10-Q
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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended March 30, 2024

 

OR

 

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

 

For the transition period from to

 

Commission file number: 1-14092

 

THE BOSTON BEER COMPANY, INC.

(Exact name of registrant as specified in its charter)

 

 

MASSACHUSETTS

 

04-3284048

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer Identification No.)

One Design Center Place,
Suite 850
, Boston, Massachusetts

 

02210

(Address of principal executive offices)

 

(Zip Code)

 

(617) 368-5000

(Registrant’s telephone number, including area code)

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

 

 

 

 

 

Class A Common Stock $0.01 per value

 

SAM

 

New York Stock Exchange

 

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

 

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

 

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

 

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

 

Number of shares outstanding of each of the issuer’s classes of common stock, as of April 19, 2024:

 

Class A Common Stock, $.01 par value

 

9,885,922

Class B Common Stock, $.01 par value

 

2,068,000

(Title of each class)

 

(Number of shares)

 

 


Table of Contents

 

THE BOSTON BEER COMPANY, INC.

FORM 10-Q

March 30, 2024

TABLE OF CONTENTS

 

PART I.

 

FINANCIAL INFORMATION

 

PAGE

 

 

 

 

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

 

3

 

 

 

Condensed Consolidated Balance Sheets as of March 30, 2024 and December 30, 2023

 

3

 

 

 

Condensed Consolidated Statements of Comprehensive Operations for the thirteen weeks ended March 30, 2024 and April 1, 2023

 

4

 

 

 

Condensed Consolidated Statements of Cash Flows for the thirteen weeks ended March 30, 2024 and April 1, 2023

 

5

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the thirteen weeks ended March 30, 2024 and April 1, 2023

 

6

 

 

 

Notes to Condensed Consolidated Financial Statements

 

7

 

 

Item 2.

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

 

16

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

19

 

 

Item 4.

Controls and Procedures

 

19

 

 

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

20

 

 

Item 1A.

Risk Factors

 

20

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

21

 

 

Item 3.

Defaults Upon Senior Securities

 

21

 

 

Item 4.

Mine Safety Disclosures

 

21

 

 

Item 5.

Other Information

 

21

 

 

Item 6.

Exhibits

 

22

 

 

 

 

 

 

SIGNATURES

 

23

 

EX-31.1 Section 302 CEO Certification

EX-31.2 Section 302 CFO Certification

EX-32.1 Section 906 CEO Certification

EX-32.2 Section 906 CFO Certification

 

2


Table of Contents

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)

 

 

 

March 30,
2024

 

 

December 30,
2023

 

Assets

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

205,444

 

 

$

298,491

 

Accounts receivable

 

 

72,962

 

 

 

66,997

 

Inventories

 

 

146,783

 

 

 

115,773

 

Prepaid expenses and other current assets

 

 

27,489

 

 

 

20,538

 

Income tax receivable

 

 

244

 

 

 

1,711

 

Total current assets

 

 

452,922

 

 

 

503,510

 

Property, plant, and equipment, net

 

 

635,131

 

 

 

642,509

 

Operating right-of-use assets

 

 

33,644

 

 

 

35,559

 

Goodwill

 

 

112,529

 

 

 

112,529

 

Intangible assets, net

 

 

59,581

 

 

 

59,644

 

Third-party production prepayments

 

 

30,662

 

 

 

33,581

 

Note receivable

 

 

18,739

 

 

 

 

Other assets

 

 

40,980

 

 

 

42,661

 

Total assets

 

$

1,384,188

 

 

$

1,429,993

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Accounts payable

 

$

98,107

 

 

$

87,245

 

Accrued expenses and other current liabilities

 

 

104,960

 

 

 

126,930

 

Current operating lease liabilities

 

 

8,351

 

 

 

9,113

 

Total current liabilities

 

 

211,418

 

 

 

223,288

 

Deferred income taxes, net

 

 

85,710

 

 

 

85,721

 

Non-current operating lease liabilities

 

 

34,297

 

 

 

36,161

 

Other liabilities

 

 

6,035

 

 

 

6,894

 

Total liabilities

 

 

337,460

 

 

 

352,064

 

Commitments and Contingencies (See Note I)

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

 

Class A Common Stock, $0.01 par value; 22,700,000 shares authorized; 9,908,668 and 10,033,303 issued and outstanding as of March 30, 2024 and December 30, 2023 respectively

 

 

99

 

 

 

100

 

Class B Common Stock, $0.01 par value; 4,200,000 shares authorized; 2,068,000
   issued and outstanding at March 30, 2024 and December 30, 2023

 

 

21

 

 

 

21

 

Additional paid-in capital

 

 

662,942

 

 

 

656,297

 

Accumulated other comprehensive loss

 

 

(219

)

 

 

(57

)

Retained earnings

 

 

383,885

 

 

 

421,568

 

Total stockholders' equity

 

 

1,046,728

 

 

 

1,077,929

 

Total liabilities and stockholders' equity

 

$

1,384,188

 

 

$

1,429,993

 

 

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

 

3


Table of Contents

 

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS

(in thousands, except per share data)

(unaudited)

 

 

Thirteen weeks ended

 

 

 

March 30,
2024

 

 

April 1,
2023

 

Revenue

 

$

452,208

 

 

$

435,156

 

Less excise taxes

 

 

26,156

 

 

 

25,156

 

Net revenue

 

 

426,052

 

 

 

410,000

 

Cost of goods sold

 

 

239,704

 

 

 

254,338

 

Gross profit

 

 

186,348

 

 

 

155,662

 

Operating expenses:

 

 

 

 

 

 

Advertising, promotional, and selling expenses

 

 

120,275

 

 

 

125,428

 

General and administrative expenses

 

 

50,384

 

 

 

43,694

 

Impairment of brewery assets

 

 

335

 

 

 

484

 

Total operating expenses

 

 

170,994

 

 

 

169,606

 

Operating income (loss)

 

 

15,354

 

 

 

(13,944

)

Other income:

 

 

 

 

 

 

Interest income

 

 

3,493

 

 

 

1,644

 

Other expense

 

 

(38

)

 

 

(102

)

Total other income

 

 

3,455

 

 

 

1,542

 

Income (loss) before income tax provision (benefit)

 

 

18,809

 

 

 

(12,402

)

Income tax provision (benefit)

 

 

6,212

 

 

 

(3,446

)

Net income (loss)

 

$

12,597

 

 

$

(8,956

)

Net income (loss) per common share – basic

 

$

1.05

 

 

$

(0.73

)

Net income (loss) per common share – diluted

 

$

1.04

 

 

$

(0.73

)

Weighted-average number of common shares – basic

 

 

12,054

 

 

 

12,309

 

Weighted-average number of common shares – diluted

 

 

12,055

 

 

 

12,309

 

Net income (loss)

 

$

12,597

 

 

$

(8,956

)

Other comprehensive (loss) income:

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(162

)

 

 

18

 

  Total other comprehensive (loss) income

 

 

(162

)

 

 

18

 

  Comprehensive income (loss)

 

$

12,435

 

 

$

(8,938

)

 

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

 

4


Table of Contents

 

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Thirteen weeks ended

 

 

 

March 30,
2024

 

 

April 1,
2023

 

Cash flows used in operating activities:

 

 

 

 

 

 

Net income (loss)

 

$

12,597

 

 

$

(8,956

)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

23,404

 

 

 

21,915

 

Impairment of brewery assets

 

 

335

 

 

 

484

 

Gain on sale of property, plant, and equipment

 

 

(23

)

 

 

(195

)

Change in right-of-use assets

 

 

1,915

 

 

 

1,921

 

Stock-based compensation expense

 

 

7,127

 

 

 

4,073

 

Deferred income taxes

 

 

(11

)

 

 

(430

)

Other non-cash expense (income)

 

 

99

 

 

 

(55

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(6,304

)

 

 

(23,372

)

Inventories

 

 

(29,342

)

 

 

(3,002

)

Prepaid expenses, income tax receivable, and other assets

 

 

(4,241

)

 

 

(16,972

)

Third-party production prepayments

 

 

2,919

 

 

 

6,362

 

Accounts payable

 

 

11,352

 

 

 

15,258

 

Accrued expenses and other liabilities

 

 

(22,356

)

 

 

(12,758

)

Operating lease liabilities

 

 

(2,355

)

 

 

(2,095

)

Net cash used in operating activities

 

 

(4,884

)

 

 

(17,822

)

Cash flows used in investing activities:

 

 

 

 

 

 

Cash paid for note receivable

 

 

(20,000

)

 

 

 

Purchases of property, plant, and equipment

 

 

(15,737

)

 

 

(17,312

)

Proceeds from disposal of property, plant, and equipment

 

 

23

 

 

 

195

 

Net cash used in investing activities

 

 

(35,714

)

 

 

(17,117

)

Cash flows used in financing activities:

 

 

 

 

 

 

Repurchases and retirement of Class A common stock

 

 

(49,967

)

 

 

(21,096

)

Proceeds from exercise of stock options and sale of investment shares

 

 

479

 

 

 

442

 

Cash paid on finance leases

 

 

(557

)

 

 

(414

)

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

 

 

(2,404

)

 

 

(1,993

)

Net cash used in financing activities

 

 

(52,449

)

 

 

(23,061

)

Change in cash and cash equivalents

 

 

(93,047

)

 

 

(58,000

)

Cash and cash equivalents at beginning of period

 

 

298,491

 

 

 

180,560

 

Cash and cash equivalents at end of period

 

$

205,444

 

 

$

122,560

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Income tax refunds, net of payments

 

$

21

 

 

$

1,744

 

Cash paid for amounts included in measurement of lease liabilities

 

 

 

 

 

 

Operating cash outflows from operating leases

 

$

2,737

 

 

$

2,560

 

Operating cash outflows from finance leases

 

$

286

 

 

$

9

 

Financing cash outflows from finance leases

 

$

337

 

 

$

413

 

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

 

$

2,017

 

 

$

-

 

(Decrease) increase in accounts payable and accrued expenses for purchases of property, plant, and equipment

 

$

(1,456

)

 

$

358

 

Increase in accrued expenses for non-cash financing activity – accrued excise taxes on share repurchases

 

$

314

 

 

$

219

 

 

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

5


Table of Contents

 

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the thirteen weeks ended March 30, 2024 and April 1, 2023

(in thousands)

(unaudited)

 

 

 

 

 

 

Class A

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Class A

 

 

Common

 

 

Class B

 

 

Class B

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

 

Common

 

 

Stock,

 

 

Common

 

 

Common

 

 

Paid-in

 

 

Comprehensive

 

 

Retained

 

 

Stockholders’

 

 

 

Shares

 

 

Par

 

 

Shares

 

 

Stock, Par

 

 

Capital

 

 

Loss

 

 

Earnings

 

 

Equity

 

Balance at December 30, 2023

 

 

10,033

 

 

$

100

 

 

 

2,068

 

 

$

21

 

 

$

656,297

 

 

$

(57

)

 

$

421,568

 

 

$

1,077,929

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,597

 

 

 

12,597

 

Stock options exercised and restricted
   shares activities

 

 

24

 

 

 

 

 

 

 

 

 

 

 

 

(482

)

 

 

 

 

 

 

 

 

(482

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,127

 

 

 

 

 

 

 

 

 

7,127

 

Repurchase and retirement of Class A Common Stock

 

 

(148

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(50,280

)

 

 

(50,281

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(162

)

 

 

 

 

 

(162

)

Balance at March 30, 2024

 

 

9,909

 

 

$

99

 

 

 

2,068

 

 

$

21

 

 

$

662,942

 

 

$

(219

)

 

$

383,885

 

 

$

1,046,728

 

 

 

 

 

 

 

Class A

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Class A

 

 

Common

 

 

Class B

 

 

Class B

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

 

Common

 

 

Stock,

 

 

Common

 

 

Common

 

 

Paid-in

 

 

Comprehensive

 

 

Retained

 

 

Stockholders’

 

 

 

Shares

 

 

Par

 

 

Shares

 

 

Stock, Par

 

 

Capital

 

 

Loss

 

 

Earnings

 

 

Equity

 

Balance at December 31, 2022

 

 

10,238

 

 

$

102

 

 

 

2,068

 

 

$

21

 

 

$

629,515

 

 

$

(210

)

 

$

439,121

 

 

$

1,068,549

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,956

)

 

 

(8,956

)

Stock options exercised and restricted
   shares activities

 

 

20

 

 

 

1

 

 

 

 

 

 

 

 

 

(212

)

 

 

 

 

 

 

 

 

(211

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,073

 

 

 

 

 

 

 

 

 

4,073

 

Repurchase and retirement of Class A Common Stock

 

 

(65

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22,115

)

 

 

(22,116

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18

 

 

 

 

 

 

18.00

 

Balance at April 1, 2023

 

 

10,193

 

 

$

102

 

 

 

2,068

 

 

$

21

 

 

$

633,376

 

 

$

(192

)

 

$

408,050

 

 

$

1,041,357

 

 

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

6


Table of Contents

 

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

A. Organization and Basis of Presentation

 

The Boston Beer Company, Inc. and certain subsidiaries (the “Company”) are engaged in the business of selling alcohol beverages throughout the United States and in selected international markets, under the trademarks “The Boston Beer Company®”, “Twisted Tea Brewing Company®”, “Hard Seltzer Beverage Company”, “Angry Orchard® Cider Company”, “Dogfish Head® Craft Brewery”, “Dogfish Head Distilling Co.”, “Angel City® Brewing Company”, “Coney Island® Brewing Company”, "Green Rebel Brewing Co.", and "Truly Distilling Co.".

 

The accompanying unaudited condensed consolidated balance sheet as of March 30, 2024, and the unaudited condensed consolidated statements of comprehensive operations, stockholders’ equity, and cash flows for the interim periods ended March 30, 2024 and April 1, 2023, respectively, have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnotes normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. All intercompany accounts and transactions have been eliminated. These condensed 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, 2023.

 

In the opinion of the Company’s management, the Company’s unaudited condensed consolidated balance sheet as of March 30, 2024 and the results of its condensed consolidated comprehensive operations, stockholders’ equity, and cash flows for the interim periods ended March 30, 2024 and April 1, 2023, reflect all adjustments (consisting only of normal and recurring adjustments) necessary to present fairly the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year.

 

B. Recent Accounting Pronouncements

 

New accounting pronouncements are issued periodically by the FASB and are adopted by the Company as of the specified effective dates. Unless otherwise disclosed below, the Company believes that recently issued and adopted pronouncements will not have a material impact on the Company’s financial position, results of operations and cash flows or do not apply to the Company’s operations.

 

In November 2023, the FASB issued ASU 2023-07—Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU was issued to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This ASU applies to all public entities that are required to report segment information in accordance with Topic 280, Segment Reporting. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted and the standard should be applied retrospectively. ASU 2023-07 will be effective for the Company's fiscal year ending December 28, 2024. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements and disclosures.

 

In December 2023, the FASB issued ASU 2023-09—Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU was issued to address investor requests for more transparency about income tax information through improvements to income tax disclosure primarily related to the rate reconciliation and income taxes paid information, and to improve the effectiveness of income tax disclosures. This ASU is effective for public entities for annual periods beginning after December 15, 2024. Early adoption is permitted. ASU 2023-09 will be effective for the Company in the first quarter of its fiscal year ending December 27, 2025. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements and disclosures.

 

C. Revenue Recognition

 

During the thirteen weeks ended March 30, 2024 and April 1, 2023, approximately 94% and 95%, respectively, of the Company’s revenue was from shipments of its products to domestic distributors. Shipments to international distributors, primarily located in Canada, made up approximately 5% and 4% of the Company's revenue for the thirteen weeks ended March 30, 2024 and April 1, 2023, respectively. Approximately 1% of the Company's revenue was from beer, cider, and merchandise sales at the Company’s retail locations during the thirteen weeks ended March 30, 2024 and April 1, 2023.

 

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

7


for transferring products. If the conditions for revenue recognition are not met, the Company defers the revenue until all conditions are met. As of March 30, 2024 and December 30, 2023, the Company has deferred $16.6 million and $8.9 million, respectively, in revenue related to product shipped prior to these dates. These amounts are included in accrued expenses and other current liabilities in the accompanying condensed 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 $10.3 million and $10.9 million for the thirteen weeks ended March 30, 2024 and April 1, 2023, respectively. The agreed-upon discount rates are applied to certain distributors' sales to retailers, based on volume metrics, in order to determine the total discounted amount. The computation of the discount allowance requires that management make certain estimates and assumptions that affect the timing and amounts of revenue and liabilities recorded. Actual promotional discounts owed and paid have historically been in line with allowances recorded by the Company; however, the amounts could differ from the estimated allowance.

 

Customer programs and incentives are a common practice in the alcohol beverage industry. Amounts paid in connection with customer programs and incentives are recorded as reductions to net revenue or as advertising, promotional and selling expenses, based on the nature of the expenditure. Customer incentives and other payments made to distributors are primarily based upon performance of certain marketing and advertising activities. Depending on applicable state laws and regulations, these activities promoting the Company's products may include, but are not limited to point-of-sale and merchandise placement, samples, product displays, promotional programs at retail locations and meals, travel and entertainment. Amounts paid to customers in connection with these programs that were recorded as reductions to revenue or as advertising, promotional and selling expenses for the thirteen weeks ended March 30, 2024 and April 1, 2023 were $19.7 million and $18.4 million, respectively. For the thirteen weeks ended March 30, 2024 and April 1, 2023, the Company recorded certain of these costs in the total amounts of $5.7 million and $5.3 million, respectively, as reductions to net revenue. Costs recognized in net revenues include, but are not limited to, promotional discounts, sales incentives and certain other promotional activities. Costs recognized in advertising, promotional and selling expenses include point of sale materials, samples and media advertising expenditures in local markets. These costs are recorded as incurred, generally when invoices are received; however certain estimates are required at the period end. Estimates are based on historical and projected experience for each type of program or customer and have historically been in line with actual costs incurred.

 

D. Inventories

 

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

 

 

 

March 30,
2024

 

 

December 30,
2023

 

 

 

(in thousands)

 

Current inventory:

 

 

 

 

 

 

Raw materials

 

$

62,238

 

 

$

55,116

 

Work in process

 

 

22,712

 

 

 

18,750

 

Finished goods

 

 

61,833

 

 

 

41,907

 

Total current inventory

 

 

146,783

 

 

 

115,773

 

Long term inventory

 

 

12,701

 

 

 

14,369

 

Total inventory

 

$

159,484

 

 

$

130,142

 

 

As of March 30, 2024 and December 30, 2023, the Company has recorded inventory obsolescence reserves of $7.9 million and $7.6 million, respectively.

 

8


Table of Contents

 

E. Goodwill and Intangible Assets

 

No impairment of goodwill was recorded in any period.

 

The Company’s intangible assets as of March 30, 2024 and December 30, 2023 were as follows:

 

 

 

 

 

 

As of March 30, 2024

 

 

As of December 30, 2023

 

 

 

Estimated
Useful

 

 

Gross
Carrying

 

 

Accumulated

 

 

Net Book

 

 

Gross
Carrying

 

 

Accumulated

 

 

Net Book

 

 

 

Life (Years)

 

 

Value

 

 

Amortization

 

 

Value

 

 

Value

 

 

Amortization

 

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

Trade names

 

Indefinite

 

 

$

56,984

 

 

$

-

 

 

$

56,984

 

 

$

56,984

 

 

$

 

 

$

56,984

 

Customer relationships

 

 

15

 

 

 

3,800

 

 

 

(1,203

)

 

 

2,597

 

 

 

3,800

 

 

 

(1,140

)

 

 

2,660

 

Total intangible assets, net

 

 

 

 

$

60,784

 

 

$

(1,203

)

 

$

59,581

 

 

$

60,784

 

 

$

(1,140

)

 

$

59,644

 

 

Amortization expense in the thirteen weeks ended March 30, 2024 and April 1, 2023 was approximately $63,000. The Company expects to record amortization expense as follows:

 

Fiscal Year

 

Amount (in thousands)

 

Remainder of 2024

 

$

190

 

2025

 

 

253

 

2026

 

 

253

 

2027

 

 

253

 

2028

 

 

253

 

2029

 

 

253

 

Thereafter

 

 

1,142

 

Total amortization expense

 

$

2,597

 

 

F. Third-Party Production Prepayments

 

During the thirteen weeks ended March 30, 2024 and April 1, 2023, the Company brewed and packaged approximately 79% and 78%, respectively, of its volume at Company-owned breweries. In the normal course of its business, the Company has historically entered into various production arrangements with other brewing companies. Pursuant to these arrangements, the Company generally supplies raw materials and packaging to those brewing companies and incurs conversion fees for labor at the time the liquid is produced and packaged. The Company has made up-front payments that were used for capital improvements at these third-party production facilities that it expenses over the period of the contracts. Under these production arrangements, there are minimum production quantities and the Company is obligated to pay shortfall fees for production quantity below those thresholds.

 

Total third-party production prepayments were $30.7 million and $33.6 million as of March 30, 2024 and December 30, 2023, respectively, all of which for both periods relate to its master transaction agreement with City Brewing Company, LLC ("City Brewing"). The Company will expense the total prepaid amount of $30.7 million as of March 30, 2024 as a component of cost of goods sold over the contractual period ending December 31, 2025.

 

At current production volume projections, the Company believes that it will fall short of its future annual volume commitments at certain third-party production facilities and will incur shortfall fees. The Company expenses the shortfall fees during the contractual period when such fees are incurred as a component of cost of goods sold. During the thirteen weeks ended March 30, 2024 and April 1, 2023, the Company recorded $1.0 million and $0.7 million, respectively, in shortfall fees. As of March 30, 2024, if volume was zero for the remaining contractual term plus certain anticipated extensions of the production arrangements, the contractual shortfall fees, with advance notice as specified in the related contractual agreements, would total approximately $118 million over the duration of the contracts which have expiration dates through December 31, 2031. At current volume projections and based on understandings reached with these third-party production facilities, the Company anticipates that it will recognize approximately $47 million of shortfall fees and expects to record those expenses as follows:

9


 

 

 

Expected Shortfall Fees to be Incurred

 

 

(in millions)

 

Remainder of 2024

 

$

14

 

2025

 

 

18

 

2026

 

 

3

 

2027

 

 

3

 

2028

 

 

3

 

2029

 

 

3

 

Thereafter

 

 

3

 

Total shortfall fees expected to be incurred

 

$

47

 

 

G. Note Receivable

 

The Company and City Brewing entered into a Loan and Security agreement on January 2, 2024 at which time payment of $20 million was made by the Company to City Brewing. Repayment of the note receivable plus an agreed investment return for a combined total of $22.4 million shall be credited to the Company through reductions of shortfall fees, subject to annual repayment limits and through other payments or credits should owed shortfall fees be lower than these annual repayment limits. The annual repayment limits are $3.0 million in 2024, $7.5 million in 2025 and $10.0 million in 2026 and thereafter. The final maturity date of the loan is December 31, 2028.

 

The Company determined the fair value of the note receivable on the issuance date to be $18.6 million. The $1.4 million difference between the cash paid to City Brewing of $20.0 million and the fair value of the note of $18.6 million on issuance date has been recorded as a third-party production prepayment asset and will be recognized as a component of cost of goods sold over the term of the third-party production arrangement. The unamortized balance was $1.3 million as of March 30, 2024. Interest income on the note receivable is being recognized over the term of the loan, which is to be repaid in full no later than December 31, 2028.

 

H. Net Income (Loss) per Share

 

The Company calculates net income (loss) 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 (loss) 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 L for a discussion of the current year unvested stock awards and issuances.

 

Included in the computation of net income (loss) per diluted common share are dilutive outstanding stock options and restricted stock that are vested or expected to vest. At its discretion, the Board of Directors grants stock options and restricted stock to senior management and certain key employees. The terms of the employee stock options are determined by the Board of Directors at the time of grant. To date, stock options granted to employees vest over various service periods and/or based on the attainment of certain performance criteria and generally expire after ten years. In December 2018, the Employee Equity Incentive Plan was amended to permit the grant of restricted stock units. The restricted stock units generally vest over four years in equal number of shares. Each restricted stock unit represents an unfunded and unsecured right to receive one share of Class A Stock upon satisfaction of the vesting criteria. The unvested shares participate equally in dividends and are forfeitable. Prior to March 1, 2019, the Company granted restricted stock awards, generally vesting over five years in equal number of shares. The Company also grants stock options to its

10


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 (Loss) per Common Share - Basic

 

The following table sets forth the computation of basic net income (loss) per share using the two-class method:

 

 

 

Thirteen weeks ended

 

 

 

March 30,
2024

 

 

April 1,
2023

 

 

 

(in thousands, except per share data)

 

Net income (loss)

 

$

12,597

 

 

$

(8,956

)

Allocation of net income (loss) for basic:

 

 

 

 

 

 

Class A Common Stock

 

$

10,409

 

 

$

(7,434

)

Class B Common Stock

 

 

2,162

 

 

 

(1,505

)

Unvested participating shares

 

 

26

 

 

 

(17

)

 

$

12,597

 

 

$

(8,956

)

Weighted average number of shares for basic:

 

 

 

 

 

 

Class A Common Stock

 

 

9,960

 

 

 

10,218

 

Class B Common Stock

 

 

2,068

 

 

 

2,068

 

Unvested participating shares

 

 

26

 

 

 

23

 

 

 

12,054

 

 

 

12,309

 

Net income (loss) per share for basic:

 

 

 

 

 

 

Class A Common Stock

 

$

1.05

 

 

$

(0.73

)

Class B Common Stock

 

$

1.05

 

 

$

(0.73

)

 

Net Income (Loss) per Common Share - Diluted

 

The Company calculates diluted net income (loss) 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 computations of diluted net income (loss) per share, assuming the conversion of all Class B Common Stock into Class A Common Stock for the thirteen weeks ended March 30, 2024 and for the thirteen weeks ended April 1, 2023:

 

 

 

Thirteen weeks ended

 

 

 

March 30, 2024

 

 

April 1, 2023

 

 

 

Earnings to
Common
Shareholders

 

 

Common
Shares

 

 

EPS

 

 

Earnings to
Common
Shareholders

 

 

Common
Shares

 

 

EPS

 

 

 

(in thousands, except per share data)

 

As reported - basic

 

$

10,409

 

 

 

9,960

 

 

$

1.05

 

 

$

(7,434

)

 

 

10,218

 

 

$

(0.73

)

Add: effect of dilutive common
   shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based awards

 

 

 

 

 

27

 

 

 

 

 

 

 

 

 

 

 

 

 

Class B Common Stock

 

 

2,162

 

 

 

2,068

 

 

 

 

 

 

(1,505

)

 

 

2,068

 

 

 

 

Net effect of unvested participating
   shares

 

 

 

 

 

 

 

 

 

 

 

(17

)

 

 

23

 

 

 

 

Net income (loss) per common share -
   diluted

 

$

12,571

 

 

 

12,055

 

 

$

1.04

 

 

$

(8,956

)

 

 

12,309

 

 

$

(0.73

)

 

For the thirteen weeks ended March 30, 2024, in accordance with the two-class method, weighted-average stock options to purchase 85,643 shares and 27,573 unvested share-based payments were outstanding but not included in computing dilutive income per common share because their effects were anti-dilutive. Additionally, performance-based stock options to purchase 14,017 shares of Class A Common Stock and 38,805 performance-based stock awards were outstanding as of March 30, 2024 but not included in computing diluted income per common share because the performance criteria were not met as of the end of the reporting period.

 

11


For the thirteen weeks ended April 1, 2023, in accordance with the two-class method, weighted-average stock options to purchase 46,288 shares of Class A Common Stock were outstanding but not included in computing dilutive loss per common share because the net loss position of the Company made them antidilutive.

 

I. Commitments and Contingencies

 

Contractual Obligations

 

As of March 30, 2024, projected cash outflows under non-cancelable contractual obligations are as follows:

 

 

 

Commitments

 

 

 

(in thousands)

 

Ingredients and packaging (excluding hops and malt)

 

$

50,557

 

Brand support

 

 

50,437

 

Equipment and machinery

 

 

39,914

 

Hops and malt

 

 

39,656

 

Other

 

 

33,861

 

Total commitments

 

$

214,425

 

 

The Company expects to pay $176.3 million of these obligations in the remainder of fiscal 2024, $21.7 million in fiscal 2025, $10.3 million in fiscal 2026, $2.9 million in fiscal 2027, $1.4 million in fiscal 2028, $1.6 million in fiscal 2029, and $0.1 million thereafter.

 

Litigation

 

The Company is party to legal proceedings and claims, including class action claims, where significant damages are asserted against it. Given the inherent uncertainty of litigation, it is possible that the Company could incur liabilities as a consequence of these claims, which may or may not have a material adverse effect on the Company’s financial condition or the results of its operations. The Company accrues loss contingencies if, in the opinion of management and its legal counsel, the risk of loss is probable and the loss can be estimated. Material pending legal proceedings are discussed below.

 

Supplier Dispute. On December 31, 2022, Ardagh Metal Packaging USA Corp. (“Ardagh”) filed an action against the Company alleging, among other things, that the Company had failed to purchase contractual minimum volumes of certain aluminum beverage can containers in 2021 and 2022. The Company denies that it breached the terms of the parties’ contract and intends to defend against the Ardagh claims vigorously. On February 23, 2023 and April 4, 2023, Ardagh and the Company engaged in mediation sessions with a neutral, third-party mediator, but were not able to resolve the matter and the litigation will proceed. On May 5, 2023, the Company filed an Answer in response to the Complaint, and Counterclaims against Ardagh. On June 26, 2023, Ardagh filed a Motion to Dismiss Certain Counterclaims and a Motion to Strike Certain Affirmative Defenses, to which the Company filed Oppositions on July 24, 2023. On November 9, 2023, Ardagh filed a Notice of Plaintiff’s Motion for Judgment on the Pleadings on Count II of the Complaint, to which the Company filed an Opposition on November 22, 2023. On February 26, 2024, the Court granted the Motion. On March 27, 2024, the Company filed a Motion to Clarify and to Reconsider the Court’s decision. The Company’s reply brief for this Motion will be filed on April 26, 2024.

 

J. Income Taxes

 

The following table provides a summary of the income tax provision for the thirteen weeks ended March 30, 2024 and April 1, 2023:

 

 

 

Thirteen weeks ended

 

 

March 30,
2024

 

April 1,
2023

Effective tax rate

 

33.0%

 

27.8%

 

The increase in the tax rate for the thirteen weeks ended March 30, 2024 as compared to the thirteen weeks ended April 1, 2023 is primarily due to the tax deficiency related to stock-based compensation awards recorded on pre-tax income for the thirteen weeks ended March 30, 2024, compared to the tax deficiency related to stock-based compensation awards on a pre-tax loss for the thirteen weeks ended April 1, 2023.

 

As of both March 30, 2024 and December 30, 2023, the Company had approximately $0.3 million of unrecognized income tax benefits.

 

12


The Company’s practice is to classify interest and penalties related to income tax matters in income tax expense. As of March 30, 2024 and December 30, 2023, the Company had approximately $0.2 million accrued for interest and penalties recorded in other liabilities.

 

The Internal Revenue Service completed an examination of the 2015 consolidated corporate income tax return and issued a no change report in 2018. The Company’s state income tax returns remain subject to examination for three or four years depending on the state’s statute of limitations. The Company is not currently under any income tax audits as of March 30, 2024.

 

K. Line of Credit

 

In December 2022, the Company amended its credit facility in place that provides for a $150.0 million revolving line of credit to extend the maturity date to December 16, 2027. Under the terms of the amended agreement, the Company may elect an interest rate for borrowings under the credit facility based on the applicable secured overnight financing rate ("SOFR") plus 1.1%. As of March 30, 2024, no borrowings were outstanding. As of March 30, 2024 and December 30, 2023, the Company was not in violation of any of its financial covenants to the lender under the credit facility and the unused balance of $150.0 million on the line of credit was available to the Company for future borrowings.

 

L. 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 cash and cash equivalents are held in money market funds. These 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, accounts receivable, and accounts payable are carried at their cost, which approximates fair value, because of their short-term nature.

 

At March 30, 2024 and December 30, 2023, 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 March 30, 2024 and December 30, 2023, the Company’s cash and cash equivalents balance was $205.4 million and $298.5 million, respectively, including money market funds amounting to $201.3 million and $291.5 million, respectively.

 

Non-Recurring Fair Value Measurement

 

The fair value as of the issuance date of the Company's note receivable is classified within Level 2 of the fair value hierarchy as the fair value was partially derived from publicly quoted inputs of market interest rates for a loan of similar terms, provisions, and maturity.

 

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Table of Contents

 

M. 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, 2023

 

 

207,810

 

 

$

361.53

 

 

 

 

 

 

 

Forfeited/ Expired

 

 

(15,487

)

 

 

383.46

 

 

 

 

 

 

 

Outstanding at March 30, 2024

 

 

192,323

 

 

$

359.76

 

 

 

4.92

 

 

$

6,853

 

Exercisable at March 30, 2024

 

 

127,707

 

 

$

322.94

 

 

 

4.26

 

 

$

6,538

 

Vested and expected to vest at March 30, 2024

 

 

175,421

 

 

$

363.04

 

 

 

4.80

 

 

$

6,802

 

 

Of the total options outstanding at March 30, 2024, 28,033 shares were performance-based options for which the performance criteria had yet to be achieved.

 

Non-Vested Shares Activity

 

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

 

 

 

Number of Shares

 

 

Weighted Average Fair Value

 

Non-vested at December 30, 2023

 

 

114,797

 

 

$

373.56

 

Granted

 

 

76,715

 

 

 

289.14

 

Vested

 

 

(31,351

)

 

 

385.07

 

Forfeited

 

 

(1,058

)

 

 

352.88

 

Non-vested at March 30, 2024

 

 

159,103

 

 

$

330.73

 

 

Of the total non-vested shares at March 30, 2024, 38,805 shares were performance-based shares for which the performance criteria had yet to be achieved.

 

On March 1, 2024, the Company granted a combined 64,708 shares of restricted stock units to certain officers, senior managers and key employees. Of the restricted stock units granted, 8,384 had performance-based vesting criteria with potential achievement of 0% to 200% of the grant total and a three year service period. Additionally, 20,000 of the restricted stock units granted had performance based vesting criteria with potential vesting over a seven year service period, The remainder of restricted stock units granted on March 1, 2024 vest ratably over service periods of four years. Additionally on March 1, 2024, employees elected to purchase a combined 12,007 shares under the Company’s investment share program. The weighted average fair value of the restricted stock units and investment shares, which are sold to employees at discount under its investment share program, was $308.14 and $186.77 per share, respectively.

 

Stock-Based Compensation