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Third-Party Production Prepayments | 3 Months Ended
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Apr. 01, 2023
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] |
Third-Party Production Prepayments | E. Third-Party Production Prepayments During the thirteen weeks ended April 1, 2023 and March 26, 2022, th e Company brewed and packaged approximately 78% and 66%, 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. During fiscal 2021 and into 2022, 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 costs related to terminating these contracts. During the thirteen weeks ended March 26, 2022, the Company recorded $4.8 million of contract termination costs relating to the termination of a third-party production contract. 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 $10.0 million that was used for capital improvements at the new location during the third quarter of fiscal year 2021 and an additional $17.9 million to ensure access to capacity during the fourth quarter of fiscal year 2021. The agreement additionally includes monthly shortfall fees beginning January 1, 2023. Tot al third-party production prepayments were $55.0 million and $61.3 million as of April 1, 2023 and December 31, 2022, respectively. The Company will continue expensing the total prepaid amount of $55.0 million as of April 1, 2023, all of which relates to the master transaction agreement described above and other agreements with City Brewing, 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, including those that are part of the master transaction agreement described above, 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 ended April 1, 2023, the Company recorded $0.7 million in shortfall fees. As of April 1, 2023, 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 $124 million over the duration of the contracts which have expiration dates through December 31, 2031. At current volume projections, the Company anticipates that it will recognize approximately $41.0 million of shortfall fees and expects to record those expenses as foll ows:
|  | Expected Shortfall Fees to be Incurred |
|  | (in millions) |
Remainder of 2023 |  | $ | 9 |
2024 |  |  | 15 |
2025 |  |  | 11 |
2026 |  |  | 2 |
2027 |  |  | 2 |
2028 |  |  | 2 |
Thereafter |  |  | - |
Total shortfall fees expected to be incurred |  | $ | 41 |

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