UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the quarterly period ended September ~~29, 2018~~

28, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the transition period from
to

Commission file number:

1-14092

THE BOSTON BEER COMPANY, INC.

(Exact name of registrant as specified in its charter)


~~MASSACHUSETTS~~
MASSACHUSETTS	04-3284048
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Design Center Place, Suite 850, Boston,

Massachusetts

(Address of principal executive offices)

02210

(Zip Code)

(617)

368-5000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act.


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock. $0. 0 1 par value	SAM	New York Stock Exchange
Class B Common Stock, $0. 0 1 par value	Not applicable	Unregistered

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

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, ~~small~~a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” ~~“small~~“smaller reporting company,” and “emerging growth company” in Rule

12b-2

of the Exchange Act. ~~(Check one):~~


Large accelerated filer	☒	Accelerated filer	☐
~~Non-accelerated~~ ~~filer~~	☐	~~Small reporting company~~	☐
Non-accelerated filer	☐	Small er reporting company	☐

Emerging growth company	☐

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

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Act.) Yes

☐

☒

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

25, 2019:


Class A Common Stock, $.01 par value	~~8,602,369~~ 9,216,022
Class B Common Stock, $.01 par value	~~3,017,983~~ 2,817,983
(Title of each class)	(Number of shares	)

~~(Number of shares~~

)

Table of Contents

THE BOSTON BEER COMPANY, INC.

FORM

10-Q

September ~~29, 2018~~

28, 2019

TABLE OF CONTENTS

PART I.

FINANCIAL INFORMATION

PAGE

~~PAGE~~

~~PART I.~~

~~FINANCIAL INFORMATION~~

Item 1.

~~Consolidated Financial Statements~~

Consolidated Financial Statements (Unaudited)

Consolidated Balance Sheets as of September ~~29, 2018~~28, 2019 and December ~~30, 2017~~29, 2018

Consolidated Statements of Comprehensive Income for the thirteen and thirty-nine weeks ended September ~~29, 2018~~28, 2019 and September ~~30, 2017~~29, 2018

Consolidated Statements of Stockholders’ Equity for the thirteen and thirty-nine weeks ended September 28, 2019 and September 29, 2018

Consolidated Statements of Cash Flows for the thirty-nine weeks ended September ~~29, 2018~~28, 2019 and September ~~30, 2017~~29, 2018

Notes to Consolidated Financial Statements

~~6-14~~

Item 2.

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

~~15-20~~

20-

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Item 4.

Controls and Procedures

PART II.

OTHER INFORMATION

Item 4.

~~Controls and Procedures~~

Legal Proceedings

~~PART II.~~

~~OTHER INFORMATION~~

Item 1A.

Risk Factors

Item 1.

~~Legal Proceedings~~

~~Item 1A.~~

~~Risk Factors~~

~~Item 2.~~

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 3.

~~Defaults Upon Senior Securities~~

Mine Safety Disclosures

Item 5.

Other Information

Item 4.

~~Mine Safety Disclosures~~

~~Item 5.~~

~~Other Information~~Exhibits

~~Item 6.~~

~~Exhibits~~

~~SIGNATURES~~

SIGNATURES

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

Table of Contents

PART I. FINANCIAL INFORMATION
~~Item 1. CONSOLIDATED FINANCIAL STATEMENTS~~

Item 1.

CONSOLIDATED FINANCIAL STATEMENTS

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

   September 29,
2018 December 30,
2017
Assets

Current Assets:

Cash and cash equivalents
   $ 68,887 $ 65,637
Accounts receivable, net of allowance for doubtful accounts of $39 and $0 as of September 29, 2018 and December 30, 2017, respectively
   52,812 33,749
Inventories
   72,254 50,651
Prepaid expenses and other current assets
   10,252 10,695
Income tax receivable
   16,439 7,616


Total current assets
   220,644 168,348
Property, plant and equipment, net
   387,069 384,280
Other assets
   12,308 13,313
Goodwill
   3,683 3,683


Total assets
   $ 623,704 $ 569,624


Liabilities and Stockholders’ Equity

Current Liabilities:

Accounts payable
   $ 62,047 $ 38,141
Accrued expenses and other current liabilities
   69,599 63,617


Total current liabilities
   131,646 101,758
Deferred income taxes, net
   47,637 34,819
Other liabilities
   9,875 9,524


Total liabilities
   189,158 146,101
Commitments and Contingencies (See Note G)

Stockholders’ Equity:

Class A Common Stock, $.01 par value; 22,700,000 shares authorized; 8,475,037 and 8,603,152 issued and outstanding as of September 29, 2018 and December 30, 2017, respectively
   85 86
Class B Common Stock, $.01 par value; 4,200,000 shares authorized; 3,017,983 and 3,017,983 issued and outstanding as of September 29, 2018 and December 30, 2017, respectively
   30 30
Additionalpaid-in capital
   402,056 372,590
Accumulated other comprehensive loss, net of tax
   (1,503 ) (1,288 )
Retained earnings
   33,878 52,105


Total stockholders’ equity
   434,546 423,523


Total liabilities and stockholders’ equity
   $ 623,704 $ 569,624

September 28,

December 29,

2019

2018

Assets

Current Assets:

Cash and cash equivalents
$
27,128
$
108,399

Accounts receivable

68,687

34,073

Inventories

92,632

70,249

Prepaid expenses and other current assets

14,965

13,136

Income tax receivable

5,980

5,714

Total current assets

209,392

231,571

Property, plant and equipment, net

521,316

389,789

Operating
right-of-use
assets

38,943

—

Goodwill

112,529

3,683

Intangible assets

104,335

2,099

Other assets

29,661

12,709

Total assets
$
1,016,176
$
639,851

Liabilities and Stockholders’ Equity

Current Liabilities:

Accounts payable
$
71,035
$
47,102

Accrued expenses and other current liabilities

92,850

73,412

Current operating lease liabilities

2,599

—

Total current liabilities

166,484

120,514

Deferred income taxes, net

81,653

49,169

Non-current
operating lease liabilities

41,215

—

Other liabilities

7,844

9,851

Total liabilities

297,196

179,534

Commitments and Contingencies (See Note
J
)

Stockholders’ Equity:

Class A Common Stock, $.01 par value; 22,700,000 shares authorized; 9,216,022 and 8,580,593 issued and outstanding as of September 28, 2019 and December 29, 2018, respectively

92

86

Class B Common Stock, $.01 par value; 4,200,000 shares authorized; 2,817,983 and 2,917,983 issued and outstanding as of September 28, 2019 and December 29, 2018, respectively

28

29

Additional
paid-in
capital

568,047

405,711

Accumulated other comprehensive loss, net of tax

(1,154
)
(1,197
)
Retained earnings

151,967

55,688

Total stockholders’ equity

718,980

460,317

Total liabilities and stockholders’ equity
$
1,016,176
$
639,851

The accompanying notes are an integral part of these consolidated financial statements.
3

Table of Contents

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, except per share data)
~~(unaudited)~~

   Thirteen weeks ended Thirty-nine weeks ended
   September 29,
2018 September 30,
2017 September 29,
2018 September 30,
2017
Revenue
   $ 326,852 $ 264,146 $ 818,257 $ 701,247
Less excise taxes
   19,982 17,099 47,830 44,575


Net revenue
   306,870 247,047 770,427 656,672
Cost of goods sold
   149,643 115,546 375,133 314,808


Gross profit
   157,227 131,501 395,294 341,864
Operating expenses:

Advertising, promotional and selling expenses
   87,765 63,647 241,796 185,232
General and administrative expenses
   22,734 16,358 65,951 54,315
Impairment of assets
   —   —   517 1,505


Total operating expenses
   110,499 80,005 308,264 241,052


Operating income
   46,728 51,496 87,030 100,812
Other income (expense), net:

Interest income, net
   343 211 821 381
Other (expense) income, net
   (51 ) 196 (539 ) 253


Total other income, net
   292 407 282 634


Income before income tax provision
   47,020 51,903 87,312 101,446
Income tax provision
   9,013 18,220 16,460 32,927


Net income
   $ 38,007 $ 33,683 $ 70,852 $ 68,519


Net income per common share—basic
   $ 3.25 $ 2.82 $ 6.02 $ 5.60


Net income per common share—diluted
   $ 3.21 $ 2.78 $ 5.96 $ 5.54


Weighted-average number of common shares—Class A basic
   8,557 8,789 8,646 9,037


Weighted-average number of common shares—Class B basic
   3,018 3,097 3,018 3,122


Weighted-average number of common shares—diluted
   11,702 12,037 11,773 12,299


Net income
   $ 38,007 $ 33,683 $ 70,852 $ 68,519


Other comprehensive income:

Foreign currency translation adjustment
   (13 ) (13 ) 4 (23 )


Comprehensive income
   $ 37,994 $ 33,670 $ 70,856 $ 68,496

(unaudited
)

Thirteen weeks ended

Thirty-nine weeks ended

September 28,

September 29,

September 28,

September 29,

2019

2018

2019

2018

Revenue
$
402,691
$
326,852
$
1,008,893
$
818,257

Less excise taxes

24,225

19,982

60,369

47,830

Net revenue

378,466

306,870

948,524

770,427

Cost of goods sold

190,631

149,643

477,147

375,133

Gross profit

187,835

157,227

471,377

395,294

Operating expenses:

Advertising, promotional and selling expenses

96,570

87,765

262,372

241,796

General and administrative expenses

31,429

22,734

81,552

65,951

Impairment of assets

—

—

243

517

Total operating expenses

127,999

110,499

344,167

308,264

Operating income

59,836

46,728

127,210

87,030

Other income (expense), net:

Interest (expense) income, net

(138
)
343

472

821

Other income (expense), net

(764
)
(51
)
(818
)
(539
)

Total other income (expense), net

(902
)
292

(346
)
282

Income before income tax provision

58,934

47,020

126,864

87,312

Income tax provision

14,205

9,013

30,585

16,460

Net income
$
44,729
$
38,007
$
96,279
$
70,852

Net income per common share
—
basic
$
3.70
$
3.25
$
8.16
$
6.02

Net income per common share
—
diluted
$
3.65
$
3.21
$
8.07
$
5.96

Weighted-average number of common shares
—
Class A basic

9,136

8,557

8,797

8,646

Weighted-average number of common shares
—
Class B basic

2,862

3,018

2,899

3,018

Weighted-average number of common shares
—
diluted

12,150

11,702

11,823

11,773

Net income
$
44,729
$
38,007
$
96,279
$
70,852

Other comprehensive income:

Foreign currency translation adjustment

1

(13
)
43

4

Comprehensive income
$
44,730
$
37,994
$
96,322
$
70,856

The accompanying notes are an integral part of these consolidated financial statements.
4

Table of Contents

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~
STOCKHOLDERS’ EQUITY

For the Thirteen and Thirty-nine weeks ended September 28, 2019 and September 29, 2018

(in thousands)

(unaudited)

   Thirty-nine weeks ended
   September 29,
2018 September 30,
2017
Cash flows provided by operating activities:

Net income
   $ 70,852 $ 68,519
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization
   38,860 38,372
Impairment of assets
   517 1,505
Loss on disposal of property, plant and equipment
   45 571
Bad debt expense
   39 170
Stock-based compensation expense
   6,995 4,593
Deferred income taxes
   12,818 (3,581 )
Changes in operating assets and liabilities:

Accounts receivable
   (20,412 ) (6,658 )
Inventories
   (20,836 ) (9,330 )
Prepaid expenses, income tax receivable and other assets
   (8,385 ) 2,852
Accounts payable
   20,560 5,371
Accrued expenses and other current liabilities
   6,309 6,244
Other liabilities
   693 (390 )


Net cash provided by operating activities
   108,055 108,238


Cash flows used in investing activities:

Purchases of property, plant and equipment
   (38,752 ) (23,415 )
Proceeds from disposal of property, plant and equipment
   2 16
Cash paid for acquisition of intangible assets
   5 —
Change in restricted cash
   131 (4 )


Net cash used in investing activities
   (38,614 ) (23,403 )


Cash flows used in financing activities:

Repurchase of Class A Common Stock
   (88,311 ) (121,535 )
Proceeds from exercise of stock options
   21,528 15,159
Cash paid on note payable
   (78 ) (60 )
Net proceeds from sale of investment shares
   670 611


Net cash used in financing activities
   (66,191 ) (105,825 )


Change in cash and cash equivalents
   3,250 (20,990 )
Cash and cash equivalents at beginning of year
   65,637 91,035


Cash and cash equivalents at end of period
   $ 68,887 $ 70,045


Supplemental disclosure of cash flow information:

Income taxes paid
   $ 11,252 $ 22,408


Decrease in accounts receivable for ASU2014-09 adoption
   $ (1,310 ) $ —


Income taxes refunded
   $ —   $ 2


Increase (Decrease) in accounts payable for purchase of property, plant and equipment
   $ 3,346 $ (3,763 )

Class A
Common
Shares

Class A
Common
Stock,
Par

Class B
Common
Shares

Class B
Common
Stock, Par

Additional
Paid-in

Capital

Accumulated
Other
Comprehensive
Loss, net of tax

Retained
Earnings

Total
Stockholders’
Equity

Balance at December 29, 2018

8,580

$
  86

2,918

$
  29

$
  405,711

$
(1,197
)

$
55,688

$
  460,317

Net income

23,694

23,694

Stock options exercised and restricted shares activities

54

—

3,704

3,704

Stock-based compensation expense

2,066

2,066

Currency translation adjustment

37

37

Balance at March 30, 2019

8,634

$
86

2,918

$
29

$
411,481

$
(1,160
)

$
79,382

$
489,818

Net income

27,856

27,856

Stock options exercised and restricted shares activities

21

1

1,377

1,378

Stock-based compensation expense

3,744

3,744

Currency translation adjustment

5

5

Balance at June 29, 2019

8,655

$
87

2,918

$
29

$
416,602

$
(1,155
)

$
107,238

$
522,801

Net income

44,729

44,729

Stock options exercised and restricted shares activities

31

—

3,473

3,473

Stock-based compensation expense

3,233

3,233

Shares issued in connection with Dogfish Head merger

430

4

144,739

144,743

Conversion from Class B to Class A

100

1

(100
)

(1
)

—

Currency translation adjustment

1

1

Balance at September 28, 2019

9,216

$
92

2,818

$
28

$
568,047

$
(1,154
)

$
151,967

$
718,980

Class A
Common
Shares

Class A
Common
Stock,
Par

Class B
Common
Shares

Class B
Common
Stock, Par

Additional
Paid-in

Capital

Accumulated
Other
Comprehensive
Loss, net of tax

Retained
Earnings

Total
Stockholders’
Equity

Balance at December 30, 2017

8,603

$
86

3,018

$
30

$
372,590

$
(1,288
)

$
52,105

$
423,523

Net income

9,310

9,310

Stock options exercised and restricted shares activities

188

2

20,232

20,234

Stock-based compensation expense

1,491

1,491

Repurchase of Class A Common Stock

(91
)

(1
)

(16,638
)

(16,639
)
Currency translation adjustment

(11
)

(11
)
One time effect of adoption of ASU
2014-09,
Revenue from Contracts with Customers, net of tax of $329

(982
)

(982
)
One time effect of adoption of ASU
2018-02,
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

(210
)

210

—

Balance at March 31, 2018

8,700

$
87

3,018

$
30

$
394,313

$
(1,509
)

$
44,005

$
436,926

Net income

23,535

23,535

Stock options exercised and restricted shares activities

32

—

2,224

2,224

Stock-based compensation expense

3,079

3,079

Repurchase of Class A Common Stock

(97
)

(1
)

(23,084
)

(23,085
)
Currency translation adjustment

(7
)

(7
)

Balance at June 30, 2018

8,635

$
86

3,018

$
30

$
399,616

$
(1,516
)

$
44,456

$
442,672

Net income

38,007

38,007

Stock options exercised and restricted shares activities

2

—

15

15

Stock-based compensation expense

2,425

2,425

Repurchase of Class A Common Stock

(162
)

(1
)

(48,585
)

(48,586
)
Currency translation adjustment

13

13

Balance at September 29, 2018

8,475

$
85

3,018

$
30

$
402,056

$
(1,503
)

$
33,878

$
434,546

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

Table of Contents

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Thirty-nine weeks ended

September 28,
2019

September 29,
2018

Cash flows provided by operating activities:

Net income
$
96,279
$
70,852

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

Depreciation and amortization

41,841

38,860

Impairment of assets

243

517

Loss on disposal of property, plant and equipment

449

45

Change in ROU assets

2,734

—

Bad debt (recovery) expense

53

39

Stock-based compensation expense

9,043

6,995

Deferred income taxes

14,047

12,818

Changes in operating assets and liabilities:

Accounts receivable

(26,532
)
(20,412
)
Inventories

(16,847
)
(20,836
)
Prepaid expenses, income tax receivable and other assets

(13,903
)
(8,385
)
Accounts payable

22,388

20,560

Accrued expenses and other current liabilities

14,949

6,309

Change in operating lease liability

(2,270
)
—

Other liabilities

207

693

Net cash provided by operating activities

142,681

108,055

Cash flows used in investing activities:

Purchases of property, plant and equipment

(66,760
)
(38,752
)
Proceeds from disposal of property, plant and equipment

144

2

Cash paid for acquisition of intangible assets
—
5

Investment in Dogfish Head, net of cash acquired

(165,517
)
—

Other investing activities

(10
)
131

Net cash used in investing activities

(232,143
)
(38,614
)

Cash flows provided by (used in) financing activities:

Repurchase of Class A Common Stock

—

(88,311
)
Proceeds from exercise of stock options

7,619

21,528

Net cash paid on note payable and capital lease

(246
)
(78
)
Cash borrowed on line of credit

97,000

—

Cash paid on line of credit

(97,000
)
—

Net proceeds from sale of investment shares

818

670

Net cash provided (used in) by financing activities

8,191

(66,191
)

Change in cash and cash equivalents

(81,271
)
3,250

Cash and cash equivalents at beginning of year

108,399

65,637

Cash and cash equivalents at end of period
$
27,128
$
68,887

Supplemental disclosure of cash flow information:

Non cash consideration issued in Dogfish Head Transaction (Refer to Note B)

$
144,743

$
—
Income taxes paid
$
16,759
$
11,252

Cash paid for amounts included in measurement of lease liabilities
$
3,443
$
—

Right-of-use
assets obtained in exchange for operating lease obligations
$
41,678
$
—

Right-of-use
assets obtained in exchange for capital lease obligations
$
2,837
$
—

Interest paid on revolving credit facility
$
349
$
—

Decrease in accounts receivable for ASU
2014-09
adoption
$
—
$
(1,310
)

Decrease in accounts payable for purchase of property, plant and equipment
$
(2,076
) $
3,346

The accompanying notes are an integral part of these consolidated financial statements.
6

Table of Contents

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
~~A. Organization and Basis of Presentation~~

A.	Organization and Basis of Presentation

The Boston Beer Company, Inc. and certain subsidiaries (the “Company”) are engaged in the business of producing and selling alcohol beverages throughout the United States and in selected international markets, under the trade names, ~~The~~“The Boston Beer Company^{®
”, Twisted“}

Dogfish Head

Craft Brewery”, “Twisted Tea Brewing Company^{®
”, Angry“Angry Orchard^{®
Cider Company, HardCompany”, “Hard Seltzer Beverage Company, Traveler Beer Co.^®Company”, Angel“Angel City®
Brewing Company”, “Concrete Beach Brewery®
”, “Coney Island®
Brewing Company”, “Marathon Brewing Company^®™
”, Concrete Beach Brewery^®and Coney Island^® Brewing Company.
“American Fermentation Company”.}}

The accompanying unaudited consolidated balance sheet as of September ~~29, 2018,~~28, 2019, and the consolidated statements of comprehensive income, stockholders’ equity, and ~~consolidated statements of~~ cash flows for the interim periods ended September ~~29, 2018~~28, 2019 and September ~~30, 2017~~29, 2018 have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnotes normally included in financial statements prepared in accordance with 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 Form
10-K
for the year ended December ~~30, 2017.~~
29, 2018.

In the opinion of the Company’s management, the Company’s unaudited consolidated balance sheet as of September ~~29, 2018~~28, 2019 and the results of its consolidated operations, stockholders’ equity, and ~~consolidated~~ cash flows for the interim periods ended September ~~29, 2018~~28, 2019 and September ~~30, 2017,~~29, 2018, 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.	Dogfish Head Brewery Transaction

On May 8, 2019,
the Company
entered into definitive agreements to acquire Dogfish Head Brewery
(“Dogfish Head”)
and various related operations (the “Transaction
”
), through the acquisition of all of the equity interests held by certain private entities in
Off-Centered
Way LLC, the parent holding company of the Dogfish Head operations. In accordance with these agreements,
the
Co
mpany
made a payment of $158.4 million, which was placed in escrow pending the satisfaction of certain closing conditions. The Transaction closed on July 3, 2019, for total consideration of $336.0 million
consisting of $173.0 million in cash and 429,291 shares of restricted Class A Common Stock that had an aggregate market value as of July 3, 2019 of $163.0 million
, after taking into account a post-closing cash related adjustment. As required under the definitive agreements, 127,146 of the 429,291 shares of restricted Class A Stock have been placed in escrow and will be released no later than July 3, 2029. These shares had a market value on July 3, 2019 of $48.3 million. The timing of the release of these escrowed shares is primarily related to the continued employment with the Company of Samuel A. Calagione III, one of the two Dogfish Head founders
.

The fair value of the Transaction is estimated at approximately $317.7 million. The Company estimates that transaction-related and other
non-recurring
costs incurred and to be incurred as a result of the Transaction will total approximately $9.1 million. Of this total, $7.9 million had been expensed as of September 28, 2019
and consists of $3.3 million in transaction costs and $4.6 million in other non-recurring costs.
As part of the Transaction, certain members of Dogfish Head management entered into employment agreements with the Company and were granted 906 shares of restricted stock units that vest in one year and have a fair value of approximately $345,000. The Company funded the cash component of the Transaction through cash
on-hand
and its existing line of credit as described in Note
L
.

Table of Contents
The following table summarizes the acquisition date fair value of the tangible assets, intangible assets, liabilities assumed, and related goodwill acquired from Dogfish Head, as well as the allocation of purchase price paid:

Total (In Thousands)

Cash and cash equivalents
$
7,476

Accounts receivable

8,081

Inventories

9,286

Prepaid expenses and other current assets

847

Property, plant and equipment

106,964

Goodwill

108,846

Brand

98,500

Other intangible assets

3,800

Other assets

378

Total assets acquired

344,178

Accounts payable

3,861

Accrued expenses and other current liabilities

4,085

Deferred income taxes

18,437

Other liabilities

59

Total liabilities assumed

26,442

Net assets acquired
$
317,736

Cash consideration
$
172,993

Nominal value of equity issued

162,999

Fair Value reduction due to liquidity

(18,256
)

Estimated total purchase price
$
317,736

The Company accounted for the acquisition in accordance with the accounting standards codification guidance for business combinations, whereby the total purchase price was allocated to the acquired net tangible and intangible assets of Dogfish Head based on their fair values as of the Transaction closing date. The Company believes that the information available as of the Transaction closing date provides a reasonable basis for estimating the fair values of the assets acquired and liabilities assumed; however, the Company is continuing to finalize these amounts, particularly with respect to income taxes and valuation of inventories, fixed assets, and intangible assets. Thus, the preliminary measurements of fair value reflected are subject to change as additional information becomes available and as additional analysis is performed. The Company expects to finalize the valuation and complete the allocation of the purchase price as soon as practicable, but no later than one year from the closing date of the acquisition, as required.
The fair value of the Dogfish Head brand trade name is estimated at approximately $98.5 million and the fair value of customer relationships is estimated at $3.8 million.
The Company
estimated the Dogfish Head brand trade name
will have
an indefinite life and customer relationships will have an estimated useful life of 15 years. The customer relationship intangible asset will be amortized on a straight-line basis over the
15 year estimated useful life. The fair value of the deferred income tax liability assumed is $18.4 million, representing the expected future tax consequences of temporary differences between the fair values of the assets acquired and liabilities assumed and their tax bas
i
s. The Company used a preliminary consolidated tax rate to determine the net deferred tax liabilities. The Company will record measurement period adjustments as the Company applies the appropriate tax rate for each legal entity within Dogfish Head. The expectation is that the Dogfish Head deferred income taxes will be subject to the Company’s consolidated rate
.
The excess of the purchase price paid over the estimated fair values of the assets and liabilities assumed has been recorded as goodwill in the amount of $108.8 million.
Goodwill associated with the acquisition is primarily attributable to the future growth opportunities associated with the Transaction
,
expected synergies
and value of the workforce. The Company believes the majority of the goodwill is deductible for tax purposes.
The fair value of the brand trade name was determined utilizing the relief from royalty method which is a form of the income approach. Under this method, a royalty rate based on observed market royalties is applied to projected revenue supporting the trade name and discounted to present value using an appropriate discount rate. The fair value of the property, plant and equipment was determined utilizing the cost and market valuation approaches.
8

Table of Contents
The results of operations from Dogfish Head have been included in the Company’s consolidated statement
s
of operations since the July 3, 2019 Transaction closing date. During the three months ended
September
28
,
2019
, Dogfish Head represented $
27.7
million of the Company’s total revenue and $
3.4
million of total net income. Transaction costs incurred by the Company in connection with the
Transaction
were $
2.3
million
and
$3.3 million
for
thirteen and thirty
-nin
e
weeks
ended September
28
,
2019
,
respectively
,
and were recorded within general and administrative expenses in the Company’s consolidated statements of operations.
Consistent with prior periods and considering post-merger reporting structures, the Company will continue to report as one operating segment. The combined Company’s brands are predominantly beverages that are manufactured using similar production processes, have comparable alcohol content, generally fall under the same regulatory environment, and are sold to the same types of customers in similar size quantities at similar price points and through the same channels of distribution.
The following unaudited pro forma information has been prepared as if the Transaction and the related debt
financing had occurred as of December
31
,
2017
, the first day of the Company’s
2018
fiscal year. The pro forma amounts reflect the combined historical operational results for Boston Beer and Dogfish Head, after giving effect to adjustments related to the impact of purchase accounting, transaction costs and financing. The
unaudited
pro forma financial information is not indicative of the operational results that would have been obtained had the Transaction occurred as of that date, nor is it necessarily indicative of the Company’s future operational results. The following adjustments have been made:
(i) Depreciation and amortization expenses were updated to reflect the fair value adjustments to Dogfish Head property, plant and equipment and intangible assets beginning December 31, 2017.
(ii)
Transaction costs incurred in the thirteen and thirty-nine weeks ended September 28, 2019 have been
re-assigned
to the first period of the comparative fiscal year.
(iii) Interest expense has been included at a rate of approximately 3% which is consistent with the borrowing rate on the Company’s current line of credit.
(iv) The tax effects of the pro forma adjustments at an estimated statutory rate of 25.6%.
(v) Earnings per share amounts are calculated using the Company’s historical weighted average shares outstanding plus the 429,291 shares issued in the merger.

Thirteen weeks ended

Thirty-nine weeks ended

September 28,
2019

September 29,
2018

September 28,
2019

September 29,
2018

Net revenue
$
  379,205
$
  335,954
$
  1,002,939
$
  852,611

Net income
$
46,445
$
42,638
$
103,105
$
77,541

Basic earnings per share
$
3.84
$
3.51
$
8.74
$
6.36

Diluted earnings per share
$
3.79
$
3.48
$
8.64
$
6.30

C.
Goodwill and Intangible Assets
The change in the carrying value of goodwill and
intangible assets
during the thirty-nine weeks ended September 28, 2019 and September 29, 2019 were as follows:

Thirty-nine weeks ended

September 28,

September 29,

2019

2018

Goodwill as of beginning of period
$
3,683
$
3,683

Acquired goodwill

108,846

—

Impairment of goodwill

—

—

Goodwill as of end of period
$
112,529
$
3,683

The $108.8 million of goodwill acquired during the thirty-nine weeks ended September 28, 2019 is related to the Dogfish Head transaction disclosed in Note B. ~~Recent Accounting Pronouncements~~
No impairment of existing goodwill was recorded in the period.
9

Table of Contents
The Company’s intangible assets as of September 28, 2019 and December 29, 2018 were as follows:

As of September 28, 2019

As of December 29, 2018

Estimated Useful

Gross Carrying

Accumulated

Net Book

Gross Carrying

Accumulated

Net Book

Life (Years)

Value

Amortization

Value

Value

Amortization

Value

Custmer Relationships

15
$
3,800
$
(64
) $
3,736
$
—
$
—
$
—

Trade Names

Indefinite

100,599

—

100,599

2,099

—

2,099

Total intangible assets
$
104,399
$
(64
) $
104,335
$
2,099
$
—
$
2,099

During the thirty-nine weeks ended September 28, 2019 the Company acquired intangible assets as part of the Dogfish Head Transaction disclosed in Note
B, that consists of $98.5 million for to the value of the Dogfish Head brand name and $3.8 million for the value of customer relationships. The customer relationship intangible will be amortized on a straight-line basis over the 15 year useful life. Amortization expense in the thirty-nine weeks ended September 28, 2019 was approximately $64,000. The Company expects to record amortization expense as follows over the remaining current year and the five subsequent years:

Fiscal Year

Amount

Remainder of 2019
$
63

2020

253

2021

253

2022

253

2023

253

2024

253

D.
Recent Accounting Pronouncements
Accounting Pronouncements Recently Adopted
In May 2014, the FASB issued ASUNo.
2014-09,
Revenue from Contracts with Customers (Topic 606)
. ASU
2014-09
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~~earnings in the ~~accounting standards in effect for those periods.~~first quarter of 2018. The Company ~~expects~~considers 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 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 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
right-of-use
(“ROU”) assets and lease liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. Under ASU
2016-02, ~~will be effective retrospectively~~
lessees are permitted to use a modified retrospective approach, which requires an entity to recognize and measure leases existing at, or entered into after, the beginning of the earliest comparative period presented for the year beginning December 30, 2018, with early adoption permitted. In July 2018, the FASB issued ASU No.
2018-11,
Leases (Topic 842), permitting the use of an alternative modified retrospective approach that would result in an entity recognizing a lease liability and ROU asset as of the effective date of the requirements, with all comparative periods presented and disclosed, in accordance with ASC 840, Leases requirements, changing the date of initial application to the beginning of the period of adoption. On December 30, 2018, the Company adopted the new accounting standard using the alternative modified retrospective approach, applying ASC 840 to all comparative periods, including disclosures. Upon adoption, the Company recognized ROU assets of $27.0 million and lease liabilities of $31.5 million. The Company considers the impact of the adoption to be immaterial to its consolidated financial statements on an ongoing basis.
10

Table of Contents

Accounting Pronouncements Not Yet Effective

In June 2016, the FASB issued ASU
2016-13,
Financial Instruments – Credit Losses (Topic 326)
: Measurement of Credit Losses on Financial Instruments. The guidance requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to
inform credit loss estimates. ASU
2016-13
is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently ~~expects~~assessing the impact of adopting this standard but does not expect the adoption of this guidance to ~~adopt ASU2016-02~~ ~~in the first quarter of 2019. As of September 29, 2018 and December 30,~~have a material impact on its consolidated financial statements.

In January 2017, the ~~Company had $26.6 million~~FASB issued ASU No.
2017-04,
Intangibles—Goodwill and ~~$12.8 million, respectively,~~Other (Topic 350): Simplifying the Test for Goodwill Impairment
. Prior to ASU No.
2017-04,
the goodwill impairment test is a
two-step
assessment if indicators of ~~contractual obligations on lease agreements,~~impairment exist. The first step requires an entity to compare each reporting unit’s carrying value and its fair value. If the ~~present~~reporting unit’s carrying value exceeds the fair value, then the entity must perform the second step, which is to compare the implied fair value of goodwill to its carrying value, and record an impairment charge for any excess of carrying value of goodwill over its implied fair value. An entity also has the option to perform a qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU
2017-04
simplifies the goodwill impairment test by eliminating the second step of the test. As such, an entity will perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which ~~would~~the reporting unit’s carrying amount exceeds its fair value. If fair value exceeds the carrying amount, no impairment should be ~~included~~recorded. ASU
2017-04
will be effective prospectively for the year beginning December 29, 2019. The Company does not expect the adoption of ASU
2017-04
to have a material impact on ~~the~~its consolidated ~~balance sheets under the new guidance.~~
~~C. Revenue Recognition~~
financial statements.

E.	Revenue Recognition

During the thirty-nine weeks ended September ~~29, 2018~~28, 2019 approximately ~~94%~~95% of the Company’s revenue was from shipments of its products to domestic ~~Distributors~~
d
istributors and 5%4% from shipments to international ~~Distributors,~~
d
istributors, 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 28, 2019 and December 29, 2018, ~~and September 30, 2017,~~ the Company has deferred ~~$6.1~~$6.9 million and ~~$4.2~~$4.6 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~~
d
istributors for certain periods of time. The reimbursements for discounts to ~~Distributors~~
d
istributors are recorded asa
s reductions to net revenue and were ~~$11.1~~$14.8 million and ~~$26.8~~$34.5 million for the thirteen and thirty-nine weeks ended September ~~29, 2018,~~28, 2019, respectively. Reimbursements for discounts for the thirteen and thirty-nine weeks ended September ~~30, 2017~~29, 2018 were ~~$9.6~~$11.1 million and ~~$23.0~~$26.8 million, respectively. The agreed-upon discount rates are applied to ~~certain Distributors’~~certai
n
d
i
stributors’ 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~~
d
istributors are primarily based upon performance of certain marketing and advertising activities. Depending on applicable state laws and regulations, these activities promoting the Company’s products may include, but are not limited to
point-of-sale
and merchandise placement, samples, product displays, promotional programs at retail locations and meals, travel and entertainment. Amounts paid to customers in connection with these programs that were recorded as reductions to revenue for the thirteen and thirty-nine weeks ended September ~~29, 2018~~28, 2019 were ~~$3.5~~$6.2 million and ~~$9.7~~$13.0 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~~29, 2018 were ~~$3.8~~$3.5 million and ~~$9.8~~$9.7 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~~$2.8 million and ~~$4.8~~$2.0 million for the thirteen ~~and thirty-nine~~ weeks ended September 28, 2019 and September 29, 2018, respectively, as a result of the Tax Cuts and Jobs Act of 2017.
The Company benefited from a reduction in federal excise taxes of $6.6 million and $4.8 million for the thirty-nine weeks ended September 28, 2019 and September 29, 2018, respectively, as a result of the Tax Cuts and Jobs Act of 2017.

~~D. Inventories~~

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

   September 29,
2018    December 30,
2017
   (in thousands)
Current inventory:

Raw materials
   $ 46,037    $ 33,086
Work in process
   9,467    6,826
Finished goods
   16,750    10,739




Total current inventory
   72,254    50,651
Long term inventory
   9,138    9,905




Total inventory
   $ 81,392    $ 60,556




September 28,
2019

December 29,
2018

(in thousands)

Current inventory:

Raw materials
$
51,322
$
44,655

Work in process

13,270

8,252

Finished goods

28,040

17,342

Total current inventory

92,632

70,249

Long term inventory

15,369

11,619

Total inventory
$
108,001
$
81,868

G.
Leases
The Company has various lease agreements in place for facilities and equipment. Terms of these leases include, in some instances, scheduled rent increases, renewals, purchase options and maintenance costs, and vary by lease. These lease obligations expire at various dates through 2031. As the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate based on information available at commencement to determine the present value of the lease payments. Based on the present value of the lease payments for the remaining lease term of the Company’s existing leases, the Company recognized ROU assets of $27.0 million and lease liabilities of $31.5 million upon adoption of ASU No.
2016-02
on December 30, 2018. ROU assets and lease liabilities commencing after December 30, 2018 are recognized at commencement date based on the present value of lease payments over the lease term. Leases with an initial term of 12 mont
hs or less
(“short-term leases”) are not recorded on the balance sheet and are recognized on a straight-line basis over the lease term. As of September 28, 2019, total ROU assets and lease liabilities were as follows:

Classification

Leases

Right-of-use
assets

(in thousands)

Operating lease assets

Operating
right-of-use
assets
$
38,943

Capital lease assets

Property, plant and equipment, net

2,663

Lease Liabilities

Current

Operating lease liabilities

Current operating lease liabilities

2,599

Capital lease liabilities

Accrued expenses and other current
l
iabilities

541

Non-current

Operating lease liabilities

Non-current
operating lease liabilities

41,215

Capital lease liabilities

Other liabilities

2,178

Aggregate lease expense for the thirteen weeks ended September 28, 2019 was $1.9 million, consisting of $1.6 million in lease expense for lease liabilities recorded on the Company’s balance sheet and $0.3 million in short-term lease expense. Aggregate lease expense for the thirty-nine weeks ended September 28, 2019 was $4.9 million, consisting of $3.9 million in lease expense for lease liabilities recorded on the Company’s balance sheet and $1.0 million in short-term lease expense.
12

Table of Contents~~E. Net Income per Share~~
Maturities of lease liabilities as of September 28, 2019 are as follows:

Operating

Capital

Weighted-Average
Remaining Term in Years

Leases

Leases

Operating Leases

Capital Leases

(in thousands)

2019
$
1,466
$
155

2020

2,642

626

2021

5,754

626

2022

5,453

626

2023

5,313

626

After 2023

32,191

288

Total lease payments

52,819

2,947

Less imputed interest (based on 3.5% weighted-average discount rate)

(9,005
)
(228
)

Present value of lease liability
$
43,814
$
2,719

4.7

9.9

Future minimum lease payments expected under
non-cancellable
operating lease agreements in effect at December 29, 2018 were as follows:

Leases

(in thousands)

2019
$
4,446

2020

4,530

2021

4,370

2022

3,559

2023

1,672

Thereafter

7,582

Total
$
26,159

H.
Net Income per Share
The Company calculates net income per share using the
two-class
method, which requires the Company to allocate net income to its Class A Common Shares, Class B Common Shares and unvested share-based payment awards that participate in dividends with common stock, in the calculation of net income per share.
The Class A Common Stock has no voting rights, except (1) as required by law, (2) for the election of Class A Directors, and (3) that the approval of the holders of the Class A Common Stock is required for (a) certain future authorizations or issuances of additional securities which have rights senior to Class A Common Stock, (b) certain alterations of rights or terms of the Class A or Class B Common Stock as set forth in the Articles of Organization of the Company, (c) other amendments of the Articles of Organization of the Company, (d) certain mergers or consolidations with, or acquisitions of, other entities, and (e) sales or dispositions of any significant portion of the Company’s assets.
The Class B Common Stock has full voting rights, including the right to (1) elect a majority of the members of the Company’s Board of Directors and (2) approve all (a) amendments to the Company’s Articles of Organization, (b) mergers or consolidations with, or acquisitions of, other entities, (c) sales or dispositions of any significant portion of the Company’s assets, and (d) equity-based and other executive compensation and other significant corporate matters. The Company’s Class B Common Stock is not listed for trading. Each share of the Class B Common Stock is freely convertible into one share of Class A Common Stock, upon request of the respective Class B holder, and participates equally in dividends.
The Company’s unvested share-based payment awards include unvested shares (1) issued under the Company’s investment share program, which permits employees who have been with the Company for at least one year to purchase shares of Class A Common Stock and to purchase those shares at a discount ranging from 20% to 40% below market value based on years of employment starting after two years of employment, and (2) awarded as restricted stock awards at the discretion of the Company’s Board of Directors. The investment shares and restricted stock awards generally vest over
five years
in equal number of shares. The unvested shares participate equally in dividends. See Note K
N
for a discussion of the current year unvested stock awards and issuances.
Included in the computation of net income per diluted common share are dilutive outstanding stock options and restricted stock that are vested or expected to vest. At its discretion, the Board of Directors grants stock options and restricted stock to senior management and certain key employees. The terms of the employee stock options are determined by the Board of Directors at the time of grant. To date, stock options granted to employees vest over various service periods and/or based on the attainment
13
Table of Contents
of certain performance criteria and generally expire after ten years. In December 2018, the Employee Equity Incentive Plan was amended to permit the grant of restricted stock units. The restricted stock units generally vest over four years in equal number of shares. Each restricted stock unit represents an unfunded and unsecured right to receive one share of Class A Stock upon satisfaction of the vesting criteria. The unvested shares participate equally in dividends and are forfeitable. Prior to March 1, 2019, the Company granted restricted stock awards, generally vesting over
five years
in equal number of shares. The Company also grants stock options to its
non-employee
directors upon election or
re-election
to the Board of Directors. The number of option shares granted to
non-employee
directors is calculated based on a defined formula and these stock options vest immediately upon grant and expire after ten years.
Net Income per Common ~~Share—~~Share
—
Basic
The following table sets forth the computation of basic net income per share using the
two-class
method:

   Thirteen weeks ended    Thirty-nine weeks ended
   September 29,
2018    September 30,
2017    September 29,
2018    September 30,
2017
   (in thousands, except per share data)    (in thousands, except per share data)
Net income
   $ 38,007    $ 33,683    $ 70,852    $ 68,519








Allocation of net income for basic:

Class A Common Stock
   $ 27,786    $ 24,772    $ 52,051    $ 50,647
Class B Common Stock
   9,800    8,730    18,169    17,493
Unvested participating shares
   421    181    632    379








   $ 38,007    $ 33,683    $ 70,852    $ 68,519
Weighted average number of shares for basic:

Class A Common Stock
   8,557    8,789    8,646    9,037
Class B Common Stock*
   3,018    3,097    3,018    3,122
Unvested participating shares
   130    65    105    67








   11,705    11,951    11,769    12,226
Net income per share for basic:

Class A Common Stock
   $ 3.25    $ 2.82    $ 6.02    $ 5.60








Class B Common Stock
   $ 3.25    $ 2.82    $ 6.02    $ 5.60








Thirteen weeks ended

Thirty-nine weeks ended

September 28,
2019

September 29,
2018

September 28,
2019

September 29,
2018

(in thousands, except per share data)

(in thousands, except per share data)

Net income
$
44,729
$
38,007
$
96,279
$
70,852

Allocation of net income for basic:

Class A Common Stock
$
33,776
$
27,786
$
71,761
$
52,051

Class B Common Stock

10,581

9,800

23,652

18,169

Unvested participating shares

372

421

866

632

$
44,729
$
38,007
$
96,279
$
70,852

Weighted average number of shares for basic:

Class A Common Stock

9,136

8,557

8,797

8,646

Class B Common Stock*

2,862

3,018

2,899

3,018

Unvested participating shares

101

130

106

105

12,099

11,705

11,802

11,769

Net income per share for basic:

Class A Common Stock
$
3.70
$
3.25
$
8.16
$
6.02

Class B Common Stock
$
3.70
$
3.25
$
8.16
$
6.02

*
Change in Class B Common Stock resulted from the conversion of ~~79,000~~
100,000
shares to Class A Common Stock on ~~October 31, 2017~~November 1, 2018 and
100,000
shares to Class A Common stock on August 8, 2019 with the ending number of shares reflecting the weighted average for the period.
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) the
two-class
method, which assumes the participating securities are not exercised.
1
4
Table of Contents
The following table sets forth the computation of diluted net income per share, assuming the conversion of all Class B Common Stock into Class A Common Stock and using the
two-class
method for unvested participating shares:

   Thirteen weeks ended
   September 29, 2018    September 30, 2017
   Earnings to
Common
Shareholders    Common Shares    EPS    Earnings to
Common
Shareholders    Common Shares    EPS
   (in thousands, except per share data)
As reported—basic
   $ 27,786    8,557    $ 3.25    $ 24,772    8,789    $ 2.82
Add: effect of dilutive potential common shares

Share-based awards
   —      127       —      151
Class B Common Stock
   9,800    3,018       8,730    3,097
Net effect of unvested participating shares
   5    —         2    —









Net income per common share—diluted
   $ 37,591    11,702    $ 3.21    $ 33,504    12,037    $ 2.78









   Thirty-nine weeks ended
   September 29, 2018    September 30, 2017
   Earnings to
Common
Shareholders    Common Shares    EPS    Earnings to
Common
Shareholders    Common Shares    EPS
   (in thousands, except per share data)
As reported—basic
   $ 52,051    8,646    $ 6.02    $ 50,647    9,037    $ 5.60
Add: effect of dilutive potential common shares

Share-based awards
   —      109       —      140
Class B Common Stock
   18,169    3,018       17,493    3,122
Net effect of unvested participating shares
   5    —         4    —









Net income per common share—diluted
   $ 70,225    11,773    $ 5.96    $ 68,144    12,299    $ 5.54












Thirteen weeks ended

September 28, 2019

September 29, 2018

Earnings to
Common
Shareholders

Common Shares

EPS

Earnings to
Common
Shareholders

Common Shares

EPS

(in thousands, except per share data)

As reported
—
basic
$
33,776

9,136
$

3.70
$
27,786

8,557
$

3.25

Add: effect of dilutive potential common shares

Share-based awards

—

152

—

127

Class B Common Stock

10,581

2,862

9,800

3,018

Net effect of unvested participating shares

4

—

5

—

Net income per common share
—
diluted
$
44,361

12,150
$
3.65
$
37,591

11,702
$
3.21

Thirty-nine weeks ended

September 28, 2019

September 29, 2018

Earnings to
Common
Shareholders

Common Shares

EPS

Earnings to
Common
Shareholders

Common Shares

EPS

(in thousands, except per share data)

As reported
—
basic
$
71,761

8,797
$
8.16
$
52,051

8,646
$
6.02

Add: effect of dilutive potential common shares

Share-based awards

—

127

—

109

Class B Common Stock

23,652

2,899

18,169

3,018

Net effect of unvested participating shares

8

—

5

—

Net income per common share
—
diluted
$
95,421

11,823
$
8.07
$
70,225

11,773
$
5.96

During the thirteen and thirty-nine weeks ended September 28, 2019, weighted-average stock options to purchase approximately 27,000 and 21,000 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 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 of Class A Common Stock were outstanding but not included in computing dilutive income per common share because their effects were anti-dilutive. The significant decrease in weighted-average stock options outstanding for the thirteen and thirty-nine weeks ended September 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 stock option upon retirement. Additionally, performance-based stock options to purchase approximately ~~61,000~~10,000 and ~~36,000~~61,000 shares of Class A Common Stock were outstanding as of September ~~29, 2018~~28, 2019 and September ~~30, 2017,~~29, 2018, respectively, but not included in computing diluted income per common share because the performance criteria of these stock options ~~was~~ w
ere
not met as of the end of the reporting period.
~~Of the~~
The performance-based stock options to purchase approximately ~~61,000~~10,000 shares of Class A Common Stock that were excluded from computing diluted net income per common share as of September ~~29, 2018, 31,000 shares~~28, 2019, were granted in 2016 to ~~two~~a key ~~employees.~~employee. The vesting of these shares requires annual depletions, or sales by ~~Distributors~~
d
istributors to retailers, of certain of the Company’s brands to attain various thresholds during the period from 2017 to 2023. 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.
~~F. Comprehensive Income or Loss~~
I.
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 ~~29, 2018~~28, 2019 and September ~~30, 2017~~29, 2018 were not material.
~~G. Commitments and Contingencies~~
J.
Commitments and Contingencies
Contract Obligations
The Company had outstanding total
non-cancelable
contract obligations of ~~$229.3~~$211.2 million at September ~~29, 2018.~~28, 2019. These obligations are made up of advertising contracts of ~~$64.7~~$75.3 million,
equipment and machinery of $53.0 million
,
hops, barley and wheat totaling ~~$64.3~~$49.7 million, other ingredients of ~~$31.7 million, equipment and machinery of $29.5 million, operating leases of $26.6~~$12.0 million, glass bottles of ~~$2.6~~$1.7 million, and other commitments of ~~$9.9~~$19.5 million.
Currently, the Company has entered into contracts for barley and wheat with 3 major suppliers. The contracts include crop year 2018 and 2019 and cover the Company’s barley, wheat, and malt requirements for 2019 and part of 2020. These purchase commitments outstanding at September 28, 2019 totaled $12.2 million.
The Company has entered into contracts for the supply of a portion of its hops requirements. These purchase contracts extend through crop year 2025 and specify both the quantities and prices, denominated in U.S. Dollars, Euros, ~~and~~ New Zealand Dollars, and British Pounds, to which the Company is committed. Hops purchase commitments outstanding at September ~~29, 2018~~28, 2019 totaled ~~$45.4~~$37.4 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 the remainder
1
5
Table of ~~2018 and all of 2019. These purchase commitments outstanding at September 29, 2018 totaled $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 29, 2018 totaled $2.6 million.
The Company has various operating lease agreements for facilities and equipment as of September 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 2028. The contractual obligation on these lease agreements as of September 29, 2018 totaled $26.6 million.
Contents
Currently, the Company brews and packages more than ~~80%~~70% of its volume at Company-owned breweries. In the normal course of its business, the Company has historically entered into various production arrangements with other brewing companies. Pursuant to these arrangements, the Company supplies raw materials to those brewing companies, and incurs conversion fees for labor at the time the liquid is produced and packaged.
On October 11, 2018, the Company amended an existing brewing services agreement to include a minimum capacity availability commitment by the third 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 capital improvements at the third party’s brewing 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.
~~H. Income Taxes~~
K.
Income Taxes
As of September ~~29, 2018~~28, 2019 and December ~~30, 2017,~~29, 2018, the Company had approximately ~~$0.9~~$0.8 million and ~~$0.3~~$0.8 million, respectively, of unrecognized income tax benefits.
The Company’s practice is to classify interest and penalties related to income tax matters in income tax expense. As of September ~~29, 2018~~28, 2019 and December ~~30, 2017,~~29, 2018, the Company had ~~$0.1~~$0.2 million and ~~$0.0~~$0.1 million, respectively, accrued for interest and ~~penalties.~~
~~In September 2017, the~~penalties recorded in other liabilities.
The Internal Revenue Service ~~commenced~~completed an examination of the ~~Company’s~~ 2015 consolidated corporate income tax ~~return. The examination was completed with~~return and issued a no change report ~~issued on July 26,~~in 2018. The Company’s state income tax returns remain subject to examination for three or four years depending on the state’s statute of limitations. The Company is being audited by one state as of September ~~29, 2018.~~28, 2019. 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~~28, 2019 and September ~~30, 2017:~~

   Thirteen weeks ended
   September 29,    September 30,
   2018    2017
   (in thousands)
Summary of income tax provision

Tax provision based on net income
   $ 13,671    $ 18,753
Accounting Method Changes
   $ (4,529 )    $ —
Benefit of ASU2016-09
   (129 )    (533 )




Total income tax provision
   $ 9,013    $ 18,220




   Thirty-nine weeks ended
   September 29,    September 30,
   2018    2017
   (in thousands)
Summary of income tax provision

Tax provision based on net income
   $ 24,969    $ 37,189
Accounting Method Changes
   $ (4,529 )    $ —
Benefit of ASU2016-09
   (3,980 )    (4,262 )




Total income tax provision
   $ 16,460    $ 32,927




~~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~~ 29, ~~2018.~~
2018:

Thirteen weeks ended

September 28,

September 29,

2019

2018

(in thousands)

Summary of income tax provision

Tax provision based on net income
$
16,047
$
13,671

Accounting Method Changes

—

(4,529
)
Benefit of ASU
2016-09

(1,842
)
(129
)

Total income tax provision
$
14,205
$
9,013

Thirty-nine weeks ended

September 28,

September 29,

2019

2018

(in thousands)

Summary of income tax provision

Tax provision based on net income
$
34,455
$
24,969

Accounting Method Changes

—

(4,529
)
Benefit of ASU
2016-09

(3,870
)
(3,980
)

Total income tax provision
$
30,585
$
16,460

The Company’s effective tax rate for the thirteen weeks ended September ~~29, 2018 decreased~~28, 2019, excluding the impact of ASU
2016-09,
increased to ~~19.2%~~27.2% from ~~35.1%~~19.4% for the thirteen weeks ended September ~~30, 2017~~29, 2018, primarily due to the
one-time
favorable ~~impact of the Tax Cuts and Jobs Act of 2017 including theone-time~~ impact of tax accounting method ~~changes.~~changes in 2018 and no similar
one-time
favorable impacts in 2019. The Company’s effective tax rate for the thirty-nine weeks ended September ~~29, 2018 decreased~~28, 2019, excluding the impact of ASU
2016-09,
increased to ~~18.9%~~27.2% from ~~32.5%~~23.4% for the thirty-nine weeks ended September ~~30, 2017~~29, 2018, primarily due to the
one-time
favorable ~~impact of the Tax Cuts and Jobs Act of 2017 including theone-time~~ impact of tax accounting method ~~changes.~~
changes in 2018 and no similar
one-time
favorable impacts in 2019.
~~I. Revolving Line~~
16
Table of ~~Credit~~
Contents
L.
Revolving Line of Credit
In March 2018, the Company amended its credit facility in place that provides for a $150.0 million revolving line of credit to extend the scheduled expiration date to March 31, 2023. On May 6, 2019, the Company
borrowed
$75.0 million of the available balance to fund the Dogfish Head
Transaction
. The interest rate for the borrowings
wa
s 2.95% (applicable LIBOR rate of 2.5% plus 0.45%). As of September ~~29, 2018,~~28, 2019, the
Company was not in violation of any of its financial covenants to the lender under the credit facility and had repaid the Transaction borrowing in full, so that there were no borrowings outstanding ~~so that~~and the line of credit was fully available to the Company for borrowing.
~~J. Fair Value Measures~~
M.
Fair Value Measures
The Company defines fair value as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Level 1 — Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 — Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 — Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.
The Company’s money market funds are measured at fair value on a recurring basis (at least annually) and are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The money market funds are invested substantially in United States Treasury and government securities. The Company does not adjust the quoted market price for such financial instruments. Cash, receivables and payables are carried at their cost, which approximates fair value, because of their short-term nature.
At September ~~29, 2018~~28, 2019 and December ~~30, 2017,~~29, 2018, 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 September ~~29, 2018~~28, 2019 and December ~~30, 2017,~~29, 2018, the Company’s cash and cash equivalents balance was ~~$68.9~~$27.1 million and ~~$65.6~~$108.4 million, respectively, including money market funds amounting to ~~$69.0~~$21.4 million and ~~$63.8~~$107.5 million, ~~respectively.~~
~~K. Common Stock and Stock-Based Compensation~~
respectively
.
N.
Common Stock and Stock-Based Compensation
Option Activity
Information related to stock options under the Restated Employee Equity Incentive Plan and the Stock Option Plan for
Non-Employee
Directors is summarized as follows:

Shares Weighted-Average
Exercise Price Weighted-Average Remaining
Contractual Term in Years Aggregate Intrinsic Value
(in thousands)
Outstanding at December 30, 2017
1,156,997 $ 158.53
Granted
32,570 210.24
Forfeited
(613,630 ) 199.94
Expired
—   —
Exercised
(200,898 ) 106.69

Outstanding at September 29, 2018
375,039 $ 156.03 5.66 $ 49,310,933

Exercisable at September 29, 2018
151,647 $ 115.91 3.60 $ 26,027,039

Vested and expected to vest at September 29, 2018
352,321 $ 153.77 5.56 $ 47,120,023

Shares

Weighted-Average

Exercise Price

Weighted-Average
Remaining
Contractual Term in Years

Aggregate Intrinsic
Value
(in thousands)

Outstanding at December 29, 2018

366,829
$
155.75

Granted

31,286

313.56

Forfeited

—

—

Expired

—

—

Exercised

(72,937
)
104.47

Outstanding at September 28,

2019

325,178
$
182.44

5.83
$
55,196

Exercisable at September 28, 2019

102,613
$
139.16

3.96
$
21,859

Vested and expected to vest at September 28, 2019

300,886
$
180.81

5.76
$
51,563

Of the total options outstanding at September ~~29, 2018, 60,957~~28, 2019, 65,306 shares were performance-based options for which the performance criteria had yet to be achieved.
17
Table of Contents
On ~~January~~March 1, ~~2018,~~2019, the Company granted options to purchase an aggregate of ~~17,531~~14,680 shares of the Company’s Class A Common Stock to senior management with a weighted average fair value of ~~$82.69~~$136.00 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 17, 2018,~~March 14, 2019, the Company granted options to purchase an aggregate of ~~5,080~~844 shares of the Company’s Class A Common Stock to the Company’s newly appointed
non-employee
Director. These options have a weighted average fair value of $136.10 per share, of which all shares vested immediately.
On April 29, 2019, the Company granted options to purchase an aggregate of 11,827 shares of the Company’s Class A Common Stock to the Company’s newly appointed Chief Marketing Officer with a weighted average fair value of $126.83 per share with service based vesting through 2024.
On May 16, 2019, the Company granted options to purchase an aggregate of 3,935 shares of the Company’s Class A Common Stock to the Company’s nonemployee Directors. These options have a weighted average fair value of ~~$113.12~~$145.95 per share. All of the options vested immediately on the date of the grant.
~~On May 31, 2018, the Company cancelled its former Chief Executive Officer’s 2016 stock option of 574,507 shares due to forfeiture upon retirement.~~
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 30, 2017
   62,405    $ 155.21
Granted
   92,775    207.56
Vested
   (20,678 )    156.50
Forfeited
   (7,170 )    167.53



Non-vested at September 29, 2018
   127,332    $ 192.45




Number of Shares

Weighted Average Fair Value

Non-vested
at December 29, 2018

126,720
$
192.74

Granted

30,410
$
269.91

Vested

(33,201
) $
188.63

Forfeited

(1,550
) $
142.00

Non-vested
at September 28, 2019

122,379
$
213.67

On January 1, ~~2018,~~2019, the Company granted ~~18,873~~a key employee 207 shares of restricted stock ~~awards~~units with a weighted average fair value of $240.84 and vests ratable over the service period of four years.
On March 1, 2019, the Company granted 16,471 shares of restricted stock units to certain officers, senior managers and key employees, of which all shares vest ratably over service periods of ~~five~~four years. On ~~January~~March 1, ~~2018,~~2019, employees elected to purchase ~~9,214~~7,901 shares under the Company’s investment share program. The weighted average fair value of the restricted stock ~~awards~~units and investment shares, which are sold to employees at discount under its investment share program, was ~~$191.10~~$312.56 and ~~$86.84~~$147.98 per share, respectively.
On April ~~30, 2018~~29, 2019, the Company granted its newly appointed Chief ~~Executive~~Marketing Officer ~~64,325~~4,925 shares of restricted stock ~~awards~~units with a weighted-average fair value of ~~$229.30~~$304.56 per share with service based vesting through 2023.
On July 3, 2019, the Company granted 4 key employees 906 shares of restricted stock units with a weighted average fair value of $379.63 and service based vesting in
one year
.
Stock-Based Compensation
Stock-based compensation expense related to share-based awards recognized in the thirteen and thirty-nine weeks ended September 28, 2019 was $3.2 million and $9.0 million, respectively, and was calculated based on awards expected to vest. Stock-based compensation expense related to share-based awards recognized in the thirteen 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~~
O.
Employee Retirement Plans
The Company has one company-sponsored defined benefit pension plan that covers certain of its union employees. It was established in 1991 and is open to all union employees who are covered by the Company’s collective bargaining agreement with Teamsters Local Union No. 1199 (“Local Union 1199”). As of December 29, 2018, the fair value of the plan assets w
as
$3.3
18
Table of Contents
million and the benefit obligation was $5.4 million. On April 21, 2019, the Company reached an agreement with the Local Union 1199 to terminate the Local Union No. 1199 Pension Plan effective January 1, 2020 through either lump sum payments or the purchase of third party annuities. In the fourth quarter of 2020 the Company expects to complete the termination of the plan and record an expense of approximately $1.7 million as a result of the termination.
P.
Related Party Transactions
In connection with the Dogfish Head Transaction, the Company has entered a lease with the Dogfish Head founders and other owners of buildings used in certain of the Company’s restaurant operations. The lease is for ten years with renewal options. The total payments due under the initial ten year term is $3.6 million. Total related ~~to share-based awards~~party expense recognized infor the ~~thirteen and thirty-nine weeks~~13-weeks ended September ~~30, 2017~~28, 2019 was ~~$1.2 million and $4.6 million, respectively, and was calculated based on awards expected to vest.~~
~~L. Subsequent Events~~
~~As disclosed in Note G, on October 11, 2018, the Company amended an existing brewing services agreement to include a minimum capacity availability commitment by the third party brewery.~~
approximately $91,000.
Q.
Subsequent Events
The Company evaluated subsequent events occurring after the balance sheet date, September ~~29, 2018,~~28, 2019, and concluded that there were no events of which management was aware that occurred after the balance sheet date that would require any adjustment to or disclosure in the accompanying consolidated financial statements.
1
9
Table of Contents
~~Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~
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 ~~29, 2018,~~28, 2019, as compared to the thirteen and thirty-nine week period ended September ~~30, 2017.~~29, 2018. This discussion should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the Consolidated Financial Statements of the Company and Notes thereto included in the Company’s Annual Report on Form
10-K
for the fiscal year ended December ~~30, 2017.~~
29, 2018.
RESULTS OF OPERATIONS
Thirteen Weeks Ended September ~~29, 2018~~28, 2019 compared to Thirteen Weeks Ended September ~~30, 2017~~

   Thirteen Weeks Ended
(in thousands, except per barrel)
   September 29,
2018 September 30,
2017 Amount
change % change Per barrel
change
Barrels sold
   1,338       1,084       255 23.5 %
      Per barrel    % of net
revenue    Per barrel    % of net
revenue
Net revenue
   $ 306,870    $ 229.27    100.0 % $ 247,047    $ 228.00    100.0 % $ 59,823 24.2 % $ 1.27
Cost of goods
   149,643    111.80    48.8 % 115,546    106.64    46.8 % 34,097 29.5 % 5.16










Gross profit
   157,227    117.47    51.2 % 131,501    121.36    53.2 % 25,726 19.6 % (3.89 )
Advertising, promotional and selling expenses
   87,765    65.57    28.6 % 63,647    58.74    25.8 % 24,118 37.9 % 6.83
General and administrative expenses
   22,734    16.99    7.4 % 16,358    15.10    6.6 % 6,376 39.0 % 1.89
Impairment of assets
   —      —      0.0 % —      —      0.0 % —   0.0 % —










Total operating expenses
   110,499    82.56    36.0 % 80,005    73.84    32.4 % 30,494 38.1 % 8.72
Operating income
   46,728    34.91    15.2 % 51,496    47.53    20.8 % (4,768 ) -9.3 % (12.62 )
Other income (expense), net
   292    0.22    0.1 % 407    0.38    0.2 % (115 ) -28.3 % (0.16 )










Income before income tax expense
   47,020    35.13    15.3 % 51,903    47.90    21.0 % (4,883 ) -9.4 % (12.77 )
Income tax expense
   9,013    6.73    2.9 % 18,220    16.82    7.4 % (9,207 ) -50.5 % (10.09 )










Net income
   $ 38,007    $ 28.40    12.4 % $ 33,683    $ 31.09    13.6 % $ 4,324 12.8 % $ (2.69 )










29, 2018

Thirteen Weeks Ended
(in thousands, except per barrel)

September 28,
2019

September 29,
2018

Amount
change

% change

Per barrel
change

Barrels sold

1,594

1,338

255

19.1
%

Per barrel

% of net
revenue

Per barrel

% of net
revenue

Net revenue
$
378,466
$
237.46

100.0
% $
306,870
$
229.27

100.0
% $
71,596

23.3
% $
8.19

Cost of goods

190,631

119.61

50.4
%
149,643

111.80

48.8
%
40,988

27.4
%
7.81

Gross profit

187,835

117.85

49.6
%
157,227

117.47

51.2
%
30,608

19.5
%
0.38

Advertising, promotional and selling expenses

96,570

60.59

25.5
%
87,765

65.57

28.6
%
8,805

10.0
%
(4.98
)
General and administrative expenses

31,429

19.72

8.3
%
22,734

16.99

7.4
%
8,695

38.2
%
2.73

Total operating expenses

127,999

80.31

33.8
%
110,499

82.56

36.0
%
17,500

15.8
%
(2.25
)
Operating income

59,836

37.54

15.8
%
46,728

34.91

15.2
%
13,108

28.1
%
2.63

Other (expense) income

(902
)
(0.57
)
-0.2
%
292

0.22

0.1
%
(1,194
)
-408.9
%
(0.79
)

Income before income tax expense

58,934

36.98

15.6
%
47,020

35.13

15.3
%
11,914

25.3
%
1.85

Income tax expense

14,205

8.91

3.8
%
9,013

6.73

2.9
%
5,192

57.6
%
2.18

Net income
$
44,729
$
28.06

11.8
% $
38,007
$
28.40

12.4
% $
6,722

17.7
% $
(0.34
)

Net revenue.
Net revenue increased by ~~$59.8~~$71.6 million, or ~~24.2%~~23.3%, to $378.5 million for the thirteen weeks ended September 28, 2019, as compared to $306.9 million for the thirteen weeks ended September 29, 2018, ~~as compared to $247.0 million for the thirteen weeks ended September 30, 2017,~~ primarily as a result of an increase in shipments.
Volume.
Total shipment volume increased by ~~23.5%~~19.1% to 1,594,000 barrels for the thirteen weeks ended September 28, 2019, as compared to 1,338,000 barrels for the thirteen weeks ended September 29, 2018, ~~as compared to 1,084,000 barrels for the thirteen weeks ended September 30, 2017,~~ primarily due ~~toincreases~~to
increases in shipments of Truly ~~Spiked & Sparkling,~~Hard Seltzer and Twisted Tea brand products and ~~Angry Orchard~~the addition of Dogfish Head brand products, partially offset by decreases in ~~shipments of~~ Samuel Adams and Angry Orchard brand products.
Depletions, or sales by ~~Distributors~~distributors to retailers, of the Company’s products for the thirteen weeks ended September ~~29, 2018~~28, 2019 increased by approximately ~~18%~~30% compared to the thirteen weeks ended September ~~30, 2017,~~29, 2018, primarily due to increase in depletions of Truly ~~Spiked & Sparkling,~~Hard Seltzer and Twisted Tea brand products and ~~Angry Orchard~~the addition of Dogfish Head brand products, partially offset by decreases in Samuel Adams and Angry Orchard brand products.
~~Shipments for the quarter increased at a higher rate than depletions and resulted in higher distributor inventory as of September 29, 2018 when compared to September 30, 2017.~~
The Company believes distributor inventory as of September ~~29, 2018~~28, 2019 averaged approximately 3 weeks on hand and was at an appropriate level based on inventory requirements to support forecasted ~~growth of brands and new innovations. Inventory at Distributors participating in the Freshest Beer Program as of September 29, 2018 increased slightly~~growth. The Company expects wholesaler inventory levels in terms of ~~days of inventory~~weeks on hand ~~when compared~~ to ~~September 30, 2017. The Company has approximately 77%~~remain between 2 and 4 weeks for the remainder of ~~its volume on~~ the ~~Freshest Beer Program.~~
year.
Net revenue per barrel.
Net revenue per barrel increased by ~~0.6%~~3.6% to ~~$229.27~~$237.46 per barrel for the thirteen weeks ended September ~~29, 2018,~~28, 2019, as compared to ~~$228.00~~$229.27 per barrel for the comparable period in ~~2017,~~2018, primarily due to price increases and ~~lower excise taxes due to~~ the ~~Tax Cuts and Jobs Act~~impact of ~~2017, partially offset by package mix.~~
Dogfish Head brand higher revenue per barrel.
Cost of goods sold.
Cost of goods sold was $119.61 per barrel for the thirteen weeks ended September 28, 2019, as compared to $111.80 per barrel for the thirteen weeks ended September 29, ~~2018, as compared to $106.64 per barrel for the thirteen weeks ended September 30, 2017.~~2018. The ~~2018~~2019 increase in cost of goods sold of ~~$5.16~~$7.81 per barrel was primarily the result of higher processing costs due to increased production at third party ~~locations,~~breweries and higher temporary labor requirements at Company-owned breweries ~~and higher packaging costs, only~~to support increased variety pack volumes, partially offset by cost saving initiatives ~~in Company owned~~at Company-owned breweries.
20

Table of Contents
Gross profit.
Gross profit was $117.85 per barrel for the thirteen weeks ended September 28, 2019, as compared to $117.47 per barrel for the thirteen weeks ended September 29, ~~2018, as compared to $121.36~~2018. The increase in gross profit per barrel of $0.38 was primarily the result of an increase in net revenue per barrel, partially offset by an increase in cost of goods sold per barrel. Gross margin was 49.6% for the thirteen weeks ended September ~~30, 2017. Gross margin was~~28, 2019, as compared to 51.2% for the thirteen weeks ended September 29, ~~2018, as compared to 53.2% for the thirteen weeks ended September 30, 2017.~~2018. The ~~decrease~~decline in gross ~~profit per barrel of $3.89 was~~margin primarily ~~the result of an increase in cost of goods sold per barrel,~~resulted from higher processing costs due to increased production at third party breweries and higher temporary labor requirements at Company-owned breweries to support increased variety pack volumes, partially offset by ~~an increase in net revenue per barrel.~~
price increases and cost saving initiatives at Company-owned breweries.
The Company includes freight charges related to the movement of finished goods from its manufacturing locations to ~~Distributor~~distributor locations in its advertising, promotional and selling expense line item. As such, the Company’s gross margins may not be comparable to those of other entities that classify costs related to distribution differently.
Advertising, promotional and selling.
Advertising, promotional and selling expenses increased by ~~$24.1~~$8.8 million, or ~~37.9%~~10.0%, to $96.6 million for the thirteen weeks ended September 28, 2019, as compared to $87.8 million for the thirteen weeks ended September 29, ~~2018, as compared~~2018. The increase was primarily due to ~~$63.6 million~~increased investments in local marketing, media and production and the addition of Dogfish Head brand related expenses beginning July 3, 2019.
Advertising, promotional and selling expenses were 25.5% of net revenue, or $60.59 per barrel, for the thirteen weeks ended September ~~30, 2017. The increase was primarily the result of increased planned investments in media advertising and local marketing, higher salaries and benefits costs, and increased freight~~28, 2019, as compared to ~~Distributors due to higher rates and volumes, and less efficient truck utilization.~~
~~Advertising, promotional and selling expenses were~~ 28.6% of net revenue, or $65.57 per barrel, for the thirteen weeks ended September 29, ~~2018, as compared to 25.8% of net revenue, or $58.74~~2018. This decrease per barrel ~~for the thirteen weeks ended September 30, 2017.~~is primarily due to shipments growing at a higher rate than advertising, promotional and selling expenses. The Company invests in advertising and promotional campaigns that it believes will be effective, but there is no guarantee that such investments will generate sales growth.
The Company conducts certain advertising and promotional activities in its ~~Distributors’~~distributors’ markets, and the ~~Distributors~~distributors make contributions to the Company for such efforts. These amounts are included in the Company’s statements of comprehensive income as reductions to advertising, promotional and selling expenses. Historically, contributions from ~~Distributors~~distributors for advertising and promotional activities have amounted to between 2% and 3% of net sales. The Company may adjust its promotional efforts in the ~~Distributors’~~distributors’ markets if changes occur in these promotional contribution arrangements, depending on industry and market conditions.
General and administrative.
General and administrative expenses increased by ~~$6.4~~$8.7 million, or ~~39.0%~~38.2%, to $31.4 million for the thirteen weeks ended September 28, 2019, as compared to $22.7 million for the thirteen weeks ended September 29, ~~2018, as compared to $16.4 million for the thirteen weeks ended September 30, 2017.~~2018. The increase was primarily due to ~~increases in salaries~~
non-recurring
Dogfish Head Transaction-related fees of $3.6 million and ~~benefits~~the addition of Dogfish Head general and ~~stock compensation costs.~~
administrative expenses beginning July 3, 2019.
Income tax expense.
During the thirteen weeks ended September ~~29, 2018,~~28, 2019, the Company recorded a net income tax expense of ~~$9.0~~$14.2 million which consists of ~~$13.7~~$16.0 million income tax expenses partially offset by a ~~$4.5 millionone-time~~ ~~impact related to tax accounting method changes and $0.1~~$1.8 million tax benefit related to stock option exercises in accordance with ASU
2016-09.
The Company’s~~non-GAAP~~ effective tax rate for the thirteen weeks ended September ~~29, 2018,~~28, 2019, excluding the impact of ~~the adoption of~~ ASU
2016-09, ~~decreased~~
increased to ~~19.4%~~27.2% from ~~36.1%~~19.4% for the thirteen weeks ended September ~~30, 2017,~~29, 2018, primarily due to the
one-time
favorable impact of ~~the Tax Cuts and Jobs Act of 2017 including a favorable one-time impact due to~~tax accounting method changes ~~reported~~ in ~~the current period.~~
2018 and no similar
one-time
favorable impacts in 2019.
21

Table of Contents
Thirty-nine Weeks Ended September ~~29, 2018~~28, 2019 compared to Thirty-nine Weeks Ended September ~~30, 2017~~

   Thirty-nine Weeks Ended
(in thousands, except per barrel)
   September 29,
2018 September 30,
2017 Amount
change % change Per barrel
change
Barrels sold
   3,328       2,869       458 16.0 %
      Per barrel    % of net
revenue    Per barrel    % of net
revenue
Net revenue
   $ 770,427    $ 231.51    100.0 % $ 656,672    $ 228.86    100.0 % $ 113,755 17.3 % $ 2.65
Cost of goods
   375,133    112.73    48.7 % 314,808    109.71    47.9 % 60,325 19.2 % 3.02










Gross profit
   395,294    118.79    51.3 % 341,864    119.14    52.1 % 53,430 15.6 % (0.35 )
Advertising, promotional and selling expenses
   241,796    72.66    31.4 % 185,232    64.56    28.2 % 56,564 30.5 % 8.10
General and administrative expenses
   65,951    19.82    8.6 % 54,315    18.93    8.3 % 11,636 21.4 % 0.89
Impairment of assets
   517    0.16    0.1 % 1,505    0.52    0.2 % (988 ) -65.6 % (0.36 )










Total operating expenses
   308,264    92.63    40.0 % 241,052    84.01    36.7 % 67,212 27.9 % 8.62
Operating income
   87,030    26.15    11.3 % 100,812    35.13    15.4 % (13,782 ) -13.7 % (8.98 )
Other income (expense), net
   282    0.08    0.0 % 634    0.22    0.1 % (352 ) -55.5 % (0.14 )










Income before income tax expense
   87,312    26.24    11.3 % 101,446    35.35    15.4 % (14,134 ) -13.9 % (9.11 )
Income tax expense
   16,460    4.95    2.1 % 32,927    11.48    5.0 % (16,467 ) -50.0 % (6.53 )










Net income
   $ 70,852    $ 21.29    9.2 % $ 68,519    $ 23.88    10.4 % $ 2,333 3.4 % $ (2.59 )










29, 2018

Thirty-nine Weeks Ended
(in thousands, except per barrel)

Amount
change

%
change

Per
barrel
change

September 28,
2019

September 29,
2018

Barrels sold

4,045

3,328

717

21.5
%

Per barrel

% of net
revenue

Per barrel

% of net
revenue

Net revenue
$
948,524
$
234.51

100.0
% $
770,427
$
231.51

100.0
% $
178,097

23.1
% $
3.00

Cost of goods

477,147

117.97

50.3
%
375,133

112.73

48.7
%
102,014

27.2
%
5.24

Gross profit

471,377

116.54

49.7
%
395,294

118.79

51.3
%
76,083

19.2
%
(2.25
)
Advertising, promotional and selling expenses

262,372

64.87

27.7
%
241,796

72.66

31.4
%
20,576

8.5
%
(7.79
)
General and administrative expenses

81,552

20.16

8.6
%
65,951

19.82

8.6
%
15,601

23.7
%
0.34

Impairment of assets

243

0.06

0.0
%
517

0.16

0.1
%
(274
)
-53.0
%
(0.10
)

Total operating expenses

344,167

85.09

36.3
%
308,264

92.63

40.0
%
35,903

11.6
%
(7.54
)
Operating income

127,210

31.45

13.4
%
87,030

26.15

11.3
%
40,180

46.2
%
5.30

Other (expense) income, net

(346
)
(0.09
)
0.0
%
282

0.08

0.0
%
(628
)
-222.7
%
(0.17
)

Income before income tax expense

126,864

31.37

13.4
%
87,312

26.24

11.3
%
39,552

45.3
%
5.13

Income tax expense

30,585

7.56

3.2
%
16,460

4.95

2.1
%
14,125

85.8
%
2.61

Net income
$
96,279
$
23.80

10.2
% $
70,852
$
21.29

9.2
% $
25,427

35.9
% $
2.51

Net revenue.
Net revenue increased by ~~$113.8~~$178.1 million, or ~~17.3%~~23.0%, to $948.5 million for the thirty-nine weeks ended September 28, 2019, as compared to $770.4 million for the thirty-nine weeks ended September 29, 2018, ~~as compared to $656.7 million for the thirty-nine weeks ended September 30, 2017,~~ primarily as a result of an increase in ~~shipments and increases in net revenue per barrel.~~
shipments.
Volume.
Total shipment volume increased by ~~16%~~21.5% to 4,045,000 barrels for the thirty-nine weeks ended September 28, 2019, as compared to 3,328,000 barrels for the thirty-nine weeks ended September 29, 2018, ~~as compared~~primarily due to ~~2,869,000 barrels for the thirty-nine weeks ended September 30, 2017, primarily duetoincreases~~
increases in shipments of Truly ~~Spiked & Sparkling,~~Hard Seltzer and Twisted Tea brand products and ~~Angry Orchard~~the addition of Dogfish Head brand products, partially offset by decreases in ~~shipments of~~ Samuel Adams and Angry Orchard brand products.
Depletions, or sales by ~~Distributors~~distributors to retailers, of the Company’s products for the thirty-nine weeks ended September ~~29, 2018~~28, 2019 increased by approximately ~~13%~~21% compared to the thirty-nine weeks ended September ~~30, 2017,~~29, 2018, primarily due to increases in depletions of Truly ~~Spiked & Sparkling,~~Hard Seltzer and Twisted Tea brand products and ~~Angry Orchard~~the addition of Dogfish Head brand products, partially offset by decreases in Samuel Adams and Angry Orchard brand products.
Net revenue per barrel.
Net revenue per barrel increased by ~~1.2%~~1.3% to ~~$231.51~~$234.51 per barrel for the thirty-nine weeks ended September ~~29, 2018,~~28, 2019, as compared to ~~$228.86~~$231.51 per barrel for the comparable period in ~~2017,~~2018, primarily due to ~~pricing increases and lower excise taxes due to the Tax Cuts and Jobs Act of 2017 partially offset by package mix.~~
price increases.
Cost of goods sold.
Cost of goods sold was $117.97 per barrel for the thirty-nine weeks ended September 28, 2019, as compared to $112.73 per barrel for the thirty-nine weeks ended September 29, ~~2018, as compared to $109.71 per barrel for the thirty-nine weeks ended September 30, 2017.~~2018. The ~~2018~~2019 increase in cost of goods sold of ~~$3.02~~$5.24 per barrel was primarily the result of higher processing costs due to increased production at third party breweries and higher temporary labor requirements at Company-owned breweries ~~and higher packaging costs, only~~to support increased variety pack volumes, partially offset by cost ~~savings~~saving initiatives ~~in Company~~at Company-owned breweries.
Gross profit.
Gross profit was $116.54 per barrel for the thirty-nine weeks ended September 28, 2019, as compared to $118.79 per barrel for the thirty-nine weeks ended September 29, 2018, as compared to $119.14 per barrel for the thirty-nine weeks ended September 30, 2017. Gross margin was 51.3% for the thirty-nine weeks ended September 29, 2018, as compared to 52.1% for the thirty-nine weeks ended September 30, 2017.2018. The decrease in gross profit per barrel of ~~$0.35~~$2.25 was primarily the result of an increase in cost of goods sold per barrel ~~only~~ partially offset by an increase in net revenue per barrel.
Gross margin was 49.7% for the thirty-nine weeks ended September 28, 2019, as compared to 51.3% for the thirty-nine weeks ended September 29, 2018. The decline in gross margin primarily resulted from higher processing costs due to increased production at third party breweries and higher temporary labor requirements at Company-owned breweries to support increased variety pack volumes, partially offset by price increases and cost saving initiatives at Company-owned breweries.
22

Table of Contents
Advertising, promotional and selling.
Advertising, promotional and selling expenses increased by ~~$56.6~~$20.6 million, or ~~30.5%~~8.5%, to $262.4 million for the thirty-nine weeks ended September 28, 2019, as compared to $241.8 million for the thirty-nine weeks
ended September 29, ~~2018, as compared~~2018. The increase was primarily due to ~~$185.2 million~~increased investments in local marketing, media and production, higher salaries and benefits costs, increased freight to distributors due to higher volumes and the addition of Dogfish Head brand related expenses beginning July 3, 2019.
Advertising, promotional and selling expenses were 27.7% of net revenue, or $64.87 per barrel, for the thirty-nine weeks ended September ~~30, 2017. The increase was primarily the result of increased planned investments in local marketing, media advertising andpoint-of-sale,~~ ~~and increased freight~~28, 2019, as compared to ~~Distributors due to higher rates and volumes and less efficient truck utilization.~~
~~Advertising, promotional and selling expenses were~~ 31.4% of net revenue, or $72.66 per barrel, for the thirty-nine weeks ended September 29, ~~2018, as compared to 28.2% of net revenue, or $64.56~~2018. This decrease per barrel ~~for the thirty-nine weeks ended September 30, 2017.~~is primarily due to shipments growing at a higher rate than advertising, promotional and selling expenses. The Company invests in advertising and promotional campaigns that it believes will be effective, but there is no guarantee that such investments will generate sales growth.
General and administrative.
General and administrative expenses increased by ~~$11.6~~$15.6 million, or ~~21.4%~~23.7%, to $81.6 million for the thirty-nine weeks ended September 28, 2019, as compared to $66.0 million for the thirty-nine weeks ended September 29, ~~2018, as compared~~2018. The increase was primarily due to ~~$54.3~~
non-recurring
Dogfish Head Transaction-related fees of $5.6 million, increases in salaries and benefits costs and the addition of Dogfish Head general and administrative expenses beginning July 3, 2019.
Impairment of assets.
Impairment of assets decreased by $0.3 million for the thirty-nine weeks ended September ~~30, 2017. The increase~~28, 2019, as compared to the thirty-nine weeks ended September 29, 2018. This decrease was primarily due to ~~increases~~lower write-downs of brewery equipment at the Company’s Pennsylvania and Cincinnati breweries in ~~salaries and benefits and stock compensation costs.~~
2019.
Income tax expense.
During the thirty-nine weeks ended September ~~29, 2018,~~28, 2019, the Company recorded a net income tax expense of ~~$16.5~~$30.6 million which consists of ~~$25.0~~$34.5 million income tax expenses partially offset by a ~~$4.5 millionone-time~~ ~~impact related to tax accounting method changes and $4.0~~$3.9 million tax benefit related to stock option exercises in accordance with ASU
2016-09.
The Company’s~~non-GAAP~~ effective tax rate for the thirty-nine weeks ended September ~~29, 2018,~~28, 2019, excluding the impact of ~~the adoption of~~ ASU
2016-09, ~~decreased~~
increased to ~~23.4%~~27.2% from ~~36.7%~~23.4% for the thirty-nine weeks ended September ~~30, 2017,~~29, 2018, primarily due to the
one-time
favorable impact of ~~the Tax Cuts and Jobs Act of 2017 including a favorable one-time impact due to~~tax accounting method changes ~~reported~~ in ~~the current period.~~
2018 and no similar
one-time
favorable impacts in 2019.
LIQUIDITY AND CAPITAL RESOURCES
Cash ~~increased~~decreased to ~~$68.9~~$27.1 million as of September ~~29, 2018~~28, 2019 from ~~$65.6~~$108.4 million as of December ~~30, 2017,~~29, 2018, reflecting cash ~~provided by operating activities that was only partially offset by cash~~ used for the Dogfish Head Brewery Transaction and purchases of property, plant and equipment, ~~and~~partially offset by cash ~~used in~~provided by operating and financing activities.
Cash provided by operating activities consists of net income, adjusted for certain
non-cash
items, such as depreciation and amortization, stock-based compensation expense, other
non-cash
items included in operating results, and changes in operating assets and liabilities, such as accounts receivable, inventory, accounts payable and accrued expenses.
Cash provided by operating activities for the thirty-nine weeks ended September 28, 2019 was $142.7 million and primarily consisted of net income of $96.3 million and
non-cash
items of $68.4 million, partially offset by a net increase in operating assets and liabilities of $22.0 million. Cash provided by operating activities for the thirty-nine weeks ended September 29, 2018 was $108.1 million and primarily consisted of net income of $70.9 million and
non-cash
items of $59.3 million, partially offset by a net increase in operating assets and liabilities of $22.1 million. ~~Cash provided by operating activities for the thirty-nine weeks ended September 30, 2017 was $108.2 million and primarily consisted of net income of $68.5 million andnon-cash~~ ~~items of $41.6 million, partially offset by a net increase in operating assets and liabilities of $1.9 million.~~
The Company used ~~$38.6~~$232.1 million in investing activities during the thirty-nine weeks ended September ~~29, 2018,~~28, 2019, as compared to ~~$23.4~~$38.6 million during the thirty-nine weeks ended September ~~30, 2017.~~29, 2018. Investing activities primarily consisted of $165.5 million of investment in Dogfish Head, net of cash acquired, and capital investments made mostly in the Company’s breweries to drive efficiencies and cost reductions, and support product innovation and future growth.
Cash ~~used in~~provided by financing activities was ~~$66.2~~$8.2 million during the thirty-nine weeks ended September ~~29, 2018,~~28, 2019, as compared to ~~$105.8~~$66.2 million used inby financing activities during the thirty-nine weeks ended September ~~30, 2017.~~29, 2018. The ~~$39.6~~$74.4 million ~~decrease~~increase in cash ~~used in~~provided by financing activities in ~~2018~~2019 from ~~2017~~2018 is primarily due to a decrease in stock repurchases under the Company’s Stock Repurchase program, partially offset by ~~an increase~~a decrease in proceeds from the exercise of stock options.
During the thirty-nine weeks ended September ~~29, 2018~~28, 2019 and the period from September ~~30, 2018~~29, 2019 through October 20, ~~2018,~~2019, the Company ~~repurchased approximately 350,000~~did not repurchase any shares of its Class A Common ~~Stock for an aggregate purchase price of approximately $88.3 million.~~Stock. As of October 20, ~~2018,~~2019, the Company had repurchased a cumulative total of approximately 13.8 million shares of its Class A Common Stock for an aggregate purchase price of $840.7 million and had approximately $90.3 million remaining on the $931.0 million stock repurchase expenditure limit set by the Board of Directors.
23
Table of Contents
The Company expects that its cash balance as of September ~~29, 2018~~28, 2019 of ~~$68.9~~$27.1 million, along with future operating cash flow and the Company’s ~~unused~~ line of credit of $150.0 million, will be sufficient to fund future cash requirements. The Company’s $150.0 million credit facility has a term not scheduled to expire until March 31, 2023. As of the date of this filing, the Company had no borrowings and was not in violation of any of its covenants to the lender under the credit ~~facility~~facility.
2019 and ~~there were no amounts outstanding under the credit facility.~~
2020 Outlook
~~2018 and 2019 Outlook~~
Year-to-date
depletions through the 42 weeks ended October ~~20, 2018~~19, 2019 are estimated by the Company to have increased approximately ~~13%~~21% from the comparable period in ~~2017.~~
2018.
The Company is currently estimating ~~2018~~2019 depletions and shipments growth, including Dogfish Head beginning July 3, 2019, of between ~~12%~~19% and ~~15%~~22%, ~~an increase of~~a narrowing up from the previously communicated estimate of between 7%17% and ~~12%~~22%. Excluding the Dogfish Head impact, full year 2019 shipments and depletions growth is now estimated to be between 15% and 18%, a narrowing up from the previously communicated estimate of between 13% and 18%. The Company is targeting national price increases of between 1% and ~~2%, a narrowing of the previously communicated estimate of between zero and 2%~~3%. Full-year ~~2018~~2019 gross margins are currently expected to be between 50% and ~~52%, a decrease of the previously communicated estimate of between~~ 51% ~~and 53%~~. The Company intends to increase advertising, promotional and selling expenses by between ~~$15~~$40 million and ~~$25~~$50 million, ~~for~~a change from the ~~full year 2018,~~previously communicated estimate of between $35 million and $45 million primarily due to increased Truly brand investments. This does not ~~including~~include any changes in freight costs for the shipment of products to ~~Distributors.~~distributors. The Company intends to increase its investment in its brands in ~~2018,~~2019, commensurate with the opportunities for growth that it sees, but there is no guarantee that such increased investments will result in increased volumes.
The Company currently projects
Non-GAAP
earnings per diluted share, which excludes the impact of ASU
2016-09,
for ~~2018~~2019 of between ~~$7.10~~$8.70 and ~~$7.70, an increase and~~$9.30, a narrowing ~~of the range~~up from the previously communicated estimate of ~~between $6.30~~$8.30 and ~~7.30,~~$9.30, but actual results could vary significantly from this target. The Company estimates a full-year ~~2018~~2019
Non-GAAP
effective tax rate of approximately ~~24%~~27%, which ~~includes the favorable one-time impact of $0.38 per diluted share due to tax accounting method changes reported in the third quarter, but~~ excludes the impact of ASU
2016-09.
Non-GAAP
earnings per diluted share and
Non-GAAP
effective tax rate are not defined terms under U.S. generally accepted accounting principles (“GAAP”). These
Non-GAAP
measures should not be considered in isolation or as a substitute for diluted earnings per share and effective tax rate data prepared in accordance with GAAP, and may not be comparable to calculations of similarly titled measures by other companies. Management believes these
Non-GAAP
measures provide meaningful and useful information to investors and analysts regarding our outlook and facilitate period to period comparisons of our forecasted financial performance.
Non-GAAP
earnings per diluted share and
Non-GAAP
effective tax rate exclude the potential impact of ASU
2016-09,
which could be significant and will depend largely upon unpredictable future events outside the Company’s control, including the timing and value realized upon exercise of stock options versus the fair value of those options when granted. Therefore, because of the uncertainty and variability of the impact of ASU
2016-09,
the Company is unable to provide, without unreasonable effort, a reconciliation of these
Non-GAAP
measures on a forward-looking basis.
The Company is completing its ~~2019~~2020 planning process and will provide further detailed guidance when the Company presents its full-year ~~2018~~2019 results. The Company is currently using the following preliminary assumptions and targets for ~~2019.~~2020. The Company is forecasting depletion and shipment percentage increase of high ~~single digits~~teens to low ~~double digits.~~twenties. The Company is targeting national price increases ~~per barrel~~ of between ~~zero~~1% and 3%. Full-year ~~2019~~2020 gross margins are currently expected to be between ~~51%~~49% and ~~53%~~51%. The Company intends to increase advertising, promotional and selling expenses between ~~$25~~$65 million and ~~$35~~$75 million for the full year ~~2018,~~2020, not including any changes in freight costs for the shipment of products to ~~Distributors. This estimate is subject to timing of brand investments currently planned for the fourth quarter of 2018 which could move into 2019.~~distributors. The Company intends to increase its investment in its brands in ~~2019~~2020 commensurate with the opportunities for growth that it sees, but there is no guarantee that such increased investments will result in increased volumes. The Company estimates a full-year ~~2018~~2020
Non-GAAP
effective tax rate of approximately 27%, excluding the impact of ASU
2016-09.
The Company is continuing to evaluate ~~2018~~2019 capital expenditures. Its current estimates are between ~~$65~~$100 million and ~~$75~~$110 million, a decrease from the previously communicated estimate of $120 million to $140 million, consisting mostly of investments in the Company’s breweries and taprooms. The Company estimates full-year ~~2019~~2020 capital spending of between ~~$100~~$95 million and ~~$120 million, consisting mostly of investments in the Company’s breweries and taprooms.~~$115 million. The actual total amount spent on ~~2018~~2019 and ~~2019~~2020 capital expenditures may well be different from these estimates. Based on information currently available, the Company believes that its capacity requirements for ~~2018~~2019 and ~~2019~~2020 can be covered by its Company-owned breweries and existing contracted capacity at third-party brewers.
24
Table of Contents
THE POTENTIAL IMPACT OF KNOWN FACTS, COMMITMENTS, EVENTS AND UNCERTAINTIES
Off-balance
Sheet Arrangements
At September ~~29, 2018,~~28, 2019, the Company did not have
off-balance
sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation
S-K.
Contractual Obligations
There were no material changes outside of the ordinary course of the Company’s business to contractual obligations during the three-month period ended September ~~29, 2018.~~
28, 2019.
Critical Accounting Policies
~~As disclosed~~
The Company’s critical accounting policies are discussed in ~~note B, on~~Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Form
10-K
for the year ended December ~~31, 2017,~~29, 2018. The Company believes that the consistent application of these policies enables the Company ~~adopted ASUNo. 2014-09,~~~~Revenue from Contracts~~to provide readers of the interim consolidated financial statements with ~~Customers (Topic 606)~~useful and ~~all related amendments.~~
~~There were no other~~reliable information about the Company’s results of operations and financial condition. No material changes to the Company’s critical accounting policies, as previously disclosed, have occurred during the ~~three-month~~first nine months of 2019, except for the addition of the Company’s Business Combinations policy and the Company’s Valuation of Goodwill and Indefinite Lived Intangible Assets policy as discussed below and in Note B and Note C to the interim consolidated financial statements included in Item 1 of this Form
10-Q.
Business Combinations
On July 3, 2019, the Company completed its acquisition of Dogfish Head Brewery and various related operations (the “Transaction”), through the acquisition of all of the equity interests held by certain private entities in
Off-Centered
Way LLC, the parent holding company of the Dogfish Head Brewery operations. Dogfish Head results of operations have been included in the Company’s financial results beginning after the closing date of July 3, 2019. Under the acquisition method of accounting, the Company allocated the fair value of purchase consideration transferred to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the date of the acquisition. The fair values assigned, defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants, are based on estimates and assumptions determined by management. The excess purchase consideration over the aggregate fair value of tangible and intangible assets, net of liabilities assumed, is recorded as goodwill. When determining the fair value of assets acquired and liabilities assumed, the Company makes significant estimates and assumptions, especially with respect to intangible assets. The Company’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. The fair value of the assets acquired and liabilities assumed is typically determined by using either estimates of replacement costs or discounted cash flow valuation methods. When determining the fair value of tangible assets acquired, the Company must estimate the cost to replace the asset with a new asset taking into consideration such factors as age, condition and the economic useful life of the asset. When determining the fair value of intangible assets acquired, the Company must estimate the applicable discount rate, the royalty rate, and the timing and amount of future expected cash flows. During the measurement period, ~~ended September 29, 2018.~~
not to exceed one year from the date of acquisition, the Company may record adjustments to the assets acquired and liabilities assumed, with a corresponding offset to goodwill if new information is obtained related to facts and circumstances that existed as of the acquisition date. After the measurement period, any subsequent adjustments are reflected in the consolidated statements of operations. Acquisition costs, such as legal and consulting fees, are expensed as incurred.
Valuation of Goodwill and Indefinite Lived Intangible Assets
The Company has recorded intangible assets with indefinite lives and goodwill for which impairment testing is required at least annually or more frequently if events or circumstances indicate that these assets might be impaired. The Company performs its annual impairment tests and
re-evaluates
the useful lives of other intangible assets with indefinite lives at the annual impairment test measurement date in the third quarter of each fiscal year or when circumstances arise that indicate a possible impairment or change in useful life might exist.
The guidance for goodwill impairment testing allows an entity to assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of a reporting unit, of which the Company has one, is less than its carrying amount or to proceed directly to performing a quantitative impairment test.
25
Table of Contents
Under the quantitative assessment, the estimated fair value of the Company’s reporting unit is compared to its carrying value, including goodwill. The estimate of fair value of the Company’s reporting unit is generally calculated based on an income approach using the discounted cash flow method supplemented by the market approach which considers the Company’s market capitalization and enterprise value. If the estimated fair value of the Company’s reporting unit is less than the carrying value of its reporting unit, a goodwill impairment will be recognized. The amount of impairment charge for goodwill is equal to the excess of the carrying value of the goodwill over the implied fair value of the goodwill.
In estimating the fair value of the Company’s reporting unit, management must make assumptions and projections regarding such items as future cash flows, future revenues, future earnings, cost of capital, and other factors. The assumptions used in the estimate of fair value are based on historical trends and the projections and assumptions that are used in current strategic operating plans. These assumptions reflect management’s estimates of future economic and competitive conditions and are, therefore, subject to change as a result of changing market conditions. If these estimates or their related assumptions change in the future, the Company may be required to recognize an impairment loss for these assets. The recognition of any resulting impairment loss could have a material adverse impact on the Company’s financial statements.
The Company’s other intangible assets consist primarily of customer relationships and a trademark obtained through the Company’s Dogfish Head acquisition. Customer relationships are amortized over their estimated useful lives. The trademark which was determined to have an indefinite useful life is not amortized. The guidance for indefinite lived intangible asset impairment testing allows an entity to assess qualitative factors to determine whether the existence of events or circumstances indicates that it is more likely than not that the indefinite lived intangible asset is impaired or to proceed directly to performing the quantitative impairment test. Under the quantitative assessment, the trademark is evaluated for impairment by comparing the carrying value of the trademark to its estimated fair value. The estimated fair value of the trademark is calculated based on an income approach using the relief from royalty method. The estimate of fair value is then compared to the carrying value the trademark. If the estimated fair value is less than the carrying value of the trademark, then an impairment charge is recognized to reduce the carrying value of the trademark to its estimated fair value
In estimating the fair value of the trademark, management must make assumptions and projections regarding future cash flows based upon future revenues, the market-based royalty rate, and other factors. The assumptions used in the estimate of fair value are consistent with historical trends and the projections and assumptions that are used in current strategic operating plans. These assumptions reflect management’s estimates of future economic and competitive conditions and are, therefore, subject to change as a result of changing market conditions. If these estimates or their related assumptions change in the future, the Company may be required to recognize an impairment loss for these assets. The recognition of any resulting impairment loss could have a material adverse impact on the Company’s financial statements.
FORWARD-LOOKING STATEMENTS
In this Quarterly Report on Form
10-Q
and in other documents incorporated herein, as well as in oral statements made by the Company, statements that are prefaced with the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “intend,” “designed” and similar expressions, are intended to identify forward-looking statements regarding events, conditions, and financial trends that may affect the Company’s future plans of operations, business strategy, results of operations and financial position. These statements are based on the Company’s current expectations and estimates as to prospective events and circumstances about which the Company can give no firm assurance. Further, any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement to reflect subsequent events or circumstances. Forward-looking statements should not be relied upon as a prediction of actual future financial condition or results. These forward-looking statements, like any forward-looking statements, involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. Such risks and uncertainties include the factors set forth below in addition to the other information set forth in this Quarterly Report on Form
10-Q
and in the section titled “Risk Factors” in the Company’s Annual Report on Form
10-K
for the year ended December ~~30, 2017.~~
29, 2018.
~~Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Since December ~~30, 2017,~~29, 2018, there have been no significant changes in the Company’s exposures to interest rate or foreign currency rate fluctuations. The Company currently does not enter into derivatives or other market risk sensitive instruments for the purpose of hedging or for trading purposes.
26
Table of Contents
~~Item 4. CONTROLS AND PROCEDURES~~
Item 4. CONTROLS AND PROCEDURES
As of September ~~29, 2018,~~28, 2019, the Company conducted an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer (its principal executive officer and principal financial officer, respectively) regarding the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rule
13a-15(e)
and
15d-15(e)
of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e)
and
15d-15(e))
were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods and that such disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to its management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
There was no change in the Company’s internal control over financial reporting that occurred during the thirteen weeks ended September ~~29, 2018~~28, 2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II.
OTHER INFORMATION
Item 1.
LEGAL PROCEEDINGS
During the thirteen weeks ended September ~~29, 2018,~~28, 2019, there were no material changes to the disclosure made in the Company’s Annual Report on Form
10-K
for the year ended December ~~30, 2017.~~
29, 2018.
Item 1A.
RISK FACTORS
In addition to the other information set forth in this report, careful consideration should be given to the factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form
10-K
for the year ended December ~~30, 2017,~~29, 2018, which could materially affect the Company’s business, financial condition or future results. The risks described in the Company’s Annual Report on Form
10-K
are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that it currently deems to be immaterial also may materially adversely affect its business, financial condition and/or operating results.
There has been no material change in the risk factors described in the Company’s Annual Report on Form
10-K
for the year ended December 29, 2018, with the exception of the addition of the following risk factor:
The Company’s recent acquisition of Dogfish Head involves a number of risks, the occurrence of which could adversely affect its business, financial condition, and operating results.
On July 3, 2019, the Company completed its acquisition of Dogfish Head Brewery and various related operations (the “Transaction”), through the acquisition of all of the equity interests held by certain private entities in
Off-Centered
Way LLC, the parent holding company of the Dogfish Head Brewery operations. The Transaction involves certain risks, the occurrence of which could materially and adversely affect the Company’s business, liquidity, financial condition, and operating results, including:
diversion of management’s attention to integrate Dogfish Head’s operations;
disruption to the Company’s existing operations and plans or inability to effectively manage its expanded operations;
failure, difficulties or delays in securing, integrating and assimilating information, financial systems, internal controls, operations, production processes and products, or the distribution channel for Dogfish Head’s businesses and product lines;
potential loss of key Dogfish Head founders and employees, suppliers, distributors and drinkers or other adverse effects on existing business relationships with suppliers, distributors and drinkers;
adverse impact on overall profitability if the Company’s expanded operations do not achieve the growth prospects, net revenues, earnings, cost or revenue synergies, or other financial results projected in the Company’s valuation models, or delays in the realization thereof;
reallocation of amounts of capital from the Company’s other strategic initiatives;
27
Table of Contents
inaccurate assessment of undisclosed, contingent or other liabilities of the acquired operations, unanticipated costs associated with the Transaction, and an inability to recover or manage such liabilities and costs; and
impacts as a result of purchase accounting adjustments, incorrect estimates made in the accounting for the Transaction or the potential future
write-off
of significant amounts of goodwill, intangible assets and/or other tangible assets if the Dogfish Head business does not perform in the future as expected, or other potential financial accounting or reporting impacts
The Company cannot assure you that it will realize the expected benefits of the Transaction or that the acquired Dogfish Head operations will be profitable. The Company’s failure to adequately manage the risks associated with the Transaction could have a material adverse effect on its business, liquidity, financial condition or results of operations.
Item 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
As of October ~~20, 2018,~~19, 2019, the Company had repurchased a cumulative total of approximately 13.8 million shares of its Class A Common Stock for an aggregate purchase price of $840.7 million and had $90.3 million remaining on the $931.0 million share buyback expenditure limit set by the Board of Directors.
During the thirty-nine weeks ended September ~~30, 2018,~~28, 2019, the Company ~~repurchased 350,827~~did not repurchase any shares of its Class A Common Stock ~~as illustrated in~~under the ~~table below:~~

Period
   Total Number
of Shares
Purchased    Average Price
Paid per Share    Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs    Approximate
Dollar Value of
Shares that May Yet
be Purchased Under
the Plans or Programs
December 31, 2017 to February 3, 2018
   33,875    $ 188.94    33,539    $ 172,285
February 4, 2018 to March 3, 2018
   27,974    178.89    27,920    167,286
March 4, 2018 to March 31, 2018
   29,659    179.76    29,217    162,007
April 1, 2018 to May 5, 2018
   44,329    213.23    44,232    152,565
May 6, 2018 to June 2, 2018
   27,737    239.94    27,674    145,917
June 3, 2018 to June 30, 2018
   24,943    280.50    24,926    138,921
July 1, 2018 to August 4, 2018
   61,352    302.16    61,352    120,382
August 5, 2018 to September 1, 2018
   53,127    290.28    53,000    104,974
September 2, 2018 to September 29, 2018
   47,831    306.04    47,831    90,335





Total
   350,827    $ 252.08    349,691    $ 90,335





Ofpreviously announced repurchase program.
During the thirty-nine weeks ended September 28, 2019, the Company repurchased 900 shares ~~that were repurchased during the period, 1,136 shares~~of its Class A Common Stock, of which all represent repurchases of unvested investment shares issued under the Investment Share Program of the Company’s Employee Equity Incentive ~~Plan.~~
Plan, as illustrated in the table below:

Period

Total Number of Shares
Purchased

Average
Price Paid
per Share

Total Number of
Shares Purchased as Part
of Publicly Announced
Plans or Programs

Approximate Dollar Value of
Shares that May Yet be
Purchased Under the Plans
or Programs

December 30, 2018 to February 2, 2019

116
$
127.05

—
$
90,335

February 3, 2019 to March 2, 2019

219

115.78

—

90,335

March 3, 2019 to March 30, 2019

13

187.54

—

90,335

March 31, 2019 to May 4, 2019

107

182.03

—

90,335

May 5, 2019 to June 1, 2019

79

175.67

—

90,335

June 2, 2019 to June 29, 2019

32

187.54

—

90,335

June 30, 2019 to August 3, 2019

73

114.14

—

90,335

August 4, 2019 to August 31, 2019

261

135.26

—

90,335

September 1, 2019 to September 28, 2019

—

—

—

90,335

Total

900
$
139.47

—

90,335

In July 2019, in connection with the closing of the Transaction with Dogfish Head Brewery and related operations, the Company issued an aggregate of 429,291 shares of Class A Stock to certain former holders of equity interests in
Off-Centered
Way LLC, the parent holding company of the Dogfish Head Brewery operations. These shares have not been registered under the Securities Act of 1933 (the “Securities Act”), as amended, in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and rules and regulations of the SEC promulgated thereunder.
As of October ~~20, 2018,~~25, 2019, the Company had ~~8.6~~9.2 million shares of Class A Common Stock outstanding and ~~3.0~~2.8 million shares of Class B Common Stock outstanding.
Item 3.
DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4.
MINE SAFETY DISCLOSURES
Not Applicable
Item 5.
OTHER INFORMATION
Not Applicable
28
Table of Contents
Item 6.
EXHIBITS
~~Exhibit No.~~

~~Title~~
    ~~11.1~~

Exhibit No.
Title
**10.1
~~The information required~~Registration Rights Agreement with the Stockholders named therein, dated July 3, 2019 (incorporated by reference to Exhibit ~~11 has been included in Note E of the notes~~10.1 to the ~~consolidated financial statements.~~Company’s Form 10-Q for the period ended June 29, 2019, filed on July 25, 2019).
  *31.1

**10.2
Indemnification Agreement with the Dogfish Head Founders, dated July 3, 2019 (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the period ended June 29, 2019, filed on July 25, 2019).
**10.3
Employment Agreement with Sam A. Calagione III, Dogfish Head Brewer and Founder, dated July 3, 2019 (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q for the period ended June 29, 2019, filed on July 25, 2019).
**10.4
Coworker Agreement with George Pastrana, President – Dogfish Head, dated July 3, 2019 (incorporated by reference to Exhibit 10.4 to the Company’s Form 10-Q for the period ended June 29, 2019, filed on July 25, 2019).
**10.5
Offer Letter to Lesya Lysyj, Chief Marketing Officer, dated March 21, 2019 (incorporated by reference to Exhibit 10.5 to the Company’s Form 10-Q for the period ended June 29, 2019, filed on July 25, 2019).
*31.1
Certification of the President and Chief Executive Officer pursuant to Rule13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  *31.2

*31.2
Certification of the Chief Financial Officer pursuant to Rule13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  *32.1

*32.1
Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  *32.2

*32.2
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*101.INS

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

*101.SCH
XBRL Taxonomy Extension Schema Document
*101.CAL

*101.CAL
XBRL Taxonomy Calculation Linkbase Document
*101.LAB

*101.LAB
XBRL Taxonomy Label Linkbase Document
*101.PRE

*101.PRE
XBRL Taxonomy Presentation Linkbase Document
*101.DEF

*101.DEF
XBRL Definition Linkbase Document
*104
The cover page from this Quarterly Report on Form 10-Q for the quarter ended September 28, 2019, formatted in Inline XBRL (formatted as Inline XBRL and contained in Exhibit 101).
*
Filed with this report
** Designates management contract or compensatory plan or arrangement
29

Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form
10-Q
to be signed on its behalf by the undersigned thereunto duly authorized.
THE BOSTON BEER COMPANY, INC.
(Registrant)
Date: October 29, 2019

~~THE BOSTON BEER COMPANY, INC.~~
~~(Registrant)~~
/s/ David A. Burwick
~~Date: October 25, 2018~~ ~~/s/~~
David A. Burwick
~~David A. Burwick~~
President and Chief Executive Officer
~~President and Chief Executive Officer~~
(principal executive officer)
Date: October 29, 2019
~~(principal executive officer)~~
/s/ Frank H. Smalla
~~Date: October 25, 2018~~ ~~/s/~~
Frank H. Smalla
~~Frank H. Smalla~~
Chief Financial Officer
~~Chief Financial Officer~~
(principal financial officer)
23
30


	September 29, 2018			December 30, 2017
Assets
Current Assets:
Cash and cash equivalents	$	68,887		$	65,637
Accounts receivable, net of allowance for doubtful accounts of $39 and $0 as of September 29, 2018 and December 30, 2017, respectively		52,812			33,749
Inventories		72,254			50,651
Prepaid expenses and other current assets		10,252			10,695
Income tax receivable		16,439			7,616

Total current assets		220,644			168,348
Property, plant and equipment, net		387,069			384,280
Other assets		12,308			13,313
Goodwill		3,683			3,683

Total assets	$	623,704		$	569,624

Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	62,047		$	38,141
Accrued expenses and other current liabilities		69,599			63,617

Total current liabilities		131,646			101,758
Deferred income taxes, net		47,637			34,819
Other liabilities		9,875			9,524

Total liabilities		189,158			146,101
Commitments and Contingencies (See Note G)
Stockholders’ Equity:
Class A Common Stock, $.01 par value; 22,700,000 shares authorized; 8,475,037 and 8,603,152 issued and outstanding as of September 29, 2018 and December 30, 2017, respectively		85			86
Class B Common Stock, $.01 par value; 4,200,000 shares authorized; 3,017,983 and 3,017,983 issued and outstanding as of September 29, 2018 and December 30, 2017, respectively		30			30
Additionalpaid-in capital		402,056			372,590
Accumulated other comprehensive loss, net of tax		(1,503	)		(1,288	)
Retained earnings		33,878			52,105

Total stockholders’ equity		434,546			423,523

Total liabilities and stockholders’ equity	$	623,704		$	569,624


	September 28,			December 29,
	2019			2018
Assets
Current Assets:
Cash and cash equivalents	$	27,128		$	108,399
Accounts receivable		68,687			34,073
Inventories		92,632			70,249
Prepaid expenses and other current assets		14,965			13,136
Income tax receivable		5,980			5,714

Total current assets		209,392			231,571
Property, plant and equipment, net		521,316			389,789
Operating right-of-use assets		38,943			—
Goodwill		112,529			3,683
Intangible assets		104,335			2,099
Other assets		29,661			12,709

Total assets	$	1,016,176		$	639,851

Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	71,035		$	47,102
Accrued expenses and other current liabilities		92,850			73,412
Current operating lease liabilities		2,599			—

Total current liabilities		166,484			120,514
Deferred income taxes, net		81,653			49,169
Non-current operating lease liabilities		41,215			—
Other liabilities		7,844			9,851

Total liabilities		297,196			179,534
Commitments and Contingencies (See Note J )
Stockholders’ Equity:
Class A Common Stock, $.01 par value; 22,700,000 shares authorized; 9,216,022 and 8,580,593 issued and outstanding as of September 28, 2019 and December 29, 2018, respectively		92			86
Class B Common Stock, $.01 par value; 4,200,000 shares authorized; 2,817,983 and 2,917,983 issued and outstanding as of September 28, 2019 and December 29, 2018, respectively		28			29
Additional paid-in capital		568,047			405,711
Accumulated other comprehensive loss, net of tax		(1,154	)		(1,197	)
Retained earnings		151,967			55,688

Total stockholders’ equity		718,980			460,317

Total liabilities and stockholders’ equity	$	1,016,176		$	639,851


	Thirteen weeks ended						Thirty-nine weeks ended
	September 29, 2018			September 30, 2017			September 29, 2018			September 30, 2017
Revenue	$	326,852		$	264,146		$	818,257		$	701,247
Less excise taxes		19,982			17,099			47,830			44,575

Net revenue		306,870			247,047			770,427			656,672
Cost of goods sold		149,643			115,546			375,133			314,808

Gross profit		157,227			131,501			395,294			341,864
Operating expenses:
Advertising, promotional and selling expenses		87,765			63,647			241,796			185,232
General and administrative expenses		22,734			16,358			65,951			54,315
Impairment of assets		—			—			517			1,505

Total operating expenses		110,499			80,005			308,264			241,052

Operating income		46,728			51,496			87,030			100,812
Other income (expense), net:
Interest income, net		343			211			821			381
Other (expense) income, net		(51	)		196			(539	)		253

Total other income, net		292			407			282			634

Income before income tax provision		47,020			51,903			87,312			101,446
Income tax provision		9,013			18,220			16,460			32,927

Net income	$	38,007		$	33,683		$	70,852		$	68,519

Net income per common share—basic	$	3.25		$	2.82		$	6.02		$	5.60

Net income per common share—diluted	$	3.21		$	2.78		$	5.96		$	5.54

Weighted-average number of common shares—Class A basic		8,557			8,789			8,646			9,037

Weighted-average number of common shares—Class B basic		3,018			3,097			3,018			3,122

Weighted-average number of common shares—diluted		11,702			12,037			11,773			12,299

Net income	$	38,007		$	33,683		$	70,852		$	68,519

Other comprehensive income:
Foreign currency translation adjustment		(13	)		(13	)		4			(23	)

Comprehensive income	$	37,994		$	33,670		$	70,856		$	68,496


	Class A Common Shares			Class A Common Stock, Par			Class B Common Shares			Class B Common Stock, Par			Additional Paid-in Capital		Accumulated Other Comprehensive Loss, net of tax			Retained Earnings			Total Stockholders’ Equity
Balance at December 29, 2018		8,580		$	86			2,918		$	29		$	405,711	$	(1,197	)	$	55,688		$	460,317
Net income																			23,694			23,694
Stock options exercised and restricted shares activities		54			—									3,704								3,704
Stock-based compensation expense														2,066								2,066
Currency translation adjustment																37						37

Balance at March 30, 2019		8,634		$	86			2,918		$	29		$	411,481	$	(1,160	)	$	79,382		$	489,818

Net income																			27,856			27,856
Stock options exercised and restricted shares activities		21			1									1,377								1,378
Stock-based compensation expense														3,744								3,744
Currency translation adjustment																5						5

Balance at June 29, 2019		8,655		$	87			2,918		$	29		$	416,602	$	(1,155	)	$	107,238		$	522,801

Net income																			44,729			44,729
Stock options exercised and restricted shares activities		31			—									3,473								3,473
Stock-based compensation expense														3,233								3,233
Shares issued in connection with Dogfish Head merger		430			4									144,739								144,743
Conversion from Class B to Class A		100			1			(100	)		(1	)										—
Currency translation adjustment																1						1

Balance at September 28, 2019		9,216		$	92			2,818		$	28		$	568,047	$	(1,154	)	$	151,967		$	718,980


	Class A Common Shares			Class A Common Stock, Par			Class B Common Shares			Class B Common Stock, Par			Additional Paid-in Capital		Accumulated Other Comprehensive Loss, net of tax			Retained Earnings			Total Stockholders’ Equity
Balance at December 30, 2017		8,603		$	86			3,018		$	30		$	372,590	$	(1,288	)	$	52,105		$	423,523
Net income																			9,310			9,310
Stock options exercised and restricted shares activities		188			2									20,232								20,234
Stock-based compensation expense														1,491								1,491
Repurchase of Class A Common Stock		(91	)		(1	)													(16,638	)		(16,639	)
Currency translation adjustment																(11	)					(11	)
One time effect of adoption of ASU 2014-09, Revenue from Contracts with Customers, net of tax of $329																			(982	)		(982	)
One time effect of adoption of ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income																(210	)		210			—

Balance at March 31, 2018		8,700		$	87			3,018		$	30		$	394,313	$	(1,509	)	$	44,005		$	436,926

Net income																			23,535			23,535
Stock options exercised and restricted shares activities		32			—									2,224								2,224
Stock-based compensation expense														3,079								3,079
Repurchase of Class A Common Stock		(97	)		(1	)													(23,084	)		(23,085	)
Currency translation adjustment																(7	)					(7	)

Balance at June 30, 2018		8,635		$	86			3,018		$	30		$	399,616	$	(1,516	)	$	44,456		$	442,672

Net income																			38,007			38,007
Stock options exercised and restricted shares activities		2			—									15								15
Stock-based compensation expense														2,425								2,425
Repurchase of Class A Common Stock		(162	)		(1	)													(48,585	)		(48,586	)
Currency translation adjustment																13						13

Balance at September 29, 2018		8,475		$	85			3,018		$	30		$	402,056	$	(1,503	)	$	33,878		$	434,546


	Thirty-nine weeks ended
	September 28, 2019			September 29, 2018
Cash flows provided by operating activities:
Net income	$	96,279		$	70,852
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		41,841			38,860
Impairment of assets		243			517
Loss on disposal of property, plant and equipment		449			45
Change in ROU assets		2,734			—
Bad debt (recovery) expense		53			39
Stock-based compensation expense		9,043			6,995
Deferred income taxes		14,047			12,818
Changes in operating assets and liabilities:
Accounts receivable		(26,532	)		(20,412	)
Inventories		(16,847	)		(20,836	)
Prepaid expenses, income tax receivable and other assets		(13,903	)		(8,385	)
Accounts payable		22,388			20,560
Accrued expenses and other current liabilities		14,949			6,309
Change in operating lease liability		(2,270	)		—
Other liabilities		207			693

Net cash provided by operating activities		142,681			108,055

Cash flows used in investing activities:
Purchases of property, plant and equipment		(66,760	)		(38,752	)
Proceeds from disposal of property, plant and equipment		144			2
Cash paid for acquisition of intangible assets		—			5
Investment in Dogfish Head, net of cash acquired		(165,517	)		—
Other investing activities		(10	)		131

Net cash used in investing activities		(232,143	)		(38,614	)

Cash flows provided by (used in) financing activities:
Repurchase of Class A Common Stock		—			(88,311	)
Proceeds from exercise of stock options		7,619			21,528
Net cash paid on note payable and capital lease		(246	)		(78	)
Cash borrowed on line of credit		97,000			—
Cash paid on line of credit		(97,000	)		—
Net proceeds from sale of investment shares		818			670

Net cash provided (used in) by financing activities		8,191			(66,191	)

Change in cash and cash equivalents		(81,271	)		3,250
Cash and cash equivalents at beginning of year		108,399			65,637

Cash and cash equivalents at end of period	$	27,128		$	68,887

Supplemental disclosure of cash flow information:
Non cash consideration issued in Dogfish Head Transaction (Refer to Note B)	$	144,743		$	—
Income taxes paid	$	16,759		$	11,252

Cash paid for amounts included in measurement of lease liabilities	$	3,443		$	—

Right-of-use assets obtained in exchange for operating lease obligations	$	41,678		$	—

Right-of-use assets obtained in exchange for capital lease obligations	$	2,837		$	—
Interest paid on revolving credit facility	$	349		$	—

Decrease in accounts receivable for ASU 2014-09 adoption	$	—		$	(1,310	)

Decrease in accounts payable for purchase of property, plant and equipment	$	(2,076	)	$	3,346


	Total (In Thousands)
Cash and cash equivalents	$	7,476
Accounts receivable		8,081
Inventories		9,286
Prepaid expenses and other current assets		847
Property, plant and equipment		106,964
Goodwill		108,846
Brand		98,500
Other intangible assets		3,800
Other assets		378

Total assets acquired		344,178

Accounts payable		3,861
Accrued expenses and other current liabilities		4,085
Deferred income taxes		18,437
Other liabilities		59

Total liabilities assumed		26,442

Net assets acquired	$	317,736

Cash consideration	$	172,993
Nominal value of equity issued		162,999
Fair Value reduction due to liquidity		(18,256	)

Estimated total purchase price	$	317,736


	Thirty-nine weeks ended
	September 28,		September 29,
	2019		2018
Goodwill as of beginning of period	$	3,683	$	3,683
Acquired goodwill		108,846		—
Impairment of goodwill		—		—

Goodwill as of end of period	$	112,529	$	3,683


			As of September 28, 2019							As of December 29, 2018
	Estimated Useful		Gross Carrying		Accumulated			Net Book		Gross Carrying		Accumulated		Net Book
	Life (Years)		Value		Amortization			Value		Value		Amortization		Value
Custmer Relationships		15	$	3,800	$	(64	)	$	3,736	$	—	$	—	$	—
Trade Names		Indefinite		100,599		—			100,599		2,099		—		2,099

Total intangible assets			$	104,399	$	(64	)	$	104,335	$	2,099	$	—	$	2,099


Fiscal Year	Amount
Remainder of 2019	$	63
2020		253
2021		253
2022		253
2023		253
2024		253


	September 29, 2018		December 30, 2017
	(in thousands)
Current inventory:
Raw materials	$	46,037	$	33,086
Work in process		9,467		6,826
Finished goods		16,750		10,739

Total current inventory		72,254		50,651
Long term inventory		9,138		9,905

Total inventory	$	81,392	$	60,556


	September 28, 2019		December 29, 2018
	(in thousands)
Current inventory:
Raw materials	$	51,322	$	44,655
Work in process		13,270		8,252
Finished goods		28,040		17,342

Total current inventory		92,632		70,249
Long term inventory		15,369		11,619

Total inventory	$	108,001	$	81,868


	Classification	Leases
Right-of-use assets		(in thousands)
Operating lease assets	Operating right-of-use assets	$	38,943
Capital lease assets	Property, plant and equipment, net		2,663
Lease Liabilities
Current
Operating lease liabilities	Current operating lease liabilities		2,599
Capital lease liabilities	Accrued expenses and other current l iabilities		541
Non-current
Operating lease liabilities	Non-current operating lease liabilities		41,215
Capital lease liabilities	Other liabilities		2,178


	Operating			Capital			Weighted-Average Remaining Term in Years
	Leases			Leases			Operating Leases		Capital Leases
	(in thousands)
2019	$	1,466		$	155
2020		2,642			626
2021		5,754			626
2022		5,453			626
2023		5,313			626
After 2023		32,191			288

Total lease payments		52,819			2,947
Less imputed interest (based on 3.5% weighted-average discount rate)		(9,005	)		(228	)

Present value of lease liability	$	43,814		$	2,719			4.7		9.9


	Thirteen weeks ended
	September 29, 2018						September 30, 2017
	Earnings to Common Shareholders		Common Shares		EPS		Earnings to Common Shareholders		Common Shares		EPS
	(in thousands, except per share data)
As reported—basic	$	27,786		8,557	$	3.25	$	24,772		8,789	$	2.82
Add: effect of dilutive potential common shares
Share-based awards		—		127				—		151
Class B Common Stock		9,800		3,018				8,730		3,097
Net effect of unvested participating shares		5		—				2		—

Net income per common share—diluted	$	37,591		11,702	$	3.21	$	33,504		12,037	$	2.78


	Thirty-nine weeks ended
	September 29, 2018						September 30, 2017
	Earnings to Common Shareholders		Common Shares		EPS		Earnings to Common Shareholders		Common Shares		EPS
	(in thousands, except per share data)
As reported—basic	$	52,051		8,646	$	6.02	$	50,647		9,037	$	5.60
Add: effect of dilutive potential common shares
Share-based awards		—		109				—		140
Class B Common Stock		18,169		3,018				17,493		3,122
Net effect of unvested participating shares		5		—				4		—

Net income per common share—diluted	$	70,225		11,773	$	5.96	$	68,144		12,299	$	5.54


	Thirteen weeks ended
	September 28, 2019						September 29, 2018
	Earnings to Common Shareholders		Common Shares		EPS		Earnings to Common Shareholders		Common Shares		EPS
	(in thousands, except per share data)
As reported — basic	$	33,776		9,136	$	3.70	$	27,786		8,557	$	3.25
Add: effect of dilutive potential common shares
Share-based awards		—		152				—		127
Class B Common Stock		10,581		2,862				9,800		3,018
Net effect of unvested participating shares		4		—				5		—

Net income per common share — diluted	$	44,361		12,150	$	3.65	$	37,591		11,702	$	3.21


	Thirty-nine weeks ended
	September 28, 2019						September 29, 2018
	Earnings to Common Shareholders		Common Shares		EPS		Earnings to Common Shareholders		Common Shares		EPS
	(in thousands, except per share data)
As reported — basic	$	71,761		8,797	$	8.16	$	52,051		8,646	$	6.02
Add: effect of dilutive potential common shares
Share-based awards		—		127				—		109
Class B Common Stock		23,652		2,899				18,169		3,018
Net effect of unvested participating shares		8		—				5		—

Net income per common share — diluted	$	95,421		11,823	$	8.07	$	70,225		11,773	$	5.96


	Thirteen weeks ended
	September 29,			September 30,
	2018			2017
	(in thousands)
Summary of income tax provision
Tax provision based on net income	$	13,671		$	18,753
Accounting Method Changes	$	(4,529	)	$	—
Benefit of ASU2016-09		(129	)		(533	)

Total income tax provision	$	9,013		$	18,220


	Thirty-nine weeks ended
	September 29,			September 30,
	2018			2017
	(in thousands)
Summary of income tax provision
Tax provision based on net income	$	24,969		$	37,189
Accounting Method Changes	$	(4,529	)	$	—
Benefit of ASU2016-09		(3,980	)		(4,262	)

Total income tax provision	$	16,460		$	32,927


	Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term in Years		Aggregate Intrinsic Value (in thousands)
Outstanding at December 30, 2017		1,156,997		$	158.53
Granted		32,570			210.24
Forfeited		(613,630	)		199.94
Expired		—			—
Exercised		(200,898	)		106.69

Outstanding at September 29, 2018		375,039		$	156.03		5.66	$	49,310,933

Exercisable at September 29, 2018		151,647		$	115.91		3.60	$	26,027,039

Vested and expected to vest at September 29, 2018		352,321		$	153.77		5.56	$	47,120,023


	Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term in Years		Aggregate Intrinsic Value (in thousands)
Outstanding at December 29, 2018		366,829		$	155.75
Granted		31,286			313.56
Forfeited		—			—
Expired		—			—
Exercised		(72,937	)		104.47

Outstanding at September 28, 2019		325,178		$	182.44		5.83	$	55,196

Exercisable at September 28, 2019		102,613		$	139.16		3.96	$	21,859

Vested and expected to vest at September 28, 2019		300,886		$	180.81		5.76	$	51,563


	Number of Shares			Weighted Average Fair Value
Non-vested at December 30, 2017		62,405		$	155.21
Granted		92,775			207.56
Vested		(20,678	)		156.50
Forfeited		(7,170	)		167.53

Non-vested at September 29, 2018		127,332		$	192.45


	Number of Shares			Weighted Average Fair Value
Non-vested at December 29, 2018		126,720		$	192.74
Granted		30,410		$	269.91
Vested		(33,201	)	$	188.63
Forfeited		(1,550	)	$	142.00

Non-vested at September 28, 2019		122,379		$	213.67


	Thirteen Weeks Ended (in thousands, except per barrel)
	September 29, 2018							September 30, 2017							Amount change			% change			Per barrel change
Barrels sold		1,338							1,084							255			23.5	%

			Per barrel		% of net revenue					Per barrel		% of net revenue
Net revenue	$	306,870	$	229.27		100.0	%	$	247,047	$	228.00		100.0	%	$	59,823			24.2	%	$	1.27
Cost of goods		149,643		111.80		48.8	%		115,546		106.64		46.8	%		34,097			29.5	%		5.16

Gross profit		157,227		117.47		51.2	%		131,501		121.36		53.2	%		25,726			19.6	%		(3.89	)
Advertising, promotional and selling expenses		87,765		65.57		28.6	%		63,647		58.74		25.8	%		24,118			37.9	%		6.83
General and administrative expenses		22,734		16.99		7.4	%		16,358		15.10		6.6	%		6,376			39.0	%		1.89
Impairment of assets		—		—		0.0	%		—		—		0.0	%		—			0.0	%		—

Total operating expenses		110,499		82.56		36.0	%		80,005		73.84		32.4	%		30,494			38.1	%		8.72
Operating income		46,728		34.91		15.2	%		51,496		47.53		20.8	%		(4,768	)		-9.3	%		(12.62	)
Other income (expense), net		292		0.22		0.1	%		407		0.38		0.2	%		(115	)		-28.3	%		(0.16	)

Income before income tax expense		47,020		35.13		15.3	%		51,903		47.90		21.0	%		(4,883	)		-9.4	%		(12.77	)
Income tax expense		9,013		6.73		2.9	%		18,220		16.82		7.4	%		(9,207	)		-50.5	%		(10.09	)

Net income	$	38,007	$	28.40		12.4	%	$	33,683	$	31.09		13.6	%	$	4,324			12.8	%	$	(2.69	)


	Thirty-nine Weeks Ended (in thousands, except per barrel)
	September 29, 2018							September 30, 2017							Amount change			% change			Per barrel change
Barrels sold		3,328							2,869							458			16.0	%

			Per barrel		% of net revenue					Per barrel		% of net revenue
Net revenue	$	770,427	$	231.51		100.0	%	$	656,672	$	228.86		100.0	%	$	113,755			17.3	%	$	2.65
Cost of goods		375,133		112.73		48.7	%		314,808		109.71		47.9	%		60,325			19.2	%		3.02

Gross profit		395,294		118.79		51.3	%		341,864		119.14		52.1	%		53,430			15.6	%		(0.35	)
Advertising, promotional and selling expenses		241,796		72.66		31.4	%		185,232		64.56		28.2	%		56,564			30.5	%		8.10
General and administrative expenses		65,951		19.82		8.6	%		54,315		18.93		8.3	%		11,636			21.4	%		0.89
Impairment of assets		517		0.16		0.1	%		1,505		0.52		0.2	%		(988	)		-65.6	%		(0.36	)

Total operating expenses		308,264		92.63		40.0	%		241,052		84.01		36.7	%		67,212			27.9	%		8.62
Operating income		87,030		26.15		11.3	%		100,812		35.13		15.4	%		(13,782	)		-13.7	%		(8.98	)
Other income (expense), net		282		0.08		0.0	%		634		0.22		0.1	%		(352	)		-55.5	%		(0.14	)

Income before income tax expense		87,312		26.24		11.3	%		101,446		35.35		15.4	%		(14,134	)		-13.9	%		(9.11	)
Income tax expense		16,460		4.95		2.1	%		32,927		11.48		5.0	%		(16,467	)		-50.0	%		(6.53	)

Net income	$	70,852	$	21.29		9.2	%	$	68,519	$	23.88		10.4	%	$	2,333			3.4	%	$	(2.59	)


	Thirty-nine Weeks Ended (in thousands, except per barrel)																Amount change			% change			Per barrel change
	September 28, 2019									September 29, 2018							Amount change			% change			Per barrel change
Barrels sold					4,045								3,328					717			21.5	%
				Per barrel			% of net revenue					Per barrel		% of net revenue
Net revenue	$	948,524		$	234.51			100.0	%	$	770,427	$	231.51		100.0	%	$	178,097			23.1	%	$	3.00
Cost of goods		477,147			117.97			50.3	%		375,133		112.73		48.7	%		102,014			27.2	%		5.24

Gross profit		471,377			116.54			49.7	%		395,294		118.79		51.3	%		76,083			19.2	%		(2.25	)
Advertising, promotional and selling expenses		262,372			64.87			27.7	%		241,796		72.66		31.4	%		20,576			8.5	%		(7.79	)
General and administrative expenses		81,552			20.16			8.6	%		65,951		19.82		8.6	%		15,601			23.7	%		0.34
Impairment of assets		243			0.06			0.0	%		517		0.16		0.1	%		(274	)		-53.0	%		(0.10	)

Total operating expenses		344,167			85.09			36.3	%		308,264		92.63		40.0	%		35,903			11.6	%		(7.54	)
Operating income		127,210			31.45			13.4	%		87,030		26.15		11.3	%		40,180			46.2	%		5.30
Other (expense) income, net		(346	)		(0.09	)		0.0	%		282		0.08		0.0	%		(628	)		-222.7	%		(0.17	)

Income before income tax expense		126,864			31.37			13.4	%		87,312		26.24		11.3	%		39,552			45.3	%		5.13
Income tax expense		30,585			7.56			3.2	%		16,460		4.95		2.1	%		14,125			85.8	%		2.61

Net income	$	96,279		$	23.80			10.2	%	$	70,852	$	21.29		9.2	%	$	25,427			35.9	%	$	2.51


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
December 31, 2017 to February 3, 2018		33,875	$	188.94		33,539	$	172,285
February 4, 2018 to March 3, 2018		27,974		178.89		27,920		167,286
March 4, 2018 to March 31, 2018		29,659		179.76		29,217		162,007
April 1, 2018 to May 5, 2018		44,329		213.23		44,232		152,565
May 6, 2018 to June 2, 2018		27,737		239.94		27,674		145,917
June 3, 2018 to June 30, 2018		24,943		280.50		24,926		138,921
July 1, 2018 to August 4, 2018		61,352		302.16		61,352		120,382
August 5, 2018 to September 1, 2018		53,127		290.28		53,000		104,974
September 2, 2018 to September 29, 2018		47,831		306.04		47,831		90,335

Total		350,827	$	252.08		349,691	$	90,335


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
December 30, 2018 to February 2, 2019		116	$	127.05		—	$	90,335
February 3, 2019 to March 2, 2019		219		115.78		—		90,335
March 3, 2019 to March 30, 2019		13		187.54		—		90,335
March 31, 2019 to May 4, 2019		107		182.03		—		90,335
May 5, 2019 to June 1, 2019		79		175.67		—		90,335
June 2, 2019 to June 29, 2019		32		187.54		—		90,335
June 30, 2019 to August 3, 2019		73		114.14		—		90,335
August 4, 2019 to August 31, 2019		261		135.26		—		90,335
September 1, 2019 to September 28, 2019		—		—		—		90,335

Total		900	$	139.47		—		90,335


~~Exhibit No.~~		~~Title~~

~~11.1~~
Exhibit No.			Title

	**10.1		~~The information required~~Registration Rights Agreement with the Stockholders named therein, dated July 3, 2019 (incorporated by reference to Exhibit ~~11 has been included in Note E of the notes~~10.1 to the ~~consolidated financial statements.~~Company’s Form 10-Q for the period ended June 29, 2019, filed on July 25, 2019).

*31.1
	**10.2		Indemnification Agreement with the Dogfish Head Founders, dated July 3, 2019 (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the period ended June 29, 2019, filed on July 25, 2019).

	**10.3		Employment Agreement with Sam A. Calagione III, Dogfish Head Brewer and Founder, dated July 3, 2019 (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q for the period ended June 29, 2019, filed on July 25, 2019).

	**10.4		Coworker Agreement with George Pastrana, President – Dogfish Head, dated July 3, 2019 (incorporated by reference to Exhibit 10.4 to the Company’s Form 10-Q for the period ended June 29, 2019, filed on July 25, 2019).

	**10.5		Offer Letter to Lesya Lysyj, Chief Marketing Officer, dated March 21, 2019 (incorporated by reference to Exhibit 10.5 to the Company’s Form 10-Q for the period ended June 29, 2019, filed on July 25, 2019).

	*31.1		Certification of the President and Chief Executive Officer pursuant to Rule13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

*31.2
	*31.2		Certification of the Chief Financial Officer pursuant to Rule13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

*32.1
	*32.1		Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*32.2
	*32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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

*101.SCH
	*101.SCH		XBRL Taxonomy Extension Schema Document

*101.CAL
	*101.CAL		XBRL Taxonomy Calculation Linkbase Document

*101.LAB
	*101.LAB		XBRL Taxonomy Label Linkbase Document

*101.PRE
	*101.PRE		XBRL Taxonomy Presentation Linkbase Document

*101.DEF
	*101.DEF		XBRL Definition Linkbase Document

	*104		The cover page from this Quarterly Report on Form 10-Q for the quarter ended September 28, 2019, formatted in Inline XBRL (formatted as Inline XBRL and contained in Exhibit 101).


	THE BOSTON BEER COMPANY, INC. (Registrant)

Date: October 29, 2019		~~THE BOSTON BEER COMPANY, INC.~~ ~~(Registrant)~~ /s/ David A. Burwick

~~Date: October 25, 2018~~	~~/s/~~ David A. Burwick
		~~David A. Burwick~~ President and Chief Executive Officer
		~~President and Chief Executive Officer~~ (principal executive officer)



Date: October 29, 2019		~~(principal executive officer)~~ /s/ Frank H. Smalla

~~Date: October 25, 2018~~	~~/s/~~ Frank H. Smalla
		~~Frank H. Smalla~~ Chief Financial Officer
		~~Chief Financial Officer~~
	(principal financial officer)