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 28, 2020

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)	(I.R.S. Employer Identification No.)

One Design Center Place, Suite 850, Boston, Massachusetts

(Address of principal executive offices)

02210

(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 par 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 17, 2020:

Class A Common Stock, $.01 par value	9,655,555
Class B Common Stock, $.01 par value	2,522,983
(Title of each class)	(Number of shares)

THE BOSTON BEER COMPANY, INC.

FORM 10-Q

March 28, 2020

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION	PAGE
	Item 1. Consolidated Financial Statements (Unaudited)	3
	Consolidated Balance Sheets as of March 28, 2020 and December 28, 2019	3
	Consolidated Statements of Comprehensive Income for the thirteen weeks ended March 28, 2020 and March 30, 2019	4
	Consolidated Statements of Stockholders’ Equity for the thirteen weeks ended March 28, 2020 and March 30, 2019	5
	Consolidated Statements of Cash Flows for the thirteen weeks ended March 28, 2020 and March 30, 2019	6
	Notes to Consolidated Financial Statements	7
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
	Item 3. Quantitative and Qualitative Disclosures about Market Risk	22
	Item 4. Controls and Procedures	22
PART II.	OTHER INFORMATION
	Item1. Legal Proceedings	23
	Item1A. Risk Factors	23
	Item2. Unregistered Sales of Equity Securities and Use of Proceeds	24
	Item3. Defaults Upon Senior Securities	24
	Item4. Mine Safety Disclosures	24
	Item5. Other Information	24
	Item6. Exhibits	25
SIGNATURES		26

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. CONSOLIDATED FINANCIAL STATEMENTS

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

	March 28,			December 28,
	2020			2019
Assets
Current Assets:
Cash and cash equivalents	$	129,504		$	36,670
Accounts receivable		58,253			54,404
Inventories		124,529			106,038
Prepaid expenses and other current assets		14,894			12,077
Income tax receivable		8,823			9,459
Total current assets		336,003			218,648
Property, plant and equipment, net		550,030			541,068
Operating right-of-use assets		63,039			53,758
Goodwill		112,529			112,529
Intangible assets		104,209			104,272
Other assets		27,754			23,782
Total assets	$	1,193,564		$	1,054,057
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	92,247		$	76,374
Accrued expenses and other current liabilities		89,078			99,107
Current operating lease liabilities		5,459			5,168
Total current liabilities		186,784			180,649
Deferred income taxes, net		77,389			75,010
Line of credit		100,000			—
Non-current operating lease liabilities		63,248			53,940
Other liabilities		7,907			8,822
Total liabilities		435,328			318,421
Commitments and Contingencies (See Note K)
Stockholders’ Equity:
Class A Common Stock, $.01 par value; 22,700,000 shares authorized; 9,559,200 and 9,370,526 issued and outstanding as of March 28, 2020 and December 28, 2019, respectively		96			94
Class B Common Stock, $.01 par value; 4,200,000 shares authorized; 2,522,983 and 2,672,983 issued and outstanding as of March 28, 2020 and December 28, 2019, respectively		25			27
Additional paid-in capital		576,208			571,784
Accumulated other comprehensive loss, net of tax		(1,727	)		(1,669	)
Retained earnings		183,634			165,400
Total stockholders’ equity		758,236			735,636
Total liabilities and stockholders’ equity	$	1,193,564		$	1,054,057

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

3

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, except per share data)

(unaudited)

	Thirteen weeks ended
	March 28, 2020			March 30, 2019
Revenue	$	352,225		$	267,559
Less excise taxes		21,660			15,908
Net revenue		330,565			251,651
Cost of goods sold		182,592			127,111
Gross profit		147,973			124,540
Operating expenses:
Advertising, promotional and selling expenses		97,891			71,723
General and administrative expenses		27,029			23,374
Impairment of assets		1,521			—
Total operating expenses		126,441			95,097
Operating income		21,532			29,443
Other (expense) income, net:
Interest income, net		63			637
Other (expense) income, net		(360	)		(252	)
Total other (expense) income, net		(297	)		385
Income before income tax provision		21,235			29,828
Income tax provision		3,001			6,134
Net income	$	18,234		$	23,694
Net income per common share - basic	$	1.50		$	2.04
Net income per common share - diluted	$	1.49		$	2.02
Weighted-average number of common shares - Class A basic		9,425			8,606
Weighted-average number of common shares - Class B basic		2,645			2,918
Weighted-average number of common shares - diluted		12,186			11,636
Net income	$	18,234		$	23,694
Other comprehensive income:
Foreign currency translation adjustment		(58	)		37
Comprehensive income	$	18,176		$	23,731

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

4

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the thirteen weeks ended March 28, 2020 and March 30, 2019

(in thousands)

(unaudited)

	Class A Common Shares		Class A Common Stock, Par		Class B Common Shares			Class B Common Stock, Par			Additional Paid-in Capital		Accumulated Other Comprehensive Loss, net of tax			Retained Earnings		Total Stockholders’ Equity
Balance at December 28, 2019		9,371	$	94		2,673		$	27		$	571,784	$	(1,669	)	$	165,400	$	735,636
Net income																	18,234		18,234
Stock options exercised and restricted shares activities		38		—								1,858							1,858
Stock-based compensation expense												2,566							2,566
Conversion from Class B to Class A		150		2		(150	)		(2	)									—
Currency translation adjustment														(58	)				(58	)
Balance at March 28, 2020		9,559	$	96		2,523		$	25		$	576,208	$	(1,727	)	$	183,634	$	758,236
	Class A Common Shares		Class A Common Stock, Par		Class B Common Shares			Class B Common Stock, Par			Additional Paid-in Capital		Accumulated Other Comprehensive Loss, net of tax			Retained Earnings		Total Stockholders’ Equity
Balance at December 29, 2018		8,580	$	86		2,918		$	29		$	405,711	$	(1,197	)	$	55,688	$	460,317
Net income																	23,694		23,694
Stock options exercised and restricted shares activities		54		—								3,704							3,704
Stock-based compensation expense												2,066							2,066
Currency translation adjustment														37					37
Balance at March 30, 2019		8,634	$	86		2,918		$	29		$	411,481	$	(1,160	)	$	79,382	$	489,818

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

5

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASHFLOWS

(in thousands)

(unaudited)

	Thirteen weeks ended
	March 28,			March 30,
	2020			2019
Cash flows provided by operating activities:
Net income	$	18,234		$	23,694
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		15,945			12,863
Impairment of assets		1,521			—
Loss on disposal of property, plant and equipment		—			271
Change in ROU assets		1,807			859
Credit loss expense		552			—
Stock-based compensation expense		2,566			2,066
Deferred income taxes		2,379			1,029
Changes in operating assets and liabilities:
Accounts receivable		(4,436	)		(20,452	)
Inventories		(23,856	)		(15,353	)
Prepaid expenses, income tax receivable and other assets		(884	)		1,336
Accounts payable		14,264			14,400
Accrued expenses and other current liabilities		(7,579	)		(6,465	)
Change in operating lease liability		(1,489	)		(624	)
Other liabilities		(100	)		19
Net cash provided by operating activities		18,924			13,643
Cash flows used in investing activities:
Purchases of property, plant and equipment		(27,394	)		(22,080	)
Proceeds from disposal of property, plant and equipment		35			1
Other investing activities		96			28
Net cash used in investing activities		(27,263	)		(22,051	)
Cash flows provided by financing activities:
Proceeds from exercise of stock options and sale of investment shares		2,941			2,968
Net cash paid on note payable and finance leases		(209	)		(72	)
Payment of tax withholdings on stock-based payment awards and investment shares		(1,559	)		—
Cash borrowed on line of credit		100,000			—
Net cash provided by financing activities		101,173			2,896
Change in cash and cash equivalents		92,834			(5,512	)
Cash and cash equivalents at beginning of year		36,670			108,399
Cash and cash equivalents at end of period	$	129,504		$	102,887
Supplemental disclosure of cash flow information:
Income taxes paid	$	5		$	207
Cash paid for amounts included in measurement of lease liabilities
Operating cash flows from operating leases	$	2,097		$	885
Operating cash flows from finance leases	$	22		$	8
Financing cash flows from finance leases	$	141		$	7
Right-of-use assets obtained in exchange for operating lease obligations	$	11,088		$	27,034
Right-of-use assets obtained in exchange for finance lease obligations	$	—		$	3
Change in purchase of property, plant and equipment in accounts payable and accrued expenses	$	(1,029	)	$	118

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

6

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

NOTES TO 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 trade names “The Boston Beer Company®”, “Twisted Tea Brewing Company®”, “Hard Seltzer Beverage Company”, “Angry Orchard® Cider Company”, “Dogfish Head® Craft Brewery”, “Angel City® Brewing Company”, “Concrete Beach Brewery®”, “Coney Island® Brewing Company” and “American Fermentation Company”.

The accompanying unaudited consolidated balance sheet as of March 28, 2020, and the consolidated statements of comprehensive income, stockholders’ equity, and cash flows for the interim periods ended March 28, 2020 and March 30, 2019 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 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 28, 2019.

In the opinion of the Company’s management, the Company’s unaudited consolidated balance sheet as of March 28, 2020 and the results of its consolidated operations, stockholders’ equity, and cash flows for the interim periods ended March 28, 2020 and March 30, 2019, 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. COVID-19 Pandemic

In early March 2020, the Company began seeing the impact of the COVID-19 pandemic on its business. The impact was primarily shown in significantly reduced keg demand from the on-premise channel as well as increased labor and safety related costs at the Company’s breweries. In the first quarter of 2020, the Company recorded COVID-19 pre-tax related reductions in net revenue and increases in other costs that total $10.0 million. This amount consists of a $5.8 million reduction in net revenue for estimated keg returns from distributors and retailers and $4.2 million of other COVID-19 related direct costs, of which $3.6 million are recorded in cost of goods sold and $0.6 million are recorded in operating expenses. While the duration of the disruption and related impact on the Company’s consolidated financial statements is currently uncertain, the Company expects this matter will continue to negatively impact its results of operations.

C. Dogfish Head Brewery Transaction

On May 8, 2019, the Company entered into definitive agreements to acquire Dogfish Head Brewery (“Dogfish Head”) and various related operations (the “Transaction”) through the acquisition of all of the equity interests held by certain private entities in Off-Centered Way LLC, the parent holding company of the Dogfish Head operations. In accordance with these agreements, the Company made a payment of $158.4 million, which was placed in escrow pending the satisfaction of certain closing conditions. The Transaction closed on July 3, 2019, for total consideration of $336.0 million consisting of $173.0 million in cash and 429,291 shares of restricted Class A Common Stock that had an aggregate market value as of July 3, 2019 of $163.0 million, after taking into account a post-closing cash related adjustment. As required under the definitive agreements, 127,146 of the 429,291 shares of restricted Class A Stock have been placed in escrow and will be released no later than July 3, 2029. These shares had a market value on July 3, 2019 of $48.3 million. The timing of the release of these escrowed shares is primarily related to the continued employment with the Company of Samuel A. Calagione III, one of the two Dogfish Head founders.

7

The fair value of the Transaction is estimated at approximately $317.7 million. The following table summarizes the acquisition date fair value of the tangible assets, intangible assets, liabilities assumed, and related goodwill acquired from Dogfish Head, as well as the allocation of purchase price paid:

	Total (In Thousands)
Cash and cash equivalents	$	7,476
Accounts receivable		8,081
Inventories		9,286
Prepaid expenses and other current assets		847
Property, plant and equipment		106,964
Goodwill		108,846
Brand		98,500
Other intangible assets		3,800
Other assets		378
Total assets acquired		344,178
Accounts payable		3,861
Accrued expenses and other current liabilities		4,085
Deferred income taxes		18,437
Other liabilities		59
Total liabilities assumed		26,442
Net assets acquired	$	317,736
Cash consideration	$	172,993
Nominal value of equity issued		162,999
Fair Value reduction due to liquidity		(18,256	)
Estimated total purchase price	$	317,736

The Company accounted for the acquisition in accordance with the accounting standards codification guidance for business combinations, whereby the total purchase price was allocated to the acquired net tangible and intangible assets of Dogfish Head based on their fair values as of the Transaction closing date. The Company believes that the information available as of the Transaction closing date provides a reasonable basis for estimating the fair values of the assets acquired and liabilities assumed; however, the Company is continuing to finalize these amounts, particularly with respect to income taxes and valuation of inventories, fixed assets, and intangible assets. Thus, the preliminary measurements of fair value reflected are subject to change as additional information becomes available and as additional analysis is performed. The Company expects to finalize the valuation and complete the allocation of the purchase price as soon as practicable, but no later than one year from the closing date of the acquisition, as required.

The fair value of the Dogfish Head brand trade name is estimated at approximately $98.5 million and the fair value of customer relationships is estimated at $3.8 million. The Company estimated the Dogfish Head brand trade name will have an indefinite life and customer relationships will have an estimated useful life of 15 years. The customer relationship intangible asset will be amortized on a straight-line basis over the 15 year estimated useful life. The fair value of the deferred income tax liability assumed is $18.4 million, representing the expected future tax consequences of temporary differences between the fair values of the assets acquired and liabilities assumed and their tax basis. The Company used a preliminary consolidated tax rate to determine the net deferred tax liabilities. The Company will record measurement period adjustments as the Company applies the appropriate tax rate for each legal entity within Dogfish Head. The expectation is that the Dogfish Head deferred income taxes will be subject to the Company’s consolidated rate. The excess of the purchase price paid over the estimated fair values of the assets and liabilities assumed has been recorded as goodwill in the amount of $108.8 million. Goodwill associated with the acquisition is primarily attributable to the future growth opportunities associated with the Transaction, expected synergies and value of the workforce. The Company believes the majority of the goodwill is deductible for tax purposes.

8

The fair value of the brand trade name was determined utilizing the relief from royalty method which is a form of the income approach. Under this method, a royalty rate based on observed market royalties is applied to projected revenue supporting the trade name and discounted to present value using an appropriate discount rate. The fair value of the property, plant and equipment was determined utilizing the cost and market valuation approaches.

The results of operations from Dogfish Head have been included in the Company’s consolidated statements of comprehensive income since the July 3, 2019 Transaction closing date.

Consistent with prior periods and considering post-merger reporting structures, the Company will continue to report as one operating segment. The combined Company’s brands are predominantly beverages that are manufactured using similar production processes, have comparable alcohol content, generally fall under the same regulatory environment, and are sold to the same types of customers in similar size quantities at similar price points and through the same channels of distribution.

The following unaudited pro forma information has been prepared, as if the Transaction and the related debt financing had occurred as of December 30, 2018, the first day of the Company’s 2019 fiscal year. The pro forma amounts reflect the combined historical operational results for Boston Beer and Dogfish Head, after giving effect to adjustments related to the impact of purchase accounting, transaction costs and financing. The unaudited pro forma financial information is not indicative of the operational results that would have been obtained had the Transaction occurred as of that date, nor is it necessarily indicative of the Company’s future operational results. The following adjustments have been made:

(i) Depreciation and amortization expenses were updated to reflect the fair value adjustments to Dogfish Head property, plant and equipment and intangible assets beginning December 30, 2018.

(ii) Transaction costs incurred to date have been re-assigned to the first period of the comparative fiscal year.

(iii) Interest expense has been included at a rate of approximately 3% which is consistent with the borrowing rate on the Company’s current line of credit.

(iv) The tax effects of the pro forma adjustments at an estimated statutory rate of 23.6%.

(v) Earnings per share amounts are calculated using the Company’s historical weighted average shares outstanding plus the 429,291 shares issued in the merger.

	Thirteen weeks ended
	March 28,		March 30,
	2020		2019
	(in thousands)
Net revenue	$	330,565	$	276,739
Net income	$	18,234	$	24,664
Basic earnings per share	$	1.50	$	2.04
Diluted earnings per share	$	1.49	$	2.02

D. Goodwill and Intangible Assets

There were no changes in the carrying value of goodwill during the thirteen weeks ended March 28, 2020 and March 30, 2019.

9

The Company’s intangible assets as of March 28, 2020 and December 28, 2019 were as follows:

			As of March 28, 2020							As of December 28, 2019
	Estimated Useful		Gross Carrying		Accumulated			Net Book		Gross Carrying		Accumulated			Net Book
	Life (Years)		Value		Amortization			Value		Value		Amortization			Value
			(in thousands)
Custmer Relationships		15	$	3,800	$	(190	)	$	3,610	$	3,800	$	(127	)	$	3,673
Trade Names		Indefinite		100,599		—			100,599		100,599		—			100,599
Total intangible assets			$	104,399	$	(190	)	$	104,209	$	104,399	$	(127	)	$	104,272

As disclosed within Note C, the Company acquired intangible assets as part of the Dogfish Head Transaction that consists of $98.5 million for the value of the Dogfish Head brand name and $3.8 million for the value of customer relationships. The customer relationship intangible will be amortized on a straight-line basis over the 15 year useful life. Amortization expense in the thirteen weeks ended March 28, 2020 was approximately $63,000. The Company expects to record amortization expense as follows over the remaining current year and the five subsequent years:

Fiscal Year	Amount (in thousands)
Remainder of 2020	$	190
2021		253
2022		253
2023		253
2024		253
2025		253

E. Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The guidance requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires the consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted the standard in the first quarter of fiscal 2020 and there was no material impact.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. Prior to ASU No. 2017-04, the goodwill impairment test is a two-step assessment, if indicators of impairment exist. The first step requires an entity to compare each reporting unit’s carrying value and its fair value. If the reporting unit’s carrying value exceeds the fair value, then the entity must perform the second step, which is to compare the implied fair value of goodwill to its carrying value, and record an impairment charge for any excess of carrying value of goodwill over its implied fair value. An entity also has the option to perform a qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU 2017-04 simplifies the goodwill impairment test by eliminating the second step of the test. As such, an entity will perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the reporting unit’s carrying amount exceeds its fair value. If fair value exceeds the carrying amount, no impairment should be recorded. ASU 2017-04 is effective prospectively for the year beginning December 29, 2019. The Company completes its annual goodwill impairment assessment during the third quarter. The Company does not expect the adoption of ASU 2017-04 to have a material impact on its consolidated financial statements.

Accounting Pronouncements Not Yet Effective

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The standard includes multiple key provisions, including removal of certain exceptions to ASC 740, Income Taxes, and simplification in several other areas such as accounting for a franchise tax (or similar tax) that is partially based on income. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently assessing the impact of adopting this standard but does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

10

F. Revenue Recognition

During the thirteen weeks ended March 28, 2020 and March 30, 2019 approximately 96% of the Company’s revenue was from shipments of its products to domestic distributors, 3% from shipments to international distributors, primarily located in Canada and 1% was from retail beer, cider, and merchandise sales at the Company’s retail locations.

The Company recognizes revenue when obligations under the terms of a contract with its customer are satisfied; generally, this occurs with the transfer of control of its products. Revenue is measured as the amount of consideration expected to be received in exchange for transferring products. If the conditions for revenue recognition are not met, the Company defers the revenue until all conditions are met. As of March 28, 2020 and December 28, 2019, the Company has deferred $13.9 million and $7.0 million, respectively in revenue related to product shipped prior to these dates. These amounts are included in accrued expenses and other current liabilities in the accompanying consolidated balance sheets.

Customer promotional discount programs are entered into by the Company with distributors for certain periods of time. The reimbursements for discounts to distributors are recorded as reductions to net revenue and were $8.2 million and $6.2 million for the thirteen weeks ended March 28, 2020 and March 30, 2019, respectively. The agreed-upon discount rates are applied to certain distributors’ sales to retailers, based on volume metrics, in order to determine the total discounted amount. The computation of the discount allowance requires that management make certain estimates and assumptions that affect the timing and amounts of revenue and liabilities recorded. Actual promotional discounts owed and paid have historically been in line with allowances recorded by the Company, however, the amounts could differ from the estimated allowance.

Customer programs and incentives are a common practice in the alcohol beverage industry. Amounts paid in connection with customer programs and incentives are recorded as reductions to net revenue or as advertising, promotional and selling expenses, based on the nature of the expenditure. Customer incentives and other payments made to distributors are primarily based upon performance of certain marketing and advertising activities. Depending on applicable state laws and regulations, these activities promoting the Company’s products may include, but are not limited to point-of-sale and merchandise placement, samples, product displays, promotional programs at retail locations and meals, travel and entertainment. Amounts paid to customers in connection with these programs that were recorded as reductions to revenue for the thirteen weeks ended March 28, 2020 and March 30, 2019 were $4.2 million and $3.1 million, respectively. Estimates are based on historical and projected experience for each type of program or customer and have historically been in line with actual costs incurred.

The Further Consolidated Appropriations Act, 2020 extends reductions in federal excise taxes as a result of the Tax Cuts and Jobs Act of 2017 through December 31, 2020. The Company benefited from a reduction in federal excise taxes of $2.6 million and $1.7 million for the thirteen weeks ended March 28, 2020 and March 30, 2019, respectively.

Shipment volume for the quarter was significantly higher than depletions volume and resulted in significantly higher distributor inventory as of March 28, 2020 when compared to March 30, 2019. The Company believes distributor inventory as of March 28, 2020 averaged approximately 6 weeks on hand and was at an appropriate level based on the supply chain capacity constraints and inventory requirements to support the forecasted growth of Truly and Twisted Tea brands over the summer. The Company expects wholesaler inventory levels in terms of weeks on hand to return to more normal levels of approximately 4 weeks on hand later in the year.

11

G. Inventories

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

	March 28,		December 28,
	2020		2019
	(in thousands)
Current inventory:
Raw materials	$	73,267	$	61,522
Work in process		14,775		12,631
Finished goods		36,487		31,885
Total current inventory		124,529		106,038
Long term inventory		15,413		10,048
Total inventory	$	139,942	$	116,086

H. Leases

The Company has various lease agreements in place for facilities and equipment. Terms of these leases include, in some instances, scheduled rent increases, renewals, purchase options and maintenance costs, and vary by lease. These lease obligations expire at various dates through 2034. As the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate based on information available at commencement to determine the present value of the lease payments. ROU assets and lease liabilities commencing after December 30, 2018 are recognized at commencement date based on the present value of lease payments over the lease term. Leases with an initial term of 12 months or less (“short-term leases”) are not recorded on the balance sheet and are recognized on a straight-line basis over the lease term. As of March 28, 2020, and December 28, 2019 total ROU assets and lease liabilities were as follows:

	Classification	Leases
		March 28,		December 28,
		2020		2019
		(in thousands)
Right-of-use assets
Operating lease assets	Operating right-of-use assets	$	63,039	$	53,758
Finance lease assets	Property, plant and equipment, net		2,398		2,531
Lease Liabilities
Current
Operating lease liabilities	Current operating lease liabilities		5,459		5,168
Finance lease liabilities	Accrued expenses and other current liabilities		551		546
Non-current
Operating lease liabilities	Non-current operating lease liabilities		63,248		53,940
Finance lease liabilities	Other liabilities		1,896		2,042

The gross value and accumulated depreciation of ROU assets related to finance leases as of March 28, 2020 and December 28, 2019 were as follows:

	Finance Leases
	March 28,			December 28,
	2020			2019
	(in thousands)
Gross value	$	2,837		$	2,837
Accumulated amortization		(439	)		(306	)
Carrying value	$	2,398		$	2,531

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Components of lease cost for the thirteen weeks ended March 28, 2020 and March 30, 2019 were as follows:

	Lease Cost
	March 28,		March 30,
	2020		2019
	(in thousands)
Operating lease cost	$	2,415	$	1,128
Variable lease costs not included in liability		485		199
Finance lease cost:
Amortization of right-of-use asset		133		—
Interest on lease liabilities		22		—
Total finance lease cost	$	155	$	—

Maturities of lease liabilities as of March 28, 2020 were as follows:

	Operating Leases			Capital Leases			Weighted-Average Remaining Term in Years
							Operating Leases		Capital Leases
	(in thousands)
2020	$	3,962		$	464
2021		9,816			626
2022		9,695			626
2023		9,694			626
2024		9,470			265
Thereafter		39,524			23
Total lease payments		82,161			2,630
Less imputed interest (based on 3.5% weighted-average discount rate)		(13,454	)		(183	)
Present value of lease liability	$	68,707		$	2,447			9.4		4.5

The Company has additional lease liabilities of $3.9 million which have not yet commenced as of March 28, 2020, and as such, have not been recognized on the Company’s Consolidated balance sheet. These leases are expected to commence during the second quarter of 2020 with a term of three years.

I. 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.

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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 O 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 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 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
	March 28,		March 30,
	2020		2019
	(in thousands, except per share data)
Net income	$	18,234	$	23,694
Allocation of net income for basic:
Class A Common Stock	$	14,136	$	17,525
Class B Common Stock		3,967		5,942
Unvested participating shares		131		227
	$	18,234	$	23,694
Weighted average number of shares for basic:
Class A Common Stock		9,425		8,606
Class B Common Stock*		2,645		2,918
Unvested participating shares		87		111
	12,157		11,635
Net income per share for basic:
Class A Common Stock	$	1.50	$	2.04
Class B Common Stock	$	1.50	$	2.04

* Change in Class B Common Stock resulted from the conversion of 100,000 shares to Class A Common Stock on August 8, 2019, 145,000 shares to Class A Common Stock on December 13, 2019 and 150,000 shares to Class A Common Stock on March 6, 2020 with the ending number of shares reflecting the weighted average for the period.

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Net Income per Common Share - Diluted

The Company calculates diluted net income per share for common stock using the more dilutive of (1) the treasury stock method, or (2) the two-class method, which assumes the participating securities are not exercised.

The following table sets forth the computation of diluted net income per share, assuming the conversion of all Class B Common Stock into Class A Common Stock and using the two-class method for unvested participating shares:

	Thirteen weeks ended
	March 28, 2020						March 30, 2019
	Earnings to Common Shareholders		Common Shares		EPS		Earnings to Common Shareholders		Common Shares	EPS
	(in thousands, except per share data)
As reported - basic	$	14,136		9,425	$	1.50	$	17,525