0000950170-24-086556.txt : 20240725 0000950170-24-086556.hdr.sgml : 20240725 20240725163109 ACCESSION NUMBER: 0000950170-24-086556 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 69 CONFORMED PERIOD OF REPORT: 20240629 FILED AS OF DATE: 20240725 DATE AS OF CHANGE: 20240725 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOSTON BEER CO INC CENTRAL INDEX KEY: 0000949870 STANDARD INDUSTRIAL CLASSIFICATION: MALT BEVERAGES [2082] ORGANIZATION NAME: 04 Manufacturing IRS NUMBER: 043284048 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14092 FILM NUMBER: 241142488 BUSINESS ADDRESS: STREET 1: ONE DESIGN CENTER PLACE STREET 2: SUITE 850 CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 617-368-5056 MAIL ADDRESS: STREET 1: ONE DESIGN CENTER PLACE STREET 2: SUITE 850 CITY: BOSTON STATE: MA ZIP: 02210 10-Q 1 sam-20240629.htm 10-Q 10-Q
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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 June 29, 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 July 19, 2024:

 

Class A Common Stock, $.01 par value

 

9,647,655

Class B Common Stock, $.01 par value

 

2,068,000

(Title of each class)

 

(Number of shares)

 

 


THE BOSTON BEER COMPANY, INC.

FORM 10-Q

June 29, 2024

TABLE OF CONTENTS

 

PART I.

 

FINANCIAL INFORMATION

 

PAGE

 

 

 

 

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

 

3

 

 

 

Condensed Consolidated Balance Sheets as of June 29, 2024 and December 30, 2023

 

3

 

 

 

Condensed Consolidated Statements of Comprehensive Operations for the thirteen and twenty-six weeks ended June 29, 2024 and July 1, 2023

 

4

 

 

 

Condensed Consolidated Statements of Cash Flows for the twenty-six weeks ended June 29, 2024 and July 1, 2023

 

5

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the thirteen and twenty-six weeks ended June 29, 2024 and July 1, 2023

 

6

 

 

 

Notes to Condensed Consolidated Financial Statements

 

8

 

 

Item 2.

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

 

19

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

24

 

 

Item 4.

Controls and Procedures

 

24

 

 

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

25

 

 

Item 1A.

Risk Factors

 

25

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

26

 

 

Item 3.

Defaults Upon Senior Securities

 

26

 

 

Item 4.

Mine Safety Disclosures

 

26

 

 

Item 5.

Other Information

 

26

 

 

Item 6.

Exhibits

 

27

 

 

 

 

 

 

SIGNATURES

 

28

 

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


 

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)

 

 

 

June 29,
2024

 

 

December 30,
2023

 

Assets

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

219,295

 

 

$

298,491

 

Accounts receivable

 

 

125,452

 

 

 

66,997

 

Inventories

 

 

152,296

 

 

 

115,773

 

Prepaid expenses and other current assets

 

 

28,046

 

 

 

20,538

 

Income tax receivable

 

 

1,160

 

 

 

1,711

 

Total current assets

 

 

526,249

 

 

 

503,510

 

Property, plant, and equipment, net

 

 

626,860

 

 

 

642,509

 

Operating right-of-use assets

 

 

31,711

 

 

 

35,559

 

Goodwill

 

 

112,529

 

 

 

112,529

 

Intangible assets, net

 

 

59,517

 

 

 

59,644

 

Third-party production prepayments

 

 

24,278

 

 

 

33,581

 

Note receivable

 

 

18,890

 

 

 

 

Other assets

 

 

35,412

 

 

 

42,661

 

Total assets

 

$

1,435,446

 

 

$

1,429,993

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Accounts payable

 

$

114,989

 

 

$

87,245

 

Accrued expenses and other current liabilities

 

 

147,477

 

 

 

126,930

 

Current operating lease liabilities

 

 

7,481

 

 

 

9,113

 

Total current liabilities

 

 

269,947

 

 

 

223,288

 

Deferred income taxes, net

 

 

85,908

 

 

 

85,721

 

Non-current operating lease liabilities

 

 

32,981

 

 

 

36,161

 

Other liabilities

 

 

6,075

 

 

 

6,894

 

Total liabilities

 

 

394,911

 

 

 

352,064

 

Commitments and Contingencies (See Note I)

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

 

Class A Common Stock, $0.01 par value; 22,700,000 shares authorized; 9,695,415 and 10,033,303 issued and outstanding as of June 29, 2024 and December 30, 2023 respectively

 

 

97

 

 

 

100

 

Class B Common Stock, $0.01 par value; 4,200,000 shares authorized; 2,068,000
   issued and outstanding at June 29, 2024 and December 30, 2023

 

 

21

 

 

 

21

 

Additional paid-in capital

 

 

668,089

 

 

 

656,297

 

Accumulated other comprehensive loss

 

 

(278

)

 

 

(57

)

Retained earnings

 

 

372,606

 

 

 

421,568

 

Total stockholders' equity

 

 

1,040,535

 

 

 

1,077,929

 

Total liabilities and stockholders' equity

 

$

1,435,446

 

 

$

1,429,993

 

 

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

 

3


THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS

(in thousands, except per share data)

(unaudited)

 

 

Thirteen weeks ended

 

 

Twenty-six weeks ended

 

 

 

June 29,
2024

 

 

July 1,
2023

 

 

June 29,
2024

 

 

July 1,
2023

 

Revenue

 

$

614,216

 

 

$

641,333

 

 

$

1,066,423

 

 

$

1,076,489

 

Less excise taxes

 

 

35,118

 

 

 

38,029

 

 

 

61,274

 

 

 

63,185

 

Net revenue

 

 

579,098

 

 

 

603,304

 

 

 

1,005,149

 

 

 

1,013,304

 

Cost of goods sold

 

 

312,640

 

 

 

329,141

 

 

 

552,343

 

 

 

583,479

 

Gross profit

 

 

266,458

 

 

 

274,163

 

 

 

452,806

 

 

 

429,825

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Advertising, promotional, and selling expenses

 

 

144,224

 

 

 

149,362

 

 

 

264,499

 

 

 

274,790

 

General and administrative expenses

 

 

48,024

 

 

 

44,899

 

 

 

98,408

 

 

 

88,593

 

Impairment of brewery assets

 

 

3,395

 

 

 

1,532

 

 

 

3,731

 

 

 

2,016

 

Total operating expenses

 

 

195,643

 

 

 

195,793

 

 

 

366,638

 

 

 

365,399

 

Operating income

 

 

70,815

 

 

 

78,370

 

 

 

86,168

 

 

 

64,426

 

Other income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

2,946

 

 

 

1,855

 

 

 

6,439

 

 

 

3,499

 

Other expense

 

 

(440

)

 

 

(122

)

 

 

(478

)

 

 

(224

)

Total other income

 

 

2,506

 

 

 

1,733

 

 

 

5,961

 

 

 

3,275

 

Income before income tax provision

 

 

73,321

 

 

 

80,103

 

 

 

92,129

 

 

 

67,701

 

Income tax provision

 

 

20,982

 

 

 

22,068

 

 

 

27,193

 

 

 

18,622

 

Net income

 

$

52,339

 

 

$

58,035

 

 

$

64,936

 

 

$

49,079

 

Net income per common share – basic

 

$

4.40

 

 

$

4.73

 

 

$

5.42

 

 

$

3.99

 

Net income per common share – diluted

 

$

4.39

 

 

$

4.72

 

 

$

5.41

 

 

$

3.98

 

Weighted-average number of common shares – basic

 

 

11,898

 

 

 

12,268

 

 

 

11,976

 

 

 

12,288

 

Weighted-average number of common shares – diluted

 

 

11,888

 

 

 

12,276

 

 

 

11,971

 

 

 

12,304

 

Net income

 

$

52,339

 

 

$

58,035

 

 

$

64,936

 

 

$

49,079

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(59

)

 

 

126

 

 

 

(221

)

 

 

144

 

  Total other comprehensive (loss) income

 

 

(59

)

 

 

126

 

 

 

(221

)

 

 

144

 

  Comprehensive income

 

$

52,280

 

 

$

58,161

 

 

$

64,715

 

 

$

49,223

 

 

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

 

4


THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Twenty-six weeks ended

 

 

 

June 29,
2024

 

 

July 1,
2023

 

Cash flows provided by operating activities:

 

 

 

 

 

 

Net income

 

$

64,936

 

 

$

49,079

 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

46,983

 

 

 

43,602

 

Impairment of brewery assets

 

 

3,731

 

 

 

2,016

 

Gain on sale of property, plant, and equipment

 

 

(22

)

 

 

(195

)

Change in right-of-use assets

 

 

3,608

 

 

 

3,844

 

Stock-based compensation expense

 

 

11,008

 

 

 

8,266

 

Deferred income taxes

 

 

187

 

 

 

(1,177

)

Other non-cash expense (income)

 

 

296

 

 

 

(88

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(58,751

)

 

 

(60,307

)

Inventories

 

 

(31,566

)

 

 

(9,376

)

Prepaid expenses, income tax receivable, and other assets

 

 

(6,977

)

 

 

1,041

 

Third-party production prepayments

 

 

9,303

 

 

 

14,512

 

Other assets

 

 

3,390

 

 

 

(5,995

)

Accounts payable

 

 

29,487

 

 

 

38,872

 

Accrued expenses and other liabilities

 

 

20,045

 

 

 

21,354

 

Operating lease liabilities

 

 

(4,542

)

 

 

(4,311

)

Net cash provided by operating activities

 

 

91,116

 

 

 

101,137

 

Cash flows used in investing activities:

 

 

 

 

 

 

Cash paid for note receivable

 

 

(20,000

)

 

 

 

Purchases of property, plant, and equipment

 

 

(36,090

)

 

 

(34,809

)

Proceeds from disposal of property, plant, and equipment

 

 

23

 

 

 

195

 

Net cash used in investing activities

 

 

(56,067

)

 

 

(34,614

)

Cash flows used in financing activities:

 

 

 

 

 

 

Repurchases and retirement of Class A common stock

 

 

(112,958

)

 

 

(45,887

)

Proceeds from exercise of stock options and sale of investment shares

 

 

2,179

 

 

 

9,466

 

Cash paid on finance leases

 

 

(1,062

)

 

 

(797

)

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

 

 

(2,404

)

 

 

(2,110

)

Net cash used in financing activities

 

 

(114,245

)

 

 

(39,328

)

Change in cash and cash equivalents

 

 

(79,196

)

 

 

27,195

 

Cash and cash equivalents at beginning of period

 

 

298,491

 

 

 

180,560

 

Cash and cash equivalents at end of period

 

$

219,295

 

 

$

207,755

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Income tax payments, net

 

$

12,164

 

 

$

1,398

 

Cash paid for amounts included in measurement of lease liabilities

 

 

 

 

 

 

Operating cash outflows from operating leases

 

$

5,315

 

 

$

5,214

 

Operating cash outflows from finance leases

 

$

124

 

 

$

57

 

Financing cash outflows from finance leases

 

$

1,062

 

 

$

796

 

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

 

$

2,017

 

 

$

2,824

 

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

 

$

(3,169

)

 

$

(3,693

)

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

 

$

944

 

 

$

-

 

 

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

5


THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the thirteen and twenty-six weeks ended June 29, 2024 and July 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

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

52,339

 

 

 

52,339

 

Stock options exercised and restricted
   shares activities

 

 

8

 

 

 

 

 

 

 

 

 

 

 

 

1,266

 

 

 

 

 

 

 

 

 

1,266

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,881

 

 

 

 

 

 

 

 

 

3,881

 

Repurchase and retirement of Class A Common Stock

 

 

(221

)

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(63,618

)

 

 

(63,620

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(59

)

 

 

 

 

 

(59

)

Balance at June 29, 2024

 

 

9,696

 

 

$

97

 

 

 

2,068

 

 

$

21

 

 

$

668,089

 

 

$

(278

)

 

$

372,606

 

 

$

1,040,535

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6


 

 

 

 

 

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

 

Balance at April 1, 2023

 

 

10,193

 

 

$

102

 

 

 

2,068

 

 

$

21

 

 

$

633,376

 

 

$

(192

)

 

$

408,050

 

 

$

1,041,357

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

58,035

 

 

 

58,035

 

Stock options exercised and restricted
   shares activities

 

 

44

 

 

 

1

 

 

 

 

 

 

 

 

 

8,517

 

 

 

 

 

 

 

 

 

8,518

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,193

 

 

 

 

 

 

 

 

 

4,193

 

Repurchase and retirement of Class A Common Stock

 

 

(77

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25,038

)

 

 

(25,039

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

126

 

 

 

 

 

 

126

 

Balance at July 1, 2023

 

 

10,160

 

 

$

102

 

 

 

2,068

 

 

$

21

 

 

$

646,086

 

 

$

(66

)

 

$

441,047

 

 

$

1,087,190

 

 

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

7


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.", "Truly Distilling Co.", and "Sun Cruiser Beverage Co.".

 

The accompanying unaudited condensed consolidated balance sheet as of June 29, 2024, and the unaudited condensed consolidated statements of comprehensive operations, stockholders’ equity, and cash flows for the interim periods ended June 29, 2024 and July 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 June 29, 2024 and the results of its condensed consolidated comprehensive operations, stockholders’ equity, and cash flows for the interim periods ended June 29, 2024 and July 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 twenty-six weeks ended June 29, 2024 and July 1, 2023, approximately 94% and 94%, 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 5% of the Company's revenue for the twenty-six weeks ended June 29, 2024 and July 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 twenty-six weeks ended June 29, 2024 and July 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

8


for transferring products. If the conditions for revenue recognition are not met, the Company defers the revenue until all conditions are met. As of June 29, 2024 and December 30, 2023, the Company has deferred $20.3 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 $20.1 million and $30.3 million for the thirteen and twenty-six weeks ended June 29, 2024, respectively, and $23.3 million and $34.2 million for the thirteen and twenty-six weeks ended July 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 net revenue or as advertising, promotional and selling expenses for the thirteen and twenty-six weeks ended June 29, 2024 were $13.5 million and $22.9 million, respectively. For the thirteen and twenty-six weeks ended June 29, 2024, the Company recorded certain of these costs in the total amounts of $8.0 million and $13.7 million, respectively, as reductions to net revenue. Amounts paid to customers in connection with these programs for the thirteen and twenty-six weeks ended July 1, 2023 were $13.5 million and $21.0 million, respectively. For the thirteen and twenty-six weeks ended July 1, 2023, the Company recorded certain of these costs in the total amount of $9.5 million and $14.8 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 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:

 

 

 

June 29,
2024

 

 

December 30,
2023

 

 

 

(in thousands)

 

Current inventory:

 

 

 

 

 

 

Raw materials

 

$

67,021

 

 

$

55,116

 

Work in process

 

 

25,421

 

 

 

18,750

 

Finished goods

 

 

59,854

 

 

 

41,907

 

Total current inventory

 

 

152,296

 

 

 

115,773

 

Long term inventory

 

 

9,412

 

 

 

14,369

 

Total inventory

 

$

161,708

 

 

$

130,142

 

 

As of June 29, 2024 and December 30, 2023, the Company has recorded inventory obsolescence reserves of $7.8 million and $7.6 million, respectively.

 

9


E. Goodwill and Intangible Assets

 

No impairment of goodwill was recorded in any period.

 

The Company’s intangible assets as of June 29, 2024 and December 30, 2023 were as follows:

 

 

 

 

 

 

As of June 29, 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

 

 

 

(1,267

)

 

 

2,533

 

 

 

3,800

 

 

 

(1,140

)

 

 

2,660

 

Total intangible assets, net

 

 

 

 

$

60,784

 

 

$

(1,267

)

 

$

59,517

 

 

$

60,784

 

 

$

(1,140

)

 

$

59,644

 

 

Amortization expense in the thirteen and twenty-six weeks ended June 29, 2024 was approximately $63,000 and $127,000, respectively. The Company expects to record amortization expense as follows:

 

Fiscal Year

 

Amount (in thousands)

 

Remainder of 2024

 

$

127

 

2025

 

 

253

 

2026

 

 

253

 

2027

 

 

253

 

2028

 

 

253

 

2029

 

 

253

 

Thereafter

 

 

1,141

 

Total amortization expense

 

$

2,533

 

 

F. Third-Party Production Prepayments

 

During the twenty-six weeks ended June 29, 2024 and July 1, 2023, the Company brewed and packaged approximately 71% and 70%, 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 $24.3 million and $33.6 million as of June 29, 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 $24.3 million as of June 29, 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 and twenty-six weeks ended June 29, 2024, the Company incurred $3.0 million and $4.0 million, respectively, in shortfall fees. During the thirteen weeks and twenty-six weeks ended July 1, 2023, the Company incurred $3.4 million and $4.1 million, respectively, in shortfall fees. As of June 29, 2024, if volume for the remaining term of the production arrangements was zero, the contractual shortfall fees, with advance notice as specified in the related contractual agreements, would total approximately $108 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 $39 million of shortfall fees and expects to record those expenses as follows:

10


 

 

 

Expected Shortfall Fees to be Incurred

 

 

(in millions)

 

Remainder of 2024

 

$

9

 

2025

 

 

15

 

2026

 

 

3

 

2027

 

 

3

 

2028

 

 

3

 

2029

 

 

3

 

Thereafter

 

 

3

 

Total shortfall fees expected to be incurred

 

$

39

 

 

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 $1.1 million as of June 29, 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 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. If a dividend is declared, the unvested shares would participate equally. See Note L 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 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, if declared, 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

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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

 

 

Twenty-six weeks ended

 

 

 

June 29,
2024

 

 

July 1,
2023

 

 

June 29,
2024

 

 

July 1,
2023

 

 

 

(in thousands, except per share data)

 

 

(in thousands, except per share data)

 

Net income

 

$

52,339

 

 

$

58,035

 

 

$

64,936

 

 

$

49,079

 

Allocation of net income for basic:

 

 

 

 

 

 

 

 

 

 

 

 

Class A Common Stock

 

$

43,116

 

 

$

48,130

 

 

$

53,575

 

 

$

40,722

 

Class B Common Stock

 

 

9,097

 

 

 

9,783

 

 

 

11,213

 

 

 

8,259

 

Unvested participating shares

 

 

126

 

 

 

122

 

 

 

148

 

 

 

98

 

 

$

52,339

 

 

$

58,035

 

 

$

64,936

 

 

$

49,079

 

Weighted average number of shares for basic: