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Net income per common share-diluted

$ 3.25

$ 2.82

$ 6.02

$ 5.60

$ 3.21

$ 2.78

$ 5.96

$ 5.54

Weighted-average number of common shares-diluted

11,705

11,951

11,769

12,226

11,702

12,037

11,773

12,299

Net income

$ 38,007

$ 33,683

$ 70,852

$ 68,519

Other comprehensive income:

Foreign currency translation adjustment

(13)

(23)

Comprehensive income

$ 37,994

$ 33,670

$ 70,856

$ 68,496

Common Class A

$ 3.25

$ 2.82

$ 6.02

$ 5.60

8,557

8,789

8,646

9,037

Common Class B

$ 3.25

$ 2.82

$ 6.02

$ 5.60

Organization and Basis of Presentation

^[1]

3,018

3,097

3,018

3,122

[1]	Change in Class B Common Stock resulted from the conversion of 79,000 shares to Class A Common Stock on October 31, 2017 with the ending number of shares reflecting the weighted average for the period.

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 29, 2018	Sep. 30, 2017
Cash flows provided by operating activities:
Net income	$ 70,852	$ 68,519
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	38,860	38,372
Impairment of assets	517	1,505
Loss on disposal of property, plant and equipment	45	571
Bad debt expense	39	170
Stock-based compensation expense	6,995	4,593
Deferred income taxes	12,818	(3,581)
Changes in operating assets and liabilities:
Accounts receivable	(20,412)	(6,658)
Inventories	(20,836)	(9,330)
Prepaid expenses, income tax receivable and other assets	(8,385)	2,852
Accounts payable	20,560	5,371
Accrued expenses and other current liabilities	6,309	6,244
Other liabilities	693	(390)
Net cash provided by operating activities	108,055	108,238
Cash flows used in investing activities:
Purchases of property, plant and equipment	(38,752)	(23,415)
Proceeds from disposal of property, plant and equipment	2	16
Cash paid for acquisition of intangible assets	5	0
Change in restricted cash	131	(4)
Net cash used in investing activities	(38,614)	(23,403)
Cash flows used in financing activities:
Repurchase of Class A Common Stock	(88,311)	(121,535)
Proceeds from exercise of stock options	21,528	15,159
Cash paid on note payable	(78)	(60)
Net proceeds from sale of investment shares	670	611
Net cash used in financing activities	(66,191)	(105,825)
Change in cash and cash equivalents	3,250	(20,990)
Cash and cash equivalents at beginning of year	65,637	91,035
Cash and cash equivalents at end of period	68,887	70,045
Supplemental disclosure of cash flow information:
Income taxes paid	11,252	22,408
Decrease in accounts receivable for ASU 2014-09 adoption	(1,310)	0
Income taxes refunded	0	2
Increase (Decrease) in accounts payable for purchase of property, plant and equipment	$ 3,346	$ (3,763)

Organization and Basis of Presentation

9 Months Ended

Sep. 29, 2018

A. Organization and Basis of Presentation

The Boston Beer Company, Inc. and certain subsidiaries (the “Company”) are engaged in the business of producing and selling alcohol beverages throughout the United States and in selected international markets, under the trade names, The Boston Beer Company^®, Twisted Tea Brewing Company^®, Angry Orchard^® Cider Company, Hard Seltzer Beverage Company, Traveler Beer Co.^®, Angel City Brewing Company^®, Concrete Beach Brewery^® and Coney Island^® Brewing Company.

The accompanying unaudited consolidated balance sheet as of September 29, 2018, and the consolidated statements of comprehensive income and consolidated statements of cash flows for the interim periods ended September 29, 2018 and September 30, 2017 have been prepared by the Company in accordance with U.S. generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnotes normally included in financial statements prepared in accordance with U.S generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 30, 2017.

In the opinion of the Company’s management, the Company’s unaudited consolidated balance sheet as of September 29, 2018 and the results of its consolidated operations and consolidated cash flows for the interim periods ended September 29, 2018 and September 30, 2017, reflect all adjustments (consisting only of normal and recurring adjustments) necessary to present fairly the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year.

Recent Accounting Pronouncements

9 Months Ended

Sep. 29, 2018

Recent Accounting Pronouncements

B. Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 supersedes virtually all existing revenue guidance. Under this standard, an entity is required to recognize revenue upon transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. As such, an entity needs to use more judgment and make more estimates than under the previous guidance. On December 31, 2017, the Company adopted the new accounting standard and all related amendments using the modified retrospective method which allows application only to the most current reporting period presented in the financial statements with a cumulative effect adjustment to retained earnings. In accordance with the new accounting standard, the majority of the Company’s revenue continues to be recognized at the time its products are shipped. Upon adoption, the Company began recognition of certain variable customer promotional discount programs earlier than it had under the previous revenue guidance which resulted in a $1.0 million, net of tax, cumulative effect adjustment to retained earnings. The comparative years have not been restated and continue to be reported under the accounting standards in effect for those periods. The Company expects the impact of the adoption to be immaterial to its consolidated financial statements on an ongoing basis.

In March 2016, the FASB issued 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 weeks ended September 29, 2018 and the thirteen weeks ended September 30, 2017, $0.1 million and $0.5 million, respectively, in excess tax benefit from stock-based compensation arrangements was recognized within the income tax provision in the consolidated statements of comprehensive income and classified as an operating activity in the consolidated statements of cash flow. For the thirty-nine weeks ended September 29, 2018 and September 30, 2017, $4.0 million and $4.3 million, respectively, was recognized. The Company has not changed its forfeiture policy and continued to estimate forfeitures expected to occur to determine stock-based compensation expense.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. Under this update, an entity is allowed a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The Company early adopted this accounting standard prospectively in the first quarter of 2018. Prior periods have not been adjusted. In the first quarter of 2018, the Company reclassified $0.2 million of federal and state income tax effects of the Tax Cut and Jobs Act of 2017 related to defined benefit plans from accumulated other comprehensive income to retained earnings. The Company expects the impact of the adoption to be immaterial to its consolidated financial statements on an ongoing basis.

Accounting Pronouncements Not Yet Effective

In February 2016, the FASB issued 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 29, 2018 and December 30, 2017, the Company had $26.6 million and $12.8 million, respectively, of contractual obligations on lease agreements, the present value of which would be included on the consolidated balance sheets under the new guidance.

Revenue Recognition

9 Months Ended

Sep. 29, 2018

Revenue Recognition

C. Revenue Recognition

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

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

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

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

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

Inventories

9 Months Ended

Sep. 29, 2018

Inventories

D. Inventories

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


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

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

Total inventory	$	81,392	$	60,556

Net Income per Share

9 Months Ended

Sep. 29, 2018

Net Income per Share

E. Net Income per Share

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

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

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

The Company’s unvested share-based payment awards include unvested shares (1) issued under the Company’s investment share program, which permits employees who have been with the Company for at least one year to purchase shares of Class A Common Stock and to purchase those shares at a discount ranging from 20% to 40% below market value based on years of employment starting after two years of employment, and (2) awarded as restricted stock awards at the discretion of the Company’s Board of Directors. The investment shares and restricted stock awards generally vest over five years in equal number of shares. The unvested shares participate equally in dividends. See Note K 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 29, 2018		September 30, 2017		September 29, 2018		September 30, 2017
	(in thousands, except per share data)				(in thousands, except per share data)
Net income	$	38,007	$	33,683	$	70,852	$	68,519

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

	$	38,007	$	33,683	$	70,852	$	68,519
Weighted average number of shares for basic:
Class A Common Stock		8,557		8,789		8,646		9,037
Class B Common Stock*		3,018		3,097		3,018		3,122
Unvested participating shares		130		65		105		67

		11,705		11,951		11,769		12,226
Net income per share for basic:
Class A Common Stock	$	3.25	$	2.82	$	6.02	$	5.60

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

*	Change in Class B Common Stock resulted from the conversion of 79,000 shares to Class A Common Stock on October 31, 2017 with the ending number of shares reflecting the weighted average for the period.

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

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


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

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

During the thirteen and thirty-nine weeks ended September 29, 2018, weighted-average stock options to purchase approximately zero and 653,000 shares of Class A Common Stock were outstanding but not included in computing dilutive income per common share because their effects were anti-dilutive. During the thirteen and thirty-nine weeks ended September 30, 2017, weighted-average stock options to purchase approximately 791,000 and 800,000 shares of Class A Common Stock were outstanding but not included in computing dilutive income per common share because their effects were anti-dilutive. The significant decrease in weighted-average stock options outstanding for the thirteen and thirty-nine weeks ended September 29, 2018 as compared to the thirteen and thirty-nine weeks ended September 30, 2017 is primarily due to the forfeiture of the Company’s former Chief Executive Officer’s 2016 stock option upon retirement. Additionally, performance-based stock options to purchase approximately 61,000 and 36,000 shares of Class A Common Stock were outstanding as of September 29, 2018 and September 30, 2017, respectively, but not included in computing diluted income per common share because the performance criteria of these stock options was not met as of the end of the reporting period.

Of the performance-based stock options to purchase approximately 61,000 shares of Class A Common Stock that were excluded from computing diluted net income per common share as of September 29, 2018, 31,000 shares 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. 5,000 shares were granted in 2017 to executive officers and the vesting of these shares requires annual depletions to attain certain thresholds in 2019. The remaining 25,000 shares were granted in 2018 to executive officers and one key employee and the vesting of these shares requires annual net revenue to attain certain thresholds in 2019.

Comprehensive Income or Loss	9 Months Ended
Comprehensive Income or Loss	Sep. 29, 2018
Comprehensive Income or Loss	F. Comprehensive Income or Loss Comprehensive income or loss represents net income or loss, plus defined benefit plans liability adjustment, net of tax effect and foreign currency translation adjustment. The defined benefit plans liability and foreign currency translation adjustments for the interim periods ended September 29, 2018 and September 30, 2017 were not material.

Commitments and Contingencies

9 Months Ended

Sep. 29, 2018

Commitments and Contingencies

G. Commitments and Contingencies

Contract Obligations

The Company had outstanding total non-cancelable contract obligations of $229.3 million at September 29, 2018. These obligations are made up of advertising contracts of $64.7 million, hops, barley and wheat totaling $64.3 million, other ingredients of $31.7 million, equipment and machinery of $29.5 million, operating leases of $26.6 million, glass bottles of $2.6 million and other commitments of $9.9 million.

The Company has entered into contracts for the supply of a portion of its hops requirements. These purchase contracts extend through crop year 2025 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 29, 2018 totaled $45.4 million, based on the exchange rates on that date. The Company does not use forward currency exchange contracts and intends to purchase future hops using the exchange rate at the time of purchase.

Currently, the Company has entered into contracts for barley and wheat with two major suppliers. The contracts include crop year 2017 through 2019 and cover the Company’s barley, wheat, and malt requirements for the remainder of 2018 and all of 2019. These purchase commitments outstanding at September 29, 2018 totaled $18.9 million.

The Company sources some of its glass bottles needs pursuant to a Glass Bottle Supply Agreement with Anchor Glass Container Corporation (“Anchor”), under which Anchor is the supplier of certain glass bottles for the Company’s Cincinnati Brewery and its Pennsylvania Brewery. This agreement also establishes the terms on which Anchor may supply glass bottles to other breweries where the Company brews its beers. Under the agreement with Anchor, the Company has minimum purchase commitments that are based on Company-provided production estimates which, under normal business conditions, are expected to be fulfilled. Minimum purchase commitments under the agreement, assuming the supplier is unable to replace production cancelled by the Company, as of September 29, 2018 totaled $2.6 million.

The Company has various operating lease agreements for facilities and equipment as of September 29, 2018. Terms of these leases include, in some instances, scheduled rent increases, renewals, purchase options and maintenance costs, and vary by lease. These lease obligations expire at various dates through 2028. The contractual obligation on these lease agreements as of September 29, 2018 totaled $26.6 million.

Currently, the Company brews and packages more than 80% of its volume at Company-owned breweries. In the normal course of its business, the Company has historically entered into various production arrangements with other brewing companies. Pursuant to these arrangements, the Company supplies raw materials to those brewing companies and incurs conversion fees for labor at the time the liquid is produced and packaged.

On October 11, 2018, the Company amended an existing brewing services agreement to include a minimum capacity availability commitment by the third party brewery. The amendment grants the Company the right to extend the agreement beyond the December 31, 2021 termination date on an annual basis through December 31, 2025. The amendment requires the Company to pay up to $4 million dollars in both 2018 and 2019 for capital improvements at the third party’s brewing facilities.

Litigation

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

Income Taxes

9 Months Ended

Sep. 29, 2018

Income Taxes

H. Income Taxes

As of September 29, 2018 and December 30, 2017, the Company had approximately $0.9 million and $0.3 million, respectively, of unrecognized income tax benefits.

The Company’s practice is to classify interest and penalties related to income tax matters in income tax expense. As of September 29, 2018 and December 30, 2017, the Company had $0.1 million and $0.0 million, respectively, accrued for interest and penalties.

In September 2017, the Internal Revenue Service commenced an examination of the Company’s 2015 consolidated corporate income tax return. The examination was completed with a no change report issued on July 26, 2018. The Company’s state income tax returns remain subject to examination for three or four years depending on the state’s statute of limitations. The Company is being audited by one state as of September 29, 2018. In addition, the Company is generally obligated to report changes in taxable income arising from federal income tax audits.

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


	Thirteen weeks ended
	September 29,			September 30,
	2018			2017
	(in thousands)
Summary of income tax provision
Tax provision based on net income	$	13,671		$	18,753
Accounting Method Changes	$	(4,529	)	$	—
Benefit of ASU 2016-09		(129	)		(533	)

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


	Thirty-nine weeks ended
	September 29,			September 30,
	2018			2017
	(in thousands)
Summary of income tax provision
Tax provision based on net income	$	24,969		$	37,189
Accounting Method Changes	$	(4,529	)	$	—
Benefit of ASU 2016-09		(3,980	)		(4,262	)

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

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

The Company’s effective tax rate for the thirteen weeks ended September 29, 2018 decreased to 19.2% from 35.1% for the thirteen weeks ended September 30, 2017 due to the favorable impact of the Tax Cuts and Jobs Act of 2017 including the one-time impact of tax accounting method changes. The Company’s effective tax rate for the thirty-nine weeks ended September 29, 2018 decreased to 18.9% from 32.5% for the thirty-nine weeks ended September 30, 2017 due to the favorable impact of the Tax Cuts and Jobs Act of 2017 including the one-time impact of tax accounting method changes.

Revolving Line of Credit

9 Months Ended

Sep. 29, 2018

Revolving Line of Credit

I. Revolving Line of Credit

In March 2018, the Company amended its credit facility in place that provides for a $150.0 million revolving line of credit to extend the scheduled expiration date to March 31, 2023. As of September 29, 2018, the Company was not in violation of any of its financial covenants to the lender under the credit facility and there were no borrowings outstanding, so that the line of credit was fully available to the Company for borrowing.

Fair Value Measures

9 Months Ended

Sep. 29, 2018

Fair Value Measures

J. Fair Value Measures

The Company defines fair value as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

•

Level 1 — Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

•

Level 2 — Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability.

•

Level 3 — Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.

The Company’s money market funds are measured at fair value on a recurring basis (at least annually) and are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The money market funds are invested substantially in United States Treasury and government securities. The Company does not adjust the quoted market price for such financial instruments. Cash, receivables and payables are carried at their cost, which approximates fair value, because of their short-term nature.

At September 29, 2018 and December 30, 2017, the Company had money market funds with a “Triple A” rated money market fund. The Company considers the “Triple A” rated money market fund to be a large, highly-rated investment-grade institution. As of September 29, 2018 and December 30, 2017, the Company’s cash and cash equivalents balance was $68.9 million and $65.6 million, respectively, including money market funds amounting to $69.0 million and $63.8 million, respectively.

- 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. 29, 2018

Common Stock and Stock-Based Compensation

K. Common Stock and Stock-Based Compensation

Option Activity

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


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

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

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

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

Of the total options outstanding at September 29, 2018, 60,957 shares were performance-based options for which the performance criteria had yet to be achieved.

On January 1, 2018, the Company granted options to purchase an aggregate of 17,531 shares of the Company’s Class A Common Stock to senior management with a weighted average fair value of $82.69 per share, of which all shares relate to performance-based stock options.

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

On May 17, 2018, the Company granted options to purchase an aggregate of 5,080 shares of the Company’s Class A Common Stock to the Company’s nonemployee Directors. These options have a weighted average fair value of $113.12 per share. All of the options vested immediately on the date of the grant.

On May 31, 2018, the Company cancelled its former Chief Executive Officer’s 2016 stock option of 574,507 shares due to forfeiture upon retirement.

Non-Vested Shares Activity

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


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

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

On January 1, 2018, the Company granted 18,873 shares of restricted stock awards to certain officers, senior managers and key employees, of which all shares vest ratably over service periods of five years. On January 1, 2018, employees elected to purchase 9,214 shares under the Company’s investment share program. The weighted average fair value of the restricted stock awards and investment shares, which are sold to employees at discount under its investment share program, was $191.10 and $86.84 per share, respectively.

On April 30, 2018 the Company granted its Chief Executive Officer 64,325 restricted stock awards with a weighted-average fair value of $229.30 per share with service based vesting through 2023.

Stock-Based Compensation

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

Subsequent Events

9 Months Ended

Sep. 29, 2018

Subsequent Events

L. Subsequent Events

As disclosed in Note G, on October 11, 2018, the Company amended an existing brewing services agreement to include a minimum capacity availability commitment by the third party brewery.

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

Inventories (Tables)

9 Months Ended

Sep. 29, 2018

Components of Inventories

Inventories consist of the following:


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

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

Total inventory	$	81,392	$	60,556

Net Income per Share (Tables)

9 Months Ended

Sep. 29, 2018

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

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

	$	38,007	$	33,683	$	70,852	$	68,519
Weighted average number of shares for basic:
Class A Common Stock		8,557		8,789		8,646		9,037
Class B Common Stock*		3,018		3,097		3,018		3,122
Unvested participating shares		130		65		105		67

		11,705		11,951		11,769		12,226
Net income per share for basic:
Class A Common Stock	$	3.25	$	2.82	$	6.02	$	5.60

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

*	Change in Class B Common Stock resulted from the conversion of 79,000 shares to Class A Common Stock on October 31, 2017 with the ending number of shares reflecting the weighted average for the period.

Computation of Earnings Per Share, Diluted


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

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


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

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

Income Taxes (Tables)

9 Months Ended

Sep. 29, 2018

Summary of Income Tax Benefit

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


	Thirteen weeks ended
	September 29,			September 30,
	2018			2017
	(in thousands)
Summary of income tax provision
Tax provision based on net income	$	13,671		$	18,753
Accounting Method Changes	$	(4,529	)	$	—
Benefit of ASU 2016-09		(129	)		(533	)

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


	Thirty-nine weeks ended
	September 29,			September 30,
	2018			2017
	(in thousands)
Summary of income tax provision
Tax provision based on net income	$	24,969		$	37,189
Accounting Method Changes	$	(4,529	)	$	—
Benefit of ASU 2016-09		(3,980	)		(4,262	)

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

Common Stock and Stock-Based Compensation (Tables)

9 Months Ended

Sep. 29, 2018

Summary of Stock Options under Employee Equity Incentive Plan and Stock Option Plan for Non-Employee Directors

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


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

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

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

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

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 30, 2017		62,405		$	155.21
Granted		92,775			207.56
Vested		(20,678	)		156.50
Forfeited		(7,170	)		167.53

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

Recent Accounting Pronouncements - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended			9 Months Ended
	Sep. 29, 2018	Mar. 31, 2018	Sep. 30, 2017	Sep. 29, 2018	Sep. 30, 2017	Dec. 30, 2017
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Cumulative Effect on Retained Earnings, Net of Tax related to variable customer promotional discount programs				$ 1,000
Excess tax benefit from stock-based compensation arrangements recognized within income tax provision	$ 129		$ 533	3,980	$ 4,262
Tax Cuts and Jobs Act, Reclassification from AOCI to Retained Earnings, Tax Effect		$ 200
Contractual obligations	229,300			229,300
Operating Leases
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Contractual obligations	$ 26,600			$ 26,600		$ 12,800

Revenue Recognition - Additional Information (Detail) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 29, 2018	Sep. 30, 2017	Sep. 29, 2018	Sep. 30, 2017
Sales to domestic distributors as a percentage of total sales	94.00%		94.00%
Sales to foreign distributors as a percentage of total sales	5.00%		5.00%
Sales to retail locations as a percentage of total sales	1.00%		1.00%
Deferred Revenue, Current	$ 6.1	$ 4.2	$ 6.1	$ 4.2
Reduction in federal excise taxes	2.0		4.8
Distributors
Amounts paid to distributors	11.1	9.6	26.8	23.0
Customer incentive expense	$ 3.5	$ 3.8	$ 9.7	$ 9.8

Components of Inventories (Detail) - USD ($) $ in Thousands	Sep. 29, 2018	Dec. 30, 2017
Current inventory:
Raw materials	$ 46,037	$ 33,086
Work in process	9,467	6,826
Finished goods	16,750	10,739
Total current inventory	72,254	50,651
Long term inventory	9,138	9,905
Total inventory	$ 81,392	$ 60,556

Net Income per Share - Additional Information (Detail)		3 Months Ended		9 Months Ended		12 Months Ended
Net Income per Share - Additional Information (Detail)	Jan. 01, 2018	Sep. 29, 2018 Employee shares	Sep. 30, 2017 shares	Sep. 29, 2018 Employee shares	Sep. 30, 2017 shares	Dec. 30, 2017 shares	Dec. 31, 2016 Employee shares
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
Common Class A
Earnings Per Share Note [Line Items]
Antidilutive securities excluded from computation of earnings per share		0	791,000	653,000	800,000
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				61,000	36,000
Common Class A \| Performance-Based Awards \| Key Employee
Earnings Per Share Note [Line Items]
Options granted in period							31,000
Number of employees \| Employee		1		1			2
Common Class A \| Performance-Based Awards \| Executive Officers
Earnings Per Share Note [Line Items]
Options granted in period						5,000
Common Class A \| Performance-Based Awards \| Executive Officers and Key Employee
Earnings Per Share Note [Line Items]
Options granted in period				25,000

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

3 Months Ended

9 Months Ended

Sep. 29, 2018

Sep. 30, 2017

Sep. 29, 2018

Sep. 30, 2017

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

Net income

$ 38,007

$ 33,683

$ 70,852

$ 68,519

Allocation of net income for basic:

Allocation of net income for basic common stock

38,007

33,683

70,852

68,519

Allocation of net income for basic unvested participating shares

$ 421

$ 181

$ 632

$ 379

11,705

11,951

11,769

12,226

Net income per share for basic:

Allocation of net income for basic common stock

$ 3.25

$ 2.82

$ 6.02

$ 5.60

Common Class A

Allocation of net income for basic:

$ 27,786

$ 24,772

$ 52,051

$ 50,647

8,557

8,789

8,646

9,037

Net income per share for basic:

Allocation of net income for basic common stock

$ 3.25

$ 2.82

$ 6.02

$ 5.60

Common Class B

Allocation of net income for basic:

$ 9,800

$ 8,730

$ 18,169

$ 17,493

^[1]

3,018

3,097

3,018

3,122

Net income per share for basic:

Unvested Participating Shares

$ 3.25

$ 2.82

$ 6.02

$ 5.60