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 formulas under which the primary components of its soft drink products, either concentrate or syrup, are manufactured.

As of September 30, 2018, The Coca‑Cola Company owned approximately 27% of the Company’s total outstanding Common Stock and Class B Common Stock on a consolidated basis, 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 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)	2018		2017		2018		2017
Payments made by the Company to The Coca-Cola Company for:
Concentrate, syrup, sweetener and other purchases	$	341,949	$	317,040	$	904,244	$	806,256
Customer marketing programs		34,005		27,855		110,062		102,095
Cold drink equipment parts		7,958		6,881		22,188		18,968
Glacéau distribution agreement consideration		-		-		-		15,598

Payments made by The Coca-Cola Company to the Company for:
Proceeds from Territory Conversion Fee	$	-	$	-	$	-	$	87,066
Marketing funding support payments		22,632		22,074		65,325		62,235
Fountain delivery and equipment repair fees		10,199		9,286		29,899		26,138
Facilitating the distribution of certain brands and packages to other Coca-Cola bottlers		1,937		1,773		7,663		6,881
Presence marketing funding support on the Company’s behalf		1,108		2,707		6,203		3,844
Cold drink equipment		-		-		3,789		8,400

Coca‑Cola Refreshments USA, Inc.

The Company previously had a production arrangement with CCR to buy and sell finished products at cost and transported products for CCR to the Company’s and other Coca‑Cola bottlers’ locations. Following the completion of the October 2017 Transactions discussed in Note 3, the Company no longer transacts with CCR other than making quarterly sub-bottling payments, as discussed below. The following table summarizes purchases and sales under these arrangements between the Company and CCR prior to the closing of the October 2017 Transactions:

	2017
(in thousands)	Third Quarter		First Three Quarters
Purchases from CCR	$	20,157	$	110,451
Gross sales to CCR		11,873		72,930

Pursuant to the CBA, the Company is required to make quarterly sub-bottling payments 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 territories acquired in the System Transformation, excluding territories the Company acquired in an exchange transaction. These sub-bottling payments are 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. Sub-bottling payments to CCR were $18.3 million during the first three quarters of 2018 and $11.7 million during the first three quarters of 2017. The following table summarizes the liability recorded by the Company to reflect the estimated fair value of contingent consideration related to future sub‑bottling payments to CCR:

(in thousands)	September 30, 2018		December 31, 2017
Current portion of acquisition related contingent consideration	$	25,306	$	23,339
Non-current portion of acquisition related contingent consideration		338,530		357,952
Total acquisition related contingent consideration	$	363,836	$	381,291

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 to The Coca‑Cola Company during the first quarter of 2017, 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, 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 $13.9 million on September 30, 2018 and $11.2 million on December 31, 2017, which were classified as accounts receivable, other in the consolidated condensed balance sheets.

In addition, the Company pays an administrative fee to CCBSS for its services. The Company incurred administrative fees to CCBSS of $2.2 million in the first three quarters of 2018 and $2.0 million in the first three quarters of 2017, which were classified as S,D&A expenses in the consolidated condensed statements of operations.

National Product Supply Group (“NPSG”)

The Company is a member of the NPSG, an organization comprised of The Coca‑Cola Company and other Coca‑Cola bottlers who are regional producing bottlers (“RPBs”) in The Coca‑Cola Company’s national product supply system, pursuant to a national product supply governance agreement executed in October 2015 with The Coca‑Cola Company and other RPBs (the “NPSG Governance Agreement”). 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.

Under the NPSG Governance Agreement, the NPSG members established certain 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 of September 30, 2018, the NPSG Board consisted of The Coca‑Cola Company, the Company and seven other RPBs. 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.

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, each RPB is required to make investments in its respective manufacturing assets and implement Coca‑Cola system strategic investment opportunities consistent with the NPSG Governance Agreement. The Company is also obligated to pay a certain portion of the costs of operating the NPSG. The Company incurred NPSG operating costs of $0.9 million in the first three quarters of 2018 and $0.8 million in the first three quarters of 2017, which were classified as S,D&A expense in the consolidated condensed statements of operations.

CONA Services LLC (“CONA”)

The Company is a member of CONA, an entity formed with The Coca‑Cola Company and certain other Coca‑Cola bottlers pursuant to a limited liability company agreement executed in January 2016 (as amended, the “CONA LLC Agreement”) to provide business process and information technology services to its members.

Under the CONA LLC Agreement, the business and affairs of CONA are managed by a board of directors comprised of representatives of its members (the “CONA Board”). All directors are entitled to one vote, regardless of the percentage interest in CONA held by each member. The Company currently has the right to designate one of the members of the CONA Board and has a percentage interest in CONA of approximately 20%. Most matters to be decided by the CONA Board require approval by a majority of a quorum of the directors, provided that the approval of 80% of the directors is required to, among other things, require members to make additional capital contributions, approve CONA’s annual operating and capital budgets, and approve capital expenditures in excess of certain agreed upon amounts. Each CONA member is required to make capital contributions to CONA if and when approved by the CONA Board.

The Company made capital contributions to CONA of $2.1 million in the first three quarters of 2018 and $2.0 million in the first three quarters of 2017, which were classified as other assets in the consolidated condensed balance sheets. No CONA member may transfer its membership interest (or any portion thereof) except to a purchaser of the member’s bottling business (or any portion thereof) and as permitted under the member’s comprehensive beverage agreement with The Coca‑Cola Company.

The CONA LLC Agreement further provides that, if CCR grants any major North American Coca‑Cola bottler other than a CONA member rights to (i) manufacture, produce and package or (ii) market, promote, distribute and sell Coca‑Cola products, CCR will require the bottler to become a CONA member, to implement the CONA System in the bottler’s operations and to enter into a master services agreement with CONA.

The Company is also party to an amended and restated master services agreement with CONA (the “CONA MSA”), 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, CONA provides the Company with certain business process and information technology services, including the planning, development, management and operation of the CONA System in connection with the Company’s direct store delivery and manufacture of products (collectively, the “CONA Services”).

The Company is also authorized under the CONA MSA to use the CONA System in connection with its distribution, promotion, marketing, sale and manufacture of beverages it is authorized to distribute or manufacture under the CBA, the Company’s regional manufacturing agreement or any other agreement with The Coca‑Cola Company, 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 rights to use the CONA System and receive the CONA Services under the CONA MSA, it is charged service fees by CONA. Currently, the service fees are based on the number of physical cases of beverages the Company distributed or manufactured during the applicable period in the portion of its territories where the CONA Services have then been implemented.

Upon the earlier of (i) all members of CONA beginning to use the CONA System in all territories in which they distribute and manufacture Coca‑Cola products (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 or manufactured in any portion of the Company’s 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 or manufactured by all of the members of CONA, subject to certain exceptions and provided that the aggregate costs related to CONA’s manufacturing functionality will be borne solely amongst the CONA members who have rights to manufacture beverages of The Coca‑Cola Company.

The Company is obligated to pay the service fees under the CONA MSA even if it is not using the CONA System for all or any portion of its distribution and manufacturing operations. The Company incurred CONA services fees of $15.5 million in the first three quarters of 2018 and $9.2 million in the first three quarters of 2017.

Related Party Leases

The Company leases its headquarters office facility and an adjacent office facility in Charlotte, North Carolina from Beacon Investment Corporation, of which J. Frank Harrison, III is the majority stockholder and Morgan H. Everett is a minority stockholder. The annual base rent the Company is obligated to pay under this lease agreement is subject to adjustment for increases in the Consumer Price Index and the lease expires on December 31, 2021.

The Company leases the Snyder Production Center and an adjacent sales facility in Charlotte, North Carolina from Harrison Limited Partnership One, which 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, and Sue Anne H. Wells, a director of the Company, are trustees and beneficiaries and of which Morgan H. Everett, Vice President and a director of the Company, is a permissible, discretionary beneficiary. The annual base rent the Company is obligated to pay under this lease agreement is subject to an adjustment for an inflation factor and the lease expires on December 31, 2020.

A summary of the principal balance outstanding under these related party capital leases is as follows:

(in thousands)	September 30, 2018		December 31, 2017
Company headquarters	$	10,597	$	12,771
Snyder Production Center		9,033		11,612

A summary of rental payments related to these capital leases is as follows:

	Third Quarter				First Three Quarters
(in thousands)	2018		2017		2018		2017
Company headquarters	$	1,110	$	1,091	$	3,346	$	3,294
Snyder Production Center		1,049		1,018		3,147		3,055