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Commitments and Contingencies
 12 Months Ended
Dec. 28, 2019
Commitments and Contingencies
L.
Commitments and Contingencies
 
 
 
 
 
 
 
 
 
 
 
 
Contractual Obligations
As of December 28, 2019, projected cash outflows under
non-cancelable
contractual obligations for the remaining years under the contracts are as follows:
                                                         
 
Payments Due by Period
 
 
Total
 
  
2020
 
  
2021
 
  
2022
 
  
2023
 
  
2024
 
  
Thereafter
 
 
(in thousands)
 
Brand support
   
80,157
    $
47,380
    $
9,827
    $
9,652
    $
 
4,760
    $
4,338
    $
  4,200
 
Apples and other ingredients
   
52,904
     
47,810
     
2,547
      
2,547
      
—  
      
—  
      
—  
  
Hops, barley and wheat
   
52,466
     
35,589
     
6,346
     
4,503
     
2,288
     
2,157
     
1,583
 
Equipment and machinery
   
35,528
     
35,528
     
—  
      
—  
      
—  
      
—  
      
—  
  
Other
   
20,422
     
17,123
     
2,620
     
364
     
170
     
45
     
100
 
                                                         
Total contractual obligations
  $
 
241,477
    $
 188,524
    $
 18,793
    $
 
14,519
    $
7,218
    $
 
6,540
    $
5,883
 
                                                         
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Company utilizes several varieties of hops in the production of its products. To ensure adequate supplies of these varieties, the Company enters into advance multi-year purchase commitments based on forecasted
future
hop requirements, among other factors. These purchase commitments extend through crop year 2025 and specify both the quantities and prices, denominated in U.S. Dollar, Euros, New Zealand Dollars and British Pounds, to which the Company is committed. Hops purchase commitments outstanding at December 28, 2019 totaled $
39.2
 million, based on the exchange rates on that date. The Company does not use forward currency exchange contracts and intends to purchase future hops using the exchange rate at the time of purchase. These contracts were deemed necessary in order to bring hop inventory levels and purchase commitments into balance with the Company’s current brewing volume and hop usage forecasts. In addition, these contracts enable the Company to secure its position for future supply with hop vendors in the face of some competitive buying activity.
Currently, the Company has entered into contracts for barley and wheat with two major suppliers. The contracts include crop year 2019 and 2020 and cover the Company’s barley, wheat, and malt requirements for 2020. These purchase commitments outstanding at December 28, 2019 totaled $
13.3
 million.
The Company’s accounting policy for inventory and purchase commitments is to recognize a loss by establishing a reserve to the extent inventory levels and commitments exceed forecasted needs. The computation of the excess inventory requires management to make certain assumptions regarding future sales growth, product mix, cancellation costs and supply, among others. Actual results may differ materially from management’s estimates. The Company continues to manage inventory levels and purchase commitments in an effort to maximize utilization. However, changes in management’s assumptions regarding future sales growth, product mix and hops market conditions could result in future material losses.
For the fiscal year ended December 28, 2019, the Company brewed approximately 74% 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 supplies raw materials to those brewing companies, and incurs conversion fees for labor at the time the liquid is produced and packaged. The Company is also obligated to meet annual volume requirements in conjunction with certain production arrangements, which are not material to the Company’s operations.
During fiscal years 2018 and 2019, the Company amended its brewing services agreement with City Brewing to include a minimum capacity availability commitment. The amendment grants the Company the right to extend the agreement beyond the December 31, 2021 termination date on an annual basis through December 31, 2029. The amendments require the Company to pay up to $26.5 million dollars for capital improvements at City Brewing facilities, of which $20.5 million had been paid as of December 28, 2019 and the remaining amount of $6.0 million is expected to be paid in May 2020. In fiscal year 2019, City Brewing supplied approximately 23% of the Company’s annual shipment volume. At December 28, 2019, the Company had prepaid brewing service fees of $4.9 million in prepaid expenses and other current assets and $12.9 million in other assets, long term. The Company plans to expense the total amount of $17.8
 
million
over a 60 month period ending in 2024.
The Company’s arrangements with other brewing companies require it to periodically purchase equipment in support of brewery operations. As of December 28, 2019, there were no significant equipment purchase requirements outstanding under existing contracts. Changes to the Company’s brewing strategy or existing production arrangements, new production relationships or the introduction of new products in the future may require the Company to purchase equipment to support the contract breweries’ operations.
Litigation
The Company is currently not a party to any pending or threatened litigation, the outcome of which would be expected to have a material adverse effect on its financial condition or the results of its operations.