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Dogfish Head Brewery Transaction | 6 Months Ended
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Jun. 27, 2020
Business Combinations [Abstract] |
Dogfish Head Brewery Transaction |
C. | Dogfish Head Brewery Transaction
On May 8, 2019, the Company entered into definitive agreements to acquire Dogfish Head Brewery (“Dogfish Head”) and various related operations (the “Transaction”) through the acquisition of all of the equity interests held by certain private entities in Off-Centered Way LLC, the parent holding company of the Dogfish Head operations. In accordance with these agreements, the Company made a payment of $158.4 million, which was placed in escrow pending the satisfaction of certain closing conditions. The Transaction closed on July 3, 2019, for total consideration of $336.0 million consisting of $173.0 million in cash and 429,291 shares of restricted Class A Common Stock that had an aggregate market value as of July 3, 2019 of $163.0 million, after taking into account a post-closing cash related adjustment. As required under the definitive agreements, 127,146 of the 429,291 shares of restricted Class A Stock have been placed in escrow and will be released no later than July 3, 2029. These shares had a market value on July 3, 2019 of $48.3 million. The timing of the release of these escrowed shares is primarily related to the continued employment with the Company of Samuel A. Calagione III, one of the two Dogfish Head founders. The fair value of the Transaction is estimated to be $317.7 million. The following table summarizes the acquisition date fair value of the tangible assets, intangible assets, liabilities assumed, and related goodwill acquired from Dogfish Head, as well as the allocation of purchase price paid:
|  | Total (In Thousands) |
Cash and cash equivalents |  | $ | 7,476 |
Accounts receivable |  |  | 8,081 |
Inventories |  |  | 9,286 |
Prepaid expenses and other current assets |  |  | 847 |
Property, plant and equipment |  |  | 106,964 |
Goodwill |  |  | 108,846 |
Brand |  |  | 98,500 |
Other intangible assets |  |  | 3,800 |
Other assets |  |  | 378 |
Total assets acquired |  |  | 344,178 |
Accounts payable |  |  | 3,861 |
Accrued expenses and other current liabilities |  |  | 4,085 |
Deferred income taxes |  |  | 18,437 |
Other liabilities |  |  | 59 |
Total liabilities assumed |  |  | 26,442 |
Net assets acquired |  | $ | 317,736 |
Cash consideration |  | $ | 172,993 |
Nominal value of equity issued |  |  | 162,999 |
Fair Value reduction due to liquidity |  |  | (18,256 | )
Estimated total purchase price |  | $ | 317,736 |
The Company accounted for the acquisition in accordance with the accounting standards codification guidance for business combinations, whereby the total purchase price was allocated to the acquired net tangible and intangible assets of Dogfish Head based on their fair values as of the Transaction closing date. The fair value of the Dogfish Head brand trade name is estimated at approximately $98.5 million and the fair value of customer relationships is estimated at $3.8 million. The Company estimated the Dogfish Head brand trade name will have an indefinite life and customer relationships will have an estimated useful life of 15 years. The customer relationship intangible asset will be amortized on a straight-line basis over the 15 year estimated useful life. The fair value of the deferred income tax liability assumed is $18.4 million, representing the expected future tax consequences of temporary differences between the fair values of the assets acquired and liabilities assumed and their tax basis. The excess of the purchase price paid over the estimated fair values of the assets and liabilities assumed has been recorded as goodwill in the amount of $108.8 million. Goodwill associated with the acquisition is primarily attributable to the future growth opportunities associated with the Transaction, expected synergies and value of the workforce. The Company believes the majority of the goodwill is deductible for tax purposes. The fair value of the brand trade name was determined utilizing the relief from royalty method which is a form of the income approach. Under this method, a royalty rate based on observed market royalties is applied to projected revenue supporting the trade name and discounted to present value using an appropriate discount rate. The fair value of the property, plant and equipment was determined utilizing the cost and market valuation approaches. The results of operations from Dogfish Head have been included in the Company’s consolidated statements of comprehensive income since the July 3, 2019 Transaction closing date. Consistent with prior periods and considering post-merger reporting structures, the Company will continue to report as one operating segment. The combined Company’s brands are predominantly beverages that are manufactured using similar production processes, have comparable alcohol content, generally fall under the same regulatory environment, and are sold to the same types of customers in similar size quantities at similar price points and through the same channels of distribution. The following unaudited pro forma information has been prepared, as if the Transaction and the related debt financing had occurred as of December 30, 2018, the first day of the Company’s 2019 fiscal year. The pro forma amounts reflect the combined historical operational results for Boston Beer and Dogfish Head, after giving effect to adjustments related to the impact of purchase accounting, transaction costs and financing. The unaudited pro forma financial information is not indicative of the operational results that would have been obtained had the Transaction occurred as of that date, nor is it necessarily indicative of the Company’s future operational results. The following adjustments have been made:
| (i) | Depreciation and amortization expenses were updated to reflect the fair value adjustments to Dogfish Head property, plant and equipment and intangible assets beginning December 30, 2018.
| (ii) | Interest expense has been included at a rate of approximately 3% which is consistent with the borrowing rate on the Company’s current line of credit.
| (i ii ) | The tax effects of the pro forma adjustments at an estimated statutory rate of 25.6%.
| ( i v) | Earnings per share amounts are calculated using the Company’s historical weighted average shares outstanding plus the 429,291 shares issued in the merger.
|  | Thirteen weeks ended |  |  | Twenty-six weeks ended |
|  | June 27, |  |  | June 29, |  |  | June 27, |  |  | June 29, |
|  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
|  | (in thousands) |  |  | (in thousands) |
Net revenue |  | $ | 452,138 |  |  | $ | 347,015 |  |  | $ | 782,703 |  |  | $ | 623,755 |
Net income |  | $ | 60,141 |  |  | $ | 30,359 |  |  | $ | 78,375 |  |  | $ | 55,022 |
Basic earnings per share |  | $ | 4.93 |  |  | $ | 2.51 |  |  | $ | 6.44 |  |  | $ | 4.55 |
Diluted earnings per share |  | $ | 4.88 |  |  | $ | 2.46 |  |  | $ | 6.37 |  |  | $ | 4.48 |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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