Revenue Recognition

On January 1, 2018, we adopted the Accounting Standards Codification ("ASC") 606, "Revenue from Contracts with Customers" and all the related amendments (the "new revenue standard") for all of our revenue contracts, using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of Accumulated deficit. The adoption of ASC 606 did not have a material impact on our consolidated financial statements as of January 1, 2018 or for the three and six-month periods ended June 30, 2018.

The adjustments to our Consolidated Balance Sheets upon adoption of ASC 606, effective January 1, 2018 were as follows (in thousands):



	Balance at December 31, 2017			Adjustments due to ASC 606			Balance at January 1, 2018
Assets:
Other current assets	$	4,335		$	(237	)	$	4,098
Intangible, equity method investment and other assets, net	20,949			(157		)	20,792

Common shareholders' equity:
Accumulated deficit	$	(11,337	)	$	(394	)	$	(11,731	)

In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our Consolidated Balance Sheets and Consolidated Statements of Operations was as follows (in thousands):



	June 30, 2018
	As Reported			Balance without Adoption of ASC 606			Effect of Change Higher (Lower)
Consolidated Balance Sheets
Assets:
Other current assets	$	1,874		$	2,111		$	(237	)
Intangible, equity method investment and other assets, net	20,469			20,508			(39		)

Liabilities:
Deferred income tax liability, net	12,301			12,334			(33		)

Common shareholders' equity:
Accumulated deficit	$	(7,118	)	$	(7,427	)	$	(309	)



	Three Months Ended June 30, 2018							Six Months Ended June 30, 2018
	As Reported		Balance without Adoption of ASC 606		Effect of Change Higher (Lower)			As Reported		Balance without Adoption of ASC 606		Effect of Change Higher (Lower)
Consolidated Statements of Operations
Selling, general and administrative expenses	$	15,857	$	15,916	$	(59	)	$	30,605	$	30,723	$	(118	)
Income tax provision	1,732		1,715		17			1,794		1,761		33
Net income	4,452		4,410		42			4,613		4,528		85

The following table disaggregates our Sales by major source (in thousands):



	Three Months Ended June 30, 2018						Six Months Ended June 30, 2018
	Beer Related¹		Brewpubs		Total		Beer Related¹		Brewpubs		Total
Product sold through distributor agreements²	$	54,148	$	—	$	54,148	$	93,815	$	—	$	93,815
Alternating proprietorship and contract brewing fees	3,175		—		3,175		5,886		—		5,886
International distribution fees	850		—		850		1,700		—		1,700
Brewpubs³	—		6,101		6,101		—		12,112		12,112
Other⁴	979		—		979		1,825		—		1,825
	$	59,152	$	6,101	$	65,253	$	103,226	$	12,112	$	115,338


(1)	Beer Related sales include sales to A-B subsidiaries including Ambev, ABWI and ABC. Sales to wholesalers through the A-B distributor agreement in the three and six-month periods ended June 30, 2018 represented 77.9% and 77.3% of our Sales, respectively.


(2)	Product sold through distributor agreements included domestic and international sales of owned and non-owned brands pursuant to terms in our distributor agreements.


(3)	Brewpub sales include sales of promotional merchandise and sales of beer directly to customers.


(4)	Other sales include sales of beer related merchandise, hops, spent grain and an export manager fee.

Revenue is recognized when obligations under the terms of a contract with our customers are satisfied; generally this occurs when the product arrives at distribution centers or when the wholesaler takes possession. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods. We consider customer purchase orders, which in some cases are governed by a master agreement, to be the contracts with a customer. For each contract related to the production of beer, we consider the promise to transfer products, each of which is distinct, to be the identified performance obligation. The transaction price for each performance obligation is specifically identified within the contract with our customer and represents the fair standalone selling price. Discounts are recognized as a reduction to Sales at the time we recognize the revenue. We generally do not grant return privileges, except in limited and specific circumstances.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of accounting pursuant to ASC 606. In contracts with multiple performance obligations, we identify each performance obligation and evaluate whether the performance obligation is distinct within the context of the contract at contract inception. Performance obligations that are not distinct at contract inception are combined.

We entered into an International Distribution Agreement ("IDA") with A-B for the rights to serve as our exclusive distributor in international territories defined by the IDA for a 10-year period. The IDA represents a single international license to all territories defined in the IDA. Revenue is recognized on a straight-line basis over the 10-year term of the agreement. In accordance with ASC 606, we evaluate the factors used in our estimates of variable consideration to be received under contracts on a quarterly basis. We estimate variable consideration as the most likely amount to which we expect to be entitled. We have evaluated, on a quarterly basis, the qualitative factors, including current market conditions and our relationship with A-B, and we consider receiving $34.0 million over the 10-year term of the IDA the most likely outcome under the IDA. We believe that the possibility of a significant reversal of cumulative revenue recognized from this agreement under this conclusion is remote. Under the IDA, A-B has the right to issue purchase orders to distribute product in international territories defined by the IDA. Each purchase order placed under the IDA is a distinct performance obligation. The transaction price for each performance obligation is a sales-based royalty, which is recognized as revenue in accordance with the sales-based royalty exception. Accordingly, royalty revenue is recognized as the variability associated with the royalty is resolved, which is upon A-B's subsequent sale of our product.

In cases where all conditions to a sale are not met at the time of sale, revenue recognition is deferred until all conditions are met. As of January 1, 2018, we had $3.4 million of deferred revenue recorded in Deferred revenue on the Consolidated Balance Sheets related to the IDA. As of June 30, 2018, we earned the right to receive an additional $3.0 million pursuant to the IDA, of which we have recognized $1.7 million as Sales, resulting in deferred revenue of $4.7 million at June 30, 2018. We will earn the right to receive an additional $3.0 million over the remaining two quarters in 2018 and we will earn the right to receive an additional $20.0 million in 2019. We expect to recognize an additional $1.7 million of deferred revenue as Sales in the remainder of 2018, $3.4 million in 2019, and $22.6 million thereafter.