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Third-Party Production Prepayments

9 Months Ended

Sep. 28, 2024

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

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:


	Expected Shortfall Fees to be Incurred
	(in millions)
Remainder of 2024	$	9
2025		14
2026		3
2027		3
2028		3
2029		3
Thereafter		6
Total shortfall fees expected to be incurred	$	41