UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

For the quarterly period ended September 30, 201729, 2018

OR

For the transition period from                    to                    

Commission file number:1-14092

THE BOSTON BEER COMPANY, INC.

(Exact name of registrant as specified in its charter)

One Design Center Place, Suite 850,

Boston, Massachusetts

(Address of principal executive offices)

02210

(Zip Code)

(617)368-5000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, small reporting company, or emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “small reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Act.)    Yes  ☐    No  ☒

Number of shares outstanding of each of the issuer’s classes of common stock, as of October 20, 2017:2018:

THE BOSTON BEER COMPANY, INC.

FORM10-Q

September  30, 201729, 2018

TABLE OF CONTENTS

EX-31.1 Section 302 CEO Certification

EX-31.2 Section 302 CFO Certification

EX-32.1 Section 906 CEO Certification

EX-32.2 Section 906 CFO Certification

PART I. FINANCIAL INFORMATION

Item 1. CONSOLIDATED FINANCIAL STATEMENTS

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

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

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, except per share data)

(unaudited)

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

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASHFLOWSCASH FLOWS

(in thousands)

(unaudited)

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

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A. Organization and Basis of Presentation

The Boston Beer Company, Inc. and certain subsidiaries (the “Company”) are engaged in the business of brewingproducing and selling alcohol beverages throughout the United States and in selected international markets, under the trade names, “TheThe Boston Beer Company” “Twisted^®, Twisted Tea Brewing Company” “Angry^®, Angry Orchard^® Cider Company” and “HardCompany, Hard Seltzer Beverage Company”. The Company’s Samuel AdamsCompany, Traveler Beer Co.^®, Angel City Brewing Company^®, Concrete Beach Brewery^® beers are produced and sold under the trade name “The Boston Beer Company”. A&SConey Island^® Brewing Collaborative LLC, d/b/a A&S Brewing (“A&S”), a wholly-owned subsidiary of the Company, sells beer under various trade names including “The Traveler Beer Company”, “Coney Island Brewing Company”, “Angel City Brewery” and “Concrete Beach Brewery”.Company.

The accompanying unaudited consolidated balance sheet as of September 30, 2017,29, 2018, and the consolidated statements of comprehensive income and consolidated statements of cash flows for the interim periods ended September 30, 201729, 2018 and September 24, 201630, 2017 have been prepared by the Company in accordance with U.S. generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnotes normally included in financial statements prepared in accordance with U.S generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form10-K for the year ended December 31, 2016.30, 2017.

In the opinion of the Company’s management, the Company’s unaudited consolidated balance sheet as of September 30, 201729, 2018 and the results of its consolidated operations and consolidated cash flows for the interim periods ended September 30, 201729, 2018 and September 24, 2016,30, 2017, reflect all adjustments (consisting only of normal and recurring adjustments) necessary to present fairly the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year.

B. Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

In May 2014, the FASB issued ASUNo. 2014-09,Revenue from Contracts with Customers (Topic 606). ASU2014-09 supersedes virtually all existing revenue guidance. Under this standard, 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 needs to use more judgment and make more estimates than under the previous guidance. On December 31, 2017, the Company adopted the new accounting standard and all related amendments using the modified retrospective method which allows application only to the most current reporting period presented in the financial statements with a cumulative effect adjustment to retained earnings. In accordance with the new accounting standard, the majority of the Company’s revenue continues to be recognized at the time its products are shipped. Upon adoption, the Company began recognition of certain variable customer promotional discount programs earlier than it had under the previous revenue guidance which resulted in a $1.0 million, net of tax, cumulative effect adjustment to retained earnings. The comparative years have not been restated and continue to be reported under the accounting standards in effect for those periods. The Company expects the impact of the adoption to be immaterial to its consolidated financial statements on an ongoing basis.

In March 2016, the FASB issued ASUNo. 2016-09,Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting. ASU2016-09 is part of the FASB’s 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 ASU2016-09, 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 ASU2016-09, 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 thirteen weeks ended September 29, 2018 and the thirteen weeks ended September 30, 2017, $0.1 million and $0.5 million, respectively, in excess tax benefit from stock-based compensation arrangements was recognized within the income tax provision in the consolidated statements of comprehensive income and classified as an operating activity in the consolidated statements of cash flow. For the thirty-nine weeks ended September 29, 2018 and September 30, 2017, $4.0 million and $4.3 million, respectively, was recognized. The Company has not changed its forfeiture policy and continued to estimate forfeitures expected to occur to determine stock-based compensation expense.

In February 2018, the FASB issued ASUNo. 2018-02,Income Statement – Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.Under this update, an entity is allowed a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The Company early adopted this accounting standard prospectively in the first quarter of 2018. Prior periods have not been adjusted. In the first quarter of 2018, the Company reclassified $0.2 million of federal and state income tax effects of the Tax Cut and Jobs Act of 2017 related to defined benefit plans from accumulated other comprehensive income to retained earnings. The Company expects the impact of the adoption to be immaterial to its consolidated financial statements on an ongoing basis.

Accounting Pronouncements Not Yet Effective

In February 2016, the FASB issued ASUNo. 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. ASU2016-02 will be effective retrospectively for the year beginning December 30, 2018, with early adoption permitted. The Company currently expects to adopt ASU2016-02 in the first quarter of 2019. As of September 29, 2018 and December 30, 2017, the Company had $26.6 million and $12.8 million, respectively, of contractual obligations on lease agreements, the present value of which would be included on the consolidated balance sheets under the new guidance.

C. Revenue Recognition

During the thirty-nine weeks ended September 29, 2018 approximately 94% of the Company’s revenue was from shipments of its products to domestic Distributors and 5% from shipments to international Distributors, primarily located in Canada. Approximately 1% of the Company’s revenue is from retail beer, cider and merchandise sales at the Company’s retail locations.

The Company recognizes revenue when obligations under the terms of a contract with its customer are satisfied; generally, this occurs with the transfer of control of its products. Revenue is measured as the amount of consideration expected to be received in exchange for transferring products. If the conditions for revenue recognition are not met, the Company defers the revenue until all conditions are met. As of September 29, 2018 and September 30, 2017, the Company has deferred $6.1 million and $4.2 million, respectively in revenue related to product shipped prior to these dates. These amounts are included in accrued expenses and other current liabilities in the accompanying consolidated balance sheets.

Customer promotional discount programs are entered into by the Company with Distributors for certain periods of time. The reimbursements for discounts to Distributors are recorded as reductions to net revenue and were $11.1 million and $26.8 million for the thirteen and thirty-nine weeks ended September 29, 2018, respectively. Reimbursements for discounts for the thirteen and thirty-nine weeks ended September 30, 2017 were $9.6 million and $23.0 million, respectively. The agreed-upon discount rates are applied to certain Distributors’ sales to retailers, based on volume metrics, in order to determine the total discounted amount. The computation of the discount allowance requires that management make certain estimates and assumptions that affect the timing and amounts of revenue and liabilities recorded. Actual promotional discounts owed and paid have historically been in line with allowances recorded by the Company, however, the amounts could differ from the estimated allowance.

Customer programs and incentives are a common practice in the alcohol beverage industry. Amounts paid in connection with customer programs and incentives are recorded as reductions to net revenue or as advertising, promotional and selling expenses, based on the nature of the expenditure. Customer incentives and other payments made to Distributors are primarily based upon performance of certain marketing and advertising activities. Depending on applicable state laws and regulations, these activities promoting the Company’s products may include, but are not limited topoint-of-sale and merchandise placement, samples, product displays, promotional programs at retail locations and meals, travel and entertainment. Amounts paid to customers in connection with these programs that were recorded as reductions to revenue for the thirteen and thirty-nine weeks ended September 29, 2018 were $3.5 million and $9.7 million, respectively. Amounts paid to customers in connection with these programs that were recorded as reductions to revenue for the thirteen and thirty-nine weeks ended September 30, 2017 were $3.8 million and $9.8 million, respectively. Estimates are based on historical and projected experience for each type of program or customer and have historically been in line with actual costs incurred.

The Company benefited from a reduction in federal excise taxes of $2.0 million and $4.8 million for the thirteen and thirty-nine weeks ended September 29, 2018, respectively, as a result of the Tax Cuts and Jobs Act of 2017.

D. Inventories

Inventories consist of raw materials, work in process and finished goods. Raw materials, which principally consist of hops, apple juice, other brewing materials and packaging, are stated at the lower of cost, determined on thefirst-in,first-out basis, or net realizable value. The Company’s goal is to maintain on hand a supply of at least one year for essential hop varieties, in order to limit the risk of an unexpected reduction in supply. Inventories are generally classified as current assets. The Company classifies hops inventory in excess of two years of forecasted usage in other long termlong-term assets. The cost elements of work in process and finished goods inventory consist of raw materials, direct labor and manufacturing overhead. Inventories consist of the following:

E. Net Income per Share

C.		Net Income per Share

The Company calculates net income per share using thetwo-class method, which requires the Company to allocate net income to its Class A Common Shares, Class B Common Shares and unvested share-based payment awards that participate in dividends with common stock, in the calculation of net income per share.

The Class A Common Stock has no voting rights, except (1) as required by law, (2) for the election of Class A Directors, and (3) that the approval of the holders of the Class A Common Stock is required for (a) certain future authorizations or issuances of additional securities which have rights senior to Class A Common Stock, (b) certain alterations of rights or terms of the Class A or Class B Common Stock as set forth in the Articles of Organization of the Company, (c) other amendments of the Articles of Organization of the Company, (d) certain mergers or consolidations with, or acquisitions of, other entities, and (e) sales or dispositions of any significant portion of the Company’s assets.

The Class B Common Stock has full voting rights, including the right to (1) elect a majority of the members of the Company’s Board of Directors and (2) approve all (a) amendments to the Company’s Articles of Organization, (b) mergers or consolidations with, or acquisitions of, other entities, (c) sales or dispositions of any significant portion of the Company’s assets, and (d) equity-based and other executive compensation and other significant corporate matters. The Company’s Class B Common Stock is not listed for trading. Each share of the Class B Common Stock is freely convertible into one share of Class A Common Stock, upon request of the respective Class B holder, and participates equally in dividends.

The Company’s unvested share-based payment awards include unvested shares (1) issued under the Company’s investment share program, which permits employees who have been with the Company for at least one year to purchase shares of Class A Common Stock and to purchase those shares at a discount ranging from 20% to 40% below market value based on years of employment starting after two years of employment, and (2) awarded as restricted stock awards at the discretion of the Company’s Board of Directors. The investment shares and restricted stock awards generally vest over five years in equal number of shares. The unvested shares participate equally in dividends. See Note IK for a discussion of the current year unvested stock awards and issuances.

Included in the computation of net income per diluted common share are dilutive outstanding stock options that are vested or expected to vest. At its discretion, the Board of Directors grants stock options to senior management and certain key employees. The terms of the employee stock options are determined by the Board of Directors at the time of grant. To date, stock options granted to employees vest over various service periods and/or based on the attainment of certain performance criteria and generally expire after ten years. The Company also grants stock options to itsnon-employee directors upon election orre-election to the Board of Directors. The number of option shares granted tonon-employee directors is calculated based on a defined formula and these stock options vest immediately upon grant and expire after ten years.

Net Income per Common Share — Share—Basic

The following table sets forth the computation of basic net income per share using thetwo-class method:

*Change in Class B Common Stock resulted from the conversion of 100,000 shares to Class A Common Stock on March 7, 2017, 45,000 shares to Class A Common Stock on November 30, 2016 and 125,000 shares to Class A Common Stock on November 4, 2016, with the ending number of shares reflecting the weighted average for the periods.

Net Income per Common Share — 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) thetwo-class method, which assumes the participating securities are not exercised.

The following table sets forth the computation of diluted net income per share, assuming the conversion of all Class B Common Stock into Class A Common Stock and using thetwo-class method for unvested participating shares:

During the thirteen and thirty-nine weeks ended September 29, 2018, weighted-average stock options to purchase approximately zero and 653,000 shares of Class A Common Stock were outstanding but not included in computing dilutive income per common share because their effects were anti-dilutive. During the thirteen and thirty-nine weeks ended September 30, 2017, weighted-average stock options to purchase approximately 791,000 and 800,000 shares respectively, of Class A Common Stock were outstanding but not included in computing diluteddilutive income per common share because their effects were anti-dilutive. DuringThe significant decrease in weighted-average stock options outstanding for the thirteen and thirty-nine weeks ended September 24,29, 2018 as compared to the thirteen and thirty-nine weeks ended September 30, 2017 is primarily due to the forfeiture of the Company’s former Chief Executive Officer’s 2016 weighted-average stock options to purchase approximately 740,000 and 704,000 shares, respectively, of Class A Common Stock were outstanding but not included in computing diluted income per common share because their effects were anti-dilutive.option upon retirement. Additionally, performance-based stock options to purchase approximately 36,00061,000 and 35,00036,000 shares of Class A Common Stock were outstanding as of September 30, 201729, 2018 and September 24, 2016,30, 2017, respectively, but not included in computing diluted income per common share because the performance criteria of these stock options was not met as of the end of the reporting period.

Of the performance-based stock options to purchase approximately 36,00061,000 shares of Class A Common Stock that were excluded from computing diluted net income per common share as of September 30, 2017,29, 2018, 31,000 shares were granted in 2016 to two key employees. The vesting of these shares requires annual depletions, or sales by distributorsDistributors to retailers, of certain of the Company’s brands to attain various thresholds during the period from 2017 to 2023. The remaining 5,000 shares were granted in 2017 to executive officers and the vesting of these shares requires annual depletions to attain certain thresholds in 2019. The remaining 25,000 shares were granted in 2018 to executive officers and one key employee and the vesting of these shares requires annual net revenue to attain certain thresholds in 2019.

D.F. Comprehensive Income or Loss

Comprehensive income or loss represents net income or loss, plus defined benefit plans liability adjustment, net of tax effect and foreign currency translation adjustment. The defined benefit plans liability and foreign currency translation adjustments for the interim periods ended September 30, 201729, 2018 and September 24, 201630, 2017 were not material.

E.G. Commitments and Contingencies

Contract Obligations

The Company had outstanding totalnon-cancelable contract obligations of $171.6$229.3 million at September 30, 2017.29, 2018. These obligations are made up of advertising contracts of $64.7 million, hops, barley and wheat totaling $59.5 million, advertising contracts of $40.7$64.3 million, other ingredients of $32.0 million, operating leases of $13.5$31.7 million, equipment and machinery of $13.4$29.5 million, operating leases of $26.6 million, glass bottles of $2.6 million and other commitments of $9.9 million.

The Company has entered into contracts for the supply of a portion of its hops requirements. These purchase contracts extend through crop year 20222025 and specify both the quantities and prices, denominated in U.S. Dollars, Euros and New Zealand Dollars, to which the Company is committed. Hops purchase commitments outstanding at September 30, 201729, 2018 totaled $44.0$45.4 million, based on the exchange rates on that date. The Company does not use forward currency exchange contracts and intends to purchase future hops using the exchange rate at the time of purchase.

Currently, the Company has entered into contracts for barley and wheat with two major suppliers. The contracts include crop year 2017 through 2019 and cover the Company’s barley, wheat, and malt requirements for 2017the remainder of 2018 and partall of 2018.2019. These purchase commitments outstanding at September 30, 201729, 2018 totaled $15.5$18.9 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 Company’s 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 purchase commitments that are based on Company-provided production estimates which, under normal business conditions, are expected to be fulfilled. Minimum purchase commitments under the agreement, assuming the supplier is unable to replace production cancelled by the Company, as of September 30, 201729, 2018 totaled $2.6 million.

The Company has various operating lease agreements for facilities and equipment as of September 30, 2017.29, 2018. 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 2022.2028. The contractual obligation on these lease agreements as of September 30, 201729, 2018 totaled $13.5$26.6 million.

Currently, the Company brews and packages more than 90%80% 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 bysupplies raw materials to those brewing companies including the raw materials that are used in the liquid,and incurs conversion fees for labor at the time suchthe liquid goes into fermentation. Theis produced and packaged.

On October 11, 2018, the Company is requiredamended an existing brewing services agreement to repurchase all unused raw materials purchasedinclude a minimum capacity availability commitment by the brewing company specificallythird party brewery. The amendment grants the Company the right to extend the agreement beyond the December 31, 2021 termination date on an annual basis through December 31, 2025. The amendment requires the Company to pay up to $4 million dollars in both 2018 and 2019 for the Company’s beerscapital improvements at the third party’s brewing company’s cost upon termination of the production arrangement. The Company is also obligated to meet annual volume requirements in conjunction with certain production arrangements. These requirements are not material to the Company’s operations.facilities.

Litigation

The Company is not a party to any pending or threatened litigation, the outcome of which would be expected to have a material adverse effect upon its financial condition or the results of its operations. In general, while the Company believes it conducts its business appropriately in accordance with laws, regulations and industry guidelines, claims, whether or not meritorious, could be asserted against the Company that might adversely impact the Company’s results.

F.H. Income Taxes

As of September 30, 201729, 2018 and December 31, 2016,30, 2017, the Company had approximately $0.4$0.9 million and $0.5$0.3 million, respectively, of unrecognized income tax benefits.

The Company’s practice is to classify interest and penalties related to income tax matters in income tax expense. As of September 30, 201729, 2018 and December 31, 2016,30, 2017, the Company had $0.3$0.1 million and $0.3$0.0 million, respectively, accrued for interest and penalties.

In September 2017, the Internal Revenue Service commenced an examination of the Company’s 2015 consolidated corporate income tax return. The examination was still in process as of September 30, 2017.completed with a no change report issued on July 26, 2018. The Company’s state income tax returns remain subject to examination for three or four years depending on the state’s statute of limitations. The Company is being audited by two statesone state as of September 30, 2017.29, 2018. In addition, the Company is generally obligated to report changes in taxable income arising from federal income tax audits.

The following table provides a summary of the income tax provision for the thirteen and thirty-nine weeks ended September 29, 2018 and September 30, 2017:

Due to a change of tax accounting methods for depreciation of certain property, plant and equipment for the tax year ended December 30, 2017, the Company experienced aone-time income tax benefit for the thirteen and thirty-nine weeks ended September 24, 2016:29, 2018.

The Company’s effective tax rate for the thirteen weeks ended September 30, 201729, 2018 decreased to 35.1%19.2% from 37.1%35.1% for the thirteen weeks ended September 24, 2016.30, 2017 due to the favorable impact of the Tax Cuts and Jobs Act of 2017 including theone-time impact of tax accounting method changes. The Company’s effective tax rate for the thirty-nine weeks ended September 30, 201729, 2018 decreased to 32.5%18.9% from 36.6%32.5% for the thirty-nine weeks ended September 24, 2016. These decreases were primarily30, 2017 due to the favorable impact of the Tax Cuts and Jobs Act of 2017 including theone-time impact of tax benefit resulting from the adoption of ASU2016-09, which was effective for the Company on January 1, 2017.accounting method changes.

G.I. Revolving Line of Credit

TheIn March 2018, the Company has aamended its credit facility in place that provides for a $150.0 million revolving line of credit which expires onto extend the scheduled expiration date to March 31, 2019.2023. As of September 30, 2017,29, 2018, the Company was not in violation of any of its financial covenants to the lender under the credit facility and there were no borrowings outstanding, so that the line of credit was fully available to the Company for borrowing.

H.J. 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).

All financial assets or liabilities thatThe Company’s money market funds are measured at fair value on a recurring basis (at least annually) have been segregated into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date. The assets or liabilities measured at fair value on a recurring basis are summarized in the table below (in thousands):

The Company’s cash equivalents listed above represent money market funds and are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The money market funds wereare invested substantially in United States Treasury and government securities. The Company does not adjust the quoted market price for such financial instruments.

Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents held in money market funds. At September 30, 2017 and December 31, 2016, the Company had money market funds which have been deemed “Triple A” rated. The Company considers the “Triple A” rated money market funds to be a large, highly-rated investment-grade institution. As of September 30, 2017 and December 31, 2016, the Company’s cash and cash equivalents balance was $70.0 million and $91.0 million, respectively, including money market funds amounting to $67.5 million and $90.0 million, respectively.

Cash, certificates of deposit, receivables and payables are carried at their cost, which approximates fair value, because of their short-term nature. Financial instruments not recorded at fair value in

At September 29, 2018 and December 30, 2017, the consolidated financial statements are summarized inCompany had money market funds with a “Triple A” rated money market fund. The Company considers the table below (in thousands):“Triple A” rated money market fund to be a large, highly-rated investment-grade institution. As of September 29, 2018 and December 30, 2017, the Company’s cash and cash equivalents balance was $68.9 million and $65.6 million, respectively, including money market funds amounting to $69.0 million and $63.8 million, respectively.

I.K. Common Stock and Stock-Based Compensation

Option Activity

Information related to stock options under the Restated Employee Equity Incentive Plan and the Stock Option Plan forNon-Employee Directors is summarized as follows:

Of the total options outstanding at September 30, 2017, 35,88529, 2018, 60,957 shares were performance-based options for which the performance criteria had yet to be achieved.

On January 1, 2017,2018, the Company granted options to purchase an aggregate of 5,18517,531 shares of the Company’s Class A Common Stock to senior management with a weighted average fair value of $81.95$82.69 per share, of which all shares relate to performance-based stock options.

On April 30, 2018, the Company granted its Chief Executive Officer a stock option to purchase 9,959 shares of the Company’s Class A Common stock with a weighted average fair value of $100.50 per share, of which all shares relate to performance-based stock options and vest through 2022.

On May 18, 2017,17, 2018, the Company granted options to purchase an aggregate of 10,1885,080 shares of the Company’s Class A Common Stock to the Company’s non-employeenonemployee Directors. These options have a weighted average fair value of $67.72$113.12 per share. All of the options vested immediately on the date of the grant.

On August 1, 2017,May 31, 2018, the Company modified the performance criteria for performance-based options that were originally granted on April 26, 2016. This modification was accounted for in accordance with ASC718-20-35. The number of shares of the Company’s Class A Common Stock granted as options remained unchanged from the original grant at 20,681 while the weighted average fair value decreased from $72.53 per share to $67.92 per share.

On January 1, 2008, the Company granted the Chief Executive Officer a stock option to purchase 753,864 shares ofcancelled 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 Company’s Class A Common Stock over the exercise price cannot exceed $70.00 per share over the exercise price. At September 30, 2017 and September 24, 2016, the stock option remained unexercised as to 150,773 shares and 301,546 shares, respectively. If the stock option had been exercised on September 30, 2017, the exercise price would have been $86.20 per share. If the stock option had been exercised on September 24, 2016, the exercise price would have been $82.30 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 $8.41.

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 Company’s Class A Common Stock cannot exceed $150 per share over the exercise price. At September 30, 2017 and September 24, 2016, the stock option remained unexercised as to 574,507 shares. If the stock option had been exercised on September 30, 2017, the exercise price would have been $229.53 per share. If the stock option had been exercised on September 24, 2016, the exercise price would have been $217.53 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 theformer Chief Executive Officer’s planned retirement in 2018, the Company estimated a 100%2016 stock option of 574,507 shares due to forfeiture rate related to this grant.upon retirement.

Non-Vested Shares Activity

The following table summarizes vesting activities of shares issued under the investment share program and restricted stock awards:

On January 1, 2017,2018, the Company granted 12,35818,873 shares of restricted stock awards to certain officers, senior managers and key employees, of which all shares vest ratably over service periods of five years. On January 1, 2017,2018, employees elected to purchase 10,1469,214 shares under the Company’s investment share program. The weighted average fair value of the restricted stock awards and investment shares, which are sold to employees at discount under its investment share program, was $169.85$191.10 and $78.74$86.84 per share, respectively.

On March 3, 2017,April 30, 2018 the Company granted 2,167 shares ofits Chief Executive Officer 64,325 restricted stock awards towith a newly hired key employee, of which all shares vest ratably over a service period of five years. The weighted averageweighted-average fair value of the restricted stock award was $161.45.

On August 1, 2017, the Company granted 1,275 shares of restricted stock awards to a newly hired key employee, of which all shares vest ratably over a$229.30 per share with service period of five years. The weighted average fair value of the restricted stock award was $156.80.based vesting through 2023.

Stock-Based Compensation

Stock-based compensation expense related to share-based awards recognized in the thirteen weeks and thirty-nine weeks ended September 29, 2018 was $2.4 million and $7.0 million, respectively, and was calculated based on awards expected to vest. Stock-based compensation expense related to share-based awards recognized in the thirteen and thirty-nine weeks ended September 30, 2017 was $1.2 million and $4.6 million, respectively, and was calculated based on awards expected to vest. Stock-based compensation expense related to share-based awards recognized

L. Subsequent Events

As disclosed in the thirteen and thirty-nine weeks ended September 24, 2016 was $2.4 million and $8.1 million, respectively, and was calculated basedNote G, on awards expected to vest.

J. Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

In March 2016, the FASB issued ASUNo. 2016-09,Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting. ASU2016-09 is part of the FASB’s 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 ASU2016-09, 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 ASU2016-09, 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 thirteen and thirty-nine weeks ended September 30, 2017, $0.5 million and $4.3 million, respectively, in excess tax benefit from stock-based compensation arrangements was recognized within income tax provision in the consolidated statement of comprehensive income and classified as an operating activity in the consolidated statement of cash flow. 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 ASUNo. 2015-17,Balance Sheet Classification of Deferred Taxes. ASU2015-17 as part of the FASB’s 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 September 30, 2017 and December 31, 2016,October 11, 2018, the Company had $4.7 million and $7.4 million, respectively, of current deferred tax assets that are now classified as noncurrent onamended an existing brewing services agreement to include a minimum capacity availability commitment by the consolidated balance sheets under this new accounting standard.

In July 2015, the FASB issued ASUNo. 2015-11,Inventory (Topic 330), Simplifying the Measurement of Inventory. ASU2015-11 is part of the FASB’s initiative to simplify accounting standards. The guidance required an entity to recognize inventory within scope of the standard at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonable predictable costs of completion, disposal and transportation. The Company adopted this new accounting standard prospectively in the first quarter of 2017. This new accounting standard did not have a significant impact on the consolidated financial statements.

Accounting Pronouncements Not Yet Effective

In May 2014, the FASB issued ASUNo. 2014-09,Revenue from Contracts with Customers (Topic 606). ASU2014-09 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. ASU2014-09 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 ASU2014-09 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 ASUNo. 2015-14,Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. ASU2015-14 defers the effective date of ASU2014-09 for one year, making it effective for the Company’s fiscal year beginning December 31, 2017, with early adoption permitted as of January 1, 2017. The Company currently expects to adopt ASU2014-09 in the first quarter of 2018. The Company expects that the adoption of ASU2014-09 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 currently expected to be less than $2 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 accounting policies and controls to support the new revenue recognition and disclosure requirements.

In February 2016, the FASB issued ASUNo. 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. ASU2016-02 will be effective retrospectively for the year beginning December 30, 2018, with early adoption permitted. The Company currently expects to adopt ASU2016-02 in the first quarter of 2019. As of September 30, 2017 and December 31, 2016, the Company had $13.5 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.

In January 2017, the FASB issued ASUNo. 2017-04,Intangibles – Goodwill and Other (Topic 350): Simplfying the Test for Goodwill Impairment, which simplifies the accounting for goodwill impairments by eliminating step 2 from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. ASU2017-04 will be effective for all impairment tests performed beginning December 29, 2019. The Company does not expect adoption of ASU2017-04 to have a material impact on its consolidated financial statements.

K. Subsequent Events

On October 5, 2017, the Board of Directors approved an increase of $150.0 million to the previously approved $781.0 million share buyback expenditure limit for a new limit of $931.0 million.third party brewery.

The Company evaluated subsequent events occurring after the balance sheet date, September 30, 2017,29, 2018, and concluded that there were no other events of which management was aware that occurred after the balance sheet date that would require any adjustment to or disclosure in the accompanying consolidated financial statements.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion of the significant factors affecting the consolidated operating results, financial condition and liquidity and cash flows of the Company for the thirteen and thirty-nine week period ended September 30, 2017,29, 2018, as compared to the thirteen and thirty-nine week period ended September 24, 2016.30, 2017. This discussion should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements of the Company and Notes thereto, included in the Company’s Annual Report on Form10-K for the fiscal year ended December 31, 2016.30, 2017.

RESULTS OF OPERATIONS

Thirteen Weeks Ended September 30, 201729, 2018 compared to Thirteen Weeks Ended September 24, 201630, 2017