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MarketScreener Homepage  >  Equities  >  Toronto Stock Exchange  >  Cott Corp    BCB   CA22163N1069

COTT CORP

(BCB)
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Delayed Quote. Delayed Toronto Stock Exchange - 07/15 04:16:10 pm
17.16 CAD   +1.48%
07/12COTT : Announces Date for Second Quarter Earnings Release
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06/05COTT : to Present at the Jefferies 2019 Consumer Conference
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05/30COTT CORP : Ex-dividend day for
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COTT : CN/ Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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05/09/2019 | 12:12pm EDT
This Management's Discussion and Analysis of Financial Condition and Results of
Operations is intended to further the reader's understanding of the consolidated
financial condition and results of operations of our Company. It should be read
in conjunction with the financial statements included in this quarterly report
on Form 10-Q and our annual report on Form 10-K for the fiscal year ended
December 29, 2018 (our "2018 Annual Report"). These historical financial
statements may not be indicative of our future performance. This discussion
contains a number of forward-looking statements, all of which are based on our
current expectations and could be affected by the uncertainties and risks
referred to under "Risk Factors" in Item 1A in our 2018 Annual Report. As used
herein, "Cott," "the Company," "Cott Corporation," "we," "us," or "our" refers
to Cott Corporation, together with its consolidated subsidiaries.
Overview
Cott is a water, coffee, tea, extracts and filtration service company with a
leading volume-based national presence in the North American and European home
and office delivery industry for bottled water, and a leader in custom coffee
roasting, iced tea blending, and extract solutions for the U.S. foodservice
industry. Our platform reaches over 2.5 million customers or delivery points
across North America and Europe and is supported by strategically located sales
and distribution facilities and fleets, as well as wholesalers and
distributors. This enables us to efficiently service residences, businesses,
restaurant chains, hotels and motels, small and large retailers, and healthcare
facilities.
Ingredient and packaging costs represent a significant portion of our cost of
sales. These costs are subject to global and regional commodity price trends.
Our most significant commodities are green coffee, tea, polyethylene
terephthalate resin, high-density polyethylene and polycarbonate bottles, caps
and preforms, labels and cartons and trays. We attempt to manage our exposure to
fluctuations in ingredient and packaging costs by entering into fixed price
commitments for a portion of our ingredient and packaging requirements and
implementing price increases as needed.
We conduct operations in countries involving transactions denominated in a
variety of currencies. We are subject to currency exchange risks to the extent
that our costs are denominated in currencies other than those in which we earn
revenues. As our financial statements are denominated in U.S. dollars,
fluctuations in currency exchange rates between the U.S. dollar and other
currencies have had, and will continue to have an impact on our results of
operations.
During the first quarter of 2019, we reviewed and realigned our reporting
segments to reflect how the business will be managed and results will be
reviewed by the Chief Executive Officer, who is the Company's chief operating
decision maker. Following such review, we realigned our three reporting segments
as follows: Route Based Services (which includes our DS Services of America,
Inc. ("DSS"), Aquaterra Corporation ("Aquaterra"), Mountain Valley Spring
Company ("Mountain Valley"), Eden Springs Europe B.V. ("Eden") and Aimia Foods
("Aimia") businesses), Coffee, Tea & Extract Solutions (which includes our S. &
D. Coffee, Inc. ("S&D") business) and All Other (which includes our Cott
Beverages LLC business and other miscellaneous expenses). Our segment reporting
results have been recast to reflect these changes for all periods presented.
Divestiture Transaction
On February 8, 2019, we sold all of the outstanding equity of Cott Beverages
LLC, which operated our soft drink concentrate production business and our Royal
Crown International ("RCI") division, to Refresco Group B.V., a Dutch beverage
manufacturer ("Refresco"). The aggregate deal consideration paid at closing was
$50.0 million, subject to post-closing adjustments for working capital,
indebtedness and other customary items. The sale of Cott Beverages LLC resulted
in a loss of approximately $5.4 million that was recorded to other expense
(income), net in the Consolidated Statement of Operations for the three months
ended March 30, 2019. We used the proceeds of this transaction to repay a
portion of the outstanding borrowings under our asset-based lending credit
facility (the "ABL facility").

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Forward-Looking Statements
In addition to historical information, this report, and any documents
incorporated in this report by reference, may contain statements relating to
future events and future results. These statements are "forward-looking" within
the meaning of the Private Securities Litigation Reform Act of 1995 and
applicable Canadian securities legislation and involve known and unknown risks,
uncertainties, future expectations and other factors that may cause actual
results, performance or achievements of Cott Corporation to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such statements include, but are not
limited to, statements that relate to projections of sales, cash flows, capital
expenditures or other financial items, statements regarding our intentions to
pay regular quarterly dividends on our common shares, and 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," "endeavor," "estimate," "expect," "intend," "may," "will," "plan,"
"predict," "project," "should" and similar terms and phrases are used to
identify forward-looking statements in this report and any documents
incorporated in this report by reference. These forward-looking statements
reflect current expectations regarding future events and operating performance
and are made only as of the date of this report.
The forward-looking statements are not guarantees of future performance or
events and, by their nature, are based on certain estimates and assumptions
regarding interest and foreign exchange rates, expected growth, results of
operations, performance, business prospects and opportunities and effective
income tax rates, which are subject to inherent risks and uncertainties.
Material factors or assumptions that were applied in drawing a conclusion or
making an estimate set out in forward-looking statements may include, but are
not limited to, assumptions regarding management's current plans and estimates.
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 prove to
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. These risks and uncertainties include, but are
not limited to, those described in Part I, Item 1A. "Risk Factors" in our 2018
Annual Report, and those described from time to time in our future reports filed
with the U.S. Securities and Exchange Commission ("SEC") and Canadian securities
regulatory authorities.
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:
• our ability to compete successfully in the markets in which we operate;


• fluctuations in commodity prices and our ability to pass on increased costs

to our customers or hedge against such rising costs, and the impact of those

increased prices on our volumes;

• our ability to manage our operations successfully;

• our ability to fully realize the potential benefit of acquisitions or other

strategic opportunities that we pursue;

• potential liabilities associated with the sale of our North America, United

Kingdom and Mexico business units (including the Canadian business) and our

RCI finished goods export business;

• our ability to realize the revenue and cost synergies of our acquisitions

because of integration difficulties and other challenges;

• our exposure to intangible asset risk;

• currency fluctuations that adversely affect the exchange between the U.S.

dollar and the British pound sterling, the exchange between the Euro, the

Canadian dollar and other currencies and the exchange between the British

pound sterling and the Euro;

• our ability to maintain favorable arrangements and relationships with our

suppliers;

• our ability to meet our obligations under our debt agreements, and risks of

further increases to our indebtedness;

• our ability to maintain compliance with the covenants and conditions under

our debt agreements;

• fluctuations in interest rates, which could increase our borrowing costs;

• the incurrence of substantial indebtedness to finance our acquisitions;

• the impact of global financial events on our financial results from

     uncertainty in the financial markets and other adverse changes in general
     economic conditions;



                                       29
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• any disruption to production at our manufacturing facilities;

• our ability to maintain access to our water sources;

• our ability to protect our intellectual property;

• compliance with product health and safety standards;

• liability for injury or illness caused by the consumption of contaminated

products;

• liability and damage to our reputation as a result of litigation or legal

proceedings;

• changes in the legal and regulatory environment in which we operate;

• the seasonal nature of our business and the effect of adverse weather

conditions;

• the impact of national, regional and global events, including those of a

political, economic, business and competitive nature;

• our ability to recruit, retain and integrate new management;

• our ability to renew our collective bargaining agreements on satisfactory

terms;

• disruptions in our information systems;

• our ability to securely maintain our customers' confidential or credit card

information, or other private data relating to our employees or our company;

• our ability to maintain our quarterly dividend;

• our ability to adequately address the challenges and risks associated with

our international operations and address difficulties in complying with laws

and regulations including the U.S. Foreign Corrupt Practices Act and the

U.K. Bribery Act of 2010;

• increased tax liabilities in the various jurisdictions in which we operate;

• our ability to utilize tax attributes to offset future taxable income;

• the impact of the 2017 Tax Cuts and Jobs Act on our tax obligations and

     effective tax rate; or


• credit rating changes.


We 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, and 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.

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Non-GAAP Measures
In this report, we supplement our reporting of financial measures determined in
accordance with U.S. generally accepted accounting principles ("GAAP") by
utilizing certain non-GAAP financial measures that exclude certain items to make
period-over-period comparisons for our underlying operations before material
changes. We exclude these items to better understand trends in the business. We
exclude the impact of foreign exchange to separate the impact of currency
exchange rate changes from our results of operations.
We also utilize (loss) earnings before interest expense, taxes, depreciation and
amortization ("EBITDA"), which is GAAP net (loss) income from continuing
operations before interest expense, net, (benefit) expense for income taxes and
depreciation and amortization. We consider EBITDA to be an indicator of
operating performance. We also use EBITDA, as do analysts, lenders, investors
and others, because it excludes certain items that can vary widely across
different industries or among companies within the same industry. These
differences can result in considerable variability in the relative costs of
productive assets and the depreciation and amortization expense among companies.
We also utilize adjusted EBITDA, which is EBITDA excluding acquisition and
integration costs, share-based compensation costs, loss on sale of business,
loss on commodity hedging instruments, net, foreign exchange and other losses
(gains), net, loss on disposal of property, plant and equipment, net, gain on
extinguishment of long-term debt, operations of Cott Beverages LLC, and other
adjustments, net, as the case may be ("Adjusted EBITDA"). We consider Adjusted
EBITDA to be an indicator of our operating performance.
Because we use these adjusted financial results in the management of our
business and to understand underlying business performance, we believe this
supplemental information is useful to investors for their independent evaluation
and understanding of our business performance and the performance of our
management. The non-GAAP financial measures described above are in addition to,
and not meant to be considered superior to, or a substitute for, our financial
statements prepared in accordance with GAAP. In addition, the non-GAAP financial
measures included in this report reflect our judgment of particular items, and
may be different from, and therefore may not be comparable to, similarly titled
measures reported by other companies.

                                       31
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Summary Financial Results
Net loss from continuing operations for the three months ended March 30, 2019
(the "first quarter") was $19.7 million or $0.14 per diluted common share,
compared with net income from continuing operations of $4.6 million or $0.03 per
diluted common share for the three months ended March 31, 2018.
The following items of significance affected our financial results for the first
three months of 2019:

•       Net revenue increased $13.3 million, or 2.4%, from the prior year period
        due primarily to the addition of revenues from the Mountain Valley and

Crystal Rock businesses, pricing initiatives, growth within our home and

        office water delivery operations, and growth in retail in our Route Based
        Services reporting segment, growth in coffee volumes and growth in liquid

coffee and extracts in our Coffee, Tea and Extract Solutions reporting

segment, partially offset by the impact of unfavorable foreign exchange

rates and a decrease in revenues contributed by our PolyCycle Solutions

("PCS") business that was sold during the second quarter of 2018 in our

Route Based Services reporting segment, lower green coffee commodity

prices and a change in customer mix, as well as a decrease in other

product sales in our Coffee, Tea and Extract Solutions reporting segment,

and a decrease in revenues contributed by our Cott Beverages LLC business

that was sold during the first quarter;

• Gross profit increased to $282.9 million from $273.5 million in the prior

year period due primarily to the addition of the Mountain Valley and

Crystal Rock businesses, pricing initiatives, growth within our home and

        office water delivery operations, and growth retail in our Route Based
        Services reporting segment, growth in coffee volumes and growth in liquid

coffee and extracts in our Coffee, Tea and Extract Solutions reporting

segment, partially offset by the unfavorable impact of foreign exchange

rates and increased overtime costs in our Route Based Services reporting

segment, lower green coffee commodity prices and a change in customer mix

in our Coffee, Tea, and Extract Solutions reporting segment, as well as a

decrease in gross profit contributed by our Cott Beverages LLC business

that was sold during the first quarter. Gross profit as a percentage of

net revenue was 49.3% compared to 48.8% in the prior year period;

• Selling, general and administrative ("SG&A") expenses increased to $272.1

million from $261.1 million in the prior year period due primarily to the

addition of the Mountain Valley and Crystal Rock businesses in our Route

Based Services reporting segment and an increase in selling costs in our

Coffee, Tea and Extract Solutions reporting segment, partially offset by

less SG&A expenses incurred by our Cott Beverages LLC business that was

sold during the first quarter and the favorable impact of foreign

exchange rates within our Route Based Services reporting segment. SG&A

expenses as a percentage of net revenue was 47.4% compared to 46.6% in

the prior year period;

• Other expense, net was $5.5 million compared to other income, net of

$20.2 million in the prior year period due primarily to the loss

recognized on the sale of our Cott Beverages LLC business in the first

quarter, partially offset by the gain recognized on the redemption of the

10.000% senior secured notes due 2021 (the "DSS Notes") and an increase

of net gains on foreign currency transactions in the prior year period;

• Income tax benefit was $1.0 million on pre-tax loss from continuing

operations of $20.7 million compared to income tax expense of $0.9

million on pre-tax income from continuing operations of $5.5 million in

        the prior year period due primarily to increased losses incurred in
        jurisdictions for which no tax benefit is recognized;

• Adjusted EBITDA decreased to $62.9 million compared to $64.0 million in

the prior year period due to the items listed above;

• Cash flows provided by operating activities from continuing operations

was $23.6 million compared to $32.9 million in the prior year period. The

$9.3 million decrease was due primarily to the decrease in net (loss)

        income, partially offset by the change in working capital account
        balances relative to the prior year period.



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Results of Operations
The following table summarizes our Consolidated Statements of Operations as a
percentage of revenue for the three months ended March 30, 2019 and March 31,
2018:
                                                           For the Three Months Ended
                                                       March 30, 2019       March 31, 2018
(in millions of U.S. dollars)                           $          %         $          %
Revenue, net                                          574.1     100.0      560.8     100.0
Cost of sales                                         291.2      50.7      287.3      51.2
Gross profit                                          282.9      49.3      273.5      48.8
Selling, general and administrative expenses          272.1      47.4      261.1      46.6
Loss on disposal of property, plant and equipment,
net                                                     1.9       0.3        1.3       0.2
Acquisition and integration expenses                    4.8       0.8        5.0       0.9
Operating income                                        4.1       0.7        6.1       1.1
Other expense (income), net                             5.5       1.0      (20.2 )    (3.6 )
Interest expense, net                                  19.3       3.4       20.8       3.7
(Loss) income from continuing operations before
income taxes                                          (20.7 )    (3.6 )      5.5       1.0
Income tax (benefit) expense                           (1.0 )    (0.2 )      0.9       0.2
Net (loss) income from continuing operations          (19.7 )    (3.4 )      4.6       0.8
Net income from discontinued operations, net of
income taxes                                              -         -      357.4      63.7
Net (loss) income                                     (19.7 )    (3.4 )    362.0      64.5
Less: Net income attributable to non-controlling
interests - discontinued operations                       -         -        0.6       0.1
Net (loss) income attributable to Cott Corporation    (19.7 )    (3.4 )    361.4      64.4
Depreciation & amortization                            45.2       7.9       47.4       8.5

The following table summarizes the change in revenue by reporting segment for the three months ended March 30, 2019:

                                                    For the Three Months 

Ended March 30, 2019

                                       Route         Coffee, Tea

(in millions of U.S. dollars, Based and Extract All except percentage amounts)

            Services        Solutions         Other       Eliminations      Total
Change in revenue                   $    22.4$        1.9$  (10.5 )$      (0.5 )$   13.3
Impact of foreign exchange 1             11.9                  -            -                -          11.9

Change excluding foreign exchange $ 34.3$ 1.9$ (10.5 )$ (0.5 )$ 25.2 Percentage change in revenue

              5.6 %              1.3 %      (59.3 )%          45.5 %         2.4 %
Percentage change in revenue
excluding foreign exchange                8.6 %              1.3 %      (59.3 )%          45.5 %         4.5 %


______________________

1 Impact of foreign exchange is the difference between the current period

revenue translated utilizing the current period average foreign exchange

rates less the current period revenue translated utilizing the prior period

    average foreign exchange rates.




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Our corporate oversight function is not treated as a segment; it includes
certain general and administrative costs that are not allocated to any of the
reporting segments. During the second quarter of 2018, we combined and disclosed
the corporate oversight function in the All Other category. Our segment
reporting results have been recast to reflect these changes for all periods
presented.
Subsequent to the sale of our North America, United Kingdom and Mexico business
units (including the Canadian business) and our RCI finished goods export
business in January 2018, management re-evaluated the measure of profit for our
reportable segments and determined that excluding corporate allocations from
segment operating income was appropriate as these costs are not considered by
management when evaluating performance. Operating income (loss) for the prior
periods have been recast to reflect this change.

The following table summarizes our net revenue, gross profit and operating
income (loss) by reporting segment for the three months ended March 30, 2019 and
March 31, 2018:

                                       For the Three Months Ended
(in millions of U.S. dollars)      March 30, 2019      March 31, 2018
Revenue, net
Route Based Services              $       420.5       $         398.1
Coffee, Tea and Extract Solutions         148.0                 146.1
All Other                                   7.2                  17.7
Eliminations                               (1.6 )                (1.1 )
Total                             $       574.1       $         560.8
Gross profit
Route Based Services              $       242.8       $         232.5
Coffee, Tea and Extract Solutions          39.8                  38.7
All Other                                   0.3                   2.3
Total                             $       282.9       $         273.5
Operating income (loss)
Route Based Services              $        14.0       $          14.0
Coffee, Tea and Extract Solutions           3.4                   4.0
All Other                                 (13.3 )               (11.9 )
Total                             $         4.1       $           6.1



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The following tables summarize net revenue by channel for the three months ended March 30, 2019 and March 31, 2018:

                                               For the Three Months Ended March 30, 2019
                                Route         Coffee, Tea
(in millions of U.S.            Based         and Extract          All
dollars)                      Services         Solutions          Other        Eliminations       Total
Revenue, net
Home and office bottled
water delivery              $     258.6     $           -     $         -     $         -      $    258.6
Coffee and tea services            48.6             120.2               -            (1.6 )         167.2
Retail                             70.9                 -               -               -            70.9
Other                              42.4              27.8             7.2               -            77.4
Total                       $     420.5$       148.0$       7.2$      (1.6 )$    574.1


                                              For the Three Months Ended March 31, 2018
                                Route         Coffee, Tea
(in millions of U.S.            Based         and Extract         All
dollars)                      Services         Solutions         Other        Eliminations       Total
Revenue, net
Home and office bottled
water delivery 1            $     245.5     $           -     $        -     $         -      $    245.5
Coffee and tea services            47.0             117.2              -            (1.0 )         163.2
Retail 1                           66.6                 -              -               -            66.6
Other 1                            39.0              28.9           17.7            (0.1 )          85.5
Total                       $     398.1$       146.1$     17.7$      (1.1 )$    560.8

____________________________

1 Revenues by channel of our Route Based Services reporting segment for the

three months ended March 31, 2018 were revised to reclassify $16.6 million

of revenues from the other channel to the home and office bottled water

delivery channel as these activities are associated with the home and office

bottled water delivery channel. In addition, we reclassified $3.5 million

out of the retail channel and into the other channel in order to better

align the activities of a recent acquisition with those of our U.S. route

     based services business.




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The following table summarizes our EBITDA and Adjusted EBITDA for the three months ended March 30, 2019 and March 31, 2018:

                                                              For the Three Months Ended
(in millions of U.S. dollars)                            March 30, 2019        March 31, 2018
Net (loss) income from continuing operations           $         (19.7 )     $            4.6
Interest expense, net                                             19.3                   20.8
Income tax (benefit) expense                                      (1.0 )                  0.9
Depreciation and amortization                                     45.2                   47.4
EBITDA                                                 $          43.8       $           73.7
Acquisition and integration costs 1                                4.8                    5.0
Share-based compensation costs                                     3.3                    2.4
Loss on sale of business                                           5.4                      -
Commodity hedging loss, net                                          -                    0.3
Foreign exchange and other losses (gains), net                     1.0                   (8.2 )
Loss on disposal of property, plant and equipment, net             1.9                    1.3
Gain on extinguishment of long-term debt                             -                   (7.1 )
Cott Beverages LLC 2                                               0.4                   (0.5 )
Other adjustments, net                                             2.3                   (2.9 )
Adjusted EBITDA                                        $          62.9       $           64.0


______________________

1 Includes $0.2 million and $1.0 million of share-based compensation costs for

the three months ended March 30, 2019 and March 31, 2018, respectively,

related to awards granted in connection with the acquisition of our S&D and

Eden businesses.

2 Impact on our operations related to the Cott Beverages LLC business, which

was sold on February 8, 2019.




Three Months Ended March 30, 2019 Compared to Three Months Ended March 31, 2018
Revenue, Net
Net revenue increased $13.3 million, or 2.4%, in the first quarter from the
comparable prior year period.
Route Based Services net revenue increased $22.4 million, or 5.6%, in the first
quarter from the comparable prior year period due primarily to the addition of
revenues from the Mountain Valley and Crystal Rock businesses of $23.2 million,
pricing initiatives and growth within our home and office water delivery
operations of $8.8 million, and growth in retail of $4.1 million, partially
offset by the unfavorable impact of foreign exchange rates of $11.9 million and
less revenue of $2.2 million contributed by our PCS business due to the sale of
such business in the second quarter of 2018.
Coffee, Tea and Extract Solutions net revenue increased $1.9 million, or 1.3%,
in the first quarter from the comparable prior year period due primarily to
growth in coffee volumes and growth in liquid coffee and extracts of $9.7
million, partially offset by lower green coffee commodity prices and a change in
customer mix of $4.6 million, as well as decrease in other product sales of $3.2
million.
All Other net revenue decreased $10.5 million, or 59.3%, in the first quarter
from the comparable prior year period due primarily to less revenue contributed
by our Cott Beverages LLC business due to the sale of such business in the first
quarter.

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Gross Profit
Gross profit increased to $282.9 million in the first quarter from $273.5
million in the comparable prior year period. Gross profit as a percentage of
revenue was 49.3% in the first quarter compared to 48.8% in the comparable prior
year period.
Route Based Services gross profit increased to $242.8 million in the first
quarter from $232.5 million in the comparable prior year period due primarily to
the addition of the Mountain Valley and Crystal Rock businesses, pricing
initiatives and growth within our home and office water delivery operations, and
growth in retail, partially offset by the unfavorable impact of foreign exchange
rates and increased overtime costs.
Coffee, Tea and Extract Solutions gross profit increased to $39.8 million in the
first quarter from $38.7 million in the comparable prior year period due
primarily to growth in coffee volumes and growth in liquid coffee and extracts,
partially offset by lower green coffee commodity prices and a change in customer
mix.
All Other gross profit decreased to $0.3 million in the first quarter from $2.3
million in the comparable prior year period due primarily to less gross profit
contributed by our Cott Beverages LLC business due to the sale of such business
in the first quarter.
Selling, General and Administrative Expenses
SG&A expenses increased to $272.1 million in the first quarter from $261.1
million in the comparable prior year period. SG&A expenses as a percentage of
revenue was 47.4% in the first quarter compared to 46.6% in the comparable prior
year period.
Route Based Services SG&A expenses increased to $224.5 million in the first
quarter from $214.9 million in the comparable prior year period due primarily to
the addition of the Mountain Valley and Crystal Rock businesses, partially
offset by the favorable impact of foreign exchange rates.
Coffee, Tea and Extract Solutions SG&A expenses increased to $36.3 million in
the first quarter from $34.4 million in the comparable prior year period due
primarily to an increase in selling costs.
All Other SG&A expenses decreased to $11.3 million in the first quarter from
$11.8 million in the comparable prior year period due primarily to less SG&A
expenses incurred by our Cott Beverages LLC business due to the sale of such
business in the first quarter, partially offset by an increase in professional
fees.
Operating Income
Operating income decreased to $4.1 million in the first quarter from $6.1
million in the comparable prior year period.
Route Based Services operating income remained unchanged at $14.0 million in the
first quarter from the comparable prior year period due to the items discussed
above.
Coffee, Tea and Extract Solutions operating income decreased to $3.4 million in
the first quarter from $4.0 million in the comparable prior year period due to
the items discussed above.
All Other operating loss increased to $13.3 million in the first quarter from
$11.9 million in the comparable prior year period due to the items discussed
above.
Other Expense (Income), Net
Other expense, net was $5.5 million for the first quarter compared to other
income, net of $20.2 million in the comparable prior year period due primarily
to the loss recognized on the sale of our Cott Beverages LLC business in the
first quarter, partially offset by the gain recognized on the redemption of the
DSS Notes and an increase of net gains on foreign currency transactions in the
prior year period.
Income Taxes
Income tax benefit was $1.0 million in the first quarter compared to income tax
expense of $0.9 million in the comparable prior year period. The effective tax
rate for the first quarter was 4.8% compared to 16.4% in the comparable prior
year period.
The effective tax rate for the first quarter varied from the effective tax rate
from the comparable prior year period due primarily to increased losses incurred
in jurisdictions for which no tax benefit is recognized.


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Liquidity and Capital Resources
As of March 30, 2019, we had total debt of $1,317.9 million and $153.9 million
of cash and cash equivalents compared to $1,342.2 million of debt and $170.8
million of cash and cash equivalents as of December 29, 2018. Our cash and cash
equivalents balance as of March 30, 2019 and December 29, 2018 includes $12.5
million of cash proceeds received from the sale of our North America, United
Kingdom and Mexico business units (including the Canadian business) and our RCI
finished goods export business that are being held in escrow by a third party
escrow agent to secure potential indemnification claims. The escrow will be
released, subject to any amounts for pending indemnification claims, on the
eighteen month anniversary of the transaction closing date, which was January
30, 2018. Our cash and cash equivalents balance as of March 30, 2019 also
includes $0.5 million of cash proceeds received from the sale of our Cott
Beverages LLC business that are being held in escrow by a third party escrow
agent to secure potential indemnification claims. The escrow will be released,
subject to any amounts for pending indemnification claims, on the eighteen month
anniversary of the transaction closing date, which was February 8, 2019. In
addition, our cash and cash equivalents balances as of March 30, 2019 and
December 29, 2018, include margin account balances related to our coffee futures
of $14.6 million and $12.9 million, respectively. We are required to maintain
margin account balances in accordance with futures market and broker
regulations.
We believe that our level of resources, which includes cash on hand, available
borrowings under our ABL facility and funds provided by our operations, will be
adequate to meet our expenses, capital expenditures, and debt service
obligations for the next twelve months. Our ability to generate cash to meet our
current expenses and debt service obligations will depend on our future
performance. If we do not have enough cash to pay our debt service obligations,
or if the ABL facility or our outstanding notes were to become currently due,
either at maturity or as a result of a breach, we may be required to take
actions such as amending our ABL facility or the indentures governing our
outstanding notes, refinancing all or part of our existing debt, selling assets,
incurring additional indebtedness or raising equity. The ABL facility is secured
by substantially all of our assets and those of the respective guarantor
subsidiaries. If the ABL facility were to become currently due, the lenders may
have the right to foreclose on such assets. If we need to seek additional
financing, there is no assurance that this additional financing will be
available on favorable terms or at all.
As of March 30, 2019, our total availability under the ABL facility was $217.9
million, which was based on our borrowing base (accounts receivables, inventory,
and fixed assets as of the March 2019 month-end under the terms of the credit
agreement governing the ABL facility). We had $53.3 million of outstanding
borrowings under the ABL facility and $46.1 million in outstanding letters of
credit. As a result, our excess availability under the ABL facility was $118.5
million. Each month's borrowing base is not effective until submitted to the
lenders, which typically occurs on the fifteenth day of the following month.
We earn a portion of our consolidated operating income in subsidiaries located
outside of Canada. We have not provided for federal, state and foreign deferred
income taxes on the undistributed earnings of our non-Canadian subsidiaries. We
expect that these earnings will be permanently reinvested by such subsidiaries
except in certain instances where repatriation attributable to current earnings
results in minimal or no tax consequences.
We expect existing cash and cash equivalents, cash flows and the issuance of
debt to continue to be sufficient to fund our operating, investing and financing
activities. In addition, we expect existing cash and cash equivalents and cash
flows outside Canada to continue to be sufficient to fund our subsidiary
operating activities.
A future change to our assertion that foreign earnings will be permanently
reinvested could result in additional income taxes and/or withholding taxes
payable, where applicable. Therefore, a higher effective tax rate could occur
during the period of repatriation.
We may, from time to time, depending on market conditions, including without
limitation whether our outstanding notes are then trading at a discount to their
face amount, repurchase our outstanding notes for cash and/or in exchange for
our common shares, warrants, preferred shares, debt or other consideration, in
each case in open market purchases and/or privately negotiated transactions. The
amounts involved in any such transactions, individually or in the aggregate, may
be material. However, the covenants in our ABL facility subject such purchases
to certain limitations and conditions.
A dividend of $0.06 per common share was declared during the first quarter of
2019 for an aggregate dividend payment of approximately $8.2 million.

                                       38
--------------------------------------------------------------------------------

The following table summarizes our cash flows for the three months ended March 30, 2019 and March 31, 2018, as reported in our Consolidated Statements of Cash Flows in the accompanying Consolidated Financial Statements:

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