life
Customer relationships	$	113.7	17 years
Non-competition agreements		3.0	3 years
Software		2.3	2 years

Total	$	119.0

Eden Acquisition

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


(in millions of U.S. dollars)	Estimated Fair Market Value		Estimated Useful Life
Customer relationships	$	134.1	15 years
Trademarks and trade names		72.7	Indefinite
Software		5.7	3-5 years

Total	$	212.5

Aquaterra Acquisition

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


(in millions of U.S. dollars)	Estimated Fair Market Value		Estimated Useful Life
Customer relationships	$	11.4	12 years
Trademarks and trade names		4.4	Indefinite

Total	$	15.8

Goodwill

S&D Acquisition

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

Eden Acquisition

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

Aquaterra Acquisition

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

Supplemental Pro Forma Data (unaudited)

The following unaudited pro forma financial information for the years ended December 31, 2016 and January 2, 2016, represent the combined results of operations as if the S&D Acquisition and Eden Acquisition had occurred on January 4, 2015. Unaudited pro forma consolidated results of operations for the Aquaterra Acquisition were not included in the combined results of our operations for the years ended December 31, 2016 and January 2, 2016 as the Company determined they were immaterial. The unaudited pro forma financial information results reflect certain adjustments related to these acquisitions such as increased amortization expense on acquired intangible assets resulting from the preliminary fair valuation of assets acquired. The unaudited pro forma financial information does not necessarily reflect the results of operations that would have occurred had we operated as a single entity during such periods.


	For the Year Ended
(in millions of U.S. dollars, except per share amounts)	December 31, 2016			January 2, 2016
Revenue	$	2,185.5		$	2,157.4
Net loss from continuing operations	$	(38.6	)	$	(28.6	)
Net loss attributed to Cott Corporation	$	(58.2	)	$	(47.8	)
Net loss per common share from continuing operations	$	(0.28	)	$	(0.25	)
Net loss per common share attributed to Cott Corporation, diluted	$	(0.42	)	$	(0.41	)