2.Acquisitions and Divestitures

As part of The Coca‑Cola Company’s plans to refranchise its North American bottling territories, the Company has engaged in a series of transactions since April 2013 with The Coca‑Cola Company and Coca‑Cola Refreshments USA, Inc. (“CCR”), a wholly-owned subsidiary of The Coca‑Cola Company, to significantly expand the Company’s distribution and manufacturing operations. This expansion includes acquisition of the rights to serve additional distribution territories previously served by CCR (the “Expansion Territories”) and related distribution assets, as well as the acquisition of regional manufacturing facilities previously owned by CCR (the “Expansion Facilities”) and related manufacturing assets (collectively, the “Expansion Transactions”).

2016 Expansion Transactions

During 2016, the Company acquired distribution rights and related assets for the following territories: Easton, Salisbury, Capitol Heights, La Plata, Baltimore, Hagerstown and Cumberland, Maryland; Richmond, Yorktown and Alexandria, Virginia; Cincinnati, Dayton, Lima and Portsmouth, Ohio; and Louisa, Kentucky. The Company also acquired the Expansion Facilities and related manufacturing assets in Sandston, Virginia; Silver Spring and Baltimore, Maryland; and Cincinnati, Ohio during 2016. Collectively, these are the “2016 Expansion Transactions.” The details of the 2016 Expansion Transactions are included below.

Easton and Salisbury, Maryland and Richmond and Yorktown, Virginia Expansion Territories Acquisitions and Sandston, Virginia Expansion Facility Acquisition (“January 2016 Expansion Transactions”)

An asset purchase agreement entered into by the Company and CCR in September 2015 (the “September 2015 APA”) contemplated, in part, the Company’s acquisition of distribution rights and related assets in the territory served by CCR through CCR’s facilities and equipment located in Easton and Salisbury, Maryland and Richmond and Yorktown, Virginia. In addition, an asset purchase agreement entered into by the Company and CCR in October 2015 (the “October 2015 APA”) contemplated, in part, the Company’s acquisition of the Expansion Facility and related manufacturing assets in Sandston, Virginia. The closing of the January 2016 Expansion Transactions occurred on January 29, 2016, for a cash purchase price of $65.7 million, which will remain subject to adjustment in accordance with the terms and conditions of the September 2015 APA and the October 2015 APA.

Alexandria, Virginia and Capitol Heights and La Plata, Maryland Expansion Territories Acquisitions (“April 1, 2016 Expansion Transaction”)

The September 2015 APA also contemplated the Company’s acquisition of distribution rights and related assets in the territory served by CCR through CCR’s facilities and equipment located in Alexandria, Virginia and Capitol Heights and La Plata, Maryland. The closing of the April 1, 2016 Expansion Transaction occurred on April 1, 2016, for a cash purchase price of $35.6 million, which will remain subject to adjustment in accordance with the terms and conditions of the September 2015 APA.

Baltimore, Hagerstown and Cumberland, Maryland Expansion Territories Acquisitions and Silver Spring and Baltimore, Maryland Expansion Facilities Acquisitions (“April 29, 2016 Expansion Transactions”)

On April 29, 2016, the Company completed the remaining transactions contemplated by (i) the September 2015 APA, by acquiring distribution rights and related assets in Expansion Territories served by CCR through CCR’s facilities and equipment located in Baltimore, Hagerstown and Cumberland, Maryland, and (ii) the October 2015 APA, by acquiring the Expansion Facilities and related manufacturing assets in Silver Spring and Baltimore, Maryland. The closing of the April 29, 2016 Expansion Transactions occurred for a cash purchase price of $69.0 million, which will remain subject to adjustment in accordance with the terms and conditions of the September 2015 APA and the October 2015 APA.

Cincinnati, Dayton, Lima and Portsmouth, Ohio and Louisa, Kentucky Expansion Territories Acquisitions and Cincinnati, Ohio Expansion Facility Acquisition (“October 2016 Expansion Transactions”)

On October 28, 2016, the Company completed the initial transactions contemplated by (i) a distribution asset purchase agreement entered into by the Company and CCR in September 2016 (the “September 2016 Distribution APA”), by acquiring distribution rights and related assets in the Expansion Territories served by CCR through CCR’s facilities and equipment located in Cincinnati, Dayton, Lima and Portsmouth, Ohio and Louisa, Kentucky, and (ii) a manufacturing asset purchase agreement entered into by the Company and CCR in September 2016 (the “September 2016 Manufacturing APA”), by acquiring the Expansion Facility and related manufacturing assets located in Cincinnati, Ohio. The closing of the October 2016 Expansion Transactions occurred for a cash purchase price of $98.2 million, which will remain subject to adjustment in accordance with the terms and conditions of the September 2016 Distribution APA and the September 2016 Manufacturing APA.

The fair value of acquired assets and assumed liabilities of the 2016 Expansion Transactions as of the acquisition dates is summarized as follows:

(in thousands)	January 2016 Expansion Transactions		April 1, 2016 Expansion Transaction		April 29, 2016 Expansion Transactions		October 2016 Expansion Transactions		Total 2016 Expansion Transactions
Cash	$	179	$	219	$	161	$	150	$	709
Inventories		10,159		3,748		13,850		18,513		46,270
Prepaid expenses and other current assets		2,775		1,945		3,774		4,181		12,675
Accounts receivable from The Coca-Cola Company		1,121		1,162		1,126		1,327		4,736
Property, plant and equipment		46,149		54,135		58,679		68,182		227,145
Other assets (including deferred taxes)		2,351		1,541		5,151		611		9,654
Goodwill		9,396		1,962		7,791		7,063		26,212
Other identifiable intangible assets		1,300		-		23,450		66,500		91,250
Total acquired assets	$	73,430	$	64,712	$	113,982	$	166,527	$	418,651

Current liabilities (acquisition related contingent consideration)	$	361	$	742	$	1,307	$	3,318	$	5,728
Other current liabilities		591		4,231		5,482		7,165		17,469
Accounts payable to The Coca-Cola Company		650		-		-		-		650
Other liabilities		-		266		2,635		761		3,662
Other liabilities (acquisition related contingent consideration)		6,144		23,924		35,561		57,066		122,695
Total assumed liabilities	$	7,746	$	29,163	$	44,985	$	68,310	$	150,204

The goodwill for the 2016 Expansion Transactions is all included in the Nonalcoholic Beverages segment and is primarily attributed to operational synergies and the workforce acquired. Goodwill of $6.0 million and $13.1 million is expected to be deductible for tax purposes for the January 2016 Expansion Transactions and the October 2016 Expansion Transactions, respectively. No goodwill is expected to be deductible for the April 1, 2016 Expansion Transaction or the April 29, 2016 Expansion Transactions.

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

(in thousands)	January 2016 Expansion Transactions		April 29, 2016 Expansion Transactions		October 2016 Expansion Transactions		Total 2016 Expansion Transactions		Estimated Useful Lives
Distribution agreements	$	750	$	22,000	$	63,900	$	86,650	40 years
Customer lists		550		1,450		2,600		4,600	12 years
Total acquired identifiable intangible assets	$	1,300	$	23,450	$	66,500	$	91,250

Q1 2017 Expansion Transactions

During the first quarter of 2017, the Company acquired distribution rights and related assets for the following Expansion Territories: Anderson, Bloomington, Fort Wayne, Indianapolis, Lafayette, South Bend and Terre Haute, Indiana and Columbus and Mansfield, Ohio. Additionally, during the first quarter of 2017, the Company acquired the Expansion Facilities and related manufacturing assets located in Indianapolis and Portland, Indiana. Collectively, these are the “Q1 2017 Expansion Transactions.” The details of the Q1 2017 Expansion Transactions are included below.

Anderson, Fort Wayne, Lafayette, South Bend and Terre Haute, Indiana Expansion Territories Acquisitions (“January 2017 Expansion Transaction”)

The September 2016 Distribution APA contemplated, in part, the Company’s acquisition of distribution rights and related assets in the territory served by CCR through CCR’s facilities and equipment located in Anderson, Fort Wayne, Lafayette, South Bend and Terre Haute, Indiana. The closing of the January 2017 Expansion Transaction occurred on January 27, 2017, for a cash purchase price of $31.6 million, which will remain subject to adjustment in accordance with the terms and conditions of the September 2016 Distribution APA.

Bloomington and Indianapolis, Indiana and Columbus and Mansfield, Ohio Expansion Territories Acquisitions and Indianapolis and Portland, Indiana Expansion Facilities Acquisitions (“March 2017 Expansion Transactions”)

On March 31, 2017, the Company completed the final transactions contemplated by (i) the September 2016 Distribution APA, by acquiring distribution rights and related assets in the Expansion Territories served by CCR through CCR’s facilities and equipment located in Bloomington and Indianapolis, Indiana and Columbus and Mansfield, Ohio, and (ii) the September 2016 Manufacturing APA, by acquiring the Expansion Facilities and related manufacturing assets located in Indianapolis and Portland, Indiana. The closing of the March 2017 Expansion Transactions occurred for a cash purchase price of $108.7 million, which will remain subject to adjustment in accordance with the terms and conditions of the September 2016 Distribution APA and the September 2016 Manufacturing APA.

The fair value of acquired assets and assumed liabilities of the Q1 2017 Expansion Transactions as of the acquisition date is summarized as follows:

(in thousands)	January 2017 Expansion Transaction		March 2017 Expansion Transactions		Total Q1 2017 Expansion Transactions
Cash	$	107	$	211	$	318
Inventories		5,953		21,050		27,003
Prepaid expenses and other current assets		1,089		5,235		6,324
Accounts receivable from The Coca-Cola Company		1,042		1,807		2,849
Property, plant and equipment		25,708		82,692		108,400
Other assets (including deferred taxes)		846		3,593		4,439
Goodwill		1,112		3,737		4,849
Other identifiable intangible assets		10,650		20,400		31,050
Total acquired assets	$	46,507	$	138,725	$	185,232

Current liabilities (acquisition related contingent consideration)	$	727	$	1,921	$	2,648
Other current liabilities		665		1,827		2,492
Other liabilities		115		13		128
Other liabilities (acquisition related contingent consideration)		13,408		26,260		39,668
Total assumed liabilities	$	14,915	$	30,021	$	44,936

The goodwill for the Q1 2017 Expansion Transactions is included in the Nonalcoholic Beverages segment and is primarily attributed to operational synergies and the workforce acquired. No goodwill is expected to be deductible for tax purposes for the January 2017 Expansion Transaction or the March 2017 Expansion Transactions.

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

(in thousands)	January 2017 Expansion Transaction		March 2017 Expansion Transactions		Total Q1 2017 Expansion Transactions		Estimated Useful Lives
Distribution agreements	$	9,300	$	18,900	$	28,200	40 years
Customer lists		1,350		1,500		2,850	12 years
Total acquired identifiable intangible assets	$	10,650	$	20,400	$	31,050

The Company has preliminarily allocated the purchase price of the 2016 Expansion Transactions and the Q1 2017 Expansion Transactions to the individual acquired assets and assumed liabilities. The valuations are subject to adjustment as additional information is obtained.

The anticipated amount the Company could pay annually under the acquisition related contingent consideration arrangements for the Expansion Transactions is in the range of $20 million to $36 million.

Q1 2017 and 2016 Expansion Transactions Financial Results

The financial results of the Q1 2017 Expansion Transactions and the 2016 Expansion Transactions have been included in the Company’s consolidated financial statements from their respective acquisition or exchange dates. These Expansion Transactions contributed the following amounts to the Company’s consolidated statement of operations:

	First Quarter
(in thousands)	2017		2016
Net sales from 2016 Expansion Transactions	$	238,660	$	35,311
Net sales from Q1 2017 Expansion Transactions		26,246		-
Total impact to net sales	$	264,906	$	35,311

Operating income from 2016 Expansion Transactions	$	4,354	$	1,206
Operating income from Q1 2017 Expansion Transactions		96		-
Total impact to income from operations	$	4,450	$	1,206

The Company incurred transaction related expenses for the Expansion Transactions of $0.7 million in the first quarter of 2017 and $0.9 million in the first quarter of 2016. These expenses are included within Selling, delivery and administrative expenses on the Consolidated Statements of Operations.

Q1 2017 Expansion Transactions and 2016 Expansion Transactions Pro Forma Financial Information

The purpose of the pro forma is to present the net sales and the income from operations of the combined entity as though the current year acquisitions had occurred as of the beginning of each period presented. 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 each period presented. 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 tables represent the Company’s unaudited pro forma net sales and unaudited pro forma income from operations for the Q1 2017 Expansion Transactions and the 2016 Expansion Transactions.

	First Quarter
(in thousands)	2017		2016
Net sales as reported	$	865,702	$	625,456
Pro forma adjustments (unaudited)		85,447		308,023
Net sales pro forma (unaudited)	$	951,149	$	933,479

	First Quarter
(in thousands)	2017		2016
Income from operations as reported	$	13,608	$	12,401
Pro forma adjustments (unaudited)		5,810		10,427
Income from operations pro forma (unaudited)	$	19,418	$	22,828