The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2017
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, Angry Orchard Cider Company, Hard Seltzer
Beverage Company, Traveler Beer Co.
®
, the Angel City Brewing Company
®
, the Concrete Beach Brewery
®
and the Coney Island
®
Brewing Company.
B. Summary of Significant Accounting Policies
Fiscal Year
The Companys fiscal year is a
fifty-two
or fifty-three week period ending on the last Saturday in December. The fiscal period 2017 consists of
fifty-two
weeks, the fiscal period 2016 consists of
fifty-three weeks and the fiscal period 2015 consists of
fifty-two
weeks.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All
intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents at December 30, 2017 and December 31, 2016 included cash
on-hand
and money market
instruments that are highly liquid investments. Cash and cash equivalents are carried at cost, which approximates fair value.
The Company has restricted
cash associated with a term note agreement with Bank of America that was required by the Commonwealth of Pennsylvania to fund economic development at the Companys Pennsylvania Brewery. The restricted cash subject to this agreement amounted to
$340,000 and $400,000 at December 30, 2017 and December 31, 2016, respectively, and is included in other assets on the Companys Consolidated Balance Sheets.
Accounts Receivable and Allowance for Doubtful Accounts
The Companys accounts receivable primarily consist of trade receivables. The Company records an allowance for doubtful accounts that is based on
historical trends, customer knowledge, any known disputes, and the aging of the accounts receivable balances combined with managements estimate of future potential recoverability. Receivables are written off against the allowance after all
attempts to collect a receivable have failed. The Company believes its allowance for doubtful accounts as of December 30, 2017 and December 31, 2016 are adequate, but actual write-offs could exceed the recorded allowance.
43
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash equivalents and trade receivables. The
Company places its cash equivalents with high credit quality financial institutions. As of December 30, 2017, the Companys cash and cash equivalents were invested in investment-grade, highly-liquid U.S. government agency corporate money
market accounts.
The Company sells primarily to a network of independent wholesalers in the United States and to a network of foreign wholesalers,
importers or other agencies (collectively referred to as Distributors). In 2017, 2016 and 2015, sales to foreign Distributors were approximately 4% of total sales. Receivables arising from these sales are not collateralized; however,
credit risk is minimized as a result of the large and diverse nature of the Companys customer base. There were no individual customer accounts receivable balances outstanding at December 30, 2017 and December 31, 2016 that were in
excess of 10% of the gross accounts receivable balance on those dates. No individual customers represented more than 10% of the Companys revenues during fiscal years 2017, 2016, and 2015.
Financial Instruments and Fair Value of Financial Instruments
The Companys primary financial instruments consisted of cash equivalents, accounts receivable, accounts payable and accrued expenses at December 30,
2017 and December 31, 2016. The Company determines the fair value of its financial assets and liabilities in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 820,
Fair Value Measurements and Disclosures
(ASC 820). The Company believes that the carrying amount of its cash equivalents, accounts receivable, accounts payable and accrued expenses approximates fair value due to the short-term
nature of these assets and liabilities. The Company is not exposed to significant interest, currency or credit risks arising from these financial assets and liabilities.
Inventories and Provision for Excess or Expired Inventory
Inventories consist of raw materials, work in process and finished goods. Raw materials, which principally consist of hops, malt, apple juice, other brewing
materials and packaging, are stated at the lower of cost
(first-in,
first-out
basis) or net realizable value. The Companys goal is to maintain
on-hand
a supply of approximately two years 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. Packaging design
costs are expensed as incurred. The Company enters into multi-year purchase commitments in order to secure adequate supply of ingredients and packaging, to brew and package its products. Inventory on hand and under purchase commitments totaled
approximately $170.3 million at December 30, 2017.
The provisions for excess or expired inventory are based on managements estimates of
forecasted usage of inventories on hand and under contract. Forecasting usage involves significant judgments regarding future demand for the Companys various existing products and products under development as well as the potency and
shelf-life of various ingredients. A significant change in the timing or level of demand for certain products as compared to forecasted amounts may result in recording additional provisions for excess or expired inventory in the future. Provisions
for excess inventory are included in cost of goods sold and have historically been adequate to provide for losses on its inventory. Provision for excess or expired inventory included in cost of goods sold was $5.8 million, $4.5 million,
and $4.0 million in fiscal years 2017, 2016, and 2015, respectively.
44
Property, Plant and Equipment
Property, plant, and equipment are stated at cost. Expenditures for repairs and maintenance are expensed as incurred. Major renewals and betterments that
extend the life of the property are capitalized. Depreciation is computed using the straight-line method based upon the estimated useful lives of the underlying assets as follows:
|
|
|
Kegs
|
|
5 years
|
Computer software and equipment
|
|
2 to 5 years
|
Office equipment and furniture
|
|
3 to 7 years
|
Machinery and plant equipment
|
|
3 to 20 years, or the term of the production agreement, whichever is shorter
|
Leasehold improvements
|
|
Lesser of the remaining term of the lease or estimated useful life of the asset
|
Building and building improvements
|
|
12 to 20 years, or the remaining useful life of the building, whichever is shorter
|
The carrying value of property, plant and equipment, net of accumulated depreciation, at December 30, 2017 was
$384.2 million. For purposes of determining whether there are any impairment losses, as further discussed below, management has historically examined the carrying value of the Companys identifiable long-lived assets, including their
useful lives, semi-annually, or more frequently when indicators of impairment are present. Evaluations of whether indicators of impairment exist involve judgments regarding the current and future business environment and the length of time the
Company intends to use the asset. If an impairment loss is identified based on the fair value of the asset, as compared to the carrying value of the asset, such loss would be charged to expense in the period the impairment is identified.
Furthermore, if the review of the carrying values of the long-lived assets indicates impairment of such assets, the Company may determine that shorter estimated useful lives are more appropriate. In that event, the Company will be required to record
additional depreciation in future periods, which will reduce earnings. Estimating the amount of impairment, if any, requires significant judgments including identification of potential impairments, market comparison to similar assets, estimated cash
flows to be generated by the asset, discount rates, and the remaining useful life of the asset. Impairment of assets included in operating expenses was $2.5 million, $0.7 million and $0.3 million in fiscal years 2017, 2016 and 2015,
respectively.
Factors generally considered important which could trigger an impairment review on the carrying value of long-lived assets include the
following: (1) significant underperformance relative to historical or projected future operating results; (2) significant changes in the manner of use of acquired assets or the strategy for the Companys overall business;
(3) underutilization of assets; and (4) discontinuance of products by the Company or its customers. The Company believes that the carrying value of its long-lived assets was realizable as of December 30, 2017 and December 31,
2016.
Segment Reporting
Previously, the
Company consisted of two operating segments that each produced and sold alcohol beverages. The first being the Boston Beer Company operating segment comprised of the Companys Samuel Adams, Twisted Tea, Angry Orchard and Truly Spiked &
Sparkling brands and the second being the A&S Brewing operating segment comprised of The Traveler Beer Company, Coney Island Brewing Company, Angel City Brewing Company and Concrete Beach Brewing Company.
45
In 2016, sales from A&S brands were less than 5% of net revenues and in 2015, sales from A&S brands were
less than 7% of net revenues.
In 2017, the Company consolidated the A&S Brewing operating segment into the Boston Beer Company operating segment. The
rationale for this change in operating segments was mainly driven by the departure of Alan Newman, Head of A&S Brewing, who left the Company at the end of 2016. Upon Mr. Newmans departure, the A&S Brewing brands reporting
structure changed to be in line with the Companys Samuel Adams, Twisted Tea, Angry Orchard and Truly Spiked & Sparkling brands. Additionally, all brands sell predominantly low alcohol beverages, which are sold to the same types of
customers in similar size quantities, at similar price points and through substantially the same channels of distribution. These beverages are manufactured using similar production processes, have comparable alcohol content and generally fall under
the same regulatory environment.
Goodwill and Intangible Assets
The Company does not amortize goodwill and intangible assets, but evaluates the recoverability by comparing the carrying value and the fair value annually at
the end of the fiscal month of August, or more frequently when indicators of impairment are present. The Company has concluded that its goodwill and intangible assets were not impaired as of December 30, 2017 and December 31, 2016. As of
December 30, 2017 and December 31, 2016, goodwill amounted to $3.7 million. As of December 30, 2017 and December 31, 2016, intangible assets amounted to $2.0 million and were included in other assets in the accompanying
consolidated balance sheets.
Refundable Deposits on Kegs and Pallets
The Company distributes its draft beer in kegs and packaged beer primarily in glass bottles and cans and such kegs, bottles and cans are shipped on pallets to
Distributors. Most kegs and pallets are owned by the Company. Kegs are reflected in the Companys balance sheets at cost and are depreciated over the estimated useful life of the keg, while pallets are expensed upon purchase. Upon shipment of
beer to Distributors, the Company collects a refundable deposit on the kegs and pallets, which is included in current liabilities in the Companys balance sheets. Upon return of the kegs and pallets to the Company, the deposit is refunded to
the Distributor.
The Company has experienced some loss of kegs and pallets and anticipates that some loss will occur in future periods due to the
significant volume of kegs and pallets handled by each Distributor and retailer, the homogeneous nature of kegs and pallets owned by most brewers and the relatively small deposit collected for each keg when compared with its market value. The
Company believes that this is an industry-wide issue and that the Companys loss experience is not atypical. The Company believes that the loss of kegs and pallets, after considering the forfeiture of related deposits, has not been material to
the financial statements. The Company uses internal records, records maintained by Distributors, records maintained by other third party vendors and historical information to estimate the physical count of kegs and pallets held by Distributors.
These estimates affect the amount recorded as property, plant and equipment and current liabilities as of the date of the financial statements. The actual liability for refundable deposits could differ from these estimates. For the year ended
December 30, 2017, the Company decreased its liability for refundable deposits, gross property, plant and equipment and related accumulated depreciation by $1.0 million, $1.0 million and $1.0 million, respectively. For the year
ended December 31, 2016, the Company decreased its liability for refundable deposits, gross property, plant and equipment and related accumulated depreciation by $1.1 million, $1.4 million and $1.4 million, respectively. As of
December 30, 2017, and December 31, 2016, the Companys balance sheet includes $12.9 million and $14.3 million, respectively, in refundable deposits on kegs and pallets and $5.9 million and $12.0 million,
respectively, in kegs, net of accumulated depreciation.
46
Income Taxes
Income tax expense was $17.1 million, $49.8 million and $56.6 million in fiscal years 2017, 2016 and 2015, respectively. The Company provides
for deferred taxes using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Companys consolidated financial
statements or tax returns. This results in differences between the book and tax basis of the Companys assets, liabilities and carry-forwards such as tax credits. In estimating future tax consequences, all expected future events, other than
enactment of changes in the tax laws or rates, are generally considered. Valuation allowances are provided when recovery of deferred tax assets does not meet the more likely than not standards as defined in ASC Topic 740,
Income Taxes
.
The calculation of the Companys tax liabilities involves dealing with uncertainties in the application of complex tax regulations in several different
state tax jurisdictions. The Company is periodically reviewed by tax authorities regarding the amount of taxes due. These reviews include inquiries regarding the timing and amount of deductions and the allocation of income among various tax
jurisdictions. The Company records estimated reserves for exposures associated with positions that it takes on its income tax returns that do not meet the more likely than not standards as defined in ASC Topic 740,
Income Taxes
. Historically,
the valuation allowances and reserves for uncertain tax positions have been adequate to cover the related tax exposures.
Revenue Recognition and
Classification of Customer Programs and Incentives
The Company recognizes revenue on product sales at the time when the product is shipped and the
following conditions are met: persuasive evidence of an arrangement exists, title has passed to the customer according to the shipping terms, the price is fixed and determinable, and collection of the sales proceeds is reasonably assured. If the
conditions for revenue recognition are not met, the Company defers the revenue until all conditions are met. As of December 30, 2017 and December 31, 2016, the Company has deferred $5.5 million and $5.4 million, 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.
The Company is committed to maintaining the freshness of the product in the market. In certain circumstances and with the Companys approval, the Company
accepts and destroys stale beer that is returned by Distributors. The Company generally credits approximately fifty percent of the distributors cost of the beer that has passed its expiration date for freshness when it is returned to the
Company or destroyed. The Company reduces revenue and establishes an accrual based upon both historical returns, which is applied to an estimated lag time for receipt of product, and knowledge of specific return transactions. Estimating this reserve
involves significant judgments and estimates, including comparability of historical return trends to future trends, lag time from date of sale to date of return, and product mix of returns. Stale beer expense is reflected in the accompanying
financial statements as a reduction of revenue. Historically, the cost of actual stale beer returns has been in line with established reserves, however, the cost could differ materially from the estimated reserve which would impact revenue. As of
December 30, 2017 and December 31, 2016, the stale beer reserve was $3.0 million and $5.2 million, respectively. These amounts are included in accrued expenses and other current liabilities in the accompanying consolidated
balance sheets.
Customer programs and incentives, which include customer promotional discount programs, customer incentives and other payments, are a
common practice in the alcohol beverage industry. The Company makes these payments to customers and incurs these costs to promote sales of products and to maintain competitive pricing. Amounts paid in connection with customer programs and incentives
are recorded as reductions to net revenue or as advertising, promotional and selling expenses in accordance with ASC Topic
605-50,
Revenue Recognition- Customer Payments and Incentives,
based on the
nature of the expenditure. Amounts paid to customers totaled $51.8 million, $54.4 million and $55.3 million in fiscal year 2017, 2016 and 2015, respectively.
47
Customer promotional discount programs are entered into with Distributors for certain periods of time. Amounts
paid to Distributors in connection with these programs in fiscal years 2017, 2016 and 2015 were $30.2 million, $33.2 million and $33.2 million, respectively. The reimbursements for discounts to Distributors are recorded as reductions
to net revenue. 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 incentives and other payments are made primarily to Distributors based upon performance of
certain marketing and advertising activities. Depending on applicable state laws and regulations, these activities promoting the Companys 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 in
fiscal years 2017, 2016 and 2015 were $21.6 million, $21.2 million and $22.1 million, respectively. In fiscal 2017, 2016 and 2015, the Company recorded certain of these costs in the total amount of $15.3 million,
$16.1 million and $16.6 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 media advertising expenditures in local markets. These costs are recorded as incurred, generally when invoices are received; however certain estimates are
required at 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.
In connection with its preparation of financial statements and other financial reporting, management is required to make certain estimates and assumptions
regarding the amount, timing and classification of expenditures resulting from these activities. Actual expenditures incurred could differ from managements estimates and assumptions.
Excise Taxes
The Company is responsible for
compliance with the Alcohol and Tobacco Tax and Trade Bureau of the U.S. Treasury Department (the TTB) regulations which includes making timely and accurate excise tax payments. The Company is subject to periodic compliance audits by the
TTB. The Company is currently under audit for the years 2015, 2016 and 2017. Individual states also impose excise taxes on alcohol beverages in varying amounts. The Company calculates its excise tax expense based upon units shipped and on its
understanding of the applicable excise tax laws.
Cost of Goods Sold
The following expenses are included in cost of goods sold: raw material costs, packaging costs, costs and income related to deposit activity, purchasing and
receiving costs, manufacturing labor and overhead, brewing and processing costs, inspection costs relating to quality control, inbound freight charges, depreciation expense related to manufacturing equipment and warehousing costs, which include
rent, labor and overhead costs.
Shipping Costs
Costs incurred for the shipping of products to customers are included in advertising, promotional and selling expenses in the accompanying consolidated
statements of comprehensive income. The Company incurred shipping costs of $45.3 million, $49.2 million, and $62.2 million in fiscal years 2017, 2016, and 2015, respectively.
48
Advertising and Sales Promotions
The following expenses are included in advertising, promotional and selling expenses in the accompanying consolidated statements of comprehensive income: media
advertising costs, sales and marketing expenses, salary and benefit expenses and meals, travel and entertainment expenses for the sales, brand and sales support workforce, promotional activity expenses, shipping costs related to shipments of
finished goods from manufacturing locations to distributor locations and
point-of-sale
items. Total advertising and sales promotional expenditures of
$128.0 million, $105.3 million, and $120.1 million were included in advertising, promotional and selling expenses in the accompanying consolidated statements of comprehensive income for fiscal years 2017, 2016, and 2015, respectively.
The Company conducts certain advertising and promotional activities in its Distributors markets and the Distributors make contributions to the
Company for such efforts. Reimbursements from Distributors for advertising and promotional activities are recorded as reductions to advertising, promotional and selling expenses.
General and Administrative Expenses
The following
expenses are included in general and administrative expenses in the accompanying consolidated statements of comprehensive income: general and administrative salary and benefit expenses, insurance costs, professional service fees, rent and utility
expenses, meals, travel and entertainment expenses for general and administrative employees, and other general and administrative overhead costs.
Stock-Based Compensation
The Company accounts for
share-based awards in accordance with ASC Topic 718,
Compensation Stock Compensation
(ASC 718), which generally requires recognition of share-based compensation costs in financial statements based on fair value.
Compensation cost is recognized over the period during which an employee is required to provide services in exchange for the award (the requisite service period). The amount of compensation cost recognized in the consolidated statements of
comprehensive income is based on the awards ultimately expected to vest, and therefore, reduced for estimated forfeitures. Stock-based compensation was $6.3 million, $6.2 million and $6.7 million in fiscal years 2017, 2016 and 2015,
respectively.
As permitted by ASC 718, the Company elected to use a lattice model, such as the trinomial option-pricing model, to estimate the fair
values of stock options, with the exception of the 2008 and 2016 stock option grants to the Companys Chief Executive Officer, which is considered to be a market-based award and was valued utilizing the Monte Carlo Simulation pricing model,
which calculates multiple potential outcomes for an award and establishes fair value based on the most likely outcome. All option-pricing models require the input of subjective assumptions. These assumptions include the estimated volatility of the
Companys common stock price over the expected term, the expected dividend rate, the estimated post-vesting forfeiture rate, the risk-free interest rate and expected exercise behavior. See Note L for further discussion of the application of the
option-pricing models.
In addition, an estimated
pre-vesting
forfeiture rate is applied in the recognition of the
compensation charge. Periodically, the Company grants performance-based stock options, related to which it only recognizes compensation expense if it is probable that performance targets will be met. Consequently, at the end of each reporting
period, the Company estimates whether it is probable that performance targets will be met. Changes in the subjective assumptions and estimates can materially affect the amount of stock-based compensation expense recognized in the consolidated
statements of comprehensive income.
49
Net Income Per Share
Basic net income per share is calculated by dividing net income by the weighted-average common shares outstanding. Diluted net income per share is calculated
by dividing net income by the weighted-average common shares and potentially dilutive securities outstanding during the period using the treasury stock method or the
two-class
method, whichever is more
dilutive.
Accounting Pronouncements Recently Adopted
In March 2016, the FASB issued ASU
No. 2016-09,
Stock Compensation (Topic 718), Improvements to Employee
Share-Based Payment Accounting
. ASU
2016-09
is part of the FASBs initiative to simplify accounting standards. The guidance impacted several aspects of the accounting for employee share-based payment
transactions, including accounting for income taxes and forfeitures, as well as classification in the consolidated statements of cash flows. Under ASU
2016-09,
excess tax benefits and deficiencies as a result
of stock option exercises and restricted stock vesting are to be recognized as discrete items within income tax expense or benefit in the consolidated statements of comprehensive income in the reporting period in which they occur. Additionally,
under ASU
2016-09,
excess tax benefits and deficiencies should be classified along with other income tax cash flows as an operating activity in the consolidated statements of cash flows. The Company adopted
this new accounting standard prospectively in the first quarter of 2017. Prior periods have not been adjusted. Under this new accounting standard, for the
fifty-two
weeks ended December 30, 2017,
$4.4 million in excess tax benefit from stock-based compensation arrangements was recognized within the income tax provision in the consolidated statement of comprehensive income and classified as an operating activity in the consolidated
statement of cash flows. The Company will maintain the current forfeiture policy to estimate forfeitures expected to occur to determine stock-based compensation expense.
In November 2015, the FASB issued ASU
No. 2015-17,
Balance Sheet Classification of Deferred Taxes
. ASU
2015-17
as part of the FASBs initiative to simplify accounting standards. The guidance required an entity to present deferred tax assets and deferred tax liabilities as noncurrent in the consolidated balance
sheet. The Company adopted this new accounting standard retrospectively in the first quarter of 2017. As of December 30, 2017 and December 31, 2016, the Company had $2.2 million and $7.4 million, respectively, of current deferred
tax assets that are now classified as noncurrent on the consolidated balance sheets under this new accounting standard.
Accounting Pronouncements
Not Yet Effective
In May 2014, the FASB issued ASU
No. 2014-09,
Revenue from Contracts with
Customers (Topic 606)
. ASU
2014-09
will supersede virtually all existing revenue guidance. Under this update, an entity is required to recognize revenue upon transfer of promised goods or services to
customers, in an amount that reflects the expected consideration received in exchange for those goods or services. As such, an entity will need to use more judgment and make more estimates than under the current guidance. ASU
2014-09
is to be applied retrospectively either to each prior reporting period presented in the financial statements, or only to the most current reporting period presented in the financial statements with a
cumulative effect adjustment to retained earnings. The Company will elect to apply the impact (if any) of applying ASU
2014-09
to the most current reporting period presented in the financial statements with a
cumulative effect adjustment to retained earnings. In August 2015, the FASB issued ASU
No. 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date
. ASU
2015-14
defers the effective date of ASU
2014-09
for one year, making it effective for the Companys fiscal year beginning December 31, 2017, with early adoption
permitted as of January 1, 2017. The Company expects to adopt ASU
2014-09
in the first quarter of 2018. The Company expects that the adoption of ASU
2014-09
will
require earlier recognition of variable customer promotional discount programs which will result in recording through retained earnings in the first quarter of 2018, an additional liability of approximately $1.3 million. The Company does not
expect this change to have a material impact on its consolidated financial statements with the exception of the one time retained earnings impact in the first quarter of 2018. The Company is currently preparing to implement changes to its accounting
policies and controls to support the new revenue recognition and disclosure requirements.
50
In February 2016, the FASB issued ASU
No. 2016-02,
Leases (Topic
842)
. The guidance requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. ASU
2016-02
will be
effective retrospectively for the year beginning December 30, 2018, with early adoption permitted. As of December 30, 2017 and December 31, 2016, the Company had $12.8 million and $15.9 million, respectively, of contractual
obligation on lease agreements, the present value of which, would be included on the consolidated balance sheets under the new guidance.
C.
Inventories
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 30,
2017
|
|
|
December 31,
2016
|
|
|
|
(in thousands)
|
|
Current inventory:
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
33,086
|
|
|
$
|
35,314
|
|
Work in process
|
|
|
6,826
|
|
|
|
8,131
|
|
Finished goods
|
|
|
10,739
|
|
|
|
9,054
|
|
|
|
|
|
|
|
|
|
|
Total current inventory
|
|
|
50,651
|
|
|
|
52,499
|
|
Long term inventory
|
|
|
9,905
|
|
|
|
6,316
|
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
60,556
|
|
|
$
|
58,815
|
|
|
|
|
|
|
|
|
|
|
D. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Prepaid advertising, promotional and selling
|
|
$
|
3,328
|
|
|
$
|
119
|
|
Prepaid malt and barley
|
|
|
1,819
|
|
|
|
1,644
|
|
Excise and other tax receivables
|
|
|
1,651
|
|
|
|
1,637
|
|
Supplier rebates
|
|
|
1,464
|
|
|
|
1,158
|
|
Prepaid insurance
|
|
|
1,055
|
|
|
|
1,144
|
|
Insurance cash surrender value
|
|
|
|
|
|
|
1,254
|
|
Other
|
|
|
1,378
|
|
|
|
1,775
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,695
|
|
|
$
|
8,731
|
|
|
|
|
|
|
|
|
|
|
51
E. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Machinery and plant equipment
|
|
$
|
438,925
|
|
|
$
|
420,486
|
|
Kegs
|
|
|
69,049
|
|
|
|
70,024
|
|
Land
|
|
|
22,295
|
|
|
|
22,295
|
|
Building and building improvements
|
|
|
112,912
|
|
|
|
112,508
|
|
Office equipment and furniture
|
|
|
24,307
|
|
|
|
22,412
|
|
Leasehold improvements
|
|
|
16,660
|
|
|
|
14,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
684,148
|
|
|
|
661,872
|
|
Less accumulated depreciation
|
|
|
(299,868
|
)
|
|
|
(253,461
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
384,280
|
|
|
$
|
408,411
|
|
|
|
|
|
|
|
|
|
|
The Company recorded depreciation expense related to these assets of $51.2 million, $49.3 million, and
$43.4 million, in fiscal years 2017, 2016, and 2015, respectively.
Impairment of Assets
The Company evaluates its assets for impairment when events indicate that an asset or asset group may have suffered impairment. During 2017, 2016, and 2015,
the Company recorded impairment charges of $2.5 million, $0.7 million, and $0.3 million, respectively.
Gain on Sale of Assets
During 2016, the Company recognized a $1.0 million gain on the sale of land owned in Freetown, Massachusetts.
F. Goodwill
Goodwill represents the excess of the
purchase price of the Company-owned breweries over the fair value of the net assets acquired upon the completion of the acquisitions. As of December 30, 2017 and December 31, 2016, goodwill amounted to $3.7 million.
G. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Employee wages, benefits and reimbursements
|
|
$
|
16,275
|
|
|
$
|
14,116
|
|
Accrued deposits
|
|
|
14,224
|
|
|
|
15,814
|
|
Advertising, promotional and selling expenses
|
|
|
13,605
|
|
|
|
8,562
|
|
Deferred revenue
|
|
|
5,472
|
|
|
|
5,381
|
|
Accrued stale beer
|
|
|
3,023
|
|
|
|
5,226
|
|
Accrued excise taxes
|
|
|
2,015
|
|
|
|
2,255
|
|
Accrued sales and use tax
|
|
|
1,873
|
|
|
|
2,437
|
|
Accrued freight
|
|
|
1,518
|
|
|
|
1,402
|
|
Other accrued liabilities
|
|
|
5,612
|
|
|
|
5,741
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
63,617
|
|
|
$
|
60,934
|
|
|
|
|
|
|
|
|
|
|
52
H. Revolving Line of Credit
The Company has a credit facility in place that provides for a $150.0 million revolving line of credit which has a term not scheduled to expire until
March 31, 2019. The Company may elect an interest rate for borrowings under the credit facility based on either (i) the Alternative Prime Rate (4.5% at December 30, 2017) or (ii) the applicable LIBOR rate (1.49% at
December 30, 2017) plus 0.45%. The Company incurs an annual commitment fee of 0.15% on the unused portion of the facility and is obligated to meet certain financial covenants, which are measured using earnings before interest, tax, depreciation
and amortization (EBITDA) based ratios. The Companys EBITDA to interest expense ratio was 12,639 as of December 30, 2017, compared to a minimum allowable ratio of 2.00 and the Companys total funded debt to EBITDA ratio
was 0.00 as of December 30, 2017, compared to a maximum allowable ratio of 2.50. The Company was in compliance with all financial covenants as of December 30, 2017 and December 31, 2016. There were no borrowings outstanding under the
credit facility as of December 30, 2017 and December 30, 2016.
There are also certain restrictive covenants set forth in the credit agreement.
Pursuant to the negative covenants, the Company has agreed that it will not: enter into any indebtedness or guarantees other than those specified by the lender, enter into any sale and leaseback transactions, merge, consolidate, or dispose of
significant assets without the lenders prior written consent, make or maintain any investments other than those permitted in the credit agreement, or enter into any transactions with affiliates outside of the ordinary course of business. In
addition, the credit agreement requires the Company to obtain prior written consent from the lender on distributions on account of, or in repurchase, retirement or purchase of its capital stock or other equity interests with the exception of the
following: (a) distributions of capital stock from subsidiaries to The Boston Beer Company, Inc. and Boston Beer Corporation (a subsidiary of The Boston Beer Company, Inc.), (b) repurchase from former employees of
non-vested
investment shares of Class A Common Stock, issued under the Employee Equity Incentive Plan, and (c) redemption of shares of Class A Common Stock as approved by the Board of Directors
and payment of cash dividends to its holders of common stock. Borrowings under the credit facility may be used for working capital, capital expenditures and general corporate purposes of the Company and its subsidiaries. In the event of a default
that has not been cured, the credit facility would terminate and any unpaid principal and accrued interest would become due and payable.
I. Income
Taxes
Significant components of the provision for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
34,255
|
|
|
$
|
35,390
|
|
|
$
|
42,391
|
|
State
|
|
|
5,225
|
|
|
|
6,108
|
|
|
|
7,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
39,480
|
|
|
|
41,498
|
|
|
|
49,794
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(22,489
|
)
|
|
|
7,666
|
|
|
|
6,279
|
|
State
|
|
|
102
|
|
|
|
608
|
|
|
|
523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(22,387
|
)
|
|
|
8,274
|
|
|
|
6,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
17,093
|
|
|
$
|
49,772
|
|
|
$
|
56,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
The Companys reconciliations to statutory rates are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal benefit
|
|
|
3.6
|
|
|
|
3.6
|
|
|
|
3.4
|
|
Deduction relating to U.S. production activities
|
|
|
(3.2
|
)
|
|
|
(2.6
|
)
|
|
|
(2.7
|
)
|
Deduction relating to excess stock benefits
|
|
|
(3.7
|
)
|
|
|
|
|
|
|
|
|
Change relating to enacted Tax Cuts and Jobs Act
|
|
|
(17.5
|
)
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
Other
|
|
|
0.5
|
|
|
|
0.6
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.7
|
%
|
|
|
36.3
|
%
|
|
|
36.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant components of the Companys deferred tax assets and liabilities are as follows at:
|
|
|
|
|
|
|
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
2,484
|
|
|
$
|
6,488
|
|
Stock-based compensation expense
|
|
|
4,175
|
|
|
|
5,929
|
|
Inventory
|
|
|
435
|
|
|
|
1,117
|
|
Other
|
|
|
2,598
|
|
|
|
4,097
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
9,692
|
|
|
|
17,631
|
|
Valuation allowance
|
|
|
(439
|
)
|
|
|
(669
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets net of valuation allowance
|
|
|
9,253
|
|
|
|
16,962
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
(42,076
|
)
|
|
|
(72,140
|
)
|
Prepaid expenses
|
|
|
(1,341
|
)
|
|
|
(1,204
|
)
|
Goodwill
|
|
|
(655
|
)
|
|
|
(879
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(44,072
|
)
|
|
|
(74,223
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
(34,819
|
)
|
|
$
|
(57,261
|
)
|
|
|
|
|
|
|
|
|
|
Reduction of US federal corporate tax rate:
The Tax Cuts and Jobs Act of 2017, enacted December 22, 2017, reduces
the corporate tax rate to 21%, effective January 1, 2018. Consequently, the Company recorded a decrease related to deferred tax assets and deferred tax liabilities of $4.7 million and $25.0 million, respectively, with a corresponding
net adjustment to deferred income tax benefit of $20.3 million for the year ended December 30, 2017.
The Companys practice is to classify
interest and penalties related to income tax matters in income tax expense. Interest and penalties included in the provision for income taxes amounted to $0.0 million, $0.0 million, and $0.1 million for fiscal years 2017, 2016, and
2015, respectively. Accrued interest and penalties amounted to $0.0 million and $0.3 million at December 30, 2017 and December 31, 2016, respectively.
54
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Balance at beginning of year
|
|
$
|
589
|
|
|
$
|
486
|
|
Increases related to current year tax positions
|
|
|
64
|
|
|
|
80
|
|
(Decreases) Increases related to prior year tax positions
|
|
|
(259
|
)
|
|
|
76
|
|
Decreases related to settlements
|
|
|
(62
|
)
|
|
|
(50
|
)
|
Decreases related to lapse of statute of limitations
|
|
|
(40
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
292
|
|
|
$
|
589
|
|
|
|
|
|
|
|
|
|
|
Included in the balance of unrecognized tax benefits at December 30, 2017 and December 31, 2016 are potential net
benefits of $0.3 million and $0.5 million, respectively, that would favorably impact the effective tax rate if recognized. Unrecognized tax benefits are included in accrued expenses in the accompanying consolidated balance sheets and
adjusted in the period in which new information about a tax position becomes available or the final outcome differs from the amount recorded.
In
September 2017, the Internal Revenue Service (IRS) commenced an examination of the Companys 2015 consolidated corporate income tax return. The examination was still in process as of December 30, 2017. As of December 30,
2017, the Companys 2014 and 2016 federal income tax returns remain subject to examination by IRS. The Companys state income tax returns remain subject to examination for three or four years depending on the states statute of
limitations. The Company is being audited by one state as of December 30, 2017. In addition, the Company is generally obligated to report changes in taxable income arising from federal income tax audits.
It is reasonably possible that the Companys unrecognized tax benefits may increase or decrease in 2018 if there is a completion of certain income tax
audits; however, the Company cannot estimate the range of such possible changes. The Company does not expect that any potential changes would have a material impact on the Companys financial position, results of operations or cash flows.
As of December 30, 2017, the Companys deferred tax assets include a capital loss carryforward. The capital loss carryforward, totaling
$1.7 million as of December 30, 2017, which if unused, will expire in year 2019. For the year ended December 30, 2017, the Company recorded a net valuation allowance release of $0.3 million due to a decrease in the deferred tax
asset for capital loss carryforwards.
J. Commitments and Contingencies
Contractual Obligations
As of December 30,
2017, projected cash outflows under
non-cancelable
contractual obligations for the remaining years under the contracts are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
Total
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
Thereafter
|
|
|
|
(in thousands)
|
|
Brand support
|
|
$
|
71,822
|
|
|
$
|
41,647
|
|
|
$
|
4,657
|
|
|
$
|
4,383
|
|
|
$
|
4,335
|
|
|
$
|
4,200
|
|
|
$
|
12,600
|
|
Hops, barley and wheat
|
|
|
62,197
|
|
|
|
26,979
|
|
|
|
13,927
|
|
|
|
4,615
|
|
|
|
5,386
|
|
|
|
3,964
|
|
|
|
7,326
|
|
Apples and other ingredients
|
|
|
33,716
|
|
|
|
33,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glass bottles
|
|
|
13,860
|
|
|
|
13,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and machinery
|
|
|
13,100
|
|
|
|
13,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
12,764
|
|
|
|
3,119
|
|
|
|
2,844
|
|
|
|
2,515
|
|
|
|
2,571
|
|
|
|
1,715
|
|
|
|
|
|
Other
|
|
|
8,979
|
|
|
|
4,456
|
|
|
|
2,541
|
|
|
|
1,178
|
|
|
|
333
|
|
|
|
333
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
216,438
|
|
|
$
|
136,877
|
|
|
$
|
23,969
|
|
|
$
|
12,691
|
|
|
$
|
12,625
|
|
|
$
|
10,212
|
|
|
$
|
20,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
The Company utilizes several varieties of hops in the production of its products. To ensure adequate supplies of
these varieties, the Company enters into advance multi-year purchase commitments based on forecasted future hop requirements, among other factors. These purchase commitments extend through crop year 2025 and specify both the quantities and prices,
denominated in U.S. Dollar, Euros, New Zealand Dollars and British Pounds, to which the Company is committed. Hops purchase commitments outstanding at December 30, 2017 totaled $48.5 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. These contracts were deemed necessary in order to bring hop inventory levels and purchase commitments
into balance with the Companys current brewing volume and hop usage forecasts. In addition, these contracts enable the Company to secure its position for future supply with hop vendors in the face of some competitive buying activity.
Currently, the Company has entered into contracts for barley and wheat with two major suppliers. The contracts include crop year 2017 and cover the
Companys barley, wheat, and malt requirements for 2018. These purchase commitments outstanding at December 30, 2017 totaled $13.7 million.
The Company sources some of its glass bottles needs pursuant to a Glass Bottle Supply Agreement with Anchor Glass Container Corporation (Anchor),
under which Anchor is the supplier of certain glass bottles for the Companys Cincinnati Brewery and its Pennsylvania Brewery. This agreement also establishes the terms on which Anchor may supply glass bottles to other breweries where the
Company brews its beers. Under the agreement with Anchor, the Company has minimum and maximum purchase commitments that are based on Company-provided production estimates which, under normal business conditions, are expected to be fulfilled. Minimum
purchase commitments under this agreement, assuming the supplier is unable to replace lost production capacity cancelled by the Company, as of December 30, 2017 totaled $13.9 million.
The Companys accounting policy for inventory and purchase commitments is to recognize a loss by establishing a reserve to the extent inventory levels
and commitments exceed forecasted needs. The computation of the excess inventory requires management to make certain assumptions regarding future sales growth, product mix, cancellation costs and supply, among others. Actual results may differ
materially from managements estimates. The Company continues to manage inventory levels and purchase commitments in an effort to maximize utilization. However, changes in managements assumptions regarding future sales growth, product mix
and hops market conditions could result in future material losses.
The Company has various operating lease agreements in place for facilities and
equipment as of December 30, 2017. 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 2022.
Aggregate rent expense was $3.4 million, $3.8 million, and $3.4 million in fiscal years 2017, 2016, and 2015, respectively.
For the fiscal
year ended December 30, 2017, the Company brewed over 90% 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 purchases the liquid produced by those brewing companies, including the raw materials that are used in the liquid, at the time such liquid goes into fermentation. The Company is required to repurchase all
unused raw materials purchased by the brewing company specifically for the Companys beers at the brewing companys cost upon termination of the production arrangement. The Company is also obligated to meet annual volume requirements in
conjunction with certain production arrangements, which are not material to the Companys operations.
The Companys arrangements with other
brewing companies require it to periodically purchase equipment in support of brewery operations. As of December 30, 2017, there were no significant equipment purchase requirements outstanding under existing contracts. Changes to the
Companys brewing strategy or existing production arrangements, new production relationships or the introduction of new products in the future may require the Company to purchase equipment to support the contract breweries operations.
56
Litigation
The Company is currently not a party to any pending or threatened litigation, the outcome of which would be expected to have a material adverse effect on its
financial condition or the results of its operations.
K. 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 Companys 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
December 30, 2017 and December 31, 2016, 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 December 30, 2017, and December 31, 2016, the Companys cash and cash equivalents balance was $65.6 million and $91.0 million, respectively, including money market funds amounting to
$63.8 million and $90.0 million, respectively.
L. Common Stock and Share-Based Compensation
Class A Common Stock
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
Companys assets.
Class B Common Stock
The Class B Common Stock has full voting rights, including the right to (1) elect a majority of the members of the Companys Board of Directors
and (2) approve all (a) amendments to the Companys Articles of
57
Organization, (b) mergers or consolidations with, or acquisitions of, other entities, (c) sales or dispositions of any significant portion of the Companys assets, and
(d) equity-based and other executive compensation and other significant corporate matters. The Companys Class B Common Stock is not listed for trading. Each share of Class B Common Stock is freely convertible into one share of
Class A Common Stock, upon request of any Class B holder, and participates equally in earnings.
All distributions with respect to the
Companys capital stock are restricted by the Companys credit agreement, with the exception of distributions of capital stock from subsidiaries to The Boston Beer Company, Inc. and Boston Beer Corporation, repurchase from former employees
of
non-vested
investment shares of Class A Common Stock issued under the Companys equity incentive plan, redemption of certain shares of Class A Common Stock as approved by the Board of
Directors and payment of cash dividends to its holders of common stock.
Employee Stock Compensation Plan
The Companys Employee Equity Incentive Plan (the Equity Plan) currently provides for the grant of discretionary options and restricted stock
awards to employees, and provides for shares to be sold to employees of the Company at a discounted purchase price under its investment share program. The Equity Plan is administered by the Board of Directors of the Company, based on recommendations
received from the Compensation Committee of the Board of Directors. The Compensation Committee consists of three independent directors. In determining the quantities and types of awards for grant, the Compensation Committee periodically reviews the
objectives of the Companys compensation system and takes into account the position and responsibilities of the employee being considered, the nature and value to the Company of his or her service and accomplishments, his or her present and
potential contributions to the success of the Company, the value of the type of awards to the employee and such other factors as the Compensation Committee deems relevant.
Stock options and related vesting requirements and terms are granted at the Board of Directors discretion, but generally vest ratably over five-year
periods and, with respect to certain options granted to members of senior management, based on the Companys performance. Generally, the maximum contractual term of stock options is ten years, although the Board of Directors may grant options
that exceed the
ten-year
term. During fiscal 2017, 2016, and 2015, the Company granted options to purchase 5,185 shares, 786,450 shares, and 18,723 shares, respectively, of its Class A Common Stock to
employees at market price on the grant dates. Of the 2017 option grants, all shares related to performance-based stock options. Of the 2016 option grants, 574,507 shares relate to a special long-term service-based retention stock option issued to
the Chief Executive Officer, 173,135 shares relate to other special long-term service-based retention stock options and 38,808 shares relate to performance-based stock options. Of the 2015 option grants, 14,742 shares relate to performance-based
option grants and 3,981 relate to special long-term service-based retention stock options.
On January 1, 2018, the Company granted options to
purchase an aggregate of 17,531 shares of the Companys Class A Common Stock with a weighted average fair value of $82.69 per share, of which all shares relate to performance-based stock options.
Restricted stock awards are also granted at the Board of Directors discretion. During fiscal 2017, 2016, and 2015, the Company granted 15,800 shares,
21,653 shares, and 6,092 shares, respectively, of restricted stock awards to certain senior managers and key employees, all of which are service-based and vest ratably over service periods of three to five
years.
The Equity Plan also has an 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 at a discount from current market value of 0% to 40%, based on the employees tenure with the Company.
Investment shares vest ratably over service periods of five years. Participants may pay for these shares either up front or through payroll deductions over an eleven-month period during the year of purchase. During fiscal 2017, 2016, and 2015,
employees elected to purchase an aggregate of 10,146 investment shares, 9,199 investment shares, and 8,301 investment shares, respectively.
58
On January 1, 2018, the Company granted 18,873 shares of restricted stock awards to certain senior managers
and key employees of which all shares vest ratably over service periods of five years. On January 1, 2018, employees elected to purchase 9,214 shares under the investment share program.
The Company has reserved 6.7 million shares of Class A Common Stock for issuance pursuant to the Equity Plan, of which 0.7 million shares were
available for grant as of December 30, 2017. Shares reserved for issuance under cancelled employee stock options and forfeited restricted stock are returned to the reserve under the Equity Plan for future grants or purchases. The Company also
purchases unvested investment shares from employees who have left the Company at the lesser of (i) the price paid for the shares when the employee acquired the shares or (ii) the fair market value of the shares as of the date next
preceding the date on which the shares are called for redemption by the Company. These shares are also returned to the reserve under the Equity Plan for future grants or purchases.
Non-Employee
Director Options
The Company has a stock option plan for
non-employee
directors of the Company (the
Non-Employee
Director Plan), pursuant to which each
non-employee
director of the Company is granted an option to purchase shares of the Companys
Class A Common Stock upon election or
re-election
to the Board of Directors. Stock options issued to
non-employee
directors vest upon grant and have a maximum
contractual term of ten years. During fiscal 2017, 2016, and 2015 the Company granted options to purchase an aggregate of 10,188 shares, 14,040 shares, and 5,640 shares of the Companys Class A Common Stock to
non-employee
directors, respectively.
The Company has reserved 0.6 million shares of Class A Common Stock for
issuance pursuant to the
Non-Employee
Director Plan, of which 0.1 million shares were available for grant as of December 30, 2017. Cancelled
non-employee
directors stock options are returned to the reserve under the
Non-Employee
Director Plan for future grants.
Option Activity
Information related to stock
options under the Equity Plan and the
Non-Employee
Director Plan is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-Average
Remaining
Contractual Term
in Years
|
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
|
Outstanding at December 31, 2016
|
|
|
1,348,233
|
|
|
$
|
141.98
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
15,373
|
|
|
|
150.10
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(12,208
|
)
|
|
|
160.47
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(194,401
|
)
|
|
|
79.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 30, 2017
|
|
|
1,156,997
|
|
|
$
|
158.53
|
|
|
|
6.28
|
|
|
$
|
45,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 30, 2017
|
|
|
182,242
|
|
|
$
|
98.78
|
|
|
|
3.58
|
|
|
$
|
17,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 30, 2017
|
|
|
562,478
|
|
|
$
|
115.47
|
|
|
|
4.49
|
|
|
$
|
44,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of the total options outstanding at December 30, 2017, 35,885 shares were performance-based options for which the
performance criteria had yet to be achieved and 574,507 shares were service-based options granted to the Chief Executive Officer that are not expected to vest as a result of the planned retirement in 2018.
59
Stock Option Grants to Chief Executive Officer
On January 1, 2016, the Company granted the Chief Executive Officer an option to purchase 574,507 shares of its Class A Common Stock, which vests
over a five-year period, commencing on January 1, 2019, at the rate of 20% per year. The exercise price is determined by multiplying $201.91 by the aggregate percentage change in the DJ Wilshire 5000 Index from and after January 1, 2016
through the close of business on the trading date next preceding each date on which the option is exercised, plus an additional 1.5 percentage points per annum, prorated for partial years. The exercise price will not be less than $201.91 per share
and the excess of the fair value of the Companys Class A Common Stock cannot exceed $150 per share over the exercise price. At December 30, 2017 and December 31, 2016, the stock option remained unexercised as to 574,507 shares.
If the stock option had been exercised on December 30, 2017, the exercise price would have been $272.45 per share. If the stock option had been exercised on December 31, 2016, the exercise price would have been $226.72 per share. The
Company is accounting for this award as a market-based award which was valued utilizing the Monte Carlo Simulation pricing model, which calculates multiple potential outcomes for an award and establishes fair value based on the most likely outcome.
Under the Monte Carlo Simulation pricing model, the Company calculated the weighted average fair value per share to be $39.16. As a result of the Chief Executive Officers planned retirement in 2018, the Company estimated a 100% forfeiture rate
related to this grant.
On January 1, 2008, the Company granted the Chief Executive Officer an option to purchase 753,864 shares of its Class A
Common Stock, which vests over a five-year period, commencing on January 1, 2014, at the rate of 20% per year. The exercise price is determined by multiplying $42.00 by the aggregate change in the DJ Wilshire 5000 Index from and after
January 1, 2008 through the close of business on the trading date next preceding each date on which the option is exercised. The exercise price will not be less than $37.65 per share and the excess of the fair value of the Companys
Class A Common Stock cannot exceed $70 per share over the exercise price. At December 30, 2017 and December 31, 2016, 150,773 shares and 301,546 shares of the stock option remained outstanding, respectively. If the outstanding shares
at December 30, 2017 were exercised on that date, the price would have been $121.10 per share. If the outstanding shares at December 31, 2016 were exercised on that date, the exercise price would have been $99.85 per share. Reflected in
the table above is the minimum exercise price of $37.65. The Company is accounting for this award as a market-based award which was valued utilizing the Monte Carlo Simulation pricing model, which calculates multiple potential outcomes for an award
and establishes fair value based on the most likely outcome. Under the Monte Carlo Simulation pricing model, the Company calculated the weighted average fair value per share to be $8.41, and recorded stock-based compensation expense of
$0.2 million, $0.3 million, and $0.5 million related to this option in the fiscal 2017, 2016, and 2015, respectively.
Stock-Based
Compensation
The following table provides information regarding stock-based compensation expense included in operating expenses in the
accompanying consolidated statements of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Amounts included in advertising, promotional and selling expenses
|
|
$
|
2,868
|
|
|
$
|
2,507
|
|
|
$
|
2,943
|
|
Amounts included in general and administrative expenses
|
|
|
3,448
|
|
|
|
3,641
|
|
|
|
3,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
6,316
|
|
|
$
|
6,148
|
|
|
$
|
6,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts related to performance-based stock awards included
in total stock-based compensation
expense
|
|
$
|
36
|
|
|
$
|
203
|
|
|
$
|
831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
As permitted by ASC 718, the Company uses a lattice model, such as the trinomial option-pricing model, to
estimate the fair values of stock options. The Company believes that the Black-Scholes option-pricing model is less effective than the trinomial option-pricing model in valuing long-term options, as it assumes that volatility and interest rates are
constant over the life of the option. In addition, the Company believes that the trinomial option-pricing model more accurately reflects the fair value of its stock awards, as it takes into account historical employee exercise patterns based on
changes in the Companys stock price and other relevant variables. The weighted-average fair value of stock options granted during 2017, 2016, and 2015 was $72.52, $87.70, and $128.54 per share, respectively, as calculated using a trinomial
option-pricing model. The 2016 weighted-average fair value of the stock options granted during 2016 excludes the January 1, 2016 stock options granted to the Chief Executive Officer with a weighted-average fair value of $39.16, as calculated
using the Monte Carlo Simulation pricing model.
Weighted average assumptions used to estimate fair values of stock options on the date of grants are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Expected volatility
|
|
|
36.2%
|
|
|
|
34.0%
|
|
|
|
34.2%
|
|
Risk-free interest rate
|
|
|
2.30%
|
|
|
|
2.16%
|
|
|
|
2.16%
|
|
Expected dividends
|
|
|
0%
|
|
|
|
0%
|
|
|
|
0%
|
|
Exercise factor
|
|
|
3.63 times
|
|
|
|
2.68 times
|
|
|
|
3.0 times
|
|
Discount for post-vesting restrictions
|
|
|
0.0%
|
|
|
|
0.0%
|
|
|
|
0.0%
|
|
Expected volatility is based on the Companys historical realized volatility. The risk-free interest rate represents the
implied yields available from the U.S. Treasury
zero-coupon
yield curve over the contractual term of the option when using the trinomial option-pricing model. Expected dividend yield is 0% because the Company
has not paid dividends in the past and currently has no known intention to do so in the future. Exercise factor and discount for post-vesting restrictions are based on the Companys historical experience.
Fair value of restricted stock awards is based on the Companys traded stock price on the date of the grants. Fair value of investment shares is
calculated using the trinomial option-pricing model.
The Company uses the straight-line attribution method in recognizing stock-based compensation
expense for awards that vest based on service conditions. For awards that vest subject to performance conditions, compensation expense is recognized ratably for each tranche of the award over the performance period if it is probable that performance
conditions will be met.
The Company recognizes compensation expense, less estimated forfeitures. Because most of the Companys equity awards vest on
January 1
st
each year, the Company recognized stock-based compensation expense related to those awards, net of actual forfeitures. For equity awards that do not vest on January 1
st
, the estimated forfeiture rate used was 5.0%, with the exception of the Chief Executive Officers 2016 equity award which used a 100% forfeiture rate as a result of the planned retirement in
2018. The forfeiture rate was based upon historical experience and the Company periodically reviews this rate to ensure proper projection of future forfeitures.
The total fair value of options vested during 2017, 2016, and 2015 was $2.9 million, $9.9 million, and $4.1 million, respectively. The
aggregate intrinsic value of stock options exercised during 2017, 2016, and 2015 was $14.9 million, $52.7 million, $37.7 million, respectively.
61
Based on equity awards outstanding as of December 30, 2017, there is $19.0 million of unrecognized
compensation costs, net of estimated forfeitures, related to unvested share-based compensation arrangements that are expected to vest. Such costs are expected to be recognized over a weighted-average period of 2.76 years. The following table
summarizes the estimated future annual stock-based compensation expense related to share-based arrangements existing as of December 30, 2017 that are expected to vest (in thousands):
|
|
|
|
|
2018
|
|
$
|
5,519
|
|
2019
|
|
|
4,360
|
|
2020
|
|
|
3,107
|
|
2021
|
|
|
2,618
|
|
2022
|
|
|
1,992
|
|
Thereafter
|
|
|
1,388
|
|
|
|
|
|
|
Total
|
|
$
|
18,984
|
|
|
|
|
|
|
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 31, 2016
|
|
|
64,968
|
|
|
$
|
166.29
|
|
Granted
|
|
|
25,946
|
|
|
|
132.88
|
|
Vested
|
|
|
(22,213
|
)
|
|
|
151.32
|
|
Forfeited
|
|
|
(6,296
|
)
|
|
|
178.56
|
|
|
|
|
|
|
|
|
|
|
Non-vested
at December 30, 2017
|
|
|
62,405
|
|
|
$
|
155.21
|
|
|
|
|
|
|
|
|
|
|
22,213 shares vested in 2017 with a weighted average fair value of $151.32. 19,740 shares vested in 2016 with a weighted
average fair value of $114.12. 25,732 shares vested in 2015 with a weighted average fair value of $79.44.
Stock Repurchase Program
In 1998, the Board of Directors authorized management to implement a stock repurchase program. As of December 30, 2017, the Company has repurchased a
cumulative total of approximately 13.4 million shares of its Class A Common Stock for an aggregate purchase price of approximately $752.4 million as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Aggregate Purchase
Price
|
|
|
|
|
|
|
(in thousands)
|
|
Repurchased at December 27, 2014
|
|
|
10,921,933
|
|
|
$
|
307,387
|
|
2015 repurchases
|
|
|
616,747
|
|
|
|
138,705
|
|
|
|
|
|
|
|
|
|
|
Repurchased at December 26, 2015
|
|
|
11,538,680
|
|
|
|
446,092
|
|
2016 repurchases
|
|
|
944,876
|
|
|
|
161,658
|
|
|
|
|
|
|
|
|
|
|
Repurchased at December 31, 2016
|
|
|
12,483,556
|
|
|
|
607,750
|
|
2017 repurchases
|
|
|
963,790
|
|
|
|
144,602
|
|
|
|
|
|
|
|
|
|
|
Repurchased at December 30, 2017
|
|
|
13,447,346
|
|
|
$
|
752,352
|
|
|
|
|
|
|
|
|
|
|
62
M. Employee Retirement Plans and Post-Retirement Medical Benefits
The Company has one retirement plan covering substantially all
non-union
employees; two other retirement plans, one of
which covers substantially all union employees, and the other of which covers employees of a specific union; and post-retirement medical benefits covering substantially all union employees.
Non-Union
Plans
The Boston Beer Company 401(k) Plan (the Boston Beer 401(k) Plan), which was established by the Company in 1993, is a Company-sponsored defined
contribution plan that covers a majority of the Companys
non-union
employees who are employed by Boston Beer Corporation, American Craft Brewery LLC, A & S Brewing Collaborative LLC, or Angry
Orchard Cider Company, LLC. All
non-union
employees of these entities are eligible to participate in the Plan immediately upon employment. Participants may make voluntary contributions up to 60% of their
annual compensation, subject to IRS limitations. The Company matches each participants contribution. A maximum of 6% of compensation is taken into account in determining the amount of the match. The Company matches 100% of the first $1,000 of
the eligible compensation participants contribute. Thereafter, the Company matches 50% of the eligible contribution. The Companys contributions to the Boston Beer 401(k) Plan amounted to $3.2 million, $3.5 million and
$3.0 million in fiscal years 2017, 2016 and 2015, respectively. The basic annual administrative fee for the Boston Beer 401(k) Plan is paid by the Plans investment fund revenue. In addition, per the Service Provider Payment Agreement, a
credit up to a maximum of two basis points multiplied by the total amount of assets under the Plan per year is available for paying eligible Plan expenses. Participant forfeitures are also available for paying eligible Plan expenses. The Company is
responsible for the payment of any additional fees related to the management of the Boston Beer 401(k) Plan. Such fees are not material to the Company.
Union Plans
The Samuel Adams Cincinnati Brewery
401(k) Plan for Represented Employees (the SACB 401(k) Plan) is a Company-sponsored defined contribution plan. It was established in 1997 and is available to all union employees upon commencement of employment or, if later, attaining age
21. Participants may make voluntary contributions up to 60% of their annual compensation to the SACB 401(k) Plan, subject to IRS limitations. Company contributions for fiscal 2017 and 2016 were insignificant. The basic annual administrative fee for
the SACB 401(k) Plan is paid by the Plans investment fund revenue. In addition, per the Service Provider Payment Agreement, a credit up to a maximum of two basis points multiplied by the total amount of assets under the Plan per year,
excluding participant loans, is available for paying eligible Plan expenses. The Company is responsible for the payment of any additional fees related to the management of the SACB 401(k) Plan. Such fees are not material to the Company.
The Samuel Adams Brewery Company, Ltd. Local Union No. 1199 Pension Plan (the Local 1199 Pension Plan) is a Company-sponsored defined benefit
pension plan. It was established in 1991 and is open to all union employees who are covered by the Companys collective bargaining agreement with Teamsters Local Union No. 1199 (Local Union #1199), or persons on leave from the
Company who are employed by Local Union #1199, and in either case who have completed 12 consecutive months of employment with at least 750 hours worked. The defined benefit is determined based on years of service since July 1991. The Company made
contributions of $238,000, $219,000 and $188,000 in 2017, 2016 and 2015, respectively. At December 30, 2017 and December 31, 2016, the unfunded projected pension benefits were $2.2 million and $1.9 million, respectively.
The Company provides a supplement to eligible retirees from Local #1, Local #20, and Local Union #1199 to assist them with the cost of Medicare gap coverage
after their retirement on account of age or permanent disability. To qualify for this benefit (collectively, the Retiree Medical Plan), an employee must have worked for at least 20 years for the Company or its predecessor at the
Companys Cincinnati Brewery, must have been
63
enrolled in the Companys group medical insurance plan for at least 5 years before retirement and, in the case of retirees from Local #20, for at least 7 of the last 10 years of their
employment, and must be eligible for Medicare benefits under the Social Security Act. The accumulated post-retirement benefit obligation was determined using a discount rate of 3.68% at December 30, 2017 and 4.25% at December 31, 2016 and
a 2.5% health care cost increase based on the Cincinnati Consumer Price Index for the years 2017, 2016, and 2015. The effect of a 1% point increase and the effect of a 1% point decrease in the assumed health care cost trend rates on the aggregate of
the service and interest cost components of net periodic post-retirement health care benefit costs and on the accumulated post-retirement benefit obligation for health care benefits would not be significant.
In addition, the comprehensive medical plan offered to currently employed members of Local #20 remains available to them should they retire after reaching age
57, and before reaching age 65, with at least 20 years of service with the Company or its predecessor at the Companys Cincinnati Brewery. These eligible retirees may choose to continue to be covered under the Companys comprehensive group
medical plan until they reach the age when they are eligible for Medicare health benefits under the Social Security Act or coverage under a comparable State health benefit plan. Eligible retirees pay 100% of the cost of the coverage.
The funded status of the Local 1199 Pension Plan and the Retiree Medical Plan are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local 1199 Pension Plan
|
|
|
Retiree Medical Plan
|
|
|
|
December 30,
|
|
|
December 31,
|
|
|
December 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Fair value of plan assets at end of fiscal year
|
|
$
|
3,330
|
|
|
$
|
2,733
|
|
|
$
|
|
|
|
$
|
|
|
Benefit obligation at end of fiscal year
|
|
|
5,572
|
|
|
|
4,611
|
|
|
|
799
|
|
|
|
708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfunded Status
|
|
$
|
(2,242
|
)
|
|
$
|
(1,878
|
)
|
|
$
|
(799
|
)
|
|
$
|
(708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Local 1199 Pension Plan invests in a family of funds designed to minimize excessive short-term risk and focus on
consistent, competitive long-term performance, consistent with the funds investment objectives. The fund-specific objectives vary and include maximizing long-term returns both before and after taxes, maximizing total return from capital
appreciation plus income, and investing in funds that invest in common stock of companies that cover a broad range of industries. The Local 1199 Plans investments are considered category 1 assets in the fair value hierarchy and the fair values
were determined by reference to
period-end
quoted market prices.
The basis of the long-term rate of return
assumption of 6.5% reflects the Local 1199 Plans current targeted asset mix of approximately 35% debt securities and 65% equity securities with assumed average annual returns of approximately 3% to 6% for debt securities and 8% to 12% for
equity securities. It is assumed that the Local 1199 Pension Plans investment portfolio will be adjusted periodically to maintain the targeted ratios of debt securities and equity securities. Additional consideration is given to the Local 1199
Plans historical returns as well as future long-range projections of investment returns for each asset category. The assumed discount rate in estimating the pension obligation was 3.68% and 4.25% at December 30, 2017 and December 31,
2016, respectively.
The Local 1199 Plans weighted-average asset allocations at the measurement dates by asset category are as follows:
|
|
|
|
|
|
|
|
|
Asset Category
|
|
December 30,
2017
|
|
|
December 31,
2016
|
|
Equity securities
|
|
|
67
|
%
|
|
|
66
|
%
|
Debt securities
|
|
|
33
|
%
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
64
N. Net Income per Share
Net Income per Common Share Basic
The following
table sets forth the computation of basic net income per share using the
two-class
method:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2017
|
|
|
December 31,
2016 (53 weeks)
|
|
|
December 26,
2015
|
|
|
|
(in thousands, except per share data)
|
|
Net Income
|
|
$
|
99,049
|
|
|
$
|
87,349
|
|
|
$
|
98,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of net income for basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
$
|
73,114
|
|
|
$
|
63,717
|
|
|
$
|
71,798
|
|
Class B Common Stock
|
|
|
25,391
|
|
|
|
23,190
|
|
|
|
26,154
|
|
Unvested participating shares
|
|
|
544
|
|
|
|
442
|
|
|
|
462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$99,049
|
|
|
$87,349
|
|
|
$98,414
|
|
Weighted average number of shares for basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
|
8,933
|
|
|
|
9,189
|
|
|
|
9,619
|
|
Class B Common Stock*
|
|
|
3,102
|
|
|
|
3,344
|
|
|
|
3,504
|
|
Unvested participating shares
|
|
|
67
|
|
|
|
64
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,102
|
|
|
12,597
|
|
|
13,185
|
|
Net income per share for basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
$
|
8.18
|
|
|
$
|
6.93
|
|
|
$
|
7.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B Common Stock
|
|
$
|
8.18
|
|
|
$
|
6.93
|
|
|
$
|
7.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Change in Class B Common Stock resulted from the conversion of 125,000 shares to Class A Common Stock on November 4, 2016, 45,000 shares to Class A Common Stock on November 30, 2016, 100,000
shares to Class A Common Stock on March 7, 2017, and 79,000 shares to Class A Common Stock on October 31, 2017 with the ending number of shares reflecting the weighted average for the period.
|
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 or converted.
The following tables set 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fifty-two
weeks ended December 30, 2017
|
|
|
|
Earnings to
Common
Shareholders
|
|
|
Common Shares
|
|
|
EPS
|
|
|
|
(in thousands, except per share data)
|
|
|
|
|
As reported basic
|
|
$
|
73,114
|
|
|
|
8,933
|
|
|
$
|
8.18
|
|
Add: effect of dilutive potential common shares Share-based awards
|
|
|
|
|
|
|
145
|
|
|
|
|
|
Class B Common Stock
|
|
|
25,391
|
|
|
|
3,102
|
|
|
|
|
|
Net effect of unvested participating shares
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share diluted
|
|
$
|
98,512
|
|
|
|
12,180
|
|
|
$
|
8.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fifty-three weeks ended December 31, 2016
|
|
|
|
Earnings to
Common
Shareholders
|
|
|
Common Shares
|
|
|
EPS
|
|
|
|
(in thousands, except per share data)
|
|
|
|
|
As reported basic
|
|
$
|
63,717
|
|
|
|
9,189
|
|
|
$
|
6.93
|
|
Add: effect of dilutive potential common shares Share-based awards
|
|
|
|
|
|
|
263
|
|
|
|
|
|
Class B Common Stock
|
|
|
23,190
|
|
|
|
3,344
|
|
|
|
|
|
Net effect of unvested participating shares
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share diluted
|
|
$
|
86,916
|
|
|
|
12,796
|
|
|
$
|
6.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fifty-two
weeks ended December 26, 2015
|
|
|
|
Earnings to
Common
Shareholders
|
|
|
Common Shares
|
|
|
EPS
|
|
|
|
(in thousands, except per share data)
|
|
|
|
|
As reported basic
|
|
$
|
71,798
|
|
|
|
9,619
|
|
|
$
|
7.46
|
|
Add: effect of dilutive potential common shares Share-based awards
|
|
|
|
|
|
|
397
|
|
|
|
|
|
Class B Common Stock
|
|
|
26,154
|
|
|
|
3,504
|
|
|
|
|
|
Net effect of unvested participating shares
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share diluted
|
|
$
|
97,966
|
|
|
|
13,520
|
|
|
$
|
7.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share for each share of Class A Common Stock and Class B Common Stock is $8.18, $6.93,
and $7.46 for the fiscal years 2017, 2016, and 2015, respectively, as each share of Class A and Class B participates equally in earnings. Shares of Class B are convertible at any time into shares of Class A on a
one-for-one
basis at the option of the stockholder.
Weighted average stock
options to purchase 785,000, 712,000, and 16,000 shares of Class A Common Stock were outstanding during fiscal 2017, 2016, and 2015, respectively, but not included in computing diluted income per share because their effects were anti-dilutive.
Additionally, performance-based stock options to purchase 36,000, 35,000, and 15,000 shares of Class A Common Stock were outstanding during fiscal 2017, 2016, and 2015, respectively, but not included in computing dilutive income per share
because the performance criteria of these stock options were not met as of December 30, 2017, December 31, 2016, and December 26, 2015, respectively.
Furthermore, stock options to purchase 12,000 shares of Class A Common Stock were not included in computing diluted income per share because these stock
options were cancelled during the
fifty-two
weeks ended December 30, 2017, due to performance criteria not being met or employee termination prior to vesting.
66
O. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss represents amounts of unrecognized actuarial gains or losses related to the Company sponsored defined benefit pension plan
and post-retirement medical plan, net of tax effect and currency translation adjustments. Changes in accumulated other comprehensive loss represent actuarial losses or gains, net of tax effect, recognized as components of net periodic benefit costs
and currency translation adjustments. The following table details the changes in accumulated other comprehensive loss for 2017, 2016, and 2015 (in thousands):
|
|
|
|
|
|
|
Accumulated Other
Comprehensive (Loss)
Income
|
|
Balance at December 27, 2014
|
|
$
|
(1,133
|
)
|
|
|
|
|
|
Deferred pension and other post-retirement benefit costs, net of taxes of ($99)
|
|
|
130
|
|
Amortization of Deferred benefit costs, net of tax of ($43)
|
|
|
74
|
|
Currency translation adjustment
|
|
|
(22
|
)
|
|
|
|
|
|
Balance at December 26, 2015
|
|
$
|
(951
|
)
|
|
|
|
|
|
Deferred pension and other post-retirement benefit costs, net of taxes of ($69)
|
|
|
122
|
|
Amortization of Deferred benefit costs, net of tax of $101
|
|
|
(175
|
)
|
Currency translation adjustment
|
|
|
(99
|
)
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
(1,103
|
)
|
|
|
|
|
|
Deferred pension and other post-retirement benefit costs, net of taxes of $57
|
|
|
(170
|
)
|
Amortization of Deferred benefit costs, net of tax of $11
|
|
|
(32
|
)
|
Currency translation adjustment
|
|
|
17
|
|
|
|
|
|
|
Balance at December 30, 2017
|
|
$
|
(1,288
|
)
|
|
|
|
|
|
P. Valuation and Qualifying Accounts
The Company maintains reserves against accounts receivable for doubtful accounts and inventory for obsolete and slow-moving inventory. The Company also
maintains reserves against accounts receivable for distributor promotional allowances. In addition, the Company maintains a reserve for estimated returns of stale beer, which is included in accrued expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts
|
|
Balance at
Beginning of
Period
|
|
|
Net Provision
(Recovery)
|
|
|
Amounts
Charged Against
Reserves
|
|
|
Balance at
End of Period
|
|
|
|
(In thousands)
|
|
2017
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
2016
|
|
$
|
244
|
|
|
$
|
(244
|
)
|
|
$
|
|
|
|
$
|
|
|
2015
|
|
$
|
144
|
|
|
$
|
165
|
|
|
$
|
(65
|
)
|
|
$
|
244
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount Accrual
|
|
Balance at
Beginning
of Period
|
|
|
Net Provision
(Recovery)
|
|
|
Amounts
Charged Against
Reserves
|
|
|
Balance at
End of Period
|
|
|
|
(In thousands)
|
|
2017
|
|
$
|
3,078
|
|
|
$
|
30,171
|
|
|
$
|
(30,177
|
)
|
|
$
|
3,072
|
|
2016
|
|
$
|
2,813
|
|
|
$
|
33,157
|
|
|
$
|
(32,892
|
)
|
|
$
|
3,078
|
|
2015
|
|
$
|
3,006
|
|
|
$
|
33,204
|
|
|
$
|
(33,397
|
)
|
|
$
|
2,813
|
|
|
|
|
|
|
Inventory Obsolescence Reserve
|
|
Balance at
Beginning
of Period
|
|
|
Net Provision
(Recovery)
|
|
|
Amounts
Charged Against
Reserves
|
|
|
Balance at
End of Period
|
|
|
|
(In thousands)
|
|
2017
|
|
$
|
2,262
|
|
|
$
|
5,751
|
|
|
$
|
(6,187
|
)
|
|
$
|
1,826
|
|
2016
|
|
$
|
1,525
|
|
|
$
|
4,707
|
|
|
$
|
(3,970
|
)
|
|
$
|
2,262
|
|
2015
|
|
$
|
1,328
|
|
|
$
|
4,045
|
|
|
$
|
(3,848
|
)
|
|
$
|
1,525
|
|
|
|
|
|
|
Stale Beer Reserve
|
|
Balance at
Beginning
of Period
|
|
|
Net Provision
(Recovery)
|
|
|
Amounts
Charged Against
Reserves
|
|
|
Balance at
End of Period
|
|
|
|
(In thousands)
|
|
2017
|
|
$
|
5,226
|
|
|
$
|
5,449
|
|
|
$
|
(7,652
|
)
|
|
$
|
3,023
|
|
2016
|
|
$
|
3,254
|
|
|
$
|
10,466
|
|
|
$
|
(8,494
|
)
|
|
$
|
5,226
|
|
2015
|
|
$
|
2,422
|
|
|
$
|
7,780
|
|
|
$
|
(6,948
|
)
|
|
$
|
3,254
|
|
Q. Subsequent Events
As
disclosed in Note L, on January 1, 2018 the Company granted stock options and restricted stock awards and employees elected to purchase shares under the investment share purchase program.
On February 14, 2018, the Company announced that David Burwick will join the Company as its President and Chief Executive Officer during the second
quarter of 2018. The Companys agreement with Mr. Burwick includes a base salary of $750,000, a
sign-on
bonus of $1.6 million and an annual target bonus of 100% of base salary. In the second
quarter of 2018, the Company will grant Mr. Burwick restricted stock awards with a value at date of grant of $14.75 million with service based vesting through 2023 and a performance based stock option with a value at date of grant of
$1.0 million and vesting through 2022.
The Company evaluated subsequent events occurring after the balance sheet date, December 30, 2017, 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.
68
R. Quarterly Results (Unaudited)
The Companys fiscal quarters are consistently determined year to year and generally consist of 13 weeks, except in those fiscal years in which there are
fifty-three weeks where the last fiscal quarters then consist of 14 weeks. In managements opinion, the following unaudited information includes all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of
the information for the quarters presented. The operating results for any quarter are not necessarily indicative of results for any future quarters.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Quarters Ended
|
|
|
|
December 30,
2017 (2)
|
|
|
September 30,
2017
|
|
|
July 1,
2017
|
|
|
April 1,
2017
|
|
|
December 31,
2016 (1)
|
|
|
September 24,
2016
|
|
|
June 25,
2016
|
|
|
March 26,
2016
|
|
|
|
(13 weeks)
|
|
|
(13 weeks)
|
|
|
(13 weeks)
|
|
|
(13 weeks)
|
|
|
(14 weeks)
|
|
|
(13 weeks)
|
|
|
(13 weeks)
|
|
|
(13 weeks)
|
|
|
|
(In thousands, except per share data)
|
|
Net revenue
|
|
$
|
206,320
|
|
|
$
|
247,047
|
|
|
$
|
247,930
|
|
|
$
|
161,695
|
|
|
$
|
219,370
|
|
|
$
|
253,433
|
|
|
$
|
244,816
|
|
|
$
|
188,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
108,037
|
|
|
|
131,501
|
|
|
|
134,019
|
|
|
|
76,344
|
|
|
|
107,656
|
|
|
|
133,607
|
|
|
|
126,876
|
|
|
|
91,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
14,863
|
|
|
|
51,496
|
|
|
|
45,288
|
|
|
|
4,028
|
|
|
|
34,325
|
|
|
|
50,309
|
|
|
|
41,788
|
|
|
|
11,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
30,530
|
|
|
$
|
33,683
|
|
|
$
|
29,125
|
|
|
$
|
5,711
|
|
|
$
|
22,166
|
|
|
$
|
31,530
|
|
|
$
|
26,621
|
|
|
$
|
7,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic
|
|
$
|
2.60
|
|
|
$
|
2.82
|
|
|
$
|
2.38
|
|
|
$
|
0.46
|
|
|
$
|
1.77
|
|
|
$
|
2.53
|
|
|
$
|
2.11
|
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share diluted
|
|
$
|
2.57
|
|
|
$
|
2.78
|
|
|
$
|
2.35
|
|
|
$
|
0.45
|
|
|
$
|
1.75
|
|
|
$
|
2.48
|
|
|
$
|
2.06
|
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
During the fourth quarter of 2016, the Company recorded a $3.6 million decrease in stock-based compensation expense related to the planned retirement of the Companys Chief Executive Officer in 2018.
|
(2)
|
During the fourth quarter of 2017, the Company recorded a $20.3 million tax benefit due to the Tax Cuts and Jobs Act of 2017.
|
69