3. Acquisitions

In April 2013, the Company announced that it had signed a non-binding letter of intent with The Coca-Cola Company to expand the Company’s franchise territory to include distribution rights in parts of Tennessee, Kentucky and Indiana served by Coca-Cola Refreshments USA, Inc. (“CCR”), a wholly owned subsidiary of The Coca-Cola Company.

Johnson City and Morristown, Tennessee Territory Acquisitions

On May 7, 2014, the Company and CCR entered into an asset purchase agreement (the “May Asset Purchase Agreement”) relating to the territory served by CCR through CCR’s facilities and equipment located in Johnson City and Morristown, Tennessee (the “May Expansion Territory”). The closing of this transaction occurred on May 23, 2014 for a cash purchase price of $12.2 million, which will remain subject to adjustment until July 2, 2015, at the latest as specified in the May Asset Purchase Agreement.

The Company has preliminarily allocated the purchase price for the May 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 fair values of identifiable intangible assets and acquisition related contingent consideration are final.

The fair values of acquired assets and assumed liabilities as of the acquisition date are summarized as follows:


In Thousands	Fair Value
Cash	$	46
Inventories		1,361
Prepaid expenses and other current assets		333
Property, plant and equipment		8,495
Other assets (including deferred taxes)		473
Goodwill		782
Other identifiable intangible assets		13,800

Total acquired assets	$	25,290

Current liabilities (acquisition related contingent consideration)	$	1,005
Other accrued liabilities		81
Other liabilities (acquisition related contingent consideration)		11,995

Total assumed liabilities	$	13,081

The fair value of acquired identifiable intangible assets is as follows:


In Thousands	Fair Value		Estimated Useful Life
Distribution agreements	$	13,200		40 years
Customer lists		600		12 years

Total	$	13,800

The goodwill of $0.8 million is primarily attributed to the workforce of the May Expansion Territory. Goodwill of $0.1 million is expected to be deductible for tax purposes.

Knoxville, Tennessee Territory Acquisition

On August 28, 2014, the Company and CCR entered into an asset purchase agreement (the “August Asset Purchase Agreement”) related to the territory served by CCR through CCR’s facilities and equipment located in Knoxville, Tennessee (the “October Expansion Territory”). The closing of this transaction occurred on October 24, 2014, for a cash purchase price of $29.5 million, which will remain subject to adjustment until December 3, 2015, at the latest as specified in the August Asset Purchase Agreement.

The Company has preliminarily allocated the purchase price of the October 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 fair values of identifiable intangible assets and acquisition related contingent consideration are final.

The fair values of acquired assets and assumed liabilities as of the acquisition date are summarized as follows:


In Thousands	Fair Value
Cash	$	108
Inventories		2,084
Prepaid expenses and other current assets		1,796
Property, plant and equipment		17,152
Other assets (including deferred taxes)		1,106
Goodwill		3,389
Other identifiable intangible assets		40,400

Total acquired assets	$	66,035

Current liabilities (acquisition related contingent consideration)	$	2,426
Accounts payable to The Coca-Cola Company		242
Other liabilities (including deferred taxes)		3,060
Other liabilities (acquisition related contingent consideration)		30,774

Total assumed liabilities	$	36,502

The fair value of acquired identifiable intangible assets is as follows:


In Thousands	Fair Value		Estimated Useful Life
Distribution agreements	$	39,400		40 years
Customer lists		1,000		12 years

Total	$	40,400

The goodwill of $3.4 million is primarily attributed to the workforce of the October Expansion Territory. Goodwill of $2.8 million is expected to be deductible for tax purposes.

The financial results of both Expansion Territories have been included in the Company’s consolidated financial statements from their acquisition date. These territories contributed $45.1 million in net sales and $3.4 million in operating income during 2014.

At closing of both the May and the October Asset Purchase Agreements, the Company signed a Comprehensive Beverage Agreement (“CBA”) which has a term of ten years and is renewable by the Company indefinitely for successive additional terms of ten years each unless the CBAs are 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 agreement, in the acquired territories. The quarterly sub-bottling payment, which is accounted for as contingent consideration, will be 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 Territory that failure to meet could result in termination of the CBA if the Company fails to take corrective measures within a specified time frame.

The anticipated range of undiscounted amounts the Company could pay annually under the contingent consideration arrangements are between $3.1 million and $5.2 million. As of December 28, 2014, the Company has recorded a liability of $46.9 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 will be reassessed and adjusted to fair value each quarter through other income or expense. During 2014, the Company recorded a fair value adjustment to the contingent consideration liability of $1.1 million, primarily due to a change in discount rates subsequent to the acquisitions. During 2014, the Company made sub-bottling payments of $0.2 million to CCR related to the CBAs for the May and October Expansion Territories.

See Note 26 to the consolidated financial statements for territory acquisitions completed with CCR and a signed agreement for an additional territory expansion with CCR which occurred subsequent to December 28, 2014. Also see Note 26 for terms of an asset exchange agreement with CCR which is expected to close in the first half of 2015.