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Related Party Transactions | 9 Months Ended
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Oct. 01, 2017
Related Party Transactions [Abstract] |
Related Party Transactions | 20.Related Party Transactions The Coca‑Cola Company The Company’s business consists primarily of the production, marketing and distribution of nonalcoholic beverages of The Coca‑Cola Company, which is the sole owner of the secret formulas under which the primary components of its soft drink products, either concentrate or syrup, are manufactured. As of October 1, 2017, The Coca‑Cola Company owned approximately 35% of the Company’s total outstanding Common Stock, representing approximately 5% of the total voting power of the Company’s Common Stock and Class B Common Stock voting together. As long as The Coca‑Cola Company holds the number of shares of Common Stock it currently owns, it has the right to have a designee proposed by the Company for nomination to the Company’s Board of Directors, and J. Frank Harrison, III, the Chairman of the Board and the Chief Executive Officer of the Company, and trustees of certain trusts established for the benefit of certain relatives of J. Frank Harrison, Jr. have agreed to vote the shares of the Company’s Class B Common Stock which they control, representing approximately 86% of the total voting power of the Company’s combined Common Stock and Class B Common Stock, in favor of such designee. The Coca‑Cola Company does not own any shares of the Company’s Class B Common Stock. The following table and the subsequent descriptions summarize the significant transactions between the Company and The Coca‑Cola Company:
|  | Third Quarter |  |  | First Three Quarters |
(in thousands) |  | 2017 |  |  | 2016 |  |  | 2017 |  |  | 2016 |
Payments made by the Company to The Coca-Cola Company for: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Concentrate, syrup, sweetener and other purchases |  | $ | 317,040 |  |  | $ | 190,601 |  |  | $ | 806,256 |  |  | $ | 498,825 |
Customer marketing programs |  |  | 27,855 |  |  |  | 29,716 |  |  |  | 102,095 |  |  |  | 79,141 |
Cold drink equipment parts |  |  | 6,881 |  |  |  | 5,999 |  |  |  | 18,968 |  |  |  | 16,390 |
Payments made by The Coca-Cola Company to the Company for: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Marketing funding support payments |  | $ | 22,074 |  |  | $ | 20,097 |  |  | $ | 62,235 |  |  | $ | 54,447 |
Fountain delivery and equipment repair fees |  |  | 9,286 |  |  |  | 7,628 |  |  |  | 26,138 |  |  |  | 20,084 |
Presence marketing funding support on the Company’s behalf |  |  | 2,707 |  |  |  | 189 |  |  |  | 3,844 |  |  |  | 2,006 |
Facilitating the distribution of certain brands and packages to other Coca-Cola bottlers |  |  | 1,773 |  |  |  | 1,920 |  |  |  | 6,881 |  |  |  | 5,243 |
Cold drink equipment |  |  | - |  |  |  | - |  |  |  | 8,400 |  |  |  | - |
Coca‑Cola Refreshments USA, Inc. The Company has a production arrangement with CCR to buy and sell finished products at cost. In addition, the Company transports product for CCR to the Company’s and other Coca-Cola bottlers’ locations. The following table summarizes purchases and sales under these arrangements between the Company and CCR:
|  | Third Quarter |  |  | First Three Quarters |
(in thousands) |  | 2017 |  |  | 2016 |  |  | 2017 |  |  | 2016 |
Purchases from CCR |  | $ | 20,157 |  |  | $ | 69,063 |  |  | $ | 110,451 |  |  | $ | 208,539 |
Sales to CCR |  |  | 11,873 |  |  |  | 18,388 |  |  |  | 72,930 |  |  |  | 50,877 |
Sales to CCR for transporting CCR’s product |  |  | 224 |  |  |  | 6,157 |  |  |  | 1,872 |  |  |  | 17,693 |
As discussed above in Note 2, the Company and CCR have completed a number of Expansion Transactions to acquire Expansion Territories and related distribution assets previously served by CCR and Expansion Facilities and related manufacturing assets previously owned by CCR. The following tables summarize the definitive agreements and closing dates for each of the Expansion Transactions completed by the Company as of October 1, 2017:
Expansion Territories |  | Definitive Agreement Date |  | Acquisition / Exchange Date
Johnson City and Morristown, Tennessee |  | May 7, 2014 |  | May 23, 2014
Knoxville, Tennessee |  | August 28, 2014 |  | October 24, 2014
Cleveland and Cookeville, Tennessee |  | December 5, 2014 |  | January 30, 2015
Louisville, Kentucky and Evansville, Indiana |  | December 17, 2014 |  | February 27, 2015
Paducah and Pikeville, Kentucky |  | February 13, 2015 |  | May 1, 2015
Lexington, Kentucky for Jackson, Tennessee Exchange |  | October 17, 2014 |  | May 1, 2015
Norfolk, Fredericksburg and Staunton, Virginia and Elizabeth City, North Carolina |  | September 23, 2015 |  | October 30, 2015
Easton and Salisbury, Maryland and Richmond and Yorktown, Virginia |  | September 23, 2015 |  | January 29, 2016
Alexandria, Virginia and Capitol Heights and La Plata, Maryland |  | September 23, 2015 |  | April 1, 2016
Baltimore, Hagerstown and Cumberland, Maryland |  | September 23, 2015 |  | April 29, 2016
Cincinnati, Dayton, Lima and Portsmouth, Ohio and Louisa, Kentucky |  | September 1, 2016 | 1 | October 28, 2016
Anderson, Fort Wayne, Lafayette, South Bend and Terre Haute, Indiana |  | September 1, 2016 |  | January 27, 2017
Indianapolis and Bloomington, Indiana and Columbus and Mansfield, Ohio |  | September 1, 2016 |  | March 31, 2017
Akron, Elyria, Toledo, Willoughby and Youngstown, Ohio |  | April 13, 2017 |  | April 28, 2017
| (1) | As amended by Amendment No. 1, dated January 27, 2017.
Expansion Facilities |  | Definitive Agreement Date |  | Acquisition Date
Annapolis, Maryland Make-Ready Center |  | October 30, 2015 |  | October 30, 2015
Sandston, Virginia |  | October 30, 2015 |  | January 29, 2016
Silver Spring and Baltimore, Maryland |  | October 30, 2015 |  | April 29, 2016
Cincinnati, Ohio |  | September 1, 2016 |  | October 28, 2016
Indianapolis and Portland, Indiana |  | September 1, 2016 |  | March 31, 2017
Twinsburg, Ohio |  | April 13, 2017 |  | April 28, 2017
As part of the Expansion Transactions for the Expansion Territories, the Company entered into the Final CBA, as described above in Note 6. Under the Final CBA, the Company makes a quarterly sub-bottling payment to CCR on a continuing basis for the grant of exclusive rights to distribute, promote, market and sell the authorized brands of The Coca‑Cola Company and related products in the Expansion Territories. The quarterly sub-bottling payment is based on gross profit derived from sales of certain beverages and beverage products that are sold under the same trademarks that identify a covered beverage, beverage product or certain cross-licensed brands. The liability recorded by the Company to reflect the estimated fair value of contingent consideration related to future sub-bottling payments was $308.9 million on October 1, 2017 and $253.4 million on January 1, 2017. Payments to CCR under the Final CBA, including payments under the Company’s initial comprehensive beverage agreements that were converted into the Final CBA as of March 31, 2017, were $11.7 million during the first three quarters of 2017 and $10.5 million during the first three quarters of 2016. Glacéau Distribution Termination Agreement On January 1, 2017, the Company obtained the rights to market, promote, distribute and sell glacéau vitaminwater, glacéau smartwater and glacéau vitaminwater zero drops in certain geographic territories including the District of Columbia and portions of Delaware, Maryland and Virginia, pursuant to an agreement entered into by the Company, The Coca‑Cola Company and CCR in June 2016. Pursuant to the agreement, the Company made a payment of $15.6 million during the first quarter of 2017 to The Coca‑Cola Company, which represented a portion of the total payment made by The Coca‑Cola Company to terminate a distribution arrangement with a prior distributor in this territory. Coca‑Cola Bottlers’ Sales and Services Company, LLC (“CCBSS”) Along with all other Coca‑Cola bottlers in the United States, including CCR, the Company is a member of CCBSS, a company formed in 2003 for the purpose of facilitating various procurement functions and distributing certain specified beverage products of The Coca‑Cola Company with the intention of enhancing the efficiency and competitiveness of the Coca‑Cola bottling system in the United States. CCBSS negotiates the procurement for the majority of the Company’s raw materials, excluding concentrate, and the Company receives a rebate from CCBSS for the purchase of these raw materials. The Company had rebates due from CCBSS of $17.3 million on October 1, 2017 and $7.4 million on January 1, 2017, which were classified as accounts receivable, other in the consolidated condensed financial statements. In addition, the Company pays an administrative fee to CCBSS for its services. The Company incurred administrative fees to CCBSS of $2.0 million in the first three quarters of 2017 and $0.6 million in the first three quarters of 2016, which were classified as selling, delivery and administrative (“S,D&A”) expense in the consolidated condensed financial statements. National Product Supply Group Governance Agreement (“NPSG Governance Agreement”) The NPSG Governance Agreement was executed in October 2015 by The Coca‑Cola Company and three other Coca‑Cola bottlers, including CCR, who are Regional Producing Bottlers (“RPBs”) in The Coca‑Cola Company’s national product supply system. Pursuant to the NPSG Governance Agreement, The Coca‑Cola Company and the RPBs have formed a national product supply group (the “NPSG”) and agreed to certain binding governance mechanisms, including a governing board (the “NPSG Board”) comprised of a representative of (i) the Company, (ii) The Coca‑Cola Company and (iii) each other RPB. As The Coca‑Cola Company continues its multi-year refranchising effort of its North American bottling territories, additional RPBs may be added to the NPSG Board. As of October 1, 2017, the NPSG Board consisted of The Coca‑Cola‑Company, the Company and seven other RPBs, including CCR. The stated objectives of the NPSG include, among others, (i) Coca‑Cola system strategic infrastructure investment and divestment planning; (ii) network optimization of all plant to distribution center sourcing; and (iii) new product/packaging infrastructure planning. The NPSG Board makes and/or oversees and directs certain key decisions regarding the NPSG, including decisions regarding the management and staffing of the NPSG and the funding for its ongoing operations. The Company is obligated to pay a certain portion of the costs of operating the NPSG. The Company incurred NPSG operating costs of $0.8 million in the first three quarters of 2017 and $0.3 million in the first three quarters of 2016, which were classified as S,D&A expense in the consolidated condensed financial statements.. Pursuant to the decisions of the NPSG Board made from time to time and subject to the terms and conditions of the NPSG Governance Agreement, the Company and each other RPB will make investments in their respective manufacturing assets and will implement Coca‑Cola system strategic investment opportunities consistent with the NPSG Governance Agreement. CONA Services LLC (“CONA”) The Company is a member of CONA, an entity formed with The Coca‑Cola Company and certain Coca‑Cola bottlers to provide business process and information technology services to its members. Under the CONA limited liability company agreement executed January 27, 2016 (as amended or restated from time to time, the “CONA LLC Agreement”), the Company and other members of CONA are required to make capital contributions to CONA if and when approved by CONA’s board of directors, which is comprised of representatives of the members. The Company currently has the right to designate one of the members of CONA’s board of directors and has a percentage interest in CONA of approximately 19%. The Company made capital contributions to CONA of $2.0 million during the first three quarters of 2017 and $7.2 million during the first three quarters of 2016, which were classified as other assets in the consolidated condensed financial statements. The Company is subject to a Master Services Agreement (the “Master Services Agreement”) with CONA, pursuant to which CONA agreed to make available, and the Company became authorized to use, the Coke One North America system (the “CONA System”), a uniform information technology system developed to promote operational efficiency and uniformity among North American Coca‑Cola bottlers. As part of making the CONA System available to the Company, CONA provides certain business process and information technology services to the Company, including the planning, development, management and operation of the CONA System in connection with the Company’s direct store delivery of products (collectively, the “CONA Services”). Pursuant to the Master Services Agreement, CONA agreed to make available, and authorized the Company to use, the CONA System in connection with the distribution, sale, marketing and promotion of nonalcoholic beverages the Company is authorized to distribute under the Final CBA or any other agreement with The Coca‑Cola Company (the “Beverages”) in the territories the Company serves (the “Territories”), subject to the provisions of the CONA LLC Agreement and any licenses or other agreements relating to products or services provided by third parties and used in connection with the CONA System. In exchange for the Company’s right to use the CONA System and right to receive the CONA Services under the Master Services Agreement, the Company is charged quarterly service fees by CONA based on the number of physical cases of Beverages distributed by the Company during the applicable period in the Territories where the CONA Services have been implemented (the “Service Fees”). Upon the earlier of (i) all members of CONA beginning to use the CONA System in all territories in which they distribute products of The Coca‑Cola Company (excluding certain territories of CCR that are expected to be sold to bottlers that are neither members of CONA nor users of the CONA System), or (ii) December 31, 2018, the Service Fees will be changed to be an amount per physical case of Beverages distributed in any portion of the Territories equal to the aggregate costs incurred by CONA to maintain and operate the CONA System and provide the CONA Services divided by the total number of cases distributed by all of the members of CONA, subject to certain exceptions. The Company is obligated to pay the Service Fees under the Master Services Agreement even if it is not using the CONA System for all or any portion of its operations in the Territories. The Company incurred CONA Services Fees of $9.2 million during the first three quarters of 2017 and $5.2 million during the first three quarters of 2016. Snyder Production Center (“SPC”) The Company leases the SPC and an adjacent sales facility, which are located in Charlotte, North Carolina, from Harrison Limited Partnership One (“HLP”). HLP is directly and indirectly owned by trusts of which J. Frank Harrison, III, Chairman of the Board of Directors and Chief Executive Officer of the Company, Sue Anne H. Wells, a director of the Company, and Deborah H. Everhart, a former director of the Company, are trustees and beneficiaries. Morgan H. Everett, Vice President and a director of the Company, is a permissible, discretionary beneficiary of the trusts that directly or indirectly own HLP. The SPC lease expires on December 31, 2020. The principal balance outstanding under this capital lease was $12.4 million on October 1, 2017 and $14.7 million on January 1, 2017. The annual base rent the Company is obligated to pay under the lease is subject to an adjustment for an inflation factor. Rental payments related to this lease were $3.1 million in the first three quarters of 2017 and $3.0 million in the first three quarters of 2016. Company Headquarters The Company leases its headquarters office facility and an adjacent office facility from Beacon Investment Corporation (“Beacon”). The lease expires on December 31, 2021. J. Frank Harrison, III is Beacon’s majority shareholder and Morgan H. Everett is a minority shareholder. The principal balance outstanding under this capital lease was $13.5 million on October 1, 2017 and $15.5 million on January 1, 2017. The annual base rent the Company is obligated to pay under the lease is subject to adjustment for increases in the Consumer Price Index. Rental payments related to this lease were $3.3 million in the first three quarters of 2017 and $3.2 million in the first three quarters of 2016.

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- Definition The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -URI http://asc.fasb.org/topic&trid=2122745 + Details
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