e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 29, 2007
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file
number: 1-14092
THE BOSTON BEER COMPANY,
INC.
(Exact name of registrant as
specified in its charter)
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Massachusetts
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04-3284048
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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One Design Center Place, Suite 850, Boston,
Massachusetts
(Address of principal executive
offices)
02210
(Zip Code)
(617) 368-5000
(Registrants telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of each exchange on which registered
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Class A Common Stock
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NYSE
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Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulations S-K is not contained
herein, and will not be contained, to the best of the
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the Class A Common Stock
($.01 par value) held by non-affiliates of the registrant
totaled $288,823,192 (based on the average price of the
Companys Class A Common Stock on the New York Stock
Exchange on June 30, 2007). All of the registrants
Class B Common Stock ($.01 par value) is held by an
affiliate.
As of March 7, 2008, there were 9,721,566 shares
outstanding of the Companys Class A Common Stock
($.01 par value) and 4,107,355 shares outstanding of
the Companys Class B Common Stock ($.01 par
value).
DOCUMENTS
INCORPORATED BY REFERENCE
Certain parts of the registrants definitive Proxy
Statement for its 2008 Annual Meeting to be held on May 23,
2008 are incorporated by reference into Part III of this
report.
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
FORM 10-K
For The
Period Ended December 29, 2007
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Page
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Business
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2-11
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Risk Factors
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11-18
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Unresolved Staff Comments
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18
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Properties
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18
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Legal Proceedings
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18
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Submission of Matters to a Vote of Security
Holders
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19
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PART II.
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Market for Registrants Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity
Securities
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19-20
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Selected Financial Data
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21
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Managements Discussion and Analysis of
Financial Condition and Results of Operations
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21-35
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Quantitative and Qualitative Disclosures About
Market Risk
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35
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Financial Statements and Supplementary Data
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36-65
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Changes in and Disagreements With Accountants on
Accounting and Financial Disclosures
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66
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Controls and Procedures
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66-67
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Other Information
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68
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PART III.
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Directors, Executive Officers and Corporate
Governance
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68
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Executive Compensation
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68
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Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
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68
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Certain Relationships and Related Transactions
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69
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Principal Accountant Fees and Services
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69
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PART IV.
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Exhibits and Financial Statement Schedules
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69-73
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74
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Ex-10.59 Alternation Agreement, dated October 23, 2007 |
Ex-10.60 Glass Bottle Supply Agreement, dated November 2, 2007 |
Ex-10.61 Amendment to Production Agreement, effective December 13, 2007 |
Ex-14.2 Restated Code of Business Coduct and Ethics, effective August 1, 2007 |
Ex-21.5 List of Subsidiaries |
Ex-23.1 Consent of Ernst & Young LLP |
EX-31.1 Section 302 Certification of CEO |
EX-31.2 Section 302 Certification of CFO |
EX-32.1 Section 906 Certification of CEO |
EX-32.2 Section 906 Certification of CFO |
1
PART I
General
The Boston Beer Company, Inc. (Boston Beer or the
Company) is the largest craft brewer and the sixth
largest brewer overall in the United States. In fiscal 2007,
Boston Beer sold 1,848,000 barrels of its proprietary
products (core brands) and brewed
28,000 barrels under contract (non-core
products) for third parties.
During 2007, the Company sold over twenty beers under the Samuel
Adams®
or the Sam
Adams®
brand names, five flavored malt beverage products under the
Twisted
Tea®
brand name, and one hard cider product under the
HardCore®
Cider brand name. Boston Beer produces malt beverages and hard
cider products at Company-owned breweries and under contract
arrangements at other brewery locations. The Company-owned
breweries are located in Cincinnati, Ohio (the Cincinnati
Brewery) and Boston, Massachusetts (the Boston
Brewery). During 2007, the Company brewed certain products
under contract at breweries located in Eden, North Carolina,
Rochester, New York, Latrobe, Pennsylvania and La Crosse,
Wisconsin.
The Companys principal executive offices are located at
One Design Center Place, Suite 850, Boston, Massachusetts
02210, and its telephone number is
(617) 368-5000.
Beer
Industry Background
Before Prohibition, the United States beer industry consisted of
hundreds of small breweries that brewed full-flavored beers.
Since the end of Prohibition, most domestic brewers have shifted
production to less flavorful, lighter beers, which use
lower-cost ingredients, and can be mass-produced to take
advantage of economies of scale in production and advertising.
This shift towards mass-produced beers has coincided with
consolidation in the beer industry. Today, three major brewers
(Anheuser-Busch, Inc., SABMiller PLC (SABMiller) and
Molson Coors Brewing Company (Molson Coors))
comprise over 95% of all United States domestic beer
production, excluding imports. During 2007, SABMiller and Molson
Coors announced the intent to combine their United States
operations into a joint venture, which would further consolidate
the industry, and are currently awaiting the result of
government review. Further, these major brewers have all entered
the Better Beer category recently, either by developing their
own beers, acquiring, in whole or part, existing craft brewers,
or by importing and distributing foreign brewers brands.
The Companys beer products are primarily positioned in the
Better Beer category of the beer industry, which
includes craft (small, independent and traditional) brewers as
well as specialty beers and most imports. Better Beers are
determined by higher price, quality, image and taste, as
compared with regular domestic beers. Samuel
Adams®
is the third largest brand in the Better Beer category of the
United States brewing industry, trailing only the imports
Corona®
and
Heineken®.
The Company estimates that the Better Beer category grew 2 to 3%
in 2007 and that the Craft Beer category grew approximately 12%,
while the beer industry as a whole grew 1 to 2%. The Company
believes that the Better Beer category is approximately 19% of
United States beer consumption.
The domestic beer industry, excluding Better Beers, has
experienced a slight decline in shipments over the last ten
years. The Company believes that this decline is due to
declining alcohol consumption per person in the population,
drinkers trading up to drink high quality more flavorful beers
and increased competition from wine and spirits companies.
During the past 10 years, domestic light beers, which are
beers with fewer calories than the brewers traditional
beers, have experienced significant growth within the category,
and now have a higher market share than traditional beers.
The Companys Twisted
Tea®
product line competes primarily within the flavored malt
beverage (FMB) category of the beer industry.
FMBs, such as Twisted
Tea®,
Smirnoff
Ice®,
BacardiSilver®
and Mikes Hard
Lemonade®,
are flavored malt beverages that are typically priced
competitively with Better Beers. The Company believes that the
FMB category comprises approximately 2% of United States beer
consumption. The Company believes that the FMB category was down
slightly in 2007.
2
Narrative
Description of Business
The Companys business goal is to become the leading brewer
in the Better Beer category by creating and offering high
quality full-flavored beers. With the support of a large,
well-trained sales organization, the Company strives to achieve
this goal by increasing brand availability and awareness through
advertising,
point-of-sale
and promotional programs.
Products
Marketed
The Companys product strategy is to create and offer a
world-class variety of traditional beers and other alcoholic
beverages with a focus on promoting the Samuel
Adams®
product line. In most markets, the Company focuses its
advertising and promotional dollars on Samuel Adams Boston
Lager®,
Sam Adams
Light®
and Samuel
Adams®
Seasonal Beers.
The Samuel
Adams®
Brewmasters Collection is an important part of the
Companys portfolio and heritage, and receives limited
promotional support. The Twisted
Tea®
brand family has grown each year since the product was first
introduced and has established a strong drinker following in
several markets. The Company plans to grow the brand further by
continuing to promote the Twisted
Tea®
brand in these markets and expand into new markets. The Limited
Edition Beers are produced at select times during the year in
limited quantities and are sold at a higher price than the
Companys other products. The following is a list of
significant continuing styles as of December 29, 2007:
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Year First Introduced
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Core Focus Beers
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Samuel Adams Boston
Lager®
(Flagship brand)
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1984
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Sam Adams
Light®
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2001
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Seasonal Beers
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Samuel
Adams®
Double Bock
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1988
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Samuel
Adams®
Octoberfest
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1989
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Samuel
Adams®
Winter Lager
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1989
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Samuel
Adams®
Summer Ale
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1996
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Samuel
Adams®
White Ale
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1997
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Brewmasters Collection
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Samuel
Adams®
Boston Ale
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1987
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Samuel
Adams®
Cream Stout
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1993
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Samuel
Adams®
Honey Porter
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1994
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Samuel Adams Cherry
Wheat®
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1995
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Samuel
Adams®
Pale Ale
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1999
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Samuel
Adams®
Hefeweizen
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2003
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Samuel
Adams®
Black Lager
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2005
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Samuel
Adams®
Brown Ale
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2006
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Limited Edition Beers
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Samuel
Adams®
Triple
Bock®
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1994
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Samuel Adams
Utopias®
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2001
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Samuel
Adams®
Chocolate Bock
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2003
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Samuel
Adams®
Imperial Pilsner
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2005
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Flavored Malt Beverages
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Twisted
Tea®
Hard Iced Tea
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2001
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Twisted
Tea®
Raspberry Hard Iced Tea
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2001
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Twisted
Tea®
Half Hard Iced Tea & Half Hard Lemonade
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2003
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Twisted
Tea®
Peach Hard Iced Tea
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2005
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Twisted
Tea®
Light
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2007
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Hard Cider
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HardCore®
Crisp Hard Cider
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1997
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3
Certain products may be produced at select times during the year
solely for inclusion in the Companys variety packs. During
2007, Samuel
Adams®
Cranberry Lambic, Samuel
Adams®
Old
Fezziwig®
Ale and Samuel
Adams®
Holiday Porter were brewed and included in the Samuel
Adams®
Winter Classics variety pack, and Samuel
Adams®
Scotch Ale was brewed and included in the Samuel
Adams®
Brewmasters Collection Mix Pack.
The Company continually evaluates the performance of its various
beers, flavored malt beverages, and hard cider styles and the
rationalization of its product line, as a whole.
Product
Innovations
The Company is committed to remaining a leading innovator in the
Better Beer category by developing new products that allow the
Samuel
Adams®
drinker to try new styles of malt beverages. To that end, the
Company continually test brews different beers and occasionally
sells them in market under various brand labels for evaluation
of drinker interest. The Company also promotes an annual
LongShot®
American Homebrew
Contesttm
whereby Samuel
Adams®
drinkers and employees of the Company submit homebrews for
inclusion in the
LongShot®
six-pack in the following year. During 2007, the Company created
and introduced the new Samuel Adams Boston
Lager®
pint glass, the first glass specifically designed to showcase
the beer as the brewers intended, delivering the optimum
full-flavored taste and aroma of Samuel Adams Boston
Lager®.
Sales,
Distribution and Marketing
The Company sells its products to a network of approximately 400
wholesale distributors, who then sell to retailers such as pubs,
restaurants, grocery chains, package stores, stadiums and other
retail outlets. With few exceptions, the Companys products
are not the primary brands in distributors portfolios.
Thus, the Company, in addition to competing with other malt
beverages for a share of the consumers business, competes
with other brewers for a share of the distributors
attention, time and selling efforts. The Company sells its
products predominantly in the United States, but also has
markets in Canada, Europe, Israel, the Caribbean and the Pacific
Rim. During 2007, the Companys largest distributor
accounted for approximately 4% of the Companys net sales.
The top three distributors accounted for approximately 10%,
collectively. In some states, the terms of the Companys
contracts with its distributors may be affected by laws that
restrict the enforcement of some contract terms, especially
those related to the Companys right to terminate the
services of its distributors.
The Company typically receives orders in the first week of a
month for products to be shipped the following month. Products
are shipped within days of completion and, accordingly, there
has historically not been any significant product order backlog.
During 2007, Boston Beer sold its products through a sales force
in excess of 200 people, which the Company believes is one
of the largest in the domestic beer industry. The Companys
sales organization is designed to develop and strengthen
relations at each level of the three-tier distribution system by
providing educational and promotional programs encompassing
distributors, retailers and drinkers. The Companys sales
force has a high level of product knowledge and is trained in
the details of the brewing and selling processes. Sales
representatives typically carry hops, barley, and other samples
to educate wholesale and retail buyers about the quality and
taste of the Companys beers. The Company has developed
strong relationships with its distributors and retailers, many
of which have benefited from the Companys premium pricing
strategy and growth.
The Company also engages in media campaigns, primarily
television, radio, billboards and print. These media efforts are
complemented by participation in sponsorships of cultural and
community events, local beer festivals, industry-related trade
shows, and promotional events at local establishments, to the
extent permitted under local laws and regulations. The Company
uses a wide array of
point-of-sale
items (banners, neons, umbrellas, glassware, display pieces,
signs, and menu stands) designed to stimulate impulse sales and
continued awareness.
4
Ingredients
and Packaging
The Company has been successful to date in obtaining sufficient
quantities of the ingredients used in the production of its
beers. These ingredients include:
Malt. The two-row varieties of barley used in
the Companys malt are grown in the United States and
Canada. In 2007, the barley crop in the United States and Canada
was below average when compared with ten-year averages overall,
with below average output in terms of quality of crop in the
United States and average to slightly below average in terms of
quality in Canada. The 2007 crop was purchased at prices
significantly higher than previous years due to changes in
exchange rates, reduced crop yields in a number of markets and
increased demand due to increased demand from other uses for the
barley. The Company purchased most of the malt used in the
production of its beer from one major supplier during 2007. The
Company believes that there are other malt vendors available
that are capable of supplying its needs.
Hops. The Company uses Noble hops for its
Samuel
Adams®
lagers. Noble hops are varieties from several specific growing
areas recognized for growing hops with superior taste and aroma
properties and include Hallertau-Hallertauer,
Tettnang-Tettnanger and Spalt-Spalter from Germany. Noble hops
are rare and more expensive than most other varieties of hops.
Traditional English hops, namely, East Kent Goldings and English
Fuggles, are used in the Companys ales. The Company enters
into purchase commitments with two hops dealers, based on the
Companys projected future volumes and brewing needs. The
dealers then contract with farmers to ensure that the
Companys needs are met. The contracts with the hop dealers
are denominated in Euros for the German hops and in Pounds
Sterling for the English hops. The Company does not currently
hedge these forward currency commitments. The crops harvested in
2007 were below historical averages in terms of both quality and
quantity for all hop varieties from Germany and the UK and the
Company expects to receive significantly less hops than were
contracted for. While the Companys goal is to maintain
approximately one years supply of essential hop varieties
on-hand in order to limit the risk of an unexpected reduction in
supply, the Companys current hop inventory is lower than
it would like and any further years of under delivery could
require the Company to evaluate other hops sources or result in
the Company being unable to meet demand for its beers. The
Company stores its hops in multiple cold storage warehouses to
minimize the impact of a catastrophe at a single site.
Yeast. The Company maintains a supply of
proprietary strains of yeast used in its breweries and supplies
them to the breweries owned by others where its beers are made.
Since these yeasts would be impossible to duplicate if
destroyed, the Company maintains secure supplies in several
locations and the strains are stored and protected at an outside
laboratory. In addition, the breweries under contract with the
Company maintain a supply of the yeasts that are reclaimed from
the batches of brewed beer. These brewers are obligated by their
contracts to use the Companys proprietary strains of
yeasts only for the brewing of the Companys beers and such
yeasts cannot be used without the Companys approval to
brew any other beers produced at the respective breweries.
Other Ingredients. The Company maintains
competitive sources for the supply of other ingredients used in
some of its specialty malt-based and cider products.
Packaging Materials. The Company maintains
competitive sources for the supply of certain packaging
materials, such as shipping cases, six-pack carriers and crowns.
The Company enters into limited term supply agreements with
certain vendors in order to receive preferential pricing.
Historically, glass and labels were each supplied by a single
source, although the Company believes that alternative suppliers
are available. In 2007, the Company entered into a long term
supply agreement with Anchor Glass Container Corporation
(Anchor) that calls for Anchor to be the exclusive
supplier of glass bottles for the Companys Cincinnati
Brewery and Lehigh, Pennsylvania Brewery (the Pennsylvania
Brewery), if the acquisition of that brewery is
consummated, beginning January 1, 2009. The agreement also
establishes the terms on which Anchor may supply glass bottles
to other breweries where the Company brews its beers.
The Company initiates bottle deposits and reuses some of the
glass bottles that are returned pursuant to certain state bottle
recycling laws and derives some economic benefit from this
practice. The cost associated with reusing the glass varies,
based on the costs of collection, sorting and handling,
including arrangements with
5
retailers, wholesalers and dealers in recycled products. There
is no guarantee that the current economics relating to the use
of returned glass will continue or that the Company will
continue to reuse returnable bottles.
Quality
Assurance
As of December 29, 2007, the Company employed twelve
brewmasters to monitor the Companys brewing operations and
control the production of its beers. Over 125 tests, tastings
and evaluations are typically required to ensure that each batch
of Samuel
Adams®
beer, Twisted
Tea®
flavored malt beverage and
Hardcore®
hard cider conforms to the Companys standards. The
Company has
on-site
quality control labs at each brewery.
In order to ensure that its customers enjoy only the freshest
beer, the Company includes a clearly legible
freshness code on every bottle and keg of its Samuel
Adams®
products. Boston Beer was the first American brewer to use this
practice.
Brewing
Strategy
Historically, the Company has pursued a strategy of combining
brewery ownership with production arrangements at breweries
owned by third parties. The Company-owned breweries are located
in Cincinnati, Ohio and Boston, Massachusetts and the Company
currently has brewing services arrangements with Miller Brewing
Company, High Falls Brewing Company, LLC and City Brewing
Company, LLC to produce its products at breweries in Eden, North
Carolina, Rochester, New York, and Latrobe, Pennsylvania and
La Crosse, Wisconsin, respectively. The Company carefully
selects breweries with (i) the capability of utilizing
traditional brewing methods and (ii) first-rate quality
control capabilities throughout brewing, fermentation, finishing
and packaging. Under its non-owned brewing arrangements, the
Company is charged a per unit rate for its products that are
produced at each of the breweries and bears the costs of raw
materials, excise taxes and deposits for pallets and kegs and
specialized equipment required to brew the Companys beers.
During 2007, the Company began brewing and packaging some of its
beer in Latrobe, Pennsylvania (Latrobe) under an
agreement with a wholly-owned subsidiary of City Brewing
Company, LLC (the Latrobe Agreement). The Company
has invested in Latrobe to upgrade the brewery to provide for
Samuel Adams traditional brewing process, use of
proprietary yeasts and extended aging time, and beer bottling
and kegging. Also during 2007, the Company entered into an
Alternation Agreement (the New Miller Agreement)
with Miller Brewing Company (Miller), which will
allow the Company to continue to brew and package certain of its
products at Millers brewery located in Eden, North
Carolina commencing November 1, 2008, following the
expiration of the current brewing services agreement with
Miller. Under the New Miller Agreement, Miller will ensure that
a certain minimum capacity will be available to the Company
throughout the term in exchange for a non-refundable annual
reservation fee to be paid by the Company. In contrast to the
current brewing services agreement with Miller, under the New
Miller Agreement the Company will pay all freights costs for
shipping products to its distributors from Eden, North Carolina.
The brewing services arrangements with breweries owned by others
have historically allowed the Company to utilize excess
capacity, providing the Company flexibility, as well as quality
and cost advantages over its competitors, while maintaining full
control over the brewing process for the Companys beers.
As the number of available breweries declines, the risks of
disruption increases, and the dynamics of the brewery strategy
of ownership versus brewing in non-owned breweries changes. The
Company believes that in the future, a strategy involving more
ownership could produce some improvement in operating and
freight costs and greater security of supply, but at a greater
cost due to ownership and maintenance of fixed assets, as well
as a greater investment in skills and capabilities in order to
manage and operate those fixed assets.
In 2007, the Company invested over $2.4 million in
property, plant and equipment at the Cincinnati Brewery in order
to maintain the facilities and improve efficiencies. The Company
brewed approximately 35% of its volume at the Cincinnati Brewery
in 2007. While the Cincinnati Brewery produces all of the
Companys beer styles, it is the primary brewery for the
production of most of the Companys specialty and lower
volume
6
beers and hard cider production, as well as most of the flavored
malt beverage production. The Company is evaluating further
capital investments in the Cincinnati Brewery to improve the
brewerys capacity, economics, capability and flexibility,
as both an alternative and a complement to the Companys
other brewery options.
During the third quarter of 2007, the Company entered into a
Contract of Sale to purchase from Diageo North America, Inc. the
Pennsylvania Brewery for $55 million. During the fourth
quarter of 2007, the Company completed its due diligence phase
and paid the balance of a total deposit of $10 million. The
Company expects to close on the purchase of the Pennsylvania
Brewery and pay the remaining $45 million of the purchase
price in June 2008, barring any unforeseen circumstances. The
Company anticipates that the Pennsylvania Brewery will require
substantial investment and renovation in order to brew the
Companys Samuel
Adams®
Craft Beers. In addition to the purchase price of
$55 million, the Company expects to have spent between
$45 million and $55 million in capital improvements
and due diligence by the end of 2008. The Company anticipates
spending a further $10 million to $15 million in 2009
to get the facility in a position to brew and package up to
1.4 million barrels of the Companys beers. The
Company has also identified a further $25 million to
$35 million of projects which appear to have attractive
return on investment or address increased capabilities that the
Company may choose to make during the next few years. If the
Company decides to expand the capacity of the Pennsylvania
Brewery beyond 1.4 million barrels, additional capital
would be needed. As of December 29, 2007, the Company has
spent $2.1 million of this capital plan. The Company
currently expects that the facility will be partially
operational for its brands during the summer of 2008.
The Company had previously been contemplating the construction
of a brewery in Freetown, Massachusetts. As the probability of
proceeding on this site decreased due to entering into the
Contract of Sale with Diageo for the Pennsylvania Brewery, the
Company determined that it was appropriate to write off in the
second quarter of 2007 the $3.4 million that had been
capitalized through June 30, 2007 on the Massachusetts
brewery project. In August 2007, the Company purchased the land
in Freetown, Massachusetts for $6.0 million as protection
against the possibility that the results of the due diligence on
the Pennsylvania Brewery might prove unsatisfactory. The Company
has now concluded it will proceed with the Pennsylvania Brewery
purchase, and in February 2008, placed the land in Freetown,
Massachusetts on the market.
The Company uses the Boston Brewery to develop new types of
innovative and traditional products and to supply, in limited
quantities, beers for the local market. Product development
entails researching market needs and competitive products,
sample brewing and market taste testing. All of the
Companys products are produced at the Boston Brewery in
the course of each year.
The Company believes that it has secured sufficient alternatives
in the event that production at any of its brewing locations is
interrupted or discontinued; however, the Company may not be
able to maintain its current economics if such disruption were
to occur. Potential disruptions include quality issues,
financial stability, contractual disputes or operational shut
downs. As the brewing industry has consolidated, the financial
stability of the breweries where the Company brews has become a
more significant concern. The Company continues to work with all
of its breweries to attempt to minimize any potential
disruptions.
Competition
The Better Beer category within the United States beer market is
highly competitive due to the large number of craft brewers with
similar pricing and target customers and gains in market share
achieved by imported beers. The Company anticipates competition
among domestic craft brewers to remain strong, as craft brewers
experienced their fourth successive year of growth in 2007.
Imported beers, such as
Corona®
and
Heineken®,
continue to compete aggressively in the United States. These
import competitors may have substantially greater financial
resources, marketing strength and distribution networks than the
Company. Large domestic brewers have also developed, or are
developing, niche brands within the Better Beer category, have
acquired interests in or are exploring ownership or partnerships
with small brewers to compete with craft brewers,
and/or have
acquired interests in import brands to compete with imported
beers.
The Company also competes with other alcoholic beverages for
drinker attention and consumption. In recent years, wines and
spirits have been competing more directly with beers. The
Company monitors such activity
7
and attempts to develop strategies which benefit from the
drinkers interest in trading up and position our beers
competitively with wine and spirits.
The Company competes with other beer and alcoholic beverage
companies within a three-tier distribution system. The Company
competes for a share of the distributors attention, time
and selling efforts. In retail establishments, the Company
competes for shelf and tap space. From a drinker perspective,
competition exists for brand acceptance and loyalty. The
principal factors of competition in the Better Beer segment of
the beer industry include product quality and taste, brand
advertising, trade and drinker promotions, pricing, packaging,
and the development of new products.
The Company distributes its products through independent
distributors who may also distribute competitors products.
Certain brewers have contracts with their distributors that
impose requirements on distributors that are intended to
maximize the wholesalers attention, time and selling
efforts on that brewers products. These contracts
generally result in increased competition among brewers as the
contracts may affect the manner in which a distributor allocates
selling effort and investment to the brands included in its
portfolio. The Company closely monitors these and other trends
in its distributor network and works to develop programs and
tactics intended to best position its products in the market.
The Company has certain competitive advantages over the regional
craft brewers, including a long history of awards for product
quality, greater available resources and the ability to
distribute and promote its products on a more cost-effective
basis. Additionally, the Company believes it has competitive
advantages over imported beers, including lower transportation
costs, higher product quality, a lack of import charges and
superior product freshness.
The Companys Twisted
Tea®
products compete within the FMB category of the Beer Industry.
This category is highly competitive due to, among other factors,
the presence of large spirits companies, the advertising of
malt-based spirits brands in channels not available to the
parent brands, and a fast pace of product innovation.
Alcoholic
Beverage Regulation and Taxation
The manufacture and sale of alcoholic beverages is a highly
regulated and taxed business. The Companys operations are
subject to more restrictive regulations and increased taxation
by federal, state, and local governmental entities than are
those of non-alcohol related beverage businesses. Federal,
state, and local laws and regulations govern the production and
distribution of beer, including permitting, licensing, trade
practices, labeling, advertising, marketing, distributor
relationships, and related matters. Federal, state, and local
governmental entities also levy various taxes, license fees, and
other similar charges and may require bonds to ensure compliance
with applicable laws and regulations. Failure by the Company to
comply with applicable federal, state, or local laws and
regulations could result in higher taxes, penalties, fees, and
suspension or revocation of permits, licenses or approvals.
There can be no assurance that other or more restrictive laws,
regulations or higher taxes will not be enacted in the future.
Licenses
and Permits
The Company, through its wholly-owned subsidiaries, Boston Beer
Corporation and Samuel Adams Brewery Company, Ltd., produces its
alcoholic beverages pursuant to a federal wholesalers
basic permit, a federal brewers notice and a federal
winery registration. Its products are then sold by Boston Beer
Corporation to distributors. Brewery and wholesale operations
require various federal, state, and local licenses, permits and
approvals. In addition, some states prohibit any supplier, such
as the Company,
and/or
wholesaler from holding an interest in any retailer. Violation
of such regulations can result in the loss or revocation of
existing licenses by the wholesaler, retailer
and/or the
supplier. The loss or revocation of any existing licenses,
permits or approvals,
and/or
failure to obtain any additional or new licenses, could have a
material adverse effect on the ability of the Company to conduct
its business.
At the federal level, the Alcohol and Tobacco Tax and Trade
Bureau of the U.S. Treasury Department (TTB)
administers and enforces the federal laws and tax code
provisions related to the production and taxation of alcohol
products. Brewers are required to file an amended notice with
the TTB in the event of a
8
material change in the production processes, production
equipment, brewery location, brewery management or brewery
ownership. The TTB permits and registrations can be suspended,
revoked or otherwise adversely affected for failure to pay tax,
keep proper accounts, pay fees, bond premises, abide by federal
alcoholic beverage production and distribution regulations, or
to notify the TTB of any material change. Permits, licenses and
approvals from state regulatory agencies can be revoked for many
of the same reasons. The Companys operations are subject
to audit and inspection by the TTB at any time.
At the state and local level, some jurisdictions merely require
notice of any material change in the operations, management or
ownership of the permit or license holder and others require
advance approvals, requiring that new licenses, permits or
approvals be applied for and obtained in the event of a change
in the management or ownership of the permit or license holder.
State and local laws and regulations governing the sale of malt
beverages and hard cider within a particular state by an
out-of-state
brewer or wholesaler vary from locale to locale.
Because of the many and various state and federal licensing and
permitting requirements, there is a risk that one or more
regulatory agencies could determine that the Company has not
complied with applicable licensing or permitting regulations or
has not maintained the approvals necessary for it to conduct
business within its jurisdiction. There can be no assurance that
any such regulatory action would not have a material adverse
effect upon the Company or its operating results. The Company is
not aware of any infraction of any of its licenses or permits
which would materially impact its operations.
Taxation
The federal government and all of the states levy excise taxes
on beer and hard cider. For brewers producing no more than
2.0 million barrels of malt beverages per calendar year,
the federal excise tax is $7.00 per barrel on the first
60,000 barrels of malt beverages removed for consumption or
sale during a calendar year, and $18.00 per barrel for each
barrel in excess of 60,000. For brewers producing more than
2.0 million barrels of malt beverages for domestic
consumption in a calendar year, the federal excise tax is $18.00
per barrel for all barrels produced. The Company has been able
to take advantage of this reduced tax on the first
60,000 barrels of its malt beverages produced. If the
Company continues to grow its volumes, it anticipates that it
could have to forgo this reduced tax benefit. Individual states
also impose excise taxes on alcoholic beverages in varying
amounts, which have also been subject to change. The
determination of who is responsible, the Company or the
distributor, to bear the liability of these taxes varies by
state. Twisted
Tea®
is classified as a malt beverage for federal excise tax
purposes. In addition, the federal government and each of the
states levy taxes on hard cider. The federal excise tax rate on
qualifying hard cider is $7.00 per barrel.
During the third quarter of 2007, the TTB performed a routine
audit of the Companys Cincinnati Brewery and other
breweries where some of the Companys products are produced
(the TTB Audit). In February 2008, the TTB formally
disputed the Companys regulatory and tax treatment of
certain of its 2006 and 2007 Twisted Tea shipments and the
Company has received a notice of demand for additional excise
taxes plus interest and penalties of approximately
$8.5 million. The TTB has asserted that these shipments
were not classified consistent with TTB regulations that took
effect January 1, 2006. Based on the Companys
analysis to date, it believes that most of its Twisted Tea
shipments were in compliance with applicable regulations. The
Company is in discussions with the TTB regarding the differences
in the methodologies used to ascertain regulatory compliance and
expects these discussions to eventually include potential
settlement terms. While the Company believes settlement should
be possible, the Company also believes that it has litigation
options available to it to dispute the TTB position. It is not
possible to determine the ultimate outcome of these discussions
or any future litigation, but based on information available on
December 29, 2007, the Company concluded that the range of
possible outcomes was between $3.9 million and
$9.3 million. In the first quarter of 2008, the Company has
continued to gather additional information and refine its
analysis and currently estimates that, if it does not pursue
litigation, the potential expense could be as low as
$1.8 million and would not be expected to materially exceed
the approximate $8.5 million which the TTB has assessed,
after considering amounts the Company has previously paid. The
ultimate outcome of this matter could materially differ from the
Companys estimate. Based on the information previously
collected and its earlier assessment of likely outcomes, the
Company recorded a provision of $3.9 million in the third
quarter. The Company
9
continues to maintain this provision in its December 29,
2007 financial statements, related to this contingency. Twisted
Tea shipments were only minimally interrupted due to this matter.
Federal and state legislators routinely consider various
proposals to impose additional excise taxes on the production
and distribution of alcoholic beverages, including beer and hard
cider. Various states are also considering or have decided that
FMB products should be taxed differently than beer. Further
increases in excise taxes on beer, FMBs
and/or hard
cider, if enacted, could result in a general reduction in sales
for the affected products or in the profit realized from the
sales of the affected products.
Trademarks
The Company has obtained United States Trademark Registrations
for several trademarks, including Samuel
Adams®,
Sam
Adams®,
the design logo of Samuel
Adams®,
Samuel Adams Boston
Lager®,
Samuel Adams Cherry
Wheat®,
Triple
Bock®,
Sam Adams
Light®,
Twisted
Tea®
and
HardCore®.
The Samuel
Adams®
trademark and the Samuel Adams Boston
Lager®
trademark (including the design logo of Samuel Adams) and other
Company trademarks are also registered or registration is
pending in various foreign countries. The Company regards its
Samuel Adams family of trademarks and other
trademarks as having substantial value and as being an important
factor in the marketing of its products. The Company is not
aware of any trademark infringements that could materially
affect its current business or any prior claim to the trademarks
that would prevent the Company from using such trademarks in its
business. The Companys policy is to pursue registration of
its marks whenever appropriate and to vigorously oppose any
infringements of its marks.
Environmental
Regulations and Operating Considerations
The Companys operations are subject to a variety of
extensive and changing federal, state, and local environmental
laws, regulations, and ordinances that govern activities or
operations that may have adverse effects on human health or the
environment. Such laws, regulations, or ordinances may impose
liability for the cost of remediation, and for certain damages
resulting from, sites of past releases of hazardous materials.
The Company believes that it currently conducts, and in the past
has conducted, its activities and operations in substantial
compliance with applicable environmental laws, and believes that
any costs arising from existing environmental laws will not have
a material adverse effect on the Companys financial
condition or results of operations. However, there can be no
assurance that environmental laws will not become more stringent
in the future or that the Company will not incur costs in the
future in order to comply with such laws.
The Companys operations are subject to certain hazards and
liability risks faced by all producers of alcoholic beverages,
such as potential contamination of ingredients or products by
bacteria or other external agents that may be wrongfully or
accidentally introduced into products or packaging. The
occurrence of such a problem could result in a costly product
recall and serious damage to the Companys reputation for
product quality, as well as give rise to product liability
claims. The Company and the breweries where it brews under
contract maintain insurance which the Company believes is
sufficient to cover any product liability claims which might
result from a contamination or other product liability with
respect to its products.
As part of its efforts to be environmentally friendly, the
Company has reused its glass bottles returned from certain
states that have bottle deposit bills. The Company believes that
it benefits economically from washing and reusing these bottles
which result in a lower cost than purchasing new glass, and that
it benefits the environment by the reduction in landfill usage,
the reduction of usage of raw materials, and the lower utility
costs for reusing bottles versus producing new bottles. The
economics of using recycled glass varies based on the cost of
collection, sorting and handling, and may be affected by local
regulation, and retailer, distributor and glass dealer behavior.
There is no guarantee that the current economics of using
returned glass will continue, nor that the Company will continue
to do so.
Employees
As of December 29, 2007, the Company employed approximately
500 people, of which approximately 80 were covered by
collective bargaining agreements at the Cincinnati Brewery. The
representation involves three labor unions, two of whose
contracts were renegotiated in 2007 and extended for
5 years. The Company
10
believes it maintains a good working relationship with all three
labor unions and has no reason to believe that the good working
relationship will not continue. The Company has experienced no
work stoppages, or threatened work stoppages, and believes that
its employee relations are good.
The Company expects to complete the purchase of the Pennsylvania
Brewery and anticipates that most, if not all, of Diageos
current employees at the facility will become employees of the
Company. The Company currently expects the purchase of the
Pennsylvania Brewery will add over 200 employees. None of
the employees at the Pennsylvania Brewery are currently covered
by collective bargaining agreements.
Other
The Company submitted the Section 12(a) CEO Certification
to the New York Stock Exchange in accordance with the
requirements of Section 303A of the NYSE Listed Company
Manual. This Annual Report on
Form 10-K
contains at Exhibits 31.1 and 31.2 the certifications of
the Chief Executive Officer and Chief Financial Officer,
respectively, in accordance with the requirements of
Section 302 of the Sarbanes-Oxley Act of 2002. The Company
makes available free of charge copies of its Annual Report on
Form 10-K,
as well as other reports required to be filed by
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, via the Internet at www.bostonbeer.com, or upon written
request to Investor Relations, The Boston Beer Company, Inc.,
One Design Center Place, Suite 850, Boston, Massachusetts
02210.
In addition to the other information in this Annual Report on
Form 10-K,
you should carefully consider the risks described below before
deciding to invest in shares of the Companys Class A
Common Stock. These are risks and uncertainties that management
believes are most likely to be material and therefore are most
important for an investor to consider. The Companys
business operations and results may also be adversely affected
by additional risks and uncertainties not presently known to it,
or which it currently deems immaterial, or which are similar to
those faced by other companies in its industry or business in
general. If any of the following risks or uncertainties actually
occurs, the Companys business, financial condition,
results of operations or cash flows would likely suffer. In that
event, the market price of the Companys Class A
Common Stock could decline.
The
Company Faces Substantial Competition.
The Better Beer category within the United States beer market is
highly competitive, due to the large number of craft brewers
with similar pricing and target customers and gains in market
share achieved by imported beers. The Company anticipates
competition among domestic craft brewers to remain strong as
craft brewers experienced their fourth successive year of growth
in 2007. Large domestic brewers have developed or are developing
niche brands within the Better Beer category and have acquired
or are exploring acquiring interests in small brewers to compete
in the craft-brewed segment or in import brands to compete with
imported beers. Imported beers, such as
Corona®
and
Heineken®,
continue to compete aggressively in the United States beer
market. Samuel
Adams®
is the third largest brand in the Better Beer category of the
United States brewing industry, trailing only
Corona®
and
Heineken®.
The continued growth in the sales of craft-brewed domestic beers
and in imported beers is expected to increase the competition in
the Better Beer category within the United States beer market
and, as a result, prices and market share of the Companys
products may fluctuate and possibly decline. No assurance can be
given that any decline in price would be offset by an increase
in market share. The Companys products, including its
Twisted
Tea®
products, also compete generally with other alcoholic beverages.
The Company competes with other beer and beverage companies not
only for drinker acceptance and loyalty but also for shelf and
tap space in retail establishments and for marketing focus by
the Companys distributors and their customers, all of
which also distribute and sell other beers and alcoholic
beverage products. Many of the Companys competitors,
including
Corona®
and
Heineken®
and the large domestic brewers have substantially greater
financial resources, marketing strength and distribution
networks than the Company. Moreover, the introduction of new
products by competitors that compete directly with the
Companys products, or that diminish the importance of the
Companys products to the retailers or distributors may
have a material adverse effect on the Companys results of
operations, cash flows and financial position.
11
The
Potential Joint Venture Between SABMiller and Molson Coors Could
Bring Added Pressures to Our Ability to Compete
In recent years, the beer industry has seen continued
consolidation among brewers in order to take advantage of cost
savings opportunities for supplies, distribution and operations.
If completed, the domestic joint venture project between
SABMiller and Molson Coors will make the combined brewer,
MillerCoors, the second largest brewer in the United States,
providing greater resources and a distribution platform to
compete more effectively. According to published reports, the
MillerCoors joint venture is expected to bring an annual savings
of $500 million by the third year of the merger. Due to the
increased leverage that the combined operation will have, the
costs to the Company of competing could increase and the
availability of brewing capacity at other breweries could be
reduced if any breweries were closed by the joint venture. The
potential also exists for MillerCoors to increase their
influence with their distributors, making it difficult for
smaller brewers to maintain their market presence or enter new
markets. These potential increases in costs to compete,
reductions in contract brewing capacity and decreases in
distribution opportunities may have a material adverse effect on
the Companys results of operations, cash flows and
financial position.
There
Is No Assurance of Continued Growth.
The Companys future growth may be limited by both its
ability to continue to increase its market share in domestic and
international markets, including those markets that may be
dominated by one or more regional or local craft breweries, and
by the growth in the craft-brewed beer market and the Better
Beer market. The development of new products by the Company may
lead to reduced sales in the Companys other products,
including its flagship Samuel Adams Boston
Lager®.
The Companys future growth may also be limited by its
ability to meet production goals for the Pennsylvania Brewery,
as well as its ability to enter into new brewing contracts on
commercially acceptable terms or the availability of suitable
production capacity, should production at the Pennsylvania
Brewery miss targets, and its ability to obtain sufficient
quantities of certain ingredients and packaging materials, such
as hops and bottles, from suppliers. The Companys current
hop inventory levels are less than it would like, and any future
disruption to hop supply, under delivery of hop contracts or
growth in sales beyond what is currently forecast could prevent
the Company from meeting future demand.
The
Unpredictability and Fluctuation of the Companys Quarterly
Results May Adversely Affect the Trading Price of Its Common
Stock. The Companys Advertising and Promotional
Investments May Not be Effective.
The Companys revenues and results of operations have in
the past and may in the future vary from quarter to quarter due
to a number of factors, many of which are outside of the
Companys control and any of which may cause its stock
price to fluctuate. As a growth-oriented Company, the Company
has made, and expects to continue to make, significant
advertising and promotional expenditures to enhance its brands.
These expenditures may not result in higher sales volume.
Variations in the levels of advertising and promotional
expenditures have in the past caused, and are expected in the
future to continue to cause, variability in the Companys
quarterly results of operations. The Company has in the past
made, and expects from time to time in the future to make,
significant advertising and promotional expenditures to enhance
its brands even though those expenditures may adversely affect
the Companys results of operations in a particular quarter
or even for the full year, and may not result in increased
sales. While the Company attempts to invest only in effective
advertising and promotional expenditures, it is difficult to
correlate such investments with sales results, and there is no
guarantee that the Companys expenditure will be effective
in building brand equity or growing long term sales. In
addition, the Company fills orders from its wholesalers who may
choose independently to build their inventories or run their
inventories down. Such a change in wholesaler inventories is
somewhat unpredictable, and can lead to fluctuations in the
Companys quarterly or annual results.
12
The
Companys Current Dependence on Brewing at Non-Owned
Breweries Could Harm Its Business which Could Have A Material
Adverse Effect on the Companys Operations or Financial
Results.
Historically, the Company has pursued a strategy of combining
brewery ownership with brewing at breweries owned by others. The
Company-owned breweries are located in Cincinnati, Ohio and
Boston, Massachusetts and the Company currently brews under
agreements with breweries in Eden, North Carolina, Rochester,
New York, Latrobe, Pennsylvania and La Crosse, Wisconsin.
The Company carefully selects breweries with (i) the
capability of utilizing traditional brewing methods and
(ii) first rate quality control capabilities throughout
brewing, fermentation, finishing and packaging. The brewing
arrangements with other breweries have historically allowed the
Company to utilize their excess capacity, providing the Company
flexibility as well as quality and cost advantages over its
competitors. However, higher than planned costs of operating
under contract arrangement at breweries owned by others or an
unexpected decline in the brewing capacity available to the
Company may have a material adverse effect on the Companys
results of operations, cash flows and financial position.
The Company continues to brew its Samuel Adams Boston
Lager®
at each of its brewing facilities, but at any particular time
may rely on only one supplier for its products other than Samuel
Adams Boston
Lager®.
The Company believes that it has sufficient capacity options
that would allow for a shift in production locations if
necessary, although it is unable to quantify any additional
costs, capital or operating, if any, that it might incur in
securing access to such capacity.
Management believes that, in the event of a labor dispute,
governmental action, a sudden closure of one of the breweries
not owned by the Company or other events that would prevent
either the Cincinnati Brewery or any of the breweries under
contract from producing the Companys beer, the Company
would be able to shift production among breweries so as to meet
demand for its beer. In such event, however, the Company could
experience temporary shortfalls in production
and/or
increased production or distribution costs, the combination of
which could have a material adverse effect on the Companys
results of operations, cash flows and financial position. A
simultaneous interruption at several of the Companys
production locations would likely cause significant disruption,
increased costs and, potentially, lost sales.
Should
the Acquisition of the Pennsylvania Brewery Not Be Completed or
Should There Be a Significant Delay in the Start Up of the
Brewery , the Company Will Face Substantial Challenges Meeting
Future Volume Demands, which Could Have A Material Adverse
Effect on the Companys Operations or Financial
Results.
Should the acquisition of the Pennsylvania Brewery not be
completed or be delayed, the Company could face challenges in
meeting future volume demands, especially as demands for the
Companys products continue to grow. Any significant
shortfalls in production or significant delays in the start up
of the Pennsylvania Brewery would likely cause significant
disruptions in shipments, increased costs, and, potentially,
lost sales.
The
Addition of the Pennsylvania Brewery Will Significantly Change
the Companys Operations. Owning a Larger Percentage of Its
Breweries has High Capital Costs, Creates a Larger Fixed Cost
Burden on the Companys Business, Requires Different
Management Skills and Capabilities, and has Greater Uncertainty
as to Operating Costs.
The addition of the Pennsylvania Brewery will significantly
change the direction of the Companys operations from
mainly brewing at breweries owned by others to mainly brewing at
Company-owned breweries. This change increases the capital
required by the Company to brew and package its beers and
creates a more significant fixed-costs structure for the
Company. The engineering, production management and leadership
skills required to operate a brewery are different from those
required to work with breweries where beer is brewed under
contract with others, and will require the Company to hire and
develop new skills and experience. The Company believes that a
shift to brewing at Company-owned breweries could bring
operational savings, increased flexibility, greater reliability
and better quality control capabilities throughout brewing,
fermentation, finishing and packaging, but that this shift will
be accompanied by risks, especially during the transition, and
an increased cost of owning, maintaining and operating fixed
assets. There is no
13
certainty that the ultimate operating costs will be more
favorable than the brewing strategy the Company has been using
since its inception.
In
Addition to the Added Complexity in the Companys
Operations that will Arise From the Acquisition of the
Pennsylvania Brewery, the Management Pressures that Accompany
the Companys Growth May Also Exceed the Companys
Ability to Manage the Growth and Implement Appropriate Internal
Controls.
The combination of the Companys recent high growth and its
planned purchase of the Pennsylvania Brewery are increasing the
operating complexity of the business. There can be no assurance
that the Company will effectively manage such increased
complexity without experiencing operating inefficiencies or
control deficiencies. Such inefficiencies or deficiencies could
have a material adverse effect on the business.
The
Company Is Dependent on Its Distributors.
In the United States, where approximately 99% of its beer is
sold, the Company sells its beer to independent beer
distributors for distribution to retailers and ultimately
drinkers. Although the Company currently has arrangements with
approximately 400 wholesale distributors, sustained growth will
require it to maintain such relationships and possibly enter
into agreements with additional distributors. Changes in control
or ownership of the current distribution network could lead to
less support of the Companys products. No assurance can be
given that the Company will be able to maintain or secure
additional distributors on terms favorable to the Company.
The Companys distribution agreements are generally
terminable by the distributor on short notice. While these
distribution agreements contain provisions regarding the
Companys enforcement and termination rights, some state
laws prohibit the Company from exercising these contractual
rights. The Companys ability to maintain its existing
distribution agreements may be adversely affected by the fact
that many of its distributors are reliant on one of the major
beer producers for a large percentage of their revenue and,
therefore, they may be influenced by such producers. If the
Companys existing distribution agreements are terminated,
it may not be able to enter into new distribution agreements on
substantially similar terms, which may result in an increase in
the costs of distribution.
The
Company is Dependent on Key Suppliers, Including Foreign
Sources; Its Dependence on Foreign Sources Creates Foreign
Currency Exposure for the Company; The Companys Use of
Natural Ingredients Creates Weather and Crop Reliability
Exposure for the Company.
The Company purchases a substantial portion of the raw materials
used in the brewing of its products, including its malt and
hops, from a limited number of foreign and domestic suppliers.
The Company purchased most of the malt used in the production of
its beer from one major supplier during 2007. The Company is
exposed to the quality of the barley crop each year, and
significant failure of a crop would adversely affect the
Companys costs. The Company believes that there are other
malt vendors available that are capable of supplying its needs.
The Company uses Noble hops for its Samuel
Adams®
lagers. Noble hops are varieties from several specific growing
areas recognized for superior taste and aroma properties and
include Hallertau-Hallertauer, Tettnang-Tettnanger and
Spalt-Spalter from Germany. Noble hops are rare and more
expensive than most other varieties of hops. Traditional English
hops, namely, East Kent Goldings and English Fuggles, are used
in the Companys ales. The Company enters into purchase
commitments with two hops dealers, based on the Companys
projected future volumes and brewing needs. The dealers then
contract with farmers to ensure that the Companys needs
are met. However, the performance and availability of the hops
may be materially adversely affected by factors such as adverse
weather, the imposition of export restrictions (such as
increased tariffs and duties) and changes in currency exchange
rates resulting in increased prices. The Company attempts to
maintain over one years supply of essential hop varieties
on-hand in order to limit the risk of an unexpected reduction in
supply. The 2007 crop shortfall and under delivery of 2007 hop
contracts has reduced the Companys hop inventories such
that a similarly poor 2008 hop crop might lead the Company to
explore alternative sources of hops, and any disruption of hop
supply, under delivery of 2008 contracts or growth in sales in
excess of forecast could lead the Company to be unable to meet
future demand. The Company stores its hops in multiple cold
storage warehouses to minimize the impact of a catastrophe at a
14
single site. Hops and malt are agricultural products and
therefore many outside factors, including weather conditions,
farmers rotating out of hops or barley to other crops,
government regulations and legislation affecting agriculture,
could affect both price and supply.
Historically, the Company has not experienced material
difficulties in obtaining timely delivery from its suppliers.
Although the Company believes that there are alternate sources
available for the ingredients and packaging materials, there can
be no assurance that the Company would be able to acquire such
ingredients or packaging materials from substitute sources on a
timely or cost effective basis in the event that current
suppliers could not adequately fulfill orders. The loss of a
supplier could, in the short-term, adversely affect the
Companys results of operations, cash flows and financial
position until alternative supply arrangements were secured.
The Companys contracts for hops are payable in Euros for
German hops and in Pounds Sterling for English hops, and
therefore, the Company is subject to the risk that the Euro or
Pound may continue to rise against the U.S. dollar, as has
been the case over the last several years. The Company has, as a
practice, not hedged this exposure, although this practice is
subject to review. Significant adverse fluctuations in foreign
currency exchange rates may have a material adverse effect on
our results of operations, cash flows and financial position.
Currently, the cost of hops is approximately 10% of the
Companys product cost. The cost of hops has greatly
increased in recent years due to exchange rate changes and the
rising market price of hops, and continuation of these trends
will impact the Companys product cost and potentially the
Companys ability to meet demand.
An
Increase in Packaging Costs Could Harm the Companys
Business.
The Company maintains multiple sources for the supply of most of
its packaging materials, such as shipping cases, six-pack
carriers and crowns. Historically, glass and labels are each
supplied by a single source. In 2007, the Company entered into a
long term supply agreement with Anchor. This agreement calls for
Anchor to be the exclusive supplier of glass bottles for the
Companys Cincinnati Brewery and the Pennsylvania Brewery,
if the acquisition of that brewery is consummated, beginning
January 1, 2009 and establishes the terms on which Anchor
may supply glass bottles to other breweries where the Company
brews its beers.
Although the Company believes that alternative suppliers are
available, the loss of either the Companys glass or other
packaging materials suppliers could, in the short-term,
adversely affect the Companys results of operations, cash
flows and financial position until alternative supply
arrangements were secured. If packaging costs continue to
increase, there is no guarantee that such costs can be fully
passed along to drinkers through increased prices. The Company
has entered into long-term supply agreements for certain
packaging materials that have shielded it from some cost
increases. These contracts have varying length and terms and
there is no guarantee that the economics of these contracts can
be duplicated at time of renewal. This could expose the Company
to significant cost increases in future years.
The Company initiates bottles deposits and reuses some of the
glass bottles that are returned pursuant to certain state bottle
recycling laws and derives some economic benefit from this
practice. The cost associated with reusing the glass varies,
based on the costs of collection, sorting and handling,
including arrangements with retailers, wholesalers and dealers
in recycled products. The Company believes that it benefits
economically from cleaning and reusing these bottles, which
result in a lower cost than purchasing new glass, and that it
benefits the environment by the reduction in landfill usage, the
reduction of usage of raw materials, and the lower utility costs
for reusing bottles versus producing new bottles. The economics
of using recycled glass varies based on the cost of collection,
sorting and handling, and may be affected by local regulation,
and retailer, distributor and glass dealer behavior. There is no
guarantee that the current economics of using returned glass
will continue, or that the Company will continue to do so.
An
Increase in Energy Costs Could Harm the Companys
Business.
In the last four years, the Company has experienced significant
increases in direct and indirect energy costs, and energy costs
could continue to rise, which would result in higher
transportation, freight and other operating costs, including
increases in the cost of supplies. The Companys future
operating expenses and
15
margins will be dependent on its ability to manage the impact of
cost increases. If energy costs continue to increase, there is
no guarantee that such costs can be fully passed along to
drinkers through increased prices.
The
Companys Operations are Subject to Certain Operating
Hazards.
The Companys operations are subject to certain hazards and
liability risks faced by all brewers, such as potential
contamination of ingredients or products by bacteria or other
external agents that may be wrongfully or accidentally
introduced into products or packaging. While the Company has not
experienced any serious contamination problem in its products,
the occurrence of such a problem could result in a costly
product recall and serious damage to the Companys
reputation for product quality, as well as claims for product
liability.
The
Company is Subject to Existing and Potential Additional
Regulation and Taxation, which Can Impose Burdens on Its
Operations and Narrow the Markets for Its
Products.
The manufacture and sale of alcoholic beverages is a business
that is highly regulated and taxed at the federal, state and
local levels. The Companys operations may be subject to
more restrictive regulations and increased taxation by federal,
state and local governmental agencies than are those of
non-alcohol related businesses. For instance, brewery and
wholesale operations require various federal, state and local
licenses, permits and approvals. In addition, some states
prohibit wholesalers and retailers from holding an interest in
any supplier such as the Company. Violation of such regulations
can result in the loss or revocation of existing licenses by the
wholesaler, retailer
and/or the
supplier. The loss or revocation of any existing licenses,
permits or approvals, failure to obtain any additional or new
licenses, permits or approvals or the failure to obtain approval
for the transfer of any existing permits or licenses, could have
a material adverse effect on the ability of the Company to
conduct its business. Because of the many and various state and
federal licensing and permitting requirements, there is a risk
that one or more regulatory authorities could determine that the
Company has not complied with applicable licensing or permitting
regulations, paid the appropriate excise taxes or does not
maintain the approvals necessary for it to conduct business
within their jurisdictions. There can be no assurance that any
such regulatory action would not have a material adverse effect
upon the Company or its operating results.
In addition, if federal or state excise taxes are increased, the
Company may have to raise prices to maintain present profit
margins. The Company does not necessarily believe that a price
increase due to increased taxes will reduce unit sales, but the
actual effect will depend on the amount of any increase, general
economic conditions and other factors. Higher taxes may reduce
overall demand for beer, thus negatively impacting sales of the
Companys products.
Further federal or state regulation may be forthcoming that
could limit distribution and sales of alcohol products. Such
regulation might reduce the Companys ability to sell its
products at retail and at wholesale and could severely impact
the Companys business.
The
Company is Under Audit by the TTB and has Received a Notice of
Demand for $8.5 Million. The Exact Outcome of this Matter is
Currently Unknown.
During the third quarter of 2007, the TTB performed a routine
audit of the Companys Cincinnati Brewery and other
breweries where some of the Companys products are produced
(the TTB Audit). In February 2008, the TTB formally
disputed the Companys regulatory and tax treatment of
certain of its 2006 and 2007 Twisted Tea shipments and the
Company has received a notice of demand for additional excise
taxes plus interest and penalties of approximately
$8.5 million. The TTB has asserted that these shipments
were not classified consistent with TTB regulations that took
effect January 1, 2006. Based on the Companys
analysis to date, it believes that most of its Twisted Tea
shipments were in compliance with applicable regulations. The
Company is in discussions with the TTB regarding the differences
in the methodologies used to ascertain regulatory compliance and
expects these discussions to eventually include potential
settlement terms. While the Company believes settlement should
be possible, the Company also believes that it has litigation
options available to it to dispute the TTB position. It is not
possible to determine the ultimate outcome of these discussions
or any future litigation, but based on information available on
December 29, 2007, the Company
16
concluded that the range of possible outcomes was between
$3.9 million and $9.3 million. In the first quarter of
2008 the Company has continued to gather additional information
and refine its analysis and currently estimates that, if it does
not pursue litigation, the potential expense could be as low as
$1.8 million and would not be expected to materially exceed
the approximate $8.5 million which the TTB has assessed,
after considering amounts the Company has previously paid. The
ultimate outcome of this matter could materially differ from the
Companys estimate. Based on the information previously
collected and its earlier assessment of likely outcomes, the
Company recorded a provision of $3.9 million in the third
quarter. The Company continues to maintain this provision in its
December 29, 2007 financial statements, related to this
contingency. Twisted Tea shipments were only minimally
interrupted due to this matter.
Changes
in Public Attitudes and Drinker Tastes Could Harm the
Companys Business.
The alcoholic beverage industry has become the subject of
considerable societal and political attention in recent years
due to increasing public concern over alcohol-related social
problems, including drunk driving, underage drinking and health
consequences from the misuse of alcohol, including alcoholism.
As an outgrowth of these concerns, the possibility exists that
advertising by beer producers could be restricted, that
additional cautionary labeling or packaging requirements might
be imposed, that further restrictions on the sale of alcohol
might be imposed, or that there may be renewed efforts to impose
increased excise or other taxes on beer sold in the United
States. The domestic beer industry, other than Better Beers, has
experienced a slight decline in shipments over the last ten
years. The Company believes that this slower growth is due to
both declining alcohol consumption per person in the population
and increased competition from wine and spirits companies. If
beer consumption in general were to come into disfavor among
domestic drinkers, or if the domestic beer industry were
subjected to significant additional governmental regulations,
the Companys business could be materially adversely
affected.
The
Company Has Been Involved in Various Litigation Matters. There
Is No Guarantee that Other Litigation Will Not Develop that
Could Harm the Companys Business.
The Company, along with numerous other beverage alcohol
producers, was named as a defendant in a number of class action
law suits in several states relating to advertising practices
and under-age consumption. Each complaint contained
substantially the same allegations that each defendant marketed
its products to under-age drinkers and seeks an injunction and
unspecified money damages on behalf of a class of parents and
guardians. Two of the complaints have been withdrawn by the
plaintiffs and all of the other active complaints have been
dismissed with prejudice. Although the plaintiffs appealed each
of those dismissals, they have withdrawn all pending appeals.
The Company had been in litigation with its liability insurers
relating to the coverage of defense costs in connection with the
above-referenced complaints. The parties entered into a
settlement agreement in November 2007 that settled all claims
asserted by each of the parties. The complaints filed with the
U.S. District Court in Ohio and with the Suffolk County
Superior Court in Massachusetts have subsequently been dismissed.
While the Company believes it conducts its business
appropriately in accordance with laws, regulations and industry
guidelines, further litigation in addition to the above could
develop and might severely impact the Companys results.
Class B
Shareholder Has Significant Influence over the
Company.
The Companys Class A Common Stock is not entitled to
any voting rights, except for the right as a class to approve
certain mergers and charter and by-law amendments and to elect a
minority of the directors of the Company. Consequently, the
election of a majority of the Companys directors and all
other matters requiring stockholder approval are decided by C.
James Koch, Chairman of the Board of Directors of the Company,
as the current holder of 100% of the Class B Common Stock.
As a result, Mr. Koch is able to exercise substantial
influence over all matters requiring stockholder approval,
including the composition of the board of directors and approval
of equity-based and other executive compensation and other
significant corporate matters. This
17
could have the effect of delaying or preventing a change in
control of the Company and will make most transactions difficult
or impossible to accomplish without the support of Mr. Koch.
Continued
Health of our Brands, and Role of our Founder in the Samuel
Adams®
Brand Communication
There is no guarantee that the brand equities that the Company
has built in its brands will continue to appeal to drinkers.
Changes in drinker attitudes or demands could severely affect
the strength of the brands and the revenue that is generated
from that strength. It is possible that the Company could react
to such changes and reposition the brands, but there is no
certainty that the Company would be able to maintain volumes,
pricing power and profitability. It is also possible that
marketing messages or other actions taken by the Company could
damage the brand equities as opposed to building them. If such
damage should occur, it could have a negative effect on the
financial condition of the Company.
In addition to these inherent brand risks, the founder and
Chairman of the Company, C. James Koch, is an integral part of
the Companys current Samuel
Adams®
brand message. The role of Mr. Koch as founder, brewer and
leader of the Company, is emphasized as part of the
Companys brand communication and has appeal to some
drinkers. If Mr. Koch were not available to the Company to
continue his active role, his absence could detrimentally affect
the strength of the Companys messaging and, accordingly,
the Companys growth prospects. If this were to occur, the
Company might need to adapt its strategy for communicating its
key messages regarding its traditional brewing processes,
brewing heritage and quality. This might have a detrimental
impact on the future growth of the Company.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
The Company has not received any written comments from the staff
of the Securities and Exchange Commission regarding the
Companys periodic or current reports that (1) the
Company believes are material, (2) were issued not less
than 180 days before the end of the Companys 2007
fiscal year, and (3) remain unresolved.
The Company maintains its principal corporate offices and a
brewery in Boston, Massachusetts, a brewery in Cincinnati, Ohio,
and two smaller sales offices in California. The Company expects
to close on the purchase of the Pennsylvania Brewery in June
2008, barring any unforeseen circumstances. In 2007, the Company
purchased land in Freetown, Massachusetts, for a purchase price
of $6.0 million. The Company has now concluded it will
proceed with the Pennsylvania Brewery purchase, and in February
2008, placed the land in Freetown, Massachusetts on the market.
The Company believes that its facilities are adequate for its
current needs and that suitable additional space will be
available on commercially acceptable terms as required.
|
|
Item 3.
|
Legal
Proceedings
|
The Company, along with numerous other beverage alcohol
producers, was named as a defendant in a number of class action
law suits in several states relating to advertising practices
and under-age consumption. Each complaint contained
substantially the same allegations that each defendant marketed
its products to under-age drinkers and seeks an injunction and
unspecified money damages on behalf of a class of parents and
guardians. Two of the complaints have been withdrawn by the
plaintiffs and all of the other active complaints have been
dismissed with prejudice. Although the plaintiffs appealed each
of those dismissals, they have withdrawn all pending appeals.
The Company had been in litigation with its liability insurers
relating to the coverage of defense costs in connection with the
above-referenced complaints. The parties entered into a
confidential settlement agreement and release in November 2007,
pursuant to which all claims asserted by each of the parties
were settled. The complaints filed in Ohio and Massachusetts
have subsequently been dismissed.
The Company is not a party to any other 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.
18
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
In December 2007, the sole holder of the Companys
Class B Common Stock (i) approved the action of the
Companys Compensation Committee in setting the 2008 bonus
opportunities for the Companys CEO and (ii) approved
an amendment to the Companys Employee Equity Incentive
Plan (the EEIP) to increase the number of shares of
Class A Common Stock subject to the EEIP by
1,000,000 shares. There were no other matters submitted to
a vote of the holders of Class A or Class B Common
Stock of the Company during the fourth quarter ended
December 29, 2007.
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
The Companys Class A Common Stock is listed for
trading on the New York Stock Exchange. The Companys NYSE
symbol is SAM. For the fiscal periods indicated, the high and
low per share sales prices for the Class A Common Stock of
The Boston Beer Company, Inc. as reported on the New York Stock
Exchange-Composite Transaction Reporting System were as follows:
|
|
|
|
|
|
|
|
|
Fiscal 2007
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$
|
36.23
|
|
|
$
|
30.80
|
|
Second Quarter
|
|
$
|
41.33
|
|
|
$
|
32.07
|
|
Third Quarter
|
|
$
|
49.73
|
|
|
$
|
38.86
|
|
Fourth Quarter
|
|
$
|
55.30
|
|
|
$
|
31.00
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2006
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$
|
27.50
|
|
|
$
|
24.75
|
|
Second Quarter
|
|
$
|
29.45
|
|
|
$
|
25.55
|
|
Third Quarter
|
|
$
|
33.99
|
|
|
$
|
28.00
|
|
Fourth Quarter
|
|
$
|
37.50
|
|
|
$
|
30.80
|
|
There were 15,452 holders of record of the Companys
Class A Common Stock as of March 7, 2008. Excluded
from the number of stockholders of record are stockholders who
hold shares in nominee or street name.
The closing price per share of the Companys Class A
Common Stock as of March 7, 2008 as reported under the New
York Stock Exchange-Composite Transaction Reporting System, was
$34.15.
Class A
Common Stock
At December 29, 2007, the Company had 22,700,000 authorized
shares of Class A Common Stock with a par value of $.01, of
which 10,095,573 were issued and outstanding. 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) future authorizations or
issuances of additional securities which have rights senior to
Class A Common Stock, (b) 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) certain 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
Companys assets.
Class B
Common Stock
At December 29, 2007, the Company had 4,200,000 authorized
shares of Class B Common Stock with a par value of $.01, of
which 4,107,355 shares were issued and outstanding. The
Class B Common Stock has full voting rights, including the
right to (1) elect a majority of the members of the
Companys Board of Directors and (2) approve all
(a) amendments to the Companys Articles of
Organization, (b) mergers or consolidations with, or
acquisitions of, other entities, (c) sales or dispositions
of any significant portion of the Companys
19
assets and (d) equity-based and other executive
compensation and other significant corporate matters. The
Companys Class B Common Stock is not listed for
trading. Each share of Class B Common Stock is freely
convertible into one share of Class A Common Stock, upon
request of any Class B holder.
As of March 7, 2008, C. James Koch was the sole holder of
record of all the Companys issued and outstanding
Class B Common Stock.
The holders of the Class A and Class B Common Stock
are entitled to dividends, on a
share-for-share
basis, only if and when declared by the Board of Directors of
the Company out of funds legally available for payment thereof.
Since its inception, the Company has not paid dividends and does
not currently anticipate paying dividends on its Class A or
Class B Common Stock in the foreseeable future.
Repurchases
of the Registrants Class A Common Stock
As of December 29, 2007, the Company has repurchased a
cumulative total of approximately 8.0 million shares of its
Class A Common Stock for an aggregate purchase price of
$98.7 million. On December 11, 2007, the Board of
Directors of the Company increased the aggregate expenditure
limit from $100.0 million to $110.0 million. As of
December 29, 2007, the Company had $11.3 million
remaining on the $110.0 million share buyback expenditure
limit.
During the twelve months ended December 29, 2007, the
Company repurchased 184,807 shares of its Class A
Common Stock as illustrated in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Approximate Dollar
|
|
|
|
|
|
|
|
|
|
Shares Purchased as
|
|
|
Value of Shares
|
|
|
|
Total
|
|
|
|
|
|
Part of Publicly
|
|
|
that May Yet be
|
|
|
|
Number of
|
|
|
Average
|
|
|
Announced
|
|
|
Purchased
|
|
|
|
Shares
|
|
|
Price Paid
|
|
|
Plans or
|
|
|
Under the
|
|
Period
|
|
Purchased
|
|
|
per Share
|
|
|
Programs
|
|
|
Plans or Programs
|
|
|
December 31, 2006 to February 3, 2007
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
7,396,644
|
|
February 4, 2007 to March 3, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,396,644
|
|
March 4, 2007 to March 31, 2007
|
|
|
268
|
|
|
|
12.61
|
|
|
|
|
|
|
|
7,396,644
|
|
April 1, 2007 to May 5, 2007
|
|
|
560
|
|
|
|
14.97
|
|
|
|
|
|
|
|
7,396,644
|
|
May 6, 2007 to June 2, 2007
|
|
|
322
|
|
|
|
17.15
|
|
|
|
|
|
|
|
7,396,644
|
|
June 3, 2007 to June 30, 2007
|
|
|
196
|
|
|
|
19.96
|
|
|
|
|
|
|
|
7,396,644
|
|
July 1, 2007 to August 4, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,396,644
|
|
August 5, 2007 to September 1, 2007
|
|
|
941
|
|
|
|
17.04
|
|
|
|
|
|
|
|
7,396,644
|
|
September 2, 2007 to September 29, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,396,644
|
|
September 30, 2007 to November 3, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,396,644
|
|
November 4, 2007 to December 1, 2007
|
|
|
44,520
|
|
|
|
33.01
|
|
|
|
44,500
|
|
|
|
5,927,774
|
|
December 2, 2007 to December 29, 2007
|
|
|
138,000
|
|
|
|
33.44
|
|
|
|
138,000
|
|
|
|
11,313,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
184,807
|
|
|
$
|
33.12
|
|
|
|
182,500
|
|
|
$
|
11,313,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of the shares that were purchased during the period,
2,307 shares represent repurchases of unvested investment
shares issued under the Investment Share Program of the
Companys Employee Equity Incentive Plan.
20
|
|
Item 6.
|
Selected
Consolidated Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
Dec. 31
|
|
|
|
|
|
|
|
|
|
Dec. 29
|
|
|
Dec. 30
|
|
|
2005
|
|
|
Dec. 25
|
|
|
Dec. 27
|
|
|
|
2007
|
|
|
2006
|
|
|
(53 weeks)
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands, except per share and net revenue per barrel
data)
|
|
|
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
380,575
|
|
|
$
|
315,250
|
|
|
$
|
263,255
|
|
|
$
|
239,680
|
|
|
$
|
230,103
|
|
Less excise taxes
|
|
|
38,928
|
|
|
|
29,819
|
|
|
|
24,951
|
|
|
|
22,472
|
|
|
|
22,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
341,647
|
|
|
|
285,431
|
|
|
|
238,304
|
|
|
|
217,208
|
|
|
|
207,945
|
|
Cost of goods sold
|
|
|
152,288
|
|
|
|
121,155
|
|
|
|
96,830
|
|
|
|
87,973
|
|
|
|
85,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
189,359
|
|
|
|
164,276
|
|
|
|
141,474
|
|
|
|
129,235
|
|
|
|
122,339
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising, promotional and selling expenses
|
|
|
124,457
|
|
|
|
113,669
|
|
|
|
100,870
|
|
|
|
94,913
|
|
|
|
91,841
|
|
General and administrative expenses
|
|
|
24,574
|
|
|
|
22,657
|
|
|
|
17,288
|
|
|
|
14,837
|
|
|
|
14,628
|
|
Write-off of brewery costs
|
|
|
3,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
152,474
|
|
|
|
136,326
|
|
|
|
118,158
|
|
|
|
109,750
|
|
|
|
106,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
36,885
|
|
|
|
27,950
|
|
|
|
23,316
|
|
|
|
19,485
|
|
|
|
15,870
|
|
Other income, net
|
|
|
4,759
|
|
|
|
3,816
|
|
|
|
2,203
|
|
|
|
593
|
|
|
|
1,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
41,644
|
|
|
|
31,766
|
|
|
|
25,519
|
|
|
|
20,078
|
|
|
|
16,974
|
|
Provision for income taxes
|
|
|
19,153
|
|
|
|
13,574
|
|
|
|
9,960
|
|
|
|
7,576
|
|
|
|
6,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
22,491
|
|
|
$
|
18,192
|
|
|
$
|
15,559
|
|
|
$
|
12,502
|
|
|
$
|
10,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic
|
|
$
|
1.58
|
|
|
$
|
1.31
|
|
|
$
|
1.10
|
|
|
$
|
0.89
|
|
|
$
|
0.72
|
|
Net income per share diluted
|
|
$
|
1.53
|
|
|
$
|
1.27
|
|
|
$
|
1.07
|
|
|
$
|
0.86
|
|
|
$
|
0.70
|
|
Weighted average shares outstanding basic
|
|
|
14,193
|
|
|
|
13,900
|
|
|
|
14,126
|
|
|
|
14,126
|
|
|
|
14,723
|
|
Weighted average shares outstanding diluted
|
|
|
14,699
|
|
|
|
14,375
|
|
|
|
14,516
|
|
|
|
14,518
|
|
|
|
15,000
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
77,736
|
|
|
$
|
79,692
|
|
|
$
|
60,450
|
|
|
$
|
61,530
|
|
|
$
|
45,920
|
|
Total assets
|
|
$
|
195,855
|
|
|
$
|
154,475
|
|
|
$
|
119,054
|
|
|
$
|
107,462
|
|
|
$
|
87,354
|
|
Total long-term obligations
|
|
$
|
4,210
|
|
|
$
|
5,016
|
|
|
$
|
4,336
|
|
|
$
|
2,854
|
|
|
$
|
2,931
|
|
Total stockholders equity
|
|
$
|
133,588
|
|
|
$
|
108,589
|
|
|
$
|
85,979
|
|
|
$
|
78,370
|
|
|
$
|
62,524
|
|
Statistical Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barrels sold
|
|
|
1,876
|
|
|
|
1,612
|
|
|
|
1,364
|
|
|
|
1,267
|
|
|
|
1,236
|
|
Net revenue per barrel
|
|
$
|
182
|
|
|
$
|
177
|
|
|
$
|
175
|
|
|
$
|
171
|
|
|
$
|
168
|
|
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Forward-Looking
Statements
In this
Form 10-K
and in other documents incorporated herein, as well as in oral
statements made by the Company, statements that are prefaced
with the words may, will,
expect, anticipate,
continue, estimate, project,
intend, designed, and similar
expressions, are intended to identify forward-looking statements
regarding events, conditions, and financial trends that may
affect the Companys future plans of operations, business
strategy, results of operations, and financial position. These
statements are based on the Companys current expectations
and estimates as to prospective events and circumstances about
which the Company can give no firm assurance. Further, any
forward-looking statement speaks only as of the date on which
such statement is made, and the Company undertakes no obligation
to update any forward-looking statement to reflect future events
or circumstances. Forward-looking statements should not be
relied upon as a prediction of actual future financial condition
or results. These forward-looking statements, like any
forward-looking statements, involve risks and uncertainties that
21
could cause actual results to differ materially from those
projected or unanticipated. Such risks and uncertainties include
the factors set forth above and the other information set forth
in this
Form 10-K.
Introduction
and Outlook
The Boston Beer Company is engaged in the business of producing
and selling low alcohol beverages primarily in the domestic
market and, to a lesser extent, in selected international
markets. The Companys revenues are derived by selling its
products to distributors, who in turn sell the product through
to retailers and drinkers.
The Companys products compete in the Better
Beer category, which includes imported beers and Craft
Beers. This category has seen high single-digit compounded
annual growth over the past ten years. Defining factors for
Better Beer include superior quality, image and taste, supported
by appropriate pricing. The Company believes that the Better
Beer category is positioned to increase market share as drinkers
continue to trade up in taste and quality. In 2007, growth of
the Craft Beer category was approximately 12%, and the Better
Beer category grew 2 to 3% while the total beer category grew 1
to 2%. The Better Beer category now comprises approximately 19%
of domestic beer consumption. The Company believes that
significant opportunity to gain market share continues to exist
for the Better Beer category.
Shipments and orders in-hand suggest that core shipments for the
first fiscal quarter of 2008 could be up approximately 10% as
compared to the same period in 2007. Actual shipments may
differ, however, and no inferences should be drawn with respect
to shipments in future periods. January and preliminary February
2008 depletions, or sales by the wholesalers to retailers, are
estimated to be up approximately 14% over 2007 benefiting from
an extra selling day. While there is no guarantee that these
trends will continue, the Company is encouraged by the strong
start to 2008. The Companys 2008 plan calls for depletion
growth in the low double digits, which is lower than the 2007
trends. The Companys pricing plans include an overall 5%
increase, which the Company believes is attainable given current
market conditions.
Based on current known information, the Company is facing
overall production cost increases in 2008 estimated to be
between 12% and 16% over full year 2007. Of these estimated
increases, approximately 7% are expected to be driven by malt
and hops cost increases, approximately 1% by package material
cost increases, and approximately 3% is anticipated due to the
costs of starting up the Pennsylvania Brewery. In addition,
potential incremental costs associated with contract brewers
account for 2% of the estimated increase and increased
depreciation cost due to significant keg purchases to support
our on-premise growth could contribute another 2%. These cost
increases may be somewhat offset by the Companys plans for
price increases of 5%, but the Company anticipates that
2008 gross margin could be down three percentage points
below full year 2007. The Company believes that its 2008
effective tax rate will be approximately 42%. Based upon these
assumptions, 2008 earnings per diluted share are expected to be
between $1.70 and $2.00, absent any significant change in the
currently planned levels of brand support or any unexpected
costs related to the Pennsylvania Brewery acquisition and
start-up.
Current plans for 2008 are to increase brand support by $10.0 to
$13.0 million including freight expense to wholesalers. The
Companys ability to achieve this type of earnings growth
in 2008 is dependent on its ability to achieve challenging
targets for volume, pricing and costs and the successful
start-up of
the Pennsylvania Brewery. The Company continues to pursue cost
savings initiatives and pricing opportunities and hopes to
preserve its economics to allow for continued support of its
brands with appropriate investment in order to grow volume and
earnings.
During the third quarter of 2007, the Company entered into a
Contract of Sale to purchase from Diageo North America, Inc. the
Pennsylvania Brewery for $55 million. During the fourth
quarter of 2007, the Company completed its due diligence phase
and paid the balance of a total deposit of $10 million. The
Company expects to close on the purchase of the Pennsylvania
Brewery in June 2008, barring any unforeseen circumstances. The
Company anticipates that the Pennsylvania Brewery will require
substantial investment and renovation in order to brew the
Companys Samuel
Adams®
Craft Beers. In addition to the purchase price of
$55 million, the Company expects to have spent between
$45 million and $55 million in capital improvements
and due diligence by the end of 2008. The Company anticipates
spending a further $10 million to $15 million in 2009
to get the facility in a position to brew and package up to
1.4 million barrels of the Companys beers. The
Company has also identified a further $25 million to
$35 million of projects which appear to have attractive
return on investment or address increased capabilities that the
Company may choose to make during the next few years. If the
Company decides
22
to expand the capacity of the Pennsylvania Brewery beyond
1.4 million barrels, additional capital would be needed. As
of December 29, 2007, the Company has spent
$2.1 million of this capital plan. The Company currently
expects that the facility will be partially operational for its
brands during the summer of 2008.
The Company had previously been contemplating the construction
of a brewery in Freetown, Massachusetts. As the probability of
proceeding on this site decreased due to entering into the
Contract of Sale with Diageo for the Pennsylvania Brewery, the
Company determined that it was appropriate to write off in the
second quarter of 2007 the $3.4 million that had been
capitalized through June 30, 2007 on the Massachusetts
brewery project. In August 2007, the Company purchased the land
in Freetown, Massachusetts for $6.0 million as protection
against the possibility that the results of the due diligence on
the Pennsylvania Brewery might prove unsatisfactory. The Company
has now concluded it will proceed with the Pennsylvania Brewery
purchase, and in February 2008, placed the land in Freetown,
Massachusetts on the market.
The Company currently estimates total capital expenditures in
2008 to be between $110.0 and $125.0 million, of which
$45 million is the balance of the Pennsylvania Brewery
purchase price, and $45 to $55 million relates to capital
expenditures necessary to restart and upgrade the Pennsylvania
Brewery. Approximately $15 million will be utilized to
purchase kegs to support continuing growth, approximately $3 to
$5 million may be used to upgrade the brewery in
Cincinnati, Ohio, and $2 to $3 million will be for
investments in technology and other miscellaneous capital
investments. The Companys capital investment would be
significantly higher if other major brewery investment projects
were initiated. As of March 10, 2008 the Company has
increased its existing line of credit from $20 million to
$50 million and has no borrowings outstanding. The Company
expects that its cash and investment balances as of
December 29, 2007 of $95.5 million along with future
operating cash flow and the line of credit will be sufficient to
fund future cash requirements.
Results
of Operations
Boston Beers flagship product is Samuel Adams Boston
Lager®.
For purposes of this discussion, Boston Beers core
brands include all products sold under the Samuel
Adams®,
Sam
Adams®,
Twisted
Tea®
and
HardCore®
trademarks. Core brands do not include the products
brewed at the Cincinnati Brewery under contract arrangements for
third parties. Volume produced under contract arrangements is
referred to below as non-core products.
The following table sets forth certain items included in the
Companys consolidated statements of income as a percentage
of net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
Dec. 31
|
|
|
|
Dec. 29
|
|
|
Dec. 30
|
|
|
2005
|
|
|
|
2007
|
|
|
2006
|
|
|
(53 weeks)
|
|
|
Barrels Sold (in thousands)
|
|
|
1,876
|
|
|
|
1,612
|
|
|
|
1,364
|
|
|
|
|
|
|
Percentage of Net
Revenue
|
Net revenue
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
Cost of goods sold
|
|
|
44.6
|
%
|
|
|
42.4
|
%
|
|
|
40.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
55.4
|
%
|
|
|
57.6
|
%
|
|
|
59.4
|
%
|
Advertising, promotional and selling expenses
|
|
|
36.4
|
%
|
|
|
39.8
|
%
|
|
|
42.3
|
%
|
General and administrative expenses
|
|
|
7.2
|
%
|
|
|
7.9
|
%
|
|
|
7.3
|
%
|
Write-off of brewery costs
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
44.6
|
%
|
|
|
47.8
|
%
|
|
|
49.6
|
%
|
Operating income
|
|
|
10.8
|
%
|
|
|
9.8
|
%
|
|
|
9.8
|
%
|
Interest income, net
|
|
|
1.2
|
%
|
|
|
1.1
|
%
|
|
|
0.7
|
%
|
Other income, net
|
|
|
0.1
|
%
|
|
|
0.2
|
%
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
12.1
|
%
|
|
|
11.1
|
%
|
|
|
10.7
|
%
|
Provision for income taxes
|
|
|
5.6
|
%
|
|
|
4.8
|
%
|
|
|
4.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
6.5
|
%
|
|
|
6.4
|
%
|
|
|
6.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
Year
Ended December 29, 2007 (52 weeks) Compared to Year
Ended December 30, 2006 (52 weeks)
Net revenue. Net revenue increased by
$56.2 million or 19.7% to $341.6 million for the year
ended December 29, 2007 as compared to $285.4 million
for the year ended December 30, 2006, due to an 18.8%
increase in shipment volume and a 2.8% increase in net revenue
per barrel.
Volume. Volume increased by 0.3 million
barrels or 18.8% to 1.9 million barrels for the year ended
December 29, 2007 as compared to 1.6 million barrels
for the year ended December 30, 2006. The increase in
volume was primarily attributable to increases in the Samuel
Adams®
brand family. The growth in the Samuel
Adams®
brand family was driven by double-digit growth rates in Samuel
Adams®
Seasonals and Brewmasters Collection and single-digit
growth rates in Sam Adams
Light®
and Samuel Adams Boston
Lager®.
The Company believes wholesaler inventory levels at the end of
the fourth quarter of 2007 were at appropriate levels given the
current volume and trends.
Net selling price. The selling price per
barrel increased by approximately 2.8% to $182.11 per barrel for
the year ended December 29, 2007, as compared to $177.07
for the year ended December 30, 2006. This increase was
primarily driven by price increases, offset by the
$3.9 million provision for excise tax recorded in the third
quarter related to the TTB audit and a shift in the package mix
from cases to kegs.
Significant changes in the package mix could have a material
effect on net revenue. The Company packages its core brands in
kegs and bottles. Assuming the same level of production, a shift
in the mix from bottles to kegs would effectively decrease
revenue per barrel, as the price per equivalent barrel is lower
for kegs than for bottles. The percentage of bottles to total
shipments decreased by 0.5% point in core brands to 72.7% of
total shipments for the year ended December 29, 2007 as
compared to 2006.
Gross profit. Gross profit was $100.94
per barrel or 55.4% as a percentage of net revenue for the year
ended December 29, 2007, as compared to $101.91 or 57.6%
for the year ended December 30, 2006. The decrease in gross
profit per barrel is primarily due to increase in cost of goods
sold per barrel as compared to the prior year and the provision
for excise tax related to the TTB audit, partially offset by
price increases.
Cost of goods sold increased to $81.18 per barrel or 44.6% as a
percentage of net revenue as compared to $75.16 per barrel or
42.4% as a percentage of net revenue in the prior year. The
increase is primarily due to higher packaging material and
ingredient costs and the increase in other processing costs at
our Cincinnati Brewery as compared to 2006.
The Company includes freight charges related to the movement of
finished goods from manufacturing locations to distributor
locations in its advertising, promotional and selling expense
line item. As such, the Companys gross margins may not be
comparable to other entities that classify costs related to
distribution differently.
Advertising, promotional and
selling. Advertising, promotional and selling
expenses increased by $10.8 million or 9.5% to
$124.5 million for the year ended December 29, 2007,
as compared to the prior year. The increase is primarily due to
increases in advertising, marketing and promotional expenditures
of $6.5 million, freight costs of $3.3 million and
salaries and benefits (including stock based compensation) of
$2.1 million. The Company will invest in advertising and
promotional campaigns that it believes are effective, but there
is no guarantee that such investments will generate sales growth.
The Company conducts certain advertising and promotional
activities in its wholesalers markets, and the wholesalers
make contributions to the Company for such efforts. These
amounts are included in the Companys statement of
operations as reductions to advertising, promotional and selling
expenses. Historically, contributions from wholesalers for
advertising and promotional activities have amounted to between
2% and 4% of net sales. The Company may adjust its promotional
efforts in the wholesalers markets if changes occur in
these promotional contribution arrangements, depending on the
industry and market conditions.
General and administrative. General and
administrative expenses increased by $1.9 million or 8.3%
to $24.6 million in 2007 as compared to 2006, primarily due
to increases in salaries and benefits of $2.5 million
offset by a $0.9 million reimbursement of prior period
legal costs due to a settlement reached in the fourth quarter.
24
Write-off of Brewery Costs. During the
second quarter, the Company incurred a $3.4 million
write-off of capitalized costs related to the Freetown,
Massachusetts brewery project. The Company concluded that the
likelihood of this project significantly diminished as the
Companys negotiations with Diageo North America progressed
and ultimately culminated in the completion of the Contract of
Sale for the brewery owned by Diageo in Lehigh Valley,
Pennsylvania.
Stock-Based Compensation
Expense. Effective January 1, 2006, the
Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123R, Share-Based Payment,
which generally requires recognition in financial statements of
share-based compensation costs based on fair value of the
awards. Further discussion on the effect of adoption is
presented in the results of operations comparing fiscal 2006 to
fiscal 2005.
For the year ended December 29, 2007, an aggregate of
$3.1 million in stock-based compensation expense is
included in advertising, promotional and selling expense and
general and administrative expenses, as compared to
$2.8 million in 2006. Stock-based compensation expense
increased $0.3 million in 2007 as compared to 2006 due to
more option grants during 2007, as well as an increase in the
fair value of those options.
On January 1, 2008, the Company granted the Chief Executive
Officer an option to purchase 753,864 shares of its
Class A Common Stock, which vest over a five-year period,
commencing on January 1, 2014, at the rate of 20% per year.
The Company calculated the aggregate fair value of the option
grant to be $6.3 million, of which it expects to recognize
$0.7 million in 2008.
Interest income. Interest income
increased by $1.2 million to $4.3 million for the year
ended December 29, 2007 primarily due to higher interest
rates earned on increased average cash and investment balances
during 2007 as compared to 2006.
Other income, net. Other income
decreased by $0.2 million to income of $0.5 million
for the year ended December 29, 2007 as compared to income
of $0.7 million in the prior year. The decrease is due
primarily to increased disposals of equipment in 2007.
Provision for income taxes. The
Companys effective income tax rate for the year ended
December 29, 2007 increased to 46.0% from the 2006 rate of
42.7%. The increase primarily resulted from an additional
$2.2 million income tax provision recorded in the fourth
quarter of 2007 due to the Companys review of its
judgments concerning certain income tax deductions, in response
to an income tax audit.
Year
Ended December 30, 2006 (52 weeks) Compared to Year
Ended December 31, 2005 (53 weeks)
Fiscal periods. The 2006 fiscal year
consisted of 52 weeks as compared to 53 weeks in
fiscal 2005.
Net revenue. Net revenue increased by
$47.1 million or 19.8% to $285.4 million for the year
ended December 30, 2006 as compared to $238.3 million
for the year ended December 31, 2005, due to an 18.2%
increase in shipment volume and a 1.3% increase in net revenue
per barrel.
Volume. Volume increased by 0.2 million
barrels or 18.2% to 1.6 million barrels for the year ended
December 30, 2006 as compared to 1.4 million barrels
for the year ended December 31, 2005. The increase in
volume was attributable to increases in the Samuel
Adams®
brand family and the Twisted
Tea®
brand family. The growth in the Samuel
Adams®
brand family was driven by double-digit growth rates in Samuel
Adams®
Seasonals and Brewmasters Collection and the Twisted
Tea®
brand family and single-digit growth rates in Sam Adams
Light®
and Samuel Adams Boston
Lager®.
Net selling price. The selling price per
barrel increased by approximately 1.3% to $177.07 per barrel for
the year ended December 30, 2006, as compared to $174.71
for the year ended December 31, 2005. This increase was
primarily driven by price increases and a slight shift in the
package mix from kegs to cases. The percentage of bottles to
total shipments increased by 0.5% in core brands to 73.1% of
total shipments for the year ended December 30, 2006 as
compared to 2005.
Gross profit. Gross profit was $101.91
per barrel or 57.6% as a percentage of net revenue for the year
ended December 30, 2006, as compared to $103.72 or 59.4%
for the year ended December 31, 2005. The decrease in
25
gross profit per barrel is primarily due to increase in cost of
goods sold per barrel as compared to the prior year, partially
offset by price increases.
Cost of goods sold increased to $75.16 per barrel or 42.4% as a
percentage of net revenue as compared to $70.99 per barrel or
40.6% as a percentage of net revenue in the prior year. The
increase is primarily due to higher packaging material and
supply chain costs as compared to 2005, as well as shifts in the
product and package mix.
Advertising, promotional and
selling. Advertising, promotional and selling
expenses increased by $12.8 million or 12.7% to
$113.7 million for the year ended December 30, 2006,
as compared to the prior year. The increase is primarily due to
increases in freight costs, selling costs and promotional
expenditures.
General and administrative. General and
administrative expenses increased by $5.4 million or 31.2%
to $22.7 million in 2006 as compared to 2005, primarily due
to increases in salaries and benefits (including stock based
compensation of $1.9 million due to performance-based stock
options and the adoption of SFAS No. 123R,
Share-Based Payment, consulting, insurance and
depreciation expense.
Stock-Based Compensation Expense. For
the year ended December 30, 2006, an aggregate of
$2.8 million in stock-based compensation expense is
included in advertising, promotional and selling expense and
general and administrative expenses. Effective January 1,
2006, the Company adopted SFAS No. 123R which
generally requires recognition in financial statements of
share-based compensation costs based on fair value of the
awards. Prior to the adoption of SFAS No. 123R, the
Company accounted for share-based arrangements using the
intrinsic value method under Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations and
provided pro forma disclosures applying the fair value
recognition provisions of SFAS No. 123, Accounting
for Stock-Based Compensation, to stock-based awards. For the
year ended December 30, 2006, the effect of the adoption of
SFAS No. 123R, as compared to the method under APB
Opinion No. 25, was a decrease in income before provision
for income taxes by $0.7 million and a decrease in net
income by $0.4 million, or $0.03 per basic and diluted
common share. Because the Company elected to use the
modified-prospective application as its transition method under
SFAS No. 123R, prior period financial statements were
not restated. Had the Company recognized compensation expense
under the fair value method during the year ended
December 31, 2005, such expense would have decreased income
before provision for income taxes by $1.6 million and net
income by $1.0 million, or $0.07 and $0.06 per basic and
diluted common share, respectively.
For stock options granted prior to January 1, 2006, fair
values were estimated on the date of grants using a
Black-Scholes option-pricing model. As permitted by
SFAS No. 123R, the Company elected to use a binomial
option-pricing model to estimate the fair values of stock
options granted on or after January 1, 2006. The Company
believes that the Black-Scholes option-pricing model is less
effective than the binomial option-pricing model in valuing
long-term options as it assumes that volatility and interest
rates are constant over the life of the option. In addition, the
Company believes that the binomial option-pricing model more
accurately reflects the fair value of its stock awards, as it
takes into account historical employee exercise patterns based
on changes in the Companys stock price and other relevant
variables. The weighted-average fair value of stock options
granted during the year ended December 31, 2005 was $9.35
per share, as calculated using the Black-Scholes option-pricing
model. The weighted-average fair value of stock options granted
during the year ended December 30, 2006 was $8.43 per
share, as calculated using a binomial option-pricing model. Had
the Company used the Black-Scholes option-pricing model to value
stock options granted during 2006, the weighted-average fair
value would have been $10.65 per share and stock-based
compensation expense for the year ended December 30, 2006
would have been higher by $0.2 million.
The Company uses the straight-line attribution method in
recognizing stock-based compensation expense for awards that
vest based on service conditions. For awards that vest subject
to performance conditions, compensation expense is recognized
ratably for each tranche of the award over the performance
period if it is probable that performance conditions will be
met. These methods are consistent with the methods the Company
used in recognizing stock-based compensation expense for
disclosure purposes under SFAS No. 123 prior to the
adoption of SFAS No. 123R. In June 2005, an option to
purchase 300,000 shares of the Companys common stock
was granted to the Companys chief executive officer. This
option vests based upon the achievement of performance targets.
During the fourth quarter of 2006, the Company was able to
estimate for
26
the first time that the achievement of performance targets in
relation to 180,000 shares of this option is probable.
Consequently, the Company recorded $0.8 million in
stock-based compensation expense related to this stock option in
the fourth quarter of 2006.
Interest income. Interest income
increased by $1.4 million to $3.1 million for the year
ended December 30, 2006 primarily due to higher interest
rates earned on increased average cash and investment balances
during 2006 as compared to 2005.
Other income, net. Other income
increased by $0.3 million to income of $0.7 million
for the year ended December 30, 2006 as compared to income
of $0.4 million in 2005. The increase is due primarily to
disposals of equipment in 2005 and certain equipment rental
income in 2006.
Provision for income taxes. The
Companys effective income tax rate for the year ended
December 30, 2006 increased to 42.7% from the 2005 rate of
39.0% primarily due to an incremental accrual for state income
taxes of $1.0 million for fiscal years 2003 to 2006.
Liquidity
and Capital Resources
Cash and short term investments increased to $95.5 million
as of December 29, 2007 from $82.4 million as of
December 30, 2006, primarily due to cash flows provided by
operating activities and proceeds from stock option exercise and
related tax benefits, partially offset by cash used in investing
activities to purchase property, plant and equipment and
repurchases of common stock.
Cash flows provided by operating activities consist of net
income, adjusted for certain non-cash items, such as
depreciation and amortization, stock-based compensation expense
and related excess tax benefit, and other non-cash items
included in operating results. Also affecting cash flows
provided by operating activities are changes in operating assets
and liabilities, such as accounts receivable, accounts payable
and accrued expenses.
Cash flows provided by operating activities of
$53.8 million in 2007 consisted of net income of
$22.5 million, non-cash items of $6.4 million and the
write-off of brewery costs of $3.4 million (the last of
which is discussed in Results of Operations). Cash
flows provided by operating activities in 2007 is also affected
by proceeds from the sale of trading securities of
$3.0 million, net of purchases, and a net decrease in
operating assets and liabilities of $18.4 million. The net
decrease in operating assets and liabilities in 2007 primarily
resulted from an increase in accrued expenses due to a
$6.9 million increase in accrued deposits due to higher
sales volume and the implementation of an increase in per keg
deposit charge, the $3.9 million provision for contingent
excise tax related to the TTB matter, the $2.2 million
additional tax provision related to an income tax audit, and
various accrued expenses related to capital expenditure at the
Pennsylvania Brewery. Cash flows provided by operating
activities of $29.0 million in 2006 primarily consisted of
net income of $18.2 million, non-cash items of
$4.9 million, net proceeds from the sale of trading
securities of $3.2 million, and a net decrease in operating
assets and liabilities of $2.7 million.
Comparing 2007 to 2006, cash flows provided by operating
activities increased by $24.8 million. Of the increase,
$4.3 million resulted from the increase in net income, due
to the growth in the Companys core business (as discussed
in Results of Operations), and $5.0 million
resulted from the increase in non-cash items. The remaining
increase in cash flows provided by operating activities resulted
from the net decrease in operating assets and liabilities of
$18.4 million in 2007, as compared to the $2.7 million
net decrease in 2006.
The Company used $37.1 million in investing activities
during 2007 as compared to $9.0 million in 2006. Investing
activities during 2007 primarily consisted of $10 million
of deposits related to the proposed Pennsylvania Brewery
acquisition, $9.6 million for purchases of kegs to support
volume growth, $5.7 million related to the land purchased
in Freetown, Massachusetts, $2.0 million paid for other
expenses capitalized in relation to the Freetown, Massachusetts
brewery project, $2.4 million for equipment purchases
related to upgrades to the Latrobe, Pennsylvania brewery, and
$2.1 million related to equipment purchases to upgrade the
Pennsylvania Brewery.
27
Cash used in financing activities was $0.5 million during
2007, a change of $2.2 million from the $1.7 million
of cash provided by financing activities in 2006. The decrease
is primarily due to an increase of $0.8 million in
repurchases of the Companys Class A Common Stock
under its Stock Repurchase Program and a $1.1 million
decrease in proceeds from exercise of stock options.
During the year ended December 29, 2007, the Company
repurchased 0.2 million shares of its Class A Common
Stock for a total cost of $6.1 million. On
December 11, 2007, the Board of Directors of the Company
increased the aggregate expenditure limit for the Companys
Stock Repurchase Program by $10.0 million, thereby
increasing the limit from $100.0 million to
$110.0 million. As of December 29, 2007, the Company
has repurchased a cumulative total of approximately
8.0 million shares of its Class A Common Stock for an
aggregate purchase price of $98.7 million and had
approximately $11.3 million remaining on the
$110.0 million share buyback expenditure limit.
On February 13, 2008, the Board of Directors of the Company
further increased the aggregate expenditure limit for the
Companys Stock Repurchase Program by $10.0 million,
thereby increasing the limit from $110.0 million to
$120.0 million. From December 30, 2007 to
March 7, 2008, the Company has repurchased an additional
0.4 million shares of its Class A Common Stock for a
total cost of $15.3 million. As of March 7, 2008, the
Company has repurchased a cumulative total of approximately
8.5 million shares of its Class A Common Stock for an
aggregate purchase price of $114.0 million and had $6.0
remaining on the $120.0 million share buyback expenditure
limit established by the Companys Board of Directors.
During 2007, the Companys available cash was invested
primarily in high-grade tax-exempt and taxable money-market
funds, and high grade Municipal Auction Rate Securities with
geographic diversification and short-term maturities. The
Companys investment objectives are to preserve principal,
maintain liquidity, optimize return on investment and minimize
fees, transaction costs and expenses associated with the
selection and management of the investment securities. In
January 2008, the Company liquidated the remainder of its
investments in high grade Municipal Auction Rate Securities,
without incurring gains or losses, in order to fund various
capital projects related to the Pennsylvania Brewery acquisition.
As of March 10, 2008 the Company has increased its existing
credit facility from $20.0 million to $50.0 million.
The Company was not in violation of any of its covenants to the
lender under the credit facility and there were no amounts
outstanding under the credit facility as of the date of this
filing. Based upon current projections, the Company expects that
its working capital of $77.7 million at December 29,
2007, cash flows from operations and the credit facility should
be sufficient to meet the Companys short-term and
long-term operating and capital requirements.
Critical
Accounting Policies
The discussion and analysis of our financial condition and
results of operations is based upon our consolidated financial
statements, which have been prepared in accordance with
U.S. generally accepted accounting principles. The
preparation of these financial statements requires us to make
significant estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. These
items are monitored and analyzed by management for changes in
facts and circumstances, and material changes in these estimates
could occur in the future. Changes in estimates are recorded in
the period in which they become known. We base our estimates on
historical experience and various other assumptions that we
believe to be reasonable under the circumstances. Actual results
may differ from our estimates if past experience or other
assumptions do not turn out to be substantially accurate.
Inventories
Inventories are stated at the lower of cost, determined on a
first-in,
first-out basis, or market. Our provisions for excess or expired
inventory are based on managements estimates of forecasted
usage of inventories. A significant change in the timing or
level of demand for certain products as compared to forecasted
amounts may result in recording additional provisions for excess
or expired inventory in the future. Provisions for excess
inventory are recorded as cost of goods sold.
28
The Company uses certain Noble hops grown in Germany and certain
English hops, for which it enters into purchase commitments to
ensure adequate numbers of farmers in its preferred growing
regions are planting and maintaining the proper quality hop
vines. The Company manages hop inventory and contract levels as
necessary to attempt to ensure that it has access to the best
hops each year. The current inventory and contract levels are
lower than would be normally preferred due to the under delivery
of 2007 contracts, but the Company currently believes the
current inventory and expected hop deliveries in 2008 to be
adequate to meet 2008 brewing requirements. The Companys
ability to meet future years brewing demand will be dependent on
good hop crops and full delivery against the Companys hop
contracts in the future. Actual hops usage and needs may differ
materially from managements estimates.
Valuation
of Long-Lived Assets
The Companys long-lived assets include property, plant and
equipment which are depreciated over their estimated useful
lives. For purposes of determining whether there are any
impairment losses, as further discussed below, management has
historically examined the carrying value of the Companys
identifiable long-lived assets, including their useful lives,
when indicators of impairment are present. For all long-lived
assets, if an impairment loss is identified based on the fair
value of the asset, as compared to the carrying value of the
asset, such loss would be charged to expense in the period the
impairment is identified. Furthermore, if the review of the
carrying values of the long-lived assets indicates impairment of
such assets, the Company may determine that shorter estimated
useful lives are more appropriate. In that event, the Company
will be required to record additional depreciation in future
periods, which will reduce earnings.
Factors generally considered important which could trigger an
impairment review on the carrying value of long-lived assets
include the following: (1) significant underperformance
relative to expected historical or projected future operating
results; (2) significant changes in the manner of use of
acquired assets or the strategy for the Companys overall
business; (3) underutilization of assets; and
(4) discontinuance of products by the Company or its
customers. Although the Company believes that the carrying value
of its long-lived assets was realizable as of December 29,
2007, future events could cause the Company to conclude
otherwise.
Promotional
Activities Accrual
Throughout the year, the Companys sales force engages in
numerous promotional activities. In connection with its
preparation of financial statements and other financial
reporting, management is required to make certain estimates and
assumptions regarding the amount and timing of expenditures
resulting from these activities. Actual expenditures incurred
could differ from managements estimates and assumptions.
Distributor
Promotional Discount Allowance
The Company enters into promotional discount agreements with its
various wholesalers for certain periods of time. The
agreed-upon
discount rates are applied to the wholesalers sales to
retailers in order to determine the total discounted amount. The
computation of the discount accrual requires that management
make certain estimates and assumptions that affect the reported
amounts of related assets at the date of the financial
statements and the reported amounts of revenue during the
reporting period. Actual promotional discounts owed and paid
could differ from the estimated accrual.
Stale
Beer Accrual
In certain circumstances and with the Companys approval,
the Company accepts and destroys stale beer that is returned by
distributors. For several years, the Company has credited
approximately fifty percent of the distributors cost of
the beer that has passed its expiration date for freshness when
it is returned to the Company or destroyed. The Company
establishes an accrual based upon both historical returns
expense, which
29
is applied to an estimated lag time for receipt of product, and
the Companys knowledge of specific return transactions.
The actual stale beer expense incurred by the Company could
differ from the estimated accrual.
Deposits
The Company purchases kegs from vendors and records these assets
in property, plant and equipment. Purchases of pallets are
expensed as incurred. When the kegs and pallets are shipped to
the distributors, a deposit is collected. This deposit is
refunded to the distributors upon return of the kegs and pallets
to the Company. An allowance for deposits, a current liability,
is estimated based on historical information and this
computation requires that management make certain estimates and
assumptions that affect the reported amounts of deposit
liabilities at the date of the financial statements and the
reported amounts of revenue during the reporting period. Actual
deposit redemptions could differ from the estimates used to
compute the allowance for deposits.
Stock-Based
Compensation
The Company accounts for stock-based compensation in accordance
with the fair value recognition provisions of
SFAS No. 123R. To calculate the fair value of options,
the Company uses the Black-Scholes option-pricing model for
grants issued prior to January 1, 2006 and the lattice
model, such as the binomial option-pricing model, for grants
issued on or after January 1, 2006. Both methods require
the input of subjective assumptions. These assumptions include
estimating the length of time employees will retain their vested
stock options before exercising them (expected
term), the estimated volatility of the Companys
common stock price over the expected term, the expected dividend
rate and expected exercise behavior. In addition, an estimated
forfeiture rate is applied in the recognition of the
compensation charge. Periodically, the Company grants
performance-based stock options, related to which it only
recognizes compensation expense if it is probable that
performance targets will be met. Consequently, at the end of
each reporting period, the Company estimates whether it is
probable that performance targets will be met. Changes in the
subjective assumptions and estimates can materially affect the
amount of stock-based compensation expense recognized on the
consolidated statements of income.
Income
Taxes
The Company provides for deferred taxes using an asset and
liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences
of events that have been recognized in the Companys
consolidated financial statements or tax returns. This results
in differences between the book and tax basis of the
Companys assets and liabilities and carry-forwards such as
tax credits. In estimating future tax consequences, all expected
future events, other than enactment of changes in the tax laws
or rates, are generally considered. Valuation allowances are
provided to the extent deemed necessary when realization of
deferred tax assets appears unlikely.
The calculation of the Companys tax liabilities involves
dealing with uncertainties in the application of complex tax
regulations in several different state tax jurisdictions. The
Company is periodically reviewed by tax authorities regarding
the amount of taxes due. These reviews include inquiries
regarding the timing and amount of deductions and the allocation
of income among various tax jurisdictions. The Company records
estimated reserves for exposures associated with positions that
it takes on its income tax returns. Through December 30,
2006, the Company recorded estimated income tax reserves as it
deemed necessary in accordance with SFAS No. 5,
Accounting for Contingencies. At the beginning of fiscal
2007, the Company adopted Financial Accounting Standards Board
Interpretation (FIN) No. 48, Accounting for
Uncertainty in Income Taxes. This interpretation clarifies
the accounting and financial statement reporting for uncertainty
in income taxes recognized by prescribing a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return. The adoption of FIN 48 did not
result in any impact on the Companys retained earnings
balance.
30
Other
Taxes
The Company is responsible for compliance with TTB regulations
which includes making timely and accurate excise tax payments.
The Company is subject to periodic compliance audits by the TTB.
The Company calculates its excise tax expense based upon units
produced and on its understanding of the applicable excise tax
laws.
During the third quarter of 2007, the TTB performed a routine
audit of the Companys Cincinnati brewery and other
breweries where some of the Companys products are produced
(the TTB Audit). In February 2008, the TTB formally
disputed the Companys regulatory and tax treatment of
certain of its 2006 and 2007 Twisted Tea shipments and the
Company has received a notice of demand for additional excise
taxes plus interest and penalties of approximately
$8.5 million. The TTB has asserted that these shipments
were not classified consistent with TTB regulations that took
effect January 1, 2006. Based on the Companys
analysis to date, it believes that most of its Twisted Tea
shipments were in compliance with applicable regulations. The
Company is in discussions with the TTB regarding the differences
in the methodologies used to ascertain regulatory compliance.
Based on information available on December 29, 2007, the
Company concluded that the range of possible outcomes was
between $3.9 million and $9.3 million. Based on the
information previously collected and its earlier assessment of
likely outcomes, the Company recorded a provision of
$3.9 million in the third quarter. The Company continues to
maintain this provision in its December 29, 2007 financial
statements, related to this contingency.
Business
Environment
The alcoholic beverage industry is highly regulated at the
federal, state and local levels. The TTB and the Justice
Departments Bureau of Alcohol, Tobacco, Firearms and
Explosives enforce laws under the Federal Alcohol Administration
Act. The TTB is responsible for administering and enforcing
excise tax laws that directly affect the Companys results
of operations. State and regulatory authorities have the ability
to suspend or revoke the Companys licenses and permits or
impose substantial fines for violations. The Company has
established strict policies, procedures and guidelines in
efforts to ensure compliance with all applicable state and
federal laws. However, the loss or revocation of any existing
license or permit could have a material adverse effect on the
Companys business, results of operations, cash flows and
financial position.
The Better Beer category is highly competitive due to the large
number of regional craft and specialty brewers and the brewers
of imported beers who distribute similar products that have
similar pricing and target drinkers. The Company believes that
its pricing is appropriate given the quality and reputation of
its core brands, while realizing that economic pricing pressures
may affect future pricing levels. Certain major domestic brewers
have also developed niche brands to compete within the Better
Beer category and have acquired interests in Craft Beers or
importation rights to foreign brands. Import brewers and major
domestic brewers are able to compete more aggressively than the
Company, as they have substantially greater resources, marketing
strength and distribution networks than the Company. The Company
anticipates Craft Beer competition increasing as craft brewers
have benefited from a couple of years of healthy growth and are
looking to maintain these trends. The Company also increasingly
competes with wine and spirits companies, some of which have
significantly greater resources than the Company. This
competitive environment may affect the Companys overall
performance within the Better Beer category. As the market
matures and the Better Beer category continues to consolidate,
the Company believes that companies that are well-positioned in
terms of brand equity, marketing and distribution will have
greater success than those who do not. With approximately 400
distributors nationwide and the Companys sales force in
excess of 200 people, a commitment to maintaining brand
equity and the quality of its beer, the Company believes it is
well positioned to compete in a maturing market.
The demand for the Companys products is also subject to
changes in drinkers tastes.
The
Potential Impact of Known Facts, Commitments, Events and
Uncertainties
Brewing
Capacity
Historically, the Company has pursued a strategy of combining
brewery ownership with brewing in breweries owned by others. The
brewing arrangements with breweries owned by others have
historically allowed the
31
Company to utilize their excess capacity, providing the Company
flexibility and quality and cost advantages over its competitors
while maintaining full control over the brewing process. As the
number of available breweries declines, the risk of disruption
increases, and the dynamics of the brewery strategy of ownership
versus brewing at facilities owned by others changes.
During the third quarter of 2007, the Company entered into a
Contract of Sale to purchase from Diageo North America, Inc. the
Pennsylvania Brewery for $55 million. During the fourth
quarter of 2007, the Company completed its due diligence phase
and paid the balance of a total deposit of $10 million. The
Company expects to close on the purchase of the Pennsylvania
Brewery in June 2008, barring any unforeseen circumstances. The
Company anticipates that the Pennsylvania Brewery will require
substantial investment and renovation in order to brew the
Companys Samuel
Adams®
Craft Beers. In addition to the purchase price of
$55 million, the Company expects to have spent between
$45 million and $55 million in capital improvements
and due diligence by the end of 2008. The Company anticipates
spending a further $10 million to $15 million in 2009
to get the facility in a position to brew and package up to
1.4 million barrels of the Companys beers. The
Company has also identified a further $25 million to
$35 million of projects which appear to have attractive
return on investment or address increased capabilities that the
Company may choose to make during the next few years. If the
Company decides to expand the capacity of the Pennsylvania
Brewery beyond 1.4 million barrels, additional capital
would be needed. As of December 29, 2007, the Company has
spent $2.1 million of this capital plan. The Company
currently expects that the facility will be partially
operational for its brands during the summer of 2008.
The Company believes that it has secured sufficient alternatives
in the event that production at any of its brewing locations is
interrupted or discontinued; however, the Company may not be
able to maintain its current economics if such disruption were
to occur. Potential disruptions include quality issues,
financial stability, contractual disputes or operational shut
downs. As the brewing industry has consolidated, the financial
stability of the breweries where the Company brews has become a
more significant concern. The Company continues to work with all
of its breweries to attempt to minimize any potential
disruptions.
The Company continues to brew its Samuel Adams Boston
Lager®
at each of its brewing facilities, but at any particular time
may rely on only one supplier for its products other than Samuel
Adams Boston
Lager®.
The Company believes that it has sufficient capacity options
that would allow for a shift in production locations if
necessary, although it is unable to quantify additional capital
or operating costs, if any, that it might incur in securing
access to such capacity.
In the event of a labor dispute, governmental action, a sudden
closure of one of the breweries or other events that would
prevent either the Cincinnati Brewery or any of the breweries at
which its beer is being produced under contract from producing
the Companys beer, management believes that it would be
able to shift production between breweries so as to meet demand
for its beer. In such event, however, the Company could
experience temporary shortfalls in production
and/or
increased production or distribution costs, the combination of
which could have a material adverse effect on the Companys
results of operations, cash flows and financial position. A
simultaneous interruption at several of the Companys
production locations would likely cause significant disruption,
increased costs and potentially lost sales.
Hops
Purchase Commitments
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.
During 2007, the Company entered into several hops future
contracts in the normal course of business. The total value of
the contracts entered into as of December 29, 2007, which
are denominated in Euros and British Pounds Sterling, was
$51.1 million. The Company has no forward exchange
contracts in place as of December 29, 2007 and currently
intends to purchase future hops using the exchange rate at the
time of purchase. The contract agreements were deemed necessary
in order to bring hop inventory levels and purchase commitments
into balance with the Companys current brewing volume and
hop usage forecasts. In addition,
32
these new contracts enabled the Company to secure its position
for future supply with hop vendors in the face of some
competitive buying activity.
The Companys accounting policy for hop inventory and
purchase commitments is to recognize a loss by establishing a
reserve to the extent inventory levels and commitments exceed
forecasted needs as well as aged hops as determined by the
Companys brewing department. The computation of the excess
inventory required management to make certain assumptions
regarding future sales growth, product mix, cancellation costs
and supply, among others. Actual results may differ materially
from managements estimates. The Company continues to
manage inventory levels and purchase commitments in an effort to
maximize utilization of hops on hand and hops under commitment.
The current inventory and contract levels are lower than would
be normally preferred due to the under delivery of 2007
contracts. However, changes in managements assumptions
regarding future sales growth, product mix, and hops market
conditions could result in future material losses.
TTB
Audit
During the third quarter of 2007, the TTB performed a routine
audit of the Companys Cincinnati Brewery and other
breweries where some of the Companys products are produced
(the TTB Audit). In February 2008, the TTB formally
disputed the Companys regulatory and tax treatment of
certain of its 2006 and 2007 Twisted Tea shipments and the
Company has received a notice of demand for additional excise
taxes plus interest and penalties of approximately
$8.5 million. The TTB has asserted that these shipments
were not classified consistent with TTB regulations that took
effect January 1, 2006. Based on the Companys
analysis to date, it believes that most of its Twisted Tea
shipments were in compliance with applicable regulations. The
Company is in discussions with the TTB regarding the differences
in the methodologies used to ascertain regulatory compliance and
expects these discussions to eventually include potential
settlement terms. While the Company believes settlement should
be possible, the Company also believes that it has litigation
options available to it to dispute the TTB position. It is not
possible to determine the ultimate outcome of these discussions
or any future litigation, but based on information available on
December 29, 2007, the Company concluded that the range of
possible outcomes was between $3.9 million and
$9.3 million. In the first quarter of 2008 the Company has
continued to gather additional information and refine its
analysis and currently estimates that, if it does not pursue
litigation, the potential expense could be as low as
$1.8 million and would not be expected to materially exceed
the approximately $8.5 million which the TTB has assessed,
after considering amounts the Company has previously paid. The
ultimate outcome of this matter could materially differ from the
Companys estimate. Based on the information previously
collected and its earlier assessment of likely outcomes, the
Company recorded a provision of $3.9 million in the third
quarter. The Company continues to maintain this provision in its
December 29, 2007 financial statements, related to this
contingency. Twisted Tea shipments were only minimally
interrupted due to this matter.
Contractual
Obligations
The following table presents contractual obligations as of
December 29, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
Total
|
|
|
2008
|
|
|
2009-2010
|
|
|
2011-2012
|
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Advertising Commitments
|
|
$
|
15,233
|
|
|
$
|
13,712
|
|
|
$
|
1,041
|
|
|
$
|
480
|
|
|
$
|
|
|
Hops Purchase Commitments
|
|
|
51,123
|
|
|
|
14,364
|
|
|
|
17,694
|
|
|
|
9,941
|
|
|
|
9,124
|
|
Operating Leases
|
|
|
6,985
|
|
|
|
769
|
|
|
|
1,450
|
|
|
|
1,464
|
|
|
|
3,302
|
|
Lehigh Brewery Purchase
|
|
|
45,000
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lehigh Capital Expenditures
|
|
|
5,324
|
|
|
|
5,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
8,212
|
|
|
|
7,553
|
|
|
|
659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Obligations
|
|
$
|
131,877
|
|
|
$
|
86,722
|
|
|
$
|
20,844
|
|
|
$
|
11,885
|
|
|
$
|
12,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
The Companys outstanding purchase commitments related to
advertising contracts of approximately $15.2 million at
December 29, 2007 reflect amounts that are non-cancelable.
The Company has entered into contracts for the supply of a
portion of its hops requirements. These purchase contracts,
which extend through crop year 2015, specify both the quantities
and prices, denominated in Euros and British Pounds Sterling, to
which the Company is committed. Amounts included in the above
table are in United States dollars using the exchange rates as
of December 29, 2007. The Company does not have any forward
currency contracts in place and currently intends to purchase
the committed hops in Euros or British Pounds Sterling using the
exchange rate at the time of purchase. Payments made during 2007
to purchase hops under contracts amounted to $5.3 million.
In the normal course of business, the Company enters into
various agreements with brewing companies related to the
production of its beers. Under these agreements, the Company is
required to repurchase from the supplier all unused raw
materials purchased by the supplier specifically for its product
at the suppliers cost upon termination of these production
arrangements. Also, in some cases the Company is obligated to
meet annual volume requirements under its agreements with other
breweries. During 2007, the Company met all existing minimum
volume requirements in accordance with the production
agreements, with the exception of one brewery location. For that
brewery, the fees associated with not meeting minimum volume
requirement were not significant and have been recognized in the
Companys consolidated financial statements at
December 29, 2007.
The Companys agreements with breweries where its beer is
brewed periodically require the Company to purchase certain
fixed assets in support of brewery operations. As a material
part of the Latrobe Agreement, the Company will purchase
equipment to be installed at the brewery in Latrobe for upgrades
to the brew house, storage of the Companys proprietary
yeasts and packaging of the Companys products. The
expected capital expenditures related to the Latrobe Agreement
are between $3 million and $4 million of which
approximately $2.4 million has been spent as of
December 29, 2007. At December 29, 2007, the Company
has no other commitments for fixed asset purchases under
existing contracts during the next twelve months, but this
amount could vary significantly should there be a change in the
Companys brewing strategy or changes to existing
production agreements or should the Company enter into new
production relationships or introduce new products.
Recent
Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 157, Fair Value
Measurements. This statement defines fair value, establishes
a framework for measuring fair value and expands disclosures
about fair value measurements. The Company is required to adopt
the provisions of SFAS No. 157 in the first quarter of
2008. The Company is in the process of evaluating the impact of
SFAS No. 157, if any, on its 2008 consolidated
financial position, operations and cash flows.
In September 2006, the FASB issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, an Amendment of FASB Statements
No. 87, 88, 106 and 132(R), which applies to all plan
sponsors who offer defined benefit postretirement plans.
SFAS No. 158 requires recognition of the funded status
of a defined benefit postretirement plan in the statement of
financial position and expanded disclosures in the notes to
financial statements. The Company adopted this provision for the
year ended December 30, 2006 and the adoption did not have
a material impact on its consolidated financial position. In
addition, SFAS No. 158 requires measurement of plan
assets and benefit obligations as of the date of the plan
sponsors fiscal year end. The Company is required to adopt
the measurement provision of SFAS No. 158 for its
fiscal year ending December 27, 2008. The Company does not
believe the measurement provision of SFAS No. 158 to
have a material effect on its 2008 consolidated financial
position, operations and cash flows.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115. SFAS No. 159 permits companies to
choose to measure many financial instruments at fair value that
are not currently required to be measured at fair value, at
specified election dates under its fair value option. Unrealized
gains and losses on items for which the fair value option has
been elected are reported in earnings at each subsequent
reporting date. This Statement also
34
establishes presentation and disclosure requirements designed to
facilitate comparisons between companies that choose different
measurement attributes for similar types of assets and
liabilities. The Company is required to adopt the provisions of
SFAS No. 159 in the first quarter of 2008. The Company
is in the process of evaluating the impact of
SFAS No. 159, if any, on its 2008 consolidated
financial position, operations and cash flows.
In December 2007, the FASB issued SFAS No. 141
(revised) (SFAS No. 141R), Business
Combinations, which replaces SFAS No 141, Business
Combinations. SFAS No. 141R will significantly
change the accounting for business combinations and an acquiring
entity will be required to recognize all the assets acquired and
liabilities assumed in a transaction at the acquisition-date
fair value with limited exceptions. In addition to new financial
statements disclosures, SFAS No. 141R will also change
the accounting treatment for certain specific items, including
the expensing of acquisition costs and restructuring costs
associated with a business combination, and changes in deferred
tax asset valuation allowances and income tax uncertainties
after the acquisition date which generally will affect income
tax expense. SFAS No. 141R applies prospectively to
business combinations for which the acquisition date is on or
after the beginning of the Companys fiscal 2009 period,
with the exception of the accounting of valuation allowances on
deferred tax assets and acquired tax contingencies for which the
adoption is retrospective. The Company is in the process of
evaluating the impact of SFAS No. 141R, if any, on its
consolidated financial position, operations and cash flows.
Off-Balance
Sheet Arrangements
The Company has not entered into any material off-balance sheet
arrangements as of December 29, 2007.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
In the ordinary course of business, the Company is exposed to
the impact of fluctuations in foreign exchange rates. The
Company does not enter into derivatives or other market risk
sensitive instruments for the purpose of speculation or for
trading purposes. Market risk sensitive instruments include
derivative financial instruments, other financial instruments,
and derivative commodity instruments, such as futures, forwards,
swaps and options, that are exposed to rate or price changes.
The Company enters into hops purchase contracts in foreign
denominated currencies, as described above under Hops
Purchase Commitments. The cost of these hops
commitments changes as foreign exchange rates fluctuate.
Currently, it is not the Companys policy to hedge against
foreign currency fluctuations.
The interest rate for borrowings under the Companys credit
facility is based on either (i) the Alternative Prime Rate
(7.25% at December 29, 2007) or (ii) the
applicable LIBOR rate (4.9% at December 29, 2007) plus
0.45%, and therefore, subjects the Company to fluctuations in
such rates. As of December 29, 2007, the Company had no
amounts outstanding under its current line of credit.
Sensitivity
Analysis
The Company applies a sensitivity analysis to reflect the impact
of a 10% hypothetical adverse change in the foreign currency
rates. A potential adverse fluctuation in foreign currency
exchange rates could negatively impact future cash flows by
approximately $4.3 million as of December 29, 2007.
There are many economic factors that can affect volatility in
foreign exchange rates. As such factors cannot be predicted, the
actual impact on earnings due to an adverse change in the
respective rates could vary substantially from the amounts
calculated above.
35
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
The Boston Beer Company, Inc.
We have audited the accompanying consolidated balance sheets of
The Boston Beer Company, Inc. and subsidiaries as of
December 29, 2007 and December 30, 2006, and the
related consolidated statements of income, stockholders
equity, and cash flows for each of the three years in the period
ended December 29, 2007. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of The Boston Beer Company, Inc. and
subsidiaries at December 29, 2007 and December 30,
2006, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended
December 29, 2007, in conformity with U.S. generally
accepted accounting principles.
As discussed in Note B to the consolidated financial
statements, effective December 31, 2006, the Company
adopted Financial Accounting Standards Board Interpretation
No. 48, Accounting for Uncertainty in Income Taxes.
In addition, as discussed in Note B to the consolidated
financial statements, effective January 1, 2006, the
Company adopted Statement of Financial Accounting Standards
No. 123(R), Share-Based Payment, and as discussed in
Note K to the consolidated financial statements, effective
December 30, 2006, the Company adopted Statement of
Financial Accounting Standards No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans, an Amendment of FASB Statements No. 87, 88, 106 and
132(R).
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), The
Boston Beer Company Inc.s internal control over financial
reporting as of December 29, 2007, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 11, 2008
expressed an unqualified opinion thereon.
Boston, Massachusetts
March 11, 2008
36
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(In
thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
79,289
|
|
|
$
|
63,147
|
|
Short-term investments
|
|
|
16,200
|
|
|
|
19,223
|
|
Accounts receivable, net of allowance for doubtful accounts of
$249 and $215 as of December 29, 2007 and December 30,
2006, respectively
|
|
|
17,972
|
|
|
|
17,770
|
|
Inventories
|
|
|
18,090
|
|
|
|
17,034
|
|
Prepaid expenses and other assets
|
|
|
2,152
|
|
|
|
2,721
|
|
Deferred income taxes
|
|
|
2,090
|
|
|
|
667
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
135,793
|
|
|
|
120,562
|
|
Property, plant and equipment, net
|
|
|
46,198
|
|
|
|
30,699
|
|
Other assets
|
|
|
12,487
|
|
|
|
1,837
|
|
Goodwill
|
|
|
1,377
|
|
|
|
1,377
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
195,855
|
|
|
$
|
154,475
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
17,708
|
|
|
$
|
17,942
|
|
Accrued expenses
|
|
|
40,349
|
|
|
|
22,928
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
58,057
|
|
|
|
40,870
|
|
Deferred income taxes
|
|
|
1,215
|
|
|
|
1,494
|
|
Other liabilities
|
|
|
2,995
|
|
|
|
3,522
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
62,267
|
|
|
|
45,886
|
|
Commitments and contingencies Stockholders Equity:
|
|
|
|
|
|
|
|
|
Class A Common Stock, $.01 par value;
22,700,000 shares authorized; 10,095,573 and
9,992,347 shares issued and outstanding as of
December 29, 2007 and December 30, 2006, respectively
|
|
|
101
|
|
|
|
100
|
|
Class B Common Stock, $.01 par value;
4,200,000 shares authorized; 4,107,355 shares issued
and outstanding
|
|
|
41
|
|
|
|
41
|
|
Additional paid-in capital
|
|
|
88,754
|
|
|
|
80,158
|
|
Accumulated other comprehensive loss, net of tax
|
|
|
(204
|
)
|
|
|
(197
|
)
|
Retained earnings
|
|
|
44,896
|
|
|
|
28,487
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
133,588
|
|
|
|
108,589
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
195,855
|
|
|
$
|
154,475
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
37
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
(In
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
2005
|
|
|
|
2007
|
|
|
2006
|
|
|
(53 weeks)
|
|
|
Revenue
|
|
$
|
380,575
|
|
|
$
|
315,250
|
|
|
$
|
263,255
|
|
Less excise taxes
|
|
|
38,928
|
|
|
|
29,819
|
|
|
|
24,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
341,647
|
|
|
|
285,431
|
|
|
|
238,304
|
|
Cost of goods sold
|
|
|
152,288
|
|
|
|
121,155
|
|
|
|
96,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
189,359
|
|
|
|
164,276
|
|
|
|
141,474
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising, promotional and selling expenses
|
|
|
124,457
|
|
|
|
113,669
|
|
|
|
100,870
|
|
General and administrative expenses
|
|
|
24,574
|
|
|
|
22,657
|
|
|
|
17,288
|
|
Write-off of brewery costs
|
|
|
3,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
152,474
|
|
|
|
136,326
|
|
|
|
118,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
36,885
|
|
|
|
27,950
|
|
|
|
23,316
|
|
Other income, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
4,252
|
|
|
|
3,143
|
|
|
|
1,761
|
|
Other income, net
|
|
|
507
|
|
|
|
673
|
|
|
|
442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income, net
|
|
|
4,759
|
|
|
|
3,816
|
|
|
|
2,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
41,644
|
|
|
|
31,766
|
|
|
|
25,519
|
|
Provision for income taxes
|
|
|
19,153
|
|
|
|
13,574
|
|
|
|
9,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
22,491
|
|
|
$
|
18,192
|
|
|
$
|
15,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share basic
|
|
$
|
1.58
|
|
|
$
|
1.31
|
|
|
$
|
1.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share diluted
|
|
$
|
1.53
|
|
|
$
|
1.27
|
|
|
$
|
1.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares basic
|
|
|
14,193
|
|
|
|
13,900
|
|
|
|
14,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares diluted
|
|
|
14,699
|
|
|
|
14,375
|
|
|
|
14,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
38
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
For the Years Ended December 29, 2007, December 30,
2006 and December 31, 2005
(In thousands, continued on next page)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class A
|
|
|
Class B
|
|
|
Class B
|
|
|
Additional
|
|
|
|
Common
|
|
|
Common
|
|
|
Common
|
|
|
Common
|
|
|
Paid-in
|
|
|
|
Shares
|
|
|
Stock
|
|
|
Shares
|
|
|
Stock
|
|
|
Capital
|
|
|
Balance at December 25, 2004
|
|
|
10,089
|
|
|
$
|
101
|
|
|
|
4,107
|
|
|
$
|
41
|
|
|
$
|
66,157
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised, including tax benefit of $1,172
|
|
|
249
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
4,122
|
|
Net issuance of investment shares
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
529
|
|
Amortization of unearned compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of Class A common stock
|
|
|
(548
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability, net of tax of $2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fiscal 2005 comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
9,814
|
|
|
|
98
|
|
|
|
4,107
|
|
|
|
41
|
|
|
|
70,808
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised, including tax benefit of $2,240
|
|
|
334
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
6,737
|
|
Net issuance of investment shares and restricted stock awards
|
|
|
43
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
215
|
|
Elimination of unearned compensation upon adoption of
SFAS No. 123R
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(353
|
)
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,751
|
|
Repurchase of Class A common stock
|
|
|
(199
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plans liability adjustment, net of tax of $3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fiscal 2006 comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 30, 2006
|
|
|
9,992
|
|
|
|
100
|
|
|
|
4,107
|
|
|
|
41
|
|
|
|
80,158
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised, including tax benefit of $1,792
|
|
|
236
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
5,238
|
|
Net issuance of investment shares and restricted stock awards
|
|
|
51
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
300
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,058
|
|
Repurchase of Class A common stock
|
|
|
(183
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plans liability adjustment, net of tax of $6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fiscal 2007 comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 29, 2007
|
|
|
10,096
|
|
|
$
|
101
|
|
|
|
4,107
|
|
|
$
|
41
|
|
|
$
|
88,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
39
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
For the Years Ended December 29, 2007, December 30,
2006 and December 31, 2005
(In thousands, continued from last page)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Unearned
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Stockholders
|
|
|
Comprehensive
|
|
|
|
Compensation
|
|
|
Loss, net of tax
|
|
|
Earnings
|
|
|
Equity
|
|
|
Income
|
|
|
Balance at December 25, 2004
|
|
$
|
(280
|
)
|
|
$
|
(203
|
)
|
|
$
|
12,554
|
|
|
$
|
78,370
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
15,559
|
|
|
|
15,559
|
|
|
$
|
15,559
|
|
Stock options exercised, including tax benefit of $1,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,124
|
|
|
|
|
|
Net issuance of investment shares
|
|
|
(219
|
)
|
|
|
|
|
|
|
|
|
|
|
310
|
|
|
|
|
|
Amortization of unearned compensation
|
|
|
146
|
|
|
|
|
|
|
|
|
|
|
|
146
|
|
|
|
|
|
Repurchase of Class A common stock
|
|
|
|
|
|
|
|
|
|
|
(12,532
|
)
|
|
|
(12,537
|
)
|
|
|
|
|
Minimum pension liability, net of tax of $2
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fiscal 2005 comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
(353
|
)
|
|
|
(196
|
)
|
|
|
15,581
|
|
|
|
85,979
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
18,192
|
|
|
|
18,192
|
|
|
$
|
18,192
|
|
Stock options exercised, including tax benefit of $2,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,740
|
|
|
|
|
|
Net issuance of investment shares and restricted stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216
|
|
|
|
|
|
Elimination of unearned compensation upon adoption of
SFAS No. 123R
|
|
|
353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,751
|
|
|
|
|
|
Repurchase of Class A common stock
|
|
|
|
|
|
|
|
|
|
|
(5,286
|
)
|
|
|
(5,288
|
)
|
|
|
|
|
Defined benefit plans liability adjustment, net of tax of $3
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fiscal 2006 comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 30, 2006
|
|
|
|
|
|
|
(197
|
)
|
|
|
28,487
|
|
|
|
108,589
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
22,491
|
|
|
|
22,491
|
|
|
$
|
22,491
|
|
Stock options exercised, including tax benefit of $1,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,240
|
|
|
|
|
|
Net issuance of investment shares and restricted stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
301
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,058
|
|
|
|
|
|
Repurchase of Class A common stock
|
|
|
|
|
|
|
|
|
|
|
(6,082
|
)
|
|
|
(6,084
|
)
|
|
|
|
|
Defined benefit plans liability adjustment, net of tax of $6
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
(7
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fiscal 2007 comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 29, 2007
|
|
$
|
|
|
|
$
|
(204
|
)
|
|
$
|
44,896
|
|
|
$
|
133,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
40
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
2005
|
|
|
|
2007
|
|
|
2006
|
|
|
(53 Weeks)
|
|
|
Cash flows provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
22,491
|
|
|
$
|
18,192
|
|
|
$
|
15,559
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
6,654
|
|
|
|
4,991
|
|
|
|
4,521
|
|
Write-off of brewery costs
|
|
|
3,443
|
|
|
|
|
|
|
|
|
|
Loss (gain) on disposal of property, plant and equipment
|
|
|
161
|
|
|
|
(8
|
)
|
|
|
162
|
|
Bad debt expense (recovery)
|
|
|
34
|
|
|
|
107
|
|
|
|
(255
|
)
|
Stock-based compensation expense
|
|
|
3,058
|
|
|
|
2,751
|
|
|
|
146
|
|
Excess tax benefit from stock-based compensation arrangements
|
|
|
(1,792
|
)
|
|
|
(2,240
|
)
|
|
|
|
|
Tax benefit from stock options exercised
|
|
|
|
|
|
|
|
|
|
|
1,172
|
|
Deferred income taxes
|
|
|
(1,702
|
)
|
|
|
(731
|
)
|
|
|
952
|
|
Purchases of trading securities
|
|
|
(47,520
|
)
|
|
|
(36,577
|
)
|
|
|
(9,075
|
)
|
Proceeds from sale of trading securities
|
|
|
50,543
|
|
|
|
39,779
|
|
|
|
10,650
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(236
|
)
|
|
|
(8,343
|
)
|
|
|
3,547
|
|
Inventories
|
|
|
(1,056
|
)
|
|
|
(3,385
|
)
|
|
|
(1,088
|
)
|
Prepaid expenses and other assets
|
|
|
1,271
|
|
|
|
(1,506
|
)
|
|
|
(1,133
|
)
|
Accounts payable
|
|
|
(234
|
)
|
|
|
6,564
|
|
|
|
1,634
|
|
Accrued expenses
|
|
|
19,213
|
|
|
|
7,807
|
|
|
|
867
|
|
Other liabilities
|
|
|
(534
|
)
|
|
|
1,576
|
|
|
|
1,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
53,794
|
|
|
|
28,977
|
|
|
|
28,841
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(25,607
|
)
|
|
|
(9,056
|
)
|
|
|
(13,973
|
)
|
Proceeds from disposal of property, plant and equipment
|
|
|
5
|
|
|
|
42
|
|
|
|
129
|
|
Deposits and costs related to proposed brewery acquisition
|
|
|
(11,507
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(37,109
|
)
|
|
|
(9,014
|
)
|
|
|
(13,844
|
)
|
Cash flows provided by (used in) financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of Class A Common Stock
|
|
|
(6,084
|
)
|
|
|
(5,288
|
)
|
|
|
(12,537
|
)
|
Proceeds from exercise of stock options
|
|
|
3,448
|
|
|
|
4,500
|
|
|
|
2,952
|
|
Excess tax benefit from stock-based compensation arrangements
|
|
|
1,792
|
|
|
|
2,240
|
|
|
|
|
|
Net proceeds from sale of investment shares
|
|
|
301
|
|
|
|
216
|
|
|
|
310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(543
|
)
|
|
|
1,668
|
|
|
|
(9,275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
16,142
|
|
|
|
21,631
|
|
|
|
5,722
|
|
Cash and cash equivalents at beginning of year
|
|
|
63,147
|
|
|
|
41,516
|
|
|
|
35,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
79,289
|
|
|
$
|
63,147
|
|
|
$
|
41,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
14,721
|
|
|
$
|
10,632
|
|
|
$
|
7,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
41
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 29, 2007
|
|
A.
|
Organization
and Basis of Presentation
|
The Boston Beer Company, Inc. and subsidiaries (the
Company) are engaged in the business of selling low
alcohol beverages throughout the United States and in selected
international markets, under the trade names The Boston
Beer Company, Twisted Tea Brewing Company and
HardCore Cider Company. The Companys Samuel
Adams®
beers and Sam Adams
Light®
are produced and sold under the trade name, The Boston Beer
Company.
|
|
B.
|
Summary
of Significant Accounting Policies
|
Fiscal
Year
The Companys fiscal year is a fifty-two or fifty-three
week period ending on the last Saturday in December. The fiscal
periods of 2007 and 2006 consist of fifty-two weeks and the
fiscal period of 2005 consists of
fifty-three
weeks.
Principles
of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries, all of which are
wholly-owned. All intercompany transactions and balances have
been eliminated in consolidation.
Use of
Estimates
The preparation of the consolidated financial statements in
conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could
differ from those estimates.
Cash
and Cash Equivalents
Cash and cash equivalents at December 29, 2007 and
December 30, 2006 included cash on-hand, as well as
tax-exempt and taxable money market instruments that are highly
liquid investments.
Short-Term
Investments
The Company classifies its investments depending on the
Companys intent and the nature of the investment. The
Companys short-term investments are classified as trading
securities, which are recorded at fair market value, and whose
change in fair market value is included in earnings. Short-term
investments at December 29, 2007 and December 30, 2006
consisted of municipal auction rate securities.
Allowance
for Doubtful Accounts
The Company records an allowance for doubtful accounts that is
based on historical trends, customer knowledge, any known
disputes, and the aging of the accounts receivable balances
combined with managements estimate of future potential
recoverability, based upon managements knowledge of
customers financial condition.
Inventories
Inventories consist of raw materials, work in process and
finished goods. Raw materials, which principally consist of
hops, other brewing materials and packaging, are stated at the
lower of cost, determined on the
42
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
first-in,
first-out basis, or market. The cost elements of work in process
and finished goods inventory consist of raw materials, direct
labor and manufacturing overhead. Packaging design costs are
expensed as incurred.
The provisions for excess or expired inventory are based on
managements estimates of forecasted usage of inventories.
A significant change in the timing or level of demand for
certain products as compared to forecasted amounts may result in
recording additional provisions for excess or expired inventory
in the future. Provisions for excess inventory are included in
cost of goods sold.
The computation of the excess hops inventory requires management
to make certain assumptions regarding future sales growth,
product mix, cancellation costs, and supply, among others. The
Company manages inventory levels and purchase commitments in an
effort to maximize utilization of hops on hand and hops under
commitment. The Companys accounting policy for hops
inventory and purchase commitments is to recognize a loss by
establishing a reserve to the extent inventory levels and
commitments exceed forecasted needs as determined by the
Companys brewmasters. The Company has not recorded any
loss on purchase commitments in the fiscal years 2007, 2006 and
2005.
Property,
Plant and Equipment
Property, plant, and equipment are stated at cost. Expenditures
for repairs and maintenance are expensed as incurred. Major
renewals and betterments that extend the life of the property
are capitalized. Some of the Companys equipment is used by
other brewing companies to produce the Companys products
under brewing service arrangements (Note I). Depreciation
is computed using the straight-line method based upon the
estimated useful lives of the underlying assets as follows:
|
|
|
Kegs
|
|
5 years
|
Machinery and plant equipment
|
|
3 to 20 years, or the term of the production agreement,
whichever is shorter
|
Office equipment and furniture
|
|
3 to 5 years
|
Leasehold improvements
|
|
Lesser of the remaining term of the lease or estimated useful
life of the asset
|
Building
|
|
15 to 20 years
|
Goodwill
Goodwill represents the excess of the purchase price of the
Company-owned Cincinnati Brewery over the fair value of the net
assets acquired upon the completion of the acquisition in
November 2000 and relates to the Companys single operating
unit. The Company does not amortize goodwill, but performs an
annual impairment analysis of goodwill by comparing the carrying
value and the fair value of its single reporting unit at the end
of the third quarter of every fiscal year. The Company has
concluded that its goodwill was not impaired as of
December 29, 2007 and December 30, 2006.
Long-Lived
Assets
Long-lived assets are recorded at cost and depreciated over
their estimated useful lives. For purposes of determining
whether there are any impairment losses, as further discussed
below, management has historically examined the carrying value
of the Companys identifiable long-lived assets, including
their useful lives, when indicators of impairment are present.
For all long-lived assets, if an impairment loss is identified
based on the fair value of the asset, as compared to the
carrying value of the asset, such loss would be charged to
expense in the period the impairment is identified. Furthermore,
if the review of the carrying values of the long-lived assets
indicates impairment of such assets, the Company may determine
that shorter estimated useful lives are more appropriate. In
that event, the Company will be required to record additional
depreciation in future periods, which will reduce earnings.
43
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Factors generally considered important which could trigger an
impairment review on the carrying value of long-lived assets
include the following: (1) significant underperformance
relative to expected historical or projected future operating
results; (2) significant changes in the manner of use of
acquired assets or the strategy for the Companys overall
business; (3) underutilization of assets; and
(4) discontinuance of products by the Company or its
customers. The Company believes that the carrying value of its
long-lived assets was realizable as of December 29, 2007.
Income
Taxes
The Company provides for deferred taxes using an asset and
liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences
of events that have been recognized in the Companys
consolidated financial statements or tax returns. This results
in differences between the book and tax basis of the
Companys assets and liabilities and carryforwards, such as
tax credits. In estimating future tax consequences, all expected
future events, other than enactment of changes in the tax laws
or rates, are generally considered. Valuation allowances are
provided to the extent deemed necessary when realization of
deferred tax assets appears unlikely.
The calculation of the Companys tax liabilities involves
dealing with uncertainties in the application of complex tax
regulations in several different state tax jurisdictions. The
Company is periodically reviewed by tax authorities regarding
the amount of taxes due. These reviews include inquiries
regarding the timing and amount of deductions and the allocation
of income among various tax jurisdictions. The Company records
estimated reserves for exposures associated with positions that
it takes on its income tax returns. Through December 30,
2006, the Company recorded estimated income tax reserves as it
deemed necessary in accordance with Statement of Financial
Accounting Standards (SFAS) No. 5,
Accounting for Contingencies. At the beginning of fiscal
2007, the Company adopted Financial Accounting Standards Board
Interpretation (FIN) No. 48, Accounting for
Uncertainty in Income Taxes. This interpretation clarifies
the accounting and financial statement reporting for uncertainty
in income taxes recognized by prescribing a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return.
Revenue
Recognition
The Company recognizes revenue on product sales at the time when
the product is shipped and the following conditions exist:
persuasive evidence of an arrangement exists, title has passed
to the customer according to the shipping terms, the price is
fixed and determinable, and collection of the sales proceeds is
reasonably assured. Further, the Company generally accepts and
destroys beer that has passed its expiration date for freshness
and is returned by distributors. Credits given to distributors
for these returns represent approximately fifty percent of the
distributors cost of the beer. Consequently, the Company
records an allowance for estimated returns, based on historical
experience and current trends.
Cost
of Goods Sold
The following expenses are included in cost of goods sold: raw
material costs, packaging costs, costs and income related to
deposit activity, purchasing and receiving costs, manufacturing
labor and overhead, brewing and processing costs, inspection
costs relating to quality control, inbound freight charges,
depreciation expense related to manufacturing equipment and
warehousing costs, which include rent, labor and overhead costs.
44
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Shipping
Costs
Costs incurred for the shipping of products to customers are
included in advertising, promotional and selling expenses in the
accompanying consolidated statements of income. The Company
incurred shipping costs of $25.5 million,
$22.2 million and $17.2 million in fiscal years 2007,
2006 and 2005, respectively.
Advertising
and Sales Promotions
The following expenses are included in advertising, promotional
and selling expenses in the accompanying consolidated statements
of income: media advertising costs, sales and marketing
expenses, salary and benefit expenses for the sales and sales
support workforce, promotional activity expenses, freight
charges related to shipments of finished goods from
manufacturing locations to distributor locations, and point of
sale items.
The Company reimburses its wholesalers and retailers for
promotional discounts, samples and certain advertising and
marketing activities used in the promotion of the Companys
products. The reimbursements for discounts to wholesalers are
recorded as reductions to net revenue. The Company has sales
incentive arrangements with its wholesalers based upon
performance of certain marketing and advertising activities by
the wholesalers. Depending on applicable state laws and
regulations, these activities promoting the Companys
products may include, but are not limited to, the following:
point-of-sale
merchandise placement, product displays and promotional programs
at retail locations. The costs incurred for these sales
incentive arrangements and advertising and promotional programs
are included in advertising, promotional and selling expenses
during the period in which they are incurred. Total advertising
and sales promotional expenditures of $64.2 million,
$58.5 million and $55.7 million were included in
advertising, promotional and selling expenses in the
accompanying consolidated statements of income for fiscal years
2007, 2006 and 2005, respectively. Of these amounts,
$5.4 million, $5.6 million and $4.2 million
related to sales incentives, samples and other promotional
discounts and $29.5 million, $28.8 million and
$26.3 million related to advertising costs for fiscal years
2007, 2006 and 2005, respectively.
The Company conducts certain advertising and promotional
activities in its wholesalers markets and the wholesalers
make contributions to the Company for such efforts.
Reimbursements from wholesalers for advertising and promotional
activities are recorded as reductions to advertising,
promotional and selling expenses.
General
and Administrative Expenses
The following expenses are included in general and
administrative expenses in the accompanying consolidated
statements of income: general and administrative salary and
benefit expenses, insurance costs, professional service fees,
rent and utility expenses, meals, travel and entertainment
expenses for general and administrative employees, and other
general and administrative overhead costs.
Concentrations
of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash
equivalents, short-term investments, and trade receivables. The
Company places its short-term investments with high credit
quality financial institutions. The Company sells primarily to
independent beer distributors across the United States. Sales to
foreign customers are insignificant. Receivables arising from
these sales are not collateralized; however, credit risk is
minimized as a result of the large and diverse nature of the
Companys customer base. The Company establishes an
allowance for doubtful accounts based upon factors surrounding
the credit risk of specific customers, historical trends and
other information. There were no individual customer accounts
receivable balances outstanding at December 29, 2007 and
December 30, 2006 that were in excess of 10% of the gross
accounts receivable balance on those dates. No individual
customers represented more than 10% of the Companys
revenues during fiscal years 2007, 2006 and 2005.
45
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Financial
Instruments and Fair Value of Financial
Instruments
The Companys primary financial instruments at
December 29, 2007 and December 30, 2006 consisted of
cash equivalents, short-term investments, accounts receivable
and accounts payable. The carrying amounts of these financial
instruments approximate their fair values due to the short-term
nature of these instruments.
Stock-Based
Compensation
Effective January 1, 2006, the Company adopted
SFAS No. 123 (revised)
(SFAS No. 123R), Share-Based
Payment, which generally requires recognition of share-based
compensation costs in financial statements based on fair value.
Compensation cost is recognized over the period during which an
employee is required to provide services in exchange for the
award (the requisite service period). The amount of compensation
cost recognized in the consolidated statements of income is
based on the awards ultimately expected to vest, and therefore,
reduced for estimated forfeitures. Prior to the adoption of
SFAS No. 123R, the Company accounted for share-based
compensation using the intrinsic value method under Accounting
Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related
interpretations, and provided pro forma disclosures applying the
fair value recognition provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, to stock-based
awards. See Note J for the effect of the adoption of
SFAS No. 123R.
As permitted by SFAS No. 123R, the Company elected to
use the modified-prospective application as its transition
method, under which SFAS No. 123R applies to new
awards and to awards modified, repurchased, or cancelled after
the statements effective date. Additionally, compensation
cost for the portion of awards for which the requisite service
has not been rendered that are outstanding on January 1,
2006 is recognized based on the fair value estimated on grant
date and as the requisite service is rendered on or after
January 1, 2006. Prior period financial statements are not
restated to reflect the effect of SFAS No. 123R under
the modified-prospective transition method.
For stock options granted prior to January 1, 2006, fair
values were estimated on the date of grants using a
Black-Scholes option-pricing model. As permitted by
SFAS No. 123R, the Company elected to use a lattice
model, such as the binomial option-pricing model, to estimate
the fair values of stock options granted on or after
January 1, 2006. See Note J for further discussion of
the application of the option-pricing models.
Further, SFAS No. 123R requires that cash retained as
a result of tax benefits in excess of recognized compensation
costs relating to share-based awards be presented in the
statement of cash flows as a financing cash inflow with a
corresponding operating cash outflow. The 2005 statement of cash
flows was not restated under the modified-prospective transition
method.
Net
Income Per Share
Basic net income per share is calculated by dividing net income
by the weighted-average common shares outstanding. Diluted net
income per share is calculated by dividing net income by the
weighted-average common shares and potentially dilutive
securities outstanding during the period using the treasury
stock method.
Segment
Reporting
The Company consists of a single operating segment that produces
and sells low alcoholic beverages. The Companys brands,
which include Samuel
Adams®,
Sam Adams
Light®,
Twisted
Tea®
and
HardCore®,
are predominantly malt beverages, which are sold to the same
types of customers in similar size quantities, at similar price
points and through substantially the same channels of
distribution. The Companys products are manufactured using
similar production processes and have comparable alcohol content
and constitute a single group of similar products.
46
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Recent
Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 157, Fair Value
Measurements. This statement defines fair value, establishes
a framework for measuring fair value and expands disclosures
about fair value measurements. The Company is required to adopt
the provisions of SFAS No. 157 in the first quarter of
2008. The Company is in the process of evaluating the impact of
SFAS No. 157, if any, on its 2008 consolidated
financial position, operations and cash flows.
In September 2006, the FASB issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, an Amendment of FASB Statements
No. 87, 88, 106 and 132(R), which applies to all plan
sponsors who offer defined benefit postretirement plans.
SFAS No. 158 requires recognition of the funded status
of a defined benefit postretirement plan in the statement of
financial position and expanded disclosures in the notes to
financial statements. The Company adopted this provision for the
year ended December 30, 2006 and the adoption did not have
a material impact on its consolidated financial position. In
addition, SFAS No. 158 requires measurement of plan
assets and benefit obligations as of the date of the plan
sponsors fiscal year end. The Company is required to adopt
the measurement provision of SFAS No. 158 for its
fiscal year ending December 27, 2008. The Company does not
believe the measurement provision of SFAS No. 158 to
have a material effect on its 2008 consolidated financial
position, operations and cash flows.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115. SFAS No. 159 permits companies to
choose to measure many financial instruments at fair value that
are not currently required to be measured at fair value, at
specified election dates under its fair value option. Unrealized
gains and losses on items for which the fair value option has
been elected are reported in earnings at each subsequent
reporting date. This statement also establishes presentation and
disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes
for similar types of assets and liabilities. The Company is
required to adopt the provisions of SFAS No. 159 in
the first quarter of 2008. The Company is in the process of
evaluating the impact of SFAS No. 159, if any, on its
2008 consolidated financial position, operations and cash flows.
In December 2007, the FASB issued SFAS No. 141
(revised) (SFAS No. 141R), Business
Combinations, which replaces SFAS No 141, Business
Combinations. SFAS No. 141R will significantly
change the accounting for business combinations and an acquiring
entity will be required to recognize all the assets acquired and
liabilities assumed in a transaction at the acquisition-date
fair value with limited exceptions. In addition to new financial
statements disclosures, SFAS No. 141R will also change
the accounting treatment for certain specific items, including
the expensing of acquisition costs and restructuring costs
associated with a business combination, and changes in deferred
tax asset valuation allowances and income tax uncertainties
after the acquisition date which generally will affect income
tax expense. SFAS No. 141R applies prospectively to
business combinations for which the acquisition date is on or
after the beginning of the Companys fiscal 2009 period,
with the exception of the accounting of valuation allowances on
deferred tax assets and acquired tax contingencies for which the
adoption is retrospective. The Company is in the process of
evaluating the impact of SFAS No. 141R, if any, on its
consolidated financial position, operations and cash flows.
|
|
C.
|
Short-Term
Investments
|
There were no realized gains or losses on short-term investments
recorded during fiscal years 2007, 2006 and 2005. In January
2008, the Company liquidated all of its short-term investments,
which resulted in no gains or losses.
47
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 29, 2007
|
|
|
December 30, 2006
|
|
|
|
(In thousands)
|
|
|
Raw materials
|
|
$
|
11,229
|
|
|
$
|
11,767
|
|
Work in process
|
|
|
4,116
|
|
|
|
3,483
|
|
Finished goods
|
|
|
2,745
|
|
|
|
1,784
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,090
|
|
|
$
|
17,034
|
|
|
|
|
|
|
|
|
|
|
|
|
E.
|
Property,
Plant and Equipment
|
Property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 29, 2007
|
|
|
December 30, 2006
|
|
|
|
(In thousands)
|
|
|
Kegs
|
|
$
|
37,051
|
|
|
$
|
27,421
|
|
Machinery and plant equipment
|
|
|
38,379
|
|
|
|
32,774
|
|
Office equipment and furniture
|
|
|
9,133
|
|
|
|
8,443
|
|
Leasehold improvements
|
|
|
3,571
|
|
|
|
3,544
|
|
Land
|
|
|
7,421
|
|
|
|
1,315
|
|
Building
|
|
|
5,298
|
|
|
|
5,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,853
|
|
|
|
78,976
|
|
Less accumulated depreciation
|
|
|
54,655
|
|
|
|
48,277
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
46,198
|
|
|
$
|
30,699
|
|
|
|
|
|
|
|
|
|
|
The Company recorded depreciation expense related to these
assets of $6.5 million, $4.8 million and
$4.4 million in fiscal years 2007, 2006 and 2005,
respectively.
The Company had previously been contemplating the construction
of a brewery in Freetown, Massachusetts. As the probability of
proceeding on this site decreased due to entering into a
purchase and sale agreement to acquire an existing brewery in
Pennsylvania (Note I), the Company determined that it was
appropriate to write off in the second quarter of 2007 the
$3.4 million that had been capitalized through
June 30, 2007 on the Massachusetts brewery project. In
August 2007, the Company purchased the land in Freetown,
Massachusetts for $6.0 million as protection against the
possibility that the results of the due diligence on the
Pennsylvania Brewery might prove unsatisfactory. The Company has
now concluded it will proceed with the Pennsylvania Brewery
purchase, and in February 2008, placed the land in Freetown,
Massachusetts on the market.
48
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 29, 2007
|
|
|
December 30, 2006
|
|
|
|
(In thousands)
|
|
|
Advertising, promotional and selling expenses
|
|
$
|
3,266
|
|
|
$
|
3,052
|
|
Accrued deposits
|
|
|
11,785
|
|
|
|
4,840
|
|
Employee wages, benefits and reimbursements
|
|
|
5,694
|
|
|
|
5,217
|
|
Accrued excise taxes (see Note I)
|
|
|
4,925
|
|
|
|
1,050
|
|
Income taxes (see Note H)
|
|
|
7,730
|
|
|
|
3,295
|
|
Other accrued liabilities
|
|
|
6,949
|
|
|
|
5,474
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
40,349
|
|
|
$
|
22,928
|
|
|
|
|
|
|
|
|
|
|
|
|
G.
|
Long-term
Debt and Line of Credit
|
The Company had a credit facility in place that provided for a
$20.0 million revolving line of credit which was set to
expire on March 31, 2008. On March 10, 2008, the
credit facility was amended to increase the revolving line of
credit to $50.0 million, to extend the expiration date to
March 31, 2013 and to modify certain other terms of the
credit agreement. The Company may elect an interest rate for
borrowings under the credit facility based on either
(i) the Alternative Prime Rate (7.25% at December 29,
2007) or (ii) the applicable LIBOR rate (4.9% at
December 29, 2007) plus 0.45%. The Company incurs an
annual commitment fee of 0.15% on the unused portion of the
facility and is obligated to meet certain financial covenants,
including the maintenance of specified levels of tangible net
worth and net income. The Company was in compliance with all
covenants as of December 29, 2007. There were no borrowings
outstanding under the credit facility as of December 29,
2007 and December 30, 2006.
There are also certain restrictive covenants set forth in the
credit agreement. Pursuant to the negative covenants, the
Company has agreed that it will not: enter into any indebtedness
or guarantees other than those specified by the lender, enter
into any sale and leaseback transactions, merge, consolidate, or
dispose of significant assets without the lenders prior
written consent, will not make or maintain any investments other
than those permitted in the credit agreement, will not enter
into any transactions with affiliates outside of the ordinary
course of business, and will not make any distributions on
account of, or in repurchase, retirement or purchase of its
capital stock, partnership or other equity interest, except as
provided in the agreement. In addition, the credit agreement
requires the Company to obtain prior written consent from the
lender on distributions on account of, or in repurchase,
retirement or purchase of its capital stock or other equity
interests with the exception of the following:
(a) distributions of capital stock from subsidiaries to The
Boston Beer Company, Inc. and Boston Beer Corporation (a
subsidiary of The Boston Beer Company, Inc.),
(b) repurchase from former employees of non-vested
investment shares of Class A Common Stock, issued under the
Employee Equity Incentive Plan, and (c) redemption of
shares of Class A Common Stock as approved by the Board of
Directors and payment of cash dividends to its holders of common
stock. Borrowings under the credit facility may be used for
working capital, capital expenditures and general corporate
purposes of the Company and its subsidiaries. In the event of a
default that has not been cured, the credit facility would
terminate and any unpaid principal and accrued interest would
become due and payable.
49
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
H. Income Taxes
Significant components of the provision for income taxes are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
2007
|
|
|
2006
|
|
|
(53 weeks)
|
|
|
|
(In thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
17,420
|
|
|
$
|
10,845
|
|
|
$
|
7,682
|
|
State
|
|
|
3,435
|
|
|
|
3,460
|
|
|
|
1,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
20,855
|
|
|
|
14,305
|
|
|
|
9,008
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(1,560
|
)
|
|
|
(714
|
)
|
|
|
913
|
|
State
|
|
|
(142
|
)
|
|
|
(17
|
)
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(1,702
|
)
|
|
|
(731
|
)
|
|
|
952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision
|
|
$
|
19,153
|
|
|
$
|
13,574
|
|
|
$
|
9,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys reconciliations to statutory rates are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income tax, net of federal benefit
|
|
|
3.6
|
|
|
|
3.2
|
|
|
|
2.5
|
|
Non-deductible meals and entertainment
|
|
|
2.3
|
|
|
|
1.1
|
|
|
|
1.2
|
|
Non-deductible penalties
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
Tax-exempt income
|
|
|
(1.2
|
)
|
|
|
(1.1
|
)
|
|
|
(1.5
|
)
|
Deduction relating to U.S. production activities
|
|
|
(2.3
|
)
|
|
|
(0.9
|
)
|
|
|
(0.9
|
)
|
Change in income tax contingencies
|
|
|
6.4
|
|
|
|
4.7
|
|
|
|
2.0
|
|
Other
|
|
|
1.5
|
|
|
|
0.7
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46.0
|
%
|
|
|
42.7
|
%
|
|
|
39.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant components of the Companys deferred tax assets
and liabilities are as follows at:
|
|
|
|
|
|
|
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
2,621
|
|
|
$
|
1,132
|
|
Stock-based compensation expense
|
|
|
2,067
|
|
|
|
1,052
|
|
Other
|
|
|
794
|
|
|
|
720
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
5,482
|
|
|
|
2,904
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
(3,729
|
)
|
|
|
(3,025
|
)
|
Prepaid expenses
|
|
|
(648
|
)
|
|
|
(515
|
)
|
Goodwill
|
|
|
(230
|
)
|
|
|
(191
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(4,607
|
)
|
|
|
(3,731
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities)
|
|
$
|
875
|
|
|
$
|
(827
|
)
|
|
|
|
|
|
|
|
|
|
50
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company adopted FIN No. 48, which is an
interpretation of SFAS No. 109, Accounting for
Income Taxes, and FASB Staff Position
FIN 48-1
(FSP
FIN 48-1),
Definition of Settlement in FASB Interpretation
No. 48, at the beginning of fiscal 2007. These
interpretations clarified the accounting and financial statement
reporting for uncertainty in income taxes recognized by
prescribing a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. The
adoption of FIN No. 48 did not result in an adjustment
to the beginning balance of retained earnings and also did not
result in any material adjustments to reserves for uncertain tax
positions.
The Companys practice is to classify interest and
penalties related to income tax matters in income tax expense.
Interest and penalties included in the provision for income
taxes amounted to $0.9 million in 2007, $0.5 million
in 2006 and $0.2 million in 2005. Accrued interest and
penalties amounted to $1.0 million at December 29,
2007 and $0.6 million at December 30, 2006.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
Balance at December 30, 2006
|
|
$
|
4,423
|
|
Increases related to current year tax positions
|
|
|
1,873
|
|
Increases related to prior year tax positions
|
|
|
1,309
|
|
Decreases related to settlements
|
|
|
(769
|
)
|
Decreases related to statute expiration
|
|
|
(232
|
)
|
|
|
|
|
|
Balance at December 29, 2007
|
|
$
|
6,604
|
|
|
|
|
|
|
Included in the balance of unrecognized tax benefits at
December 29, 2007, are potential benefits of
$3.9 million that would favorably impact the effective tax
rate if recognized. Unrecognized tax benefits are adjusted in
the period in which new information about a tax position becomes
available or the final outcome differs from the amount recorded.
The Companys state income tax returns remain subject to
examination for three or four years depending on the
states statute of limitations. In addition, the Company is
generally obligated to report changes in taxable income arising
from federal income tax audits.
In October 2006, the Internal Revenue Service (IRS)
commenced an examination of the Companys 2004 and 2005
consolidated corporate income tax returns. At December 29,
2007, the examination was in progress. Concurrent with the IRS
examination, the Company reviewed its judgments related to
certain tax positions taken on the Companys consolidated
federal and state income tax returns relating to deductibility
of meals and entertainment expenses and certain other business
expenses. As a result, the Company increased its unrecognized
tax benefits by $1.3 million as a change in estimate. In
March 2008, in connection with the completion of the IRS
examination, the Company made a payment of $0.8 million.
In August 2007, the Company entered into a settlement agreement
with the Massachusetts Department of Revenue regarding certain
apportionment issues related to the 2002 and 2003 tax years,
which resulted in a reduction of unrecognized tax benefits by
$0.8 million.
It is reasonably possible that the Companys unrecognized
tax benefits may increase or decrease significantly in 2008 due
to the commencement or completion of certain state income tax
audits. However, the Company cannot estimate the range of such
possible changes. The Company does not expect that any potential
changes would have a material impact on the Companys
financial position, results of operations or cash flows.
51
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
I.
|
Commitments
and Contingencies
|
Purchase
Commitments
The Company had outstanding non-cancelable purchase commitments
related to advertising contracts of approximately
$15.2 million at December 29, 2007, most of which are
expected to be incurred in fiscal 2008. The Company had various
other non-cancelable purchase commitments at December 29,
2007, which amounted to $2.5 million.
The Company uses specific hops for its beer. These hops include
Hallertau-Hallertauer, Tettnang-Tettnanger and Spalt-Spalter and
are harvested in several specific regions in Germany. To a
lesser extent, the Company uses traditional English hops from
England. The Company has entered into contracts for the supply
of a substantial portion of its normal hops requirements. These
purchase contracts extend through crop year 2015 and specify
both the quantities and prices, mostly denominated in Euros, to
which the Company is committed. The Company does not use forward
currency exchange contracts and intends to purchase future hops
using the exchange rate at the time of purchase. Purchases under
these hops contracts were approximately $5.3 million,
$3.2 million and $3.9 million for fiscal years 2007,
2006 and 2005, respectively. As of December 29, 2007,
projected cash outflows under hops purchase commitments for each
of the remaining years under the contracts are as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
2008
|
|
$
|
14,364
|
|
2009
|
|
|
9,384
|
|
2010
|
|
|
8,310
|
|
2011
|
|
|
3,409
|
|
2012
|
|
|
6,532
|
|
Thereafter
|
|
|
9,124
|
|
|
|
|
|
|
|
|
$
|
51,123
|
|
|
|
|
|
|
In the normal course of business, the Company enters into
various production arrangements with other brewing companies.
Approximately 35% of the Companys products are brewed at
its wholly-owned subsidiary, Samuel Adams Brewery Company, Ltd.,
in Cincinnati, Ohio. The remainder of the Companys
products is brewed by other brewing companies. Under the brewing
service arrangements with other brewing companies, the Company
purchases the liquid produced by those brewing companies,
including the raw materials that are used in the liquid, at the
time such liquid goes into fermentation. The Company is also
required to repurchase from the supplier all unused raw
materials purchased by the supplier specifically for its
products at suppliers cost upon termination of these
production arrangements. The Company is also obligated to meet
annual volume requirements in conjunction with certain
production arrangements. During 2007, the Company met all
existing minimum volume requirements in accordance with the
production agreements, with the exception of one brewery
location. For that brewery, the fees associated with not meeting
minimum volume requirement were not significant and have been
recognized in the Companys consolidated financial
statements at December 29, 2007.
The Companys arrangements with other brewing companies
require it to periodically purchase fixed assets in support of
brewery operations. As of December 29, 2007, there were no
significant fixed asset purchase requirements outstanding under
existing contracts. Changes to the Companys brewing
strategy or existing production arrangements, new production
relationships or introduction of new products in the future may
require the Company to purchase fixed assets to support the
contract breweries operations.
On November 2, 2007, the Company entered into a Glass
Bottle Supply Agreement with Anchor Glass Container Corporation
(Anchor) that calls for Anchor to be the exclusive
supplier of glass bottles for the
52
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Companys Cincinnati brewery and the Pennsylvania Brewery,
if the acquisition of that brewery is consummated, beginning
January 1, 2009. The agreement also establishes the terms
on which Anchor may supply glass bottles to other breweries
where the Company brews its beers.
Contingent
Excise Tax Liability
During the third quarter of 2007, the Alcohol and Tobacco Tax
and Trade Bureau of the U.S. Treasury Department (the
TTB) performed a routine audit of the Companys
Cincinnati brewery and other breweries where some of the
Companys products are produced (the TTB
Audit). In February 2008, the TTB formally disputed the
Companys regulatory and tax treatment of certain of its
2006 and 2007 Twisted Tea shipments and the Company has received
a notice of demand for additional excise taxes plus interest and
penalties of approximately $8.5 million. The TTB has
asserted that these shipments were not classified consistent
with TTB regulations that took effect January 1, 2006.
Based on the Companys analysis to date, it believes that
most of its Twisted Tea shipments were in compliance with
applicable regulations. The Company is in discussions with the
TTB regarding the differences in the methodologies used to
ascertain regulatory compliance. Based on information available
on December 29, 2007, the Company concluded that the range
of possible outcomes was between $3.9 million and
$9.3 million. Based on the information previously collected
and its earlier assessment of likely outcomes, the Company
recorded a provision of $3.9 million in the third quarter.
The Company continues to maintain this provision in its
December 29, 2007 financial statements related to this
contingency.
Contract
of Sale for Brewery in Lehigh Valley, Pennsylvania
During the third quarter of 2007, the Company entered into a
Contract of Sale to purchase from Diageo North America, Inc. a
brewery located in Lehigh Valley, Pennsylvania (the
Pennsylvania Brewery) for $55.0 million. As of
December 29, 2007, the Company has paid total deposits of
$10.0 million and incurred $1.5 million in acquisition
costs, which are included in other assets in the accompanying
consolidated balance sheet. The Company expects to close on the
purchase of the Pennsylvania Brewery and pay the remaining
$45.0 million of the purchase price in June 2008, barring
any unforeseen circumstances. In addition to the purchase price
of $55.0 million, the Company expects to have spent between
$45.0 million and $55.0 million in capital
improvements and due diligence by the end of 2008. As of
December 29, 2007, the Company has committed to
$5.3 million and spent $2.1 million of this capital
plan, the latter of which is included in property, plant and
equipment, net, in the accompanying consolidated balance sheet.
As a part of the purchase and sale arrangement, Diageo and the
Company also entered into a Packaging Services Agreement dated
August 1, 2007 (the Packaging Services
Agreement), pursuant to which the Company has agreed to
blend and package the Diageo products currently being produced
at the Pennsylvania Brewery by Diageo. The Packaging Services
Agreement will take effect on the date on which the Company
purchases the Pennsylvania Brewery and will have a term of
approximately two years. It is anticipated that the volume of
Diageo products being produced at the Pennsylvania Brewery will
decline over the term, while, at the same time, the volume of
the Companys products being produced there will increase.
Lease
Commitments
The Company has various operating lease agreements in place for
facilities and equipment as of December 29, 2007. Terms of
these leases include, in some instances, scheduled rent
increases, renewals, purchase options, and maintenance costs,
and vary by lease. These lease obligations expire at various
dates through 2017. Aggregate rent expense was
$0.8 million, $1.4 million and $1.3 million in
fiscal years 2007, 2006 and 2005, respectively.
53
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Aggregate minimum annual rental payments under these agreements
are as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
2008
|
|
$
|
769
|
|
2009
|
|
|
787
|
|
2010
|
|
|
663
|
|
2011
|
|
|
693
|
|
2012
|
|
|
771
|
|
Thereafter
|
|
|
3,302
|
|
|
|
|
|
|
|
|
$
|
6,985
|
|
|
|
|
|
|
Litigation
The Company, along with numerous other beverage alcohol
producers, was named as a defendant in a number of class action
law suits in several states relating to advertising practices
and under-age consumption. Each complaint contained
substantially the same allegations that each defendant marketed
its products to under-age drinkers and sought an injunction and
unspecified money damages on behalf of a class of parents and
guardians. As of December 29, 2007, all complaints and
related appeals have been withdrawn.
The Company had been in litigation with its previous liability
insurers regarding the coverage of defense costs in connection
with the above-referenced complaints. In November 2007, the
Company and the insurers entered into a settlement agreement,
pursuant to which all claims asserted by each of the parties
were released and the insurers reimbursed the Company
$0.9 million in legal costs previously incurred by the
Company. The reimbursement of legal costs is included as income
in general and administrative expenses in the accompanying
consolidated statement of operations for fiscal year 2007.
The Company is not a party to any other pending or threatened
litigation, the outcome of which would be expected to have a
material adverse effect upon its financial condition or the
results of its operations.
Class A
Common Stock
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 Companys assets.
Class B
Common Stock
The Class B Common Stock has full voting rights, including
the right to (1) elect a majority of the members of the
Companys Board of Directors and (2) approve all
(a) amendments to the Companys articles of
Organization, (b) mergers or consolidations with, or
acquisitions of, other entities, (c) sales or dispositions
of any significant portion of the Companys assets, and
(d) equity-based and other executive compensation and other
significant corporate matters. The Companys Class B
Common Stock is not listed for trading. Each share of
Class B Common Stock is freely convertible into one share
of Class A Common Stock, upon request of any Class B
holder.
54
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
All distributions of equity interest are restricted by the
Companys credit agreement, as amended on March 10,
2008 with the exception of distributions of capital stock from
subsidiaries to The Boston Beer Company, Inc. and Boston Beer
Corporation, repurchase from former employees of non-vested
investment shares of Class A Common Stock issued under the
Companys equity incentive plan and redemption of certain
shares of Class A Common Stock as approved by the Board of
Directors and payment of cash dividends to its holders of common
stock.
Employee
Stock Compensation Plan
The Companys Employee Equity Incentive Plan (the
Equity Plan) currently provides for the grant of
discretionary options and restricted stock awards to employees;
it also provides for shares issued to employees of the Company
under its investment share program. The Plan is administered by
the Board of Directors of the Company, based on recommendations
received from the Compensation Committee of the Board of
Directors. The Compensation Committee consists of three
independent directors. In determining the quantities and types
of awards for grant, the Compensation Committee periodically
reviews the objectives of the Companys compensation system
and takes into account the position and responsibilities of the
employee being considered, the nature and value to the Company
of his or her service and accomplishments, his or her present
and potential contributions to the success of the Company, the
value of the type of awards to the employee and such other
factors as the Compensation Committee deems relevant.
Stock options and related vesting requirements and terms are
granted at the Board of Directors discretion, but
generally vest ratably over five-year periods and, with respect
to certain options granted to members of senior management,
based on the Companys performance. Generally, the maximum
contractual term of stock options is ten years, although the
Board of Directors may grant options that exceed the ten-year
term. During fiscal 2007 and 2006, the Company granted options
to purchase 336,100 and 94,000 shares, respectively, of its
Class A Common Stock to employees at market price on the
grant dates. The 2007 option grants consist of a service-based
option to purchase 180,000 shares that vest at the end of a
six-year period and an aggregate of 156,100 performance-based
options. All 2006 option grants are performance-based options.
The number of shares that will vest under the performance-based
options depends on the level of performance targets attained on
various dates.
Restricted stock awards are also granted at the Board of
Directors discretion. During fiscal 2007 and 2006, the
Company granted 40,013 and 32,079 shares, respectively, of
restricted stock awards to certain senior managers and key
employees, which vest ratably over service periods of five
years. During fiscal 2007, the Company granted an additional
3,195 shares of performance-based restricted stock awards
to certain key employees that are not expected to vest as
performance targets were not attained. No restricted stock
awards were granted prior to January 1, 2006. The issuance
of restricted stock awards resulted in part from the
Companys evaluation in 2006 of employee preference in the
types of stock awards to be issued to them as part of their
total compensation package.
The Equity Plan also has an 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 at a
discount from current market value of 0% to 40%, based on the
employees tenure with the Company. Investment shares vest
ratably over service periods of five years. Participants may pay
for these shares either up front or through payroll deductions
over an eleven-month period during the year of purchase. During
fiscal 2007 and 2006, employees elected to purchase an aggregate
of 15,320 and 19,577 investment shares, respectively.
On December 21, 2007, the Equity Plan was amended whereby
the number of shares of Class A Common Stock reserved for
issuance under the plan was increased from 4.2 million to
5.2 million. As of December 29, 2007, 1.3 million
shares remained available for grant. Shares reserved for
issuance under canceled employee stock options and forfeited
restricted stock are returned to the reserve under the Equity
Plan for future grants
55
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
or purchases. The Company also purchases unvested investment
shares from employees who have left the Company; these shares
are also returned to the reserve under the Equity Plan for
future grants or purchases.
Non-Employee
Director Options
The Company has a stock option plan for non-employee directors
of the Company (the Non-Employee Director Plan),
pursuant to which each non-employee director of the Company is
granted an option to purchase shares of the Companys
Class A Common Stock upon election or re-election to the
Board of Directors. Stock options issued to non-employee
directors vest upon grant and have a maximum contractual term of
ten years. During fiscal 2007 and 2006, the Company granted
options to purchase an aggregate of 33,000 and
31,000 shares, respectively, of the Companys
Class A Common Stock to non-employee directors.
The Company has reserved 0.4 million shares of Class A
Common Stock for issuance pursuant to the Non-Employee Director
Plan, of which 0.1 million shares were available for grant
as of December 29, 2007. Cancelled non-employee
directors stock options are returned to the reserve under
the Non-Employee Director Plan for future grants.
Option
Activity
Information related to stock options under the Equity Plan and
the Non-Employee Director Plan is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Term
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
in Years
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Outstanding at December 30, 2006
|
|
|
1,615,994
|
|
|
$
|
17.39
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
369,100
|
|
|
|
39.95
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(41,000
|
)
|
|
|
24.56
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(15,000
|
)
|
|
|
35.09
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(235,651
|
)
|
|
|
14.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 29, 2007
|
|
|
1,693,443
|
|
|
$
|
22.36
|
|
|
|
6.07
|
|
|
$
|
25,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 29, 2007
|
|
|
816,033
|
|
|
$
|
15.94
|
|
|
|
4.10
|
|
|
$
|
17,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 29, 2007
|
|
|
1,400,637
|
|
|
$
|
21.38
|
|
|
|
5.67
|
|
|
$
|
22,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of the total options outstanding at December 29, 2007,
560,000 shares were performance-based options.
Stock
Option Grants to Chief Executive Officer
In August 2007, the Company granted an option to purchase
180,000 shares of its Class A Common Stock to its
Chief Executive Officer that cliff-vest after completion of a
six-year service period. Under the binomial option-pricing
model, the weighted average fair value of the option is $19.39
per share, and the Company recorded stock-based compensation
expense of $0.2 million related to this stock option in
fiscal year 2007.
Effective January 1, 2008, the Company granted the Chief
Executive Officer an option to purchase 753,864 shares of
its Class A Common Stock, which vest over a five-year
period, commencing on January 1, 2014, at the rate of 20%
per year. The exercise price is determined by multiplying $42.00
by the aggregate change in the DJ Wilshire 5000 Index from and
after January 1, 2008 through the close of business on the
trading date next preceding each date on which the option is
exercised. The exercise price will not be less than $37.65 per
share and the excess of the fair value of the Companys
Class A Common Stock cannot exceed $70
56
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
per share over the exercise price. The Company will account for
this award as a market-based award and calculated the weighted
average fair value per share to be $8.41.
Stock-Based
Compensation
The following table provides information regarding stock-based
compensation expense included in operating expenses in the
accompanying consolidated statements of income, since the
adoption of SFAS No. 123R:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Amounts included in advertising, promotional and selling expenses
|
|
$
|
1,164
|
|
|
$
|
901
|
|
Amounts included in general and administrative expenses
|
|
|
1,894
|
|
|
|
1,850
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
3,058
|
|
|
$
|
2,751
|
|
|
|
|
|
|
|
|
|
|
Amounts related to performance-based stock options included in
total stock-based compensation expense
|
|
$
|
1,141
|
|
|
$
|
1,205
|
|
|
|
|
|
|
|
|
|
|
The Company adopted SFAS No. 123R on January 1,
2006 using the modified-prospective transition method.
Consequently, prior period financial statements have not been
restated to reflect the effect of SFAS No. 123R. In
fiscal year 2005, the Company recognized $0.1 million in
stock-based compensation expense related to investment shares
under the intrinsic value method.
The effect of the adoption of SFAS No. 123R was a
decrease in income before provision for income taxes by
$0.7 million and a decrease in net income by
$0.4 million, or $0.03 per basic and diluted common share,
in fiscal 2006. The following table illustrates the effect on
net income and net income per common share if the Company had
recognized stock-based compensation expense under the fair value
method in fiscal 2005:
|
|
|
|
|
|
|
|
|
|
|
(In thousands,
|
|
|
|
|
|
|
except per
|
|
|
|
|
|
|
share data)
|
|
|
|
|
|
Net income, as reported
|
|
$
|
15,559
|
|
|
|
|
|
Add: Stock-based employee compensation expense reported in net
income, net of tax effects
|
|
|
87
|
|
|
|
|
|
Deduct: Total stock-based compensation expense determined under
fair value based method for all awards, net of related tax
effects
|
|
|
(1,038
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$
|
14,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
Basic as reported
|
|
$
|
1.10
|
|
|
|
|
|
Basic pro forma
|
|
$
|
1.03
|
|
|
|
|
|
Diluted as reported
|
|
$
|
1.07
|
|
|
|
|
|
Diluted pro forma
|
|
$
|
1.01
|
|
|
|
|
|
For stock options granted prior to January 1, 2006, fair
values were estimated on the date of grants using a
Black-Scholes option-pricing model. As permitted by
SFAS No. 123R, the Company elected to use a lattice
model, such as the binomial option-pricing model, to estimate
the fair values of stock options granted on or after
January 1, 2006. The Company believes that the
Black-Scholes option-pricing model is less effective than the
binomial option-pricing model in valuing long-term options, as
it assumes that volatility and interest rates are constant over
the life of the option. In addition, the Company believes that
the binomial option-pricing model more accurately reflects the
fair value of its stock awards, as it takes into account
historical employee exercise patterns based on changes in the
Companys stock price and other relevant variables. The
weighted-average fair value of stock options granted during 2005
was $9.35 per share as calculated using the Black-
57
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Scholes option-pricing model. The weighted-average fair value of
stock options granted during 2007 and 2006 was $15.95 and $8.43
per share, respectively, as calculated using a binomial
option-pricing model.
Weighted average assumptions used to estimate fair values of
stock options on the date of grants are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Binomial Model)
|
|
|
(Binomial Model)
|
|
|
(Black-Scholes Model)
|
|
|
Expected volatility
|
|
|
30.5
|
%
|
|
|
31.6
|
%
|
|
|
33.6
|
%
|
Expected life of option
|
|
|
^
|
|
|
|
^
|
|
|
|
6.8 years
|
|
Risk-free interest rate
|
|
|
4.79
|
%
|
|
|
3.82
|
%
|
|
|
3.78
|
%
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Exercise factor
|
|
|
1.5 times
|
|
|
|
1.5 times
|
|
|
|
*
|
|
Discount for post-vesting restrictions
|
|
|
6.0
|
%
|
|
|
6.5
|
%
|
|
|
*
|
|
|
|
|
^
|
|
The expected life of the option is an output of the binomial
model, which resulted in a weighted average of 9.1 and
7.3 years for options granted during 2007 and 2006,
respectively. |
|
* |
|
Assumption not considered in the Black-Scholes option-pricing
model. |
Expected volatility is based on the Companys historical
realized volatility. Expected life of an option is based on the
Companys historical experience of stock options. The
risk-free interest rate represents the implied yields available
from the U.S. Treasury zero-coupon yield curve over the
contractual term of the option when using the binomial model and
the implied yield available on U.S. Treasury zero-coupon
issues with a remaining term equal to the expected term of the
option when using the Black-Scholes model. Expected dividend
yield is 0% because the Company has not paid dividends in the
past and currently has no known intention to do so in the
future. Exercise factor and discount for post-vesting
restrictions are based on the Companys historical
experience.
Fair value of investment shares was calculated using the same
methods as those used to calculate the fair value of stock
options in the respective financial statement periods. Fair
value of restricted stock awards was based on the Companys
traded stock price on the date of the grants.
The Company uses the straight-line attribution method in
recognizing stock-based compensation expense for awards that
vest based on service conditions. For awards that vest subject
to performance conditions, compensation expense is recognized
ratably for each tranche of the award over the performance
period if it is probable that performance conditions will be
met. These methods are consistent with the methods the Company
used in recognizing stock-based compensation expense for
disclosure purposes under SFAS No. 123 prior to the
adoption of SFAS No. 123R. In June 2005, an option to
purchase 300,000 shares of the Companys common stock
was granted to the Companys chief executive officer. This
option vests based upon the achievement of performance targets.
During the fourth quarter of 2006, the Company was able to
estimate for the first time that the achievement of the
performance targets as to 180,000 shares of this option is
probable. Consequently, the Company recorded $0.8 million
in stock-based compensation expense related to this stock option
in the fourth quarter of 2006.
Under SFAS No. 123R, compensation expense is
recognized less estimated forfeitures. Because most of the
Companys equity awards vests on January
1st
each year, the Company recognized stock-based compensation
expense related to those awards, net of actual forfeitures, in
2007 and 2006. For equity awards that do not vest on January 1st
each year, the estimated forfeiture rate used was 10%. The
forfeiture rate was based upon historical experience and the
Company periodically reviews this rate to ensure proper
projection of future forfeitures. For pro forma compensation
expense disclosure purposes for 2005, forfeitures are recognized
as occurred according to SFAS No. 123.
58
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The total fair value of options vested during 2007 and 2006 was
$1.7 million and $1.4 million, respectively. The
aggregate intrinsic value of stock options exercised during
2007, 2006 and 2005 was $5.1 million, $5.7 million and
$3.0 million, respectively.
Based on equity awards outstanding as of December 29, 2007,
there were $6.0 million of unrecognized compensation costs,
net of estimated forfeitures, related to unvested share-based
compensation arrangements that are expected to vest. Such costs
are expected to be recognized over a weighted-average period of
2.6 years. The following table summarizes the estimated
future annual stock-based compensation expense related to
share-based arrangements existing as of December 29, 2007
that are expected to vest:
|
|
|
|
|
|
|
(In thousands)
|
|
|
2008
|
|
$
|
1,994
|
|
2009
|
|
|
1,304
|
|
2010
|
|
|
1,063
|
|
2011
|
|
|
834
|
|
2012
|
|
|
524
|
|
Thereafter
|
|
|
316
|
|
|
|
|
|
|
Total
|
|
$
|
6,035
|
|
|
|
|
|
|
In addition, as of December 29, 2007, there were
$1.1 million of unrecognized compensation costs associated
with the second tranche of the option to purchase
300,000 shares of the Companys common stock granted
to the Companys chief executive officer with vesting
requirements based on the achievement of various performance
targets in 2009. For various other stock options that vest based
on performance, there were $1.3 million of unrecognized
compensation costs as of December 29, 2007. Through
December 29, 2007, no compensation expense was recognized
for these performance-based stock options, nor will any be
recognized until such time when the Company can estimate that it
is probable that performance targets will be met.
Non-Vested
Shares Activity
The following table summarizes vesting activities of shares
issued under the investment share program and restricted stock
awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
Average
|
|
|
|
of Shares
|
|
|
Fair Value
|
|
|
Non-vested at December 30, 2006
|
|
|
91,054
|
|
|
$
|
14.96
|
|
Granted
|
|
|
58,528
|
|
|
|
31.13
|
|
Vested
|
|
|
(25,204
|
)
|
|
|
13.05
|
|
Forfeited
|
|
|
(8,453
|
)
|
|
|
27.96
|
|
|
|
|
|
|
|
|
|
|
Non-vested at December 29, 2007
|
|
|
115,925
|
|
|
$
|
22.59
|
|
|
|
|
|
|
|
|
|
|
Stock
Repurchase Program
On December 11, 2007, the Board of Directors approved a
$10.0 million increase to the aggregate expenditure limit
for the repurchase of the Companys Class A Common
Stock, thereby increasing the limit from $100.0 million to
$110.0 million. On February 13, 2008, the Board of
Directors approved an additional $10.0 expenditure limit for the
repurchase of the Companys Class A Common Stock.
Through December 29, 2007, the Company has repurchased a
total of approximately 8.0 million shares of its
Class A Common Stock for an aggregate purchase price of
$98.7 million.
59
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
K.
|
Employee
Retirement Plans
|
The Company has one retirement plan covering substantially all
non-union employees and five retirement plans covering
substantially all union employees.
Non-Union
Plan
The Boston Beer Company 401(k) Plan (the 401(k)
Plan), which was established by the Company in 1993, is a
Company-sponsored defined contribution plan that covers a
majority of the Companys non-union employees. All
full-time, non-union employees over the age of 21 are eligible
to participate in the plan on the first day of the first month
after commencing employment. Participants may make voluntary
contributions up to 60% of their annual compensation, subject to
IRS limitations. After the sixth month of employment, the
Company matches each employees contribution dollar for
dollar up to $1,000 and, thereafter, 50% of the employees
contribution up to 6% of the employees eligible annual
wages. The Companys contributions to the 401(k) Plan
amounted to $0.8 million, $0.6 million, and
$0.5 million in fiscal years 2007, 2006, and 2005,
respectively.
Union
Plans
The Company has one Company-sponsored defined contribution plan
and four defined benefit plans, which combined cover
substantially all union employees. The defined benefit plans
include two union-sponsored collectively bargained
multi-employer pension plans, a Company-sponsored defined
benefit pension plan and a Company-sponsored post-retirement
medical plan.
The Companys defined contribution plan, the Samuel Adams
Brewery Company, Ltd. 401(k) Plan for Represented Employees, was
established by the Company in 1997 and is available to all union
employees upon completion of one hour of full-time employment.
Participants may make voluntary contributions up to 60% of their
annual compensation to the Samuel Adams Brewery Company, Ltd.
401(k) Plan, subject to IRS limitations. Effective April 1,
2007, the Company makes a non-elective contribution for certain
bargaining employees who are members of a specific union.
Company contributions were insignificant in fiscal 2007. The
Company also incurs insignificant administration costs for the
plan.
The union-sponsored benefit plans are two multi-employer
retirement plans administrated by organized labor unions.
Information from the plans administrators is not
sufficient to permit the Company to determine its share, if any,
of the unfunded vested benefits. Pension expense and employer
contributions for these multi-employer plans were not
significant in the aggregate.
The Company-sponsored defined benefit pension plan, The Local
Union # 1199 Defined Benefit Pension Plan (the
Local 1199 Plan), was established in 1991 and is
eligible to all union employees who are covered by the
Companys collective bargaining agreement and have
completed twelve consecutive months of employment with at least
750 hours worked. The defined benefit is determined based
on years of service since July 1991. The Company made combined
contributions of $0.2 million to this plan in fiscal 2007
and $0.1 million in each of the fiscal years 2006 and 2005.
A comprehensive medical plan is offered to union employees who
have voluntarily retired at the age of 65 or have become
permanently disabled. Employees must have worked for the Company
or have prior ownership for at least 10 years at the
Companys Cincinnati brewery, been enrolled in the
Companys medical insurance plan and be eligible for
Medicare benefits under the Social Security Act. The accumulated
post-retirement benefit obligation was determined using a
discount rate of 6.0% and 5.75% at September 30, 2007 and
2006, respectively, and a 2.5% increase in the Cincinnati
Consumer Price Index for the years then ended. The effect of a
1% point increase and the effect of a 1% point decrease in the
assumed health care cost trend rates on the aggregate of the
service and interest cost components of net periodic
postretirement health care benefit costs and the accumulated
post-retirement benefit obligation for health care benefits were
not significant.
60
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As required, the Company adopted the recognition and disclosure
provisions of SFAS No. 158 as of December 30,
2006. SFAS No. 158 required the Company to recognize
the funded status, the difference between the fair value of plan
assets and the projected benefit obligations, with a
corresponding adjustment to accumulated other comprehensive
loss, net of tax. The adjustment to accumulated other
comprehensive loss at adoption represents the net unrecognized
actuarial losses, unrecognized prior service costs and
unrecognized transition obligation remaining from the initial
adoption of SFAS No. 87, Employers Accounting
for Pensions, which were previously netted against the
plans funded status in the Companys consolidated
balance sheet. These amounts will be subsequently recognized as
net periodic pension cost pursuant to the Companys
historical accounting policy for amortizing such amounts. The
incremental effects of the adoption of the recognition
provisions of SFAS No. 158 were not significant to the
Companys consolidated balance sheet as of
December 30, 2006.
The Company uses a September 30 measurement date for its defined
benefit pension plan and post-retirement medical plan.
Summarized information for those plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local 1199 Plan
|
|
|
Post-Retirement Medical Plan
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Change in Benefit Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligations at beginning of year
|
|
$
|
1,052
|
|
|
$
|
981
|
|
|
$
|
281
|
|
|
$
|
259
|
|
Service cost
|
|
|
85
|
|
|
|
77
|
|
|
|
11
|
|
|
|
9
|
|
Interest cost
|
|
|
60
|
|
|
|
53
|
|
|
|
16
|
|
|
|
14
|
|
Actuarial losses (gains)
|
|
|
46
|
|
|
|
(40
|
)
|
|
|
18
|
|
|
|
7
|
|
Benefits paid
|
|
|
(22
|
)
|
|
|
(19
|
)
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligations at end of year
|
|
$
|
1,221
|
|
|
$
|
1,052
|
|
|
$
|
318
|
|
|
$
|
281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
813
|
|
|
$
|
713
|
|
|
$
|
|
|
|
$
|
|
|
Actual return on plan assets
|
|
|
98
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
Company contributions
|
|
|
242
|
|
|
|
69
|
|
|
|
8
|
|
|
|
8
|
|
Benefits paid
|
|
|
(22
|
)
|
|
|
(19
|
)
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
1,131
|
|
|
$
|
813
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Status
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
(90
|
)
|
|
$
|
(239
|
)
|
|
$
|
(318
|
)
|
|
$
|
(281
|
)
|
Unrecognized net actuarial loss
|
|
|
259
|
|
|
|
261
|
|
|
|
74
|
|
|
|
58
|
|
Prepaid contribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
169
|
|
|
$
|
22
|
|
|
$
|
(244
|
)
|
|
$
|
(223
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Recognized in Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(8
|
)
|
|
$
|
(8
|
)
|
Noncurrent liabilities
|
|
|
(90
|
)
|
|
|
(239
|
)
|
|
|
(310
|
)
|
|
|
(273
|
)
|
Accumulated other comprehensive loss
|
|
|
259
|
|
|
|
261
|
|
|
|
74
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
169
|
|
|
$
|
22
|
|
|
$
|
(244
|
)
|
|
$
|
(223
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Benefit Obligation
|
|
$
|
1,221
|
|
|
$
|
1,052
|
|
|
$
|
318
|
|
|
$
|
281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The amounts in accumulated other comprehensive loss at
December 29, 2007 and December 30, 2006 that have not
yet been recognized as components of net periodic benefit cost
represent net gains and losses. There were no unrecognized prior
service costs and net transition asset or obligation. The amount
in accumulated other comprehensive loss expected to be
recognized as components of net periodic benefit cost in fiscal
year 2008 is $10,000 and $3,000 for the Local 1199 Plan and the
post-retirement medical plan, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-Retirement
|
|
|
|
Local 1199 Plan
|
|
|
Medical Plan
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Components of Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
85
|
|
|
$
|
77
|
|
|
$
|
74
|
|
|
$
|
11
|
|
|
$
|
9
|
|
|
$
|
9
|
|
Interest cost
|
|
|
60
|
|
|
|
53
|
|
|
|
48
|
|
|
|
16
|
|
|
|
14
|
|
|
|
11
|
|
Expected return on plan assets
|
|
|
(61
|
)
|
|
|
(54
|
)
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
|
|
|
12
|
|
|
|
17
|
|
|
|
18
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
96
|
|
|
$
|
93
|
|
|
$
|
88
|
|
|
$
|
29
|
|
|
$
|
25
|
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Recognized in Other Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss)
|
|
$
|
9
|
|
|
$
|
(54
|
)
|
|
$
|
6
|
|
|
$
|
18
|
|
|
$
|
5
|
|
|
$
|
44
|
|
Amortization of net actuarial loss
|
|
|
(12
|
)
|
|
|
(17
|
)
|
|
|
(18
|
)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in other comprehensive loss
|
|
$
|
(3
|
)
|
|
$
|
(71
|
)
|
|
$
|
(12
|
)
|
|
$
|
16
|
|
|
$
|
3
|
|
|
$
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine benefit
obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.0
|
%
|
|
|
5.75
|
%
|
|
|
5.5
|
%
|
|
|
6.0
|
%
|
|
|
5.75
|
%
|
|
|
5.5
|
%
|
Weighted-average assumptions used to determine net periodic
benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.75
|
%
|
|
|
5.5
|
%
|
|
|
5.8
|
%
|
|
|
5.75
|
%
|
|
|
5.5
|
%
|
|
|
5.75
|
%
|
Expected return on assets
|
|
|
7.0
|
%
|
|
|
7.0
|
%
|
|
|
7.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
The Local 1199 Plan invests in a family of funds that are
designed to minimize excessive short-term risk and focus on
consistent, competitive long-term performance, consistent with
the funds investment objectives. The fund specific
objectives vary and include maximizing long-term returns both
before and after taxes, maximizing total return from capital
appreciation plus income and funds that invest in common stock
of companies that cover a broad range of industries.
The basis of the long-term rate of return assumption reflects
the Local 1199 Plans current asset mix of approximately
60% debt securities and 40% equity securities with assumed
average annual returns of approximately 5% to 6% for debt
securities and 10% to 12% for equity securities. It is assumed
that the Local 1199 Plans investment portfolio will be
adjusted periodically to maintain the current ratios of debt
securities and equity securities. Additional consideration is
given to the Plans historical returns as well as future
long-range projections of investment returns for each asset
category.
62
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Local 1199 Plans weighted-average asset allocations at
the measurement dates by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
Asset Category
|
|
2007
|
|
|
2006
|
|
|
Equity securities
|
|
|
45
|
%
|
|
|
46
|
%
|
Debt securities
|
|
|
53
|
|
|
|
54
|
|
Other
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
The Company expects to contribute $0.1 million to the Local
1199 Plan and $8,000 to the post-retirement medical plan during
the fiscal year 2008.
The following benefit amounts, which reflect expected future
service, as appropriate, are expected to be paid:
|
|
|
|
|
|
|
|
|
|
|
Local 1199
|
|
|
Post-Retirement
|
|
|
|
Plan
|
|
|
Medical Plan
|
|
|
|
(In thousands)
|
|
|
2008
|
|
$
|
23
|
|
|
$
|
8
|
|
2009
|
|
|
25
|
|
|
|
9
|
|
2010
|
|
|
28
|
|
|
|
9
|
|
2011
|
|
|
35
|
|
|
|
10
|
|
2012
|
|
|
41
|
|
|
|
12
|
|
2013-2017
|
|
|
386
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
538
|
|
|
$
|
138
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the computation of basic and
diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
2007
|
|
|
2006
|
|
|
(53 weeks)
|
|
|
|
(In thousands)
|
|
|
Net income
|
|
$
|
22,491
|
|
|
$
|
18,192
|
|
|
$
|
15,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of Class A Common Stock
|
|
|
10,086
|
|
|
|
9,793
|
|
|
|
10,019
|
|
Weighted average shares of Class B Common Stock
|
|
|
4,107
|
|
|
|
4,107
|
|
|
|
4,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in net income per common share basic
|
|
|
14,193
|
|
|
|
13,900
|
|
|
|
14,126
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
481
|
|
|
|
460
|
|
|
|
390
|
|
Non-vested investment shares and restricted stock
|
|
|
25
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
506
|
|
|
|
475
|
|
|
|
390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in net income per common share diluted
|
|
|
14,699
|
|
|
|
14,375
|
|
|
|
14,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share basic
|
|
$
|
1.58
|
|
|
$
|
1.31
|
|
|
$
|
1.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share diluted
|
|
$
|
1.53
|
|
|
$
|
1.27
|
|
|
$
|
1.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share for each share of Class A
Common Stock and Class B Common Stock is $1.58, $1.31 and
$1.10 for the fiscal years 2007, 2006 and 2005, respectively, as
each share of Class A and Class B participates equally
in earnings. Shares of Class B are convertible at any time
into shares of Class A on a
one-for-one
basis at the option of the stockholder.
63
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Options to purchase 140,000, 106,000 and 33,000 shares of
Class A Common Stock were outstanding during fiscal 2007,
2006 and 2005, respectively, but not included in computing
diluted income per share because their effects were
anti-dilutive. Additionally, performance-based stock options to
purchase 200,000, 120,000 and 364,500 of Class A Common
Stock were outstanding during fiscal 2007, 2006 and 2005,
respectively, but not included in computing dilutive income per
share because the performance criteria of these stock options
were not expected to be met as of December 29, 2007,
December 30, 2006 and December 31, 2005.
|
|
M.
|
Accumulated
Other Comprehensive Loss
|
Accumulated comprehensive loss represents amounts of
unrecognized actuarial losses related to the Company sponsored
defined benefit pension plan and post-retirement medical plan,
net of tax effect. Changes in accumulated comprehensive loss
represent actuarial losses, net of tax effect, recognized as
components of net periodic benefit costs.
|
|
N.
|
Valuation
and Qualifying Accounts
|
The Company maintains reserves against accounts receivable for
doubtful accounts and inventory for obsolete and slow-moving
inventory. In addition, the Company maintains a reserve for
estimated returns of stale beer, which is included in accrued
expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning of
|
|
|
Net Provision
|
|
|
Amounts Charged
|
|
|
End of
|
|
Allowance for Doubtful Accounts
|
|
Period
|
|
|
(Recovery)
|
|
|
Against Reserves
|
|
|
Period
|
|
|
|
(In thousands)
|
|
|
2007
|
|
$
|
215
|
|
|
$
|
34
|
|
|
$
|
|
|
|
$
|
249
|
|
2006
|
|
|
116
|
|
|
|
107
|
|
|
|
(8
|
)
|
|
|
215
|
|
2005
|
|
|
597
|
|
|
|
(255
|
)
|
|
|
(226
|
)
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning of
|
|
|
Net Provision
|
|
|
Amounts Charged
|
|
|
End of
|
|
Inventory Obsolescence Reserve
|
|
Period
|
|
|
(Recovery)
|
|
|
Against Reserves
|
|
|
Period
|
|
|
|
(In thousands)
|
|
|
2007
|
|
$
|
317
|
|
|
$
|
2,175
|
|
|
$
|
(1,860
|
)
|
|
$
|
632
|
|
2006
|
|
|
463
|
|
|
|
1,522
|
|
|
|
(1,668
|
)
|
|
|
317
|
|
2005
|
|
|
713
|
|
|
|
384
|
|
|
|
(634
|
)
|
|
|
463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning of
|
|
|
Net Provision
|
|
|
Amounts Charged
|
|
|
End of
|
|
Stale Beer Reserve
|
|
Period
|
|
|
(Recovery)
|
|
|
Against Reserves
|
|
|
Period
|
|
|
|
(In thousands)
|
|
|
2007
|
|
$
|
854
|
|
|
$
|
1,614
|
|
|
$
|
(1,376
|
)
|
|
$
|
1,092
|
|
2006
|
|
|
845
|
|
|
|
1,755
|
|
|
|
(1,746
|
)
|
|
|
854
|
|
2005
|
|
|
798
|
|
|
|
1,393
|
|
|
|
(1,346
|
)
|
|
|
845
|
|
|
|
O.
|
Quarterly
Results (Unaudited)
|
The Companys fiscal quarters are consistently determined
year to year and generally consist of 13 weeks, except in
those fiscal years in which there are fifty-three weeks where
the last fiscal quarters then consist of 14 weeks. In
managements opinion, the following unaudited information
includes all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the
information for the quarters presented. The operating results
for any quarter are not necessarily indicative of results for
any future quarters.
64
THE
BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Quarters Ended
|
|
|
|
(In thousands, except per share data)
|
|
|
|
December 29,
|
|
|
September 29,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
December 30,
|
|
|
September 30,
|
|
|
July 1,
|
|
|
April 1,
|
|
|
|
2007(4)
|
|
|
2007(3)
|
|
|
2007(2)
|
|
|
2007
|
|
|
2006(1)
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
|
(13 weeks)
|
|
|
(13 weeks)
|
|
|
(13 weeks)
|
|
|
(13 weeks)
|
|
|
(13 weeks)
|
|
|
(13 weeks)
|
|
|
(13 weeks)
|
|
|
(13 weeks)
|
|
|
Barrels sold
|
|
|
497
|
|
|
|
476
|
|
|
|
507
|
|
|
|
396
|
|
|
|
416
|
|
|
|
432
|
|
|
|
440
|
|
|
|
324
|
|
Net revenue
|
|
$
|
92,187
|
|
|
$
|
84,144
|
|
|
$
|
92,868
|
|
|
$
|
72,448
|
|
|
$
|
73,343
|
|
|
$
|
75,867
|
|
|
$
|
79,333
|
|
|
$
|
56,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
53,183
|
|
|
|
43,116
|
|
|
|
52,738
|
|
|
|
40,322
|
|
|
|
41,076
|
|
|
|
43,470
|
|
|
|
47,057
|
|
|
|
32,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
14,229
|
|
|
|
3,593
|
|
|
|
10,545
|
|
|
|
8,518
|
|
|
|
5,090
|
|
|
|
8,183
|
|
|
|
12,308
|
|
|
|
2,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,755
|
|
|
$
|
3,177
|
|
|
$
|
6,791
|
|
|
$
|
5,768
|
|
|
$
|
2,477
|
|
|
$
|
5,908
|
|
|
$
|
7,986
|
|
|
$
|
1,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic
|
|
$
|
0.48
|
|
|
$
|
0.22
|
|
|
$
|
0.48
|
|
|
$
|
0.41
|
|
|
$
|
0.18
|
|
|
$
|
0.43
|
|
|
$
|
0.57
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share diluted
|
|
$
|
0.46
|
|
|
$
|
0.21
|
|
|
$
|
0.46
|
|
|
$
|
0.40
|
|
|
$
|
0.17
|
|
|
$
|
0.41
|
|
|
$
|
0.56
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
During the fourth quarter of 2006, the Company increased income
tax expense related to state income tax in certain states for
2003 to 2006 by approximately $1.0 million. |
|
(2) |
|
During the second quarter of 2007, the Company wrote-off
$3.4 million in capitalized brewery costs. |
|
(3) |
|
During the third quarter of 2007, the Company recorded a
$3.9 million provision for estimated contingent excise
taxes related to a Federal Alcohol and Tobacco Tax and Trade
Bureau audit. |
|
(4) |
|
During the fourth quarter of 2007, the Company recorded a
$2.2 million provision for income taxes as a result of the
Companys review of its judgments concerning certain income
tax deductions in connection with an income tax audit. Also
during the fourth quarter of 2007, the Company recorded a
$0.9 million gain, representing insurance reimbursement of
prior period legal costs incurred by the Company. |
65
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosures
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
|
|
(a)
|
Evaluation
of disclosure controls and procedures
|
The Companys management, including the Chief Executive
Officer and the Chief Financial Officer, carried out an
evaluation of the effectiveness of the Companys disclosure
controls and procedures as of the end of the period covered by
this report. Based on this evaluation, the Companys Chief
Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures were effective
to provide a reasonable level of assurance that the information
required to be disclosed in the reports filed or submitted by
the Company under the Securities Exchange Act of 1934 was
recorded, processed, summarized and reported within the
requisite time periods.
|
|
(b)
|
Managements
Report on Internal Control Over Financial
Reporting
|
The management of the Company is responsible for establishing
and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act
Rules 13a-15(f).
The Companys internal control system was designed to
provide reasonable assurance to the Companys management
and Board of Directors regarding the preparation and fair
presentation of published financial statements.
The Companys management assessed the effectiveness of the
Companys internal control over financial reporting as of
December 29, 2007. In making this assessment, the Company
used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal
Control Integrated Framework. Based on our
assessment we believe that, as of December 29, 2007, the
Companys internal control over financial reporting is
effective based on those criteria.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
66
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
of The Boston Beer Company, Inc.
We have audited The Boston Beer Companys internal control
over financial reporting as of December 29, 2007, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). The Boston Beer
Company, Inc.s management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting in the accompanying managements report
on internal control over financial reporting. Our responsibility
is to express an opinion on the Companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, The Boston Beer Company, Inc. maintained, in all
material respects, effective internal control over financial
reporting as of December 29, 2007, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of The Boston Beer Company, Inc. and
subsidiaries as of December 29, 2007 and December 30,
2006, and the related consolidated statements of income,
stockholders equity, and cash flows for each of the three
years in the period ended December 29, 2007, and our report
dated March 11, 2008 expressed an unqualified opinion
thereon.
Boston, Massachusetts
March 11, 2008
67
|
|
(c)
|
Changes
in internal control over financial reporting
|
No changes in the Companys internal control over financial
reporting occurred during the quarter ended December 29,
2007 that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over
financial reporting.
|
|
Item 9B.
|
Other
Information
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
In December, 2002, the Board of Directors of the Company adopted
a (i) Code of Business Conduct and Ethics that applies to
its Chief Executive Officer and its Chief Financial Officer, and
(ii) Corporate Governance Guidelines. The Code of Business
Conduct and Ethics was amended effective August 1, 2007 to
provide for a third-party whistleblower hotline. These, as well
as the charters of each of the Board Committees, are posted on
the Companys website, www.bostonbeer.com, and are
available in print to any shareholder who requests them. Such
requests should be directed to the Investor Relations
Department, The Boston Beer Company, Inc., One Design Center
Place, Suite 850, Boston, MA 02210. The Company intends to
disclose any amendment to, or waiver from, a provision of its
code of ethics that applies to the Companys Chief
Executive Officer or Chief Financial Officer and that relates to
any element of the Code of Ethics definition enumerated in
Item 406 of
Regulation S-K
by posting such information on the Companys website.
The information required by Item 10 is hereby incorporated
by reference from the registrants definitive Proxy
Statement for the 2008 Annual Meeting to be held on May 23,
2008.
|
|
Item 11.
|
Executive
Compensation
|
The Information required by Item 11 is hereby incorporated
by reference from the registrants definitive Proxy
Statement for the 2008 Annual Meeting to be held on May 23,
2008.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Security
Ownership
The information required by Item 12 with respect to
security ownership of certain beneficial owners and management
is hereby incorporated by reference from the Registrants
definitive Proxy Statement for the 2008 Annual Meeting to be
held on May 23, 2008.
Related
Stockholder Matters
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities to be
|
|
|
Weighted-Average
|
|
|
Number of Securities
|
|
|
|
Issued Upon Exercise of
|
|
|
Exercise Price of
|
|
|
Remaining Available for
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
Future Issuance Under
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Equity Compensation Plans
|
|
|
Equity Compensation Plans Approved by Security Holders
|
|
|
1,693,443
|
|
|
$
|
22.36
|
|
|
|
1,370,438
|
|
Equity Compensation Plans Not Approved by Security Holders
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,693,443
|
|
|
$
|
22.36
|
|
|
|
1,370,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
|
|
Item 13.
|
Certain
Relationships and Related Transactions
|
The information required by Item 13 is hereby incorporated
by reference from the registrants definitive Proxy
Statement for the 2008 Annual Meeting to be held on May 23,
2008.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by Item 14 is hereby incorporated
by reference from the registrants definitive Proxy
Statement for the 2008 Annual Meeting to be held on May 23,
2008.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a)1. Financial Statements.
The following financial statements are filed as a part of this
report:
|
|
|
|
|
|
|
Page
|
|
|
|
|
36
|
|
Consolidated Financial Statements:
|
|
|
|
|
|
|
|
37
|
|
|
|
|
38
|
|
|
|
|
39-40
|
|
|
|
|
41
|
|
|
|
|
42-65
|
|
(a)2. Financial Statement Schedules.
All schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission
have been omitted because they are inapplicable or the required
information is shown in the consolidated financial statements,
or notes thereto, included herein.
(b) Exhibits
The following is a list of exhibits filed as part of this
Form 10-K:
|
|
|
|
|
Exhibit No.
|
|
Title
|
|
|
3
|
.1
|
|
Amended and Restated By-Laws of the Company, dated June 2,
1998 (incorporated by reference to Exhibit 3.5 to the
Companys
Form 10-Q
filed on August 10, 1998).
|
|
3
|
.2
|
|
Restated Articles of Organization of the Company, dated
November 17, 1995, as amended August 4, 1998.
|
|
4
|
.1
|
|
Form of Class A Common Stock Certificate (incorporated by
reference to Exhibit 4.1 to the Companys Registration
Statement
No. 33-96164).
|
|
10
|
.1
|
|
Revolving Credit Agreement between Fleet Bank of Massachusetts,
N.A. and Boston Beer Company Limited Partnership (the
Partnership), dated as of May 2, 1995
(incorporated by reference to Exhibit 10.1 to the
Companys Registration Statement
No. 33-96162).
|
|
10
|
.2
|
|
Loan Security and Trust Agreement, dated October 1,
1987, among Massachusetts Industrial Finance Agency, the
Partnership and The First National Bank of Boston, as Trustee,
as amended (incorporated by reference to Exhibit 10.2 to
the Companys Registration Statement
No. 33-96164).
|
69
|
|
|
|
|
Exhibit No.
|
|
Title
|
|
|
10
|
.3
|
|
Deferred Compensation Agreement between the Partnership and
Alfred W. Rossow, Jr., effective December 1, 1992
(incorporated by reference to Exhibit 10.3 to the
Companys Registration Statement
No. 33-96162).
|
|
10
|
.4
|
|
The Boston Beer Company, Inc. Employee Equity Incentive Plan, as
adopted effective November 20, 1995 and amended effective
February 23, 1996 (incorporated by reference to
Exhibit 4.1 to the Companys Registration Statement
No. 333-1798).
|
|
10
|
.5
|
|
Form of Employment Agreement between the Partnership and
employees (incorporated by reference to Exhibit 10.5 to the
Companys Registration Statement
No. 33-96162).
|
|
10
|
.6
|
|
Services Agreement between The Boston Beer Company, Inc. and
Chemical Mellon Shareholder Services, dated as of
October 27, 1995 (incorporated by reference to the
Companys
Form 10-K,
filed on April 1, 1996).
|
|
10
|
.7
|
|
Form of Indemnification Agreement between the Partnership and
certain employees and Advisory Committee members (incorporated
by reference to Exhibit 10.7 to the Companys
Registration Statement
No. 33-96162).
|
|
10
|
.8
|
|
Stockholder Rights Agreement, dated as of December, 1995, among
The Boston Beer Company, Inc. and the initial Stockholders
(incorporated by reference to the Companys
Form 10-K,
filed on April 1, 1996).
|
|
+10
|
.9
|
|
Agreement between Boston Brewing Company, Inc. and The Stroh
Brewery Company, dated as of January 31, 1994 (incorporated
by reference to Exhibit 10.9 to the Companys
Registration Statement
No. 33-96164).
|
|
+10
|
.10
|
|
Agreement between Boston Brewing Company, Inc. and the Genesee
Brewing Company, dated as of July 25, 1995 (incorporated by
reference to Exhibit 10.10 to the Companys
Registration Statement
No. 33-96164).
|
|
+10
|
.11
|
|
Amended and Restated Agreement between Pittsburgh Brewing
Company and Boston Brewing Company, Inc. dated as of
February 28, 1989 (incorporated by reference to
Exhibit 10.11 to the Companys Registration Statement
No. 33-96164).
|
|
10
|
.12
|
|
Amendment to Amended and Restated Agreement between Pittsburgh
Brewing Company, Boston Brewing Company, Inc., and G. Heileman
Brewing Company, Inc., dated December 13, 1989
(incorporated by reference to Exhibit 10.12 to the
Companys Registration Statement
No. 33-96162).
|
|
+10
|
.13
|
|
Second Amendment to Amended and Restated Agreement between
Pittsburgh Brewing Company and Boston Brewing Company, Inc.
dated as of August 3, 1992 (incorporated by reference to
Exhibit 10.13 to the Companys Registration Statement
No. 33-96164).
|
|
+10
|
.14
|
|
Third Amendment to Amended and Restated Agreement between
Pittsburgh Brewing Company and Boston Brewing Company, Inc.
dated December 1, 1994 (incorporated by reference to
Exhibit 10.14 to the Companys Registration Statement
No. 33-96164).
|
|
10
|
.15
|
|
Fourth Amendment to Amended and Restated Agreement between
Pittsburgh Brewing Company and Boston Brewing Company, Inc.
dated as of April 7, 1995 (incorporated by reference to
Exhibit 10.15 to the Companys Registration Statement
No. 33-96162).
|
|
+10
|
.16
|
|
Letter Agreement between Boston Beer Company Limited Partnership
and Joseph E. Seagram & Sons, Inc. (incorporated by
reference to Exhibit 10.16 to the Companys
Registration Statement
No. 33-96162).
|
|
10
|
.17
|
|
Services Agreement and Fee Schedule of Mellon Bank, N.A. Escrow
Agent Services for The Boston Beer Company, Inc. dated as of
October 27, 1995 (incorporated by reference to
Exhibit 10.17 to the Companys Registration Statement
No. 33-96164).
|
|
10
|
.18
|
|
Amendment to Revolving Credit Agreement between Fleet Bank of
Massachusetts, N.A. and the Partnership (incorporated by
reference to Exhibit 10.18 to the Companys
Registration Statement
No. 33-96164).
|
|
10
|
.19
|
|
1996 Stock Option Plan for Non-Employee Directors (incorporated
by reference to the Companys
Form 10-K,
filed on March 31, 1997).
|
70
|
|
|
|
|
Exhibit No.
|
|
Title
|
|
|
+10
|
.20
|
|
Production Agreement between The Stroh Brewery Company and
Boston Beer Company Limited Partnership, dated January 14,
1997 (incorporated by reference to the Companys
Form 10-K,
filed on March 31, 1997).
|
|
+10
|
.21
|
|
Letter Agreement between The Stroh Brewery Company and Boston
Beer Company Limited Partnership, dated January 14, 1997
(incorporated by reference to the Companys
Form 10-K,
filed on March 31, 1997).
|
|
+10
|
.22
|
|
Agreement between Boston Beer Company Limited Partnership and
The Schoenling Brewing Company, dated May 22, 1996
(incorporated by reference to the Companys
Form 10-K,
filed on March 31, 1997).
|
|
10
|
.23
|
|
Revolving Credit Agreement between Fleet Bank of Massachusetts,
N.A. and The Boston Beer Company, Inc., dated as of
March 21, 1997 (incorporated by reference to the
Companys
Form 10-Q,
filed on May 12, 1997).
|
|
+10
|
.24
|
|
Amended and Restated Agreement between Boston Brewing Company,
Inc. and the Genesee Brewing Company, Inc. dated April 30,
1997 (incorporated by reference to the Companys
Form 10-Q,
filed on August 11, 1997).
|
|
+10
|
.26
|
|
Fifth Amendment, dated December 31, 1997, to Amended and
Restated Agreement between Pittsburgh Brewing Company and Boston
Brewing Company, Inc. (incorporated by reference to the
Companys
Form 10-K,
filed on March 26, 1998).
|
|
10
|
.27
|
|
Extension letters, dated August 19, 1997, November 19,
1997, December 19, 1997, January 22, 1998,
February 25, 1998 and March 11, 1998 between The Stroh
Brewery Company and Boston Brewing Company, Inc. (incorporated
by reference to the Companys
Form 10-K,
filed on March 26, 1998).
|
|
+10
|
.28
|
|
Employee Equity Incentive Plan, as amended and effective on
December 19, 1997 (incorporated by reference to the
Companys
Form 10-K,
filed on March 26, 1998).
|
|
+10
|
.29
|
|
1996 Stock Option Plan for Non-Employee Directors, as amended
and effective on December 19, 1997 (incorporated by
reference to the Companys
Form 10-K,
filed March 26, 1998).
|
|
+10
|
.30
|
|
Glass Supply Agreement between The Boston Beer Company and
Owens Brockway Glass Container Inc., dated April 30,
1998 (incorporated by reference to the Companys
Form 10-Q,
filed on August 10, 1998).
|
|
10
|
.31
|
|
Extension letters, dated April 13, 1998, April 27,
1998, June 11, 1998, June 25, 1998 and July 20,
1998 between The Stroh Brewery Company and Boston Brewing
Company, Inc. (incorporated by reference to the Companys
Form 10-Q,
filed on August 10, 1998).
|
|
+10
|
.33
|
|
Amended and Restated Production Agreement between The Stroh
Brewery Company and Boston Beer Company Limited Partnership,
dated November 1, 1998 (incorporated by reference to the
Companys
Form 10-K,
filed on March 25, 1999).
|
|
10
|
.34
|
|
Agreement between Boston Beer Company Limited Partnership, Pabst
Brewing Company and Miller Brewing Company, dated
February 5, 1999 (incorporated by reference to the
Companys
Form 10-K,
filed on March 25, 1999).
|
|
10
|
.35
|
|
Amendment to Revolving Credit Agreement between Fleet Bank of
Massachusetts, N.A. and The Boston Beer Company, Inc., dated
March 30, 1999 (incorporated by reference to the
Companys
Form 10-Q,
filed on May 10, 1999).
|
|
+10
|
.37
|
|
Consent to Assignment of the Amended and Restated Agreement
between Boston Brewing Company, Inc. and the Genesee Brewing
Company, Inc. dated April 30, 1997 to Monroe Brewing Co.,
LLC (now known as High Falls Brewing Company, LLC) dated
December 15, 2000 (incorporated by reference to the
Companys
10-K, filed
on March 30, 2001).
|
|
+10
|
.38
|
|
Guaranty of The Genesee Brewing Company, Inc. dated
December 15, 2000 in favor of Boston Brewing Company, Inc.,
for itself and as the sole general partner of Boston Beer
Company Limited Partnership in connection with the Consent of
Assignment of the Amended and Restated Agreement between Boston
Brewing Company, Inc. and the Genesee Brewing Company, Inc.
dated April 30, 1997 to Monroe Brewing Co., LLC (now known
as High Falls Brewing Company, LLC) dated December 15,
2000 (incorporated by reference to the Companys
10-K, filed
on March 30, 2001).
|
71
|
|
|
|
|
Exhibit No.
|
|
Title
|
|
|
+10
|
.39
|
|
Second Amended and Restated Agreement between Boston Beer
Corporation and High Falls Brewing Company, LLC effective as of
April 15, 2002 (incorporated by reference to the
Companys
10-Q, filed
on August 13, 2002).
|
|
+10
|
.40
|
|
Guaranty Release Agreement by and between GBC Liquidating Corp.,
formerly known as The Genesee Brewing Company, Inc., and Boston
Beer Corporation, d/b/a The Boston Beer Company dated
April 22, 2002 (incorporated by reference to the
Companys
10-Q, filed
on August 13, 2002).
|
|
10
|
.41
|
|
Second Amended and Restated Credit Agreement between The Boston
Beer Company, Inc. and Boston Beer Corporation, as Borrowers,
and Fleet National Bank, effective as of July 1, 2002
(incorporated by reference to the Companys
10-Q, filed
on August 13, 2002).
|
|
+10
|
.42
|
|
Brewing Services Agreement between Boston Beer Corporation and
City Brewing Company, LLC, effective as of July 1, 2002
(incorporated by reference to the Companys
10-Q, filed
on November 12, 2002).
|
|
+10
|
.43
|
|
Brewing Services Agreement between Boston Beer Corporation and
Matt Brewing Co., Inc. dated as of March 15, 2003
(incorporated by reference to the Companys
10-K, filed
on March 27, 2003).
|
|
10
|
.44
|
|
Letter Agreement dated August 4, 2004 amending the Second
Amended and Restated Credit Agreement between Fleet National
Bank and The Boston Beer Company, Inc. and Boston Beer
Corporation (incorporated by reference to the Companys
10-Q, filed
on November 4, 2004).
|
|
10
|
.45
|
|
Amended and Restated 1996 Stock Option Plan for Non-Employee
Directors effective October 19, 2004 (incorporated by
reference to the Companys Registration Statement on
Form S-8
filed on December 7, 2004).
|
|
+10
|
.46
|
|
Third Amended and Restated Production Agreement between Boston
Beer Corporation and High Falls Brewing Company, LLC effective
as of December 1, 2004 (incorporated by reference to the
Companys Current Report on
Form 8-K
filed on January 5, 2005).
|
|
+10
|
.47
|
|
Production Agreement between Samuel Adams Brewery Company, Ltd.
and Brown-Forman Distillery Company, a division of Brown-Forman
Corporation, effective as of April 11, 2005 (incorporated
by reference to the Companys
10-Q filed
on May 5, 2005).
|
|
10
|
.48
|
|
Form of Option Agreement for Martin F. Roper, entered into
effective as of June 28, 2005 between Boston Beer
Corporation and Martin F. Roper (incorporated by reference to
the Companys Current Report on
Form 8-K
filed on July 7, 2005).
|
|
10
|
.49
|
|
The Boston Beer Company, Inc. Employee Equity Incentive Plan, as
amended on February 23, 1996, December 20, 1997 and
December 19, 2005, effective as of January 1, 2006
(incorporated by reference to the Companys Post-Effective
Amendment No. 1 to its Registration Statement on
Form S-8
filed on December 23, 2005).
|
|
+10
|
.50
|
|
Office Lease Agreement between Boston Design Center LLC and
Boston Beer Corporation dated March 24, 2006.
|
|
+10
|
.51
|
|
Purchase and Sale Agreement between Campanelli Freetown Land,
LLC and Boston Beer Corporation dated August 10, 2006.
|
|
10
|
.52
|
|
The Boston Beer Company, Inc. Employee Equity Incentive Plan, as
amended on February 23, 1996, December 20, 1997,
December 19, 2005, and December 19, 2006, effective as
of January 1, 2007 (incorporated by reference to the
Companys Post-Effective Amendment No. 1 to its
Registration Statement on
Form S-8
filed on January 26, 2007).
|
|
+10
|
.53
|
|
Separation Agreement and General Release between Jeffrey D.
White and The Boston Beer Company, Inc., effective
February 12, 2007 (incorporated by reference to the
Companys Annual Report on
Form 10-K
filed on March 15, 2007).
|
72
|
|
|
|
|
Exhibit No.
|
|
Title
|
|
|
10
|
.54
|
|
Amendment dated February 27, 2007 to the Second Amended and
Restated Credit Agreement between Bank of America, N.A.,
successor-in-merger
to Fleet National Bank, and The Boston Beer Company, Inc. and
Boston Beer Corporation (incorporated by reference to the
Companys Annual Report on
Form 10-K
filed on March 15, 2007).
|
|
+10
|
.55
|
|
Amended and Restated Brewing Services Agreement between City
Brewing Company LLC and Boston Beer Corporation effective as of
August 1, 2006, as amended by Amendment dated
April 10, 2007 and effective August 31, 2006
(incorporated by reference to the Companys Quarterly
Report on
Form 10-Q
filed on May 10, 2007).
|
|
10
|
.56
|
|
Addendum to Production Agreement between Miller Brewing Company
and Boston Beer Corporation effective August 31, 2006
(incorporated by reference to the Companys Quarterly
Report on
Form 10-Q
filed on May 10, 2007).
|
|
+10
|
.57
|
|
Brewing Services Agreement between CBC Latrobe Acquisition, LLC
and Boston Beer Corporation dated March 28, 2007
(incorporated by reference to the Companys Quarterly
Report on
Form 10-Q
filed on May 10, 2007).
|
|
+10
|
.58
|
|
Contract of Sale dated August 1, 2007 between Diageo North
America, Inc. and Boston Beer Corporation, including the
Packaging Services Agreement of even date attached thereto as
Exhibit H (incorporated by reference to the Companys
Quarterly Report on
Form 10-Q
filed on November 6, 2007).
|
|
*+10
|
.59
|
|
Alternation Agreement between Boston Beer Corporation and Miller
Brewing Company dated October 23, 2007.
|
|
*+10
|
.60
|
|
Glass Bottle Supply Agreement between Boston Beer Corporation
and Anchor Glass Container Corporation dated November 2,
2007.
|
|
*+10
|
.61
|
|
Amendment to Production Agreement between Boston Beer
Corporation and High Falls Brewing Company, LLC effective
December 13, 2007.
|
|
10
|
.62
|
|
The Boston Beer Company, Inc. Employee Equity Incentive Plan, as
amended on February 23, 1996, December 20, 1997,
December 19, 2005, December 19, 2006, and
December 21, 2007, effective as of January 1, 2007
(incorporated by reference to the Companys Post-Effective
Amendment to its Registration Statement on
Form S-8
filed on December 28, 2007).
|
|
*11
|
.1
|
|
The information required by exhibit 11 has been included in
Note L of the notes to the consolidated financial
statements.
|
|
14
|
.1
|
|
Code of Business Conduct and Ethics adopted by the Board of
Directors on December 17, 2002 (incorporated by reference
to the Companys
10-K, filed
on March 27, 2003).
|
|
*14
|
.2
|
|
Restated Code of Business Conduct and Ethics adopted by the
Board of Directors on July 31, 2007, effective
August 1, 2007.
|
|
*21
|
.5
|
|
List of subsidiaries of The Boston Beer Company, Inc. effective
as of December 29, 2007
|
|
*23
|
.1
|
|
Consent of independent registered public accounting firm.
|
|
*31
|
.1
|
|
Certification of the President and Chief Executive Officer
pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
*31
|
.2
|
|
Certification of the Chief Financial Officer pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
*32
|
.1
|
|
Certification of the President and Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
*32
|
.2
|
|
Certification of the Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
* |
|
Filed with this report. |
|
+ |
|
Portions of this Exhibit have been omitted pursuant to an
application for an order declaring confidential treatment filed
with the Securities and Exchange Commission. |
73
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on this 13th day of
March 2008.
The Boston Beer Company,
Inc.
Martin F. Roper
President and Chief Executive Officer
(principal executive officer)
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the following persons on behalf of the registrant and
in the capacities and on the dates indicated have signed this
report below.
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ Martin
F. Roper
Martin
F. Roper
|
|
President, Chief Executive Officer (principal executive officer)
and Director
|
|
|
|
/s/ William
F. Urich
William
F. Urich
|
|
Chief Financial Officer and Treasurer (principal accounting and
financial officer)
|
|
|
|
/s/ C.
James Koch
C.
James Koch
|
|
Chairman, Clerk and Director
|
|
|
|
/s/ Pearson
C. Cummin, III
Pearson
C. Cummin, III
|
|
Director
|
|
|
|
/s/ Charles
Joseph Koch
Charles
Joseph Koch
|
|
Director
|
|
|
|
/s/ Jean-Michel
Valette
Jean-Michel
Valette
|
|
Director
|
|
|
|
/s/ David
A. Burwick
David
A. Burwick
|
|
Director
|
|
|
|
/s/ Jay
Margolis
Jay
Margolis
|
|
Director
|
|
|
|
/s/ Gregg
A. Tanner
Gregg
A. Tanner
|
|
Director
|
74