E. 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 least one 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 after two years of employment, and (2) awarded as restricted stock awards at the discretion of the Company’s Board of Directors. The investment shares and restricted stock awards generally vest over five years in equal number of shares. The unvested shares participate equally in dividends. See Note K 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 that are vested or expected to vest. At its discretion, the Board of Directors grants stock options 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. 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:


	Thirteen weeks ended
	March 31, 2018		April 1, 2017
	(in thousands, except per share data)
Net income	$	9,310	$	5,711


Allocation of net income for basic:
Class A Common Stock	$	6,872	$	4,227
Class B Common Stock		2,380		1,452
Unvested participating shares		58		32

	$	9,310	$	5,711

Weighted average number of shares for basic:
Class A Common Stock		8,714		9,230
Class B Common Stock*		3,018		3,170
Unvested participating shares		73		71

		11,805		12,471

Net income per share for basic:
Class A Common Stock	$	0.79	$	0.46

Class B Common Stock	$	0.79	$	0.46

*Change in Class B Common Stock resulted from the conversion of 79,000 shares to Class A Common Stock on October 31, 2017 with the ending number of shares reflecting the weighted average for the period.

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 computation of diluted net income per share, assuming the conversion of all Class B Common Stock into Class A Common Stock and using the two-class method for unvested participating shares:


	Thirteen weeks ended
	March 31, 2018						April 1, 2017
	Earnings to Common Shareholders		Common Shares		EPS		Earnings to Common Shareholders		Common Shares		EPS
	(in thousands, except per share data)
As reported – basic	$	6,872		8,714	$	0.79	$	4,227		9,230	$	0.46
Add: effect of dilutive potential common shares
Share-based awards		—		99				—		116
Class B Common Stock		2,380		3,018				1,452		3,170
Net effect of unvested participating shares		1		—				—		—

Net income per common share – diluted	$	9,253		11,831	$	0.78	$	5,679		12,516	$	0.45

Weighted-average stock options to purchase approximately 764,000 and 764,000 shares of Class A Common Stock were outstanding during the thirteen weeks ended March 31, 2018 and April 1, 2017, respectively, but not included in computing diluted income per common share because their effects were anit-dilutive. Additionally, performance-based stock options to purchase approximately 53,000 and 36,000 shares of Class A Common Stock were outstanding as of March 31, 2018 and April 1, 2017, respectively, but not included in computing diluted income per common share because the performance criteria of these stock options was not met as of the end of the reporting period.

Of the performance-based stock options to purchase approximately 53,000 shares of Class A Common Stock that were excluded from computing diluted net income per common share as of March 31, 2018, 31,000 shares were granted in 2016 to two key employees. The vesting of these shares requires annual depletions, or sales by Distributors to retailers, of certain of the Company’s brands to attain various thresholds during the period from 2017 to 2023. 5,000 shares were granted in 2017 to executive officers and the vesting of these shares requires annual depletions to attain certain thresholds in 2019. The remaining 17,000 shares were granted in 2018 to executive officers and one key employee and the vesting of these shares requires annual net revenue to attain certain thresholds in 2019.