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Third-Party Production Prepayments | 9 Months Ended
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Sep. 25, 2021
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] |
Third-Party Production Prepayments | H. Third-Party Production Prepayments During the thirty-nine weeks ended September 25, 2021, the Company brewed and packaged approximately 54% of its volume at Company-owned breweries. I n 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 payments for capital improvements at these third-party brewing facilities that it expenses over the period of the contracts. Total third-party production prepayments were as follows:
|  | September 25, 2021 |  |  | December 26, 2020 |
|  | (in thousands) |
Prepaid expenses and other current assets |  | $ | - |  |  | $ | 14,816 |
Third-party production prepayments |  |  | 74,392 |  |  |  | 56,843 |
Total third-party production prepayments |  | $ | 74,392 |  |  | $ | 71,659 |
Effective March 27, 2021, the Company began classifying third-party production prepayments solely as non-current assets and reclassed the $14.8 million of third-party production prepayments at December 26, 2020 from current assets to non-current assets. The Company will expense the total prepaid amount o f $74.4 million as of September 25, 2021 as a component of cost of goods sold over the contractual period ending December 31, 2025. During the thirteen weeks ended September 25, 2021, 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. The Company terminated relationships with some of its third-party production suppliers and recorded $19.6 million of costs related to terminating these contracts. In addition, the Company wrote off $9.5 million relating to amounts prepaid pursuant to a third-party production agreement under which the Company has no future plans to utilize. Refer to Note B of these condensed consolidated financial statements for further details. During the thirty-nine weeks ended September 25, 2021, the Company entered into a master transaction agreement with one of its existing brewing services providers to ensure access to capacity at a new location and continued access at certain existing locations. The agreement became effective during the thirteen weeks ended June 26, 2021, upon the closing of the purchase of the new location by the third-party brewing services provider. As part of the master transaction agreement, the Company paid $10.0 million for capital improvements at the new location, which is included within the third-party production prepayments balance as of September 25, 2021. The Company is required to pay an additional $17.9 million to ensure access to capacity once certain conditions are met of which $10.4 million was paid in early October 2021 and the remainder is expected to be paid later in the fourth quarter of 2021. The agreement additionally includes monthly shortfall fees beginning January 1, 2023. 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 September 25, 2021, if volume for the remaining term of the production arrangements was zero, the contractual shortfall fees would total approximately $175 million over the duration of the contracts which have expiration dates through December 31, 2028. At current volume projections the Company anticipates that it will recognize approximately $57 million of shortfall fees and expects to record those expenses as follows over the remaining current year and the five subsequent years:
|  | Expected Shortfall Fees to be Incurred |
|  | (in millions) |
2021 |  | $ | 1 |
2022 |  |  | 15 |
2023 |  |  | 19 |
2024 |  |  | 13 |
2025 |  |  | 8 |
Thereafter |  |  | 1 |
Total shortfall fees expected to be incurred |  | $ | 57 |

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