BOSTON BEER CO INC

A. Organization and Basis of Presentation

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

The accompanying unaudited condensed consolidated balance sheet as of September 28, 2024, and the unaudited condensed consolidated statements of comprehensive operations, stockholders’ equity, and cash flows for the interim periods ended September 28, 2024 and September 30, 2023, respectively, have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnotes normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. All intercompany accounts and transactions have been eliminated. These condensed consolidated financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 30, 2023.

In the opinion of the Company’s management, the Company’s unaudited condensed consolidated balance sheet as of September 28, 2024 and the results of its condensed consolidated comprehensive operations, stockholders’ equity, and cash flows for the interim periods ended September 28, 2024 and September 30, 2023, reflect all adjustments (consisting only of normal and recurring adjustments) necessary to present fairly the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year.

B. Recent Accounting Pronouncements

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

In November 2023, the FASB issued ASU 2023-07—Segment Reporting(Topic 280): Improvements to Reportable Segment Disclosures. This ASU was issued to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This ASU applies to all public entities that are required to report segment information in accordance with Topic 280, Segment Reporting. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted and the standard should be applied retrospectively. ASU 2023-07 will be effective for the Company's fiscal year ending December 28, 2024. The Company will adopt this ASU disclosure in the fourth quarter of 2024 and does not believe the adoption will have a material impact on its consolidated financial statements and disclosures

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

C. Revenue Recognition

During the thirty-nine weeks ended September 28, 2024 and September 30, 2023, approximately 94% of the Company’s revenue was from shipments of its products to domestic distributors. Shipments to international distributors, primarily located in Canada, made up approximately 5% and 4%of the Company's revenue for the thirty-nine weeks ended September 28, 2024 and September, 2023, respectively. Approximately 1% and 2% of the Company's revenue was from beer, cider, and merchandise sales at the Company’s retail locations during the thirty-nine weeks ended September 28, 2024 and September 30, 2023, respectively.

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 September 28, 2024 and December 30, 2023, the Company has deferred$17.3 million and $8.9 million, respectively, in revenue related to product shipped prior to these dates. These amounts are included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets.

Customer promotional discount programs are entered into by the Company with distributors for certain periods of time. The reimbursements for discounts to distributors are recorded as reductions to net revenue and were$20.1 million and$50.4 million for the thirteen and thirty-nine weeks ended September 28, 2024, respectively, and $18.6 million and $52.8 million for the thirteen and thirty-nine weeks ended September 30, 2023, respectively. The agreed-upon discount rates are applied to certain distributors' sales to retailers, based on volume metrics, in order to determine the total discounted amount. The computation of the discount allowance requires that management make certain estimates and assumptions that affect the timing and amounts of revenue and liabilities recorded. Actual promotional discounts owed and paid have historically been in line with allowances recorded by the Company; however, the amounts could differ from the estimated allowance.

Customer programs and incentives are a common practice in the alcohol beverage industry. Amounts paid in connection with customer programs and incentives are recorded as reductions to net revenue or as advertising, promotional and selling expenses, based on the nature of the expenditure. Customer incentives and other payments made to distributors are primarily based upon performance of certain marketing and advertising activities. Depending on applicable state laws and regulations, these activities promoting the Company's products may include, but are not limited to point-of-sale and merchandise placement, samples, product displays, promotional programs at retail locations and meals, travel and entertainment. Amounts paid to customers in connection with these programs that were recorded as reductions to net revenue or as advertising, promotional and selling expenses for the thirteen andthirty-nine weeks ended September 28, 2024 were $14.4 million and $37.4 million, respectively. For the thirteen and thirty-nine weeks ended September 28, 2024, the Company recorded$9.1 million and $22.8 million, respectively, of these costs as reductions to net revenue. Amounts paid to customers in connection with these programs for the thirteen and thirty-nine weeks ended September 30, 2023 were $11.0 million and $32.0 million, respectively. For the thirteen and thirty-nine weeks ended September 30, 2023, the Company recorded $8.3 million and $23.1 million, respectively, of these costs as reductions to net revenue. Costs recognized in net revenues include, but are not limited to, promotional discounts, sales incentives and certain other promotional activities. Costs recognized in advertising, promotional and selling expenses include point of sale materials, samples and advertising expenditures in local markets. These costs are recorded as incurred, generally when invoices are received; however certain estimates are required at the period end. Estimates are based on historical and projected experience for each type of program or customer and have historically been in line with actual costs incurred.

D. Inventories

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

As of September 28, 2024 and December 30, 2023, the Company has recorded inventory obsolescence reserves of$13.6 million and $7.6 million, respectively.

E. Goodwill and Intangible Assets

The Company has recorded intangible assets with indefinite lives and goodwill for which impairment testing is required at least annually or more frequently if events or circumstances indicate that these assets might be impaired. The Company performs its annual impairment tests and re-evaluates the useful lives of other intangible assets with indefinite lives at the annual impairment test measurement date in the third quarter of each fiscal year or when circumstances arise that indicate a possible impairment or change in useful life might exist.

Goodwill. The guidance for goodwill impairment testing allows an entity to assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of a reporting unit, of which the Company has one, is less than its carrying amount or to proceed directly to performing a quantitative impairment test. Under the quantitative assessment, the estimated fair value of the Company’s reporting unit is compared to its carrying value, including goodwill. The estimate of fair value of the Company’s reporting unit is generally calculated based on an income approach using the discounted cash flow method supplemented by the market approach which considers the Company’s market capitalization and enterprise value. If the estimated fair value of the Company’s reporting unit is less than the carrying value of its reporting unit, a goodwill impairment will be recognized. In estimating the fair value of the Company’s reporting unit, management must make assumptions and projections regarding such items as future cash flows, future revenues, future earnings, cost of capital, and other factors. The assumptions used in the estimate of fair value are based on historical trends and the projections and assumptions that are used in the latest operating plans. These assumptions reflect management’s estimates of future economic and competitive conditions and are, therefore, subject to change as a result of changing market conditions. If these estimates or their related assumptions change in the future, the Company may be required to recognize an impairment loss for the Company’s goodwill which could have a material adverse impact on the Company’s financial statements.

No impairment of goodwill was recorded in any period.

Intangible assets. The Company’s intangible assets consist primarily of a trademark and customer relationships obtained through the Company’s Dogfish Head acquisition. Customer relationships are amortized over their estimated useful lives. As of the September 28, 2024, the Dogfish Head trademark which was determined to have an indefinite useful life was not amortized. The guidance for indefinite lived intangible asset impairment testing allows an entity to assess qualitative factors to determine whether the existence of events or circumstances indicates that it is more likely than not that the indefinite lived intangible asset is impaired or to proceed directly to performing the quantitative impairment test. Under the quantitative assessment, the trademark is evaluated for impairment by comparing the carrying value of the trademark to its estimated fair value. The estimated fair value of the trademark is calculated based on an income approach using the relief from royalty method. If the estimated fair value is less than the carrying value of the trademark, then an impairment charge is recognized to reduce the carrying value of the trademark to its estimated fair value.

The Company's annual impairment testing date is September 1st of each fiscal year. In 2024, this testing resulted in an impairment of the Company's Dogfish Head, Coney Island, and Angel City trademark assets of $41.2 million, $1.0 million, and $0.4 million respectively. In 2023, this testing resulted in an impairment of the Company's Dogfish Head and Coney Island trademark assets of $15.8 million and $0.6 million, respectively.

The Company evaluated the negative trends of the Dogfish Head brand including the brands off-plan performance through the thirty-nine weeks ended September 28, 2024, which was attributable to continued sales declines in the brand's beer products, the overall declines in the craft beer industry sector, and lower than forecasted sales in its canned cocktails products due to increased competition. The Company updated its projections for the Dogfish Head brand including the forecasted revenue and royalty rate assumptions utilized in the determination of the fair value of the Dogfish Head trademark which included further reductions in revenues stemming from the foregoing factors as well as a reduction in the royalty rate assumption due to decreased profitability expected to be generated from the trademark. As a result of performing this assessment, the Dogfish Head trademark asset with a carrying value of $55.6 million was written down to its estimated fair value of $14.4 million. The negative craft beer trends impacting the Company’s Dogfish Head brand have also had a negative impact on the Company’s Coney Island and Angel City trademark assets. The Coney Island trademark asset with a carrying value of $1.0 million was written down tozero and the Angel City trademark asset with a carrying value of $0.4 million was written down tozero, resulting in a total impairment of $42.6 million which was recorded during the thirteen weeks and thirty-nine weeks ended September 28, 2024.

The Company’s intangible assets as of September 28, 2024 and December 30, 2023 were as follows:

Beginning in the fourth quarter of 2024, the Company will change the indefinite useful life Dogfish Head trademark asset and begin amortizing the remaining $14.4 million balance over an estimated useful life of 10 years.

Amortization expense in the thirteen and thirty-nine weeks ended September 28, 2024 was approximately $63,000 and $189,000, respectively. The Company expects to record future amortization expense, including the amortization of the remaining Dogfish Head trademark asset, as follows:

F. Third-Party Production Prepayments

During the thirty-nine weeks ended September 28, 2024 and September 30, 2023, the Company brewed and packaged approximately 68% and 69%, respectively, of its volume at Company-owned breweries. In the normal course of its business, the Company has historically entered into various production arrangements with other brewing companies. Pursuant to these arrangements, the Company generally supplies raw materials and packaging to those brewing companies and incurs conversion fees for labor at the time the liquid is produced and packaged. The Company has made up-front payments that were used for capital improvements at these third-party production facilities that it expenses over the period of the contracts. Under these production arrangements, there are minimum production quantities and the Company is obligated to pay shortfall fees for production quantity below those thresholds.

Total third-party production prepayments were$18.0 million and $33.6 million as of September 28, 2024 and December 30, 2023, respectively, all of which for both periods relate to its master transaction agreement with City Brewing Company, LLC ("City Brewing"). The Company will expense the total prepaid amount of$18.0 million as of September 28, 2024 as a component of cost of goods sold over the contractual period ending December 31, 2025.

At current production volume projections, the Company believes that it will fall short of its future annual volume commitments at certain third-party production facilities and will incur shortfall fees. The Company expenses the shortfall fees during the contractual period when such fees are incurred as a component of cost of goods sold. During the thirteen weeks and thirty-nine weeks ended September 28, 2024, the Company incurred$0.6 million and$4.7 million, respectively, in shortfall fees. During the thirteen weeks and thirty-nine weeks ended September 30, 2023, the Company incurred $0.5 million and $4.6 million, respectively, in shortfall fees. As of September 28, 2024, if volume for the remaining term of the production arrangements was zero, the contractual shortfall fees, with advance notice as specified in the related contractual agreements, would total approximately$101 million over the duration of the contracts which have expiration dates through December 31, 2031. The Company has regular discussions with its third-party production suppliers related to its future capacity needs and the terms of its contracts. Changes to volume estimates, future amendments or cancellations of existing contracts could accelerate or change total shortfall fees expected to be incurred. At current volume projections and based on understandings reached with these third-party production facilities, the Company anticipates that it will recognize approximately $41 million of shortfall fees and expects to record those expenses as follows:

G. Note Receivable

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

The Company determined the fair value of the note receivable on the issuance date to be $18.6 million. The $1.4 million difference between the cash paid to City Brewing of $20.0 million and the fair value of the note of $18.6 million on issuance date has been recorded as a third-party production prepayment asset and will be recognized as a component of cost of goods sold over the term of the third-party production arrangement. The unamortized balance was$1.0 million as of September 28, 2024. Interest income on the note receivable is being recognized over the term of the loan, which is to be repaid in full no later than December 31, 2028.

The Company received $3.0 million repayment during the thirteen weeks ended September 28, 2024, of which $2.4 million was applied to principal and the remaining $0.6 million applied to interest. As of September 28, 2024 the Company had $16.6 million fair value remaining on the note receivable.

H. Net Income per Share

The Company calculates net income per share using the two-class method, which requires the Company to allocate net income to its Class A Common Shares, Class B Common Shares and unvested share-based payment awards that participate in dividends with common stock, in the calculation of net income per share.

The Class A Common Stock has no voting rights, except (1) as required by law, (2) for the election of Class A Directors, and (3) that the approval of the holders of the Class A Common Stock is required for (a) certain future authorizations or issuances of additional securities which have rights senior to Class A Common Stock, (b) certain alterations of rights or terms of the Class A or Class B Common Stock as set forth in the Articles of Organization of the Company, (c) other amendments of the Articles of Organization of the Company, (d) certain mergers or consolidations with, or acquisitions of, other entities, and (e) sales or dispositions of any significant portion of the Company’s assets.

The Class B Common Stock has full voting rights, including the right to (1) elect a majority of the members of the Company’s Board of Directors and (2) approve all (a) amendments to the Company’s Articles of Organization, (b) mergers or consolidations with, or acquisitions of, other entities, (c) sales or dispositions of any significant portion of the Company’s assets, and (d) equity-based and other executive compensation and other significant corporate matters. The Company’s Class B Common Stock is not listed for trading. Each share of the Class B Common Stock is freely convertible into one share of Class A Common Stock, upon request of the respective Class B holder, and participates equally in dividends.

The Company’s unvested share-based payment awards include unvested shares (1) issued under the Company’s investment share program, which permits employees who have been with the Company for at leastone 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 aftertwo years of employment, and (2) awarded as restricted stock units at the discretion of the Company’s Board of Directors. The investment shares vest over five years in equal number of shares and the restricted stock units generally vest over four years in equal number of shares. If a dividend is declared, the unvested shares would participate equally. See Note M for a discussion of the current year unvested stock awards and issuances.

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

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 computations of diluted net income per share, assuming the conversion of all Class B Common Stock into Class A Common Stock for the thirteen weeks and thirty-nine weeks ended September 28, 2024 and for the thirteen weeks and thirty-nine ended September 30, 2023:

For the thirteen weeks ended September 28, 2024, in accordance with the two-class method, weighted-average stock options to purchase 135,343 shares and 20,395 unvested share-based payments were outstanding but not included in computing dilutive income per common share because their effects were anti-dilutive. For the thirty-nine weeks ended September 28, 2024, in accordance with the two-class method, weighted-average stock options to purchase approximately 129,101 shares of Class A Common Stock and approximately 17,699 unvested share-based payments were outstanding but not included in computing dilutive income per common share because their effects were anti-dilutive. Additionally, performance-based stock options to purchase 10,843 shares of Class A Common Stock and 36,302 performance-based stock awards were outstanding as of September 28, 2024 but not included in computing diluted income per common share because the performance criteria were not met as of the end of the reporting period.

For the thirteen weeks ended September 30, 2023, in accordance with the two-class method, weighted-average stock options to purchase approximately 83,797 shares and approximately 31,962 unvested share-based payments were outstanding but not included in computing dilutive income per common share because their effects were anti-dilutive. For the thirty-nine weeks ended September 30, 2023, in accordance with the two-class method, weighted-average stock options to purchase approximately 76,548 shares of Class A Common Stock and approximately 32,962 unvested share-based payments were outstanding but not included in computing dilutive income per common share because their effects were anti-dilutive. Additionally, performance-based stock options to purchase 21,835 shares of Class A Common Stock and 10,421 performance-based stock awards were outstanding as of September 30, 2023 but not included in computing diluted income per common share because the performance criteria were not met as of the end of the reporting period.

I. Commitments and Contingencies

Contractual Obligations

As of September 28, 2024, projected cash outflows under non-cancelable contractual obligations are as follows:

The Company expects to pay $103.8 million of these obligations in the remainder of fiscal 2024, $56.6 million in fiscal 2025, $13.3 million in fiscal 2026, and $5.7 million in fiscal 2027 and thereafter.

Litigation

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

On December 31, 2022, Ardagh Metal Packaging USA Corp. (“Ardagh”) filed an action against the Company alleging, among other things, that the Company had failed to purchase contractual minimum volumes of certain aluminum beverage can containers in 2021 and 2022. The Company denies that it breached the terms of the parties’ contract and intends to defend against the Ardagh claims vigorously. On February 23, 2023 and April 4, 2023, Ardagh and the Company engaged in mediation sessions with a neutral, third-party mediator, but were not able to resolve the matter and the litigation will proceed. On May 5, 2023, the Company filed an Answer in response to the Complaint, and Counterclaims against Ardagh. On June 26, 2023, Ardagh filed a Motion to Dismiss Certain Counterclaims and a Motion to Strike Certain Affirmative Defenses, to which the Company filed Oppositions on July 24, 2023. The Company filed an Amended Answer, Amended Affirmative Defenses and Amended Counterclaims on March 25, 2024. On November 9, 2023, Ardagh filed a Notice of Plaintiff’s Motion for Judgment on the Pleadings on Count II of the Complaint, to which the Company filed an Opposition on November 22, 2023. On February 26, 2024, the Court granted the Motion. On March 27, 2024, the Company filed a Motion to Clarify and to Reconsider the Court’s decision. Following briefing by the parties, on June 17, 2024, the Court granted the Company's Motion to Reconsider, denied Ardagh's Motion for Judgment on the Pleadings, and vacated its February 26, 2024 Order. Although the Court has not yet set a final date, the Company anticipates that fact discovery will be closed in 2024. The Court has also not yet set a date for the close of expert discovery, summary judgment filings, or trial.

J. Income Taxes

The following table provides a summary of the income tax provision for the thirteen weeks and thirty-nine weeks ended September 28, 2024 and September 30, 2023:

The increase in the tax rate for the thirteen and thirty-nine weeks ended September 28, 2024 as compared to the thirteen and thirty-nine weeks ended September 30, 2023 is primarily due to an increase in non-deductible compensation.

As of both September 28, 2024 and December 30, 2023, the Company had approximately $0.3 million of unrecognized income tax benefits.

The Company’s practice is to classify interest and penalties related to income tax matters in income tax expense. As of September 28, 2024 and December 30, 2023, the Company had approximately $0.2 million accrued for interest and penalties recorded in other liabilities.

The Internal Revenue Service completed an examination of the 2015 consolidated corporate income tax return and issued a no change report in 2018. The Company’s state income tax returns remain subject to examination forthree orfour years depending on the state’s statute of limitations. The Company is not currently under any income tax audits as of September 28, 2024.

K. Line of Credit

In December 2022, the Company amended its credit facility in place that provides for a $150.0 million revolving line of credit to extend the maturity date to December 16, 2027. Under the terms of the amended agreement, the Company may elect an interest rate for borrowings under the credit facility based on the applicable secured overnight financing rate ("SOFR") plus 1.1%. As of September 28, 2024, no borrowings were outstanding. As of September 28, 2024 and December 30, 2023, the Company was not in violation of any of its financial covenants to the lender under the credit facility and the unused balance of $150.0 million on the line of credit was available to the Company for future borrowings.

L. Fair Value Measures

The Company defines fair value as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

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Level 1 — Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

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Level 2 — Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability.

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Level 3 — Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.

The Company’s cash and cash equivalents are held in money market funds. These money market funds are measured at fair value on a recurring basis (at least annually) and are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The money market funds are invested substantially in United States Treasury and government securities. The Company does not adjust the quoted market price for such financial instruments. Cash, accounts receivable, and accounts payable are carried at their cost, which approximates fair value, because of their short-term nature.

At September 28, 2024 and December 30, 2023, the Company had money market funds with a “Triple A” rated money market fund. The Company considers the “Triple A” rated money market fund to be a large, highly-rated investment-grade institution. As of September 28, 2024 and December 30, 2023, the Company’s cash and cash equivalents balance was$255.6 million and $298.5 million, respectively, including money market funds amounting to$246.0 million and $291.5 million, respectively.

Non-Recurring Fair Value Measurement

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

The fair value of the Company's Dogfish Head trademark intangible assets is classified within Level 3 of the fair value hierarchy because there are no observable inputs of market activity. When performing a quantitative assessment for impairment of the trademark asset, the Company measures the amount of impairment by calculating the amount by which the carrying value of the trademark asset exceeds its estimated fair value. The estimated fair value is determined based on an income approach using the relief from royalty method, which assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to exploit the related benefits of the trademark asset. The cash flow projections the Company uses to estimate the fair value of its Dogfish Head trademark intangible asset involves several assumptions, including (i) projected revenue growth, (ii) an estimated royalty rate, (iii) after-tax royalty savings expected from ownership of the trademark and (iv) a discount rate used to derive the estimated fair value of the trademark asset.

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 and upper management is summarized as follows:

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

On April 1, 2024, the Company granted options to purchase an aggregate of 21,205 shares of the Company’s Class A Common Stock to the Company’s Chief Executive Officer. These options have a fair value and exercise price per share of $141.48 and $304.42, respectively.

On May 7, 2024, the Company granted options to purchase an aggregate of 2,840 shares of the Company’s Class A Common Stock to the Company’s non-employee Directors. All of the options vested immediately on the date of the grant. These options have a fair value and exercise price per share of $114.47 and $268.20, respectively.

On July 29, 2024, the Company granted options to purchase an aggregate of 1,590 shares of the Company’s Class A Common Stock to the Company’s two new non-employee Directors. All of the options vested immediately on the date of the grant. These options have a fair value and exercise price per share of $143.23 and $290.91, respectively.

Weighted average assumptions used to estimate fair values of stock options on the date of grants are as follows:

Non-Vested Shares Activity

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

Of the total non-vested shares at September 28, 2024,45,375 shares were performance-based shares for which the performance criteria had yet to be achieved.

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

On April 1, 2024, the Company granted a combined 6,570 shares of restricted stock units to the Chief Executive Officer, of which all shares vest in 3 years dependent on meeting performance criteria as well as continued employment with the company. The fair value of the restricted stock units was $304.42 per share, of which all shares were performance-based shares.

On April 1, 2024, the Company granted a combined 1,069 shares of restricted stock units to a member of senior management, of which all shares vest ratably over service periods of up tofour years. The fair value of the restricted stock units was $304.42 per share.

On May 7, 2024, the Company granted a combined 1,215 shares of restricted stock units to the Company’s non-employee Directors, of which all shares vestone year from the grant date. The fair value of the restricted stock units was $268.20 per share.

On July 29, 2024, the Company granted a combined 782 shares of restricted stock units to the Company’s two new non-employee Directors, of which all shares vestone year from the grant date. The fair value of the restricted stock units was $290.91 per share.

On August 1, 2024, the Company granted a combined 250 shares of restricted stock units to a member of management, of which all shares vest ratably over service periods of up tofour years. The fair value of the restricted stock units was $280.21 per share.

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:

Stock Repurchases

In 1998, the Company began a share repurchase program. Under this program, the Company's Board of Directors has authorized the repurchase of the Company's Class A Stock. On October 2, 2024, the Board of Directors authorized an increase in the aggregate expenditure limit for the Company’s stock repurchase program by $400.0 million, increasing the limit from $1.2 billion to $1.6 billion. The Board of Directors did not specify a date upon which the total authorization would expire and, in the future, can further increase the authorized amount. Share repurchases under this program for the periods included herein were effected through open market transactions.

During the thirteen and thirty-nine weeks ended September 28, 2024, the Company repurchased and subsequently retired 226,197 and 595,732 shares of its Class A Common Stock, respectively, for an aggregate purchase price of$63 million and$176 million, respectively. As of September 28, 2024, the Company had repurchased a cumulative total of approximately 14.7 million shares of its Class A Common Stock for an aggregate purchase price of approximately$1.1 billion and had approximately$90.5 million remaining on the $1.2 billion stock repurchase expenditure limit set by the Board of Directors.

N. Licensing Agreements

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. Under the agreements, the Company is responsible for developing, manufacturing, and marketing a flavored malt beverage product under the HARD MTN DEW® brand. As part of the agreements, Pepsi provides certain proprietary ingredients and also licenses the Company the use of its HARD MTN DEW® trademark in connection with manufacturing, promoting, marketing, and distributing the developed product, primarily through the Pepsi distribution network.

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. The cost 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 and were $0.0 million and $0.3 million during the thirteen weeks and thirty-nine weeks ended September 28, 2024, respectively, and were $0.4 million and $1.7 million during the thirteen weeks and thirty-nine weeks ended September 30, 2023, respectively. Freight costs and marketing costs are recorded in advertising, promotional and selling expenses. The excess cost over fair market value of proprietary ingredients on hand at the end of the period are classified within prepaid expenses and other current assets. The excess over fair market value for inventory on hand waszero and $0.1 million asof September 28, 2024 and December 30, 2023, respectively. During the thirteen weeks ended September 28, 2024, total net revenue recognized under these agreements amounted to less than 1% of the Company's total net revenues. During the thirteen and thirty-nine weeks ended September 30, 2023, total net revenue recognized under these agreements amounted to approximately 1% and 3%, respectively, of the Company's total net revenues.

On February 24, 2024, the Company and Pepsi amended the terms of these agreements, most notably to change distribution from the Pepsi Distribution network to the Company’s distribution network. The transition of distributor networks began in May of 2024 and is expected to extend into 2025. Under the agreements, the Company is responsible for developing, manufacturing, and marketing a flavored malt beverage product under Pepsi’s MTN DEW® brand. Pepsi provides certain proprietary ingredients and also licenses the Company the use of its HARD MTN DEW® trademark in connection with manufacturing, promoting, marketing, and distributing the developed product.

O. Related Party Transactions

In connection with the Dogfish Head Transaction, the Company entered into a lease with the Dogfish Head founders and other owners of buildings used in certain of the Company’s restaurant operations. The lease is forten years with renewal options. The total payments due under the initial ten-year term is $3.6 million. Total related parties expense recognized related to the lease was $91,000 for the thirteen weeks ended September 28, 2024 and September 30, 2023. Additionally, the Company incurred expenses of less than $25,000 to various other suppliers affiliated with the Dogfish Head founders during the thirteen weeks ended September 28, 2024 and September 30, 2023. Total related parties expense recognized related to the lease was $274,000 for the thirty-nine weeks ended September 28, 2024 and September 30, 2023. Additionally, the Company incurred expenses of less than $50,000 to various other suppliers affiliated with the Dogfish Head founders during the thirty-nine weeks ended September 28, 2024 and September 30, 2023.