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Acquisitions and Divestitures | 9 Months Ended
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Sep. 27, 2015
Business Combinations [Abstract] |
Acquisitions and Divestitures | 2. Acquisitions and Divestitures During 2015, the Company completed its acquisitions of distribution territories announced as part of the April 2013 letter of intent signed with The Coca-Cola Company. The completed expansion of the Company’s distribution territory 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 (each as defined in the CBA) or certain cross-licensed brands. 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 |  |  |  | 2,100 |
Prepaid expenses and other current assets |  |  | 548 |  |  |  | 1,905 |
Accounts receivable from The Coca-Cola Company |  |  | 496 |  |  | 0 |
Property, plant and equipment |  |  | 8,495 |  |  |  | 17,229 |
Other assets |  |  | 142 |  |  |  | 1,019 |
Goodwill |  |  | 557 |  |  |  | 4,684 |
Other identifiable intangible assets |  |  | 13,800 |  |  |  | 37,400 |
Total acquired assets |  | $ | 25,234 |  |  | $ | 64,445 |
Current liabilities (acquisition related contingent consideration) |  | $ | 1,005 |  |  | $ | 2,426 |
Current liabilities |  |  | 23 |  |  |  | 2,351 |
Accounts payable to The Coca-Cola Company |  | 0 |  |  |  | 105 |
Other liabilities (including deferred taxes) |  |  | 473 |  |  |  | 796 |
Other liabilities (acquisition related contingent consideration) |  |  | 11,564 |  |  |  | 27,834 |
Total assumed liabilities |  | $ | 13,065 |  |  | $ | 33,512 |
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 |  |  | $ | 36,400 |  |  | 40 years
Customer lists |  |  | 600 |  |  |  | 1,000 |  |  | 12 years
Total |  | $ | 13,800 |  |  | $ | 37,400 |  |  |
The goodwill of $0.6 million and $4.7 million for the Johnson City/Morristown and Knoxville, Territories, respectively, is primarily attributed to the workforce. Goodwill of $0.1 million and $4.5 million for the Johnson City/Morristown and Knoxville Territories, respectively, is expected to be deductible for tax purposes. During Q3 2015, the Company made certain measurement period adjustments as a result of purchase price changes to reflect the revised opening balance sheets for the Johnson City/Morristown and Knoxville, Tennessee territories. The effect on the Company’s consolidated financial statements of these measurement period adjustments was immaterial. These adjustments are included in the opening balance sheets presented above. YTD 2015 Expansion Territories During the first nine months of 2015 (“YTD 2015”), the Company closed on the acquisitions of the following distribution territories from CCR: Cleveland and Cookeville, Tennessee; Louisville, Kentucky and Evansville, Indiana; and Paducah and Pikeville, Kentucky (“YTD 2015 Expansion Territories”). 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 “December 2014-I Asset Purchase Agreement”) related 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 December 2014-I 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 “December 2014-II 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 December 2014-II Asset Purchase Agreement. Paducah and Pikeville, Kentucky Territory Acquisitions On February 13, 2015, 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 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 February Asset Purchase Agreement. The fair values of acquired assets and assumed liabilities of the YTD 2015 Expansion Territories are summarized as follows:
In Thousands |  | January Expansion Territory |  |  | February Expansion Territory |  |  | May Expansion Territory |
Cash |  | $ | 59 |  |  | $ | 105 |  |  | $ | 45 |
Inventories |  |  | 1,238 |  |  |  | 1,268 |  |  |  | 1,045 |
Prepaid expenses and other current assets |  |  | 1,040 |  |  |  | 1,748 |  |  |  | 332 |
Property, plant and equipment |  |  | 6,695 |  |  |  | 16,574 |  |  |  | 6,584 |
Other assets (including deferred taxes) |  |  | 435 |  |  |  | 965 |  |  |  | 422 |
Goodwill |  |  | 1,238 |  |  |  | 4,042 |  |  |  | 952 |
Other identifiable intangible assets |  |  | 17,750 |  |  |  | 29,600 |  |  |  | 1,700 |
Total acquired assets |  | $ | 28,455 |  |  | $ | 54,302 |  |  | $ | 11,080 |
Current liabilities (acquisition related contingent consideration) |  | $ | 843 |  |  | $ | 1,659 |  |  | $ | 281 |
Other current liabilities |  |  | 125 |  |  |  | 806 |  |  |  | 524 |
Other liabilities |  | 0 |  |  |  | 992 |  |  |  | 10 |
Other liabilities (acquisition related contingent consideration) |  |  | 13,729 |  |  |  | 31,052 |  |  |  | 2,748 |
Total assumed liabilities |  | $ | 14,697 |  |  | $ | 34,509 |  |  | $ | 3,563 |
The fair value of the acquired identifiable intangible assets of the YTD 2015 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 $1.2 million, $4.0 million and $1.0 million for the YTD 2015 Expansion Territories, respectively, is primarily attributed to the workforce. Goodwill of $0.2 million, $2.1 million and $0.1 million is expected to be deductible for tax purposes for the January Expansion Territory, February Expansion Territory and May Expansion Territory, respectively. The Company has preliminarily allocated the purchase price of the 2014 Expansion Territories and YTD 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 financial results of both the YTD 2015 Expansion Territories and the Lexington-for-Jackson territory (discussed below) have been included in the Company’s consolidated financial statements from their respective acquisition dates. These territories contributed $84.7 million in net sales and $1.3 million to operating income during the third quarter of 2015 (“Q3 2015”). These territories contributed $175.2 million in net sales and $5.7 million to operating income during 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 YTD 2015 Expansion Territories is between $6 million and $11 million. As of September 27, 2015, the Company has recorded a liability of $93.1 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 an unfavorable fair value adjustment to the contingent consideration liability of $3.0 million primarily due to a change in the risk-free interest 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 value of the net 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 is summarized as follows:
|  | Lexington |  |  |
|  | Expansion |  |  |
In Thousands |  | Territory |  |  |
Cash |  | $ | 56 |  |  |
Inventories |  |  | 2,712 |  |  |
Prepaid expenses and other current assets |  |  | 447 |  |  |
Property, plant and equipment |  |  | 12,682 |  |  |
Other assets |  |  | 48 |  |  |
Franchise rights |  |  | 18,200 |  |  |
Goodwill |  |  | 2,533 |  |  |
Other identifiable intangible assets |  |  | 1,000 |  |  |
Total acquired assets |  | $ | 37,678 |  |  |
Current liabilities |  | $ | 926 |  |  |
Total assumed liabilities |  | $ | 926 |  |  |
The fair value of the acquired identifiable intangible assets related to the Lexington Expansion Territory as of the exchange date 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 Territory is primarily attributed to the workforce of the territories. Goodwill of $2.5 million is expected to be deductible for tax purposes. The Company has preliminarily allocated the purchase price for 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 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”. This amount is subject to change upon completion of the final determination value of the net assets exchanged in the transaction. 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. Asset Purchase Agreement for Next Phase Territories On September 23, 2015, the Company and CCR entered into an asset purchase agreement pursuant to which CCR will grant the Company exclusive rights for the distribution, promotion, marketing and sale of products owned and licensed by The Coca-Cola Company in the following additional territories served by CCR: (i) eastern and northern Virginia, (ii) the entire state of Maryland, (iii) the District of Columbia, and (iv) parts of Delaware, North Carolina, Pennsylvania and West Virginia (the “Next Phase Territories”). The Next Phase Territories are the first phase of the proposed franchise territory expansion contemplated by the non-binding letter of intent entered into by the Company and The Coca-Cola Company on May 12, 2015. Pursuant to such asset purchase agreement, the Company will (i) purchase from CCR in a series of closings certain rights relating to the distribution, promotion, marketing and sale of cross-licensed brands currently distributed by CCR in the Next Phase Territories and certain assets related to the distribution, promotion, marketing and sale of both The Coca-Cola Company brands and cross-licensed brands currently distributed by CCR in the Next Phase Territories and (ii) assume certain liabilities and obligations of CCR relating to the business currently conducted by CCR in the Next Phase Territories. It is a condition to each closing that the Company and CCR enter into a CBA with respect to the portion of the Next Phase Territories that is the subject of such closing that is substantially the same as the form of CBA currently in effect in the 2014 Expansion Territories and YTD 2015 Expansion Territories. Concurrent with their execution of the asset purchase agreement for the Next Phase Territories, the Company, CCR and The Coca-Cola Company executed a territory conversion agreement, which provides that each of the CBAs executed by the Company, including the CBAs for each of the Next Phase Territories, as well as certain other bottling agreements would be amended, restated and converted (upon the occurrence of certain events) to a new and final comprehensive beverage agreement. Sale of BYB Brands, Inc. On August 24, 2015, the Company sold BYB Brands, Inc. (“BYB”), a wholly owned subsidiary of the Company to The Coca-Cola Company. Pursuant to the stock purchase agreement dated July 22, 2015, the Company sold all of the issued and outstanding shares of capital stock of BYB for a cash purchase price of $26.4 million. As a result of the sale, the Company recognized a gain of $22.7 million in Q3 2015, which was recorded in the Consolidated Statements of Operations in the line item titled “Gain on sale of business.” BYB contributed $21.8 million and $24.5 million in net sales and $1.8 million and $0.3 million in operating income in YTD 2015 and the first nine months of 2014 (“YTD 2014”), respectively.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References No definition available. + Details
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