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Net income per common share - diluted

$ 2.82

$ 2.53

$ 5.60

$ 5.16

$ 2.78

$ 2.48

$ 5.54

$ 5.05

Weighted-average number of common shares - diluted

12,037

12,641

12,299

12,853

Net income

$ 33,683

$ 31,530

$ 68,519

$ 65,183

Other comprehensive income:

Foreign currency translation adjustment

(13)

(23)

(90)

Comprehensive income

$ 33,670

$ 31,532

$ 68,496

$ 65,093

Common Class A

$ 2.82

$ 2.53

$ 5.60

$ 5.16

8,789

9,018

9,037

9,191

Common Class B

$ 2.82

$ 2.53

$ 5.60

$ 5.16

Organization and Basis of Presentation

^[1]

3,097

3,367

3,122

3,367

[1]

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

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Sep. 24, 2016
Cash flows provided by operating activities:
Net income	$ 68,519	$ 65,183
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	38,372	37,305
Impairment of assets	1,505	37
Loss on disposal of property, plant and equipment	571	553
Bad debt expense (recovery)	170	(170)
Stock-based compensation expense	4,593	8,122
Excess tax benefit from stock-based compensation arrangements	0	(12,387)
Deferred income taxes	(3,581)	5,464
Changes in operating assets and liabilities:
Accounts receivable	(6,658)	(7,037)
Inventories	(9,330)	(2,897)
Prepaid expenses, income tax receivable and other assets	2,852	11,841
Accounts payable	5,371	(4,571)
Accrued expenses and other current liabilities	6,244	13,365
Other liabilities	(390)	(6,446)
Net cash provided by operating activities	108,238	108,362
Cash flows used in investing activities:
Purchases of property, plant and equipment	(23,415)	(37,108)
Proceeds from disposal of property, plant and equipment	16	4
Change in restricted cash	(4)	62
Net cash used in investing activities	(23,403)	(37,042)
Cash flows used in financing activities:
Repurchase of Class A Common Stock	(121,535)	(138,055)
Proceeds from exercise of stock options	15,159	37,452
Payment of taxes related to exercise of stock options	0	(510)
Cash paid on note payable	(60)	(58)
Excess tax benefit from stock-based compensation arrangements	0	12,387
Net proceeds from sale of investment shares	611	537
Net cash used in financing activities	(105,825)	(88,247)
Change in cash and cash equivalents	(20,990)	(16,927)
Cash and cash equivalents at beginning of year	91,035	94,193
Cash and cash equivalents at end of period	70,045	77,266
Supplemental disclosure of cash flow information:
Income taxes paid	22,408	21,939
Income taxes refunded	2	12,002
(Decrease) Increase in accounts payable for purchase of property, plant and equipment	(3,763)	1,235
Decrease in accounts payable for repurchase of Class A Common Stock	$ 0	$ (3,000)

Organization and Basis of Presentation

9 Months Ended

Sep. 30, 2017

A. Organization and Basis of Presentation

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

The accompanying unaudited consolidated balance sheet as of September 30, 2017, and the consolidated statements of comprehensive income and consolidated statements of cash flows for the interim periods ended September 30, 2017 and September 24, 2016 have been prepared by the Company in accordance with U.S. generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnotes normally included in financial statements prepared in accordance with U.S generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

In the opinion of the Company’s management, the Company’s unaudited consolidated balance sheet as of September 30, 2017 and the results of its consolidated operations and consolidated cash flows for the interim periods ended September 30, 2017 and September 24, 2016, 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.

Inventories

9 Months Ended

Sep. 30, 2017

Inventories

B. 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 30, 2017		December 31, 2016
	(in thousands)
Current inventory:
Raw materials	$	34,267	$	35,314
Work in process		8,687		8,131
Finished goods		11,989		9,054

Total current inventory		54,943		52,499
Long term inventory		13,202		6,316

Total inventory	$	68,145	$	58,815

Net Income per Share

9 Months Ended

Sep. 30, 2017

Net Income per Share


C.		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 I for a discussion of the current year unvested stock awards and issuances.

Included in the computation of net income per diluted common share are dilutive outstanding stock options that are vested or expected to vest. At its discretion, the Board of Directors grants stock options to senior management and certain key employees. The terms of the employee stock options are determined by the Board of Directors at the time of grant. To date, stock options granted to employees vest over various service periods and/or based on the attainment of certain performance criteria and generally expire after ten years. The Company also grants stock options to 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 — 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 30, 2017		September 24, 2016		September 30, 2017		September 24, 2016
	(in thousands, except per share data)				(in thousands, except per share data)
Net income	$	33,683	$	31,530	$	68,519	$	65,183

Allocation of net income for basic:
Class A Common Stock	$	24,772	$	22,841	$	50,647	$	47,465
Class B Common Stock		8,730		8,529		17,493		17,390
Unvested participating shares		181		160		379		328

	$	33,683	$	31,530	$	68,519	$	65,183
Weighted average number of shares for basic:
Class A Common Stock		8,789		9,018		9,037		9,191
Class B Common Stock*		3,097		3,367		3,122		3,367
Unvested participating shares		65		63		67		64

		11,951		12,448		12,226		12,622
Net income per share for basic:
Class A Common Stock	$	2.82	$	2.53	$	5.60	$	5.16

Class B Common Stock	$	2.82	$	2.53	$	5.60	$	5.16

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

Net Income per Common Share — 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.

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 30, 2017						September 24, 2016
	Earnings to Common Shareholders		Common Shares		EPS		Earnings to Common Shareholders		Common Shares		EPS
	(in thousands, except per share data)
As reported — basic	$	24,772		8,789	$	2.82	$	22,841		9,018	$	2.53
Add: effect of dilutive potential common shares
Share-based awards		—		151				—		256
Class B Common Stock		8,730		3,097				8,529		3,367
Net effect of unvested participating shares		2		—				3		—

Net income per common share — diluted	$	33,504		12,037	$	2.78	$	31,373		12,641	$	2.48


	Thirty-nine weeks ended
	September 30, 2017						September 24, 2016
	Earnings to Common Shareholders		Common Shares		EPS		Earnings to Common Shareholders		Common Shares		EPS
	(in thousands, except per share data)
As reported — basic	$	50,647		9,037	$	5.60	$	47,465		9,191	$	5.16
Add: effect of dilutive potential common shares
Share-based awards		—		140				—		295
Class B Common Stock		17,493		3,122				17,390		3,367
Net effect of unvested participating shares		4		—				7		—

Net income per common share — diluted	$	68,144		12,299	$	5.54	$	64,862		12,853	$	5.05

During the thirteen and thirty-nine weeks ended September 30, 2017, weighted-average stock options to purchase approximately 791,000 and 800,000 shares, respectively, of Class A Common Stock were outstanding but not included in computing diluted income per common share because their effects were anti-dilutive. During the thirteen and thirty-nine weeks ended September 24, 2016, weighted-average stock options to purchase approximately 740,000 and 704,000 shares, respectively, of Class A Common Stock were outstanding but not included in computing diluted income per common share because their effects were anti-dilutive. Additionally, performance-based stock options to purchase approximately 36,000 and 35,000 shares of Class A Common Stock were outstanding as of September 30, 2017 and September 24, 2016, respectively, but not included in computing diluted income per common share because the performance criteria of these stock options was not met as of the end of the reporting period.

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

Furthermore, stock options to purchase approximately 12,000 shares of Class A Common Stock were not included in computing diluted income per share because these stock options were cancelled during the thirty-nine weeks ended September 30, 2017, due to performance criteria not being met or employee termination prior to vesting.

Comprehensive Income or Loss	9 Months Ended
Comprehensive Income or Loss	Sep. 30, 2017
Comprehensive Income or Loss	D. Comprehensive Income or Loss Comprehensive income or loss represents net income or loss, plus defined benefit plans liability adjustment, net of tax effect and foreign currency translation adjustment. The defined benefit plans liability and foreign currency translation adjustments for the interim periods ended September 30, 2017 and September 24, 2016 were not material.

Commitments and Contingencies

9 Months Ended

Sep. 30, 2017

Commitments and Contingencies

E. Commitments and Contingencies

Contract Obligations

The Company had outstanding total non-cancelable contract obligations of $171.6 million at September 30, 2017. These obligations are made up of hops, barley and wheat totaling $59.5 million, advertising contracts of $40.7 million, other ingredients of $32.0 million, operating leases of $13.5 million, equipment and machinery of $13.4 million, glass bottles of $2.6 million and other commitments of $9.9 million.

The Company has entered into contracts for the supply of a portion of its hops requirements. These purchase contracts extend through crop year 2022 and specify both the quantities and prices, denominated in U.S. Dollars, Euros and New Zealand Dollars, to which the Company is committed. Hops purchase commitments outstanding at September 30, 2017 totaled $44.0 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 and cover the Company’s barley, wheat, and malt requirements for 2017 and part of 2018. These purchase commitments outstanding at September 30, 2017 totaled $15.5 million.

The Company sources some of its glass bottles needs pursuant to a Glass Bottle Supply Agreement with Anchor Glass Container Corporation (“Anchor”), under which Anchor is the supplier of certain glass bottles for the Company’s Cincinnati Brewery and its Pennsylvania Brewery. This agreement also establishes the terms on which Anchor may supply glass bottles to other breweries where the Company brews its beers. Under the agreement with Anchor, the Company has minimum purchase commitments that are based on Company-provided production estimates which, under normal business conditions, are expected to be fulfilled. Minimum purchase commitments under the agreement, assuming the supplier is unable to replace production cancelled by the Company, as of September 30, 2017 totaled $2.6 million.

The Company has various operating lease agreements for facilities and equipment as of September 30, 2017. Terms of these leases include, in some instances, scheduled rent increases, renewals, purchase options and maintenance costs, and vary by lease. These lease obligations expire at various dates through 2022. The contractual obligation on these lease agreements as of September 30, 2017 totaled $13.5 million.

Currently, the Company brews and packages more than 90% of its volume at Company-owned breweries. In the normal course of its business, the Company has historically entered into various production arrangements with other brewing companies. Pursuant to these arrangements, the Company purchases the liquid produced by those brewing companies, including the raw materials that are used in the liquid, at the time such liquid goes into fermentation. The Company is required to repurchase all unused raw materials purchased by the brewing company specifically for the Company’s beers at the brewing company’s cost upon termination of the production arrangement. The Company is also obligated to meet annual volume requirements in conjunction with certain production arrangements. These requirements are not material to the Company’s operations.

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.

Income Taxes

9 Months Ended

Sep. 30, 2017

Income Taxes

F. Income Taxes

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

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

In September 2017, the Internal Revenue Service commenced an examination of the Company’s 2015 consolidated corporate income tax return. The examination was still in process as of September 30, 2017. The Company’s state income tax returns remain subject to examination for three or four years depending on the state’s statute of limitations. The Company is being audited by two states as of September 30, 2017. 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 30, 2017 and September 24, 2016:


	Thirteen weeks ended
	September 30,			September 24,
	2017			2016
	(in thousands)
Summary of income tax provision
Tax provision based on net income	$	18,753		$	18,632
Impact of adoption of ASU 2016-09		(533	)		—

Total income tax provision	$	18,220		$	18,632


	Thirty-nine weeks ended
	September 30,			September 24,
	2017			2016
	(in thousands)
Summary of income tax provision
Tax provision based on net income	$	37,189		$	37,622
Impact of adoption of ASU 2016-09		(4,262	)		—

Total income tax provision	$	32,927		$	37,622

The Company’s effective tax rate for the thirteen weeks ended September 30, 2017 decreased to 35.1% from 37.1% for the thirteen weeks ended September 24, 2016. The Company’s effective tax rate for the thirty-nine weeks ended September 30, 2017 decreased to 32.5% from 36.6% for the thirty-nine weeks ended September 24, 2016. These decreases were primarily due to the tax benefit resulting from the adoption of ASU 2016-09, which was effective for the Company on January 1, 2017.

Revolving Line of Credit

9 Months Ended

Sep. 30, 2017

Revolving Line of Credit

G. Revolving Line of Credit

The Company has a credit facility in place that provides for a $150.0 million revolving line of credit which expires on March 31, 2019. As of September 30, 2017, the Company was not in violation of any of its financial covenants to the lender under the credit facility and there were no borrowings outstanding, so that the line of credit was fully available to the Company for borrowing.

Fair Value Measures

9 Months Ended

Sep. 30, 2017

Fair Value Measures

H. 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.

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


	As of September 30, 2017
	Level 1		Level 2		Level 3		Total
Cash equivalents	$	67,521	$	—	$	—	$	67,521

	As of December 31, 2016
	Level 1		Level 2		Level 3		Total
Cash equivalents	$	89,966	$	—	$	—	$	89,966

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

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

Cash, certificates of deposit, receivables and payables are carried at their cost, which approximates fair value, because of their short-term nature. Financial instruments not recorded at fair value in the consolidated financial statements are summarized in the table below (in thousands):


	As of September 30, 2017
	Level 1		Level 2		Level 3		Total
Note payable	$	—	$	340	$	—	$	340

	As of December 31, 2016
	Level 1		Level 2		Level 3		Total
Note payable	$	—	$	400	$	—	$	400

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Common Stock and Stock-Based Compensation

9 Months Ended

Sep. 30, 2017

Common Stock and Stock-Based Compensation

I. Common Stock and Stock-Based Compensation

Option Activity

Information related to stock options under the 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 31, 2016		1,348,233		$	141.98
Granted		15,373			150.10
Forfeited		(12,208	)		160.47
Expired		—			—
Exercised		(190,401	)		79.61

Outstanding at September 30, 2017		1,160,997		$	176.25		6.55	$	24,703

Exercisable at September 30, 2017		186,242		$	98.55		4.01	$	11,969

Vested and expected to vest at September 30, 2017		566,478		$	123.65		5.75	$	24,067

Of the total options outstanding at September 30, 2017, 35,885 shares were performance-based options for which the performance criteria had yet to be achieved.

On January 1, 2017, the Company granted options to purchase an aggregate of 5,185 shares of the Company’s Class A Common Stock to senior management with a weighted average fair value of $81.95 per share, of which all shares relate to performance-based stock options.

On May 18, 2017, the Company granted options to purchase an aggregate of 10,188 shares of the Company’s Class A Common Stock to the Company’s non-employee Directors. These options have a weighted average fair value of $67.72 per share. All of the options vested immediately on the date of the grant.

On August 1, 2017, the Company modified the performance criteria for performance-based options that were originally granted on April 26, 2016. This modification was accounted for in accordance with ASC 718-20-35. The number of shares of the Company’s Class A Common Stock granted as options remained unchanged from the original grant at 20,681 while the weighted average fair value decreased from $72.53 per share to $67.92 per share.

On January 1, 2008, the Company granted the Chief Executive Officer a stock option to purchase 753,864 shares of its Class A Common Stock, which vests over a five-year period, commencing on January 1, 2014, at the rate of 20% per year. The exercise price is determined by multiplying $42.00 by the aggregate change in the DJ Wilshire 5000 Index from and after January 1, 2008 through the close of business on the trading date next preceding each date on which the option is exercised. The exercise price will not be less than $37.65 per share and the excess of the fair value of the Company’s Class A Common Stock over the exercise price cannot exceed $70.00 per share over the exercise price. At September 30, 2017 and September 24, 2016, the stock option remained unexercised as to 150,773 shares and 301,546 shares, respectively. If the stock option had been exercised on September 30, 2017, the exercise price would have been $86.20 per share. If the stock option had been exercised on September 24, 2016, the exercise price would have been $82.30 per share. The Company is accounting for this award as a market-based award which was valued utilizing the Monte Carlo Simulation pricing model, which calculates multiple potential outcomes for an award and establishes fair value based on the most likely outcome. Under the Monte Carlo Simulation pricing model, the Company calculated the weighted average fair value per share to be $8.41.

On January 1, 2016, the Company granted the Chief Executive Officer an option to purchase 574,507 shares of its Class A Common Stock, which vests over a five-year period, commencing on January 1, 2019, at the rate of 20% per year. The exercise price is determined by multiplying $201.91 by the aggregate percentage change in the DJ Wilshire 5000 Index from and after January 1, 2016 through the close of business on the trading date next preceding each date on which the option is exercised, plus an additional 1.5 percentage points per annum, prorated for partial years. The exercise price will not be less than $201.91 per share and the excess of the fair value of the Company’s Class A Common Stock cannot exceed $150 per share over the exercise price. At September 30, 2017 and September 24, 2016, the stock option remained unexercised as to 574,507 shares. If the stock option had been exercised on September 30, 2017, the exercise price would have been $229.53 per share. If the stock option had been exercised on September 24, 2016, the exercise price would have been $217.53 per share. The Company is accounting for this award as a market-based award which was valued utilizing the Monte Carlo Simulation pricing model, which calculates multiple potential outcomes for an award and establishes fair value based on the most likely outcome. Under the Monte Carlo Simulation pricing model, the Company calculated the weighted average fair value per share to be $39.16. As a result of the Chief Executive Officer’s planned retirement in 2018, the Company estimated a 100% forfeiture rate related to this grant.

Non-Vested Shares Activity

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


	Number of Shares			Weighted Average Fair Value
Non-vested at December 31, 2016		64,968		$	166.29
Granted		25,946			132.88
Vested		(21,003	)		150.04
Forfeited		(5,980	)		184.25

Non-vested at September 30, 2017		63,931		$	156.39

On January 1, 2017, the Company granted 12,358 shares of restricted stock awards to certain senior managers and key employees, of which all shares vest ratably over service periods of five years. On January 1, 2017, employees elected to purchase 10,146 shares under the investment share program. The weighted average fair value of the restricted stock awards and investment shares, which are sold to employees at discount under its investment share program, was $169.85 and $78.74 per share, respectively.

On March 3, 2017, the Company granted 2,167 shares of restricted stock awards to a newly hired key employee, of which all shares vest ratably over a service period of five years. The weighted average fair value of the restricted stock award was $161.45.

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

Stock-Based Compensation

Stock-based compensation expense related to share-based awards recognized in the thirteen and thirty-nine weeks ended September 30, 2017 was $1.2 million and $4.6 million, respectively, and was calculated based on awards expected to vest. Stock-based compensation expense related to share-based awards recognized in the thirteen and thirty-nine weeks ended September 24, 2016 was $2.4 million and $8.1 million, respectively, and was calculated based on awards expected to vest.

Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2017

Recent Accounting Pronouncements

J. Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

In March 2016, the FASB issued ASU No. 2016-09, Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 is part of the 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 and thirty-nine weeks ended September 30, 2017, $0.5 million and $4.3 million, respectively, in excess tax benefit from stock-based compensation arrangements was recognized within income tax provision in the consolidated statement of comprehensive income and classified as an operating activity in the consolidated statement of cash flow. The Company will maintain the current forfeiture policy to estimate forfeitures expected to occur to determine stock-based compensation expense.

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. ASU 2015-17 as part of the FASB’s initiative to simplify accounting standards. The guidance required an entity to present deferred tax assets and deferred tax liabilities as noncurrent in the consolidated balance sheet. The Company adopted this new accounting standard retrospectively in the first quarter of 2017. As of September 30, 2017 and December 31, 2016, the Company had $4.7 million and $7.4 million, respectively, of current deferred tax assets that are now classified as noncurrent on the consolidated balance sheets under this new accounting standard.

In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330), Simplifying the Measurement of Inventory. ASU 2015-11 is part of the FASB’s initiative to simplify accounting standards. The guidance required an entity to recognize inventory within scope of the standard at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonable predictable costs of completion, disposal and transportation. The Company adopted this new accounting standard prospectively in the first quarter of 2017. This new accounting standard did not have a significant impact on the consolidated financial statements.

Accounting Pronouncements Not Yet Effective

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 will supersede virtually all existing revenue guidance. Under this update, an entity is required to recognize revenue upon transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. As such, an entity will need to use more judgment and make more estimates than under the current guidance. ASU 2014-09 is to be applied retrospectively either to each prior reporting period presented in the financial statements, or only to the most current reporting period presented in the financial statements with a cumulative effect adjustment to retained earnings. The Company will elect to apply the impact (if any) of applying ASU 2014-09 to the most current reporting period presented in the financial statements with a cumulative effect adjustment to retained earnings. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. ASU 2015-14 defers the effective date of ASU 2014-09 for one year, making it effective for the Company’s fiscal year beginning December 31, 2017, with early adoption permitted as of January 1, 2017. The Company currently expects to adopt ASU 2014-09 in the first quarter of 2018. The Company expects that the adoption of ASU 2014-09 will require earlier recognition of variable customer promotional discount programs which will result in recording through retained earnings in the first quarter of 2018, an additional liability currently expected to be less than $2 million. The Company does not expect this change to have a material impact on its consolidated financial statements with the exception of the one time retained earnings impact in the first quarter of 2018. The Company is currently preparing to implement changes to accounting policies and controls to support the new revenue recognition and disclosure requirements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The guidance requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. ASU 2016-02 will be effective retrospectively for the year beginning December 30, 2018, with early adoption permitted. The Company currently expects to adopt ASU 2016-02 in the first quarter of 2019. As of September 30, 2017 and December 31, 2016, the Company had $13.5 million and $15.9 million, respectively, of contractual obligation on lease agreements, the present value of which, would be included on the consolidated balance sheets under the new guidance.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplfying the Test for Goodwill Impairment, which simplifies the accounting for goodwill impairments by eliminating step 2 from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. ASU 2017-04 will be effective for all impairment tests performed beginning December 29, 2019. The Company does not expect adoption of ASU 2017-04 to have a material impact on its consolidated financial statements.

Subsequent Events

9 Months Ended

Sep. 30, 2017

Subsequent Events

K. Subsequent Events

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

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

Inventories (Tables)

9 Months Ended

Sep. 30, 2017

Components of Inventories

Inventories consist of the following:


	September 30, 2017		December 31, 2016
	(in thousands)
Current inventory:
Raw materials	$	34,267	$	35,314
Work in process		8,687		8,131
Finished goods		11,989		9,054

Total current inventory		54,943		52,499
Long term inventory		13,202		6,316

Total inventory	$	68,145	$	58,815

Net Income per Share (Tables)

9 Months Ended

Sep. 30, 2017

Computation of Earnings Per 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 30, 2017		September 24, 2016		September 30, 2017		September 24, 2016
	(in thousands, except per share data)				(in thousands, except per share data)
Net income	$	33,683	$	31,530	$	68,519	$	65,183

Allocation of net income for basic:
Class A Common Stock	$	24,772	$	22,841	$	50,647	$	47,465
Class B Common Stock		8,730		8,529		17,493		17,390
Unvested participating shares		181		160		379		328

	$	33,683	$	31,530	$	68,519	$	65,183
Weighted average number of shares for basic:
Class A Common Stock		8,789		9,018		9,037		9,191
Class B Common Stock*		3,097		3,367		3,122		3,367
Unvested participating shares		65		63		67		64

		11,951		12,448		12,226		12,622
Net income per share for basic:
Class A Common Stock	$	2.82	$	2.53	$	5.60	$	5.16

Class B Common Stock	$	2.82	$	2.53	$	5.60	$	5.16

Computation of Earnings Per Share, Diluted


	Thirteen weeks ended
	September 30, 2017						September 24, 2016
	Earnings to Common Shareholders		Common Shares		EPS		Earnings to Common Shareholders		Common Shares		EPS
	(in thousands, except per share data)
As reported — basic	$	24,772		8,789	$	2.82	$	22,841		9,018	$	2.53
Add: effect of dilutive potential common shares
Share-based awards		—		151				—		256
Class B Common Stock		8,730		3,097				8,529		3,367
Net effect of unvested participating shares		2		—				3		—

Net income per common share — diluted	$	33,504		12,037	$	2.78	$	31,373		12,641	$	2.48


	Thirty-nine weeks ended
	September 30, 2017						September 24, 2016
	Earnings to Common Shareholders		Common Shares		EPS		Earnings to Common Shareholders		Common Shares		EPS
	(in thousands, except per share data)
As reported — basic	$	50,647		9,037	$	5.60	$	47,465		9,191	$	5.16
Add: effect of dilutive potential common shares
Share-based awards		—		140				—		295
Class B Common Stock		17,493		3,122				17,390		3,367
Net effect of unvested participating shares		4		—				7		—

Net income per common share — diluted	$	68,144		12,299	$	5.54	$	64,862		12,853	$	5.05

Income Taxes (Tables)

9 Months Ended

Sep. 30, 2017

Summary of Income Tax Provision

The following table provides a summary of the income tax provision for the thirteen and thirty-nine weeks ended September 30, 2017 and September 24, 2016:


	Thirteen weeks ended
	September 30,			September 24,
	2017			2016
	(in thousands)
Summary of income tax provision
Tax provision based on net income	$	18,753		$	18,632
Impact of adoption of ASU 2016-09		(533	)		—

Total income tax provision	$	18,220		$	18,632


	Thirty-nine weeks ended
	September 30,			September 24,
	2017			2016
	(in thousands)
Summary of income tax provision
Tax provision based on net income	$	37,189		$	37,622
Impact of adoption of ASU 2016-09		(4,262	)		—

Total income tax provision	$	32,927		$	37,622

Fair Value Measures (Tables)

9 Months Ended

Sep. 30, 2017

Fair Value Measurement of Assets and Liabilities on Recurring Basis

The assets or liabilities measured at fair value on a recurring basis are summarized in the table below (in thousands):


	As of September 30, 2017
	Level 1		Level 2		Level 3		Total
Cash equivalents	$	67,521	$	—	$	—	$	67,521

	As of December 31, 2016
	Level 1		Level 2		Level 3		Total
Cash equivalents	$	89,966	$	—	$	—	$	89,966

Financial Instruments Not Recorded at Fair Value

Financial instruments not recorded at fair value in the consolidated financial statements are summarized in the table below (in thousands):


	As of September 30, 2017
	Level 1		Level 2		Level 3		Total
Note payable	$	—	$	340	$	—	$	340

	As of December 31, 2016
	Level 1		Level 2		Level 3		Total
Note payable	$	—	$	400	$	—	$	400

Common Stock and Stock-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2017

Summary of Stock Options under Equity Plan and Non-Employee Director Plan

Information related to stock options under the 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 31, 2016		1,348,233		$	141.98
Granted		15,373			150.10
Forfeited		(12,208	)		160.47
Expired		—			—
Exercised		(190,401	)		79.61

Outstanding at September 30, 2017		1,160,997		$	176.25		6.55	$	24,703

Exercisable at September 30, 2017		186,242		$	98.55		4.01	$	11,969

Vested and expected to vest at September 30, 2017		566,478		$	123.65		5.75	$	24,067

Summary of Vesting Activities of Shares Issued Under Investment Share Program and Restricted Stock Awards

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


	Number of Shares			Weighted Average Fair Value
Non-vested at December 31, 2016		64,968		$	166.29
Granted		25,946			132.88
Vested		(21,003	)		150.04
Forfeited		(5,980	)		184.25

Non-vested at September 30, 2017		63,931		$	156.39

Components of Inventories (Detail) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Current inventory:
Raw materials	$ 34,267	$ 35,314
Work in process	8,687	8,131
Finished goods	11,989	9,054
Total current inventory	54,943	52,499
Long term inventory	13,202	6,316
Total inventory	$ 68,145	$ 58,815

Net Income per Share - Additional Information (Detail)				3 Months Ended		9 Months Ended		12 Months Ended
Net Income per Share - Additional Information (Detail)	Aug. 01, 2017	Mar. 03, 2017	Jan. 01, 2017	Sep. 30, 2017 shares	Sep. 24, 2016 shares	Sep. 30, 2017 shares	Sep. 24, 2016 shares	Dec. 31, 2016 Employee shares
Earnings Per Share Note [Line Items]
Stock options cancelled during the period						12,208
Investment Share Program
Earnings Per Share Note [Line Items]
Requirement tenure of employee for investment share program, purchase shares at discount						2 years
Vesting period			5 years
Investment Share Program \| Minimum
Earnings Per Share Note [Line Items]
Requirement tenure of employee for investment share program						1 year
Discount from current market value						20.00%
Investment Share Program \| Maximum
Earnings Per Share Note [Line Items]
Discount from current market value						40.00%
Restricted Stock Awards
Earnings Per Share Note [Line Items]
Vesting period			5 years
Restricted Stock Awards \| Key Employee
Earnings Per Share Note [Line Items]
Vesting period	5 years	5 years
Common Class A
Earnings Per Share Note [Line Items]
Antidilutive securities excluded from computation of earnings per share				791,000	740,000	800,000	704,000
Common Class A \| Performance-Based Awards
Earnings Per Share Note [Line Items]
Number of shares not included because the performance criteria was not met as of the end of the reporting period						36,000	35,000
Stock options cancelled during the period						12,000
Common Class A \| Performance-Based Awards \| Key Employee
Earnings Per Share Note [Line Items]
Options granted in period								31,000
Number of employees \| Employee								2
Common Class A \| Performance-Based Awards \| Executive Officers
Earnings Per Share Note [Line Items]
Options granted in period						5,000

Computation of Earnings Per Share, Basic (Detail) - USD ($)
$ / shares in Units, shares in Thousands, $ in Thousands

3 Months Ended

9 Months Ended

Sep. 30, 2017

Sep. 24, 2016

Sep. 30, 2017

Sep. 24, 2016

Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]

Net income

$ 33,683

$ 31,530

$ 68,519

$ 65,183

Allocation of net income for basic:

Allocation of net income for basic unvested participating shares

33,683

31,530

68,519

65,183

$ 181

$ 160

$ 379

$ 328

Weighted average number of shares for basic:

Weighted average number of shares for basic unvested participating shares

Shares used in net income per common share - basic

11,951

12,448

12,226

12,622

Net income per share for basic:

$ 2.82

$ 2.53

$ 5.60

$ 5.16

Common Class A

Allocation of net income for basic:

Weighted average number of shares for basic:

$ 24,772

$ 22,841

$ 50,647

$ 47,465

8,789

9,018

9,037

9,191

Net income per share for basic:

$ 2.82

$ 2.53

$ 5.60

$ 5.16

Common Class B

Allocation of net income for basic:

Weighted average number of shares for basic:

$ 8,730

$ 8,529

$ 17,493

$ 17,390

^[1]

3,097

3,367

3,122

3,367

Net income per share for basic:

Schedule of Earnings Per Share, Basic and Diluted, by Common Class [Line Items]

$ 2.82

$ 2.53

$ 5.60

$ 5.16

[1]

Computation of Earnings Per Share, Basic (Parenthetical) (Detail) - shares	Mar. 07, 2017	Nov. 30, 2016	Nov. 04, 2016
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Conversion of Class B Common Stock into Class A Common Stock	100,000	45,000	125,000

Computation of Diluted Net Income Per Share (Detail) - USD ($)
$ / shares in Units, shares in Thousands, $ in Thousands

3 Months Ended

9 Months Ended

Sep. 30, 2017

Sep. 24, 2016

Sep. 30, 2017

Sep. 24, 2016

Earnings to Common Shareholders, Net effect of unvested participating shares

$ 33,683

$ 31,530

$ 68,519

$ 65,183

Earnings to Common Shareholders, Net income per common share - diluted

$ 33,504

$ 31,373

$ 68,144

$ 64,862

Add: effect of dilutive potential common, Share-based awards

151

256

140

295

Weighted-average number of common shares - diluted

12,037

12,641

12,299

12,853

Net income per common share-basic

$ 2.82

$ 2.53

$ 5.60

$ 5.16

Net income per common share-diluted

$ 2.78

$ 2.48

$ 5.54

$ 5.05

Common Class A

Schedule of Earnings Per Share, Basic and Diluted, by Common Class [Line Items]

$ 24,772

$ 22,841

$ 50,647

$ 47,465

Net income per common share-basic

8,789

9,018

9,037

9,191

$ 2.82

$ 2.53

$ 5.60

$ 5.16

Common Class B

Schedule of Earnings Per Share, Basic and Diluted, by Common Class [Line Items]

Earnings to Common Shareholders, Class B Common Stock

$ 8,730

$ 8,529

$ 17,493

$ 17,390

$ 8,730

$ 8,529

$ 17,493

$ 17,390