Annual Statements Open main menu

BOSTON BEER CO INC - Quarter Report: 2020 March (Form 10-Q)

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM
10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
 
 
 
 
 
 
 
 
 
For the quarterly period ended March 28, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
 
 
 
 
 
 
 
 
 
For the transition period from
                    
to
                    
Commission file number:
1-14092
 
THE BOSTON BEER COMPANY, INC.
(Exact name of registrant as specified in its charter)
 
     
MASSACHUSETTS
 
04-3284048
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
 
 
 
 
 
One Design Center Place, Suite 850, Boston, Massachusetts
(Address of principal executive offices)
02210
(Zip Code)
(617)
368-5000
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act.
         
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Class A Common Stock. $0.01 par value
 
SAM
 
New York Stock Exchange
 
 
 
 
 
 
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  
    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  
    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
             
Large accelerated filer
 
 
Accelerated filer
 
 
 
 
 
 
 
 
Non-accelerated
filer
 
 
Smaller reporting company
 
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
 
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Act.)    Yes  
    
No  
Number of shares outstanding of each of the issuer’s classes of common stock, as of April 17, 2020:
         
Class A Common Stock, $.01 par value
 
 
9,655,555
 
Class B Common Stock, $.01 par value
 
 
2,522,983
 
(Title of each class)
 
 
(Number of shares)
 
 
 
 
 
 
 
 
 
 
 
 

Table of Contents
THE BOSTON BEER COMPANY, INC.
FORM
10-Q
March 28, 2020
TABLE OF CONTENTS
             
PART I.
 
FINANCIAL INFORMATION
 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
3
 
 
 
 
 
 
 
 
 
 
 
3
 
 
 
 
 
 
 
 
 
 
 
4
 
 
 
 
 
 
 
 
 
 
 
5
 
 
 
 
 
 
 
 
 
 
 
6
 
 
 
 
 
 
 
 
 
 
 
7
 
 
 
 
 
 
 
 
 
 
 
19
 
 
 
 
 
 
 
 
 
 
 
22
 
 
 
 
 
 
 
 
 
 
 
22
 
 
 
 
 
 
 
 
PART II.
 
OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
23
 
 
 
 
 
 
 
 
 
 
 
23
 
 
 
 
 
 
 
 
 
 
 
24
 
 
 
 
 
 
 
 
 
 
 
24
 
 
 
 
 
 
 
 
 
 
 
24
 
 
 
 
 
 
 
 
 
 
 
24
 
 
 
 
 
 
 
 
 
 
 
25
 
 
 
 
 
 
 
 
26
 
 
EX-31.1
Section 302 CEO Certification
EX-31.2
Section 302 CFO Certification
EX-32.1
Section 906 CEO Certification
EX-32.2
Section 906 CFO Certification
2

Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
                 
 
March 28,
 
 
December 28,
 
 
2020
 
 
2019
 
Assets
 
 
 
 
 
 
Current Assets:
   
     
 
Cash and cash equivalents
  $
129,504
    $
36,670
 
Accounts receivable
   
58,253
     
54,404
 
Inventories
   
124,529
     
106,038
 
Prepaid expenses and other current assets
   
14,894
     
12,077
 
Income tax receivable
   
8,823
     
9,459
 
                 
Total current assets
   
336,003
     
218,648
 
Property, plant and equipment, net
   
550,030
     
541,068
 
Operating
right-of-use
assets
   
63,039
     
53,758
 
Goodwill
   
112,529
     
112,529
 
Intangible assets
   
104,209
     
104,272
 
Other assets
   
27,754
     
23,782
 
                 
Total assets
  $
1,193,564
    $
1,054,057
 
                 
Liabilities and Stockholders’ Equity
 
 
 
 
 
 
Current Liabilities:
   
     
 
Accounts payable
  $
92,247
    $
76,374
 
Accrued expenses and other current liabilities
   
89,078
     
99,107
 
Current operating lease liabilities
   
5,459
     
5,168
 
                 
Total current liabilities
   
186,784
     
180,649
 
Deferred income taxes, net
   
77,389
     
75,010
 
Line of credit
 
 
100,000
 
 
 
 
Non-current operating lease liabilities
   
63,248
     
53,940
 
Other liabilities
   
7,907
     
8,822
 
                 
Total liabilities
   
435,328
     
318,421
 
Commitments and Contingencies (See Note K)
   
     
 
Stockholders’ Equity:
   
     
 
Class A Common Stock, $.01 par value; 22,700,000 shares authorized; 9,559,200 and 9,370,526 issued and outstanding as of March 28, 2020 and December 28, 2019, respectively
   
96
     
94
 
Class B Common Stock, $.01 par value; 4,200,000 shares authorized; 2,522,983 and 2,672,983 issued and outstanding as of March 28, 2020 and December 28, 2019, respectively
   
25
     
27
 
Additional
paid-in
capital
   
576,208
     
571,784
 
Accumulated other comprehensive loss, net of tax
   
(1,727
)    
(1,669
)
Retained earnings
   
183,634
     
165,400
 
                 
Total stockholders’ equity
   
758,236
     
735,636
 
                 
Total liabilities and stockholders’ equity
  $
 
 
 
1,193,564
    $
 
 
 
1,054,057
 
                 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
3

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share data)
(unaudited)
                 
 
Thirteen weeks ended
 
 
 
March 28,

2020
 
 
March 30,

2019
 
Revenue
  $
352,225
    $
267,559
 
Less excise taxes
   
21,660
     
15,908
 
                 
Net revenue
   
330,565
     
251,651
 
Cost of goods sold
   
182,592
     
127,111
 
                 
Gross profit
   
147,973
     
124,540
 
Operating expenses:
   
     
 
Advertising, promotional and selling expenses
   
97,891
     
71,723
 
General and administrative expenses
   
27,029
     
23,374
 
Impairment of assets
   
1,521
     
 
                 
Total operating expenses
   
126,441
     
95,097
 
                 
Operating income
   
21,532
     
29,443
 
Other (expense) income, net:
   
     
 
Interest income, net
   
63
     
637
 
Other (expense) income, net
   
(360
)    
(252
)
                 
Total other (expense) income, net
   
(297
)    
385
 
                 
Income before income tax provision
   
21,235
     
29,828
 
Income tax provision
   
3,001
     
6,134
 
                 
Net income
  $
18,234
    $
23,694
 
                 
Net income per common share
 -
basic
  $
1.50
    $
2.04
 
                 
Net income per common share
 -
diluted
  $
1.49
    $
2.02
 
                 
Weighted-average number of common shares
 -
Class A basic
   
9,425
     
8,606
 
                 
Weighted-average number of common shares
 -
Class B basic
   
2,645
     
2,918
 
                 
Weighted-average number of common shares
 
-
diluted
   
12,186
     
11,636
 
                 
Net income
  $
18,234
    $
23,694
 
                 
Other comprehensive income:
   
     
 
Foreign currency translation adjustment
   
(58
)    
37
 
                 
Comprehensive income
  $
18,176
    $
23,731
 
                 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
4

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the thirteen weeks ended March 28, 2020 and March 30, 2019
(in thousands)
(unaudited)
                                                                 
 
Class A
Common
Shares
 
 
Class A
Common
Stock, Par
 
 
Class B
Common
Shares
 
 
Class B
Common
Stock, Par
 
 
Additional
Paid-in

Capital
 
 
Accumulated
Other
Comprehensive
Loss, net of tax
 
 
Retained
Earnings
 
 
Total
Stockholders’
Equity
 
Balance at December 28, 2019
   
9,371
    $
94
     
2,673
    $
27
    $
571,784
    $
(1,669
)   $
165,400
    $
735,636
 
Net income
   
     
     
     
     
     
     
18,234
     
18,234
 
Stock options exercised and restricted shares activities
   
38
     
     
     
     
1,858
     
     
     
1,858
 
Stock-based compensation expense
   
     
     
     
     
2,566
     
     
     
2,566
 
Conversion from Class B to Class A
   
150
     
2
     
(150
)    
(2
)    
     
     
     
 
Currency translation adjustment
   
     
     
     
     
     
(58
)    
     
(58
)
                                                                 
Balance at March 
28
, 20
20
   
9,559
    $
96
     
2,523
    $
25
    $
576,208
    $
(1,727
)   $
183,634
    $
758,236
 
                                                                 
   
     
     
     
     
     
     
     
 
 
Class A
Common
Shares
 
 
Class A
Common
Stock, Par
 
 
Class B
Common
Shares
 
 
Class B
Common
Stock, Par
 
 
Additional
Paid-in

Capital
 
 
Accumulated
Other
Comprehensive
Loss, net of tax
 
 
Retained
Earnings
 
 
Total
Stockholders’
Equity
 
Balance at December 29, 2018
   
8,580
    $
86
     
2,918
    $
29
    $
405,711
    $
(1,197
)   $
55,688
    $
460,317
 
Net income
   
     
     
     
     
     
     
23,694
     
23,694
 
Stock options exercised and restricted shares activities
   
54
     
     
     
     
3,704
     
     
     
3,704
 
Stock-based compensation expense
   
     
     
     
     
2,066
     
     
     
2,066
 
Currency translation adjustment
   
     
     
     
     
     
37
     
     
37
 
                                                                 
Balance at March 30, 2019
   
8,634
    $
86
     
2,918
    $
29
    $
411,481
    $
(1,160
)   $
79,382
    $
489,818
 
                                                                 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
5

         
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASHFLOWS
(in thousands)
(unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
                 
 
Thirteen weeks ended
 
 
March 28,
 
 
March 30,
 
 
2020
 
 
2019
 
Cash flows provided by operating activities:
 
 
 
 
 
 
Net income
  $
18,234
    $
23,694
 
Adjustments to reconcile net income to net cash provided by operating activities:
   
     
 
Depreciation and amortization
   
15,945
     
12,863
 
Impairment of assets
   
1,521
     
 
Loss on disposal of property, plant and equipment
   
     
271
 
Change in ROU assets
   
1,807
     
859
 
Credit loss
 expense
   
552
     
 
Stock-based compensation expense
   
2,566
     
2,066
 
Deferred income taxes
   
2,379
     
1,029
 
Changes in operating assets and liabilities:
   
     
 
Accounts receivable
   
(4,436
)    
(20,452
)
Inventories
   
(23,856
)    
(15,353
)
Prepaid expenses, income tax receivable and other assets
   
(884
)    
1,336
 
Accounts payable
   
14,264
     
14,400
 
Accrued expenses and other current liabilities
   
(7,579
)    
(6,465
)
Change in operating lease liability
   
(1,489
)    
(624
)
Other liabilities
   
(100
)    
19
 
                 
Net cash provided by operating activities
   
18,924
     
13,643
 
                 
Cash flows used in investing activities:
 
 
 
 
 
 
Purchases of property, plant and equipment
   
(27,394
)    
(22,080
)
Proceeds from disposal of property, plant and equipment
   
35
     
1
 
Other investing activities
   
96
     
28
 
                 
Net cash used in investing activities
   
(27,263
)    
(22,051
)
                 
Cash flows provided by financing activities:
 
 
 
 
 
 
Proceeds from exercise of stock options and sale of investment shares
   
2,941
     
2,968
 
Net cash paid on note payable and finance leases
   
(209
)    
(72
)
Payment of tax withholdings on stock-based payment awards and investment shares
 
 
(1,559
)
 
 
 
Cash borrowed on line of credit
   
100,000
     
 
                 
Net cash provided by financing activities
   
101,173
     
2,896
 
                 
Change in cash and cash equivalents
   
92,834
     
(5,512
)
Cash and cash equivalents at beginning of year
   
36,670
     
108,399
 
                 
Cash and cash equivalents at end of period
  $
129,504
    $
102,887
 
                 
Supplemental disclosure of cash flow information:
 
 
 
 
 
 
Income taxes paid
  $
5
    $
207
 
                 
Cash paid for amounts included in measurement of lease liabilities
   
  
     
  
 
Operating cash flows from operating leases
  $
2,097
    $
885
 
                 
Operating cash flows from finance leases
  $
22
    $
8
 
                 
Financing cash flows from finance leases
  $
141
    $
7
 
                 
Right-of-use assets obtained in exchange for operating lease obligations
  $
11,088
    $
27,034
 
                 
Right-of-use assets obtained in exchange for finance lease obligations
 
$
 
 
$
 
3
 
Change in purchase of property, plant and equipment in accounts payable and accrued expenses
 
$
(1,029
  $
118
 
                 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
6

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
A.
Organization and Basis of Presentation
 
 
 
 
 
 
 
 
 
 
 
 
The Boston Beer Company, Inc. and certain subsidiaries (the “Company”) are engaged in the business of selling alcohol beverages throughout the United States and in selected international markets, under the trade names “The Boston Beer Company
®
”, “Twisted Tea Brewing Company
®
”, “Hard Seltzer Beverage Company”, “Angry Orchard
®
Cider Company”, “Dogfish Head
®
Craft Brewery”, “Angel City
®
Brewing Company”, “Concrete Beach Brewery
®
”, “Coney Island
®
Brewing Company” and “American Fermentation Company”.
The accompanying unaudited consolidated balance sheet as of March 28, 2020, and the consolidated statements of comprehensive income, stockholders’ equity, and cash flows for the interim periods ended March 28, 2020 and March 30, 2019 have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnotes normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. All intercompany accounts and transactions have been eliminated. These consolidated financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form
10-K
for the year ended December 28, 2019.
In the opinion of the Company’s management, the Company’s unaudited consolidated balance sheet as of March 28, 2020 and the results of its consolidated operations, stockholders’ equity, and cash flows for the interim periods ended March 28, 2020 and March 30, 2019, reflect all adjustments (consisting only of normal and recurring adjustments) necessary to present fairly the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year.
B.
COVID-19
Pandemic
 
 
 
 
 
 
 
 
 
 
 
 
In early March 2020, the Company began seeing the impact of the
COVID-19
pandemic on its business. The impact was primarily shown in significantly reduced keg demand from the
on-premise
channel as well as increased labor and safety related costs at the Company’s breweries. In the first quarter of 2020, the Company recorded
COVID-19
pre-tax
related reductions in net revenue and increases in other costs that total $10.0 million. This amount consists of a $5.8 million reduction in net revenue for estimated keg returns from distributors and retailers and $4.2 million of other
COVID-19
related direct costs, of which $3.6 million are recorded in cost of goods sold and $0.6 
million are recorded in operating expenses. While the duration of the disruption and related impact on the Company’s consolidated financial statements is currently uncertain, the Company expects this matter will continue to negatively impact its results of operations.
C.
Dogfish Head Brewery Transaction
 
 
 
 
 
 
 
 
 
 
 
 
On May 8, 2019, the Company entered into definitive agreements to acquire Dogfish Head Brewery (“Dogfish Head”) and various related operations (the “Transaction”) through the acquisition of all of the equity interests held by certain private entities in
Off-Centered
Way LLC, the parent holding company of the Dogfish Head operations. In accordance with these agreements, the Company made a payment of $158.4 million, which was placed in escrow pending the satisfaction of certain closing conditions. The Transaction closed on July 3, 2019, for total consideration of $336.0 million consisting of $173.0 million in cash and 429,291 shares of restricted Class A Common Stock that had an aggregate market value as of July 3, 2019 of $163.0 million, after taking into account a post-closing cash related adjustment. As required under the definitive agreements, 127,146 of the 429,291 shares of restricted Class A Stock have been placed in escrow and will be released no later than July 3, 2029. These shares had a market value on July 3, 2019 of $48.3 million. The timing of the release of these escrowed shares is primarily related to the continued employment with the Company of Samuel A. Calagione III, one of the two Dogfish Head founders.
7

The fair value of the Transaction is estimated at approximately $317.7 million. The following table summarizes the acquisition date fair value of the tangible assets, intangible assets, liabilities assumed, and related goodwill acquired from Dogfish Head, as well as the allocation of purchase price paid:
         
 
Total (In
 
Thousands)
 
Cash and cash equivalents
  $
7,476
 
Accounts receivable
   
8,081
 
Inventories
   
9,286
 
Prepaid expenses and other current assets
   
847
 
Property, plant and equipment
   
106,964
 
Goodwill
   
108,846
 
Brand
   
98,500
 
Other intangible assets
   
3,800
 
Other assets
   
378
 
         
Total assets acquired
   
344,178
 
         
Accounts payable
   
3,861
 
Accrued expenses and other current liabilities
   
4,085
 
Deferred income taxes
   
18,437
 
Other liabilities
   
59
 
         
Total liabilities assumed
   
26,442
 
         
Net assets acquired
  $
317,736
 
         
Cash consideration
  $
172,993
 
Nominal value of equity issued
   
162,999
 
Fair Value reduction due to liquidity
   
(18,256
)
         
Estimated total purchase price
  $
317,736
 
         
 
 
 
 
 
 
 
 
The Company accounted for the acquisition in accordance with the accounting standards codification guidance for business combinations, whereby the total purchase price was allocated to the acquired net tangible and intangible assets of Dogfish Head based on their fair values as of the Transaction closing date. The Company believes that the information available as of the Transaction closing date provides a reasonable basis for estimating the fair values of the assets acquired and liabilities assumed; however, the Company is continuing to finalize these amounts, particularly with respect to income taxes and valuation of inventories, fixed assets, and intangible assets. Thus, the preliminary measurements of fair value reflected are subject to change as additional information becomes available and as additional analysis is performed. The Company expects to finalize the valuation and complete the allocation of the purchase price as soon as practicable, but no later than one year from the closing date of the acquisition, as required.
The fair value of the Dogfish Head brand trade name is estimated at approximately $98.5 million and the fair value of customer relationships is estimated at $3.8 million. The Company estimated the Dogfish Head brand trade name will have an indefinite life and customer relationships will have an estimated useful life of 15 years. The customer relationship intangible asset will be amortized on a straight-line basis over the 15 year estimated useful life. The fair value of the deferred income tax liability assumed is $18.4 million, representing the expected future tax consequences of temporary differences between the fair values of the assets acquired and liabilities assumed and their tax basis. The Company used a preliminary consolidated tax rate to determine the net deferred tax liabilities. The Company will record measurement period adjustments as the Company applies the appropriate tax rate for each legal entity within Dogfish Head. The expectation is that the Dogfish Head deferred income taxes will be subject to the Company’s consolidated rate. The excess of the purchase price paid over the estimated fair values of the assets and liabilities assumed has been recorded as goodwill in the amount of $108.8 million. Goodwill associated with the acquisition is primarily attributable to the future growth opportunities associated with the Transaction, expected synergies and value of the workforce. The Company believes the majority of the goodwill is deductible for tax purposes.
8

The fair value of the brand trade name was determined utilizing the relief from royalty method which is a form of the income approach. Under this method, a royalty rate based on observed market royalties is applied to projected revenue supporting the trade name and discounted to present value using an appropriate discount rate. The fair value of the property, plant and equipment was determined utilizing the cost and market valuation approaches.
The results of operations from Dogfish Head have been included in the Company’s consolidated statements of comprehensive income since the July 3, 2019 Transaction closing date.
Consistent with prior periods and considering post-merger reporting structures, the Company will continue to report as one operating segment. The combined Company’s brands are predominantly beverages that are manufactured using similar production processes, have comparable alcohol content, generally fall under the same regulatory environment, and are sold to the same types of customers in similar size quantities at similar price points and through the same channels of distribution.
The following unaudited pro forma information has been prepared, as if the Transaction and the related debt financing had occurred as of December 30, 2018, the first day of the Company’s 2019 fiscal year. The pro forma amounts reflect the combined historical operational results for Boston Beer and Dogfish Head, after giving effect to adjustments related to the impact of purchase accounting, transaction costs and financing. The unaudited pro forma financial information is not indicative of the operational results that would have been obtained had the Transaction occurred as of that date, nor is it necessarily indicative of the Company’s future operational results. The following adjustments have been made:
  (i) Depreciation and amortization expenses were updated to reflect the fair value adjustments to Dogfish Head property, plant and equipment and intangible assets beginning December 30, 2018.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  (ii) Transaction costs incurred to date have been
re-assigned
to the first period of the comparative fiscal year.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  (iii) Interest expense has been included at a rate of approximately 3% which is consistent with the borrowing rate on the Company’s current line of credit.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  (iv) The tax effects of the pro forma adjustments at an estimated statutory rate of 23.6%.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  (v) Earnings per share amounts are calculated using the Company’s historical weighted average shares outstanding plus the 429,291 shares issued in the merger.
                 
 
Thirteen weeks ended
 
 
March 28,
 
 
March 30,
 
 
2020
 
 
2019
 
 
(in thousands)
 
Net revenue
  $
330,565
    $
276,739
 
Net income
  $
18,234
    $
24,664
 
Basic earnings per share
  $
1.50
    $
2.04
 
Diluted earnings per share
  $
1.49
    $
2.02
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
D.
Goodwill and Intangible Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
There were no changes in the carrying value of goodwill during the thirteen weeks ended March 28, 2020 and March 30, 2019.
 
 
 
 
 
 
9

The Company’s intangible assets as of March 28, 2020 and December 28, 2019 were as follows:
                                                         
 
 
 
As of March 28, 2020
   
As of December 28, 2019
 
 
Estimated Useful
 
 
Gross Carrying
 
 
Accumulated
 
 
Net Book
 
 
Gross Carrying
 
 
Accumulated
 
 
Net Book
 
 
Life (Years)
 
 
Value
 
 
Amortization
 
 
Value
 
 
Value
 
 
Amortization
 
 
Value
 
 
 
 
 
(in thousands)
 
Custmer Relationships
   
15
    $
3,800
    $
(190
)   $
3,610
    $
3,800
    $
(127
)   $
3,673
 
Trade Names
   
Indefinite
     
100,599
     
—  
     
100,599
     
100,599
     
—  
     
100,599
 
                                                         
Total intangible assets
   
    $
104,399
    $
(190
)   $
104,209
    $
104,399
    $
(127
)   $
104,272
 
                                                         
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As disclosed within Note C, the Company acquired intangible assets as part of the Dogfish Head Transaction that consists of $98.5 million for the value of the Dogfish Head brand name and $3.8 million for the value of customer relationships. The customer relationship intangible will be amortized on a straight-line basis over the 15 year useful life. Amortization expense in the thirteen weeks ended March 28, 2020 was approximately $63,000. The Company expects to record amortization expense as follows over the remaining current year and the five subsequent years:
         
Fiscal Year
 
Amount
(in thou
sands)
 
Remainder of 2020
  $
190
 
2021
   
253
 
2022
   
253
 
2023
   
253
 
2024
   
253
 
2025
   
253
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
E.
Recent Accounting Pronouncements
 
 
 
 
 
Accounting Pronouncements Recently Adopted
In June 2016, the FASB issued ASU
2016-13,
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The guidance requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires the consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU
2016-13
is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted the standard in the first quarter of fiscal 2020 and there was no material impact.
In January 2017, the FASB issued ASU No.
 2017-04,
Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. Prior to ASU No.
 2017-04,
the goodwill impairment test is a
two-step
assessment, if indicators of impairment exist. The first step requires an entity to compare each reporting unit’s carrying value and its fair value. If the reporting unit’s carrying value exceeds the fair value, then the entity must perform the second step, which is to compare the implied fair value of goodwill to its carrying value, and record an impairment charge for any excess of carrying value of goodwill over its implied fair value. An entity also has the option to perform a qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU
2017-04
simplifies the goodwill impairment test by eliminating the second step of the test. As such, an entity will perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the reporting unit’s carrying amount exceeds its fair value. If fair value exceeds the carrying amount, no impairment should be recorded. ASU
2017-04
is effective prospectively for the year beginning December 29, 2019. The Company completes its annual goodwill impairment assessment during the third quarter. The Company does not expect the adoption of ASU
2017-04
to have a material impact on its consolidated financial statements.
Accounting Pronouncements Not Yet Effective
In December 2019, the FASB issued ASU
2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The standard includes multiple key provisions, including removal of certain exceptions to ASC 740, Income Taxes, and simplification in several other areas such as accounting for a franchise tax (or similar tax) that is partially based on income. ASU
2019-12
is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently assessing the impact of adopting this standard but does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
10

Table of Contents
F.
Revenue Recognition
 
 
 
 
 
 
 
 
 
 
 
 
 
 
During the thirteen weeks ended March 28, 2020
and March
30,
 
2019
approximately 96% of the Company’s revenue was from shipments of its products to domestic distributors
,
 3% from shipments to international distributors, primarily located in Canada
 and
 1%
was
from retail beer, cider, and merchandise sales at the Company’s retail locations.
The Company recognizes revenue when obligations under the terms of a contract with its customer are satisfied; generally, this occurs with the transfer of control of its products. Revenue is measured as the amount of consideration expected to be received in exchange for transferring products. If the conditions for revenue recognition are not met, the Company defers the revenue until all conditions are met. As of March 28, 2020 and December 28, 2019, the Company has deferred $13.9 million and $7.0 million, respectively in revenue related to product shipped prior to these dates. These amounts are included in accrued expenses and other current liabilities in the accompanying consolidated balance sheets.
Customer promotional discount programs are entered into by the Company with distributors for certain periods of time. The reimbursements for discounts to distributors are recorded as reductions to net revenue and were $8.2 million and $6.2 million for the thirteen weeks ended March 28, 2020 and March 30, 2019, respectively. The agreed-upon discount rates are applied to certain distributors’ sales to retailers, based on volume metrics, in order to determine the total discounted amount. The computation of the discount allowance requires that management make certain estimates and assumptions that affect the timing and amounts of revenue and liabilities recorded. Actual promotional discounts owed and paid have historically been in line with allowances recorded by the Company, however, the amounts could differ from the estimated allowance.
Customer programs and incentives are a common practice in the alcohol beverage industry. Amounts paid in connection with customer programs and incentives are recorded as reductions to net revenue or as advertising, promotional and selling expenses
,
based on the nature of the expenditure. Customer incentives and other payments made to distributors are primarily based upon performance of certain marketing and advertising activities. Depending on applicable state laws and regulations, these activities promoting the Company’s products may include, but are not limited to
point-of-sale
and merchandise placement, samples, product displays, promotional programs at retail locations and meals, travel and entertainment. Amounts paid to customers in connection with these programs that were recorded as reductions to revenue for the thirteen weeks ended March 28, 2020 and March 30, 2019 were $4.2 million and $3.1 million, respectively. Estimates are based on historical and projected experience for each type of program or customer and have historically been in line with actual costs incurred.
The Further Consolidated Appropriations Act, 2020 extends reductions in federal excise taxes as a result of the Tax Cuts and Jobs Act of 2017 through December 31, 2020. The Company benefited from a reduction in federal excise taxes of $2.6 million and $1.7 million for the thirteen weeks ended March 28, 2020 and March 30, 2019, respectively.
Shipment volume for the quarter was significantly higher than depletions volume and resulted in significantly higher distributor inventory as of March 28, 2020 when compared to March 30, 2019. The Company believes distributor inventory as of March 28, 2020 averaged approximately 6 weeks on hand and was at an appropriate level based on the supply chain capacity constraints and inventory requirements to support the forecasted growth of Truly and Twisted Tea brands over the summer. The Company expects wholesaler inventory levels in terms of weeks on hand to return to more normal levels of approximately 4 weeks on hand later in the year.
11

G.
Inventories
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Inventories consist of raw materials, work in process and finished goods. Raw materials, which principally consist of hops
,
 flavorings,
 apple juice, other brewing materials and packaging, are stated at the lower of cost, determined on the
first-in,
first-out
basis, or net realizable value. The Company’s goal is to maintain on hand a supply of at least one year for essential hop varieties, in order to limit the risk of an unexpected reduction in supply. Inventories are generally classified as current assets. The Company classifies hops inventory in excess of two years of forecasted usage in other long-term assets. The cost elements of work in process and finished goods inventory consist of raw materials, direct labor and manufacturing overhead. Inventories consist of the following:
                 
   
March 28,
 
 
December 28,
 
 
2020
 
 
2019
 
 
(in thousands)
 
Current inventory:
   
     
 
Raw materials
 
$
73,267
    $
61,522
 
Work in process
   
14,775
     
12,631
 
Finished goods
   
36,487
     
31,885
 
                 
Total current inventory
   
124,529
     
106,038
 
Long term inventory
   
15,413
     
10,048
 
                 
Total inventory
  $
139,942
    $
116,086
 
                 
 
 
 
 
 
 
H.
Leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Company has various lease agreements in place for facilities and equipment. Terms of these leases include, in some instances, scheduled rent increases, renewals, purchase options and maintenance costs, and vary by lease. These lease obligations expire at various dates through 2034. As the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate based on information available at commencement to determine the present value of the lease payments. ROU assets and lease liabilities commencing after December 30, 2018 are recognized at commencement date based on the present value of lease payments over the lease term. Leases with an initial term of 12 months or less (“short-term leases”) are not recorded on the balance sheet and are recognized on a straight-line basis over the lease term. As of March 
28
, 2020, and December 28, 2019 total ROU assets and lease liabilities were as follows:
 
                     
 
 
Classification
 
Leases
 
 
 
 
 
March 28,
 
 
December 28,
 
 
 
2020
 
 
2019
 
 
 
(in thousands)
 
Right-of-use
assets
 
 
 
 
 
 
 
Operating lease assets
 
Operating
right-of-use
assets
  $
 
63,039
    $
53,758
 
Finance lease assets
 
Property, plant and equipment, net
   
2,398
     
2,531
 
Lease Liabilities
 
 
 
 
 
 
 
Current
 
   
     
 
Operating lease liabilities
 
Current operating lease liabilities
   
5,459
     
5,168
 
Finance lease liabilities
 
Accrued expenses and other current liabilities
   
551
     
546
 
Non-current
 
   
     
 
Operating lease liabilities
 
Non-current
operating lease liabilities
   
63,248
     
53,940
 
Finance lease liabilities
 
Other liabilities
   
1,896
     
2,042
 
 
 
 
 
 
 
The gross value and accumulated depreciation of ROU assets related to finance leases as of March 28, 2020 and December 28, 2019 were as follows:
                 
 
Finance Leases
 
   
March 28,
 
 
December 28,
 
 
2020
 
 
2019
 
 
(in thousands)
 
Gross value
  $
2,837
    $
2,837
 
Accumulated amortization
   
(439
)    
(306
)
                 
Carrying value
  $
2,398
    $
2,531
 
                 
 
 
 
 
12

Components of lease cost for the thirteen weeks ended March 28, 2020 and March 30, 2019 were as follows:
                 
 
Lease Cost
 
   
March 28,
 
 
March 30,
 
 
2020
 
 
2019
 
 
(in thousands)
 
Operating lease cost
  $
2,415
   
$
1,128
 
Variable lease costs not included in liability
    485
      199
 
Finance lease cost:
   
     
 
Amortization of
right-of-use
asset
   
133
     
—  
 
Interest on lease liabilities
   
22
     
—  
 
                 
Total finance lease cost
  $
155
    $
 
 
 
                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maturities of lease liabilities as of March 28, 2020 were as follows:
                                 
 
Operating
Leases
 
 
Capital
Leases
 
 
Weighted-Average
 
Remaining Term in
 
Years
 
Operating
 
Leases
 
 
Capital
 
Leases
 
 
(in thousands)
 
 
 
 
 
2020
  $
3,962
    $
464
     
     
 
2021
   
9,816
     
626
     
     
 
2022
   
9,695
     
626
     
     
 
2023
   
9,694
     
626
     
     
 
2024
   
9,470
     
265
     
     
 
Thereafter
   
39,524
     
23
     
     
 
                                 
Total lease payments
   
82,161
     
2,630
     
     
 
Less imputed interest (based on 3.5% weighted-average discount rate)
   
(13,454
)    
(183
)    
     
 
                                 
Present value of lease liability
  $
68,707
    $
2,447
     
9.4
     
4.5
 
                                 
 
 
 
 
 
 
 
 
 
The Company has additional lease liabilities of $3.9 million which have not yet commenced as of March 28, 2020, and as such, have not been recognized on the Company’s Consolidated balance sheet. These leases are expected to commence during the second quarter of 2020 with a term of three years.
 
I.
Net Income per Share
 
 
 
 
 
 
 
 
The Company calculates net income per share using the
two-class
method, which requires the Company to allocate net income to its Class A Common Shares, Class B Common Shares and unvested share-based payment awards that participate in dividends with common stock, in the calculation of net income per share.
The Class A Common Stock has no voting rights, except (1) as required by law, (2) for the election of Class A Directors, and (3) that the approval of the holders of the Class A Common Stock is required for (a) certain future authorizations or issuances of additional securities which have rights senior to Class A Common Stock, (b) certain alterations of rights or terms of the Class A or Class B Common Stock as set forth in the Articles of Organization of the Company, (c) other amendments of the Articles of Organization of the Company, (d) certain mergers or consolidations with, or acquisitions of, other entities, and (e) sales or dispositions of any significant portion of the Company’s assets.
The Class B Common Stock has full voting rights, including the right to (1) elect a majority of the members of the Company’s Board of Directors and (2) approve all (a) amendments to the Company’s Articles of Organization, (b) mergers or consolidations with, or acquisitions of, other entities, (c) sales or dispositions of any significant portion of the Company’s assets, and (d) equity-based and other executive compensation and other significant corporate matters. The Company’s Class B Common Stock is not listed for trading. Each share of the Class B Common Stock is freely convertible into one share of Class A Common Stock, upon request of the respective Class B holder, and participates equally in dividends.
13

The Company’s unvested share-based payment awards include unvested shares (1) issued under the Company’s investment share program, which permits employees who have been with the Company for at least one year to purchase shares of Class A Common Stock and to purchase those shares at a discount ranging from 20% to 40% below market value based on years of employment starting after two years of employment, and (2) awarded as restricted stock awards at the discretion of the Company’s Board of Directors. The investment shares and restricted stock awards generally vest over five years in equal number of shares. The unvested shares participate equally in dividends. See Note O for a discussion of the current year unvested stock awards and issuances.
Included in the computation of net income per diluted common share are dilutive outstanding stock options and restricted stock that are vested or expected to vest. At its discretion, the Board of Directors grants stock options and restricted stock to senior management and certain key employees. The terms of the employee stock options are determined by the Board of Directors at the time of grant. To date, stock options granted to employees vest over various service periods and/or based on the attainment of certain performance criteria and generally expire after ten years. In December 2018, the Employee Equity Incentive Plan was amended to permit the grant of restricted stock units. The restricted stock units generally vest over four years in equal number of shares. Each restricted stock unit represents an unfunded and unsecured right to receive one share of Class A Stock upon satisfaction of the vesting criteria. The unvested shares participate equally in dividends and are forfeitable. Prior to March 1, 2019, the Company granted restricted stock awards, generally vesting over five years in equal number of shares. The Company also grants stock options to its
non-employee
directors upon election or
re-election
to the Board of Directors. The number of option shares granted to
non-employee
directors is calculated based on a defined formula and these stock options vest immediately upon grant and expire after ten years.
Net Income per Common Share
 -
Basic
The following table sets forth the computation of basic net income per share using the
two-class
method:
                 
 
Thirteen weeks ended
 
 
March 28,
 
 
March 30,
 
 
2020
 
 
2019
 
 
(in thousands, except per share data)
 
Net income
  $
18,234
    $
23,694
 
                 
Allocation of net income for basic:
   
     
 
Class A Common Stock
  $
14,136
    $
17,525
 
Class B Common Stock
   
3,967
     
5,942
 
Unvested participating shares
   
131
     
227
 
                 
 
  $
18,234
    $
23,694
 
Weighted average number of shares for basic:
   
     
 
Class A Common Stock
   
9,425
     
8,606
 
Class B Common Stock*
   
2,645
     
2,918
 
Unvested participating shares
   
87
     
111
 
                 
 
12,157
 
 
11,635
 
Net income per share for basic:
   
     
 
Class A Common Stock
  $
1.50
    $
2.04
 
                 
Class B Common Stock
  $
1.50
    $
2.04
 
                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
*
Change in Class B Common Stock resulted from the conversion of 100,000 shares to Class A Common Stock on August 8, 2019, 145,000 shares to Class A Common Stock on December 13, 2019 and 150,000 shares to Class A Common Stock on March 6, 2020 with the ending number of shares reflecting the weighted average for the period.
 
 
 
 
 
 
 
 
14

Table of Contents
Net Income per Common Share
 -
Diluted
The Company calculates diluted net income per share for common stock using the more dilutive of (1) the treasury stock method, or (2) the
two-class
method, which assumes the participating securities are not exercised.
The following table sets forth the computation of diluted net income per share, assuming the conversion of all Class B Common Stock into Class A Common Stock and using the
two-class
method for unvested participating shares:
                                                 
 
Thirteen weeks ended
 
 
March 28, 2020
   
March 30, 2019
 
 
Earnings to
Common
Shareholders
 
 
Common Shares
 
 
EPS
 
 
Earnings to
Common
Shareholders
 
 
Common Shares
 
 
EPS
 
 
(in thousands, except per share data)
 
As reported
 
-
basic
  $
14,136
     
9,425
    $
1.50
    $
17,525
     
8,606
    $
2.04
 
Add: effect of dilutive potential common shares
   
     
     
     
     
     
 
Share-based awards
   
 
 
     
116
     
     
 
 
     
112
     
 
Class B Common Stock
   
3,967
     
2,645
     
     
5,942
     
2,918
     
 
Net effect of unvested participating shares
   
1
     
 
 
     
     
2
     
 
 
     
 
                                                 
Net income per common share
 -
diluted
  $
18,104
     
12,186
    $
1.49
    $
23,469
     
11,636
    $
2.02
 
                                                 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average stock options to purchase approximately 33,000 and 15,000 shares of Class A Common Stock were outstanding during the thirteen weeks ended March 28, 2020 and March 30, 2019, respectively, but not included in computing dilutive income per common share because their effects were anti-dilutive. Additionally, performance-based stock options to purchase approximately 10,000 and 10,000 shares of Class A Common Stock were outstanding as of March 28, 2020 and March 30, 2019, respectively, but not included in computing diluted income per common share because the performance criteria of these stock options were not met as of the end of the reporting period.
All of the performance-based stock options to purchase approximately 10,000 shares of Class A Common Stock that were excluded from computing diluted net income per common share as of March 28, 2020, were granted in 2016 to a key employee.
 
The vesting of these shares requires annual depletions, or sales by
distributors
to retailers, of certain of the Company’s brands to attain various thresholds during the period from 2017 to 2023.
 
J.
Comprehensive Income or Loss
 
 
 
 
 
Comprehensive income or loss represents net income or loss, plus defined benefit plans liability adjustment, net of tax effect and foreign currency translation adjustment. The defined benefit plans liability and foreign currency translation adjustments for the interim periods ended March 28, 2020 and March 28, 2019 were not material.
 
K.
Commitments and Contingencies
 
 
 
 
 
Contract Obligations
The Company had outstanding total
non-cancelable
contract obligations of $239.9 milli
on a
t March 28, 2020. These obligations are made up of advertising contracts of $71.2 million, ingredients of $51.1 million, equipment and machinery of $45.8 million, hops, barley and wheat totaling $44.3 million, and other commitments of $27.5 million.
T
he Company has entered into contracts for barley and wheat with three major suppliers. The contracts include crop year 2019 and cover the Company’s barley, wheat, and malt requirements for
2020 and part of 2021. These
purchase commitments outstanding at March 28, 2020 totaled $13.2 million.
The Company has entered into contracts for the supply of a portion of its hops requirements. These purchase contracts extend through crop year 2025 and specify both the quantities and prices, denominated in U.S. Dollars, Euros, New Zealand Dollars, and British Pounds, to which the Company is committed. Hops purchase commitments outstanding at March 28, 2020 totaled $31.1 million, based on the exchange rates on that date. The Company does not use forward currency exchange contracts and intends to purchase future hops using the exchange rate at the time of purchase.
Currently, the Company brews and packages more than 60% of its volume at Company-owned breweries. In the normal course of its business, the Company has historically entered into various production arrangements with other brewing companies. Pursuant to these arrangements, the Company supplies raw materials to those brewing companies, and incurs conversion fees for labor at the time the liquid is produced and packaged.
 
15

The Company is in the process of assessing the impact the
COVID-19
pa
nde
mic will have on its future commitments and contingencies but does not believe that the future commitments will be materially adversely impacted.
Litigation
The Company is not a party to any pending or threatened litigation, the outcome of which would be expected to have a material adverse effect upon its financial condition or the results of its operations. In general, while the Company believes it conducts its business appropriately in accordance with laws, regulations and industry guidelines, claims, whether or not meritorious, could be asserted against the Company that might adversely impact the Company’s results.
 
L.
Income Taxes
 
 
 
 
 
As of March 28, 2020 and December 28, 2019, the Company had approximately $0.8 million and $0.8 million, respectively, of unrecognized income tax benefits.
The Company’s practice is to classify interest and penalties related to income tax matters in income tax expense. As of March 28, 2020 and December 28, 2019, the Company had $0.1 million and $0.1 million, respectively, accrued for interest and penalties recorded in other liabilities.
The Internal Revenue Service completed an examination of the 2015 consolidated corporate income tax return and issued a no change report in 2018. The Company’s state income tax returns remain subject to examination for three or four years depending on the state’s statute of limitations. The Company is not currently under any income tax audits as of March 28, 2020. In addition, the Company is generally obligated to report changes in taxable income arising from federal income tax
 
audits.
The following table provides a summary of the income tax provision for the thirteen weeks ended March 28, 2020 and March 30, 2019:
                 
 
Thirteen weeks ended
 
   
March 28,
 
 
March 30,
 
 
2020
 
 
2019
 
 
(in thousands)
 
Summary of income tax provision
   
     
 
Tax provision based on net income
  $
5,005
    $
7,909
 
Benefit of ASU
2016-09
   
(2,004
)    
(1,775
)
                 
Total income tax provision
  $
3,001
    $
6,134
 
                 
 
 
 
 
 
 
 
 
 
 
 
The Company’s effective tax rate for the thirteen weeks ended March 28, 2020, excluding the impact of ASU
2016-09,
decreased to 23.6% from 26.5% for the thirteen weeks ended March 30, 2019, primarily due to
one-time
state tax benefits related to capital investments.
 
M.
Revolving Line of Credit
 
 
 
 
 
In March 2018, the Company amended its credit facility in place that provides for a $150.0 million revolving line of credit to extend the scheduled expiration date to March 31, 2023. On March 12, 2020, the Company withdrew $100.0 
million of the available balance to provide flexibility and enhance its ability to address potential future uncertainties regarding the impact of the
COVID-19
pandemic. The interest rate for the borrowings withdrawn
is 1.15% (LIBOR rate of 0.70% plus 0.45%). As of March 28, 2020, the Company had not made any payments towards the borrowing. As of March 28, 2020, the Company was not in violation of any of its financial covenants to the lender under the credit facility and the unused balance of $50.0 million remaining on the line of credit was available to the Company
for
future borrowing.
16

N.
Fair Value Measures
 
 
 
 
 
 
 
 
The Company defines fair value as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company applies the following fair value hi
era
rchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
  Level 1 — Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
 
 
 
 
 
 
 
 
 
 
 
 
 
  Level 2 — Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability.
 
 
 
 
 
 
 
 
 
 
 
 
 
  Level 3 — Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.
 
 
 
 
 
 
 
 
 
 
 
 
 
The Company’s money market funds are measured at fair value on a recurring basis (at least annually) and are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The money market funds are invested substantially in United States Treasury and government securities. The Company does not adjust the quoted market price for such financial instruments. Cash, receivables and payables are carried at their cost, which approximates fair value, because of their short-term nature.
At March 28, 2020 and December 28, 201
9
, the Company had money market funds with a “Triple A” rated money market fund. The Company considers the “Triple A” rated money market fund to be a large, highly-rated investment-grade institution. As of March 28, 2020 and December 
28
,
2019
, the Company’s cash and cash equivalents balance was $129.5 million and $36.7 million, respectively, including money market funds amounting to $128.1 million and $29.5 million, 
respectively
.
 
O.
Common Stock and Stock-Based Compensation
 
 
 
 
Option Activity
Information related to stock options under the Restated Employee Equity Incentive Plan and the Stock Option Plan for
Non-Employee
Directors is summarized as follows:
                                 
 
Shares
 
 
Weighted-
A
verage
Exercise
 
Price
 
 
Weighted-Average
 
Remaining
Contractual
 
Term in
 
Years
 
 
Aggregate
 
Intrinsic
Value
(in
 
thousands)
 
Outstanding at December 28, 2019
   
315,678
    $
186.53
     
     
 
Granted
   
22,970
     
370.43
     
     
 
Forfeited
   
(2,595
)    
241.84
     
     
 
Expired
   
 
 
     
 
 
     
     
 
Exercised
   
(23,233
)    
103.99
     
     
 
                                 
Outstanding at March 28, 2020
   
312,820
    $
205.70
     
6.08
    $
47,034
 
                                 
Exercisable at March 28, 2020
   
105,636
    $
164.80
     
4.63
    $
20,091
 
                                 
Vested and expected to vest at March 28, 2020
   
285,886
    $
203.74
     
6.01
    $
43,532
 
                                 
 
 
 
 
Of the total options outstanding at March 28, 2020, 42,000 shares were performance-based options for which the performance criteria had yet to be achieved.
On January 31, 2020, the Company granted options to purchase an aggregate of 978 shares of the Company’s Class A Common Stock to the Company’s newly appointed
non-employee
Director. These options have a weighted average fair value of $146.87 per share, of which all shares vested immediately.
On March 1, 2020, the Company granted options to purchase an aggregate of 14,962 shares of the Company’s Class A Common Stock to senior management with a weighted average fair value of $142.25 per share, of which all shares relate to performance-based stock options.
 
17

Table of Contents
On March 2, 2020, the Company granted options to purchase an aggregate of 7,030 shares of the Company’s Class A Common Stock to the Company’s newly appointed Chief People Officer with a weighted average fair value of $142.23 per share,
 
of which all shares relate to performance-based stock options.
Weighted average assumptions used to estimate fair values of stock options on the date of grants are as follows:
         
 
2020
 
Expected Volatility
 
 
32.4%
 
Risk-free interest rate
 
 
1.15%
 
Expected Dividends
 
 
0.0%
 
Exercise factor
 
 
2.03 times
 
Discount for post-vesting restrictions
 
 
0.0%
 
 
 
 
 
Non-Vested
Shares Activity
The following table summarizes vesting activities of shares issued under the investment share program and restricted stock awards:
                 
 
Number
 
of Shares
 
 
Weighted
 
Average
Fair
 
Value
 
Non-vested
at December 28, 2019
   
122,142
    $
213.52
 
Granted
   
40,316
     
318.07
 
Vested
   
(19,589
)    
187.26
 
Forfeited
   
(2,845
)    
245.17
 
                 
Non-vested
at March 28, 2020
   
140,024
    $
243.80
 
                 
 
 
 
 
 
 
 
 
 
 
 
 
 
On March 1, 2020, the Company granted 15,011 shares of restricted stock units to certain officers, senior managers and key employees, of which all shares vest ratably over service periods of four years. Additionally on March 1, 2020, the Company granted a combined 13,482 shares of restricted stock units to select senior management employees with various service and performance based vesting conditions. On March 1, 2020, employees elected to purchase 9,127 shares under the Company’s investment share program. The weighted average fair value of the restricted stock units and investment shares, which are sold to employees at discount under its investment share program, was $370.79 and $169.43 per share, respectively.
On March 2,
2020,
the Company granted its newly appointed Chief People Officer 2,696 shares of restricted stock units with a weighted-average fair value of $370.79 per share with service based vesting through 2024.
Stock-Based Compensation
Stock-based compensation expense related to share-based awards recognized in the thirteen weeks ended March 28, 2020 and March 30, 2019 was $2.6 million and $2.1 million, respectively, and was calculated based on awards expected to
vest
.
 
P.
Employee Retirement
Plans
 
 
 
 
 
 
 
 
The Company has one company-sponsored defined benefit pension plan that covers certain of its union employees. It was established in 1991 and is open to all union employees who are covered by the Company’s collective bargaining agreement with Teamsters Local Union No. 1199 (“Local Union 1199”). As of December 28, 2019, the fair value of the plan assets was $3.9 million and the benefit obligation was $6.7 million. On April 21, 2019, the Company reached an agreement with the Local Union 1199 to terminate the Local Union No. 1199 Pension Plan effective January 1, 2020 through either lump sum payments or the purchase of third party annuities. In the fourth quarter of 2020 the Company expects to complete the termination of the plan and record an expense of approximately $1.8 million as a result of the termination.
 
Q.
Related Party Transactions
 
 
 
 
 
 
 
 
In connection with the Dogfish Head Transaction, the Company has entered a lease with the Dogfish Head founders and other owners of buildings used in certain of the Company’s restaurant operations. The lease is for ten years with renewal options. The total payments due under the initial ten year term is $3.6 million. Total related party expense recognized for the thirteen weeks ended March 28, 2020 was approximately $91,000. Additionally, the Company incurred expenses of less than $5,000 to various other suppliers affiliated with the Dogfish Head founders.
18

Table of Contents
R.
Subsequent Events
 
 
 
 
 
 
The Company began seeing the impact of the global
COVID-19
pandemic on its business in
early
March and such impacts have continued into April. The principal impacts of the global
COVID-19
pandemic were a significant reduction in keg demand from the
on-premise
channel and higher labor and safety related costs at Company-owned breweries. The Company expects to continue to be impacted as the situation remains dynamic and subject to rapid and possibly material change. Additional impacts may arise of which the Company is not currently aware. The nature and extent of such impacts will depend on future developments, which are highly uncertain and cannot be predicted.
The Company evaluated subsequent events occurring after the
balance
sheet date, March 28, 2020, and concluded that there were no other events of which management was aware that occurred after the balance sheet date that would require any adjustment to or disclosure in the accompanying consolidated financial statements.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the significant factors affecting the consolidated operating results, financial condition and liquidity and cash flows of the Company for the thirteen week period ended March 28, 2020, as compared to the thirteen week period ended March 30, 2019. This discussion should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the Consolidated Financial Statements of the Company and Notes thereto included in the Company’s Annual Report on Form
10-K
for the fiscal year ended December 28, 2019.
RESULTS
OF OPERATIONS
 
 
 
 
 
Thirteen Weeks Ended March 28, 2020 compared to Thirteen Weeks Ended March 30, 2019
                                                                         
 
Thirteen Weeks Ended
(in thousands, except per barrel)
   
 
 
 
 
 
 
March 28,
2020
   
March 30,
2019
   
Amount
change
 
 
% change
 
 
Per barrel
change
 
Barrels sold
 
1,423
   
1,076
     
347
     
32.2
%    
 
 
 
 
Per barrel
 
 
% of net
revenue
 
 
 
 
Per barrel
 
 
% of net
revenue
 
 
 
 
 
 
 
Net revenue
  $
330,565
    $
232.24
     
100.0
%   $
251,651
    $
233.77
     
100.0
%   $
78,914
     
31.4
%   $
(1.53
)
Cost of goods
   
182,592
     
128.28
     
55.2
%    
127,111
     
118.08
     
50.5
%    
55,481
     
43.6
%    
10.20
 
                                                                         
Gross profit
   
147,973
     
103.96
     
44.8
%    
124,540
     
115.69
     
49.5
%    
23,433
     
18.8
%    
(11.73
)
Advertising, promotional and selling expenses
   
97,891
     
68.78
     
29.6
%    
71,723
     
66.63
     
28.5
%    
26,168
     
36.5
%    
2.15
 
General and administrative expenses
   
27,029
     
18.99
     
8.2
%    
23,374
     
21.71
     
9.3
%    
3,655
     
15.6
%    
(2.72
)
Impairment of assets
   
1,521
     
1.07
     
0.5
%    
—  
     
—  
     
0.0
%    
1,521
     
0.0
%    
1.07
 
                                                                         
Total operating expenses
   
126,441
     
88.83
     
38.2
%    
95,097
     
88.34
     
37.8
%    
31,344
     
33.0
%    
0.49
 
Operating income
   
21,532
     
15.13
     
6.5
%    
29,443
     
27.35
     
11.7
%    
(7,911
)    
-26.9
%    
(12.22
)
Other (expense) income, net
   
(297
)    
(0.21
)    
-0.1
%    
385
     
0.36
     
0.2
%    
(682
)    
-177.1
%    
(0.57
)
                                                                         
Income before income tax expense
   
21,235
     
14.92
     
6.4
%    
29,828
     
27.71
     
11.9
%    
(8,593
)    
-28.8
%    
(12.79
)
Income tax expense
   
3,001
     
2.11
     
0.9
%    
6,134
     
5.70
     
2.4
%    
(3,133
)    
-51.1
%    
(3.59
)
                                                                         
Net income
  $
18,234
    $
12.81
     
5.5
%   $
23,694
    $
22.01
     
9.4
%   $
(5,460
)    
-23.0
%   $
(9.20
)
                                                                         
 
 
 
 
 
Net revenue.
Net revenue increased by $78.9 million, or 31.4%, to $330.6 million for the thirteen weeks ended March 28, 2020, as compared to $251.7 million for the thirteen weeks ended March 30, 2019, primarily as a result of an increase in shipments, partially offset by estimated keg returns from distributors and retailers related to
COVID-19
of $5.8 million.
Volume.
Total shipment volume increased by 32.2% to 1,423,000 barrels for the thirteen weeks ended March 28, 2020, as compared to 1,076,000 barrels for the thirteen weeks ended March 30, 2019, primarily due to increases in shipments of Truly Hard Seltzer and Twisted Tea brand products and the addition of Dogfish Head brand products, partially offset by decreases in Angry Orchard and Samuel Adams brand products.
19

Table of Contents
Depletions, or sales by distributors to retailers, of the Company’s products for the thirteen weeks ended March 28, 2020 increased by approximately 36% compared to the thirteen weeks ended March 30, 2019, primarily due to increases in depletions of Truly Hard Seltzer and Twisted Tea brand products and the addition of Dogfish Head brand products, partially offset by decreases in Angry Orchard and Samuel Adams brand products.
The Company believes distributor inventory as of March 28, 2020 averaged approximately 6 weeks on hand and was at an appropriate level based on the supply chain capacity constraints and inventory requirements to support the forecasted growth of Truly and Twisted Tea brands over the summer. The Company expects wholesaler inventory levels in terms of weeks on hand to return to more normal levels of approximately 4 weeks on hand later in the year.
Net revenue per barrel
. Net revenue per barrel decreased by 0.7% to $232.24 per barrel for the thirteen weeks ended March 28, 2020, as compared to $233.77 per barrel for the comparable period in 2019, primarily due to estimated keg returns from distributors and retailers related to COVID-19 of $5.8 million, partially offset by price increases and package mix.
Cost of goods sold.
Cost of goods sold was $128.28 per barrel for the thirteen weeks ended March 28, 2020, as compared to $118.08 per barrel for the thirteen weeks ended March 30, 2019. The 2020 increase in cost of goods sold of $10.20 per barrel was primarily the result of higher processing costs due to increased production at third party breweries and higher processing costs and finished goods keg inventory write-offs at Company-owned breweries of which $3.6 million were direct costs related to
COVID-19,
partially offset by cost saving initiatives at Company-owned breweries.
Gross profit.
Gross profit was $103.96 per barrel for the thirteen weeks ended March 28, 2020, as compared to $115.69 per barrel for the thirteen weeks ended March 30, 2019. The decrease in gross profit per barrel of $11.73 was the result of a decrease in net revenue per barrel and an increase in cost of goods sold per barrel.
The Company includes freight charges related to the movement of finished goods from its manufacturing locations to distributor locations in its advertising, promotional and selling expense line item. As such, the Company’s gross margins may not be comparable to those of other entities that classify costs related to distribution differently.
Advertising, promotional and selling.
Advertising, promotional and selling expenses increased by $26.2 million, or 36.5%, to $97.9 million for the thirteen weeks ended March 28, 2020, as compared to $71.7 million for the thirteen weeks ended March 30, 2019. The increase was primarily due to increased investments in media, production and local marketing, the addition of Dogfish Head brand-related expenses beginning July 3, 2019, higher salaries and benefits costs and increased freight to distributors due to higher volumes.
Advertising, promotional and selling expenses were 29.6% of net revenue, or $68.78 per barrel, for the thirteen weeks ended March 28, 2020, as compared to 28.5% of net revenue, or $66.63 per barrel, for the thirteen weeks ended March 30, 2019. This increase per barrel is primarily due to advertising, promotional and selling expenses growing at a higher rate than shipments. The Company invests in advertising and promotional campaigns that it believes will be effective, but there is no guarantee that such investments will generate sales growth.
The Company conducts certain advertising and promotional activities in its distributors’ markets, and the distributors make contributions to the Company for such efforts. These amounts are included in the Company’s statements of comprehensive income as reductions to advertising, promotional and selling expenses. Historically, contributions from distributors for advertising and promotional activities have amounted to between 2% and 3% of net sales. The Company may adjust its promotional efforts in the distributors’ markets if changes occur in these promotional contribution arrangements, depending on industry and market conditions.
General and administrative.
General and administrative expenses increased by $3.7 million, or 15.6%, to $27.0 million for the thirteen weeks ended March 28, 2020, as compared to $23.4 million for the thirteen weeks ended March 30, 2019. The increase was primarily due to increases in salaries and benefits costs and the addition of Dogfish Head general and administrative expenses beginning July 3, 2019.
20

Table of Contents
Impairment of assets.
Impairment of long-lived assets increased $1.5 million from the first quarter of 2019, primarily due write-downs of brewery equipment at the Company’s Cincinnati brewery.
I
ncome tax expense.
During the thirteen weeks ended March 28, 2020, the Company recorded a net income tax expense of $3.0 million which consists of $5.0 million income tax expenses partially offset by a $2.0 million tax benefit related to stock option exercises in accordance with ASU
2016-09.
The Company’s effective tax rate for the thirteen weeks ended March 28, 2020, excluding the impact of ASU
2016-09,
decreased to 23.6% from 26.5% for the thirteen weeks ended March 30, 2019, primarily due to
one-time
state tax benefits related to capital investments.
LIQUIDITY
AND CAPITAL RESOURCES
 
 
 
 
 
Cash increased to $129.5 million as of March 28, 2020 from $36.7 million as of December 28, 2019, reflecting cash borrowed on the Company’s line of credit and cash provided by operating activities, partially offset by purchases of property, plant and equipment.
Cash provided by operating activities consists of net income, adjusted for certain
non-cash
items, such as depreciation and amortization, stock-based compensation expense, other
non-cash
items included in operating results, and changes in operating assets and liabilities, such as accounts receivable, inventory, accounts payable and accrued expenses.
Cash provided by operating activities for the thirteen weeks ended March 28, 2020 was $18.9 million and primarily consisted of net income of $18.2 million and
non-cash
items of $24.8 million, partially offset by a net increase in operating assets and liabilities of $24.1 million. Cash provided by operating activities for the thirteen weeks ended March 30, 2019 was $13.6 million and primarily consisted of net income of $23.7 million and
non-cash
items of $17.0 million, partially offset by a net increase in operating assets and liabilities of $27.1 million.
The Company used $27.3 million in investing activities during the thirteen weeks ended March 28, 2020, as compared to $22.1 million during the thirteen weeks ended March 30, 2019. Investing activities primarily consisted of capital investments made mostly in the Company’s breweries to drive efficiencies and cost reductions, and support product innovation and future growth.
Cash provided by financing activities was $101.2 million during the thirteen weeks ended March 28, 2020, as compared to $2.9 million provided by financing activities during the thirteen weeks ended March 30, 2019. The $98.3 million increase in cash provided by financing activities in 2020 from 2019 is primarily due to $100.0 million of borrowings on the Company’s line of credit to enhance its ability to address the impact of
COVID-19
pandemic.
During the thirteen weeks ended March 28, 2020 and the period from March 29, 2020 through April 17, 2020 the Company did not repurchase any shares of its Class A Common Stock. As of April 17, 2020, the Company had repurchased a cumulative total of approximately 13.8 million shares of its Class A Common Stock for an aggregate purchase price of $840.7 million and had approximately $90.3 million remaining on the $931.0 million stock repurchase expenditure limit set by the Board of Directors.
The Company expects that its cash balance as of March 28, 2020 of $129.5 million, along with future operating cash flow and the unused balance of the Company’s line of credit of $50.0 million, will be sufficient to fund future cash requirements. The Company’s $150.0 million credit facility has a term not scheduled to expire until March 31, 2023. As of the date of this filing, the Company had $100.0 million in borrowings and was not in violation of any of its covenants to the lender under the credit facility.
2020 Outlook
Year-to-date
depletions through the fifteen weeks ended April 11, 2020 are estimated to have increased approximately 32% from the comparable period in 2019. Excluding the Dogfish head impact, depletions increased 27%.
The Company began seeing the impact of the
COVID-19
pandemic on its business in early March. Prior to then, the Company was on track to maintain its financial guidance for full-year fiscal 2020. Given the many rapidly changing variables related to the pandemic, at this time the Company is not in a position to accurately forecast the future impacts and is withdrawing its full-year fiscal 2020 financial guidance.
21

Table of Contents
THE
POTENTIAL IMPACT OF KNOWN FACTS, COMMITMENTS, EVENTS AND UNCERTAINTIES
 
 
 
 
 
Off-balance
Off-balance
Sheet Arrangements
 
 
 
 
 
At March 28, 2020, the Company did not have
off-balance
sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation
S-K.
Contractual
Obligations
 
 
 
 
 
There were no material changes outside of the ordinary course of the Company’s business to contractual obligations during the three-month period ended March 28, 2020.
Critical
Accounting Policies
 
 
 
 
 
There were no material changes to the Company’s critical accounting policies during the three-month period ended March 28, 2020.
FORWARD-LOOKING
STATEMENTS
 
 
 
 
 
In this Quarterly Report on Form
10-Q
and in other documents incorporated herein, as well as in oral statements made by the Company, statements that are prefaced with the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “intend,” “designed” and similar expressions, are intended to identify forward-looking statements regarding events, conditions, and financial trends that may affect the Company’s future plans of operations, business strategy, results of operations and financial position. These statements are based on the Company’s current expectations and estimates as to prospective events and circumstances about which the Company can give no firm assurance. Further, any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement to reflect subsequent events or circumstances. Forward-looking statements should not be relied upon as a prediction of actual future financial condition or results. These forward-looking statements, like any forward-looking statements, involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. Such risks and uncertainties include the factors set forth below in addition to the other information set forth in this Quarterly Report on Form
10-Q
and in the section titled “Risk Factors” in the Company’s Annual Report on Form
10-K
for the year ended December 28, 2019.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Since December 28, 2019, there have been no significant changes in the Company’s exposures to interest rate or foreign currency rate fluctuations. The Company currently does not enter into derivatives or other market risk sensitive instruments for the purpose of hedging or for trading purposes.
Item 4. CONTROLS AND PROCEDURES
As of March 28, 2020, the Company conducted an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer (its principal executive officer and principal financial officer, respectively) regarding the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rule
13a-15(e)
and
15d-15(e)
of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e)
and
15d-15(e))
were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods and that such disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to its management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
As a result of the
COVID-19
pandemic, certain employees of the Company began working remotely in March 2020 but these changes to the working environment did not have a material effect on the Company’s internal control over financial reporting. There was no other change in the Company’s internal control over financial reporting that occurred during the thirteen weeks ended March 28, 2020 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
22

Table of Contents
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
During the thirteen weeks ended March 28, 2020, there were no material changes to the disclosure made in the Company’s Annual Report on Form
10-K
for the year ended December 28, 2019.
Item 1A. RISK FACTORS
In addition to the other information set forth in this report, careful consideration should be given to the factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form
10-K
for the year ended December 28, 2019, which could materially affect the Company’s business, financial condition or future results. The risks described in the Company’s Annual Report on Form
10-K
are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that it currently deems to be immaterial also may materially adversely affect its business, financial condition and/or operating results. There has been no material change in the risk factors described in the Company’s Annual Report on Form
10-K
for the year ended December 28, 2019, with the exception of the addition of the following risk factor:
The Global
COVID-19
Pandemic Has Disrupted the Company’s Business and the Company’s Financial Condition and Operating Results Have Been and Are Expected To Continue to be Adversely Affected by the Outbreak and Its Effects.
The Company’s operations and business has been negatively affected and could be materially and adversely affected by the
COVID-19
pandemic and related weak, or weakening of, economic or other negative conditions, particularly in the United States where the Company derives most of its revenue and profit, but also in Europe, where some of the Company’s ingredient suppliers are located. National, state and local governments have responded to the
COVID-19
pandemic in a variety of ways, including, without limitation, by declaring states of emergency, restricting people from gathering in groups or interacting within a certain physical distance (i.e., social distancing), and in certain cases, ordering businesses to close or limit operations or people to stay at home. Although the Company has been permitted to continue to operate its breweries in all of the jurisdictions in which it operates, there is no assurance that the Company will be permitted to operate these facilities under every future government order or other restriction and in every location or that the third party breweries on which the Company relies for production will similarly be permitted to continue to operate. In particular, any limitations on, or closures of, the Company’s Pennsylvania, Cincinnati or Milton breweries or its third party breweries, could have a material adverse impact on the Company’s ability to manufacture products and service customers and could have a material adverse impact on the Company’s business, financial condition and results of operations.
During the first quarter of fiscal 2020, the principal impacts of the global
COVID-19
pandemic were a significant reduction in keg demand from the
on-premise
channel and higher labor and safety related costs at Company-owned breweries. The Company expects to continue to be impacted as the situation remains dynamic and subject to rapid and possibly material change. Continued or additional disruptions to the Company’s business and potential associated impacts to the Company’s financial condition and results of operations include, but are not limited to:
  reduced demand for the Company’s products, due to adverse and uncertain economic conditions, such as increased unemployment, a prolonged downturn in economic growth and other financial hardships, or a decline in consumer confidence, as a result of health concerns;
 
 
 
 
 
  unpredictable drinker behaviors and reduced demand for the Company’s products, due to
on-premise
closures, government quarantines and other restrictions on social gatherings;
 
 
 
 
 
  inability to manufacture and ship the Company’s products in quantities necessary to meet drinker demand and achieve planned shipment and depletion targets due to disruptions at the Company-owned breweries and third party breweries caused by:
 
 
 
 
 
  the Company’s inability to maintain a sufficient workforce at Company-owned breweries due to the health-related effects of
COVID-19
and similar staffing issues at third party breweries;
 
 
 
 
 
  disruptions at the Company-owned breweries and third party breweries caused by an inability to maintain a sufficient quantity of essential supplies, such as ingredients and packaging materials, and maintain logistics and other manufacturing and supply chain capabilities necessary for the manufacture and distribution of the Company’s products;
 
 
 
 
 
  failure of third parties on which the Company relies, including the Company’s inventory suppliers, third party breweries, distributors, and logistics and transportation providers, to continue to meet on a timely basis their obligations to the Company, which may be caused by their own financial or operational difficulties;
 
 
 
 
 
23

Table of Contents
 
  potential incremental costs associated with mitigating the effects of the pandemic on the Company’s operations, including increased labor, freight and logistics costs and other expenses; or
 
 
 
 
  significant changes in the conditions in markets in which the Company produces, sells or distributes Company products, including prolonged or additional quarantines, governmental and regulatory actions, closures or other restrictions that limit or close the Company’s operating and manufacturing facilities, restrict the ability of the Company’s employees to perform necessary business functions, restrict or prevent consumers access to the Company products, or otherwise prevent the Company’s third-parties from sufficiently staffing operations, including operations necessary for the production, distribution, sale and support of Company products.
 
 
 
 
These impacts could place limitations on the Company’s ability to operate effectively and could have a material and adverse effect on the Company’s operations, financial condition and operating results. The Company has implemented policies and procedures at its Company-owned breweries to address potential risks, including entrance screening and temperature checks, face mask requirements, reorganizing work to increase social distancing between and among shifts, and adding two hours of workspace cleaning per shift. As the situation continues to evolve and more information and guidance becomes available, the Company may adjust its current policies and procedures, so as to address the rapidly changing variables related to the pandemic. Additional impacts may arise of which the Company is not currently aware. The nature and extent of such impacts will depend on future developments, which are highly uncertain and cannot be predicted.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
As of April 17, 2020, the Company had repurchased a cumulative total of approximately 13.8 million shares of its Class A Common Stock for an aggregate purchase price of $840.7 million and had $90.3 million remaining on the $931.0 million share buyback expenditure limit set by the Board of Directors. During the thirteen weeks ended March 28, 2020, the Company did not repurchase any shares of its Class A Common Stock under the previously announced repurchase program.
During the thirteen weeks ended March 28, 2020, the Company repurchased 225 shares of its Class A Common Stock, of which all represent repurchases of unvested investment shares issued under the Investment Share Program of the Company’s Employee Equity Incentive Plan, as illustrated in the table below:
                                 
Period
 
Total Number of Shares
Purchased
   
Average
Price
Paid per
Share
   
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
   
Approximate Dollar
Value of Shares that
May Yet be
Purchased Under
the Plans or
Programs
 
December 29, 2020 to February 1, 2020
   
167
    $
132.37
     
—  
    $
90,335
 
February 2, 2020 to February 29, 2020
   
—  
     
—  
     
—  
     
90,335
 
March 1, 2020 to March 28, 2020
   
58
     
105.56
     
—  
     
90,335
 
                                 
Total
   
225
    $
125.46
     
—  
     
90,335
 
                                 
 
 
 
 
As of April 17, 2020, the Company had 9.7 million shares of Class A Common Stock outstanding and 2.5 million shares of Class B Common Stock outstanding.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4. MINE SAFETY DISCLOSURES
Not Applicable
Item 5. OTHER INFORMATION
Not Applicable
24

Table of Contents
 
Item 6. EXHIBITS
         
Exhibit No.
 
 
Title
         
 
**10.1
   
         
 
**10.2
   
         
 
**10.3
   
         
 
**10.4
   
         
 
**10.5
   
         
 
*31.1
   
         
 
*31.2
   
         
 
*32.1
   
         
 
*32.2
   
         
 
*101.INS
   
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
         
 
*101.SCH
   
XBRL Taxonomy Extension Schema Document
         
 
*101.CAL
   
XBRL Taxonomy Calculation Linkbase Document
         
 
*101.LAB
   
XBRL Taxonomy Label Linkbase Document
         
 
*101.PRE
   
XBRL Taxonomy Presentation Linkbase Document
         
 
*101.DEF
   
XBRL Definition Linkbase Document
         
 
*104
   
The cover page from this Quarterly Report on Form
10-Q
for the quarter ended March 28, 2020, formatted in Inline XBRL (formatted as Inline XBRL and contained in Exhibit 101).
 
 
 
* Filed with this report
 
 
** Designates management contract or compensatory plan or arrangement
 
 
25

Table of Contents
 
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form
10-Q
to be signed on its behalf by the undersigned thereunto duly authorized.
             
 
 
 
THE BOSTON BEER COMPANY, INC.
 
 
 
(Registrant)
             
Date: April 22, 2020
 
 
 
/s/ David A. Burwick                                                                
 
 
 
David A. Burwick
 
 
 
President and Chief Executive Officer
 
 
 
(principal executive officer)
             
Date: April 22, 2020
 
 
 
/s/ Frank H. Smalla                                                                   
 
 
 
Frank H. Smalla
 
 
 
Chief Financial Officer
 
 
 
(principal financial officer)
 
 
 
 
26