10-Q
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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM
10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from
                    
to
                    
Commission file number:
1-14092
 
THE BOSTON BEER COMPANY, INC.
(Exact name of registrant as specified in its charter)
 
 
 
MASSACHUSETTS
 
04-3284048
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
One Design Center Place, Suite 850, Boston, Massachusetts
(Address of principal executive offices)
02210
(Zip Code)
(617)
368-5000
(Registrant’s telephone number, including area code)
 
 
Securities registered pursuant to Section 12(b) of the Act.
 
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Class A Common Stock. $0.01 par value
 
SAM
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  
☒            No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   
Yes  
☒            No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
Large accelerated filer
 
 
 
 
Accelerated filer
 
 
 
 
 
 
 
 
 
 
Non-accelerated filer
 
 
 
 
Smaller reporting company
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Act.)    
Yes  
            No  
Number of shares outstanding of each of the issuer’s classes of common stock, as of July 17, 2020:
 
Class A Common Stock, $.01 par value
  
 
9,901,752
 
Class B Common Stock, $.01 par value
  
 
2,307,983
 
(Title of each class)
  
 
(Number of shares
 
 
 

Table of Contents
THE BOSTON BEER COMPANY, INC.
FORM
10-Q
June 27, 2020
TABLE OF CONTENTS
 
PART I.
 
  
 
PAGE
 
       
 
 
Item 1.
  
  
 
3
 
       
 
 
 
  
  
 
3
 
       
 
 
 
  
  
 
4
 
       
 
 
 
  
  
 
5
 
       
 
 
 
  
  
 
6
 
       
 
 
 
  
  
 
7-19
 
       
 
 
Item 2.
  
  
 
19-24
 
       
 
 
Item 3.
  
  
 
24
 
       
 
 
Item 4.
  
  
 
24
 
     
PART II.
 
  
     
       
 
 
Item 1.
  
  
 
25
 
       
 
 
Item 1A.
  
  
 
25
 
       
 
 
Item 2.
  
  
 
26
 
       
 
 
Item 3.
  
  
 
26
 
       
 
 
Item 4.
  
  
 
26
 
       
 
 
Item 5.
  
  
 
26
 
       
 
 
Item 6.
  
  
 
27
 
   
  
 
28
 
EX-31.1
Section 302 CEO Certification
EX-31.2
Section 302 CFO Certification
EX-32.1
Section 906 CEO Certification
EX-32.2
Section 906 CFO Certification
 
2

Table of Contents
PART I. FINANCIAL INFORMATION
 
Item 1.
CONSOLIDATED FINANCIAL STATEMENTS
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
 
June 27,
2020
 
 
December 28,
2019
 
Assets
 
 
 
 
 
 
 
Current Assets:
   
     
 
Cash and cash equivalents
  $
86,716
    $
36,670
 
Accounts receivable
   
99,320
     
54,404
 
Inventories
   
108,523
     
106,038
 
Prepaid expenses and other current assets
   
22,693
     
12,077
 
Income tax receivable
   
3,435
     
9,459
 
                 
Total current assets
   
320,687
     
218,648
 
                 
Property, plant and equipment, net
   
565,265
     
541,068
 
Operating
right-of-use
assets
   
61,420
     
53,758
 
Goodwill
   
112,529
     
112,529
 
Intangible assets
   
104,096
     
104,272
 
Other assets
   
44,255
     
23,782
 
                 
Total assets
  $
 
1,208,252
    $
 1,054,057
 
                 
Liabilities and Stockholders’ Equity
 
 
 
 
 
 
Current Liabilities:
   
     
 
Accounts payable
  $
93,576
    $
76,374
 
Accrued expenses and other current liabilities
   
118,788
     
99,107
 
Current operating lease liabilities
   
7,444
     
5,168
 
                 
Total current liabilities
   
219,808
     
180,649
 
 
 
 
 
 
 
 
 
 
Deferred income taxes, net
   
87,417
     
75,010
 
Non-current
operating lease liabilities
   
62,896
     
53,940
 
Other liabilities
   
10,648
     
8,822
 
                 
Total liabilities
   
380,769
     
318,421
 
Commitments and Contingencies (See Note K)
   
     
 
                 
Stockholders’ Equity:
   
     
 
Class A Common Stock, $.01 par value; 22,700,000 shares authorized; 9,834,473 and 9,370,526 issued and outstanding as of June 27, 2020 and December 28, 2019, respectively
   
98
     
94
 
Class B Common Stock, $.01 par value; 4,200,000 shares authorized; 2,307,983 and 2,672,983 issued and
outstanding as of June 27, 2020 and December 28, 2019, respectively
   
23
     
27
 
Additional
paid-in
capital
   
585,327
     
571,784
 
Accumulated other comprehensive loss, net of tax
   
(1,740
)    
(1,669
)
Retained earnings
   
243,775
     
165,400
 
                 
Total stockholders’ equity
   
827,483
     
735,636
 
                 
Total liabilities and stockholders’ equity
  $
1,208,252
    $
 1,054,057
 
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
   
Twenty-six weeks ended
 
 
June 27,
2020
 
 
June 29,
2019
 
 
June 27,
2020
 
 
June 29,
2019
 
Revenue
  $
481,089
    $
338,643
    $
833,314
    $
606,202
 
Less excise taxes
   
28,951
     
20,236
     
50,611
     
36,144
 
                                 
Net revenue
   
452,138
     
318,407
     
782,703
     
570,058
 
Cost of goods sold
   
242,514
     
159,405
     
425,106
     
286,516
 
                                 
Gross profit
   
209,624
     
159,002
     
357,597
     
283,542
 
Operating expenses:
   
     
     
     
 
Advertising, promotional and selling expenses
   
100,336
     
94,079
     
198,227
     
165,802
 
General and administrative expenses
   
29,685
     
26,748
     
56,714
     
50,122
 
Impairment of assets
   
834
     
243
     
2,355
     
243
 
                                 
Total operating expenses
   
130,855
     
121,070
     
257,296
     
216,167
 
                                 
Operating income
   
78,769
     
37,932
     
100,301
     
67,375
 
Other (expense) income, net:
   
     
     
     
 
Interest (expense) income, net
   
(212
)    
(27
)    
(149
)    
610
 
Other (expense) income, net
   
(52
)    
197
     
(412
)    
(55
)
 
                                 
Total other (expense) income, net
   
(264
)    
170
     
(561
)    
555
 
                                 
Income before income tax provision
   
78,505
     
38,102
     
99,740
     
67,930
 
Income tax provision
   
18,364
     
10,246
     
21,365
     
16,380
 
                                 
Net income
  $
60,141
    $
27,856
    $
78,375
    $
51,550
 
                                 
Net income per common share - basic
  $
4.93
    $
2.39
    $
6.44
    $
4.42
 
                                 
Net income per common share - diluted
  $
4.88
    $
2.36
    $
6.37
    $
4.38
 
                                 
Weighted-average number of common shares - Class A basic
   
9,720
     
8,648
     
9,572
     
8,627
 
                                 
Weighted-average number of common shares - Class B basic
   
2,400
     
2,918
     
2,523
     
2,918
 
                                 
Weighted-average number of common shares - diluted
   
12,258
     
11,684
     
12,221
     
11,660
 
                                 
Net income
  $
60,141
    $
27,856
    $
78,375
    $
51,550
 
                                 
Other comprehensive income:
   
     
     
     
 
Foreign currency translation adjustment
   
(13
)    
5
     
(71
)    
42
 
                                 
Comprehensive income
  $
60,128
    $
27,861
    $
78,304
    $
51,592
 
                                 
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 STOCKHOLDERS’ EQUITY
For the thirteen and
twenty-six
weeks ended June 27, 2020 and June 29, 2019
(in thousands)
(unaudited)
                                                                 
 
Class A
Common
Shares
 
 
Class A
Common
Stock,
Par
   
Class B
Common
Shares
 
 
Class B
Common
Stock,
 
Par
 
 
Additional
Paid-in
Capital
 
 
Accumulated
Other
Comprehensive
Loss, net of tax
 
 
Retained
Earnings
 
 
Total
Stockholders’
Equity
 
Balance at December 28, 2019
   
9,371
    $
94
     
2,673
    $
27
    $
571,784
    $
 (1,669
)
 
  $
165,400
    $
735,636
 
                                                                 
Net income
   
     
     
     
     
     
     
18,234
     
18,234
 
Stock options exercised and restricted shares activities
   
38
     
—  
     
     
     
1,858
     
     
     
1,858
 
Stock-based compensation expense
   
     
     
     
     
2,566
     
     
     
2,566
 
Conversion from Class B to Class A
   
150
     
2
     
(150
)
 
   
(2
)    
     
     
     
—  
 
Currency translation adjustment
   
     
     
     
     
     
(58
)    
     
(58
)
                                                                 
Balance at March 28, 2020
   
9,559
    $
 96
     
2,523
    $
 25
    $
 576,208
    $
 (1,727
)   $
183,634
    $
 758,236
 
                                                                 
Net income
   
     
     
     
     
     
     
60,141
     
60,141
 
Stock options exercised and restricted shares activities
   
61
     
—  
     
     
     
4,582
     
     
     
4,582
 
Stock-based compensation expense
   
     
     
     
     
4,537
     
     
     
4,537
 
Conversion from Class B to Class A
   
215
     
2
     
(215
)    
(2
)    
     
     
     
—  
 
Currency translation adjustment
   
     
     
     
     
     
(13
)    
     
(13
)
 
                                                                 
Balance at June 27, 2020
   
9,835
    $
98
     
2,308
    $
23
    $
585,327
    $
(1,740
)   $
243,775
    $
827,483
 
                                                                 
 
 
 
 
 
 
 
 
 
 
 
                                                                 
 
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
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
5

Table of Contents
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Twenty-six weeks ended
 
 
June 27,
2020
 
 
June 29,
2019
 
Cash flows provided by operating activities:
   
     
 
Net income
  $
78,375
    $
51,550
 
Adjustments to reconcile net income to net cash provided by operating activities:
   
     
 
Depreciation and amortization
   
32,584
     
26,089
 
Impairment of assets
   
2,355
     
243
 
Loss on disposal of property, plant and equipment
   
39
     
104
 
Change in ROU assets
   
3,649
     
1,789
 
Credit loss expense
   
375
     
(1
)
Stock-based compensation expense
   
7,103
     
5,810
 
Deferred income taxes
   
12,407
     
6,283
 
Changes in operating assets and liabilities:
   
     
 
Accounts receivable
   
(45,326
)    
(35,346
)
Inventories
   
(12,795
)    
(14,942
)
Prepaid expenses, income tax receivable and other current assets
   
(4,784
)    
(6,855
)
Other assets
   
(10,231
)    
(4,107
)
Accounts payable
   
19,560
     
26,320
 
Accrued expenses and other current liabilities
   
20,803
     
(101
)
Change in operating lease liability
   
(80
)
 
 
   
(1,391
)
Other liabilities
   
(23
)    
85
 
                 
Net cash provided by operating activities
   
104,011
     
55,530
 
                 
Cash flows used in investing activities:
   
     
 
Purchases of property, plant and equipment
   
(60,072
)    
(44,578
)
Proceeds from disposal of property, plant and equipment
   
45
     
179
 
Investment in Dogfish Head, net of cash acquired
   
  
     
(158,402
)
Other investing activities
   
260
     
(188
)
                 
Net cash used in investing activities
   
(59,767
)    
(202,989
)
                 
Cash flows provided by financing activities:
   
     
 
Proceeds from exercise of stock options and sale of investment shares
   
8,010
     
4,692
 
Net cash paid on note payable and finance leases
   
(649
)    
(115
)
Cash borrowed on line of credit
   
100,000
     
86,000
 
Cash paid on line of credit
   
(100,000
)    
(48,500
)
Payment of tax withholdings on stock-based payment awards and investment shares
   
(1,559
)    
—  
 
                 
Net cash provided by financing activities
   
5,802
     
42,077
 
                 
Change in cash and cash equivalents
   
50,046
     
(105,382
Cash and cash equivalents at beginning of year
   
36,670
     
108,399
 
                 
Cash and cash equivalents at end of period
  $
86,716
    $
3,017
 
                 
Supplemental disclosure of cash flow information:
   
     
 
Income taxes paid
  $
2,929
    $
207
 
                 
Cash paid for amounts included in measurement of lease liabilities
   
     
 
Operating cash flows from operating leases
  $
4,532
    $
1,916
 
                 
Operating cash flows from finance leases
  $
75
    $
52
 
                 
Financing cash flows from finance leases
  $
581
    $
7
 
                 
Right-of-use
assets obtained in exchange for operating lease obligations
  $
11,311
    $
38,524
 
 
               
Right-of-use
assets obtained in exchange for finance lease obligations
  $
3,856
    $
2,837
 
 
               
Change in purchase of property, plant and equipment in accounts payable and accrued expenses
  $
4,920
    $
1,484
 
                 
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
The Boston Beer Company, Inc. and certain subsidiaries (the “Company”) are engaged in the business of selling alcohol beverages throughout the United States and in selected international markets, under the trade names “The Boston Beer Company
®
”, “Hard Seltzer Beverage Company”, “Twisted Tea Brewing Company
®
”, “Angry Orchard
®
Cider Company”, “Dogfish Head
®
Craft Brewery”, “Angel City
®
Brewing Company”, “Concrete Beach Brewery
®
”, “Coney Island
®
Brewing Company” and “American Fermentation Company”.
The accompanying unaudited consolidated balance sheet as of June 27, 2020, and the consolidated statements of comprehensive income, stockholders’ equity, and cash flows for the interim periods ended June 27, 2020 and June 29, 2019 have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnotes normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. All intercompany accounts and transactions have been eliminated. These consolidated financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form
10-K
for the year ended December 28, 2019.
In the opinion of the Company’s management, the Company’s unaudited consolidated balance sheet as of June 27, 2020 and the results of its consolidated operations, stockholders’ equity, and cash flows for the interim periods ended June 27, 2020 and June 29, 2019, reflect all adjustments (consisting only of normal and recurring adjustments) necessary to present fairly the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year.
 
B.
COVID-19
Pandemic
The Company began seeing the impact of the
COVID-19
pandemic on its business in early March. The direct financial impact of the pandemic has primarily shown in significantly reduced keg demand from the
on-premise
channel and higher labor and safety related costs at the Company’s breweries. In the first half of 2020, the Company recorded
COVID-19
related
pre-tax
reductions in net revenue and increases in other costs that total $14.1 million of which $10.0 million was recorded in the first quarter and $4.1 million was recorded in the second quarter. The total amount consists of a $5.8 million reduction in net revenue for estimated keg returns from distributors and retailers and $8.3 million for inventory write-downs for obsolescence, increased costs for health and safety, increased salaries and benefits and other
COVID-19
related direct costs, of which $5.6 million are recorded in cost of goods sold and $2.7 million are recorded in operating expenses. While the duration of the disruption and related impact on the Company’s consolidated financial statements is currently uncertain, the Company expects to continue to incur increased costs related to health and safety and salaries and benefits for the foreseeable future.
 
C.
Dogfish Head Brewery Transaction
On May 8, 2019, the Company entered into definitive agreements to acquire Dogfish Head Brewery (“Dogfish Head”) and various related operations (the “Transaction”) through the acquisition of all of the equity interests held by certain private entities in
Off-Centered
Way LLC, the parent holding company of the Dogfish Head operations. In accordance with these agreements, the Company made a payment of $158.4 million, which was placed in escrow pending the satisfaction of certain closing conditions. The Transaction closed on July 3, 2019, for total consideration of $336.0 million consisting of $173.0 million in cash and 429,291 shares of restricted Class A Common Stock that had an aggregate market value as of July 3, 2019 of $163.0 million, after taking into account a post-closing cash related adjustment. As required under the definitive agreements, 127,146 of the 429,291 shares of restricted Class A Stock have been placed in escrow and will be released no later than July 3, 2029. These shares had a market value on July 3, 2019 of $48.3 million. The timing of the release of these escrowed shares is primarily related to the continued employment with the Company of Samuel A. Calagione III, one of the two Dogfish Head founders.
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Table of Contents
The fair value of the Transaction is estimated to be $317.7 million. The following table summarizes the acquisition date fair value of the tangible assets, intangible assets, liabilities assumed, and related goodwill acquired from Dogfish Head, as well as the allocation of purchase price paid:
 
Total (In Thousands)
 
Cash and cash equivalents
  $
7,476
 
Accounts receivable
   
8,081
 
Inventories
   
9,286
 
Prepaid expenses and other current assets
   
847
 
Property, plant and equipment
   
106,964
 
Goodwill
   
108,846
 
Brand
   
98,500
 
Other intangible assets
   
3,800
 
Other assets
   
378
 
         
Total assets acquired
   
344,178
 
         
Accounts payable
   
3,861
 
Accrued expenses and other current liabilities
   
4,085
 
Deferred income taxes
   
18,437
 
Other liabilities
   
59
 
         
Total liabilities assumed
   
26,442
 
         
Net assets acquired
  $
 317,736
 
         
Cash consideration
  $
 172,993
 
Nominal value of equity issued
   
162,999
 
Fair Value reduction due to liquidity
   
(18,256
)
         
Estimated total purchase price
  $
 317,736
 
         
The Company accounted for the acquisition in accordance with the accounting standards codification guidance for business combinations, whereby the total purchase price was allocated to the acquired net tangible and intangible assets of Dogfish Head based on their fair values as of the Transaction closing date.
 
The fair value of the Dogfish Head brand trade name is estimated at approximately $98.5 million and the fair value of customer relationships is estimated at $3.8 million. The Company estimated the Dogfish Head brand trade name will have an indefinite life and customer relationships will have an estimated useful life of 15 years. The customer relationship intangible asset will be amortized on a straight-line basis over the 15 year estimated useful life. The fair value of the deferred income tax liability assumed is $18.4 
million, representing the expected future tax consequences of temporary differences between the fair values of the assets acquired and liabilities assumed and their tax basis. The 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.
The results of operations from Dogfish Head have been included in the Company’s consolidated statements of comprehensive income since the July 3, 2019 Transaction closing date.
Consistent with prior periods and considering post-merger reporting structures, the Company will continue to report as one operating segment. The combined Company’s brands are predominantly beverages that are manufactured using similar production processes, have comparable alcohol content, generally fall under the same regulatory environment, and are sold to the same types of customers in similar size quantities at similar price points and through the same channels of distribution.
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Table of Contents
The following unaudited pro forma information has been prepared, as if the Transaction and the related debt financing had occurred as of December 30, 2018, the first day of the Company’s 2019 fiscal year. The pro forma amounts reflect the combined historical operational results for Boston Beer and Dogfish Head, after giving effect to adjustments related to the impact of purchase accounting, transaction costs and financing. The unaudited pro forma financial information is not indicative of the operational results that would have been obtained had the Transaction occurred as of that date, nor is it necessarily indicative of the Company’s future operational results. The following adjustments have been made:
  (i) Depreciation and amortization expenses were updated to reflect the fair value adjustments to Dogfish Head property, plant and equipment and intangible assets beginning December 30, 2018.
  (ii) 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.
  (i
ii
)
The tax effects of the pro forma adjustments at an estimated statutory rate of 25.6%.
  (
i
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
   
Twenty-six
weeks ended
 
 
June 27,
 
 
June 29,
 
 
June 27,
 
 
June 29,
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
 
(in thousands)
   
(in thousands)
 
Net revenue
  $ 452,138     $ 347,015     $ 782,703     $ 623,755  
Net income
  $ 60,141     $ 30,359     $ 78,375     $ 55,022  
Basic earnings per share
  $ 4.93     $ 2.51     $ 6.44     $ 4.55  
Diluted earnings per share
  $ 4.88     $ 2.46     $ 6.37     $ 4.48  
D.
Goodwill and Intangible Assets
There were no changes in the carrying value of goodwill during the thirteen or
twenty-six
weeks ended June 27, 2020 and June 29, 2019.
The Company’s intangible assets as of June 27, 2020 and December 28, 2019 were as follows:
   
 
 
As of June 27, 2020
   
As of December 28, 2019
 
 
Estimated Useful
Life (Years)
 
 
Gross Carrying
Value
 
 
Accumulated
Amortization
 
 
Net Book
Value
 
 
Gross Carrying
Value
 
 
Accumulated
Amortization
 
 
Net Book
Value
 
 
(in thousands)
 
 
Custmer Relationships
 
 
15
 
  $
3,800
    $
 (253
)   $
3,547
    $
3,800
    $
 (127
)   $
3,673
 
Trade Names
 
 
Indefinite
 
   
100,549
     
—  
     
100,549
     
100,599
     
—  
     
100,599
 
   
 
 
 
                                               
Total intangible assets
 
 
 
  $
 104,349
    $
 (253
)   $
104,096
    $
 104,399
    $
 (127
)   $
 104,272
 
   
 
 
 
                                               
As disclosed within Note C, the Company acquired intangible assets as part of the Dogfish Head
t
ransaction that consists of $98.5 million for the value of the Dogfish Head brand name and $3.8 million for the value of customer relationships. The customer relationship intangible will be amortized on a straight-line basis over the 15 year useful life. Amortization expense in the thirteen and
twenty-six
weeks ended June 27, 2020 was approximately $63,000 and $126,000, respectively. The Company expects to record amortization expense as follows over the remaining current year and the five subsequent years:
Fiscal Year
 
Amount (in thousands)
 
Remainder of 2020
  $
 127
 
2021
   
253
 
2022
   
253
 
2023
   
253
 
2024
   
253
 
2025
   
253
 
9

Table of Contents
E.
Recent Accounting Pronouncements
Accounting Pronouncements Recently Adopted
In June 2016, the FASB issued ASU
2016-13,
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The guidance requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires the consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU
2016-13
is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted the standard in the first quarter of fiscal 2020 and there was no material impact.
In January 2017, the FASB issued ASU No.
 2017-04,
Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. Prior to ASU No.
 2017-04,
the goodwill impairment test is a
two-step
assessment, if indicators of impairment exist. The first step requires an entity to compare each reporting unit’s carrying value and its fair value. If the reporting unit’s carrying value exceeds the fair value, then the entity must perform the second step, which is to compare the implied fair value of goodwill to its carrying value, and record an impairment charge for any excess of carrying value of goodwill over its implied fair value. An entity also has the option to perform a qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU
2017-04
simplifies the goodwill impairment test by eliminating the second step of the test. As such, an entity will perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the reporting unit’s carrying amount exceeds its fair value. If fair value exceeds the carrying amount, no impairment should be recorded. ASU
2017-04
is effective prospectively for the year beginning December 29, 2019. The Company completes its annual goodwill impairment assessment during the third quarter. The Company does not expect the adoption of ASU
2017-04
to have a material impact on its consolidated financial statements.
Accounting Pronouncements Not Yet Effective
In December 2019, the FASB issued ASU
2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The standard includes multiple key provisions, including removal of certain exceptions to ASC 740, Income Taxes, and simplification in several other areas such as accounting for a franchise tax (or similar tax) that is partially based on income. ASU
2019-12
is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently assessing the impact of adopting this standard but does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
F.
Revenue Recognition
During the
twenty-six
weeks ended June 27, 2020 and June 29, 2019 approximately 95% of the Company’s revenue was from shipments of its products to domestic distributors, 4% from shipments to international distributors, primarily located in Canada and 1% was from retail beer, cider, and merchandise sales at the Company’s retail locations.
The Company recognizes revenue when obligations under the terms of a contract with its customer are satisfied; generally, this occurs with the transfer of control of its products. Revenue is measured as the amount of consideration expected to be received in exchange for transferring products. If the conditions for revenue recognition are not met, the Company defers the revenue until all conditions are met. As of June 27, 2020 and December 28, 2019, the Company has deferred $9.0 million and $7.0 million, respectively in revenue related to product shipped prior to these dates. These amounts are included in accrued expenses and other current liabilities in the accompanying consolidated balance sheets.
Customer promotional discount programs are entered into by the Company with distributors for certain periods of time. The reimbursements for discounts to distributors are recorded as reductions to net revenue and were $20.4 million and $28.6 million for the thirteen and
twenty-six
weeks ended June 27, 2020, respectively. The reimbursements for discounts to Distributors are recorded as reductions to net revenue and were $13.5 million and $19.7 million for the thirteen and
twenty-six
weeks ended June 29, 2019, respectively. The agreed-upon discount rates are applied to certain distributors’ sales to retailers, based on volume metrics, in order to determine the total discounted amount. The computation of the discount allowance requires that management make certain estimates and assumptions that affect the timing and amounts of revenue and liabilities recorded. Actual promotional discounts owed and paid have historically been in line with allowances recorded by the Company, however, the amounts could differ from the estimated
allowance.
Customer programs and incentives are a common practice in the alcohol beverage industry. Amounts paid in connection with customer programs and incentives are recorded as reductions to net revenue or as advertising, promotional and selling expenses
,
10

Table of Contents
based on the nature of the expenditure. Customer incentives and other payments made to distributors are primarily based upon performance of certain marketing and advertising activities. Depending on applicable state laws and regulations, these activities promoting the Company’s products may include, but are not limited to
point-of-sale
and merchandise placement, samples, product displays, promotional programs at retail locations and meals, travel and entertainment.
 
Amounts paid to customers in connection with these programs for the thirteen and
twenty-six
weeks ended June 27, 2020 were $5.0 million and $9.5 million, respectively. For the thirteen and
twenty-six
weeks ended June 27, 2020, the Company recorded certain of these costs in the total amount of $4.8 million and $9.0 million, respectively as reductions to net revenue. Amounts paid to customers in connection with these programs for the thirteen and
twenty-six
weeks ended June 29, 2019 were $5.9 million and $10.6 million, respectively. For the thirteen and
twenty-six
weeks ended June 29, 2019, the Company recorded certain of these costs in the total amount of $3.6 million and $6.7 million, respectively as reductions to net revenue. Costs recognized in net revenues include, but are not limited to, promotional discounts, sales incentives and certain other promotional activities. Costs recognized in advertising, promotional and selling expenses include point of sale materials, samples and media advertising expenditures in local markets. These costs are recorded as incurred, generally when invoices are received; however certain estimates are required at the period end. Estimates are based on historical and projected experience for each type of program or customer and have historically been in line with actual costs incurred.
The Further Consolidation Appropriations Act, 2020 extended reductions in federal excise taxes as a result of the Tax Cuts and Jobs Act of 2017 through December 31, 2020. The Company benefited from a reduction in federal excise taxes of $3.2 million and $2.1 million for the thirteen weeks ended June 27, 2020 and June 29, 2019, respectively, as a result of the Tax Cuts and Jobs Act of 2017. The Company benefited from a reduction in federal excise taxes of $5.7 million and $3.8 million for the
twenty-six
weeks ended June 27, 2020 and June 29, 2019 respectively, as a result of the Tax Cuts and Jobs Act of 2017.
On March 31, 2020, The Alcohol and Tobacco Tax and Trade Bureaus (“TTB”) released TTB Industry Circular
 2020-2,
which postponed all Federal excise tax payments for ninety days on sales of wine, beer and distilled spirits between March 1, 2020 and July 1, 2020. As a June 27, 2020, the Company had accrued federal excise taxes of $29.8 million in accrued expenses and other current liabilities, of which will be fully paid during the third quarter of 2020.
The Company believes distributor inventory as of June 27, 2020 averaged approximately 2.5 weeks on hand and was lower than prior year levels due to supply chain capacity constraints. The Company expects wholesaler inventory levels in terms of weeks on hand to remain lower than prior year levels for the remainder of the year.
 
G.
Inventories
Inventories consist of raw materials, work in process and finished goods. Raw materials, which principally consist of hops, flavorings, apple juice, other brewing materials and packaging, are stated at the lower of cost, determined on the
first-in,
first-out
basis, or net realizable value. The Company’s goal is to maintain on hand a supply of at least one year for essential hop varieties, in order to limit the risk of an unexpected reduction in supply. Inventories are generally classified as current assets. The Company classifies hops inventory in excess of two years of forecasted usage in other long-term assets. The cost elements of work in process and finished goods inventory consist of raw materials, direct labor and manufacturing overhead. Inventories consist of the following:
 
June 27,
2020
 
 
December 28,
2019
 
 
(in thousands)
 
Current inventory:
 
 
 
 
 
 
Raw materials
 
$
62,475
 
 
$
61,522
 
Work in process
 
 
15,161
 
 
 
12,631
 
Finished goods
 
 
30,887
 
 
 
31,885
 
 
 
 
 
 
 
 
 
 
Total current inventory
 
 
108,523
 
 
 
106,038
 
Long term inventory
 
 
20,358
 
 
 
10,048
 
 
 
 
 
 
 
 
 
 
Total inventory
 
$
128,881
 
 
$
 116,086
 
 
11

Table of Contents
H.
Leases
The Company has various lease agreements in place for facilities and equipment. Terms of these leases include, in some instances, scheduled rent increases, renewals, purchase options and maintenance costs, and vary by lease. These lease obligations expire at various dates through 2034. As the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate based on information available at commencement to determine the present value of the lease payments. ROU assets and lease liabilities commencing after December 30, 2018 are recognized at commencement date based on the present value of lease payments over the lease term. Leases with an initial term of 12 months or less (“short-term leases”) are not recorded on the balance sheet and are recognized on a straight-line basis over the lease term. As of June 27, 2020, and December 28, 2019 total ROU assets and lease liabilities were as follows:
 
Classification