SAM 10-Q
Boston Beer Co Inc (SAM)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(State or other jurisdiction of incorporation Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act.
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
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).
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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
Number of shares outstanding of each of the issuer’s classes of common stock, as of July 16, 2022:
Class A Common Stock, $.01 par value |
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Class B Common Stock, $.01 par value |
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(Title of each class) |
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THE BOSTON BEER COMPANY, INC.
FORM 10-Q
June 25, 2022
TABLE OF CONTENTS
PART I. |
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FINANCIAL INFORMATION |
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Item 1. |
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3 |
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Condensed Consolidated Balance Sheets as of June 25, 2022 and December 25, 2021 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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24 |
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PART II. |
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OTHER INFORMATION |
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Item 1. |
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25 |
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Item 1A. |
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25 |
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Item 2. |
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Item 3. |
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26 |
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Item 4. |
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26 |
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Item 5. |
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26 |
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Item 6. |
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28 |
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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)
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June 25, |
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December 25, |
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Assets |
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Current Assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Accounts receivable |
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Inventories |
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Prepaid expenses and other current assets |
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Income tax receivable |
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Total current assets |
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Property, plant and equipment, net |
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Operating right-of-use assets |
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Goodwill |
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Intangible assets |
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Third-party production prepayments |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders' Equity |
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Current Liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Current operating lease liabilities |
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Total current liabilities |
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Deferred income taxes, net |
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Non-current operating lease liabilities |
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Other liabilities |
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Total liabilities |
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(See Note I) |
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Stockholders' Equity: |
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Class A Common Stock, $ |
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Class B Common Stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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Retained earnings |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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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)
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Thirteen weeks ended |
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Twenty-six weeks ended |
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June 25, |
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June 26, |
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June 25, |
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June 26, |
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Revenue |
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$ |
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$ |
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$ |
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$ |
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Less excise taxes |
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Net revenue |
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Cost of goods sold |
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Gross profit |
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Operating expenses: |
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Advertising, promotional and selling expenses |
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General and administrative expenses |
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Contract termination costs and other |
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Impairment of assets |
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Total operating expenses |
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Operating income |
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Other expense: |
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Interest income (expense) |
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Other (expense) income |
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Total other expense |
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Income before income tax provision |
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Income tax provision |
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Net income |
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$ |
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$ |
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$ |
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Net income per common share – basic |
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$ |
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$ |
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$ |
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$ |
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Net income per common share – diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted-average number of common shares – basic |
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Weighted-average number of common shares – diluted |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive (loss) income: |
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Foreign currency translation adjustment |
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Total other comprehensive (loss) income, net of tax |
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Comprehensive income |
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$ |
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$ |
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$ |
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$ |
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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)
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Twenty-six weeks ended |
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June 25, |
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June 26, |
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Cash flows provided by operating activities: |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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Impairment of assets |
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Gain on disposal of property, plant and equipment |
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Change in right-of-use assets |
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Other non-cash expense (income) |
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Stock-based compensation expense |
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Deferred income taxes |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventories |
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Prepaid expenses, income tax receivable, other current assets and other assets |
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Third-party production prepayments |
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Accounts payable |
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Accrued expenses, other current liabilities and other liabilities |
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( |
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Change in operating lease liabilities |
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Net cash provided by operating activities |
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Cash flows used in investing activities: |
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Purchases of property, plant and equipment |
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Proceeds from disposal of property, plant and equipment |
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Other investing activities |
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— |
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Net cash used in investing activities |
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Cash flows provided by (used in) financing activities: |
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Proceeds from exercise of stock options and sale of investment shares |
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Net cash paid on note payable and finance leases |
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Line of credit borrowings |
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— |
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Line of credit repayments |
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( |
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Payment of tax withholding on stock-based payment awards and investment shares |
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Net cash provided by (used in) financing activities |
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Change in cash and cash equivalents and restricted cash |
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Cash and cash equivalents and restricted cash at beginning of year |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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Supplemental disclosure of cash flow information: |
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Income taxes (refunded) paid, net |
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$ |
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$ |
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Cash paid for amounts included in measurement of lease liabilities |
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Operating cash flows from operating leases |
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$ |
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$ |
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Operating cash flows from finance leases |
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$ |
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$ |
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Financing cash flows from finance leases |
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$ |
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$ |
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Right-of-use-assets obtained in exchange for operating lease obligations |
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$ |
- |
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$ |
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Change in purchase of property, plant and equipment in accounts payable and |
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$ |
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$ |
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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 25, 2022 and June 26, 2021
(in thousands)
(unaudited)
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Class A |
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Accumulated |
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Class A |
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Common |
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Class B |
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Class B |
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Additional |
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Other |
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Total |
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Common |
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Stock, |
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Common |
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Common |
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Paid-in |
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Comprehensive |
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Retained |
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Stockholders’ |
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Shares |
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Par |
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Shares |
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Stock, Par |
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Capital |
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Loss |
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Earnings |
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Equity |
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Balance at December 25, 2021 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net loss |
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Stock options exercised and restricted |
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— |
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Stock-based compensation expense |
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Foreign currency translation adjustment |
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Balance at March 26, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net income |
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Stock options exercised and restricted |
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— |
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Stock-based compensation expense |
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Foreign currency translation adjustment |
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( |
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Balance at June 25, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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6
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Class A |
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Accumulated |
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Class A |
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Common |
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Class B |
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Class B |
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Additional |
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Other |
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Total |
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Common |
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Stock, |
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Common |
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Common |
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Paid-in |
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Comprehensive |
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Retained |
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Stockholders’ |
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Shares |
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Par |
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Shares |
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Stock, Par |
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Capital |
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Loss |
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Earnings |
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Equity |
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Balance at December 26, 2020 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Net income |
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Stock options exercised and restricted |
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Stock-based compensation expense |
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Adoption of , Simplifying the accounting for income taxes |
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( |
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( |
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Foreign currency translation adjustment |
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|
|
|
|
||||||||
Balance at March 27, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Stock options exercised and restricted |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|||||
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Conversion from Class B to Class A |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||||
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balance at June 26, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||||
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 trade names “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 “Bevy Long Drink Co.”
The accompanying unaudited condensed consolidated balance sheet as of June 25, 2022, and the unaudited condensed consolidated statements of comprehensive operations, stockholders’ equity, and cash flows for the interim periods ended June 25, 2022 and June 26, 2021 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 25, 2021.
In the opinion of the Company’s management, the Company’s unaudited condensed consolidated balance sheet as of June 25, 2022 and the condensed consolidated statements of comprehensive operations, stockholders’ equity, and cash flows for the interim periods ended June 25, 2022 and June 26, 2021, 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
Accounting Pronouncements Recently Adopted
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 adopted the standard in the first quarter of fiscal 2021 and recorded an adjustment of $
C
During the twenty-six weeks ended June 25, 2022 and June 26, 2021, approximately
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 June 25, 2022 and December 25, 2021, the Company has deferred $
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
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 and twenty-six weeks ended June 25, 2022 were $
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, flavorings, apple juice, 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.
|
|
June 25, |
|
|
December 25, |
|
||
|
|
(in thousands) |
|
|||||
Current inventory: |
|
|
|
|
|
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work in process |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Total current inventory |
|
|
|
|
|
|
||
Long term inventory |
|
|
|
|
|
|
||
Total inventory |
|
$ |
|
|
$ |
|
||
As of June 25, 2022 and December 25, 2021, the Company has recorded inventory obsolescence reserves of $
E. Third-Party Production Prepayments
During the twenty-six weeks ended June 25, 2022, the Company brewed and packaged approximately
As a result of lower than anticipated demand for certain Truly brand styles and packages, the Company adjusted its volume plans for production at certain third-party facilities beginning in the third quarter of 2021 and into 2022. The Company has also terminated relationships with some of its third-party production suppliers and incurred contract termination costs in doing so.
9
During fiscal 2021, the Company amended its master transaction agreement with City Brewing Company, LLC ("City Brewing") to ensure access to capacity at a new location and continued access at certain existing locations. The amendment became effective during the second quarter of fiscal year 2021, upon the closing of the purchase of the new location by City Brewing. As part of the master transaction agreement, the Company paid $
Total third-party production prepayments were $
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, including those that are part of the master transaction agreement described above, and will incur shortfall fees. The Company will expense the shortfall fees during the contractual period when such fees are incurred as a component of cost of goods sold. As of June 25, 2022, if volume for the remaining term of the production arrangements was zero, the contractual shortfall fees would total approximately $
|
|
Expected Shortfall Fees to be Incurred |
|
|
|
|
(in millions) |
|
|
Remainder of 2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
Total shortfall fees expected to be incurred |
|
$ |
|
|
F. Goodwill and Intangible Assets
The Company’s intangible assets as of June 25, 2022 and December 25, 2021 were as follows:
|
|
|
|
|
As of June 25, 2022 |
|
|
As of December 25, 2021 |
|
|||||||||||||||||||
|
|
Estimated |
|
|
Gross |
|
|
Accumulated |
|
|
Net Book |
|
|
Gross |
|
|
Accumulated |
|
|
Net Book |
|
|||||||
|
|
Life (Years) |
|
|
Value |
|
|
Amortization |
|
|
Value |
|
|
Value |
|
|
Amortization |
|
|
Value |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|||||||
Customer Relationships |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Trade Names |
|
Indefinite |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||||
Total intangible assets |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
10
Amortization expense in the thirteen and twenty-six weeks ended June 25, 2022 was approximately $
Fiscal Year |
|
Amount (in thousands) |
|
|
Remainder of 2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
Total amortization expense |
|
$ |
|
|
G. 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
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
11
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 25, |
|
|
June 26, |
|
|
June 25, |
|
|
June 26, |
|
||||
|
|
(in thousands, except per share data) |
|
|
(in thousands, except per share data) |
|
||||||||||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Allocation of net income for basic: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Class A Common Stock |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Class B Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unvested participating shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Weighted average number of shares for basic: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Class A Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Class B Common Stock* |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unvested participating shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income per share for basic: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Class A Common Stock |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Class B Common Stock |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
*The reduction in Class B Common Stock resulted from the conversion to Class A Common stock during fiscal 2021.
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.
12
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 for the thirteen and twenty-six weeks ended June 25, 2022 and for the thirteen and twenty-six weeks ended June 26, 2021:
|
|
Thirteen weeks ended |
|
|||||||||||||||||||||
|
|
June 25, 2022 |
|
|
June 26, 2021 |
|
||||||||||||||||||
|
|
Earnings to |
|
|
Common |
|
|
EPS |
|
|
Earnings to |
|
|
Common |
|
|
EPS |
|
||||||
|
|
(in thousands, except per share data) |
|
|||||||||||||||||||||
As reported - basic |
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
||||||
Add: effect of dilutive common |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Share-based awards |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
||||
Class B Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net effect of unvested participating |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income per common share - |
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Twenty-six weeks ended |
|
|||||||||||||||||||||
|
|
June 25, 2022 |
|
|
June 26, 2021 |
|
||||||||||||||||||
|
|
Earnings to |
|
|
Common |
|
|
EPS |
|
|
Earnings to |
|
|
Common |
|
|
EPS |
|
||||||
|
|
(in thousands, except per share data) |
|
|||||||||||||||||||||
As reported - basic |
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
||||||
Add: effect of dilutive common |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Share-based awards |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
||||
Class B Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net effect of unvested participating |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income per common share - |
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
||||||
During the thirteen and twenty-six weeks ended June 25, 2022, in accordance with the two-class method, weighted-average stock options to purchase approximately
During the thirteen and twenty-six weeks ended June 26, 2021, in accordance with the treasury stock method, weighted-average stock options to purchase approximately
H
Comprehensive income or loss represents net income or loss plus or minus foreign currency translation adjustment. The foreign currency translation adjustments for the interim periods ended June 25, 2022 and June 26, 2021 were not material.
13
I. Commitments and Contingencies
Contractual Obligations
As of June 25, 2022, projected cash outflows under non-cancelable contractual obligations are as follows:
|
|
Commitments |
|
|
|
|
(in thousands) |
|
|
Ingredients and packaging (excluding hops and malt) |
|
$ |
|
|
Hops and malt |
|
|
|
|
Brand support |
|
|
|
|
Equipment and machinery |
|
|
|
|
Other |
|
|
|
|
Total commitments |
|
$ |
|
|
The majority of these contract obligations are for the remaining twenty-seven weeks of fiscal 2022 with the remainder extending no later than the 2026 fiscal year.
Litigation
The Company is and in the future may be 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 able to be estimated. Material pending legal proceedings are discussed below.
Securities Litigation. On September 14, 2021, a purported class action lawsuit was filed by an individual shareholder in the United States District Court for the Southern District of New York against the Company and three of its officers. The complaint alleges claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 between April 22, 2021 and September 8, 2021. The plaintiff claims that defendants made materially false and/or misleading statements or failed to disclose material adverse facts about the Company’s business, operations, and prospects. On October 8, 2021, a nearly identical complaint was filed against the Company by an individual shareholder in the United States District Court for the Southern District of New York.
J. Income Taxes
The following table provides a summary of the income tax provision for the thirteen and twenty-six weeks ended June 25, 2022 and June 26, 2021:
|
|
Thirteen weeks ended |
|
|||||
|
|
June 25, |
|
|
June 26, |
|
||
|
|
(in thousands) |
|
|||||
Summary of income tax provision |
|
|
|
|
|
|
||
Tax provision based on net income |
|
$ |
|
|
$ |
|
||
Benefit of ASU 2016-09 |
|
|
( |
) |
|
|
( |
) |
Total income tax provision |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
|
|
Twenty-six weeks ended |
|
|||||
|
|
June 25, 2022 |
|
|
June 26, |
|
||
|
|
(in thousands) |
|
|||||
Summary of income tax provision |
|
|
|
|
|
|
||
Tax provision based on net income |
|
$ |
|
|
$ |
|
||
Benefit of ASU 2016-09 |
|
|
( |
) |
|
|
( |
) |
Total income tax provision |
|
$ |
|
|
$ |
|
||
14
The tax benefit of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, was $
The Company’s effective tax rate, excluding the impact of ASU 2016-09, for the thirteen weeks and twenty-six weeks ended June 25, 2022 was
As of June 25, 2022 and December 25, 2021, the Company had approximately $
The Company’s practice is to classify interest and penalties related to income tax matters in income tax expense. As of June 25, 2022 and December 25, 2021, the Company had $
K. Line of Credit
In March 2018, the Company amended its credit facility in place that provides for a $
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).
The Company’s money market funds are measured at fair value on a recurring basis (at least annually) and are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The money market funds are invested substantially in United States Treasury and government securities. The Company does not adjust the quoted market price for such financial instruments. Cash, receivables and payables are carried at their cost, which approximates fair value, because of their short-term nature.
At June 25, 2022 and December 25, 2021, 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 June 25, 2022 and December 25, 2021, the Company’s cash and cash equivalents balance was $
15
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- |
|
|
Weighted- |
|
|
Aggregate |
|
||||
Outstanding at December 25, 2021 |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Outstanding at June 25, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable at June 25, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Vested and expected to vest at June 25, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Of the total options outstanding at June 25, 2022,
On March 1, 2022, the Company granted options to purchase an aggregate of
On May 18, 2022, the Company granted options to purchase an aggregate of
Weighted average assumptions used to estimate fair values of stock options on the date of grants are as follows:
|
|
2022 |
|
|
Expected Volatility |
|
|
% |
|
Risk-free interest rate |
|
|
% |
|
Expected Dividends |
|
|
% |
|
Exercise factor |
|
|
||
Discount for post-vesting restrictions |
|
|
% |
|
Non-Vested Shares Activity
The following table summarizes vesting activities of shares issued under the investment share program and restricted stock awards:
|
|
Number of Shares |
|
|
Weighted Average Fair Value |
|
||
Non-vested at December 25, 2021 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
Non-vested at June 25, 2022 |
|
|
|
|
$ |
|
||
Of the total shares outstanding at June 25, 2022,
On March 1, 2022, the Company granted a combined
16
restricted stock units and investment shares, which are sold to employees at discount under its investment share program, was $
Stock-Based Compensation
The following table provides information regarding stock-based compensation expense included in operating expenses in the accompanying condensed consolidated statements of comprehensive operations:
|
|
Thirteen weeks ended |
|
|
Twenty-six weeks ended |
|
||||||||||
|
|
June 25, |
|
|
June 26, |
|
|
June 25, |
|
|
June 26, |
|
||||
|
|
(in thousands) |
|
|
(in thousands) |
|
||||||||||
Amounts included in advertising, promotional and selling expenses |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Amounts included in general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total stock-based compensation expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
N. Licensing Agreements
Beam Suntory Licensing Agreement
On July 14, 2021, the Company signed
The parties began shipping beverages to customers under these agreements during the first quarter of 2022. Under the first agreement, the Company is required to make payments to Jim Beam for their share of the brand contribution of the flavored malt beverages sold by the Company. The brand contribution amounts due to Beam are recorded as a component of costs of goods sold. Under the second agreement, Jim Beam is required to make payments to the Company for the Company’s share of the brand contribution of the full bottled distilled spirits sold by Jim Beam. The Company and Jim Beam also reimburse each other for certain marketing costs as they are incurred. These marketing costs are recorded in advertising, promotional and selling expenses. The Company’s sales of Jim Beam branded flavored malt beverages to third parties and the brand contribution payments received or owed the Company by Jim Beam for the use of the Company’s brand names are recorded within net revenue. Total net revenue recognized under these agreements amounted to less than
Pepsi Licensing Agreement
On August 9, 2021, the Company signed a series of agreements with PepsiCo, Inc. (“Pepsi”) to develop, market and sell alcohol beverages. The term of this agreement is perpetual, with provisions to terminate within the initial
The Company began shipping flavored malt beverages to Pepsi during the first quarter of 2022. Pursuant to the terms of the agreements, the Company makes payments to Pepsi for proprietary ingredients, freight costs to ship the product to Pepsi, and certain marketing services. These costs of the proprietary ingredients above fair market value are recorded within net revenue at the time revenue is recognized for the flavored malt beverages sold to Pepsi. Freight costs and marketing costs are recorded in advertising, promotional and selling expenses. Proprietary ingredients on hand at the end of the period are classified within prepaid expenses and other current assets as of June 25, 2022. Total net revenue recognized under these agreements amounted to less than
17
O. Restricted Cash
During the year ended December 25, 2021, in accordance with state regulations the Company consolidated their distributor rights within a geographical region by terminating the distribution rights of certain existing distributors (the "terminating distributors") and granting these distribution rights to one existing distributor in the region (the "continuing distributor"). As part of this consolidation process, the Company also entered an indemnification agreement in March 2021 with the continuing distributor. As part of the agreement, the Company is indemnified by the continuing distributor for the fair market value of distribution rights paid to the terminating distributors and all related legal fees. In accordance with state regulations, the Company followed the notification process and the distribution rights transferred on December 22, 2021. The Company received the fair market value payments of $
P
In connection with the Dogfish Head Transaction, the Company entered into a lease with the Dogfish Head founders for buildings used in certain of the Company’s restaurant operations. The lease is for
Q. Subsequent Events
The Company evaluated subsequent events occurring after the balance sheet date and concluded that there were no events of which management was aware that occurred after the balance sheet date that would require any adjustment to or disclosure in the accompanying condensed consolidated financial statements.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the significant factors affecting the consolidated operating results, financial condition and liquidity and cash flows of the Company for the thirteen and twenty-six week period ended June 25, 2022, as compared to the thirteen and twenty-six week period ended June 26, 2021. This discussion should be read in conjunction with the Management’s Discussion and
18
Analysis of Financial Condition and Results of Operations, and the Consolidated Financial Statements of the Company and Notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 25, 2021.
RESULTS OF OPERATIONS
Thirteen Weeks Ended June 25, 2022 compared to Thirteen Weeks Ended June 26, 2021
|
|
Thirteen Weeks Ended |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
|
June 25, |
|
|
June 26, |
|
|
Amount |
|
|
% change |
|
|
Per barrel |
|
|||||||||||||||||||||
Barrels sold |
|
|
|
|
|
2,419 |
|
|
|
|
|
|
|
|
|
2,447 |
|
|
|
|
|
|
(28 |
) |
|
|
(1.1 |
)% |
|
|
|
|||||
|
|
|
|
|
Per barrel |
|
|
% of net |
|
|
|
|
|
Per barrel |
|
|
% of net |
|
|
|
|
|
|
|
|
|
|
|||||||||
Net revenue |
|
$ |
616,243 |
|
|
$ |
254.77 |
|
|
|
100.0 |
% |
|
$ |
602,805 |
|
|
$ |
246.35 |
|
|
|
100.0 |
% |
|
$ |
13,438 |
|
|
|
2.2 |
% |
|
$ |
8.42 |
|
Cost of goods |
|
|
350,468 |
|
|
|
144.89 |
|
|
|
56.9 |
% |
|
|
327,116 |
|
|
|
133.68 |
|
|
|
54.3 |
% |
|
|
23,352 |
|
|
|
7.1 |
% |
|
|
11.21 |
|
Gross profit |
|
|
265,775 |
|
|
|
109.88 |
|
|
|
43.1 |
% |
|
|
275,689 |
|
|
|
112.67 |
|
|
|
45.7 |
% |
|
|
(9,914 |
) |
|
|
(3.6 |
)% |
|
|
(2.79 |
) |
Advertising, promotional and |
|
|
154,883 |
|
|
|
64.03 |
|
|
|
25.1 |
% |
|
|
161,620 |
|
|
|
66.05 |
|
|
|
26.8 |
% |
|
|
(6,737 |
) |
|
|
(4.2 |
)% |
|
|
(2.02 |
) |
General and administrative |
|
|
38,849 |
|
|
|
16.06 |
|
|
|
6.3 |
% |
|
|
32,960 |
|
|
|
13.47 |
|
|
|
5.5 |
% |
|
|
5,889 |
|
|
|
17.9 |
% |
|
|
2.59 |
|
Contract termination costs and other |
|
|
578 |
|
|
|
0.24 |
|
|
|
0.1 |
% |
|
|
— |
|
|
|
— |
|
|
|
0.0 |
% |
|
|
578 |
|
|
|
100.0 |
% |
|
|
0.24 |
|
Impairment of assets |
|
|
80 |
|
|
|
0.03 |
|
|
|
0.0 |
% |
|
|
1,004 |
|
|
|
0.41 |
|
|
|
0.2 |
% |
|
|
(924 |
) |
|
|
(92.0 |
)% |
|
|
(0.38 |
) |
Total operating expenses |
|
|
194,390 |
|
|
|
80.36 |
|
|
|
31.5 |
% |
|
|
195,584 |
|
|
|
79.93 |
|
|
|
32.4 |
% |
|
|
(1,194 |
) |
|
|
(0.6 |
)% |
|
|
0.43 |
|
Operating income |
|
|
71,385 |
|
|
|
29.52 |
|
|
|
11.6 |
% |
|
|
80,105 |
|
|
|
32.74 |
|
|
|
13.3 |
% |
|
|
(8,720 |
) |
|
|
(10.9 |
)% |
|
|
(3.22 |
) |
Other expense, net |
|
|
(518 |
) |
|
|
(0.21 |
) |
|
|
(0.1 |
)% |
|
|
(21 |
) |
|
|
(0.01 |
) |
|
|
(0.0 |
)% |
|
|
(497 |
) |
|
|
2366.7 |
% |
|
|
(0.20 |
) |
Income before income tax |
|
|
70,867 |
|
|
|
29.31 |
|
|
|
11.5 |
% |
|
|
80,084 |
|
|
|
32.73 |
|
|
|
13.3 |
% |
|
|
(9,217 |
) |
|
|
(11.5 |
)% |
|
|
(3.42 |
) |
Income tax provision |
|
|
17,518 |
|
|
|
7.24 |
|
|
|
2.8 |
% |
|
|
20,889 |
|
|
|
8.54 |
|
|
|
3.5 |
% |
|
|
(3,371 |
) |
|
|
(16.1 |
)% |
|
|
(1.30 |
) |
Net income |
|
|
53,349 |
|
|
|
22.07 |
|
|
|
8.7 |
% |
|
|
59,195 |
|
|
|
24.19 |
|
|
|
9.8 |
% |
|
|
(5,846 |
) |
|
|
(9.9 |
)% |
|
|
(2.12 |
) |
Net revenue. Net revenue increased by $13.4 million, or 2.2%, to $616.2 million for the thirteen weeks ended June 25, 2022, as compared to $602.8 million for the thirteen weeks ended June 26, 2021, primarily as a result of price increases, partially offset by a decrease in shipments.
Volume. Total shipment volume decreased by 1.1% to 2,419,000 barrels for the thirteen weeks ended June 25, 2022, as compared to 2,447,000 barrels for the thirteen weeks ended June 26, 2021, , reflecting decreases in the Company’s Truly Hard Seltzer, Angry Orchard, Samuel Adams, and Dogfish Head brands, partially offset by increases in its Twisted Tea and Hard Mountain Dew brands.
Depletions, or sales by distributors to retailers, of the Company’s products for the thirteen weeks ended June 25, 2022 decreased by approximately 7% compared to the thirteen weeks ended June 26, 2021, reflecting decreases in the Company’s Truly Hard Seltzer, Angry Orchard, Samuel Adams, and Dogfish Head brands, partially offset by increases in its Twisted Tea and Hard Mountain Dew brands.
The Company believes distributor inventory as of June 25, 2022 averaged approximately four weeks on hand and was at an appropriate level for each of its brands except for low inventory levels for certain Truly brand packages. The Company expects distributors will keep inventory levels for the remainder of the year below 2021 levels in terms of weeks on hand.
Net revenue per barrel. Net revenue per barrel increased by 3.4% to $254.77 per barrel for the thirteen weeks ended June 25, 2022, as compared to $246.35 per barrel for the comparable period in 2021, primarily due to price increases.
19
Cost of goods sold. Cost of goods sold was $144.89 per barrel for the thirteen weeks ended June 25, 2022, as compared to $133.68 per barrel for the thirteen weeks ended June 26, 2021. The 2022 increase in cost of goods sold of $11.21 per barrel was primarily due to higher materials costs, higher returns, and inventory write-offs.
Gross profit. Gross profit was $109.88 per barrel for the thirteen weeks ended June 25, 2022, as compared to $112.67 per barrel for the thirteen weeks ended June 26, 2021.
The Company includes freight charges related to the movement of finished goods from its manufacturing locations to distributor locations in its advertising, promotional and selling expense line item. As such, the Company’s gross margins may not be comparable to those of other entities that classify costs related to distribution differently.
Advertising, promotional and selling. Advertising, promotional and selling expenses decreased by $6.7 million, or 4.2%, to $154.9 million for the thirteen weeks ended June 25, 2022, as compared to $161.6 million for the thirteen weeks ended June 26, 2021. The decrease was primarily due to a net decrease in brand investments of $11.3 million, mainly driven by lower media costs. The decrease in brand investments was partially offset by increased freight to distributors of $4.6 million, which was primarily due to higher freight rates.
Advertising, promotional and selling expenses were 25.1% of net revenue, or $64.03 per barrel, for the thirteen weeks ended June 25, 2022, as compared to 26.8% of net revenue, or $66.05 per barrel, for the thirteen weeks ended June 26, 2021. This decrease per barrel is primarily due to advertising, promotional and selling expenses decreasing at a higher rate than shipments. The Company invests in advertising and promotional campaigns that it believes will be effective, but there is no guarantee that such investments will generate sales growth.
The Company conducts certain advertising and promotional activities in its distributors’ markets, and the distributors make contributions to the Company for such efforts. These amounts are included in the Company’s condensed consolidated statements of comprehensive operations as reductions to advertising, promotional and selling expenses. Historically, contributions from distributors for advertising and promotional activities have amounted to between 1% and 3% of net sales. The Company may adjust its promotional efforts in the distributors’ markets, if changes occur in these promotional contribution arrangements, depending on industry and market conditions.
General and administrative. General and administrative expenses increased by $5.9 million, or 17.9%, to $38.8 million for the thirteen weeks ended June 25, 2022, as compared to $32.9 million for the thirteen weeks ended June 26, 2021. The increase was primarily due to increased salaries and benefits costs and increases in services provided by third parties.
Contract termination costs and other. During the second quarter of 2022 the Company recorded $0.6 million in contract termination costs for non-cancellable purchase orders on discontinued capital projects.
Impairment of assets. Impairment of long-lived assets decreased by $0.9 million from the comparable period of 2021, primarily due to lower write-downs of equipment at Company-owned breweries.
Income tax expense. During the thirteen weeks ended June 25, 2022, the Company’s effective tax rate, excluding the impact of ASU 2016-09, was 26.1% compared to 26.6% for the thirteen weeks ended June 26, 2021, primarily due to a decrease in non-deductible officer compensation.
20
Twenty-six Weeks Ended June 25, 2022 compared to Twenty-six Weeks Ended June 26, 2021
|
|
Twenty-Six Weeks Ended |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
|
June 25, |
|
|
June 26, |
|
|
Amount |
|
|
% change |
|
|
Per barrel |
|
|||||||||||||||||||||
Barrels sold |
|
|
|
|
|
4,127 |
|
|
|
|
|
|
|
|
|
4,725 |
|
|
|
|
|
|
(598 |
) |
|
|
(12.6 |
)% |
|
|
|
|||||
|
|
|
|
|
Per barrel |
|
|
% of net |
|
|
|
|
|
Per barrel |
|
|
% of net |
|
|
|
|
|
|
|
|
|
|
|||||||||
Net revenue |
|
$ |
1,046,356 |
|
|
$ |
253.54 |
|
|
|
100.0 |
% |
|
$ |
1,147,885 |
|
|
$ |
242.96 |
|
|
|
100.0 |
% |
|
$ |
(101,529 |
) |
|
|
(8.8 |
)% |
|
$ |
10.58 |
|
Cost of goods |
|
|
607,629 |
|
|
|
147.23 |
|
|
|
58.1 |
% |
|
|
622,566 |
|
|
|
131.77 |
|
|
|
54.2 |
% |
|
|
(14,937 |
) |
|
|
(2.4 |
)% |
|
|
15.46 |
|
Gross profit |
|
|
438,727 |
|
|
|
106.31 |
|
|
|
41.9 |
% |
|
|
525,319 |
|
|
|
111.19 |
|
|
|
45.8 |
% |
|
|
(86,592 |
) |
|
|
(16.5 |
)% |
|
|
(4.88 |
) |
Advertising, promotional and |
|
|
285,498 |
|
|
|
69.18 |
|
|
|
27.3 |
% |
|
|
302,479 |
|
|
|
64.02 |
|
|
|
26.4 |
% |
|
|
(16,981 |
) |
|
|
(5.6 |
)% |
|
|
5.16 |
|
General and administrative |
|
|
78,547 |
|
|
|
19.03 |
|
|
|
7.5 |
% |
|
|
64,906 |
|
|
|
13.74 |
|
|
|
5.7 |
% |
|
|
13,641 |
|
|
|
21.0 |
% |
|
|
5.29 |
|
Contract termination costs and other |
|
|
5,330 |
|
|
|
1.29 |
|
|
|
0.5 |
% |
|
|
— |
|
|
|
— |
|
|
|
0.0 |
% |
|
|
5,330 |
|
|
|
100.0 |
% |
|
|
1.29 |
|
Impairment of assets |
|
|
121 |
|
|
|
0.03 |
|
|
|
0.0 |
% |
|
|
1,231 |
|
|
|
0.26 |
|
|
|
0.1 |
% |
|
|
(1,110 |
) |
|
|
(90.2 |
)% |
|
|
(0.23 |
) |
Total operating expenses |
|
|
369,496 |
|
|
|
89.53 |
|
|
|
35.3 |
% |
|
|
368,616 |
|
|
|
78.02 |
|
|
|
32.1 |
% |
|
|
880 |
|
|
|
0.2 |
% |
|
|
11.51 |
|
Operating income |
|
|
69,231 |
|
|
|
16.78 |
|
|
|
6.6 |
% |
|
|
156,703 |
|
|
|
33.17 |
|
|
|
13.7 |
% |
|
|
(87,472 |
) |
|
|
(55.8 |
)% |
|
|
(16.39 |
) |
Other expense, net |
|
|
(651 |
) |
|
|
(0.16 |
) |
|
|
(0.1 |
)% |
|
|
(56 |
) |
|
|
(0.01 |
) |
|
|
(0.0 |
)% |
|
|
(595 |
) |
|
|
1062.5 |
% |
|
|
(0.15 |
) |
Income before income tax |
|
|
68,580 |
|
|
|
16.62 |
|
|
|
6.6 |
% |
|
|
156,647 |
|
|
|
33.16 |
|
|
|
13.6 |
% |
|
|
(88,067 |
) |
|
|
(56.2 |
)% |
|
|
(16.54 |
) |
Income tax provision |
|
|
17,186 |
|
|
|
4.16 |
|
|
|
1.6 |
% |
|
|
31,887 |
|
|
|
6.75 |
|
|
|
2.8 |
% |
|
|
(14,701 |
) |
|
|
(46.1 |
)% |
|
|
(2.59 |
) |
Net income |
|
|
51,394 |
|
|
|
12.46 |
|
|
|
4.9 |
% |
|
|
124,760 |
|
|
|
26.41 |
|
|
|
10.9 |
% |
|
|
(73,366 |
) |
|
|
(58.8 |
)% |
|
|
(13.95 |
) |
Net revenue. Net revenue decreased by $101.5 million, or 8.8%, to $1,046.4 million for the twenty-six weeks ended June 25, 2022, as compared to $1,147.9 million for the thirteen weeks ended June 26, 2021, primarily as a result of a decrease in shipments, partially offset by price increases.
Volume. Total shipment volume decreased by 12.6% to 4,127,000 barrels for the twenty-six weeks ended June 26, 2022, as compared to 4,725,000 barrels for the twenty-six weeks ended June 26, 2021, reflecting decreases in the Company’s Truly Hard Seltzer, Angry Orchard, Dogfish Head, and Samuel Adams brands, partially offset by increases in its Twisted Tea and Hard Mountain Dew brands.
Depletions, or sales by distributors to retailers, of the Company’s products for the twenty-six weeks ended June 25, 2022 decreased by approximately 7% compared to the twenty-six weeks ended June 26, 2021, reflecting decreases in the Company’s Truly Hard Seltzer, Angry Orchard, Dogfish Head, and Samuel Adams brands, partially offset by increases in its Twisted Tea and Hard Mountain Dew brands.
Net revenue per barrel. Net revenue per barrel increased by 4.4% to $253.54 per barrel for the twenty-six weeks ended June 26, 2022, as compared to $242.96 per barrel for the comparable period in 2021, primarily due to price increases.
Cost of goods sold. Cost of goods sold was $147.23 per barrel for the twenty-six weeks ended June 25, 2022, as compared to $131.77 per barrel for the twenty-six weeks ended June 26, 2021. The 2022 increase in cost of goods sold of $15.46 per barrel was primarily due to higher materials costs, higher returns and inventory write-offs and higher per barrel processing costs at Company-owned breweries due to lower volumes.
Gross profit. Gross profit was $106.31 per barrel for the twenty-six weeks ended June 25, 2022, as compared to $111.19 per barrel for the twenty-six weeks ended June 26, 2021.
Advertising, promotional and selling. Advertising, promotional and selling expenses decreased by $17.0 million, or 5.6%, to $285.5 million for the twenty-six weeks ended June 25, 2022, as compared to $302.5 million for the twenty-six weeks ended June 26, 2021. The decrease was primarily due to a net decrease in brand investments of $20.7 million, mainly driven by lower media costs. The decrease in brand investments was partially offset by higher investments in local marketing and increased freight to distributors of $3.8 million, which was primarily due to higher rates partially offset by lower volumes.
Advertising, promotional and selling expenses were 27.3% of net revenue, or $69.18 per barrel, for the twenty-six weeks ended June 25, 2022, as compared to 26.4% of net revenue, or $64.02 per barrel, for the twenty-six weeks ended June 26, 2021. This increase per barrel is primarily due to advertising, promotional and selling expenses decreasing at a lower rate than shipments.
21
General and administrative. General and administrative expenses increased by $13.6 million, or 21.0%, to $78.5 million for the twenty-six weeks ended June 25, 2022, as compared to $64.9 million for the twenty-six weeks ended June 26, 2021. The increase was primarily due to increased salaries and benefits costs and increases in services provided by third parties.
Contract termination costs and other. During the first half of 2022 the Company recorded $5.3 million in contract termination costs, primarily in connection with the termination of a third-party production contract. This contract termination eliminated future production shortfall fees that the Company estimated would have been incurred over the duration of the contract.
Impairment of assets. Impairment of long-lived assets decreased by $1.1 million from the comparable period of 2021, primarily due to lower write-downs of equipment at Company-owned breweries.
Income tax expense. During the twenty-six weeks ended June 25, 2022, the Company’s effective tax rate, excluding the impact of ASU 2016-09, was 26.0% compared to 26.1% for the twenty-six weeks ended June 26, 2021, primarily due to a decrease in non-deductible officer compensation.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s primary sources of liquidity are its existing cash balances, cash flows from operating activities and amounts available under its revolving credit facility. The Company’s material cash requirements include working capital needs, satisfaction of contractual commitments, and investment in the Company’s business through capital expenditures.
Cash increased to $137.8 million as of June 25, 2022 from $26.8 million as of December 25, 2021, reflecting cash provided by operating activities and proceeds from the exercise of stock options and sale of investment shares, partially offset by purchases of property, plant and equipment and payments of tax withholdings on stock-based payment awards and investment shares.
Cash provided by operating activities consists of net income, adjusted for certain non-cash items, such as depreciation and amortization, stock-based compensation expense, other non-cash items included in operating results, and changes in operating assets and liabilities, such as accounts receivable, inventory, accounts payable and accrued expenses. In the first half of 2022 compared to the first half of 2021, the Company’s average account receivable payment terms shifted slightly toward customers with longer payment terms. This impact for the remainder of the year ending December 31, 2022 is uncertain due to product and geographical mix but the Company does not expect this to significantly impact its liquidity.
Cash provided by operating activities for the twenty-six weeks ended June 25, 2022 was $121.5 million and primarily consisted of non-cash items of $54.3 million, net income of $51.4 million, and a net decrease in operating assets and liabilities of $15.8 million. Cash provided by operating activities for the twenty-six weeks ended June 26, 2021 was $34.0 million and primarily consisted of net income of $124.8 million and non-cash items of $49.4 million, partially offset by a net increase in operating assets and liabilities of $143.1 million. The increase in cash provided by operating activities for the twenty-six weeks ended June 25, 2022 compared to the prior period is primarily due to decreases in inventory and income tax refunds received.
The Company used $50.3 million in investing activities during the twenty-six weeks ended June 25, 2022, as compared to $83.0 million during the thirteen weeks ended June 26, 2021. Investing activities primarily consisted of capital investments made mostly in the Company’s breweries to drive efficiencies and cost reductions and support product innovation and future growth.
Cash provided by financing activities was $0.3 million during the twenty-six weeks ended June 25, 2022, as compared to $8.4 million used during the twenty-six weeks ended June 26, 2021. The $8.6 million increase in cash provided by financing activities in 2022 from 2021 is primarily due to lower tax withholdings on stock-based payment awards and investment shares, partially offset by lower proceeds from exercises of stock options and sales of investment shares.
During the twenty-six weeks ended June 25, 2022 and the period from June 26, 2022 through July 16, 2022, the Company did not repurchase any shares of its Class A Common Stock. As of July 16, 2022, the Company had repurchased a cumulative total of approximately 13.8 million shares of its Class A Common Stock for an aggregate purchase price of $840.7 million and had approximately $90.3 million remaining on the $931.0 million stock repurchase expenditure limit set by the Board of Directors.
The Company expects that its cash balance as of June 25, 2022 of $137.8 million, along with future operating cash flow and the unused balance of the Company’s line of credit of $150.0 million, will be sufficient to fund future cash requirements. The Company’s $150.0 million credit facility has a term not scheduled to expire until March 31, 2023. The Company is currently in negotiations on an extension of the term on the credit facility and expects an agreement to be reached during the second half of 2022. As of the date of this filing, the Company was not in violation of any of its covenants to the lender under the credit facility.
22
Critical Accounting Policies
There were no material changes to the Company’s critical accounting policies during the twenty-six ended June 25, 2022.
FORWARD-LOOKING STATEMENTS
In this Quarterly Report on Form 10-Q and in other documents incorporated herein, as well as in oral statements made by the Company, statements that are prefaced with the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “intend,” “designed” and similar expressions, are intended to identify forward-looking statements regarding events, conditions, and financial trends that may affect the Company’s future plans of operations, business strategy, results of operations and financial position. These statements are based on the Company’s current expectations and estimates as to prospective events and circumstances about which the Company can give no firm assurance. Further, any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement to reflect subsequent events or circumstances. Forward-looking statements should not be relied upon as a prediction of actual future financial condition or results. These forward-looking statements, like any forward-looking statements, involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. Such risks and uncertainties include the factors set forth below in addition to the other information set forth in this Quarterly Report on Form 10-Q and in the section titled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 25, 2021.
23
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Since December 25, 2021, there have been no significant changes in the Company’s exposures to interest rate or foreign currency rate fluctuations. The Company currently does not enter into derivatives or other market risk sensitive instruments for the purpose of hedging or for trading purposes.
Item 4. CONTROLS AND PROCEDURES
As of June 25, 2022, the Company conducted an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer (its principal executive officer and principal financial officer, respectively) regarding the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods and that such disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to its management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in the Company’s internal control over financial reporting that occurred during the twenty-six weeks ended June 25, 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
24
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
For information regarding the Company's legal proceedings, refer to Note I of the Condensed Consolidated Financial Statements.
Item 1A. RISK FACTORS
In addition to the other information set forth in this report, careful consideration should be given to the factors discussed in Part I, "Item 1A. Risk Factors" in the Company’s Annual Report on Form 10-K for the year ended December 25, 2021, which could materially affect the Company’s business, financial condition or future results. The risks described in the Company’s Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that it currently deems to be immaterial also may materially adversely affect its business, financial condition and/or operating results.
25
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
As of July 16, 2022, the Company had repurchased a cumulative total of approximately 13.8 million shares of its Class A Common Stock for an aggregate purchase price of $840.7 million and had $90.3 million remaining on the $931.0 million share buyback expenditure limit set by the Board of Directors. During the twenty-six ended June 25, 2022, the Company did not repurchase any shares of its Class A Common Stock under the previously announced repurchase program.
During the twenty-six weeks ended June 25, 2022, the Company repurchased 1,052 shares of its Class A Common Stock, of which all represent repurchases of unvested investment shares issued under the Investment Share Program of the Company’s Employee Equity Incentive Plan, as illustrated in the table below:
Period |
|
Total Number of Shares |
|
|
Average Price Paid |
|
|
Total Number of Shares |
|
|
Approximate Dollar |
|
||||
December 26, 2021 - January 29, 2022 |
|
|
26 |
|
|
$ |
248.61 |
|
|
|
— |
|
|
$ |
90,335 |
|
January 30, 2022 - February 26, 2022 |
|
|
153 |
|
|
|
260.46 |
|
|
|
— |
|
|
|
90,335 |
|
February 27, 2022 - March 26, 2022 |
|
|
131 |
|
|
|
289.29 |
|
|
|
— |
|
|
|
90,335 |
|
March 27, 2022 - April 30, 2022 |
|
|
263 |
|
|
|
175.43 |
|
|
|
— |
|
|
$ |
90,335 |
|
May 1, 2022 - May 28, 2022 |
|
|
372 |
|
|
|
134.05 |
|
|
|
— |
|
|
|
90,335 |
|
May 29, 2022 - June 25, 2022 |
|
|
107 |
|
|
|
211.52 |
|
|
|
— |
|
|
|
90,335 |
|
Total |
|
|
1,052 |
|
|
$ |
192.82 |
|
|
|
- |
|
|
$ |
90,335 |
|
As of July 16, 2022, the Company had 10.2 million shares of Class A Common Stock outstanding and 2.1 million shares of Class B Common Stock outstanding.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4. MINE SAFETY DISCLOSURES
Not Applicable
Item 5. OTHER INFORMATION
Not Applicable
26
Item 6. EXHIBITS
Exhibit No. |
|
Title |
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
*31.1 |
|
|
|
|
|
*31.2 |
|
|
|
|
|
*32.1 |
|
|
|
|
|
*32.2 |
|
|
|
|
|
*101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
|
*101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document
|
*101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document
|
*101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document
|
*101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document
|
*101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document
|
*104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document)
|
* Filed with this report
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
THE BOSTON BEER COMPANY, INC |
(Registrant) |
Date: July 21, 2022 |
/s/ David A. Burwick |
|
David A. Burwick |
|
President and Chief Executive Officer |
|
(Principal Executive Officer) |
Date: July 21, 2022 |
/s/ Frank H. Smalla |
|
Frank H. Smalla |
|
Chief Financial Officer |
|
(Principal Financial Officer) |
28