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2021-03-27

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 March 27, 2021

 

OR

 

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

 

For the transition period from                     to                    

 

Commission file number: 1-14092

 

THE BOSTON BEER COMPANY, INC.

(Exact name of registrant as specified in its charter)

 

 

MASSACHUSETTS

 

04-3284048

(State or other jurisdiction of

incorporation or organization)

 

(State or other jurisdiction of

incorporation Identification No.)

One Design Center Place,
Suite 850
, Boston, Massachusetts

 

02210

(Address of principal executive offices)

 

(Zip Code)

 

(617) 368-5000

(Registrant’s telephone number, including area code)

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

 

 

 

 

 

Class A Common Stock $0.01 per value

 

SAM

 

New York Stock Exchange

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes      No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.)     Yes      No  

 

Number of shares outstanding of each of the issuer’s classes of common stock, as of April 16, 2021:

 

Class A Common Stock, $.01 par value

 

10,108,792

Class B Common Stock, $.01 par value

 

2,177,983

(Title of each class)

 

(Number of shares)

 

 

 

 


Table of Contents

 

 

THE BOSTON BEER COMPANY, INC.

FORM 10-Q

March 27, 2021

TABLE OF CONTENTS

 

PART I.

 

FINANCIAL INFORMATION

 

PAGE

 

 

 

 

 

 

 

 

Item 1.

Consolidated Financial Statements (Unaudited)

 

3

 

 

 

Consolidated Balance Sheets as of March 27, 2021 and December 26, 2020

 

3

 

 

 

Consolidated Statements of Comprehensive Income for the thirteen weeks ended March 27, 2021 and March 28, 2020

 

4

 

 

 

Consolidated Statements of Cash Flows for the thirteen weeks ended March 27, 2021 and March 28, 2020

 

5

 

 

 

Consolidated Statements of Stockholders’ Equity for the thirteen weeks ended March 27, 2021 and March 28, 2020

 

6

 

 

 

Notes to Consolidated Financial Statements

 

7-16

 

 

 

 

 

 

 

 

Item 2.

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

 

16-20

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

20

 

 

Item 4.

Controls and Procedures

 

20

 

 

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

21

 

 

Item 1A.

Risk Factors

 

21

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

22

 

 

Item 3.

Defaults Upon Senior Securities

 

22

 

 

Item 4.

Mine Safety Disclosures

 

22

 

 

Item 5.

Other Information

 

22

 

 

Item 6.

Exhibits

 

23

 

 

 

 

 

 

SIGNATURES

 

24

 

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 per share data)

(unaudited)

 

 

March 27,

 

 

December 26,

 

 

 

2021

 

 

2020

 

Assets

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

144,658

 

 

$

163,282

 

Accounts receivable

 

 

105,042

 

 

 

78,358

 

Inventories

 

 

160,671

 

 

 

130,910

 

Prepaid expenses and other current assets

 

 

36,061

 

 

 

30,230

 

Income tax receivable

 

 

4,115

 

 

 

10,393

 

Total current assets

 

 

450,547

 

 

 

413,173

 

Property, plant and equipment, net

 

 

636,007

 

 

 

623,083

 

Operating right-of-use assets

 

 

56,518

 

 

 

58,483

 

Goodwill

 

 

112,529

 

 

 

112,529

 

Intangible assets

 

 

103,867

 

 

 

103,930

 

Third-party production prepayments

 

 

93,243

 

 

 

56,843

 

Other assets

 

 

11,459

 

 

 

10,784

 

Total assets

 

$

1,464,170

 

 

$

1,378,825

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

157,085

 

 

$

121,647

 

Accrued expenses and other current liabilities

 

 

106,361

 

 

 

129,544

 

Current operating lease liabilities

 

 

8,183

 

 

 

8,232

 

Total current liabilities

 

 

271,629

 

 

 

259,423

 

Deferred income taxes, net

 

 

97,284

 

 

 

92,665

 

Non-current operating lease liabilities

 

 

57,200

 

 

 

59,171

 

Other liabilities

 

 

9,333

 

 

 

10,599

 

Total liabilities

 

$

435,446

 

 

$

421,858

 

Commitments and Contingencies (See Note J)

 

 

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

 

 

 

Class A Common Stock, $.01 par value; 22,700,000 shares authorized; 10,052,711

   and 10,004,681 issued and outstanding as of March 27, 2021 and

   December 26, 2020, respectively

 

 

101

 

 

 

100

 

Class B Common Stock, $.01 par value; 4,200,000 shares authorized; 2,177,983

   and 2,177,983 issued and outstanding as of March 27, 2021 and

   December 26, 2020, respectively

 

 

22

 

 

 

22

 

Additional paid-in capital

 

 

605,962

 

 

 

599,737

 

Accumulated other comprehensive loss

 

 

(232

)

 

 

(252

)

Retained earnings

 

 

422,871

 

 

 

357,360

 

Total stockholders' equity

 

$

1,028,724

 

 

$

956,967

 

Total liabilities and stockholders' equity

 

$

1,464,170

 

 

$

1,378,825

 

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 INCOME AND COMPREHENSIVE INCOME

(in thousands, except per share data)

(unaudited)

 

 

Thirteen weeks ended

 

 

 

March 27,

 

 

March 28,

 

 

 

2021

 

 

2020

 

Revenue

 

$

581,709

 

 

$

352,225

 

Less excise taxes

 

 

36,629

 

 

 

21,660

 

Net revenue

 

 

545,080

 

 

 

330,565

 

Cost of goods sold

 

 

295,450

 

 

 

182,592

 

Gross profit

 

 

249,630

 

 

 

147,973

 

Operating expenses:

 

 

 

 

 

 

 

 

Advertising, promotional and selling expenses

 

 

140,859

 

 

 

97,891

 

General and administrative expenses

 

 

31,946

 

 

 

27,029

 

Impairment of assets

 

 

227

 

 

 

1,521

 

Total operating expenses

 

 

173,032

 

 

 

126,441

 

Operating income

 

 

76,598

 

 

 

21,532

 

Other (expense) income, net:

 

 

 

 

 

 

 

 

Interest (expense) income, net

 

 

(29

)

 

 

63

 

Other (expense) income, net

 

 

(6

)

 

 

(360

)

Total other (expense) income, net

 

 

(35

)

 

 

(297

)

Income before income tax provision

 

 

76,563

 

 

 

21,235

 

Income tax provision

 

 

10,998

 

 

 

3,001

 

Net income

 

$

65,565

 

 

$

18,234

 

Net income per common share - basic

 

$

5.34

 

 

$

1.50

 

Net income per common share - diluted

 

$

5.26

 

 

$

1.49

 

Weighted-average number of common shares - basic

 

 

12,271

 

 

 

12,157

 

Weighted-average number of common shares - diluted

 

 

12,457

 

 

 

12,186

 

Net income

 

$

65,565

 

 

$

18,234

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

20

 

 

 

(58

)

Comprehensive income

 

$

65,585

 

 

$

18,176

 

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

(in thousands)

(unaudited)

 

 

 

Thirteen weeks ended

 

 

 

March 27,

2021

 

 

March 28,

2020

 

Cash flows provided by operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

65,565

 

 

$

18,234

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

16,996

 

 

 

15,945

 

Impairment of assets

 

 

227

 

 

 

1,521

 

Gain on disposal of property, plant and equipment

 

 

(36

)

 

 

 

Change in right-of-use assets

 

 

1,965

 

 

 

1,807

 

Credit loss (recovery) expense

 

 

(48

)

 

 

552

 

Stock-based compensation expense

 

 

4,957

 

 

 

2,566

 

Deferred income taxes

 

 

4,565

 

 

 

2,379

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(26,723

)

 

 

(4,436

)

Inventories

 

 

(30,581

)

 

 

(23,856

)

Prepaid expenses, income tax receivable and other current assets

 

 

(14,369

)

 

 

(2,077

)

Third-party production prepayments

 

 

(21,584

)

 

 

1,234

 

Other assets

 

 

 

 

 

(41

)

Accounts payable

 

 

36,912

 

 

 

14,264

 

Accrued expenses and other current liabilities

 

 

(16,095

)

 

 

(7,579

)

Change in operating lease liabilities

 

 

(2,020

)

 

 

(1,489

)

Other liabilities

 

 

76

 

 

 

(100

)

Net cash provided by operating activities

 

 

19,807

 

 

 

18,924

 

Cash flows used in investing activities:

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(39,278

)

 

 

(27,394

)

Proceeds from disposal of property, plant and equipment

 

 

320

 

 

 

35

 

Other investing activities

 

 

145

 

 

 

96

 

Net cash used in investing activities

 

 

(38,813

)

 

 

(27,263

)

Cash flows provided by financing activities:

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options and sale of investment shares

 

 

6,768

 

 

 

2,941

 

Net cash paid on note payable and finance leases

 

 

(435

)

 

 

(209

)

Cash borrowed on line of credit

 

 

 

 

 

100,000

 

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

 

 

(5,951

)

 

 

(1,559

)

Net cash provided by financing activities

 

 

382

 

 

 

101,173

 

Change in cash and cash equivalents

 

 

(18,624

)

 

 

92,834

 

Cash and cash equivalents at beginning of year

 

 

163,282

 

 

 

36,670

 

Cash and cash equivalents at end of period

 

$

144,658

 

 

$

129,504

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Income taxes paid

 

$

4

 

 

$

5

 

Cash paid for amounts included in measurement of lease liabilities

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

2,602

 

 

$

2,097

 

Operating cash flows from finance leases

 

$

34

 

 

$

22

 

Financing cash flows from finance leases

 

$

364

 

 

$

141

 

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

 

$

-

 

 

$

11,088

 

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

   accrued expenses

 

$

(8,997

)

 

$

(1,029

)

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 STOCKHOLDERS’ EQUITY

For the thirteen weeks ended March 27, 2021 and March 28, 2020

(in thousands)

(unaudited)

 

 

 

 

 

 

 

Class A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Class A

 

 

Common

 

 

Class B

 

 

Class B

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Common

 

 

Stock,

 

 

Common

 

 

Common

 

 

Paid-in

 

 

Comprehensive

 

 

Retained

 

 

Stockholders’

 

 

 

Shares

 

 

Par

 

 

Shares

 

 

Stock, Par

 

 

Capital

 

 

Loss

 

 

Earnings

 

 

Equity

 

Balance at December 26, 2020

 

 

10,005

 

 

$

100

 

 

 

2,178

 

 

$

22

 

 

$

599,737

 

 

$

(252

)

 

$

357,360

 

 

$

956,967

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

65,565

 

 

 

65,565

 

Stock options exercised and restricted

   shares activities

 

 

48

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

1,268

 

 

 

 

 

 

 

 

 

 

 

1,269

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,957

 

 

 

 

 

 

 

 

 

 

 

4,957

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(54

)

 

 

(54

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20

 

 

 

 

 

 

 

20

 

Balance at March 27, 2021

 

 

10,053

 

 

$

101

 

 

 

2,178

 

 

$

22

 

 

$

605,962

 

 

$

(232

)

 

$

422,871

 

 

$

1,028,724

 

 

 

 

 

 

 

Class A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Class A

 

 

Common

 

 

Class B

 

 

Class B

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Common

 

 

Stock,

 

 

Common

 

 

Common

 

 

Paid-in

 

 

Comprehensive

 

 

Retained

 

 

Stockholders’

 

 

 

Shares

 

 

Par

 

 

Shares

 

 

Stock, Par

 

 

Capital

 

 

Loss, net of tax

 

 

Earnings

 

 

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

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(58

)

 

 

 

 

 

 

(58

)

Balance at March 28, 2020

 

 

9,559

 

 

$

96

 

 

 

2,523

 

 

$

25

 

 

$

576,208

 

 

$

(1,727

)

 

$

183,634

 

 

$

758,236

 

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®”, “Twisted Tea Brewing Company®”, “Hard Seltzer Beverage Company”, “Angry Orchard® Cider Company”, “Dogfish Head® Craft Brewery”, “Angel City® Brewing Company”, “Coney Island® Brewing Company” and “American Fermentation Company”.

 

The accompanying unaudited consolidated balance sheet as of March 27, 2021, and the unaudited consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows for the interim periods ended March 27, 2021 and March 28, 2020 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 26, 2020.

 

In the opinion of the Company’s management, the Company’s unaudited consolidated balance sheet as of March 27, 2021 and the results of its consolidated operations, stockholders’ equity, and cash flows for the interim periods ended March 27, 2021 and March 28, 2020, 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. Reclassifications have been made to the prior year’s consolidated financial statements to conform to the current year’s presentation which includes the separate presentation of Third-party production prepayments.

 

B.COVID-19 Pandemic

The Company began seeing the impact of the COVID-19 pandemic on its business in early March 2020.  The direct financial impact of the pandemic primarily included significantly reduced keg demand from the on-premise channel and higher labor and safety-related costs at the Company’s breweries. In addition to these direct financial impacts, COVID-19 related safety measures resulted in a reduction of brewery productivity. This has shifted more volume to third-party breweries, which increased production costs and negatively impacted gross margin rates.  In the 13-week period ended March 28, 2020, the Company recorded COVID-19 pre-tax related reductions in net revenue and increases in other costs of $10.0 million.  This amount consists of a $5.8 million reduction in net revenue for estimated keg returns from distributors and retailers and $4.2 million of other COVID-19 related direct costs, of which $3.6 million are recorded in cost of goods sold and $0.6 million are recorded in operating expenses. In 2021 and going forward, the Company has chosen not to report COVID-19 related direct costs separately as they are viewed to be a normal part of operations.  

 

C. Goodwill and Intangible Assets

There were no changes in the carrying value of goodwill during the thirteen weeks ended March 27, 2021 and March 28, 2020.

 

 

The Company’s intangible assets as of March 27, 2021 and December 26, 2020 were as follows:

 

 

 

 

 

 

 

As of March 27, 2021

 

 

As of December 26, 2020

 

 

 

Estimated

Useful

 

 

Gross

Carrying

 

 

Accumulated

 

 

Net Book

 

 

Gross

Carrying

 

 

Accumulated

 

 

Net Book

 

 

 

Life (Years)

 

 

Value

 

 

Amortization

 

 

Value

 

 

Value

 

 

Amortization

 

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer Relationships

 

 

15

 

 

$

3,800

 

 

$

(443

)

 

$

3,357

 

 

$

3,800

 

 

$

(380

)

 

$

3,420

 

Trade Names

 

Indefinite

 

 

 

100,510

 

 

 

 

 

 

100,510

 

 

 

100,510

 

 

 

 

 

 

100,510

 

Total intangible assets

 

 

 

 

 

$

104,310

 

 

$

(443

)

 

$

103,867

 

 

$

104,310

 

 

$

(380

)

 

$

103,930

 

7


Table of Contents

 

 

The Company acquired intangible assets in fiscal year 2019 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 weeks ended March 27, 2021 was approximately $63,000. 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 2021

 

$

190

 

2022

 

 

253

 

2023

 

 

253

 

2024

 

 

253

 

2025

 

 

253

 

2026

 

 

253

 

 

D.Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The standard includes multiple key provisions, including removal of certain exceptions to ASC 740, Income Taxes, and simplification in several other areas such as accounting for a franchise tax (or similar tax) that is partially based on income. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.  The Company adopted the standard in the first quarter of fiscal 2021 and recorded an adjustment of $0.1 million to retained earnings. .

E. Revenue Recognition

During the thirteen weeks ended March 27, 2021 approximately 97% of the Company’s revenue was from shipments of its products to domestic distributors, 3% from shipments to international distributors, primarily located in Canada, and less than 1% was from retail beer, cider, and merchandise sales at the Company’s retail locations.  During the thirteen weeks ended March 28, 2020 approximately 96% of the Company’s revenue was from shipments of its products to domestic distributors, 3% 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 March 27, 2021 and December 26, 2020, the Company has deferred $24.3 million and $13.9 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 $23.4 million and $8.2 million for the thirteen weeks ended March 27, 2021 and March 28, 2020, respectively.  The agreed-upon discount rates are applied to certain distributors' sales to retailers, based on volume metrics, in order to determine the total discounted amount.  The computation of the discount allowance requires that management make certain estimates and assumptions that affect the timing and amounts of revenue and liabilities recorded.  Actual promotional discounts owed and paid have historically been in line with allowances recorded by the Company; however, the amounts could differ from the estimated allowance.

Customer programs and incentives are a common practice in the alcohol beverage industry. Amounts paid in connection with customer programs and incentives are recorded as reductions to net revenue or as advertising, promotional and selling expenses, based on the nature of the expenditure.  Customer incentives and other payments made to distributors are primarily based upon performance of certain marketing and advertising activities.  Depending on applicable state laws and regulations, these activities promoting the Company's products may include, but are not limited to point-of-sale and merchandise placement, samples, product displays, promotional programs at retail locations and meals, travel and entertainment. Amounts paid to customers in connection with these programs that were recorded as reductions to revenue or as advertising, promotional and selling expenses for the thirteen weeks ended March 27, 2021 and March 28, 2020 were $33.5 million and $12.7 million, respectively.  For the thirteen weeks ended March 27, 2021 and March 28, 2020, the Company recorded certain of these costs in the total amounts of $9.2 million and $4.2 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

8


Table of Contents

 

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.

Shipment volume for the quarter was significantly higher than depletions volume and resulted in significantly higher distributor inventory as of March 27, 2021 when compared to March 28, 2020.  The Company believes distributor inventory as of March 27, 2021 averaged approximately 7 weeks on hand and was at an appropriate level, based on supply chain capacity constraints and inventory requirements to support the forecasted growth of Truly and Twisted Tea brands over the summer. The Company expects wholesaler inventory levels in terms of weeks on hand to be between 3 and 7 weeks for the remainder of the year.

 

F. 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:

 

 

 

March 27,

2021

 

 

December 26,

2020

 

 

 

(in thousands)

 

Current inventory:

 

 

 

 

 

 

 

 

Raw materials

 

$

75,545

 

 

$

69,272

 

Work in process

 

 

16,679

 

 

 

16,846

 

Finished goods

 

 

68,447

 

 

 

44,792

 

Total current inventory

 

 

160,671

 

 

 

130,910

 

Long term inventory

 

 

10,459

 

 

 

9,639

 

Total inventory

 

$

171,130

 

 

$

140,549

 

 

G.Third-party production prepayments

 

During the thirteen weeks ended March 27, 2021, the Company brewed and packaged approximately 57% of its volume at Company-owned breweries.  In the normal course of its business, the Company has historically entered into various production arrangements with other brewing companies.  Pursuant to these arrangements, the Company generally supplies raw materials and packaging to those brewing companies, and incurs conversion fees for labor at the time the liquid is produced and packaged. The Company has made payments for capital improvements at these third-party brewing facilities that it expenses over the period of the contracts. As of March 27, 2021, and December 26, 2020 total third-party production prepayments were as follows:

 

 

 

March 27,

2021

 

 

December 26,

2020

 

 

 

(in thousands)

 

Prepaid expenses and other current assets

 

$

-

 

 

$

14,816

 

Third-party production prepayments

 

 

93,243

 

 

 

56,843

 

Total third-party production prepayments

 

$

93,243

 

 

$

71,659

 

 

The Company will expense the total prepaid amount of $93.2 million as a component of cost of goods sold over the contractual period ending December 31, 2025.

 

During the thirteen weeks ended March 27, 2021, the Company entered into a master transaction agreement with one of