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Acquisitions and Divestitures | 3 Months Ended
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Apr. 02, 2017
Business Combinations [Abstract] |
Acquisitions and Divestitures | 2.Acquisitions and Divestitures As part of The Coca‑Cola Company’s plans to refranchise its North American bottling territories, the Company has engaged in a series of transactions since April 2013 with The Coca‑Cola Company and Coca‑Cola Refreshments USA, Inc. (“CCR”), a wholly-owned subsidiary of The Coca‑Cola Company, to significantly expand the Company’s distribution and manufacturing operations. This expansion includes acquisition of the rights to serve additional distribution territories previously served by CCR (the “Expansion Territories”) and related distribution assets, as well as the acquisition of regional manufacturing facilities previously owned by CCR (the “Expansion Facilities”) and related manufacturing assets (collectively, the “Expansion Transactions”). 2016 Expansion Transactions During 2016, the Company acquired distribution rights and related assets for the following territories: Easton, Salisbury, Capitol Heights, La Plata, Baltimore, Hagerstown and Cumberland, Maryland; Richmond, Yorktown and Alexandria, Virginia; Cincinnati, Dayton, Lima and Portsmouth, Ohio; and Louisa, Kentucky. The Company also acquired the Expansion Facilities and related manufacturing assets in Sandston, Virginia; Silver Spring and Baltimore, Maryland; and Cincinnati, Ohio during 2016. Collectively, these are the “2016 Expansion Transactions.” The details of the 2016 Expansion Transactions are included below. Easton and Salisbury, Maryland and Richmond and Yorktown, Virginia Expansion Territories Acquisitions and Sandston, Virginia Expansion Facility Acquisition (“January 2016 Expansion Transactions”) An asset purchase agreement entered into by the Company and CCR in September 2015 (the “September 2015 APA”) contemplated, in part, the Company’s acquisition of distribution rights and related assets in the territory served by CCR through CCR’s facilities and equipment located in Easton and Salisbury, Maryland and Richmond and Yorktown, Virginia. In addition, an asset purchase agreement entered into by the Company and CCR in October 2015 (the “October 2015 APA”) contemplated, in part, the Company’s acquisition of the Expansion Facility and related manufacturing assets in Sandston, Virginia. The closing of the January 2016 Expansion Transactions occurred on January 29, 2016, for a cash purchase price of $65.7 million, which will remain subject to adjustment in accordance with the terms and conditions of the September 2015 APA and the October 2015 APA. Alexandria, Virginia and Capitol Heights and La Plata, Maryland Expansion Territories Acquisitions (“April 1, 2016 Expansion Transaction”) The September 2015 APA also contemplated the Company’s acquisition of distribution rights and related assets in the territory served by CCR through CCR’s facilities and equipment located in Alexandria, Virginia and Capitol Heights and La Plata, Maryland. The closing of the April 1, 2016 Expansion Transaction occurred on April 1, 2016, for a cash purchase price of $35.6 million, which will remain subject to adjustment in accordance with the terms and conditions of the September 2015 APA. Baltimore, Hagerstown and Cumberland, Maryland Expansion Territories Acquisitions and Silver Spring and Baltimore, Maryland Expansion Facilities Acquisitions (“April 29, 2016 Expansion Transactions”) On April 29, 2016, the Company completed the remaining transactions contemplated by (i) the September 2015 APA, by acquiring distribution rights and related assets in Expansion Territories served by CCR through CCR’s facilities and equipment located in Baltimore, Hagerstown and Cumberland, Maryland, and (ii) the October 2015 APA, by acquiring the Expansion Facilities and related manufacturing assets in Silver Spring and Baltimore, Maryland. The closing of the April 29, 2016 Expansion Transactions occurred for a cash purchase price of $69.0 million, which will remain subject to adjustment in accordance with the terms and conditions of the September 2015 APA and the October 2015 APA. Cincinnati, Dayton, Lima and Portsmouth, Ohio and Louisa, Kentucky Expansion Territories Acquisitions and Cincinnati, Ohio Expansion Facility Acquisition (“October 2016 Expansion Transactions”) On October 28, 2016, the Company completed the initial transactions contemplated by (i) a distribution asset purchase agreement entered into by the Company and CCR in September 2016 (the “September 2016 Distribution APA”), by acquiring distribution rights and related assets in the Expansion Territories served by CCR through CCR’s facilities and equipment located in Cincinnati, Dayton, Lima and Portsmouth, Ohio and Louisa, Kentucky, and (ii) a manufacturing asset purchase agreement entered into by the Company and CCR in September 2016 (the “September 2016 Manufacturing APA”), by acquiring the Expansion Facility and related manufacturing assets located in Cincinnati, Ohio. The closing of the October 2016 Expansion Transactions occurred for a cash purchase price of $98.2 million, which will remain subject to adjustment in accordance with the terms and conditions of the September 2016 Distribution APA and the September 2016 Manufacturing APA. The fair value of acquired assets and assumed liabilities of the 2016 Expansion Transactions as of the acquisition dates is summarized as follows:
(in thousands) |  | January 2016 Expansion Transactions |  |  | April 1, 2016 Expansion Transaction |  |  | April 29, 2016 Expansion Transactions |  |  | October 2016 Expansion Transactions |  |  | Total 2016 Expansion Transactions |
Cash |  | $ | 179 |  |  | $ | 219 |  |  | $ | 161 |  |  | $ | 150 |  |  | $ | 709 |
Inventories |  |  | 10,159 |  |  |  | 3,748 |  |  |  | 13,850 |  |  |  | 18,513 |  |  |  | 46,270 |
Prepaid expenses and other current assets |  |  | 2,775 |  |  |  | 1,945 |  |  |  | 3,774 |  |  |  | 4,181 |  |  |  | 12,675 |
Accounts receivable from The Coca-Cola Company |  |  | 1,121 |  |  |  | 1,162 |  |  |  | 1,126 |  |  |  | 1,327 |  |  |  | 4,736 |
Property, plant and equipment |  |  | 46,149 |  |  |  | 54,135 |  |  |  | 58,679 |  |  |  | 68,182 |  |  |  | 227,145 |
Other assets (including deferred taxes) |  |  | 2,351 |  |  |  | 1,541 |  |  |  | 5,151 |  |  |  | 611 |  |  |  | 9,654 |
Goodwill |  |  | 9,396 |  |  |  | 1,962 |  |  |  | 7,791 |  |  |  | 7,063 |  |  |  | 26,212 |
Other identifiable intangible assets |  |  | 1,300 |  |  |  | - |  |  |  | 23,450 |  |  |  | 66,500 |  |  |  | 91,250 |
Total acquired assets |  | $ | 73,430 |  |  | $ | 64,712 |  |  | $ | 113,982 |  |  | $ | 166,527 |  |  | $ | 418,651 |
Current liabilities (acquisition related contingent consideration) |  | $ | 361 |  |  | $ | 742 |  |  | $ | 1,307 |  |  | $ | 3,318 |  |  | $ | 5,728 |
Other current liabilities |  |  | 591 |  |  |  | 4,231 |  |  |  | 5,482 |  |  |  | 7,165 |  |  |  | 17,469 |
Accounts payable to The Coca-Cola Company |  |  | 650 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 650 |
Other liabilities |  |  | - |  |  |  | 266 |  |  |  | 2,635 |  |  |  | 761 |  |  |  | 3,662 |
Other liabilities (acquisition related contingent consideration) |  |  | 6,144 |  |  |  | 23,924 |  |  |  | 35,561 |  |  |  | 57,066 |  |  |  | 122,695 |
Total assumed liabilities |  | $ | 7,746 |  |  | $ | 29,163 |  |  | $ | 44,985 |  |  | $ | 68,310 |  |  | $ | 150,204 |
The goodwill for the 2016 Expansion Transactions is all included in the Nonalcoholic Beverages segment and is primarily attributed to operational synergies and the workforce acquired. Goodwill of $6.0 million and $13.1 million is expected to be deductible for tax purposes for the January 2016 Expansion Transactions and the October 2016 Expansion Transactions, respectively. No goodwill is expected to be deductible for the April 1, 2016 Expansion Transaction or the April 29, 2016 Expansion Transactions. The fair value of the acquired identifiable intangible assets as of the acquisition dates is as follows:
(in thousands) |  | January 2016 Expansion Transactions |  |  | April 29, 2016 Expansion Transactions |  |  | October 2016 Expansion Transactions |  |  | Total 2016 Expansion Transactions |  |  | Estimated Useful Lives
Distribution agreements |  | $ | 750 |  |  | $ | 22,000 |  |  | $ | 63,900 |  |  | $ | 86,650 |  |  | 40 years
Customer lists |  |  | 550 |  |  |  | 1,450 |  |  |  | 2,600 |  |  |  | 4,600 |  |  | 12 years
Total acquired identifiable intangible assets |  | $ | 1,300 |  |  | $ | 23,450 |  |  | $ | 66,500 |  |  | $ | 91,250 |  |  |
Q1 2017 Expansion Transactions During the first quarter of 2017, the Company acquired distribution rights and related assets for the following Expansion Territories: Anderson, Bloomington, Fort Wayne, Indianapolis, Lafayette, South Bend and Terre Haute, Indiana and Columbus and Mansfield, Ohio. Additionally, during the first quarter of 2017, the Company acquired the Expansion Facilities and related manufacturing assets located in Indianapolis and Portland, Indiana. Collectively, these are the “Q1 2017 Expansion Transactions.” The details of the Q1 2017 Expansion Transactions are included below. Anderson, Fort Wayne, Lafayette, South Bend and Terre Haute, Indiana Expansion Territories Acquisitions (“January 2017 Expansion Transaction”) The September 2016 Distribution APA contemplated, in part, the Company’s acquisition of distribution rights and related assets in the territory served by CCR through CCR’s facilities and equipment located in Anderson, Fort Wayne, Lafayette, South Bend and Terre Haute, Indiana. The closing of the January 2017 Expansion Transaction occurred on January 27, 2017, for a cash purchase price of $31.6 million, which will remain subject to adjustment in accordance with the terms and conditions of the September 2016 Distribution APA. Bloomington and Indianapolis, Indiana and Columbus and Mansfield, Ohio Expansion Territories Acquisitions and Indianapolis and Portland, Indiana Expansion Facilities Acquisitions (“March 2017 Expansion Transactions”) On March 31, 2017, the Company completed the final transactions contemplated by (i) the September 2016 Distribution APA, by acquiring distribution rights and related assets in the Expansion Territories served by CCR through CCR’s facilities and equipment located in Bloomington and Indianapolis, Indiana and Columbus and Mansfield, Ohio, and (ii) the September 2016 Manufacturing APA, by acquiring the Expansion Facilities and related manufacturing assets located in Indianapolis and Portland, Indiana. The closing of the March 2017 Expansion Transactions occurred for a cash purchase price of $108.7 million, which will remain subject to adjustment in accordance with the terms and conditions of the September 2016 Distribution APA and the September 2016 Manufacturing APA. The fair value of acquired assets and assumed liabilities of the Q1 2017 Expansion Transactions as of the acquisition date is summarized as follows:
(in thousands) |  | January 2017 Expansion Transaction |  |  | March 2017 Expansion Transactions |  |  | Total Q1 2017 Expansion Transactions |
Cash |  | $ | 107 |  |  | $ | 211 |  |  | $ | 318 |
Inventories |  |  | 5,953 |  |  |  | 21,050 |  |  |  | 27,003 |
Prepaid expenses and other current assets |  |  | 1,089 |  |  |  | 5,235 |  |  |  | 6,324 |
Accounts receivable from The Coca-Cola Company |  |  | 1,042 |  |  |  | 1,807 |  |  |  | 2,849 |
Property, plant and equipment |  |  | 25,708 |  |  |  | 82,692 |  |  |  | 108,400 |
Other assets (including deferred taxes) |  |  | 846 |  |  |  | 3,593 |  |  |  | 4,439 |
Goodwill |  |  | 1,112 |  |  |  | 3,737 |  |  |  | 4,849 |
Other identifiable intangible assets |  |  | 10,650 |  |  |  | 20,400 |  |  |  | 31,050 |
Total acquired assets |  | $ | 46,507 |  |  | $ | 138,725 |  |  | $ | 185,232 |
Current liabilities (acquisition related contingent consideration) |  | $ | 727 |  |  | $ | 1,921 |  |  | $ | 2,648 |
Other current liabilities |  |  | 665 |  |  |  | 1,827 |  |  |  | 2,492 |
Other liabilities |  |  | 115 |  |  |  | 13 |  |  |  | 128 |
Other liabilities (acquisition related contingent consideration) |  |  | 13,408 |  |  |  | 26,260 |  |  |  | 39,668 |
Total assumed liabilities |  | $ | 14,915 |  |  | $ | 30,021 |  |  | $ | 44,936 |
The goodwill for the Q1 2017 Expansion Transactions is included in the Nonalcoholic Beverages segment and is primarily attributed to operational synergies and the workforce acquired. No goodwill is expected to be deductible for tax purposes for the January 2017 Expansion Transaction or the March 2017 Expansion Transactions. The fair value of the acquired identifiable intangible assets as of the acquisition date is as follows:
(in thousands) |  | January 2017 Expansion Transaction |  |  | March 2017 Expansion Transactions |  |  | Total Q1 2017 Expansion Transactions |  |  | Estimated Useful Lives
Distribution agreements |  | $ | 9,300 |  |  | $ | 18,900 |  |  | $ | 28,200 |  |  | 40 years
Customer lists |  |  | 1,350 |  |  |  | 1,500 |  |  |  | 2,850 |  |  | 12 years
Total acquired identifiable intangible assets |  | $ | 10,650 |  |  | $ | 20,400 |  |  | $ | 31,050 |  |  |
The Company has preliminarily allocated the purchase price of the 2016 Expansion Transactions and the Q1 2017 Expansion Transactions to the individual acquired assets and assumed liabilities. The valuations are subject to adjustment as additional information is obtained. The anticipated amount the Company could pay annually under the acquisition related contingent consideration arrangements for the Expansion Transactions is in the range of $20 million to $36 million. Q1 2017 and 2016 Expansion Transactions Financial Results The financial results of the Q1 2017 Expansion Transactions and the 2016 Expansion Transactions have been included in the Company’s consolidated financial statements from their respective acquisition or exchange dates. These Expansion Transactions contributed the following amounts to the Company’s consolidated statement of operations:
|  | First Quarter |
(in thousands) |  | 2017 |  |  | 2016 |
Net sales from 2016 Expansion Transactions |  | $ | 238,660 |  |  | $ | 35,311 |
Net sales from Q1 2017 Expansion Transactions |  |  | 26,246 |  |  |  | - |
Total impact to net sales |  | $ | 264,906 |  |  | $ | 35,311 |
Operating income from 2016 Expansion Transactions |  | $ | 4,354 |  |  | $ | 1,206 |
Operating income from Q1 2017 Expansion Transactions |  |  | 96 |  |  |  | - |
Total impact to income from operations |  | $ | 4,450 |  |  | $ | 1,206 |
The Company incurred transaction related expenses for the Expansion Transactions of $0.7 million in the first quarter of 2017 and $0.9 million in the first quarter of 2016. These expenses are included within Selling, delivery and administrative expenses on the Consolidated Statements of Operations. Q1 2017 Expansion Transactions and 2016 Expansion Transactions Pro Forma Financial Information The purpose of the pro forma is to present the net sales and the income from operations of the combined entity as though the current year acquisitions had occurred as of the beginning of each period presented. The pro forma combined net sales and income from operations do not necessarily reflect what the combined Company’s net sales and income from operations would have been had the acquisitions occurred at the beginning of each period presented. The pro forma financial information also may not be useful in predicting the future financial results of the combined company. The actual results may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The following tables represent the Company’s unaudited pro forma net sales and unaudited pro forma income from operations for the Q1 2017 Expansion Transactions and the 2016 Expansion Transactions.
|  | First Quarter |
(in thousands) |  | 2017 |  |  | 2016 |
Net sales as reported |  | $ | 865,702 |  |  | $ | 625,456 |
Pro forma adjustments (unaudited) |  |  | 85,447 |  |  |  | 308,023 |
Net sales pro forma (unaudited) |  | $ | 951,149 |  |  | $ | 933,479 |
|  | First Quarter |
(in thousands) |  | 2017 |  |  | 2016 |
Income from operations as reported |  | $ | 13,608 |  |  | $ | 12,401 |
Pro forma adjustments (unaudited) |  |  | 5,810 |  |  |  | 10,427 |
Income from operations pro forma (unaudited) |  | $ | 19,418 |  |  | $ | 22,828 |

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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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