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BOSTON BEER CO INC - Quarter Report: 2022 June (Form 10-Q)

Table of Contents

 

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 June 25, 2022

 

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)

 

(State or other jurisdiction of

incorporation Identification No.)

One Design Center Place,
Suite 850
, Boston, Massachusetts

 

02210

(Address of principal executive offices)

 

(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 per 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 July 16, 2022:

 

Class A Common Stock, $.01 par value

 

10,225,572

Class B Common Stock, $.01 par value

 

2,068,000

(Title of each class)

 

(Number of shares)

 

 


Table of Contents

 

THE BOSTON BEER COMPANY, INC.

FORM 10-Q

June 25, 2022

TABLE OF CONTENTS

 

PART I.

 

FINANCIAL INFORMATION

 

PAGE

 

 

 

 

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

 

3

 

 

 

Condensed Consolidated Balance Sheets as of June 25, 2022 and December 25, 2021

 

3

 

 

 

Condensed Consolidated Statements of Comprehensive Operations for the thirteen and twenty-six weeks ended June 25, 2022 and June 26, 2021

 

4

 

 

 

Condensed Consolidated Statements of Cash Flows for the twenty-six weeks ended June 25, 2022 and June 26, 2021

 

5

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the thirteen and twenty-six weeks ended June 25, 2022 and June 26, 2021

 

6

 

 

 

Notes to Condensed Consolidated Financial Statements

 

8

 

 

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

18

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

24

 

 

Item 4.

Controls and Procedures

 

24

 

 

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

25

 

 

Item 1A.

Risk Factors

 

25

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

26

 

 

Item 3.

Defaults Upon Senior Securities

 

26

 

 

Item 4.

Mine Safety Disclosures

 

26

 

 

Item 5.

Other Information

 

26

 

 

Item 6.

Exhibits

 

27

 

 

 

 

 

 

SIGNATURES

 

28

 

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. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)

 

 

 

June 25,
2022

 

 

December 25,
2021

 

Assets

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

137,801

 

 

$

26,853

 

 Restricted cash

 

 

 

 

 

39,468

 

Accounts receivable

 

 

119,371

 

 

 

55,022

 

Inventories

 

 

164,247

 

 

 

149,118

 

Prepaid expenses and other current assets

 

 

21,423

 

 

 

21,462

 

Income tax receivable

 

 

6,742

 

 

 

53,418

 

Total current assets

 

 

449,584

 

 

 

345,341

 

Property, plant and equipment, net

 

 

675,208

 

 

 

664,815

 

Operating right-of-use assets

 

 

48,424

 

 

 

52,774

 

Goodwill

 

 

112,529

 

 

 

112,529

 

Intangible assets

 

 

103,550

 

 

 

103,677

 

Third-party production prepayments

 

 

74,227

 

 

 

88,294

 

Other assets

 

 

16,944

 

 

 

19,354

 

Total assets

 

$

1,480,466

 

 

$

1,386,784

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Accounts payable

 

$

134,215

 

 

$

85,920

 

Accrued expenses and other current liabilities

 

 

148,179

 

 

 

161,552

 

Current operating lease liabilities

 

 

8,535

 

 

 

7,634

 

Total current liabilities

 

 

290,929

 

 

 

255,106

 

Deferred income taxes, net

 

 

90,052

 

 

 

87,495

 

Non-current operating lease liabilities

 

 

49,722

 

 

 

53,849

 

Other liabilities

 

 

5,726

 

 

 

6,925

 

Total liabilities

 

 

436,429

 

 

 

403,375

 

Commitments and Contingencies (See Note I)

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

 

Class A Common Stock, $0.01 par value; 22,700,000 shares authorized; 10,225,061 and 10,183,801  issued and outstanding as of June 25, 2022 and
   December 25, 2021, respectively

 

 

102

 

 

 

102

 

Class B Common Stock, $0.01 par value; 4,200,000 shares authorized; 2,068,000
   and
2,068,000 issued and outstanding as of June 25, 2022 and
   December 25, 2021, respectively

 

 

21

 

 

 

21

 

Additional paid-in capital

 

 

620,877

 

 

 

611,622

 

Accumulated other comprehensive loss

 

 

(215

)

 

 

(194

)

Retained earnings

 

 

423,252

 

 

 

371,858

 

Total stockholders' equity

 

 

1,044,037

 

 

 

983,409

 

Total liabilities and stockholders' equity

 

$

1,480,466

 

 

$

1,386,784

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3


Table of Contents

 

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS

(in thousands, except per share data)

(unaudited)

 

 

 

Thirteen weeks ended

 

 

Twenty-six weeks ended

 

 

 

June 25,
2022

 

 

June 26,
2021

 

 

June 25,
2022

 

 

June 26,
2021

 

Revenue

 

$

655,022

 

 

$

641,314

 

 

$

1,112,310

 

 

$

1,223,023

 

Less excise taxes

 

 

38,779

 

 

 

38,509

 

 

 

65,954

 

 

 

75,138

 

Net revenue

 

 

616,243

 

 

 

602,805

 

 

 

1,046,356

 

 

 

1,147,885

 

Cost of goods sold

 

 

350,468

 

 

 

327,116

 

 

 

607,629

 

 

 

622,566

 

Gross profit

 

 

265,775

 

 

 

275,689

 

 

 

438,727

 

 

 

525,319

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Advertising, promotional and selling expenses

 

 

154,883

 

 

 

161,620

 

 

 

285,498

 

 

 

302,479

 

General and administrative expenses

 

 

38,849

 

 

 

32,960

 

 

 

78,547

 

 

 

64,906

 

Contract termination costs and other

 

 

578

 

 

 

 

 

 

5,330

 

 

 

 

Impairment of assets

 

 

80

 

 

 

1,004

 

 

 

121

 

 

 

1,231

 

Total operating expenses

 

 

194,390

 

 

 

195,584

 

 

 

369,496

 

 

 

368,616

 

Operating income

 

 

71,385

 

 

 

80,105

 

 

 

69,231

 

 

 

156,703

 

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (expense)

 

 

83

 

 

 

(29

)

 

 

50

 

 

 

(58

)

Other (expense) income

 

 

(601

)

 

 

8

 

 

 

(701

)

 

 

2

 

Total other expense

 

 

(518

)

 

 

(21

)

 

 

(651

)

 

 

(56

)

Income before income tax provision

 

 

70,867

 

 

 

80,084

 

 

 

68,580

 

 

 

156,647

 

Income tax provision

 

 

17,518

 

 

 

20,889

 

 

 

17,186

 

 

 

31,887

 

Net income

 

$

53,349

 

 

$

59,195

 

 

$

51,394

 

 

$

124,760

 

Net income per common share – basic

 

$

4.33

 

 

$

4.82

 

 

$

4.18

 

 

$

10.16

 

Net income per common share – diluted

 

$

4.31

 

 

$

4.75

 

 

$

4.15

 

 

$

10.01

 

Weighted-average number of common shares – basic

 

 

12,319

 

 

 

12,283

 

 

 

12,309

 

 

 

12,277

 

Weighted-average number of common shares – diluted

 

 

12,341

 

 

 

12,465

 

 

 

12,341

 

 

 

12,461

 

Net income

 

$

53,349

 

 

$

59,195

 

 

$

51,394

 

 

$

124,760

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(71

)

 

 

15

 

 

 

(21

)

 

 

35

 

Total other comprehensive (loss) income, net of tax

 

 

(71

)

 

 

15

 

 

 

(21

)

 

 

35

 

Comprehensive income

 

$

53,278

 

 

$

59,210

 

 

$

51,373

 

 

$

124,795

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4


Table of Contents

 

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Twenty-six weeks ended

 

 

 

June 25,
2022

 

 

June 26,
2021

 

Cash flows provided by operating activities:

 

 

 

 

 

 

Net income

 

$

51,394

 

 

$

124,760

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

39,909

 

 

 

34,174

 

Impairment of assets

 

 

121

 

 

 

1,231

 

Gain on disposal of property, plant and equipment

 

 

(39

)

 

 

(150

)

Change in right-of-use assets

 

 

3,990

 

 

 

3,954

 

Other non-cash expense (income)

 

 

54

 

 

 

(98

)

Stock-based compensation expense

 

 

7,730

 

 

 

10,291

 

Deferred income taxes

 

 

2,557

 

 

 

(39

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(64,469

)

 

 

(35,075

)

Inventories

 

 

(13,014

)

 

 

(120,675

)

Prepaid expenses, income tax receivable, other current assets and other assets

 

 

47,010

 

 

 

(30,804

)

Third-party production prepayments

 

 

14,067

 

 

 

(17,024

)

Accounts payable

 

 

48,337

 

 

 

78,801

 

Accrued expenses, other current liabilities and other liabilities

 

 

(13,275

)

 

 

(14,307

)

Change in operating lease liabilities

 

 

(2,866

)

 

 

(4,052

)

Net cash provided by operating activities

 

 

121,506

 

 

 

30,987

 

Cash flows used in investing activities:

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(50,804

)

 

 

(83,521

)

Proceeds from disposal of property, plant and equipment

 

 

506

 

 

 

420

 

Other investing activities

 

 

 

 

 

145

 

Net cash used in investing activities

 

 

(50,298

)

 

 

(82,956

)

Cash flows provided by (used in) financing activities:

 

 

 

 

 

 

Proceeds from exercise of stock options and sale of investment shares

 

 

4,610

 

 

 

7,944

 

Net cash paid on note payable and finance leases

 

 

(870

)

 

 

(795

)

Line of credit borrowings

 

 

30,000

 

 

 

 

Line of credit repayments

 

 

(30,000

)

 

 

 

Payment of tax withholding on stock-based payment awards and investment shares

 

 

(3,468

)

 

 

(15,509

)

Net cash provided by (used in) financing activities

 

 

272

 

 

 

(8,360

)

Change in cash and cash equivalents and restricted cash

 

 

71,480

 

 

 

(60,329

)

Cash and cash equivalents and restricted cash at beginning of year

 

 

66,321

 

 

 

163,282

 

Cash and cash equivalents at end of period

 

$

137,801

 

 

$

102,953

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Income taxes (refunded) paid, net

 

$

(43,621

)

 

$

34,395

 

Cash paid for amounts included in measurement of lease liabilities

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

3,895

 

 

$

5,212

 

Operating cash flows from finance leases

 

$

42

 

 

$

66

 

Financing cash flows from finance leases

 

$

796

 

 

$

724

 

Right-of-use-assets obtained in exchange for operating lease obligations

 

$

-

 

 

$

1,961

 

Change in purchase of property, plant and equipment in accounts payable and
   accrued expenses

 

$

107

 

 

$

(6,928

)

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


Table of Contents

 

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the thirteen and twenty-six weeks ended June 25, 2022 and June 26, 2021

(in thousands)

(unaudited)

 

 

 

 

 

 

Class A

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Class A

 

 

Common

 

 

Class B

 

 

Class B

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

 

Common

 

 

Stock,

 

 

Common

 

 

Common

 

 

Paid-in

 

 

Comprehensive

 

 

Retained

 

 

Stockholders’

 

 

 

Shares

 

 

Par

 

 

Shares

 

 

Stock, Par

 

 

Capital

 

 

Loss

 

 

Earnings

 

 

Equity

 

Balance at December 25, 2021

 

 

10,184

 

 

$

102

 

 

 

2,068

 

 

$

21

 

 

$

611,622

 

 

$

(194

)

 

$

371,858

 

 

$

983,409

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,955

)

 

 

(1,955

)

Stock options exercised and restricted
   shares activities

 

 

31

 

 

 

 

 

 

 

 

 

 

 

 

498

 

 

 

 

 

 

 

 

 

498

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,922

 

 

 

 

 

 

 

 

 

2,922

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

50

 

 

 

 

 

 

50

 

Balance at March 26, 2022

 

 

10,215

 

 

$

102

 

 

 

2,068

 

 

$

21

 

 

$

615,042

 

 

$

(144

)

 

$

369,903

 

 

$

984,924

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

53,349

 

 

 

53,349

 

Stock options exercised and restricted
   shares activities

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

1,027

 

 

 

 

 

 

 

 

 

1,027

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,808

 

 

 

 

 

 

 

 

 

4,808

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(71

)

 

 

 

 

 

(71

)

Balance at June 25, 2022

 

 

10,225

 

 

$

102

 

 

 

2,068

 

 

$

21

 

 

$

620,877

 

 

$

(215

)

 

$

423,252

 

 

$

1,044,037

 

 

6


Table of Contents

 

 

 

 

 

 

Class A

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Class A

 

 

Common

 

 

Class B

 

 

Class B

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

 

Common

 

 

Stock,

 

 

Common

 

 

Common

 

 

Paid-in

 

 

Comprehensive

 

 

Retained

 

 

Stockholders’

 

 

 

Shares

 

 

Par

 

 

Shares

 

 

Stock, Par

 

 

Capital

 

 

Loss

 

 

Earnings

 

 

Equity

 

Balance at December 26, 2020

 

 

10,005

 

 

$

100

 

 

 

2,178

 

 

$

22

 

 

$

599,737

 

 

$

(252

)

 

$

357,360

 

 

$

956,967

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

65,565

 

 

 

65,565

 

Stock options exercised and restricted
   shares activities

 

 

48

 

 

 

1

 

 

 

 

 

 

 

 

 

1,268

 

 

 

 

 

 

 

 

 

1,269

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,957

 

 

 

 

 

 

 

 

 

4,957

 

Adoption of ASU 2019-12, Simplifying the accounting for income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(54

)

 

 

(54

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20

 

 

 

 

 

 

20

 

Balance at March 27, 2021

 

 

10,053

 

 

$

101

 

 

 

2,178

 

 

$

22

 

 

$

605,962

 

 

$

(232

)

 

$

422,871

 

 

$

1,028,724

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

59,195

 

 

 

59,195

 

Stock options exercised and restricted
   shares activities

 

 

13

 

 

 

 

 

 

 

 

 

 

 

 

(9,133

)

 

 

 

 

 

 

 

 

(9,133

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,334

 

 

 

 

 

 

 

 

 

5,334

 

Conversion from Class B to Class A

 

 

100

 

 

 

1

 

 

 

(100

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15

 

 

 

 

 

 

15

 

Balance at June 26, 2021

 

 

10,166

 

 

$

102

 

 

 

2,078

 

 

$

21

 

 

$

602,163

 

 

$

(217

)

 

$

482,066

 

 

$

1,084,135

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents

 

 

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED 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”, “Dogfish Head Distilling Co.”, “Angel City® Brewing Company”, “Coney Island® Brewing Company”, "Green Rebel Brewing Co." and “Bevy Long Drink Co.”

 

The accompanying unaudited condensed consolidated balance sheet as of June 25, 2022, and the unaudited condensed consolidated statements of comprehensive operations, stockholders’ equity, and cash flows for the interim periods ended June 25, 2022 and June 26, 2021 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 condensed 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 25, 2021.

 

In the opinion of the Company’s management, the Company’s unaudited condensed consolidated balance sheet as of June 25, 2022 and the condensed consolidated statements of comprehensive operations, stockholders’ equity, and cash flows for the interim periods ended June 25, 2022 and June 26, 2021, 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. Recent Accounting Pronouncements

 

Accounting Pronouncements Recently Adopted

 

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 adopted the standard in the first quarter of fiscal 2021 and recorded an adjustment of $0.1 million to retained earnings.

 

C. Revenue Recognition

 

During the twenty-six weeks ended June 25, 2022 and June 26, 2021, approximately 95% of the Company’s revenue was from shipments of its products to domestic distributors, 4% from shipments to international distributors, primarily located in Canada, and less than 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 June 25, 2022 and December 25, 2021, the Company has deferred $14.8 million and $8.0 million, respectively, in revenue related to product shipped on or prior to these dates. These amounts are included in accrued expenses and other current liabilities in the accompanying condensed 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 $16.6 million and $26.6 million for the thirteen and twenty-six weeks ended June 25, 2022, respectively, and $18.4 million and $41.8 million for the thirteen and twenty-six weeks ended June 26, 2021, 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

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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 or as advertising, promotional and selling expenses for the thirteen and twenty-six weeks ended June 25, 2022 were $8.1 million and $17.1 million, respectively. For the thirteen and twenty-six weeks ended June 25, 2022 the Company recorded certain of these costs in the total amounts of $6.5 million and $13.2 million, respectively, as reductions to net revenue. Amounts paid to customers in connection with these programs for the thirteen and twenty-six weeks ended June 26, 2021 were $13.2 million and $23.3 million, respectively. For the thirteen and twenty-six weeks ended June 26, 2021, the Company recorded certain of these costs in the total amount of $10.9 million and $20.1 million, respectively, as reductions to net revenue. Costs recognized in net revenues include, but are not limited to, promotional discounts, sales incentives and certain other promotional activities. Costs recognized in advertising, promotional and selling expenses include point of sale materials, samples and advertising expenditures in local markets. These costs are recorded as incurred, generally when invoices are received; however certain estimates are required at the period end. 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.

 

D. Inventories

 

Inventories consist of raw materials, work in process and finished goods which are stated at the lower of cost, determined on the first-in, first-out basis, or net realizable value. Raw materials principally consist of hops, flavorings, apple juice, other brewing materials and packaging. 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:

 

 

 

June 25,
2022

 

 

December 25,
2021

 

 

 

(in thousands)

 

Current inventory:

 

 

 

 

 

 

Raw materials

 

$

94,574

 

 

$

78,545

 

Work in process

 

 

18,181

 

 

 

17,764

 

Finished goods

 

 

51,492

 

 

 

52,809

 

Total current inventory

 

 

164,247

 

 

 

149,118

 

Long term inventory

 

 

10,540

 

 

 

12,655

 

Total inventory

 

$

174,787

 

 

$

161,773

 

 

As of June 25, 2022 and December 25, 2021, the Company has recorded inventory obsolescence reserves of $18.2 million and $43.1 million, respectively. The reduction in the inventory obsolescence reserves during the twenty-six weeks ended June 25, 2022 was primarily driven by the destruction of inventory that was fully reserved as of December 25, 2021.

 

E. Third-Party Production Prepayments

 

During the twenty-six weeks ended June 25, 2022, the Company brewed and packaged approximately 64% 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 generally supplies raw materials and packaging to those brewing companies and incurs conversion fees for labor at the time the liquid is produced and packaged. The Company has made up-front payments that were used for capital improvements at these third-party brewing facilities that it expenses over the period of the contracts.

 

As a result of lower than anticipated demand for certain Truly brand styles and packages, the Company adjusted its volume plans for production at certain third-party facilities beginning in the third quarter of 2021 and into 2022. The Company has also terminated relationships with some of its third-party production suppliers and incurred contract termination costs in doing so.

 

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During fiscal 2021, the Company amended its master transaction agreement with City Brewing Company, LLC ("City Brewing") to ensure access to capacity at a new location and continued access at certain existing locations. The amendment became effective during the second quarter of fiscal year 2021, upon the closing of the purchase of the new location by City Brewing. As part of the master transaction agreement, the Company paid $10.0 million for capital improvements at the new location during the third quarter of fiscal year 2021 and an additional $17.9 million to ensure access to capacity during the fourth quarter of 2021. The agreement additionally includes monthly shortfall fees beginning January 1, 2023.

 

Total third-party production prepayments were $74.2 million and $88.3 million as of June 25, 2022 and December 25, 2021, respectively. The Company will expense the total prepaid amount of $74.2 million as of June 25, 2022, all of which relates to the master transaction agreement described above and other agreements with City Brewing, as a component of cost of goods sold over the contractual period ending December 31, 2025.

 

At current production volume projections, the Company believes that it will fall short of its future annual volume commitments at certain third-party production facilities, including those that are part of the master transaction agreement described above, and will incur shortfall fees. The Company will expense the shortfall fees during the contractual period when such fees are incurred as a component of cost of goods sold. As of June 25, 2022, if volume for the remaining term of the production arrangements was zero, the contractual shortfall fees would total approximately $194 million over the duration of the contracts which have expiration dates through December 31, 2031. At current volume projections the Company anticipates that it will recognize approximately $89 million of shortfall fees and expects to record those expenses as follows:

 

 

 

Expected Shortfall Fees to be Incurred

 

 

 

(in millions)

 

Remainder of 2022

 

$

8

 

2023

 

 

26

 

2024

 

 

22

 

2025

 

 

19

 

2026

 

 

6

 

2027

 

 

4

 

Thereafter

 

 

4

 

Total shortfall fees expected to be incurred

 

$

89

 

 

F. Goodwill and Intangible Assets

 

No impairment of goodwill was recorded in any period.

 

The Company’s intangible assets as of June 25, 2022 and December 25, 2021 were as follows:

 

 

 

 

 

 

As of June 25, 2022

 

 

As of December 25, 2021

 

 

 

Estimated
Useful

 

 

Gross
Carrying

 

 

Accumulated

 

 

Net Book

 

 

Gross
Carrying

 

 

Accumulated

 

 

Net Book

 

 

 

Life (Years)

 

 

Value

 

 

Amortization

 

 

Value

 

 

Value

 

 

Amortization

 

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

Customer Relationships

 

 

15

 

 

$

3,800

 

 

$

(760

)

 

$

3,040

 

 

$

3,800

 

 

$

(633

)

 

$

3,167

 

Trade Names

 

Indefinite

 

 

 

100,510

 

 

 

 

 

 

100,510

 

 

 

100,510

 

 

 

 

 

 

100,510

 

Total intangible assets

 

 

 

 

$

104,310

 

 

$

(760

)

 

$

103,550

 

 

$

104,310

 

 

$

(633

)

 

$

103,677

 

 

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Amortization expense in the thirteen and twenty-six weeks ended June 25, 2022 was approximately $63,000 and $127,000, respectively. The Company expects to record amortization expense as follows over the remaining current year and the five subsequent years:

 

Fiscal Year

 

Amount (in thousands)

 

Remainder of 2022

 

$

127

 

2023

 

 

253

 

2024

 

 

253

 

2025

 

 

253

 

2026

 

 

253

 

2027

 

 

253

 

Thereafter

 

 

1,648

 

Total amortization expense

 

$

3,040

 

 

G. 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.

 

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 M 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.

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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

 

 

Twenty-six weeks ended

 

 

 

June 25,
2022

 

 

June 26,
2021

 

 

June 25,
2022

 

 

June 26,
2021

 

 

 

(in thousands, except per share data)

 

 

(in thousands, except per share data)

 

Net income

 

$

53,349

 

 

$

59,195

 

 

$

51,394

 

 

$

124,760

 

Allocation of net income for basic:

 

 

 

 

 

 

 

 

 

 

 

 

Class A Common Stock

 

$

44,261

 

 

$

48,710

 

 

$

42,631

 

 

$

102,354

 

Class B Common Stock

 

 

8,956

 

 

 

10,268

 

 

 

8,634

 

 

 

21,893

 

Unvested participating shares

 

 

132

 

 

 

217

 

 

 

129

 

 

 

513

 

 

 

$

53,349

 

 

$

59,195

 

 

$

51,394

 

 

$

124,760

 

Weighted average number of shares for basic:

 

 

 

 

 

 

 

 

 

 

 

 

Class A Common Stock

 

 

10,221

 

 

 

10,108

 

 

 

10,210

 

 

 

10,072

 

Class B Common Stock*

 

 

2,068

 

 

 

2,131

 

 

 

2,068

 

 

 

2,155

 

Unvested participating shares

 

 

30

 

 

 

44

 

 

 

31

 

 

 

50

 

 

 

 

12,319

 

 

 

12,283

 

 

 

12,309

 

 

 

12,277

 

Net income per share for basic:

 

 

 

 

 

 

 

 

 

 

 

 

Class A Common Stock

 

$

4.33

 

 

$

4.82

 

 

$

4.18

 

 

$

10.16

 

Class B Common Stock

 

$

4.33

 

 

$

4.82

 

 

$

4.18

 

 

$

10.16

 

*The reduction in Class B Common Stock resulted from the conversion to Class A Common stock during fiscal 2021.

 

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.

 

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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 for the thirteen and twenty-six weeks ended June 25, 2022 and for the thirteen and twenty-six weeks ended June 26, 2021:

 

 

 

Thirteen weeks ended

 

 

 

June 25, 2022

 

 

June 26, 2021

 

 

 

Earnings to
Common
Shareholders

 

 

Common
Shares

 

 

EPS

 

 

Earnings to
Common
Shareholders

 

 

Common
Shares

 

 

EPS

 

 

 

(in thousands, except per share data)

 

As reported - basic

 

$

44,261

 

 

 

10,221

 

 

$

4.33

 

 

$

48,710

 

 

 

10,108

 

 

$

4.82

 

Add: effect of dilutive common
   shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based awards

 

 

 

 

 

52

 

 

 

 

 

 

 

 

 

160

 

 

 

 

Class B Common Stock

 

 

8,956

 

 

 

2,068

 

 

 

 

 

 

10,268

 

 

 

2,131

 

 

 

 

Net effect of unvested participating
   shares

 

 

132

 

 

 

 

 

 

 

 

 

217

 

 

 

66

 

 

 

 

Net income per common share -
   diluted

 

$

53,349

 

 

 

12,341

 

 

$

4.31

 

 

$

59,195

 

 

 

12,465

 

 

$

4.75

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Twenty-six weeks ended

 

 

 

June 25, 2022

 

 

June 26, 2021

 

 

 

Earnings to
Common
Shareholders

 

 

Common
Shares

 

 

EPS

 

 

Earnings to
Common
Shareholders

 

 

Common
Shares

 

 

EPS

 

 

 

(in thousands, except per share data)

 

As reported - basic

 

$

42,631

 

 

 

10,210

 

 

$

4.18

 

 

$

102,354

 

 

 

10,072

 

 

$

10.16

 

Add: effect of dilutive common
   shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based awards

 

 

 

 

 

63

 

 

 

 

 

 

 

 

 

161

 

 

 

 

Class B Common Stock

 

 

8,634

 

 

 

2,068

 

 

 

 

 

 

21,893

 

 

 

2,155

 

 

 

 

Net effect of unvested participating
   shares

 

 

129

 

 

 

 

 

 

 

 

 

513

 

 

 

73

 

 

 

 

Net income per common share -
   diluted

 

$

51,394

 

 

 

12,341

 

 

$

4.15

 

 

$

124,760

 

 

 

12,461

 

 

$

10.01

 

 

During the thirteen and twenty-six weeks ended June 25, 2022, in accordance with the two-class method, weighted-average stock options to purchase approximately 13,000 and 24,000 shares of Class A Common Stock were outstanding but not included in computing dilutive income per common share because their effects were anti-dilutive. Additionally, performance-based stock options to purchase 17,114 shares of Class A Common Stock and 1,348 performance-based stock awards were outstanding as of June 25, 2022 but not included in computing diluted income per common share because the performance criteria were not met as of the end of the reporting period.

 

During the thirteen and twenty-six weeks ended June 26, 2021, in accordance with the treasury stock method, weighted-average stock options to purchase approximately 20,000 and 13,000 shares of Class A Common stock were outstanding but not included in computing dilutive income per common share because their effects were anti-dilutive. Additionally, 1,348 unvested performance-based stock awards of Class A Common Stock were not included in computing diluted income per common share because the performance criteria were not met as of the end of the reporting period.

 

H. Comprehensive Income or Loss

 

Comprehensive income or loss represents net income or loss plus or minus foreign currency translation adjustment. The foreign currency translation adjustments for the interim periods ended June 25, 2022 and June 26, 2021 were not material.

 

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I. Commitments and Contingencies

 

Contractual Obligations

 

As of June 25, 2022, projected cash outflows under non-cancelable contractual obligations are as follows:

 

 

 

Commitments

 

 

 

(in thousands)

 

Ingredients and packaging (excluding hops and malt)

 

$

95,200

 

Hops and malt

 

 

62,590

 

Brand support

 

 

60,809

 

Equipment and machinery

 

 

43,505

 

Other

 

 

40,449

 

Total commitments

 

$

302,553

 

 

The majority of these contract obligations are for the remaining twenty-seven weeks of fiscal 2022 with the remainder extending no later than the 2026 fiscal year.

 

Litigation

 

The Company is and in the future may be party to legal proceedings and claims, including class action claims, where significant damages are asserted against it. Given the inherent uncertainty of litigation, it is possible that the Company could incur liabilities as a consequence of these claims, which may or may not have a material adverse effect on the Company’s financial condition or the results of its operations. The Company accrues loss contingencies if, in the opinion of management and its legal counsel, the risk of loss is probable and able to be estimated. Material pending legal proceedings are discussed below.

 

Securities Litigation. On September 14, 2021, a purported class action lawsuit was filed by an individual shareholder in the United States District Court for the Southern District of New York against the Company and three of its officers. The complaint alleges claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 between April 22, 2021 and September 8, 2021. The plaintiff claims that defendants made materially false and/or misleading statements or failed to disclose material adverse facts about the Company’s business, operations, and prospects. On October 8, 2021, a nearly identical complaint was filed against the Company by an individual shareholder in the United States District Court for the Southern District of New York. The Court consolidated the two actions and on December 14, 2021 appointed a lead plaintiff, who filed an amended complaint on January 13, 2022. The Company filed a motion to dismiss the amended complaint on March 16, 2022 and is now awaiting the Court's decision. The Company intends to vigorously defend against these claims. A range of potential loss is not estimable at this time.

 

J. Income Taxes

 

The following table provides a summary of the income tax provision for the thirteen and twenty-six weeks ended June 25, 2022 and June 26, 2021:

 

 

 

Thirteen weeks ended

 

 

 

June 25,
2022

 

 

June 26,
2021

 

 

 

(in thousands)

 

Summary of income tax provision

 

 

 

 

 

 

Tax provision based on net income

 

$

18,469

 

 

$

21,315

 

Benefit of ASU 2016-09

 

 

(951

)

 

 

(426

)

Total income tax provision

 

$

17,518

 

 

$

20,889

 

 

 

 

 

 

 

 

 

 

Twenty-six weeks ended

 

 

 

June 25, 2022

 

 

June 26,
2021

 

 

 

(in thousands)

 

Summary of income tax provision

 

 

 

 

 

 

Tax provision based on net income

 

$

17,834

 

 

$

40,927

 

Benefit of ASU 2016-09

 

 

(648

)

 

 

(9,040

)

Total income tax provision

 

$

17,186

 

 

$

31,887

 

 

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Table of Contents

 

The tax benefit of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, was $1.0 million and $0.6 million for the thirteen and twenty-six weeks ended June 25, 2022, respectively, as compared to $0.4 million and $9.0 million for the thirteen and twenty-six weeks ended June 26, 2021, respectively, primarily due to changes in the stock price and the number of shares exercised.

 

The Company’s effective tax rate, excluding the impact of ASU 2016-09, for the thirteen weeks and twenty-six weeks ended June 25, 2022 was 26.1% and 26.0%, respectively, compared to 26.6% and 26.1% for the thirteen and twenty-six weeks ended June 26, 2021, respectively, primarily due to a decrease in non-deductible officer compensation.

 

As of June 25, 2022 and December 25, 2021, the Company had approximately $0.2 million and $0.2 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 June 25, 2022 and December 25, 2021, the Company had $0.2 million and $0.2 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 June 25, 2022.

K. 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. As of June 25, 2022, no borrowings were outstanding. The interest rate for the borrowings withdrawn was less than 1%. As of June 25, 2022, the Company was not in violation of any of its financial covenants to the lender under the credit facility and the unused balance of $150.0 million on the line of credit was available to the Company for future borrowing.

 

L. 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 hierarchy, 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 June 25, 2022 and December 25, 2021, 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 June 25, 2022 and December 25, 2021, the Company’s cash and cash equivalents balance was $137.8 million and $26.9 million, respectively, including money market funds amounting to $123.6 million and $5.8 million, respectively.

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M. 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-
Average
Exercise Price

 

 

Weighted-
Average
Remaining
Contractual
Term in Years

 

 

Aggregate
Intrinsic
Value
(in thousands)

 

Outstanding at December 25, 2021

 

 

221,354

 

 

$

310.38

 

 

 

 

 

 

 

Granted

 

 

20,924

 

 

 

378.55

 

 

 

 

 

 

 

Exercised

 

 

(17,592

)

 

 

193.12

 

 

 

 

 

 

 

Forfeited

 

 

(6,457

)

 

 

299.16

 

 

 

 

 

 

 

Outstanding at June 25, 2022

 

 

218,229

 

 

$

326.70

 

 

 

5.61

 

 

$

19,011

 

Exercisable at June 25, 2022

 

 

115,834

 

 

$

250.18

 

 

 

4.94

 

 

$

12,577

 

Vested and expected to vest at June 25, 2022

 

 

198,774

 

 

$

318.23

 

 

 

5.53

 

 

$

17,789

 

 

Of the total options outstanding at June 25, 2022, 25,171 shares were performance-based options for which the performance criteria had yet to be achieved.

 

On March 1, 2022, the Company granted options to purchase an aggregate of 17,114 shares of the Company’s Class A Common Stock to senior management with a weighted average fair value of $178.10 per share and a weighted average exercise price of $383.46 per share, of which all shares relate to performance-based stock options.

 

On May 18, 2022, the Company granted options to purchase an aggregate of 3,810 shares of the Company’s Class A Common Stock to the Company’s non-employee Directors. All of the options vested immediately on the date of the grant. These options have a fair value of $181.14 per share and an exercise price of $356.52 per share.

 

Weighted average assumptions used to estimate fair values of stock options on the date of grants are as follows:

 

 

 

2022

 

Expected Volatility

 

 

38.0

%

Risk-free interest rate

 

 

2.1

%

Expected Dividends

 

 

0.0

%

Exercise factor

 

3

 

Discount for post-vesting restrictions

 

 

0.8

%

 

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 25, 2021

 

 

88,848

 

 

$

401.70

 

Granted

 

 

42,560

 

 

 

344.62

 

Vested

 

 

(32,081

)

 

 

293.84

 

Forfeited

 

 

(6,092

)

 

 

545.46

 

Non-vested at June 25, 2022

 

 

93,235

 

 

$

409.29

 

 

Of the total shares outstanding at June 25, 2022, 1,348 shares were performance-based shares for which the performance criteria had yet to be achieved.

 

On March 1, 2022, the Company granted a combined 31,101 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, 2022, employees elected to purchase a combined 10,845 shares under the Company’s investment share program. The weighted average fair value of the

16


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restricted stock units and investment shares, which are sold to employees at discount under its investment share program, was $383.46 and $232.41 per share, respectively.

 

Stock-Based Compensation

 

The following table provides information regarding stock-based compensation expense included in operating expenses in the accompanying condensed consolidated statements of comprehensive operations:

 

 

 

Thirteen weeks ended

 

 

Twenty-six weeks ended

 

 

 

June 25,
2022

 

 

June 26,
2021

 

 

June 25,
2022

 

 

June 26,
2021

 

 

 

(in thousands)

 

 

(in thousands)

 

Amounts included in advertising, promotional and selling expenses

 

$

1,494

 

 

$

1,268

 

 

$

2,721

 

 

$

2,940

 

Amounts included in general and administrative expenses

 

 

3,314

 

 

 

4,066

 

 

 

5,009

 

 

 

7,351

 

Total stock-based compensation expense

 

$

4,808

 

 

$

5,334

 

 

$

7,730

 

 

$

10,291

 

 

N. Licensing Agreements

 

Beam Suntory Licensing Agreement

 

On July 14, 2021, the Company signed two collaboration agreements with Jim Beam Brands Co. (“Jim Beam”) to develop, market and sell alcohol beverages. These agreements are perpetual, with regular assessments of the partnership performance every 5 years, beginning in Year 5, giving rise to the option to continue agreement terms or terminate the partnership. Under the first of these agreements, the Company is responsible for developing and bringing to market through its distribution network one or more flavored malt beverage products under brand name(s) from the Jim Beam portfolio, beginning with the Sauza brand. Under the second agreement, Jim Beam is responsible for developing and bringing to market through its distribution network one or more full bottled distilled spirits products under brand(s) from the Company’s portfolio, beginning with the Truly brand.

 

The parties began shipping beverages to customers under these agreements during the first quarter of 2022. Under the first agreement, the Company is required to make payments to Jim Beam for their share of the brand contribution of the flavored malt beverages sold by the Company. The brand contribution amounts due to Beam are recorded as a component of costs of goods sold. Under the second agreement, Jim Beam is required to make payments to the Company for the Company’s share of the brand contribution of the full bottled distilled spirits sold by Jim Beam. The Company and Jim Beam also reimburse each other for certain marketing costs as they are incurred. These marketing costs are recorded in advertising, promotional and selling expenses. The Company’s sales of Jim Beam branded flavored malt beverages to third parties and the brand contribution payments received or owed the Company by Jim Beam for the use of the Company’s brand names are recorded within net revenue. Total net revenue recognized under these agreements amounted to less than 1% of the Company's total net revenues during the thirteen and twenty-six week periods ended June 25, 2022.

 

Pepsi Licensing Agreement

 

On August 9, 2021, the Company signed a series of agreements with PepsiCo, Inc. (“Pepsi”) to develop, market and sell alcohol beverages. The term of this agreement is perpetual, with provisions to terminate within the initial 2-years for a limited number of reasons. Under this agreement the Company is responsible for developing, manufacturing, and marketing a flavored malt beverage product under Pepsi’s MTN DEW® brand. As part of the agreements, Pepsi provides certain proprietary ingredients and also licenses the Company the use of its MTN DEW® and Hard MTN DEW® trademarks in connection with manufacturing, promoting, marketing, and distributing the developed product through the Pepsi distribution network. The Company retains the right to distribute the developed product through its own distribution network for customers in the on-premise channel.

 

The Company began shipping flavored malt beverages to Pepsi during the first quarter of 2022. Pursuant to the terms of the agreements, the Company makes payments to Pepsi for proprietary ingredients, freight costs to ship the product to Pepsi, and certain marketing services. These costs of the proprietary ingredients above fair market value are recorded within net revenue at the time revenue is recognized for the flavored malt beverages sold to Pepsi. Freight costs and marketing costs are recorded in advertising, promotional and selling expenses. Proprietary ingredients on hand at the end of the period are classified within prepaid expenses and other current assets as of June 25, 2022. Total net revenue recognized under these agreements amounted to less than 2% of the Company's total net revenues during the thirteen and twenty-six week periods ended June 25, 2022.

 

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O. Restricted Cash

 

During the year ended December 25, 2021, in accordance with state regulations the Company consolidated their distributor rights within a geographical region by terminating the distribution rights of certain existing distributors (the "terminating distributors") and granting these distribution rights to one existing distributor in the region (the "continuing distributor"). As part of this consolidation process, the Company also entered an indemnification agreement in March 2021 with the continuing distributor. As part of the agreement, the Company is indemnified by the continuing distributor for the fair market value of distribution rights paid to the terminating distributors and all related legal fees. In accordance with state regulations, the Company followed the notification process and the distribution rights transferred on December 22, 2021. The Company received the fair market value payments of $39.5 million from the continuing distributor on December 19, 2021 and this amount is recorded in restricted cash and accrued liabilities at December 25, 2021. The Company paid the terminating distributors the fair market value payments of $39.5 million on December 28, 2021.

 

P. Related Party Transactions

 

In connection with the Dogfish Head Transaction, the Company entered into a lease with the Dogfish Head founders for 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 and twenty-six weeks ended June 25, 2022 and June 26, 2021 related to the lease was approximately $91,000 and $183,000, respectively. Additionally, during the thirteen and twenty-six weeks ended June 25, 2022 and June 26, 2021, the Company incurred expenses of less than $25,000 and $50,000, respectively, with various other suppliers affiliated with the Dogfish Head founders.

 

Q. Subsequent Events

 

The Company evaluated subsequent events occurring after the balance sheet date and concluded that there were no events of which management was aware that occurred after the balance sheet date that would require any adjustment to or disclosure in the accompanying condensed 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 and twenty-six week period ended June 25, 2022, as compared to the thirteen and twenty-six week period ended June 26, 2021. This discussion should be read in conjunction with the Management’s Discussion and

18


Table of Contents

 

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 25, 2021.

 

RESULTS OF OPERATIONS

 

Thirteen Weeks Ended June 25, 2022 compared to Thirteen Weeks Ended June 26, 2021

 

 

 

Thirteen Weeks Ended
(in thousands, except per barrel)

 

 

 

 

 

 

 

 

 

 

 

 

June 25,
2022

 

 

June 26,
2021

 

 

Amount
change

 

 

% change

 

 

Per barrel
change

 

Barrels sold

 

 

 

 

 

2,419

 

 

 

 

 

 

 

 

 

2,447

 

 

 

 

 

 

(28

)

 

 

(1.1

)%

 

 

 

 

 

 

 

 

Per barrel

 

 

% of net
revenue

 

 

 

 

 

Per barrel

 

 

% of net
revenue

 

 

 

 

 

 

 

 

 

 

Net revenue

 

$

616,243

 

 

$

254.77

 

 

 

100.0

%

 

$

602,805

 

 

$

246.35

 

 

 

100.0

%

 

$

13,438

 

 

 

2.2

%

 

$

8.42

 

Cost of goods

 

 

350,468

 

 

 

144.89

 

 

 

56.9

%

 

 

327,116

 

 

 

133.68

 

 

 

54.3

%

 

 

23,352

 

 

 

7.1

%

 

 

11.21

 

Gross profit

 

 

265,775

 

 

 

109.88

 

 

 

43.1

%

 

 

275,689

 

 

 

112.67

 

 

 

45.7

%

 

 

(9,914

)

 

 

(3.6

)%

 

 

(2.79

)

Advertising, promotional and
   selling expenses

 

 

154,883

 

 

 

64.03

 

 

 

25.1

%

 

 

161,620

 

 

 

66.05

 

 

 

26.8

%

 

 

(6,737

)

 

 

(4.2

)%

 

 

(2.02

)

General and administrative
   expenses

 

 

38,849

 

 

 

16.06

 

 

 

6.3

%

 

 

32,960

 

 

 

13.47

 

 

 

5.5

%

 

 

5,889

 

 

 

17.9

%

 

 

2.59

 

Contract termination costs and other

 

 

578

 

 

 

0.24

 

 

 

0.1

%

 

 

 

 

 

 

 

 

0.0

%

 

 

578

 

 

 

100.0

%

 

 

0.24

 

Impairment of assets

 

 

80

 

 

 

0.03

 

 

 

0.0

%

 

 

1,004

 

 

 

0.41

 

 

 

0.2

%

 

 

(924

)

 

 

(92.0

)%

 

 

(0.38

)

Total operating expenses

 

 

194,390

 

 

 

80.36

 

 

 

31.5

%

 

 

195,584

 

 

 

79.93

 

 

 

32.4

%

 

 

(1,194

)

 

 

(0.6

)%

 

 

0.43

 

Operating income

 

 

71,385

 

 

 

29.52

 

 

 

11.6

%

 

 

80,105

 

 

 

32.74

 

 

 

13.3

%

 

 

(8,720

)

 

 

(10.9

)%

 

 

(3.22

)

Other expense, net

 

 

(518

)

 

 

(0.21

)

 

 

(0.1

)%

 

 

(21

)

 

 

(0.01

)

 

 

(0.0

)%

 

 

(497

)

 

 

2366.7

%

 

 

(0.20

)

Income before income tax
   provision

 

 

70,867

 

 

 

29.31

 

 

 

11.5

%

 

 

80,084

 

 

 

32.73

 

 

 

13.3

%

 

 

(9,217

)

 

 

(11.5

)%

 

 

(3.42

)

Income tax provision

 

 

17,518

 

 

 

7.24

 

 

 

2.8

%

 

 

20,889

 

 

 

8.54

 

 

 

3.5

%

 

 

(3,371

)

 

 

(16.1

)%

 

 

(1.30

)

Net income

 

 

53,349

 

 

 

22.07

 

 

 

8.7

%

 

 

59,195

 

 

 

24.19

 

 

 

9.8

%

 

 

(5,846

)

 

 

(9.9

)%

 

 

(2.12

)

 

Net revenue. Net revenue increased by $13.4 million, or 2.2%, to $616.2 million for the thirteen weeks ended June 25, 2022, as compared to $602.8 million for the thirteen weeks ended June 26, 2021, primarily as a result of price increases, partially offset by a decrease in shipments.

 

Volume. Total shipment volume decreased by 1.1% to 2,419,000 barrels for the thirteen weeks ended June 25, 2022, as compared to 2,447,000 barrels for the thirteen weeks ended June 26, 2021, , reflecting decreases in the Company’s Truly Hard Seltzer, Angry Orchard, Samuel Adams, and Dogfish Head brands, partially offset by increases in its Twisted Tea and Hard Mountain Dew brands.

 

Depletions, or sales by distributors to retailers, of the Company’s products for the thirteen weeks ended June 25, 2022 decreased by approximately 7% compared to the thirteen weeks ended June 26, 2021, reflecting decreases in the Company’s Truly Hard Seltzer, Angry Orchard, Samuel Adams, and Dogfish Head brands, partially offset by increases in its Twisted Tea and Hard Mountain Dew brands.

 

The Company believes distributor inventory as of June 25, 2022 averaged approximately four weeks on hand and was at an appropriate level for each of its brands except for low inventory levels for certain Truly brand packages. The Company expects distributors will keep inventory levels for the remainder of the year below 2021 levels in terms of weeks on hand.

 

Net revenue per barrel. Net revenue per barrel increased by 3.4% to $254.77 per barrel for the thirteen weeks ended June 25, 2022, as compared to $246.35 per barrel for the comparable period in 2021, primarily due to price increases.

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Table of Contents

 

 

Cost of goods sold. Cost of goods sold was $144.89 per barrel for the thirteen weeks ended June 25, 2022, as compared to $133.68 per barrel for the thirteen weeks ended June 26, 2021. The 2022 increase in cost of goods sold of $11.21 per barrel was primarily due to higher materials costs, higher returns, and inventory write-offs.

 

Gross profit. Gross profit was $109.88 per barrel for the thirteen weeks ended June 25, 2022, as compared to $112.67 per barrel for the thirteen weeks ended June 26, 2021.

 

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 decreased by $6.7 million, or 4.2%, to $154.9 million for the thirteen weeks ended June 25, 2022, as compared to $161.6 million for the thirteen weeks ended June 26, 2021. The decrease was primarily due to a net decrease in brand investments of $11.3 million, mainly driven by lower media costs. The decrease in brand investments was partially offset by increased freight to distributors of $4.6 million, which was primarily due to higher freight rates.

 

Advertising, promotional and selling expenses were 25.1% of net revenue, or $64.03 per barrel, for the thirteen weeks ended June 25, 2022, as compared to 26.8% of net revenue, or $66.05 per barrel, for the thirteen weeks ended June 26, 2021. This decrease per barrel is primarily due to advertising, promotional and selling expenses decreasing 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 condensed consolidated statements of comprehensive operations as reductions to advertising, promotional and selling expenses. Historically, contributions from distributors for advertising and promotional activities have amounted to between 1% 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 $5.9 million, or 17.9%, to $38.8 million for the thirteen weeks ended June 25, 2022, as compared to $32.9 million for the thirteen weeks ended June 26, 2021. The increase was primarily due to increased salaries and benefits costs and increases in services provided by third parties.

 

Contract termination costs and other. During the second quarter of 2022 the Company recorded $0.6 million in contract termination costs for non-cancellable purchase orders on discontinued capital projects.

 

Impairment of assets. Impairment of long-lived assets decreased by $0.9 million from the comparable period of 2021, primarily due to lower write-downs of equipment at Company-owned breweries.

 

Income tax expense. During the thirteen weeks ended June 25, 2022, the Company’s effective tax rate, excluding the impact of ASU 2016-09, was 26.1% compared to 26.6% for the thirteen weeks ended June 26, 2021, primarily due to a decrease in non-deductible officer compensation.

 

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Table of Contents

 

Twenty-six Weeks Ended June 25, 2022 compared to Twenty-six Weeks Ended June 26, 2021

 

 

 

Twenty-Six Weeks Ended
(in thousands, except per barrel)

 

 

 

 

 

 

 

 

 

 

 

 

June 25,
2022

 

 

June 26,
2021

 

 

Amount
change

 

 

% change

 

 

Per barrel
change

 

Barrels sold

 

 

 

 

 

4,127

 

 

 

 

 

 

 

 

 

4,725

 

 

 

 

 

 

(598

)

 

 

(12.6

)%

 

 

 

 

 

 

 

 

Per barrel

 

 

% of net
revenue

 

 

 

 

 

Per barrel

 

 

% of net
revenue

 

 

 

 

 

 

 

 

 

 

Net revenue

 

$

1,046,356

 

 

$

253.54

 

 

 

100.0

%

 

$

1,147,885

 

 

$

242.96

 

 

 

100.0

%

 

$

(101,529

)

 

 

(8.8

)%

 

$

10.58

 

Cost of goods

 

 

607,629

 

 

 

147.23

 

 

 

58.1

%

 

 

622,566

 

 

 

131.77

 

 

 

54.2

%

 

 

(14,937

)

 

 

(2.4

)%

 

 

15.46

 

Gross profit

 

 

438,727

 

 

 

106.31

 

 

 

41.9

%

 

 

525,319

 

 

 

111.19

 

 

 

45.8

%

 

 

(86,592

)

 

 

(16.5

)%

 

 

(4.88

)

Advertising, promotional and
   selling expenses

 

 

285,498

 

 

 

69.18

 

 

 

27.3

%

 

 

302,479

 

 

 

64.02

 

 

 

26.4

%

 

 

(16,981

)

 

 

(5.6

)%

 

 

5.16

 

General and administrative
   expenses

 

 

78,547

 

 

 

19.03

 

 

 

7.5

%

 

 

64,906

 

 

 

13.74

 

 

 

5.7

%

 

 

13,641

 

 

 

21.0

%

 

 

5.29

 

Contract termination costs and other

 

 

5,330

 

 

 

1.29

 

 

 

0.5

%

 

 

 

 

 

 

 

 

0.0

%

 

 

5,330

 

 

 

100.0

%

 

 

1.29

 

Impairment of assets

 

 

121

 

 

 

0.03

 

 

 

0.0

%

 

 

1,231

 

 

 

0.26

 

 

 

0.1

%

 

 

(1,110

)

 

 

(90.2

)%

 

 

(0.23

)

Total operating expenses

 

 

369,496

 

 

 

89.53

 

 

 

35.3

%

 

 

368,616

 

 

 

78.02

 

 

 

32.1

%

 

 

880

 

 

 

0.2

%

 

 

11.51

 

Operating income

 

 

69,231

 

 

 

16.78

 

 

 

6.6

%

 

 

156,703

 

 

 

33.17

 

 

 

13.7

%

 

 

(87,472

)

 

 

(55.8

)%

 

 

(16.39

)

Other expense, net

 

 

(651

)

 

 

(0.16

)

 

 

(0.1

)%

 

 

(56

)

 

 

(0.01

)

 

 

(0.0

)%

 

 

(595

)

 

 

1062.5

%

 

 

(0.15

)

Income before income tax
   provision

 

 

68,580

 

 

 

16.62

 

 

 

6.6

%

 

 

156,647

 

 

 

33.16

 

 

 

13.6

%

 

 

(88,067

)

 

 

(56.2

)%

 

 

(16.54

)

Income tax provision

 

 

17,186

 

 

 

4.16

 

 

 

1.6

%

 

 

31,887

 

 

 

6.75

 

 

 

2.8

%

 

 

(14,701

)

 

 

(46.1

)%

 

 

(2.59

)

Net income

 

 

51,394

 

 

 

12.46

 

 

 

4.9

%

 

 

124,760

 

 

 

26.41

 

 

 

10.9

%

 

 

(73,366

)

 

 

(58.8

)%

 

 

(13.95

)

 

Net revenue. Net revenue decreased by $101.5 million, or 8.8%, to $1,046.4 million for the twenty-six weeks ended June 25, 2022, as compared to $1,147.9 million for the thirteen weeks ended June 26, 2021, primarily as a result of a decrease in shipments, partially offset by price increases.

 

Volume. Total shipment volume decreased by 12.6% to 4,127,000 barrels for the twenty-six weeks ended June 26, 2022, as compared to 4,725,000 barrels for the twenty-six weeks ended June 26, 2021, reflecting decreases in the Company’s Truly Hard Seltzer, Angry Orchard, Dogfish Head, and Samuel Adams brands, partially offset by increases in its Twisted Tea and Hard Mountain Dew brands.

 

Depletions, or sales by distributors to retailers, of the Company’s products for the twenty-six weeks ended June 25, 2022 decreased by approximately 7% compared to the twenty-six weeks ended June 26, 2021, reflecting decreases in the Company’s Truly Hard Seltzer, Angry Orchard, Dogfish Head, and Samuel Adams brands, partially offset by increases in its Twisted Tea and Hard Mountain Dew brands.

 

Net revenue per barrel. Net revenue per barrel increased by 4.4% to $253.54 per barrel for the twenty-six weeks ended June 26, 2022, as compared to $242.96 per barrel for the comparable period in 2021, primarily due to price increases.

 

Cost of goods sold. Cost of goods sold was $147.23 per barrel for the twenty-six weeks ended June 25, 2022, as compared to $131.77 per barrel for the twenty-six weeks ended June 26, 2021. The 2022 increase in cost of goods sold of $15.46 per barrel was primarily due to higher materials costs, higher returns and inventory write-offs and higher per barrel processing costs at Company-owned breweries due to lower volumes.

 

Gross profit. Gross profit was $106.31 per barrel for the twenty-six weeks ended June 25, 2022, as compared to $111.19 per barrel for the twenty-six weeks ended June 26, 2021.

 

Advertising, promotional and selling. Advertising, promotional and selling expenses decreased by $17.0 million, or 5.6%, to $285.5 million for the twenty-six weeks ended June 25, 2022, as compared to $302.5 million for the twenty-six weeks ended June 26, 2021. The decrease was primarily due to a net decrease in brand investments of $20.7 million, mainly driven by lower media costs. The decrease in brand investments was partially offset by higher investments in local marketing and increased freight to distributors of $3.8 million, which was primarily due to higher rates partially offset by lower volumes.

 

Advertising, promotional and selling expenses were 27.3% of net revenue, or $69.18 per barrel, for the twenty-six weeks ended June 25, 2022, as compared to 26.4% of net revenue, or $64.02 per barrel, for the twenty-six weeks ended June 26, 2021. This increase per barrel is primarily due to advertising, promotional and selling expenses decreasing at a lower rate than shipments.

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General and administrative. General and administrative expenses increased by $13.6 million, or 21.0%, to $78.5 million for the twenty-six weeks ended June 25, 2022, as compared to $64.9 million for the twenty-six weeks ended June 26, 2021. The increase was primarily due to increased salaries and benefits costs and increases in services provided by third parties.

 

Contract termination costs and other. During the first half of 2022 the Company recorded $5.3 million in contract termination costs, primarily in connection with the termination of a third-party production contract. This contract termination eliminated future production shortfall fees that the Company estimated would have been incurred over the duration of the contract.

 

Impairment of assets. Impairment of long-lived assets decreased by $1.1 million from the comparable period of 2021, primarily due to lower write-downs of equipment at Company-owned breweries.

 

Income tax expense. During the twenty-six weeks ended June 25, 2022, the Company’s effective tax rate, excluding the impact of ASU 2016-09, was 26.0% compared to 26.1% for the twenty-six weeks ended June 26, 2021, primarily due to a decrease in non-deductible officer compensation.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The Company’s primary sources of liquidity are its existing cash balances, cash flows from operating activities and amounts available under its revolving credit facility. The Company’s material cash requirements include working capital needs, satisfaction of contractual commitments, and investment in the Company’s business through capital expenditures.

 

Cash increased to $137.8 million as of June 25, 2022 from $26.8 million as of December 25, 2021, reflecting cash provided by operating activities and proceeds from the exercise of stock options and sale of investment shares, partially offset by purchases of property, plant and equipment and payments of tax withholdings on stock-based payment awards and investment shares.

 

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. In the first half of 2022 compared to the first half of 2021, the Company’s average account receivable payment terms shifted slightly toward customers with longer payment terms. This impact for the remainder of the year ending December 31, 2022 is uncertain due to product and geographical mix but the Company does not expect this to significantly impact its liquidity.

 

Cash provided by operating activities for the twenty-six weeks ended June 25, 2022 was $121.5 million and primarily consisted of non-cash items of $54.3 million, net income of $51.4 million, and a net decrease in operating assets and liabilities of $15.8 million. Cash provided by operating activities for the twenty-six weeks ended June 26, 2021 was $34.0 million and primarily consisted of net income of $124.8 million and non-cash items of $49.4 million, partially offset by a net increase in operating assets and liabilities of $143.1 million. The increase in cash provided by operating activities for the twenty-six weeks ended June 25, 2022 compared to the prior period is primarily due to decreases in inventory and income tax refunds received.

 

The Company used $50.3 million in investing activities during the twenty-six weeks ended June 25, 2022, as compared to $83.0 million during the thirteen weeks ended June 26, 2021. 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 $0.3 million during the twenty-six weeks ended June 25, 2022, as compared to $8.4 million used during the twenty-six weeks ended June 26, 2021. The $8.6 million increase in cash provided by financing activities in 2022 from 2021 is primarily due to lower tax withholdings on stock-based payment awards and investment shares, partially offset by lower proceeds from exercises of stock options and sales of investment shares.

 

During the twenty-six weeks ended June 25, 2022 and the period from June 26, 2022 through July 16, 2022, the Company did not repurchase any shares of its Class A Common Stock. As of July 16, 2022, 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 June 25, 2022 of $137.8 million, along with future operating cash flow and the unused balance of the Company’s line of credit of $150.0 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. The Company is currently in negotiations on an extension of the term on the credit facility and expects an agreement to be reached during the second half of 2022. As of the date of this filing, the Company was not in violation of any of its covenants to the lender under the credit facility.

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Table of Contents

 

 

Critical Accounting Policies

 

There were no material changes to the Company’s critical accounting policies during the twenty-six ended June 25, 2022.

 

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 25, 2021.

 

 

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Table of Contents

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Since December 25, 2021, 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 June 25, 2022, 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.

 

There were no changes in the Company’s internal control over financial reporting that occurred during the twenty-six weeks ended June 25, 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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Table of Contents

 

PART II. OTHER INFORMATION

 

 

For information regarding the Company's legal proceedings, refer to Note I of the Condensed Consolidated Financial Statements.

 

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 25, 2021, 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.

 

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Table of Contents

 

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

As of July 16, 2022, 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 twenty-six ended June 25, 2022, the Company did not repurchase any shares of its Class A Common Stock under the previously announced repurchase program.

During the twenty-six weeks ended June 25, 2022, the Company repurchased 1,052 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 26, 2021 - January 29, 2022

 

 

26

 

 

$

248.61

 

 

 

 

 

$

90,335

 

January 30, 2022 - February 26, 2022

 

 

153

 

 

 

260.46

 

 

 

 

 

 

90,335

 

February 27, 2022 - March 26, 2022

 

 

131

 

 

 

289.29

 

 

 

 

 

 

90,335

 

March 27, 2022 - April 30, 2022

 

 

263

 

 

 

175.43

 

 

 

 

 

$

90,335

 

May 1, 2022 - May 28, 2022

 

 

372

 

 

 

134.05

 

 

 

 

 

 

90,335

 

May 29, 2022 - June 25, 2022

 

 

107

 

 

 

211.52

 

 

 

 

 

 

90,335

 

Total

 

 

1,052

 

 

$

192.82

 

 

 

-

 

 

$

90,335

 

 

As of July 16, 2022, the Company had 10.2 million shares of Class A Common Stock outstanding and 2.1 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

 

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Table of Contents

 

Item 6. EXHIBITS

 

Exhibit No.

 

Title

 

 

 

3.1

 

Amended and Restated By-Laws of the Company, dated June 2, 1998 (incorporated by reference to Exhibit 3.5 to the Company’s Form 10-Q filed on August 10, 1998).

 

 

 

3.2

 

Restated Articles of Organization of the Company, dated November 17, 1995, as amended August 4, 1998 (incorporated by reference to Exhibit 3.6 to the Company’s Form 10-Q filed on August 10, 1998).

 

 

 

*31.1

 

Certification of the President and Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

*31.2

 

Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

*32.1

 

Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

*32.2

 

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

*101.INS

 

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

 

*101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

 

*101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

*101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

*101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

 

*101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

 

*104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

* Filed with this report

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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: July 21, 2022

/s/ David A. Burwick

 

David A. Burwick

 

President and Chief Executive Officer

 

(Principal Executive Officer)

 

Date: July 21, 2022

/s/ Frank H. Smalla

 

Frank H. Smalla

 

Chief Financial Officer

 

(Principal Financial Officer)

 

28