3. 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 which included distribution territory in parts of Tennessee, Kentucky and Indiana served by Coca-Cola Refreshments USA, Inc. (“CCR”), a wholly owned subsidiary of The Coca-Cola Company.

On May 12, 2015, the Company and The Coca-Cola Company entered into a non-binding letter of intent (the “May 2015 LOI”) pursuant to which CCR would grant the Company in two phases certain exclusive rights for the distribution, promotion, marketing and sale of The Coca-Cola Company-owned and -licensed products in additional territories currently served by CCR. The major markets that would be served as part of the expansion contemplated by the May 2015 LOI include: Baltimore, Alexandria, Norfolk, Richmond, Washington, DC, Cincinnati, Columbus, Dayton and Indianapolis.

On September 23, 2015, the Company and CCR entered into an asset purchase agreement for the first phase of this additional distribution territory contemplated by the May 2015 LOI (the “September 2015 APA”) including: (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 first closing for the series of Next Phase Territories transactions (the “Next Phase Territories Transactions”) occurred on October 30, 2015 for Norfolk, Fredericksburg and Staunton in Virginia and Elizabeth City in North Carolina. The second closing for the series of Next Phase Territories Transactions occurred on January 29, 2016 for Easton and Salisbury, Maryland and Richmond and Yorktown, Virginia. The closings for the remainder of the Next Phase Territories Transactions are expected to occur in the first half of 2016.

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 automatically renewed for successive additional terms of ten years unless we give notice to terminate at least one year prior to the expiration of a ten year term or 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 distribution territory and related assets, and on October 24, 2014, the Company acquired the Knoxville, Tennessee distribution territory and related assets (“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		315		1,893
Accounts receivable from The Coca-Cola Company		482		0
Property, plant and equipment		8,495		17,229
Other assets		361		221
Goodwill		571		4,698
Other identifiable intangible assets		13,800		37,400
Total acquired assets	$	25,220	$	63,649

Current liabilities (acquisition related contingent consideration)	$	1,005	$	2,426
Other current liabilities		23		2,351
Accounts payable to The Coca-Cola Company		0		105
Other liabilities (including deferred taxes)		473		0
Other liabilities (acquisition related contingent consideration)		11,564		27,834
Total assumed liabilities	$	13,065	$	32,716

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 transactions, 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 the third quarter of 2015 (“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.

2015 Expansion Territories

During 2015, the Company closed on the expansion of the following distribution territories and related assets: Cleveland and Cookeville, Tennessee; Louisville, Kentucky and Evansville, Indiana; Paducah and Pikeville, Kentucky; Norfolk, Fredericksburg and Staunton, Virginia; and Elizabeth City, North Carolina (the “2015 Expansion Territories”). The Company also acquired a make-ready center in Annapolis, Maryland in 2015. During the fourth quarter of 2015, the Company made certain measurement period adjustments as a result of purchase price changes to reflect the revised opening balance sheets for the Cleveland and Cookeville Tennessee and Louisville, Kentucky and Evansville, Indiana 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 “Initial December 2014 APA”) 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 $13.2 million, which will remain subject to adjustment until March 13, 2016 in accordance with the terms and conditions of the Initial December 2014 APA.

Louisville, Kentucky and Evansville, Indiana Territory Acquisitions

On December 17, 2014, the Company and CCR entered into an asset purchase agreement (the “Additional December 2014 APA”) 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 $18.0 million, which will remain subject to adjustment until April 11, 2016 in accordance with the terms and conditions of the Additional December 2014 APA.

Paducah and Pikeville, Kentucky Territory Acquisitions

On February 13, 2015, the Company and CCR entered into an asset purchase agreement (the “February 2015 APA”) 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 2015 APA.

Norfolk, Fredericksburg and Staunton, Virginia; and Elizabeth City, North Carolina Territory Acquisitions

On September 23, 2015, the Company and CCR entered into an asset purchase agreement (the “September 2015 APA”) related to the territory served by CCR through CCR’s facilities and equipment located in Norfolk, Fredericksburg and Staunton, Virginia, and Elizabeth City, North Carolina (the “October Expansion Territory”). The closing of this transactions occurred on October 30, 2015, for a cash purchase price of $26.1 million, which will remain subject to adjustment until December 8, 2016 in accordance with the terms and conditions of the September 2015 APA.

Annapolis, Maryland Make-Ready Center Acquisition

As a part of the Expansion Transactions, on October 30, 2015 the Company acquired from CCR a “make-ready center” in Annapolis, Maryland for approximately $5.3 million, subject to a final post-closing adjustment. The Company recorded a bargain purchase gain of approximately $2.0 million on this transaction after applying a deferred tax liability of approximately $1.3 million. The Company uses the make-ready center to deploy and refurbish vending and other sales equipment for use in the marketplace.

The fair values of acquired assets and assumed liabilities of the January, February, May and October Expansion Territories and the Annapolis, Maryland make-ready center are summarized as follows:

In Thousands	January Expansion Territory		February Expansion Territory		May Expansion Territory		October Expansion Territory		Annapolis MRC
Cash	$	59	$	105	$	45	$	160	$	0
Inventories		1,238		1,268		1,045		2,564		109
Prepaid expenses and other current assets		714		1,108		224		1,110		0
Property, plant and equipment		6,722		16,604		6,584		25,933		8,493
Other assets (including deferred taxes)		336		1,147		510		4,170		0
Goodwill		1,280		1,523		942		6,574		0
Other identifiable intangible assets		12,950		20,350		1,700		49,100		0
Total acquired assets	$	23,299	$	42,105	$	11,050	$	89,611	$	8,602

Current liabilities (acquisition related contingent consideration)	$	843	$	1,659	$	281	$	547	$	0
Other current liabilities		125		974		494		4,005		0
Other liabilities		0		823		10		0		1,265
Other liabilities (acquisition related contingent consideration)		9,131		20,625		2,748		58,925		0
Total assumed liabilities	$	10,099	$	24,081	$	3,533	$	63,477	$	1,265

The fair value of the acquired identifiable intangible assets as of the January, February, May and October Expansion Territories are as follows:

In Thousands	January Expansion Territory		February Expansion Territory		May Expansion Territory		October Expansion Territory		Estimated Useful Lives
Distribution agreements	$	12,400	$	19,200	$	1,500	$	47,900	40 years
Customer lists		550		1,150		200		1,200	12 years
Total	$	12,950	$	20,350	$	1,700	$	49,100

The goodwill of $1.3 million, $1.5 million, $0.9 million and $6.6 million for the 2015 Expansion Territories, respectively, is primarily attributed to the workforce. Goodwill of $1.0 million, $0.3 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. No goodwill is expected to be deductible for tax purposes for the October Expansion Territory.

The Company has preliminarily allocated the purchase price of the 2014 Expansion Territories 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 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 $9 million and $16 million. As of January 3, 2016, the Company has recorded a liability of $136.6 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 2015, the Company recorded an unfavorable fair value adjustment to the contingent consideration liability of $3.6 million.

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 $10.5 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 are summarized as follows:

	Lexington
	Expansion
In Thousands	Territory
Cash	$	56
Inventories		2,712
Prepaid expenses and other current assets		442
Property, plant and equipment		12,682
Other assets		48
Franchise rights		18,200
Goodwill		2,537
Other identifiable intangible assets		1,000
Total acquired assets	$	37,677

Current liabilities	$	926
Total assumed liabilities	$	926

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 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.

The financial results of the 2014 and 2015 Expansion Territories have been included in the Company’s consolidated financial statements from their respective acquisition dates. These territories contributed $437.0 million in net sales and $6.9 million in operating income during 2015.

Pro-Forma Financial Information

The following table represents the unaudited pro forma net sales for the Company assuming the 2015 Expansion Territory acquisitions had occurred on December 29, 2014. The pro forma combined net sales does not necessarily reflect what the combined Company’s net sales would have been had the acquisition occurred on the dates indicated. It 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.

		2015 Net Sales Pro Forma
		Adjustments		Pro Forma
As Reported		(Unaudited)		(Unaudited)
$	2,306,458	$	170,743	$	2,477,201

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, subject to a final post-closing adjustment. 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 $23.9 million, $34.1 million and $34.2 million in net sales in 2015, 2014 and 2013, respectively. BYB contributed $1.8 million in operating income, $0.4 million in operating loss and $0.9 million in operating income in 2015, 2014 and 2013, respectively.