Notes to Financial Statements
December 31, 2016 and 2015
Note
1. Description of Plan
General
The following description of The Restated Cott USA 401(k) Savings & Retirement Plan (the Plan) is provided for general
information purposes only. Participants should refer to the Plan document for a more complete description of the Plans provisions. The Plan is a defined contribution savings and investment plan under Section 401(k) of the Internal Revenue
Code (IRC) covering substantially all full-time employees 18 years or older who have completed 90 days of service with Cott Beverages, Inc. (formerly Cott Beverages USA, Inc.), a wholly-owned subsidiary of Cott Corporation (the
Company). The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA).
Participant
Accounts
Participant accounts are credited with units by investment for participant contributions, employer contributions, fund
transfers and participant loan repayments. Unit values are calculated daily to reflect the gains or losses of the underlying investments and expenses. Each participants account is credited with the participants contribution and
allocation of Plan earnings (losses). Allocations are based on account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the units in the participants account by investment multiplied
by the appropriate unit values on the valuation date.
Contributions
Participation in the Plan is voluntary. All participants are entitled to elect employee contributions to be on a
pre-tax
basis or as a Roth 401(k) contribution, subject to certain limitations under the IRC. Active participants can contribute up to 90% of earnings, to a maximum of $18,000 for 2016 and 2015 to the Plan in the
form of basic contributions. Contributions in excess of those allowed by IRC Section 401(k)(3) are reflected as excess participant contributions. Participants who have attained age 50 before the end of the Plan year are eligible to
make
catch-up
contributions. The Plan has been established under Section 401 of the IRC. Therefore, employee contributions, except for Roth 401(k) contributions, are not subject to federal income
withholding tax, but are taxable when withdrawn from the Plan.
Effective July 1, 2015, the Plan was amended to change the Company
matching contribution to eligible employees of the Plan to be 100% of elective deferrals up to the first 1% of the participants eligible compensation, and provide a discretionary matching contribution equal to a percentage of a
participants eligible compensation to be determined by the Board of Directors of the Company. For the year ended December 31, 2016, the Company made a matching contribution to eligible employees of the Plan of 100% on elective deferrals
up to the first 1% of the participants eligible compensation. There was no discretionary matching contribution made by the Company for the year ended December 31, 2016. For the period of July 1, 2015 through December 31, 2015,
the Company made a matching contribution to eligible employees of the Plan of 100% on elective deferrals up to the first 1% of the participants eligible compensation, and a discretionary matching contribution of 50% on elective deferrals up to
the next 4% of the participants eligible compensation. For the years ended December 31, 2016 and 2015, respectively, the Company matched up to 100% on the first 3% of participant eligible compensation of San Bernardino union employees.
Non-matching
Company contributions may be made at the discretion of the Board of Directors of the Company. The Company elected not to make any
non-matching
contributions
for the years ended December 31, 2016 and 2015, respectively. The Company, at its discretion, may make additional discretionary profit sharing contributions to San Bernardino union employees. Discretionary profit sharing contributions were
approximately $79,000 and $78,000 during the years ended December 31, 2016 and 2015, respectively.
Investment in Cott Corporation
common stock was optional for Plan participants. During 2015, the Companys common stock was eliminated as an investment option of the Plan and all participant investments in the Company common stock were liquidated and proceeds were allocated
to remaining Plan investment options as directed by the participant.
Vesting
Participant contributions to the Plan plus actual earnings or losses thereon are fully vested at all times. A participant whose account balance
includes amounts transferred from the San Bernardino Plan or the St. Louis Plan as a result of the merger of such plans into the Plan shall vest in the participants share of matching contributions, discretionary matching contributions and
profit sharing contributions and earnings and losses thereon in accordance with the following schedule:
6
|
|
|
|
|
Years of Service
|
|
Vesting
Percentage
|
|
Less than 1 year
|
|
|
0
|
%
|
1 year
|
|
|
20
|
%
|
2 years
|
|
|
40
|
%
|
3 years
|
|
|
60
|
%
|
4 years
|
|
|
80
|
%
|
5 years
|
|
|
100
|
%
|
All other participants whose account balances which do not include amounts transferred from the San Bernardino
Plan or the St. Louis Plan shall vest in the participants share of matching contributions, discretionary matching contributions and profit sharing contributions and earnings and losses thereon which were contributed to the plan prior to
January 1, 2008 in accordance with the following schedule:
|
|
|
|
|
Years of Service
|
|
Vesting
Percentage
|
|
Less than 1 year
|
|
|
0
|
%
|
1 year
|
|
|
20
|
%
|
2 years
|
|
|
40
|
%
|
3 years
|
|
|
60
|
%
|
4 years
|
|
|
80
|
%
|
5 years
|
|
|
100
|
%
|
All other participants whose account balances which do not include amounts transferred from the San Bernardino
Plan or the St. Louis Plan shall vest in the participants share of matching contributions, discretionary matching contributions and profit sharing contributions and earnings and losses thereon which were contributed to the plan on or after
January 1, 2008 in accordance with the following schedule:
|
|
|
|
|
Years of Service
|
|
Vesting
Percentage
|
|
Less than 1 year
|
|
|
0
|
%
|
1 year
|
|
|
20
|
%
|
2 years
|
|
|
100
|
%
|
Participants will vest 100% upon attainment of age 65, or in the event of death or disability while employed
by the Company.
Investment Options
At December 31, 2016, the Plan provided participants with thirteen mutual funds, nine common/collective trust funds and one stable value
fund as investment options in which to invest their contributions.
Notes Receivable from Participants
Participants may borrow from their accounts up to a maximum of the lesser of $50,000, or 50% of their account balance. The term of the loan
shall not exceed 5 years except for loans to purchase a primary residence, in which case the term of the loan shall not exceed 30 years. The loans are secured by the balance in the participants account and bear interest at a rate of prime plus
1% as of the date of loan origination. Principal and interest is paid rateably through payroll deductions.
Benefit Payments
Vested benefits of retired, disabled, or terminated employees are distributed in several methods as elected by the participant or, when
applicable, the participants beneficiary. The methods of distribution include single
lump-sum
payments; or provided the participants vested account exceeds $5,000, in periodic monthly, quarterly or
annual installments; or in periodic
partial-sum
payments, in accordance with
non-discriminatory
and objective standards and procedures consistently applied by the
administrator.
7
Forfeitures
Forfeited nonvested amounts at December 31, 2016 and 2015 were $6,253 and $6,421, respectively. These are included in the Plans
investments and are available to reduce future employer contributions and pay administrative expenses. Forfeited nonvested amounts used to reduce employer contributions and pay administrative expenses were $37,000 and $12,417 for the years ended
December 31, 2016 and 2015, respectively.
Plan Termination
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue contributions and terminate the
Plan. Upon a complete or partial termination of the Plan, the account of each affected participant will fully vest. The form and timing of payment will be as determined under the Plan at the time of Plan termination.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Use of Estimates
The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with U.S. generally accepted
accounting principles (GAAP). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and the reported amounts of increases and decreases in net assets during the reporting periods. Actual results could differ from those estimates.
Investment Valuation and Income Recognition
The Plans investments are stated at fair value. Fair value is the price that would be received to sell our asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date (see Note 3 to Financial Statements). The stable value fund is an annuity contract with a broadly diversified fixed income portfolio which are valued at fair
value. The Plans interest in the stable value fund is valued based on information reported by the investment advisor using the audited financial statements of the stable value fund.
Purchases and sales of securities are recorded on a trade date basis. Interest income is recorded on an accrual basis. Dividends are recorded
on the
ex-dividend
date. The Plan presents in the Statements of Changes in Net Assets Available for Benefits the net appreciation or depreciation in fair value of its investments which consists of the realized
gains and losses and the unrealized appreciation or depreciation on those investments.
Contributions
Participant and employer matching contributions are recorded in the period during which payroll deductions are made from the participants
earnings.
Administrative Costs
Substantially all administrative expenses of the Plan are paid by the Plan. Additionally, participant returns are reported net of investment
management fees and other administrative expenses.
Benefit Payments
Benefits are recorded when paid.
Notes
Receivable from Participants
Notes receivable from participants represent participant loans that are recorded at their unpaid
principal balance plus any accrued and unpaid interest. Interest income on notes receivable from participants is recorded when it is earned. Related fees are recorded as administrative costs and are expensed as incurred. No allowance for credit
losses has been recorded as of December 31, 2016 and 2015. If a participant ceases to make loan repayments and the Plan Administrator deems the participant loan to be a distribution, the participant loan balance is reduced and a benefit payment
is recorded.
8
Risks and Uncertainties
The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market and credit
risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect
participants account balances and the amounts reported in the Statements of Net Assets Available for Benefits.
Note 3. Fair Value Measurements
Accounting Standards Codification 820,
Fair Value Measurements and Disclosures
(ASC 820), defines fair value as the
exchange prices that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement
date. Additionally, ASC 820 establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described
below:
Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active
markets that the Plan has the ability to access.
Level 2 Inputs to the valuation methodology include:
|
|
|
Quoted prices for similar assets or liabilities in active markets;
|
|
|
|
Quoted prices for identical or similar assets or liabilities in inactive markets;
|
|
|
|
Inputs other than quoted prices that are observable for the asset or liability;
|
|
|
|
Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the
asset or liability.
Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value
measurement. The unobservable inputs reflect the Plans own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The assets or liabilitys fair value measurement level within the fair value hierarchy is based on the lowest level of any input
that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the valuation
methodologies used during 2016 and 2015.
|
|
|
Common/Collective Trust Funds
: Valued by the issuer of the common/collective trust funds based on the value of each of the underlying investments, less any applicable fees. The underlying investments are valued
by the issuer using quoted market prices on active exchanges or, if unavailable, primarily using quoted market prices from independent pricing services and broker dealers and as such are generally categorized as Level 2.
|
|
|
|
Mutual Funds
: Valued at fair value based on published market prices as of the close of business on the last business day of the Plan year, which represent the NAV of the shares held by the Plan and as such are
generally categorized as Level 1.
|
|
|
|
Stable Value Fund
: Value based on the fair value using the NAV practical expedient as determined by the issuer based on the current fair values of the underlying assets of the fund (see Note 4 to Financial
Statements).
|
The methods described above may produce a fair value calculation that may not be indicative of net realizable
value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of
certain financial instruments could result in a different fair value measurement at the reporting date.
9
The following tables set forth by level, within the fair value hierarchy, the Plans
investments at fair value as of December 31, 2016 and 2015, respectively. There have been no changes in methodologies used at December 31, 2016 and 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at Fair Value as of December 31, 2016
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Mutual funds
|
|
$
|
21,447,365
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
21,447,365
|
|
Common/collective trust funds
|
|
|
|
|
|
|
71,849,236
|
|
|
|
|
|
|
|
71,849,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets in the fair value hierarchy
|
|
$
|
21,447,365
|
|
|
$
|
71,849,236
|
|
|
$
|
|
|
|
$
|
93,296,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments measured at net asset
value
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,842,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
106,138,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at Fair Value as of December 31, 2015
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Mutual funds
|
|
$
|
85,985,694
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
85,985,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets in the fair value hierarchy
|
|
$
|
85,985,694
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
85,985,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments measured at net asset
value
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,181,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
98,166,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.
|
In accordance with ASC 820, certain investments that were measured at NAV per share (or its equivalent) have not been classified in the fair value hierarchy. The fair
value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the line items presented in the Statements of Net Assets Available for Benefits.
|
The following tables summarize investments for which fair value is measured using NAV per share practical expedient as of December 31,
2016 and 2015, respectively. There are no participant redemption restrictions for these investments; the redemption notice period is applicable only to the Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
Fair Value
|
|
|
Unfunded
Commitments
|
|
Redemption
Frequency
(if currently
eligible)
|
|
Redemption
Notice Period
|
Stable value fund
|
|
$
|
12,842,129
|
|
|
N/A
|
|
Daily
|
|
30-60 Days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
Fair Value
|
|
|
Unfunded
Commitments
|
|
Redemption
Frequency
(if currently
eligible)
|
|
Redemption
Notice Period
|
Stable value fund
|
|
$
|
12,181,269
|
|
|
N/A
|
|
Daily
|
|
30-60 Days
|
Note 4. Stable Value Fund
Effective February 3, 2014, the Plan provided the New York Life Guaranteed Interest Account (GIA), a stable value fund managed
by New York Life Trust Company (NYLTC), as an investment option to participants of the Plan. The GIA is a group annuity contract which consists of a broadly diversified fixed income portfolio within New York Life Insurance Companys
(NYLIC) general account and is intended to provide a stable crediting rate consistent with preservation of principal. Interest is accrued daily and credited monthly to the GIA and reflects the crediting rate declared in advance and
guaranteed by NYLIC.
10
The key factors that impact the crediting rate under the group annuity contract are the timing
and magnitude of the cash flows in and out of the general account as well as prevailing market rates on fixed income assets available for investment by the general account. The interest crediting rate may not be reset more frequently than
semi-annually after the first contract year. The crediting rate is subject to a minimum rate provision as provided in the group annuity contract, but may never fall below 1% after deduction for any expenses. Participant-initiated transactions are
permitted on a daily basis.
The group annuity contract provides that, subject to certain limitations, withdrawals for benefit payments at
death, retirement, disability, termination of employment, and for loans, hardship withdrawals or
in-service
withdrawals as permitted by the Plan are completed at contract value. Certain distributions,
including but not limited to distributions resulting from employer-initiated events such as Plan termination, merger,
spin-off,
and early retirement incentives may be completed subject to a market value
adjustment, however the Plan Administrator deems these employer-initiated events are not probable to occur.
The group annuity contract
may be terminated by the contract holder at any time, provided written notice of terminations is received by NYLTC at least 30 days but not more than 60 days prior to the intended termination date. At contract termination, the Plan may elect to
receive either an immediate lump sum distribution subject to a market value adjustment or receive a contract value distribution in 6 annual installments over a period of 5 years.
Note 5. Tax Status
The Internal Revenue
Service (IRS) has determined and informed the Company by a letter dated July 7, 2010, that the Plan, and the related trust, are designed in accordance with the applicable sections of the IRC and therefore, the Plan is qualified and
the related trust is tax exempt under the applicable sections of the IRC. The Plan has adopted amendments since receiving the determination letter from the IRS. The Plan administrator believes that the Plan is currently designed and being operated
in compliance with the applicable requirements of the IRC. On July 6, 2017, the IRS issued a favorable determination that the Plan, and the related trust, are designed in accordance with the applicable sections of the IRC and therefore, the
Plan is qualified and the related trust is tax exempt under the applicable sections of the IRC.
U.S. GAAP requires management of the Plan
to evaluate tax positions taken by the Plan and recognize a tax liability or asset if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. The Plan administrator has analyzed the tax
positions by the Plan, and has concluded that as of December 31, 2016 and 2015, there are no uncertain positions taken or expected to be taken that would require recognition of a liability or asset or disclosure in the financial statements. The
Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.
Note 6.
Related-Party Transactions
Fees paid by the Plan for trustee management services amounted to $143,891 and $190,625 for the years ended
December 31, 2016 and 2015, respectively. Fees paid by the Plan for auditing services amounted to $29,000 and $28,000 for the years ended December 31, 2016 and 2015, respectively. These fees qualify as
party-in-interest
transactions and are recorded in administrative costs in the accompanying Statements of Changes in Net Assets Available for Benefits.
John Hancock and their affiliates perform services for, sell products to and manage and maintain certain investments for the Plan for which
fees are charged to the Plan. While the Plan pays most of the fees, a portion is paid by the Plan Sponsor.
Party-in-interest
transactions also include loans to
participants. Such transactions, while considered
party-in-interest
transactions under ERISA regulations, are permitted under the provisions of the Plan and are
specifically exempt from the prohibition of
party-in-interest
transactions under ERISA.
11
Note 7. Reconciliation of Financial Statements to Form 5500
The following is a reconciliation of net assets available for benefits per the financial statements to the Form 5500, which was prepared on a
cash basis, as of December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Net assets available for benefits per the financial statements
|
|
$
|
110,835,998
|
|
|
$
|
103,290,783
|
|
Less: Employer contributions receivable to participants
|
|
|
|
|
|
|
(622,330
|
)
|
Plus: Excess contributions payable to participants
|
|
|
87,408
|
|
|
|
106,863
|
|
|
|
|
|
|
|
|
|
|
Net assets available for benefits per Form 5500
|
|
$
|
110,923,406
|
|
|
$
|
102,775,316
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation of net increase (decrease) in net assets available for benefits per the
financial statements to the Form 5500 for the years ended December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Net increase (decrease) in net assets available for benefits per the financial statements
|
|
$
|
7,545,215
|
|
|
$
|
(2,164,341
|
)
|
Less: Employer contributions receivable to participants
|
|
|
|
|
|
|
(622,330
|
)
|
Plus: Prior year employer contributions receivable to participants
|
|
|
622,330
|
|
|
|
|
|
Less: Prior year excess contributions payable to participants
|
|
|
(106,863
|
)
|
|
|
(119,750
|
)
|
Plus: Current year excess contributions payable to participants
|
|
|
87,408
|
|
|
|
106,863
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per Form 5500
|
|
$
|
8,148,090
|
|
|
$
|
(2,799,558
|
)
|
|
|
|
|
|
|
|
|
|
8. Subsequent Events
On July 24, 2017, the Company entered into a Share Purchase Agreement (the Purchase Agreement) with Refresco Group N.V., a
Dutch public company (Refresco), pursuant to which the Company agreed to sell to Refresco its North America, United Kingdom and Mexico business units and the Royal Crown International finished goods export business (collectively
Traditional Business).
Effective December 22, 2017, the Plan was amended to facilitate the transfer of account balances,
including any outstanding loans, of certain participants of the Plan not included within the scope of the sale of the Traditional Business (the Cott Employees) to another plan sponsored by the Company or a member of the Companys
group. The Plan amendment specified that all such transferred account balances would continue to be subject to the provisions and tax regulations of the IRS and would continue to vest in accordance with the vesting schedules under the Plan.
On December 28, 2017, the account balances, including any outstanding loans, of the Cott Employees were transferred to the DS Services of
America, Inc. Retirement Savings Plan, a defined contribution savings and investment plan under section 401(k) of the IRC, administered by the Company.
On January 30, 2018, pursuant to the Purchase Agreement, the Company sold the Traditional Business to Refresco, and effective as of the
same date, the Plan was amended to name Refresco as the Plan Sponsor and to change the name of the Plan to The Refresco USA 401(k) Savings & Retirement Plan.
12