3.Acquisitions and Divestitures

As part of The Coca‑Cola Company’s plans to refranchise its North American bottling territories, the Company and Piedmont Coca‑Cola Bottling Partnership, a partnership formed by the Company and The Coca‑Cola Company (“Piedmont”), 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 July 1, 2018, in accordance with the terms and conditions of the applicable asset purchase agreement or asset exchange agreement for such transactions:

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. The Company anticipates final post-closing adjustments for the CCR Exchange Transaction will be completed during the third quarter of 2018.

Acquisition of Memphis, Tennessee Distribution Territories (the “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 (the “Memphis Territory”), 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 $42.4 million. During the second quarter of 2018, the cash purchase price for the Memphis Transaction increased by $2.8 million as a result of net working capital and other fair value adjustments, which remains payable to The Coca‑Cola Company. The cash purchase price for the Memphis Transaction remains subject to post-closing adjustment in accordance with the September 2017 APA. The Company anticipates final post-closing adjustments for the Memphis Transaction will be completed during the third quarter of 2018.

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 (the “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 (collectively, the “United Distribution Business”) and Piedmont acquired from United similar rights, assets and liabilities, and working capital in the remainder of United’s Bluffton, South Carolina territory, 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 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 Bluffton, South Carolina territory acquired by Piedmont and the value of the Northeastern Georgia Distribution Business acquired by United, which amounts remain subject to final resolution pursuant to the United AEA and the Piedmont – United AEA, respectively. The Company anticipates final resolution for the United Exchange transaction will occur during the third quarter of 2018.

Collectively, the CCR Exchange Transaction, the Memphis Transaction and the United Exchange Transaction are the “October 2017 Transactions,” the CCR Exchange Business, the Memphis Territory and the United Distribution Business are the “October 2017 Acquisitions” and the Deep South and Somerset Exchange Business and the Florence and Laurel Distribution Business are the “October 2017 Divestitures.”

In addition to the October 2017 Transactions summarized above, the Company completed three additional System Transformation Transactions with CCR in 2017 for which all post-closing adjustments have been completed: (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”), (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”), and (iii) the acquisition from CCR of distribution rights and related assets for territories in Akron, Elyria, Toledo, Willoughby and Youngstown, Ohio and a regional manufacturing facility and related assets located in Twinsburg, Ohio on April 28, 2017 (the “April 2017 Transactions”).

Post-closing adjustments for the January 2017 Transaction and the March 2017 Transactions were completed during 2017 and post-closing adjustments for the April 2017 Transactions were completed during the second quarter of 2018. 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 was paid to the Company by The Coca‑Cola Company during the second quarter of 2018.

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 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		1,447		6,848
Property, plant and equipment		25,708		81,638		52,263		71,589		231,198
Other assets (including deferred taxes)		1,158		3,227		3,960		1,300		9,645
Goodwill		1,544		2,527		16,941		16,438		37,450
Distribution agreements		22,000		46,750		19,500		129,850		218,100
Customer lists		1,500		1,750		1,000		4,950		9,200
Total acquired assets	$	60,167	$	163,979	$	114,941	$	245,188	$	584,275

Current liabilities (acquisition related contingent consideration)	$	1,350	$	2,958	$	1,475	$	1,576	$	7,359
Other current liabilities		324		3,760		2,860		8,311		15,255
Other liabilities (acquisition related contingent consideration)		26,377		49,739		25,616		21,881		123,613
Other liabilities		43		2,953		1,792		102		4,890
Total assumed liabilities	$	28,094	$	59,410	$	31,743	$	31,870	$	151,117

The fair value of acquired assets and assumed liabilities in the October 2017 Acquisitions as of the acquisition date is summarized as follows:

(in thousands)	CCR Exchange Business		Memphis Territory		United Exchange Business		Total October 2017 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		674		563		210		1,447
Property, plant and equipment		47,484		21,321		2,784		71,589
Other assets (including deferred taxes)		753		547		-		1,300
Goodwill		7,046		6,695		2,697		16,438
Distribution agreements		80,500		35,400		13,950		129,850
Customer lists		3,200		1,200		550		4,950
Total acquired assets	$	153,587	$	70,267	$	21,334	$	245,188

Current liabilities (acquisition related contingent consideration)	$	-	$	1,576	$	-	$	1,576
Other current liabilities		3,497		4,323		491		8,311
Other liabilities (acquisition related contingent consideration)		-		21,881		-		21,881
Other liabilities		15		87		-		102
Total assumed liabilities	$	3,512	$	27,867	$	491	$	31,870

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 $11.4 million, $7.0 million, $8.8 million and $2.7 million is expected to be deductible for tax purposes for the April 2017 Transactions, the CCR Exchange Business, the Memphis Territory and the United Exchange Business, 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 divested in the October 2017 Divestitures is 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 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 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:

	Second Quarter				First Half
(in thousands)	2018		2017		2018		2017
Impact to net sales - total 2017 System Transformation Transactions acquisitions	$	312,896	$	206,894	$	587,354	$	233,140
Impact to net sales - October 2017 Divestitures		-		81,410		-		152,269
Total impact to net sales	$	312,896	$	288,304	$	587,354	$	385,409

Impact to income from operations - total 2017 System Transformation Transactions acquisitions	$	3,696	$	10,323	$	2,761	$	10,419
Impact to income from operations - October 2017 Divestitures		-		9,275		-		15,284
Total impact to income from operations	$	3,696	$	19,598	$	2,761	$	25,703

The Company incurred transaction related expenses for the System Transformation Transactions of $2.1 million in the first half 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.

	Second Quarter 2017				First Half 2017
(in thousands)	Net Sales		Income from Operations		Net Sales		Income from Operations
Balance as reported	$	1,169,291	$	48,655	$	2,034,993	$	63,605
Pro forma adjustments (unaudited)		24,280		982		229,429		4,207
Balance including pro forma adjustments (unaudited)	$	1,193,571	$	49,637	$	2,264,422	$	67,812

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.