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Acquisitions and Divestitures | 3 Months Ended
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Apr. 01, 2018
Business Combinations [Abstract] |
Acquisitions and Divestitures | 3.Acquisitions and Divestitures As part of The Coca‑Cola Company’s plans to refranchise its North American bottling territories, the Company completed a series of transactions from April 2013 to October 2017 with The Coca‑Cola Company, Coca‑Cola Refreshments USA, Inc. (“CCR”), a wholly-owned subsidiary of The Coca‑Cola Company and Coca‑Cola Bottling Company United, Inc. (“United”), an independent bottler that is unrelated to the Company, to significantly expand the Company’s distribution and manufacturing operations (the “System Transformation”). The System Transformation included the acquisition and exchange of rights to serve distribution territories and related distribution assets, as well as the acquisition and exchange of regional manufacturing facilities and related manufacturing assets. A summary of the System Transformation transactions (the “System Transformation Transactions”) completed by the Company is included in the Company’s Annual Report on Form 10‑K for 2017. Following is a summary of the System Transformation Transactions for which cash purchase prices remained subject to final post-closing adjustment or final resolution on April 1, 2018, in accordance with the terms and conditions of the applicable asset purchase agreement or asset exchange agreement for such transactions: Acquisition of Akron, Elyria, Toledo, Willoughby and Youngstown, Ohio Distribution Territories and Twinsburg, Ohio Regional Manufacturing Facility (“April 2017 Transactions”) On April 28, 2017, the Company acquired (i) distribution rights and related assets in territories previously served by CCR through CCR’s facilities and equipment located in Akron, Elyria, Toledo, Willoughby and Youngstown, Ohio pursuant to a distribution asset purchase agreement entered into by the Company and CCR on April 13, 2017 (the “April 2017 Distribution APA”) and (ii) a regional manufacturing facility located in Twinsburg, Ohio and related manufacturing assets pursuant to a manufacturing asset purchase agreement entered into by the Company and CCR on April 13, 2017 (the “April 2017 Manufacturing APA”). The Company completed the April 2017 Transactions for a cash purchase price of $87.9 million. During the fourth quarter of 2017, the cash purchase price for the April 2017 Transactions decreased by $4.7 million as a result of net working capital and other fair value adjustments, which remains due from The Coca‑Cola Company. Subsequent to the end of the first quarter of 2018, all post-closing adjustments were finalized for the April 2017 Transactions. None of the final post-closing adjustments were material to the Company’s consolidated condensed financial statements. Acquisition of Arkansas Distribution Territories and Memphis, Tennessee and West Memphis, Arkansas Regional Manufacturing Facilities in exchange for the Company’s Deep South and Somerset Distribution Territories and Mobile, Alabama Manufacturing Facility (the “CCR Exchange Transaction”) On October 2, 2017, the Company (i) acquired from CCR distribution rights and related assets in territories previously served by CCR through CCR’s facilities and equipment located in central and southern Arkansas and two regional manufacturing facilities located in Memphis, Tennessee and West Memphis, Arkansas and related manufacturing assets (collectively, the “CCR Exchange Business”) in exchange for which the Company (ii) transferred to CCR distribution rights and related assets in territories previously served by the Company through its facilities and equipment located in portions of southern Alabama, southeastern Mississippi, southwestern Georgia and northwestern Florida and in and around Somerset, Kentucky and a regional manufacturing facility located in Mobile, Alabama and related manufacturing assets (collectively, the “Deep South and Somerset Exchange Business”), pursuant to an asset exchange agreement entered into by the Company, certain of its wholly-owned subsidiaries and CCR on September 29, 2017 (the “CCR AEA”). During 2017, the Company paid CCR $15.9 million toward the closing of the CCR Exchange Transaction, representing an estimate of the difference between the value of the CCR Exchange Business acquired by the Company and the value of the Deep South and Somerset Exchange Business acquired by CCR. During the fourth quarter of 2017, the Company recorded certain adjustments to this settlement amount as a result of changes in estimated net working capital and other fair value adjustments, which are included in accounts payable to The Coca‑Cola Company. The final closing price for the CCR Exchange Transaction remains subject to final resolution pursuant to the CCR AEA. Acquisition of Memphis, Tennessee Distribution Territories (“Memphis Transaction”) On October 2, 2017, the Company acquired distribution rights and related assets in territories previously served by CCR through CCR’s facilities and equipment located in and around Memphis, Tennessee, including portions of northwestern Mississippi and eastern Arkansas, pursuant to an asset purchase agreement entered by the Company and CCR on September 29, 2017 (the “September 2017 APA”). The Company completed this acquisition for a cash purchase price of $39.6 million, which remains subject to post-closing adjustment in accordance with the September 2017 APA. Acquisition of Spartanburg and Bluffton, South Carolina Distribution Territories in exchange for the Company’s Florence and Laurel Territories and Piedmont’s Northeastern Georgia Territories (“United Exchange Transaction”) On October 2, 2017, the Company and Piedmont completed exchange transactions in which (i) the Company acquired from United distribution rights and related assets in territories previously served by United through United’s facilities and equipment located in and around Spartanburg, South Carolina and a portion of United’s territory located in and around Bluffton, South Carolina and Piedmont acquired from United similar rights, assets and liabilities, and working capital in the remainder of United’s Bluffton, South Carolina territory (collectively, the “United Distribution Business”), in exchange for which (ii) the Company transferred to United distribution rights and related assets in territories previously served by the Company through its facilities and equipment located in parts of northwestern Alabama, south-central Tennessee and southeastern Mississippi previously served by the Company’s distribution centers located in Florence, Alabama and Laurel, Mississippi (collectively, the “Florence and Laurel Distribution Business”) and Piedmont transferred to United similar rights, assets and liabilities, and working capital of Piedmont’s in territory located in parts of northeastern Georgia (the “Northeastern Georgia Distribution Business”), pursuant to an asset exchange agreement between the Company, certain of its wholly-owned subsidiaries and United dated September 29, 2017 (the “United AEA”) and an asset exchange agreement between Piedmont and United dated September 29, 2017 (the “Piedmont – United AEA”). At closing, the Company and Piedmont paid United $3.4 million toward the closing of the United Exchange Transaction, representing an estimate of (i) the difference between the value of the portion of the United Distribution Business acquired by the Company and the value of the Florence and Laurel Distribution Business acquired by United, plus (ii) the difference between the value of the portion of the United Distribution Business acquired by Piedmont and the value of the Northeastern Georgia Distribution Business acquired by United, which such amounts remain subject to final resolution pursuant to the United AEA and the Piedmont – United AEA, respectively. In addition to the System Transformation Transactions summarized above, the Company completed two additional System Transformation Transactions with CCR in 2017 including (i) the acquisition from CCR of distribution rights and related assets for territories in Anderson, Fort Wayne, Lafayette, South Bend and Terre Haute, Indiana on January 27, 2017 (the “January 2017 Transaction”), and (ii) the acquisition from CCR of distribution rights and related assets for territories in Indianapolis and Bloomington, Indiana and Columbus and Mansfield, Ohio and regional manufacturing facilities and related assets located in Indianapolis and Portland, Indiana on March 31, 2017 (the “March 2017 Transactions”). Post-closing adjustments for both of these transactions were completed during 2017. The fair value of acquired assets and assumed liabilities of the System Transformation Transactions that closed during 2017 (the “2017 System Transformation Transactions”), as of the acquisition dates, is summarized as follows:
(in thousands) |  | January 2017 Transaction |  |  | March 2017 Transactions |  |  | April 2017 Transactions |  |  | October 2017 Transactions Acquisitions |  |  | Total 2017 System Transformation Transactions Acquisitions |
Cash |  | $ | 107 |  |  | $ | 211 |  |  | $ | 103 |  |  | $ | 191 |  |  | $ | 612 |
Inventories |  |  | 5,953 |  |  |  | 20,952 |  |  |  | 14,554 |  |  |  | 14,850 |  |  |  | 56,309 |
Prepaid expenses and other current assets |  |  | 1,155 |  |  |  | 5,117 |  |  |  | 4,068 |  |  |  | 4,573 |  |  |  | 14,913 |
Accounts receivable from The Coca-Cola Company |  |  | 1,042 |  |  |  | 1,807 |  |  |  | 2,552 |  |  |  | 2,391 |  |  |  | 7,792 |
Property, plant and equipment |  |  | 25,708 |  |  |  | 81,638 |  |  |  | 52,263 |  |  |  | 70,645 |  |  |  | 230,254 |
Other assets (including deferred taxes) |  |  | 1,158 |  |  |  | 3,227 |  |  |  | 3,960 |  |  |  | 1,300 |  |  |  | 9,645 |
Goodwill |  |  | 1,544 |  |  |  | 2,527 |  |  |  | 17,154 |  |  |  | 15,588 |  |  |  | 36,813 |
Distribution agreements |  |  | 22,000 |  |  |  | 46,750 |  |  |  | 19,500 |  |  |  | 124,750 |  |  |  | 213,000 |
Customer lists |  |  | 1,500 |  |  |  | 1,750 |  |  |  | 1,000 |  |  |  | 4,950 |  |  |  | 9,200 |
Total acquired assets |  | $ | 60,167 |  |  | $ | 163,979 |  |  | $ | 115,154 |  |  | $ | 239,238 |  |  | $ | 578,538 |
Current liabilities (acquisition related contingent consideration) |  | $ | 1,350 |  |  | $ | 2,958 |  |  | $ | 1,475 |  |  | $ | 1,458 |  |  | $ | 7,241 |
Other current liabilities |  |  | 324 |  |  |  | 3,760 |  |  |  | 2,860 |  |  |  | 8,311 |  |  |  | 15,255 |
Other liabilities (acquisition related contingent consideration) |  |  | 26,377 |  |  |  | 49,739 |  |  |  | 25,616 |  |  |  | 18,848 |  |  |  | 120,580 |
Other liabilities |  |  | 43 |  |  |  | 2,953 |  |  |  | 2,005 |  |  |  | 102 |  |  |  | 5,103 |
Total assumed liabilities |  | $ | 28,094 |  |  | $ | 59,410 |  |  | $ | 31,956 |  |  | $ | 28,719 |  |  | $ | 148,179 |
As part of the “October 2017 Transactions Acquisitions,” which include the distribution territories and the regional manufacturing facilities acquired in the CCR Exchange Transaction (the “CCR Exchange Transaction Acquisitions”), the Memphis Transaction and the United Exchange Transaction (the “United Exchange Transaction Acquisitions”), the fair value of acquired assets and assumed liabilities as of the acquisition date is summarized as follows:
(in thousands) |  | CCR Exchange Transaction Acquisitions |  |  | Memphis Transaction |  |  | United Exchange Transaction Acquisitions |  |  | October 2017 Transactions Acquisitions |
Cash |  | $ | 91 |  |  | $ | 100 |  |  | $ | - |  |  | $ | 191 |
Inventories |  |  | 10,667 |  |  |  | 3,354 |  |  |  | 829 |  |  |  | 14,850 |
Prepaid expenses and other current assets |  |  | 3,172 |  |  |  | 1,087 |  |  |  | 314 |  |  |  | 4,573 |
Accounts receivable from The Coca-Cola Company |  |  | 1,092 |  |  |  | 1,089 |  |  |  | 210 |  |  |  | 2,391 |
Property, plant and equipment |  |  | 47,066 |  |  |  | 20,795 |  |  |  | 2,784 |  |  |  | 70,645 |
Other assets (including deferred taxes) |  |  | 753 |  |  |  | 547 |  |  |  | - |  |  |  | 1,300 |
Goodwill |  |  | 7,046 |  |  |  | 5,845 |  |  |  | 2,697 |  |  |  | 15,588 |
Distribution agreements |  |  | 80,500 |  |  |  | 30,300 |  |  |  | 13,950 |  |  |  | 124,750 |
Customer lists |  |  | 3,200 |  |  |  | 1,200 |  |  |  | 550 |  |  |  | 4,950 |
Total acquired assets |  | $ | 153,587 |  |  | $ | 64,317 |  |  | $ | 21,334 |  |  | $ | 239,238 |
Current liabilities (acquisition related contingent consideration) |  | $ | - |  |  | $ | 1,458 |  |  | $ | - |  |  | $ | 1,458 |
Other current liabilities |  |  | 3,497 |  |  |  | 4,323 |  |  |  | 491 |  |  |  | 8,311 |
Other liabilities (acquisition related contingent consideration) |  |  | - |  |  |  | 18,848 |  |  |  | - |  |  |  | 18,848 |
Other liabilities |  |  | 15 |  |  |  | 87 |  |  |  | - |  |  |  | 102 |
Total assumed liabilities |  | $ | 3,512 |  |  | $ | 24,716 |  |  | $ | 491 |  |  | $ | 28,719 |
The goodwill for the 2017 System Transformation Transactions is included in the Nonalcoholic Beverages segment and is primarily attributed to operational synergies and the workforce acquired. Goodwill of $11.6 million, $7.0 million, $7.5 million and $2.7 million is expected to be deductible for tax purposes for the April 2017 Transactions, the CCR Exchange Transaction Acquisitions, the Memphis Transaction and the United Exchange Transaction Acquisitions, respectively. No goodwill is expected to be deductible for tax purposes for the January 2017 Transaction or the March 2017 Transactions. The carrying value of assets and liabilities in the Deep South and Somerset Exchange Business divested in the CCR Exchange Transaction and the Florence and Laurel Distribution Business divested in the United Exchange Transaction (together, the “October 2017 Divestitures”) are summarized as follows:
(in thousands) |  | October 2017 Divestitures |
Cash |  | $ | 303 |
Inventories |  |  | 13,717 |
Prepaid expenses and other current assets |  |  | 1,199 |
Property, plant and equipment |  |  | 44,380 |
Other assets (including deferred taxes) |  |  | 604 |
Goodwill |  |  | 13,073 |
Distribution agreements |  |  | 65,043 |
Total divested assets |  | $ | 138,319 |
Other current liabilities |  | $ | 5,683 |
Pension and postretirement benefit obligation |  |  | 16,855 |
Total divested liabilities |  | $ | 22,538 |
The October 2017 Divestitures were recorded in the Company’s Nonalcoholic Beverages segment prior to divestiture. System Transformation Transactions Financial Results The financial results of the System Transformation Transactions have been included in the Company’s consolidated condensed financial statements from their respective acquisition or exchange dates. Net sales and income (loss) from operations for certain territories and regional manufacturing facilities acquired and divested by the Company during 2017 are impracticable to separately calculate, as the operations were absorbed into territories and facilities owned by the Company prior to the System Transformation, and therefore have been omitted from the results below. Omission of net sales and income (loss) from operations for such territories and facilities is not considered material to the results presented below. The remaining 2017 System Transformation Transactions contributed the following amounts to the Company’s consolidated condensed statements of operations:
|  | First Quarter |
(in thousands) |  | 2018 |  |  | 2017 |
Impact to net sales - total 2017 System Transformation Transactions acquisitions |  | $ | 274,458 |  |  | $ | 26,246 |
Impact to net sales - October 2017 Divestitures |  |  | - |  |  |  | 70,859 |
Total impact to net sales |  | $ | 274,458 |  |  | $ | 97,105 |
Impact to income (loss) from operations - total 2017 System Transformation Transactions acquisitions |  | $ | (935 | ) |  | $ | 96 |
Impact to income (loss) from operations - October 2017 Divestitures |  |  | - |  |  |  | 6,009 |
Total impact to income (loss) from operations |  | $ | (935 | ) |  | $ | 6,105 |
The Company incurred transaction related expenses for the System Transformation Transactions of $0.7 million in the first quarter of 2017, which were included within S,D&A expenses on the consolidated condensed statements of operations. System Transformation Transactions Pro Forma Financial Information The purpose of the pro forma disclosure is to present the net sales and the income from operations of the combined entity as though the 2017 System Transformation Transactions had occurred as of the beginning of 2017. 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 2017. 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 table represents the Company’s unaudited pro forma net sales and unaudited pro forma income from operations for the 2017 System Transformation Transactions.
|  | First Quarter 2017 |
(in thousands) |  | Net Sales |  |  | Income from Operations |
Balance as reported |  | $ | 865,702 |  |  | $ | 14,950 |
Pro forma adjustments (unaudited) |  |  | 205,149 |  |  |  | 3,225 |
Balance including pro forma adjustments (unaudited) |  | $ | 1,070,851 |  |  | $ | 18,175 |
The net sales pro forma and the income from operations pro forma reflect adjustments for (i) the inclusion of historic results of operations for the distribution territories and the regional manufacturing facilities acquired in the System Transformation Transactions for the period prior to the Company’s acquisition of the applicable territories or facility, for each period presented and (ii) the elimination of historic results of operations for the October 2017 Divestitures.

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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 Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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