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Acquisitions | 6 Months Ended
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Jun. 28, 2015
Business Combinations [Abstract] |
Acquisitions | 2. Acquisitions During 2015, the Company completed its acquisitions of franchise territories announced as part of the April 2013 letter of intent signed with The Coca-Cola Company. The expansion of franchise territory completed includes distribution rights in parts of Tennessee, Kentucky and Indiana served by Coca-Cola Refreshments USA, Inc. (“CCR”), a wholly owned subsidiary of The Coca-Cola Company. At the closings of each of the expansion territories (excluding the Lexington-for-Jackson exchange described below), the Company signed a Comprehensive Beverage Agreement (“CBA”) for each of the territories which has a term of ten years and is renewable by the Company indefinitely for successive additional terms of ten years each unless earlier terminated as provided therein. Under the CBAs, the Company will make a quarterly sub-bottling payment to CCR on a continuing basis for the grant of exclusive rights to distribute, promote, market and sell specified covered beverages and related products, as defined in the agreements. The quarterly sub-bottling payment, which is accounted for as contingent consideration, is based on sales of certain beverages and beverage products that are sold under the same trademarks that identify a covered beverage, related product or certain cross-licensed brands (as defined in the CBAs). The CBA imposes certain obligations on the Company with respect to serving the expansion territories that failure to meet could result in termination of a CBA if the Company fails to take corrective measures within a specified time frame. 2014 Expansion Territories On May 23, 2014, the Company acquired the Johnson City and Morristown, Tennessee territory, and on October 24, 2014, the Company acquired the Knoxville, Tennessee territory (“2014 Expansion Territories”) from CCR. The fair values of acquired assets and assumed liabilities as of the acquisition dates are summarized as follows:
|  | Johnson City/ |  |  |  |  |
|  | Morristown |  |  | Knoxville |
In Thousands |  | Territory |  |  | Territory |
Cash |  | $ | 46 |  |  | $ | 108 |
Inventories |  |  | 1,150 |  |  |  | 2,105 |
Prepaid expenses and other current assets |  |  | 697 |  |  |  | 1,780 |
Property, plant and equipment |  |  | 8,495 |  |  |  | 17,152 |
Other assets |  |  | 55 |  |  |  | 1,122 |
Goodwill |  |  | 942 |  |  |  | 3,138 |
Other identifiable intangible assets |  |  | 13,800 |  |  |  | 40,400 |
Total acquired assets |  | $ | 25,185 |  |  | $ | 65,805 |
Current liabilities (acquisition related contingent consideration) |  | $ | 1,005 |  |  | $ | 2,426 |
Current liabilities |  |  | 31 |  |  |  | 2,241 |
Accounts payable to The Coca-Cola Company |  | 0 |  |  |  | 242 |
Other liabilities (including deferred taxes) |  | 0 |  |  |  | 589 |
Other liabilities (acquisition related contingent consideration) |  |  | 11,995 |  |  |  | 30,774 |
Total assumed liabilities |  | $ | 13,031 |  |  | $ | 36,272 |
The fair value of the acquired identifiable intangible assets is as follows:
|  | Johnson City/ |  |  |  |  |  |  |
|  | Morristown |  |  | Knoxville |  |  | Estimated
In Thousands |  | Territory |  |  | Territory |  |  | Useful Lives
Distribution agreements |  | $ | 13,200 |  |  | $ | 39,400 |  |  | 40 years
Customer lists |  |  | 600 |  |  |  | 1,000 |  |  | 12 years
Total |  | $ | 13,800 |  |  | $ | 40,400 |  |  |
The goodwill of $0.9 million and $3.1 million for the Johnson City/Morristown and Knoxville Territories, respectively, is primarily attributed to the workforce. Goodwill of $0.2 million and $2.6 million for the Johnson City/Morristown and Knoxville Territories, respectively, is expected to be deductible for tax purposes. 2015 Expansion Territories During YTD 2015, the Company closed on the expansion of the following franchise territories: Cleveland and Cookeville, Tennessee; Louisville, Kentucky and Evansville, Indiana; and Paducah and Pikeville, Kentucky. The details of the transactions are included below. Cleveland and Cookeville, Tennessee Territory Acquisitions On December 5, 2014, the Company and CCR entered into an asset purchase agreement (the “January Asset Purchase Agreement”) relating to the territory served by CCR through CCR’s facilities and equipment located in Cleveland and Cookeville, Tennessee (the “January Expansion Territory”). The closing of this transaction occurred on January 30, 2015 for a cash purchase price of $13.8 million, which will remain subject to adjustment until March 13, 2016 in accordance with the terms and conditions of the January Asset Purchase Agreement. Louisville, Kentucky and Evansville, Indiana Territory Acquisitions On December 17, 2014, the Company and CCR entered into an asset purchase agreement (the “February Asset Purchase Agreement”) related to the territory served by CCR through CCR’s facilities and equipment located in Louisville, Kentucky and Evansville, Indiana (the “February Expansion Territory”). The closing of this transaction occurred on February 27, 2015, for a cash purchase price of $19.8 million, which will remain subject to adjustment until April 7, 2016 in accordance with the terms and conditions of the February Asset Purchase Agreement. Paducah and Pikeville, Kentucky Territory Acquisitions On February 13, 2015, the Company and CCR entered into an asset purchase agreement (the “May Asset Purchase Agreement”) related to the territory served by CCR through CCR’s facilities and equipment located in Paducah and Pikeville, Kentucky (the “May Expansion Territory”). The closing of this transaction occurred on May 1, 2015, for a cash purchase price of $7.5 million, which will remain subject to adjustment until June 12, 2016 in accordance with the terms and conditions of the May Asset Purchase Agreement. The fair values of acquired assets and assumed liabilities of the January, February and May Expansion Territories are summarized as follows:
In Thousands |  | January Expansion Territory |  |  | February Expansion Territory |  |  | May Expansion Territory |
Cash |  | $ | 59 |  |  | $ | 105 |  |  | $ | 45 |
Inventories |  |  | 1,237 |  |  |  | 1,269 |  |  |  | 1,045 |
Prepaid expenses and other current assets |  |  | 1,000 |  |  |  | 1,724 |  |  |  | 339 |
Property, plant and equipment |  |  | 6,717 |  |  |  | 16,574 |  |  |  | 6,611 |
Other assets (including deferred taxes) |  |  | 435 |  |  |  | 933 |  |  |  | 438 |
Goodwill |  |  | 1,134 |  |  |  | 3,492 |  |  |  | 797 |
Other identifiable intangible assets |  |  | 17,750 |  |  |  | 29,600 |  |  |  | 1,700 |
Total acquired assets |  | $ | 28,332 |  |  | $ | 53,697 |  |  | $ | 10,975 |
Current liabilities (acquisition related contingent consideration) |  | $ | 843 |  |  | $ | 1,659 |  |  | $ | 281 |
Other current liabilities |  |  | 0 |  |  |  | 370 |  |  |  | 395 |
Other liabilities |  |  | 0 |  |  |  | 832 |  |  |  | 0 |
Other liabilities (acquisition related contingent consideration) |  |  | 13,729 |  |  |  | 31,052 |  |  |  | 2,748 |
Total assumed liabilities |  | $ | 14,572 |  |  | $ | 33,913 |  |  | $ | 3,424 |
The fair value of the acquired identifiable intangible assets as of the January, February and May Expansion Territories are as follows:
In Thousands |  | January Expansion Territory |  |  | February Expansion Territory |  |  | May Expansion Territory |  |  | Estimated Useful Lives
Distribution agreements |  | $ | 17,200 |  |  | $ | 28,400 |  |  | $ | 1,500 |  |  | 40 years
Customer lists |  |  | 550 |  |  |  | 1,200 |  |  |  | 200 |  |  | 12 years
Total |  | $ | 17,750 |  |  | $ | 29,600 |  |  | $ | 1,700 |  |  |
The goodwill of $1.1 million, $3.5 million and $0.8 million for the January, February, and May Expansion Territories, respectively, is primarily attributed to the workforce. Goodwill of $0.1 million and $1.6 million is expected to be deductible for tax purposes for the January and February Expansion Territories, respectively. No goodwill is expected to be deductible for tax purposes for the May Expansion Territory. The Company has preliminarily allocated the purchase price of the 2014 and 2015 Expansion Territories to the individual acquired assets and assumed liabilities. The valuations are subject to adjustment as additional information is obtained, but any adjustments are not expected to be material. The fair values of identifiable intangible assets and acquisition related contingent consideration are final. The financial results of the January, February and May Expansion Territories have been included in the Company’s consolidated financial statements from their respective acquisition dates. These territories contributed $72.5 million in net sales and $2.7 million in operating income during the second quarter of 2015 (“Q2 2015”). These territories contributed $90.5 million in net sales and $4.4 million in operating income during the first half of 2015 (“YTD 2015”). The anticipated range of amounts the Company could pay annually under the acquisition related contingent consideration arrangements for the 2014 Expansion Territories and the 2015 Expansion Territories is between $6 million and $11 million. As of June 28, 2015, the Company has recorded a liability of $94.1 million to reflect the estimated fair value of the contingent consideration related to the future sub-bottling payments. The contingent consideration was valued using a probability weighted discounted cash flow model based on internal forecasts and the weighted average cost of capital derived from market data. The contingent consideration is reassessed and adjusted to fair value each quarter through other income (expense). During YTD 2015, the Company recorded a favorable fair value adjustment to the contingent consideration liability of $1.0 million primarily due to a change in the risk-free interest discount rate. 2015 Asset Exchange Agreement On October 17, 2014, the Company and CCR entered into an agreement (“the Asset Exchange Agreement”) pursuant to which CCR agreed to exchange certain assets of CCR relating to the marketing, promotion, distribution and sale of Coca-Cola and other beverage products in the territory served by CCR’s facilities and equipment located in Lexington, Kentucky (the “Lexington Expansion Territory”), including the rights to produce such beverages in the Lexington Expansion Territory, in exchange for certain assets of the Company relating to the marketing, promotion, distribution and sale of Coca-Cola and other beverage products in the territory served by the Company’s facilities and equipment located in Jackson, Tennessee, including the rights to produce such beverages in that territory. The Company and CCR closed the Asset Exchange Transaction on May 1, 2015. The net assets received in the exchange, after deducting the value of certain retained assets and retained liabilities, was approximately $10.3 million, which was paid at closing. The assets exchanged remain subject to adjustment until June 12, 2016 in accordance with the terms and conditions of the Asset Exchange Agreement. The fair value of acquired assets and assumed liabilities related to the Lexington Expansion Territory as of the exchange date are summarized as follows:
|  | Lexington |  |  |
|  | Expansion |  |  |
In Thousands |  | Territory |  |  |
Cash |  | $ | 56 |  |  |
Inventories |  |  | 2,715 |  |  |
Prepaid expenses and other current assets |  |  | 447 |  |  |
Property, plant and equipment |  |  | 12,717 |  |  |
Other assets |  |  | 26 |  |  |
Franchise rights |  |  | 18,200 |  |  |
Goodwill |  |  | 2,259 |  |  |
Other identifiable intangible assets |  |  | 1,000 |  |  |
Total acquired assets |  | $ | 37,420 |  |  |
Current liabilities |  | $ | 669 |  |  |
Total assumed liabilities |  | $ | 669 |  |  |
The fair value of the acquired identifiable intangible assets is as follows:
|  | Lexington |  |  |
|  | Expansion |  |  | Estimated
In Thousands |  | Territory |  |  | Useful Lives
Franchise rights |  | $ | 18,200 |  |  | Indefinite
Distribution agreements |  |  | 200 |  |  | 40 years
Customer lists |  |  | 800 |  |  | 12 years
Total |  | $ | 19,200 |  |  |
The goodwill related to the Lexington Expansion Territories is primarily attributed to the workforce of the territories. Goodwill of $2.2 million is expected to be deductible for tax purposes. The Company has preliminarily allocated the purchase price of the Lexington Expansion Territory to the individual acquired assets and assumed liabilities. The valuations are subject to adjustment as additional information is obtained, but any adjustments are not expected to be material. The fair values of identifiable intangible assets and acquisition related contingent consideration are final. The carrying value of assets exchanged related to the Jackson territory was $17.5 million, resulting in a gain on the exchange of $8.8 million. This gain was recorded in the Consolidated Statements of Operations in the line item titled “Gain on exchange of franchise territory”. The amount of goodwill and franchise rights allocated to the Jackson territory was determined using a relative fair value approach comparing the fair value of the Jackson territory to the fair value of the overall Nonalcoholic Beverages reporting unit.

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