May 11, 2015
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction)
AND
IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF COTT CORPORATION (the Filer) DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer (the Application) for a decision under the securities legislation of the Jurisdiction (the Legislation) for relief in respect of the business acquisition report (the BAR) filed by the Filer in respect of the indirect acquisition by the Filer, through one of its wholly-owned subsidiaries, of 100% of the share capital of Aimia Foods Holdings Limited (Aimia) completed on May 30, 2014 (the Acquisition) (i) pursuant to Part 13 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102), from the requirements under Item 3 of Form 51-102F4 and Section 8.4 of NI 51-102; and (ii) pursuant to Part 5 of National Instrument 52-107 ─ Acceptable Accounting Principles and Auditing Standards (NI 52-107), from the requirements related to acceptable accounting principles for acquisition statements under Section 3.11 of NI 52-107 (collectively, the Exemption Sought); provided the Filer re-files the BAR, as amended, containing the Alternative BAR Financial Statements other than the replacement of the Acquisition Annual Financial Statements with the Revised Acquisition Annual Financial Statements, which Revised Acquisition Annual Financial Statements include the Unaudited Reconciliation presented as a note in such financial statements (each as defined below).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for the Application; and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador.
Interpretation
Defined terms contained in National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision unless they are defined in this decision.
Representations
This decision is based on the following facts represented by the Filer:
The Filer
The Filer is a corporation governed by the Canada Business Corporations Act.
The Filer’s head office is located at 6525 Viscount Road, Mississauga, Ontario L4V 1H6.
The Filer is a reporting issuer under the securities legislation in each of the provinces of Canada and is not in default of its reporting issuer obligations under the securities legislation of any of these jurisdictions of Canada other than the compliance matters referred to in paragraph 23 below.
The Filer is also an “SEC issuer” (as defined under NI 51-102 and NI 52-107) and is subject to applicable U.S. securities law related to, among other things, continuous disclosure and securities offerings, including requirements under the Securities Act of 1933 (the 1933 Act) of the United States of America and the Securities Exchange Act of 1934 (the 1934 Act) of the United States of America (collectively, U.S. Securities Law).
The Filer is current and timely in its periodic reporting obligations in the United States pursuant to the 1934 Act.
The Filer’s common shares are listed on the Toronto Stock Exchange under the symbol “BCB” and on the New York Stock Exchange under the symbol “COT”.
On June 24, 2014, a wholly-owned U.S. subsidiary of the Filer issued US$525.0 million aggregate principal amount of 5.375% senior notes due July 1, 2022 (the 2022 Notes) to certain purchasers in reliance on Rule 144A and Regulation S of the 1933 Act. The 2022 Notes are guaranteed by the Filer and substantially all of its subsidiaries, including Aimia. In connection with the sale of the 2022 Notes, the Filer and relevant subsidiaries entered into an exchange and note registration rights agreement (the 2022 Notes Registration Rights Agreement) with respect to the 2022 Notes pursuant to which, among other things, the Filer and such subsidiaries agreed to file a registration statement with respect to an offer to exchange the 2022 Notes for a new issue of substantially identical notes registered under the 1933 Act within a specified period of time.
The Acquisition
On May 30, 2014, the Filer, through one of its wholly-owned subsidiaries, indirectly acquired 100% of the share capital of Aimia pursuant to the terms of a share purchase agreement dated the same date.
Aimia is a privately-held company headquartered in Merseyside, United Kingdom that manufactures, sells and distributes food and beverages, including hot chocolate, coffee, malt drinks, creamers/whiteners and cereals.
Prior to the Acquisition, Aimia’s fiscal year-end was June 30.
The Filer concluded that the Acquisition constituted a “significant acquisition” by virtue of meeting the profit or loss test under Part 8 of NI 51-102 for the Filer and that it was required to file a business acquisition report in respect of the Acquisition. The Acquisition did not meet either of the asset or the investment test under Part 8 of NI 51-102.
On August 7, 2014, the Filer filed the BAR in respect of the Acquisition on SEDAR.
Since completion of the Acquisition on May 30, 2014, the Filer has been consolidating Aimia for financial reporting purposes, including for its financial statements filed on SEDAR in accordance with the Filer’s continuous disclosure obligations under NI 51-102.
BAR and Alternative BAR Financial Statements
- Under Sections 8.4(1) and 8.4(2) of NI 51-102, the Filer was required to include in the BAR the following annual financial statements of Aimia:
(a) a statement of comprehensive income, a statement of changes in equity and a statement of cash flows for (i) the year ended June 30, 2013 (audited); and (ii) the year ended June 30, 2012 (not required to be audited);
(b) a statement of financial position as at June 30, 2013 (audited) and June 30, 2012 (not required to be audited); and
(c) notes to the required financial statements.
- Under Section 8.4(3) of NI 51-102, the Filer was required to include in the BAR the following interim financial statements of Aimia:
(a) unaudited statement of comprehensive income, statement of changes in equity and statement of cash flows for the nine months ended March 31, 2014 and March 31, 2013; and
(b) unaudited statements of financial position as at March 31, 2014 and March 31, 2013.
- Under Section 8.4(5) of NI 51-102, the Filer was required to include in the BAR the following pro forma financial statements of the Filer:
(a) a pro forma statement of financial position of the Filer as at March 29, 2014 that gives effect, as if the Acquisition had taken place as at the date of the pro forma statement of financial position, to the Acquisition; and
(b) a pro forma income statement of the Filer that gives effect to the Acquisition as if it had taken place on December 30, 2012 for (i) the year ended December 28, 2013; and (ii) the interim period ended March 29, 2014.
NI 52-107 sets out, among other things, the accounting principles and auditing standards that are acceptable under Canadian securities law for the preparation of financial statements required in respect of significant acquisitions under Part 8 of NI 51-102.
The BAR in respect of the Acquisition filed by the Filer included, among other things, the following:
(a) The following unaudited pro forma condensed combined financial statements of the Filer giving effect to the Acquisition (collectively, the Pro Forma Financial Statements):
(i) unaudited pro forma condensed combined balance sheet as of March 29, 2014;
(ii) unaudited pro forma condensed combined statements of operations (including income statement and pro forma earnings per share) for the three months ended March 29, 2014 and the fiscal year ended December 28, 2013; and
(iii) the notes thereto.
(b) The following consolidated financial statements of Aimia (the Acquisition Financial Statements, and together with the Pro Forma Financial Statements, the Alternative BAR Financial Statements):
(i) audited consolidated balance sheet at June 30, 2013, and the related consolidated profit and loss account and cash flow statement for the year ended June 30, 2013 and unaudited consolidated balance sheet at June 30, 2012, and the related consolidated profit and loss account and cash flow statement for the year ended June 30, 2012 (the Acquisition Annual Financial Statements);
(ii) unaudited consolidated balance sheets at March 31, 2014 and March 31, 2013 and the related unaudited consolidated profit and loss accounts and cash flow statements for the three months ended March 31, 2014 and 2013;
(iii) unaudited consolidated balance sheets at December 31, 2013 and December 31, 2012, and the related consolidated profit and loss accounts and cash flow statements for the six-month periods ended December 31, 2013 and 2012; and
(iv) the notes thereto.
The Acquisition Annual Financial Statements were prepared in accordance with generally accepted accounting principles in the United Kingdom (UK GAAP) and Aimia’s auditor confirmed in the independent auditor’s report attached to the Acquisition Annual Financial Statements that its audit of the financial statements as at and for the year ended June 30, 2013 was conducted in accordance with auditing standards generally accepted in the United States (US GAAS).
On March 4, 2015, the Filer filed the following audited consolidated financial statements for the year ended January 3, 2015 (collectively, the 2014 Annual Financial Statements):
(a) consolidated statement of operations for the years ended January 3, 2015, December 28, 2013 and December 29, 2012;
(b) consolidated statements of comprehensive (loss) income for the years ended January 3, 2015, December 28, 2013 and December 29, 2012;
(c) consolidated balance sheets as at January 3, 2015 and December 28, 2013;
(d) consolidated statements of cash flows for the for the years ended January 3, 2015, December 28, 2013 and December 29, 2012;
(e) consolidated statements of equity for the years ended January 3, 2015, December 28, 2013 and December 29, 2012; and
(f) the notes thereto.
The 2014 Annual Financial Statements were prepared in accordance with generally accepted accounting principles in the United States (US GAAP) and the Filer’s auditor confirmed in the report of independent registered certified public accounting firm attached to the 2014 Annual Financial Statements that its audits of those financial statements were conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB).
The Filer incorporated approximately seven months of Aimia’s operations (May 30, 2014 to January 3, 2015) into the 2014 Annual Financial Statements.
In connection with the Filer’s review of its public disclosure, it came to the Filer’s attention that the BAR did not comply in all respects with the requirements under Section 8.4 of NI 51-102 and Section 3.11 of NI 52-107 because NI 52-107 does not permit acquisition financial statements to be prepared in accordance with UK GAAP.
Additional Aimia Financial Information Filed under U.S. Securities Laws
- Applying the guidance regarding format and content requirements for financial reporting in Rule 1-02(w) of Regulation S-X under the 1933 Act, the Filer determined that the Acquisition was significant to the Filer at a level less than 30% under the rule. On August 6, 2014, the Filer filed the following financial statements on a Form 8-K/A with the SEC in accordance with Item 9.01 of Form 8-K:
(a) audited consolidated balance sheet of Aimia as of June 30, 2013, and the related audited consolidated profit and loss account and cash flow statement for the year then ended and unaudited consolidated balance sheet of Aimia as of June 30, 2012, and the related unaudited consolidated profit and loss account and cash flow statement for the year then ended;
(b) unaudited consolidated balance sheets of Aimia at March 31, 2014 and 2013, and the related unaudited consolidated profit and loss accounts and cash flow statements for the three-month periods then ended;
(c) unaudited consolidated balance sheets of Aimia at December 31, 2013 and 2012, and the related unaudited consolidated profit and loss accounts and cash flow statements for the six-month periods then ended;
(d) unaudited pro forma condensed combined balance sheet of the Filer as of March 29, 2014, unaudited pro forma condensed combined statements of operations of the Filer for the three months ended March 29, 2014 and the fiscal year ended December 28, 2013; and
(e) the notes thereto.
- The audited consolidated financial statements for the year ended June 30, 2013 noted in paragraph 24(a) above and the unaudited consolidated financial statements for the six months ended December 31, 2013 and 2012 noted in paragraph 24(c) above and for the three months ended March 31, 2014 and 2013 noted in paragraph 24(b) above were each prepared in accordance with UK GAAP. As permitted under Section 2055.1 of the SEC Division of Corporation Finance Financial Reporting Manual, the Filer was not required under U.S. Securities Law to (and did not) include a reconciliation from UK GAAP to US GAAP in these Aimia financial statements since the Acquisition was significant to the Filer at a level below 30%, as determined by the Filer in accordance with Rule 1-02(w) of Regulation S-X.
Additional Aimia Financial Information Available and Related U.S. Securities Law Matters
The Filer intends imminently to announce an offer to exchange (the Note Exchange Offer) the currently outstanding 2022 Notes for a new issue of substantially identical notes that will be registered under the 1933 Act pursuant to the terms of the 2022 Notes Registration Rights Agreement. In connection with the Note Exchange Offer, the Filer is required under the 1933 Act to file new Form S-4 registration statements (New Registration Statements) with the SEC.
Since the New Registration Statements include guaranteed debt, they are subject to the financial statement requirements under U.S. Securities Laws for guaranteed securities that are more stringent than the financial statement requirements that apply to non-guaranteed securities or to the Filer under its ordinary course reporting obligations under applicable U.S. Securities Law. Specifically, Rule 3-10(g) of Regulation S-X requires the Filer to include in the New Registration Statements or file and incorporate by reference into the New Registration Statements separate audited financial statements for the Filer’s recently acquired subsidiary issuers and subsidiary guarantors that meet the requirements of Rule 3-10(g)(1)(i) and (ii) of Regulation S-X.
The Filer has determined that it is required under Rules 3-10(g)(1)(i) and (ii) and 3-10(i)(12) of Regulation S-X to include in the New Registration Statements or file and incorporated by reference into the New Registration Statements a revised version of the Acquisition Annual Financial Statements that adds a quantified reconciliation from UK GAAP to US GAAP for Aimia’s financial statements as at and for the year ended June 30, 2013. Additionally, Section 4110.5 of the SEC Division of Corporate Finance Financial Reporting Manual requires subsidiary guarantors that file separate financial statements to satisfy the requirement under Rule 3-10(g) of Regulation S-X to include an auditor’s report indicating that the audit was conducted using the PCAOB standards. The Filer understands that the auditor of the financial statements being filed to satisfy Rule 3-10(g) requirements is required to be independent under SEC rules.
The auditor of Aimia that audited the Acquisition Annual Financial Statements is independent under U.K. rules, however Aimia’s auditor has advised the Filer that it is not considered independent under applicable PCAOB standards because it provided bookkeeping services in preparing financial statements in accordance with UK GAAP and with their conversion to US GAAP, for a nominal fee. Accordingly, the Filer understands that Aimia’s auditor is not considered independent for purposes of the Rule 3-10 requirements and therefore cannot audit the reconciliation from UK GAAP to US GAAP to be added to the Acquisition Annual Financial Statements in order to comply with Rule 3-10 under Regulation S-X.
In anticipation of filing the New Registration Statements that will include the registration of guaranteed debt, the Filer requested relief from the SEC (the SEC Requested Relief) permitting the Filer to satisfy certain requirements under Rule 3-10 as follows:
(a) for the Rule 3-10 requirement to include audited financial statements of a subsidiary guarantor that includes a reconciliation between GAAPs, the Filer may re-file a revised copy of the Acquisition Annual Financial Statements (Revised Acquisition Annual Financial Statements) with a new note containing an unaudited reconciliation from UK GAAP to US GAAP for Aimia’s financial statements as at and for the year ended June 30, 2013 (the Unaudited Reconciliation); and
(b) for the Rule 3-10 requirement to include an auditor’s report indicating that the audit was conducted in accordance with the PCAOB standards, the auditor of the Revised Acquisition Annual Financial Statements may include an auditor’s report indicating that the audit was conducted in accordance with US GAAS.
On April 27, 2015, the SEC Staff issued written confirmation granting the Filer the SEC Requested Relief.
On May 11, 2015, the Filer filed the Revised Acquisition Annual Financial Statements on a new Form 8-K with the SEC and subsequently filed the Form 8-K on SEDAR. The Unaudited Reconciliation is presented as a note in the Revised Acquisition Annual Financial Statements and the note is clearly labelled as “Unaudited”. The Filer intends to re-file the BAR (as re-filed, the Re-Filed BAR) containing the Revised Acquisition Annual Financial Statements on SEDAR.
Additional Submissions by the Filer
Using the 2014 Annual Financial Statements (excluding the effect of the Acquisition) and recent financial information for Aimia, the Filer does not believe the Acquisition should be considered a significant acquisition for the Filer at this time under Part 8 of NI 51-102 and, as such, requiring the Filer to file a revised BAR containing acquisition financial statements prepared in accordance with a GAAP permitted under NI 52-107 at this point in time would unnecessarily burden the Filer (and by extension the Filer’s shareholders) with the cost and expense of preparing revised financial statements pursuant to Part 5 of NI 52-107 for the Acquisition.
Based on the above, management of the Filer submits that: (a) even if a revised BAR that complied in all respects with Section 8.4 of NI 51-102 and Section 3.11 of NI 52-107 were available to shareholders, such revised financial statements and information would be of minimal additional value to shareholders in assessing the Acquisition; (b) the BAR as a whole contains adequate information regarding the Acquisition for shareholders to make a reasoned investment decision as it relates to securities of the Filer; and (c) for purposes of any prospectus that might be filed in connection with a public offering and the incorporation by reference of the BAR in any such prospectus, the Alternative BAR Financial Statements and the Revised Acquisition Annual Financial Statements with the Unaudited Reconciliation presented as a note therein to be contained in the Re-Filed BAR combined with the 2014 Annual Financial Statements (incorporating approximately seven months of Aimia’s operations) would provide shareholders with sufficient and relevant financial information regarding the Acquisition to be used in connection with their consideration of securities offered under any such prospectus.
The Re-Filed BAR containing the Revised Acquisition Annual Financial Statements with the Unaudited Reconciliation presented as a note in such financial statements will provide adequate information to stakeholders at the date of re-filing. The Unaudited Reconciliation from UK GAAP to US GAAP for Aimia’s financial statements as at and for the year ended June 30, 2013 to be included as a note in the Revised Acquisition Annual Financial Statements will, at a minimum, meet the requirements of Section 3.11(f)(iv) of NI 52-107 as it relates to a reconciliation to be included in the notes for acquisition statements filed by an issuer that is not a venture issuer. The note containing the Unaudited Reconciliation will be appropriately labelled as “Unaudited”.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted; provided the Re-Filed BAR is filed on SEDAR containing the Alternative BAR Financial Statements other than the replacement of the Acquisition Annual Financial Statements with the Revised Acquisition Annual Financial Statements, which Revised Acquisition Annual Financial Statements include the Unaudited Reconciliation presented as a note in such financial statements.
"Cameron McInnis"
Chief Accountant