UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the quarterly period ended | September 25, 2004 |
OR
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the transition period from ..........to..........
Commission file number: 1-14092
THE BOSTON BEER COMPANY, INC.
MASSACHUSETTS
(State or other jurisdiction of incorporation
or organization)
04-3284048
(I.R.S. Employer
Identification No.)
75 Arlington Street, Boston, Massachusetts
(Address of principal executive offices)
02116
(Zip Code)
(617) 368-5000
(Registrants telephone number, including area code)
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 x | No o |
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.)
Yes x | No o |
Number of shares outstanding
of each of the issuers classes of common stock, as of
November 1, 2004:
10,075,518
4,107,355
(Number of shares)
1
THE BOSTON BEER COMPANY, INC.
FORM 10-Q
QUARTERLY REPORT
SEPTEMBER 25, 2004
TABLE OF CONTENTS
2
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
The accompanying notes are an integral part of these consolidated financial statements
3
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
The accompanying notes are an integral part of these consolidated financial statements
4
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
The accompanying notes are an integral part of these consolidated financial statements
5
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
A.
Organization and Basis of Presentation
The Boston Beer Company, Inc. and its subsidiaries (the Company) are engaged
in the business of brewing and selling malt beverages and cider products
throughout the United States and in selected international markets. The
accompanying consolidated statement of financial position as of September 25,
2004 and the statement of consolidated operations and consolidated cash flows
for the interim periods ending September 25, 2004 and September 27, 2003 have
been prepared by the Company, without audit, in accordance with accounting
principles generally accepted in the United States of America for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of
the information and footnotes required for complete financial statements by
generally accepted accounting principles and should be read in conjunction with
the audited financial statements included in the Companys Annual Report on
Form 10-K for the year ended December 27, 2003.
Managements Opinion
B.
Short-Term Investments
Short-term investments as of September 25, 2004 and December 27, 2003 were as
follows (table in thousands):
The Company recorded no realized gains or losses during the three month period
ended September 25, 2004 and a realized gain of $0.1 million during the three
month period ended September 27, 2003.
The Company recorded a realized loss of approximately $0.2 million during the
nine month period ended September 25, 2004 and a realized gain of approximately
$0.1 million during the nine month period ended September 27, 2003.
6
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
C.
Inventories
Inventories, which consist principally of hops, brewing materials and
packaging, are stated at the lower of cost, determined on a first-in, first-out
(FIFO) basis, or market.
Inventories consist of the following (in thousands):
D.
Advertising and Sales Promotions
The total amount of sales incentives, samples and other promotional discounts
included within the advertising, promotional and selling line item in the
accompanying consolidated statements of income was $1.3 million for each of the
quarters ended September 25, 2004 and September 27, 2003 and $3.0 million and
$3.2 million for the nine months ended September 25, 2004 and September 27,
2003, respectively.
E.
Net Income per Share
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share data):
7
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
F.
Comprehensive Income
Comprehensive income is as follows (in thousands):
Components of accumulated
other comprehensive income are as follows (in
thousands):
G.
Commitments and Contingencies
Purchase Commitments
The Company has entered into contracts for the supply of a portion of its hops
requirements. These purchase contracts, which extend through crop year 2009,
specify both the quantities and prices to which the Company is committed. The
prices of these contracts are denominated in euros. Hops purchase commitments
outstanding at September 25, 2004 totaled $13.0 million (based on the exchange
rate at September 25, 2004), compared to $11.0 million at December 27, 2003.
8
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
H.
Common Stock
Stock Compensation Plans
Treasury Stock
9
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the significant factors affecting the
consolidated operating results, financial condition and liquidity and cash
flows of the Company for the three and nine-month periods ended September 25,
2004 as compared to the three and nine-month periods ended September 27, 2003.
This discussion should be read in conjunction with the Managements Discussion
and Analysis of Financial Condition and Results of Operations, Consolidated
Financial Statements of the Company and Notes thereto included in the Companys
Form 10-K for the fiscal year ended December 27, 2003.
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.
Three Months Ended September 25, 2004 compared to Three Months Ended September
27, 2003
Net revenue.
Net revenue decreased by $0.8 million or 1.5% to $54.7 million
for the three months ended September 25, 2004 as compared to the three months
ended September 27, 2003. The decrease is primarily due to a decline in
shipment volume of Boston Beers core brands offset by an increase in price.
Volume.
Total shipment volume decreased by 3.6% to 0.3 million barrels in the
three months ended September 25, 2004 from the same period 2003, due to a
decrease in shipments of Samuel Adams Boston Lager® and Sam Adams Light®,
partially offset by an increase in Seasonal Brands.
Depletions, or wholesaler sales to retail, of core products exceeded shipments
for the third quarter 2004 by approximately 7,000 barrels. Wholesaler
inventory levels at the end of the third quarter appear reasonable and
represented levels similar to those at the end of the third quarter 2003.
Selling Price.
The selling price per barrel increased by 2.2% to $170.51 per
barrel for the quarter ended September 25, 2004 as compared to the same period
last year. This increase is due primarily to price increases and, to a lesser
extent, a shift in the package mix from kegs to bottles.
Gross Profit.
Gross profit was 58.5% as a percentage of net revenue or $99.67
per barrel for the quarter ended September 25, 2004, as compared to 58.9% and
$98.17 for the quarter ended September 27, 2003. This gross profit percentage
decrease is due to an increase in cost of goods sold, partially offset by an
increase in selling price.
Cost of goods sold increased by $2.20 per barrel to $70.83 per barrel, or 41.5%
as a percentage of net revenue for the quarter ended September 25, 2004, as
compared to 41.1% as a percentage of net revenue or $68.63 per barrel for the
quarter ended September 27, 2003. The increase is due primarily to higher
packaging material costs and utility costs than last year coupled with a shift
in package mix from kegs to bottles.
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 $1.2 million to $23.4 million or 42.7% of net revenue for
the three months ended September 25, 2004, compared
10
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
to $22.2 million or 40.0% of net revenue for the three months ended September
27, 2003. Higher media spending in the third quarter 2004 as compared to the
same period last year primarily drove the increase.
General and Administrative.
General and administrative expenses decreased by
9.7% or $0.4 million to $3.9 million for the quarter ended September 25, 2004
as compared to the same period last year. The decrease primarily reflects the
fact that 2003 general and administrative expenses included the legal expenses
incurred in 2003 in connection with the arbitration with Miller Brewing
Company, which was resolved in the fourth quarter 2003.
Total other income, net.
Other income decreased by $0.1 million during the
quarter ended September 25, 2004 as compared to the quarter ended September 27,
2003. This decrease is primarily due to a shift in the investment portfolio in
2004 to shorter duration vehicles, which yield a lower interest income return
than the longer duration vehicles that were held in 2003.
Nine Months Ended September 25, 2004 compared to Nine Months Ended September
27, 2003
Net revenue.
Net revenue increased by $4.2 million or 2.7% to $161.4 million
for the nine months ended September 25, 2004 from $157.2 million for the nine
months ended September 27, 2003. The increase is primarily due to higher
shipment volume of Boston Beers core brands and price increases, offset by a
shift in the package mix from bottles to kegs.
Volume.
Total shipment volume increased by 1.5% to 0.9 million barrels for the
nine months ended September 25, 2004 from the same period 2003, due to an
increase in shipments of Samuel Adams Boston Lager®, Samuel Adams® Seasonal
Brands and Twisted Tea®, partially offset by Sam Adams Light®.
Shipments of core products exceeded depletions year to date by approximately
32,000 barrels. Shipment volume was higher than the volume for depletions for
the first nine months of 2004, primarily due to a normal wholesaler inventory
build for the peak summer selling season, which began to unwind in the third
quarter 2004. Wholesaler inventory levels as of September 25, 2004 appear
reasonable and consistent with inventory levels at the end of the third quarter
2003.
Selling Price.
The selling price per barrel increased by approximately 1.3% to
$170.44 per barrel for the nine months ended September 25, 2004 as compared to
the prior year. This increase is due to price increases, offset by a shift in
the packaging mix from bottles to kegs and an increase in contract brewing
volume. The ratio of kegs to bottles increased during this period, with kegs
representing 28.4% of total shipments in the nine months ended September 25,
2004, as compared to 27.6% for the same period last year. The shift in the mix
to kegs from bottles decreased revenue per barrel, as the selling price per
equivalent barrel is lower for kegs than for bottles. This shift is primarily
due to the declines in Sam Adams Light®, as this product is primarily available
in bottles. Contract brewing has lower revenue per barrel than core products.
Gross Profit.
Gross profit was 59.5% as a percentage of net revenue or $101.47
per barrel for the nine months ended September 25, 2004, as compared to 59.5%
and $100.32 for the nine months ended September 27, 2003. The increase per
barrel was primarily due to price increases offset by an increase in cost of
goods sold per barrel and an increase in contract brewing volume. Contract
brewing has lower margins than core products. While the Company expects its
gross profit percentage for the full year 2004 to be similar to the full year
2003, increasing cost pressures relating to packaging materials and utility
costs could result in a reduction of the 2004 gross profit percentage.
Cost of goods sold increased by $0.81 per barrel to $68.97 per barrel and
remained unchanged as a percentage of net revenue for the nine months ended
September 25, 2004, as compared to the nine months
11
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
ended September 27, 2003. The increase per barrel is primarily due to an
increase in the cost of packaging materials and utility costs as compared to
the prior year.
Advertising, Promotional and Selling.
Advertising, promotional and selling
expenses decreased by $1.4 million to $70.1 million or 43.4% of net revenue for
the nine months ended September 25, 2004, compared to $71.6 million or 45.5% of
net revenue for the nine months ended September 27, 2003. More effective
purchasing of television advertising in 2004 and lower point-of-sale
expenditures primarily drove the decrease in 2004 as compared to the same
period in 2003.
The Company expects that total media spending will be higher in the fourth
quarter 2004 as compared to the same period 2003. As a result, total
advertising, promotional and selling expenses are anticipated to be
approximately $1.5 million to $2.5 million higher for full year 2004 as
compared to 2003.
General and Administrative.
General and administrative expenses decreased by
8.9% or $1.1 million to $10.8 million for the nine months ended September 25,
2004 as compared to the same period last year, primarily due to a decrease in
legal expenses from the level of such expenses incurred in 2003 in connection
with the arbitration with Miller Brewing Company, which was resolved in the
fourth quarter 2003.
Total other income, net.
Other income, net decreased by $0.6 million to $0.3
million for the nine months ended September 25, 2004 as compared to the same
period ended September 27, 2003. This decrease is due to a $0.2 million loss
incurred in the second quarter 2004 on the sale of available-for-sale
securities, as well as lower interest rates on investments in 2004 as
compared to the prior year.
Provision for income taxes.
The Companys effective tax rate of 37.8% for the
nine months ended September 25, 2004 remained unchanged from the same period
last year. The Company currently estimates that its effective tax rate for
fiscal year 2004 will be approximately 37.8%.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments increased by $14.1 million to $57.0 million as
of September 25, 2004 from $42.9 million as of December 27, 2003. The
increase is primarily due to $15.1 million of cash provided by operating
activities, primarily driven by net income before depreciation expense.
As compared to the nine months ended September 27, 2003, cash from operating
activities increased by $3.2 million which was primarily due to an increase in
net income of $2.7 million.
Cash provided by financing activities was $2.9 million for the nine months
ended September 25, 2004 as compared to cash used by financing activities of
$28.1 million during the same period last year. The Company repurchased none
of its outstanding stock during the first nine months of 2004 as compared to
$29.2 million during the same period 2003. As of September 25, 2004, there were
$5.2 million remaining under the $80 million expenditure authorization by the
Board of Directors related to the Stock Repurchase Program. From the inception
of the Stock Repurchase Program through November 3, 2004, the Company has
repurchased a total of 7.1 million shares of Class A Common Stock for an
aggregate purchase price of $74.8 million. The Company continues to evaluate
options for utilizing its cash to increase shareholder value for the long term.
The Company utilized $3.5 million for the purchase of capital equipment during
the nine months ended September 25, 2004 as compared to $1.5 million during
the same period last year. Purchases during the first nine months of 2004
consisted primarily of kegs and computer equipment.
As of September 25, 2004, the Companys cash was primarily invested in taxable
and tax-exempt money market funds and short-term tax-exempt interest-bearing
securities. The Companys investment objectives are to preserve principal,
maintain liquidity and achieve favorable tax advantaged yields.
12
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
With working capital of $58.0 million and $20.0 million in unused bank lines
of credit as of September 25, 2004, the Company believes that its existing
resources should be sufficient to meet the Companys short-term and long-term
operating and capital requirements. On August 4, 2004, the Company decreased
its credit facility to $20.0 million, which the Company believes is an
appropriate level for its estimated future requirements. This credit facility
expires on March 31, 2007. 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.
THE POTENTIAL IMPACT OF KNOWN FACTS, COMMITMENTS, EVENTS AND UNCERTAINTIES
Off-balance Sheet Arrangements
As of September 25, 2004, the Company did not have any off-balance sheet
arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
Contractual Obligations
The following table presents contractual obligations as of September 25, 2004.
The Companys outstanding purchase commitments related to advertising
contracts of approximately $15.3 million at September 25, 2004 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 2009,
specify both the quantities and prices, denominated in euros, to which the
Company is committed. Amounts included in the above table are in United
States dollars using the exchange rate as of September 25, 2004. The Company
does not have any
forward currency contracts in place and currently intends to purchase the
committed hops in euros using the exchange rate at the time of purchase.
In the normal course of business, the Company is a party to production
agreements with various third party brewing companies for the production of its
products. Title to beer products brewed under these contract
arrangements remains with the third party brewing company until it ships the
beer products. The Company is required to reimburse the supplier for all
unused raw materials and beer products on termination of the production
agreement. There were approximately $2.6 million of raw materials and beer
products in process at the contract brewers for which the Company was liable as
of September 25, 2004.
The Company is currently evaluating its options with respect to its contract
brewing relationship with High Falls Brewing Company, LLC (High Falls) that is
scheduled to terminate on December 1, 2004. The
13
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
agreement between the Company and High Falls provides for High Falls repayment
of certain capital investments made by the Company, which have a contractual
value in excess of $2.0 million. At December 1, 2004, the Companys unamortized
net book value of these capital investments is anticipated to be in excess of
$1.6 million. High Falls has stated that it does not expect to be in a
position to immediately repay the amounts due under the contract. The Company
and High Falls are in discussions concerning a potential new long term
production agreement which would defer and continue to amortize High Falls
obligation to make the repayment. While there is uncertainty as to the timing
of any recovery, the Company believes that it has several alternatives
available to recover the amounts due from High Falls if a new agreement is not
reached. The Company has not accrued any reserves with respect to the High
Falls situation at this time.
The Company is obligated to meet annual volume requirements in conjunction with
certain production agreements. The fees associated with these minimum volume
requirements are generally not significant and are expensed as incurred.
The Companys agreements with its contract breweries periodically require the
Company to purchase fixed assets in support of brewery operations. At this
time, there are no specific fixed asset purchases anticipated under existing
contracts for the remainder of 2004, but this could vary significantly should
there be a change in the Companys brewing strategy or changes to existing
production arrangements or should the Company enter new production
relationships or introduce new products. The Company is evaluating an
expansion project for its Cincinnati Brewery, which contemplates a capital
investment of approximately $6.0 million for an additional 200,000 barrels of
brewing capacity. A final decision on this project is expected during the
fourth quarter.
Critical Accounting Policies
Inventory Reserves
Promotional Activities Accrual
14
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Distributor Promotional Discount Allowance
Stale Beer Accrual
Allowance for Deposits/First Fill Kegs
FORWARD-LOOKING STATEMENTS
In this Form 10-Q 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 subsequent 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 could cause actual results to differ materially from
those projected or unanticipated. Such risks and uncertainties include the
factors set forth below in addition to the other information set forth in this
Form 10-Q.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Since December 27, 2003, there have been no significant changes in the
Companys exposures to interest rate or foreign currency rate fluctuations.
The Company currently does not enter into derivatives or other market risk
sensitive instruments for the purpose of hedging or for trading purposes.
15
Item 4. CONTROLS AND PROCEDURES
As of September 25, 2004, the Company had conducted an evaluation under the
supervision and with the participation of the Companys management, including
the Companys Chief Executive Officer and Chief Financial Officer (its
principal executive officer and principal financial officer, respectively)
regarding the effectiveness of the design and operation of the Companys
disclosure controls and procedures as defined in Rule 13a-15 of the Securities
Exchange Act of 1934 (the Exchange Act). Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures are effective to ensure that
material information relating to the Company, including its consolidated
subsidiaries, is made known to them by others within those entities.
There was no change in the Companys internal control over financial reporting
that occurred during the quarter ended September 25, 2004 that has materially
affected, or is reasonably likely to materially affect, the Companys internal
control over financial reporting.
16
17
18
SIGNATURES
THE BOSTON BEER COMPANY, INC.
19
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
September 25,
December 27,
2004
2003
(unaudited)
$
37,013
$
27,792
20,000
15,098
12,335
10,432
10,895
9,890
1,009
1,126
1,066
1,177
697
2,304
83,015
67,819
17,387
17,059
1,111
1,099
1,377
1,377
$
102,890
$
87,354
$
8,427
$
6,395
16,545
15,504
24,972
21,899
2,176
2,191
692
740
101
169
41
41
65,672
62,517
(309
)
(229
)
(165
)
45
9,710
74,758
(74,777
)
75,050
62,524
$
102,890
$
87,354
Table of Contents
Three months ended
Nine months ended
September 25,
September 27,
September 25,
September 27,
2004
2003
2004
2003
$
60,477
$
61,584
$
178,303
$
173,868
5,743
6,039
16,898
16,684
54,734
55,545
161,405
157,184
22,738
22,853
65,315
63,590
31,996
32,692
96,090
93,594
23,391
22,239
70,129
71,555
3,926
4,348
10,765
11,820
27,317
26,587
80,894
83,375
4,679
6,105
15,196
10,219
183
287
570
941
1
3
(238
)
(1
)
184
290
332
940
4,863
6,395
15,528
11,159
1,838
2,407
5,870
4,218
$
3,025
$
3,988
$
9,658
$
6,941
$
0.21
$
0.28
$
0.68
$
0.46
$
0.21
$
0.28
$
0.67
$
0.46
14,162
14,183
14,103
15,001
14,595
14,465
14,479
15,254
Table of Contents
Nine months ended
September 25,
September 27,
2004
2003
$
9,658
$
6,941
3,856
4,232
(1
)
30
91
65
65
(39
)
229
(128
)
(1,968
)
3,344
(1,005
)
(2,906
)
117
268
1,131
(704
)
(119
)
(1,411
)
29
234
2,032
606
1,042
1,392
(47
)
(29
)
15,110
11,895
(3,530
)
(1,504
)
1
32
20,983
20,410
(26,256
)
(3,685
)
(8,802
)
15,253
(29,239
)
2,724
943
189
166
2,913
(28,130
)
9,221
(982
)
27,792
20,608
$
37,013
$
19,626
$
4,100
$
3,339
Table of Contents
In the opinion of the Companys management, the Companys unaudited
consolidated financial position as of September 25, 2004 and the results of its
consolidated operations and consolidated cash flows for the interim periods
ended September 25, 2004 and September 27, 2003, reflect all adjustments
(consisting only of normal and recurring adjustments) necessary to present
fairly the results of the interim periods presented. The operating results for
the interim periods presented are not necessarily indicative of the results
expected for the full year.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 25,
December 27,
2004
2003
$
7,651
$
8,233
989
769
2,255
888
$
10,895
$
9,890
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the three months ended
For the nine months ended
September 25,
September 27,
September 25,
September 27,
2004
2003
2004
2003
$
3,025
$
3,988
$
9,658
$
6,941
(61
)
(146
)
(142
)
(169
)
(69
)
$
2,964
$
3,842
$
9,447
$
6,772
The Company had outstanding purchase commitments related to advertising
contracts of approximately $15.3 million and $10.2 million at September 25,
2004 and December 27, 2003, respectively. These purchase commitments reflect
amounts that are non-cancelable.
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company follows the disclosure provisions of SFAS No. 148, Accounting for
Stock-Based Compensation Transition and Disclosure, and applies APB Opinion
No. 25 and related interpretations for the Employee Equity Incentive Plan and
the Stock Option Plan for Non-Employee Directors. The following table
illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, to stock-based employee compensation.
For the three months ended
For the nine months ended
September 25,
September 27,
September 25,
September 27,
(in thousands)
2004
2003
2004
2003
$
3,025
$
3,988
$
9,658
$
6,941
18
14
53
41
(113
)
(180
)
(338
)
(759
)
$
2,930
$
3,822
$
9,373
$
6,223
$
0.21
$
0.28
$
0.68
$
0.46
$
0.21
$
0.27
$
0.66
$
0.41
$
0.21
$
0.28
$
0.67
$
0.46
$
0.20
$
0.26
$
0.65
$
0.41
Effective July 1, 2004, companies incorporated in Massachusetts became subject
to the Massachusetts Business Corporation Act, Chapter 156D. Chapter 156D
provides that shares that are reacquired by a company become authorized but
unissued shares under Section 6.31, and thereby eliminates the concept of
treasury shares. Accordingly, the Company has redesignated its existing
treasury shares, at an aggregate cost of $71,025, as authorized but unissued
and allocated this amount to the common stocks par value and retained
earnings.
Table of Contents
Table of Contents
Table of Contents
Table of Contents
(in thousands)
Payments Due by Period
Less
More
Than 1
1-3
3-5
Than 5
Total
Year
Years
Years
Years
$
15,305
$
14,776
$
529
$
$
12,959
3,818
6,184
2,957
2,739
1,167
1,276
265
31
566
317
249
$
31,569
$
20,078
$
8,238
$
3,222
$
31
Table of Contents
The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States. 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.
The excess hops inventory reserve accounts for a significant portion of the
inventory obsolescence reserve. 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 usage
requirements. The computation of the excess hop inventory and purchase
commitment reserve is based on the age of the hops on-hand and requires
management to make certain assumptions regarding future sales growth, product
mix, cancellation costs, and supply, among others. The Company will continue
to manage hop inventory and contract levels as necessary. The current levels
are deemed adequate, based upon foreseeable future brewing requirements.
Actual hops usage and needs may differ materially from managements estimates.
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.
Table of Contents
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.
In certain circumstances and with the Companys approval, the Company accepts
and destroys stale beer that is returned by distributors and has historically
credited approximately fifty percent of the distributors cost on 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 two factors. The
first factor considers actual prior month return expense, which is applied to
an estimated lag time for receipt of product and the processing of the credit
to the distributor by the Company. The second factor is the Companys
knowledge of specific return transactions. The actual stale beer expense
incurred by the Company could differ from the estimated accrual.
The Company purchases kegs from vendors and records these assets in property,
plant and equipment. When the kegs are shipped to the distributors, a keg
deposit is collected. This deposit is refunded to the distributors upon return
of the kegs to the Company. The first fill 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 keg deposit liabilities at the date of the financial
statements and the reported amounts of revenue during the reporting period.
Actual keg deposit liability could differ from the estimates.
Table of Contents
OTHER INFORMATION
LEGAL PROCEEDINGS
Two complaints against many producers of alcoholic
beverages, including the Company, were filed in Ohio during
the second quarter 2004 relating to advertising practices
and underage consumption. The suits allege that each
defendant intentionally marketed its products to children
and underage consumers and seeks an injunction and
unspecified money damages on behalf of an undefined class
of parents and guardians. These actions are in their
earliest stages. The Company intends to vigorously defend
this litigation, but it is not possible at this time to
determine the impact on the Company.
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 its results of operations.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Registrant made the following purchases of Class A
Common Stock during the period ended September 25, 2004:
Total Number
of Shares
Purchased as
Part of
Publicly
Average Price
Announced
Period
Total Number of
Shares Purchased
Paid per
Share
Plans or
Programs
798
$
4.52
-0-
100
$
7.95
-0-
-0-
$
-0-
-0-
555
$
4.29
-0-
274
$
9.28
-0-
-0-
$
-0-
-0-
-0-
$
-0-
-0-
Table of Contents
-0-
$
-0-
-0-
-0-
$
-0-
-0-
1,727
$
5.40
-0-
The 1,727 shares that were purchased during the first nine
months of 2004 represent repurchases of unvested investment
shares issued under the Investment Share Program of the
Employee Equity Incentive Plan.
As of September 25, 2004, there were $5.2 million remaining
under the $80.0 million expenditure authorization related
to the Stock Repurchase Program. During the first nine
months of 2004, the Company did not purchase any of its
outstanding stock under the Stock Repurchase Program. From
the inception of the Stock Repurchase Program through
November 3, 2004, the Company has repurchased a total of
7.1 million shares of Class A Common Stock for an aggregate
purchase price of $74.8 million.
DEFAULTS UPON SENIOR SECURITIES
Not Applicable
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
OTHER INFORMATION
Not Applicable
EXHIBITS
Title
The information required by exhibit 11 has
been included in Note D of the notes to the consolidated
financial statements.
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.
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
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
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
Table of Contents
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
Table of Contents
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has
duly caused this Form 10-Q to be signed on its behalf by the
undersigned thereunto duly
authorized.
(Registrant)
By:
/s/ Martin F. Roper
Martin F. Roper
President and Chief Executive Officer
(principal executive officer)
By:
/s/ William F. Urich
William F. Urich
Chief Financial Officer
(principal accounting and financial officer)
(BANK OF AMERICA LOGO) (FLEET LOGO)
August 4, 2004
Fleet National Bank
100 Federal Street
Boston, Massachusetts 02110
Attention: Israel Lopez
RE: SECOND AMENDED AND RESTATED CREDIT AGREEMENT EFFECTIVE AS OF JULY
1, 2002
Ladies and Gentlemen:
Reference is made to that certain Second Amended and Restated Credit Agreement effective as of July 1, 2002 (the "Credit Agreement") by and between FLEET NATIONAL BANK, (the "Lender") and the undersigned, THE BOSTON BEER COMPANY, INC. and BOSTON BEER CORPORATION (together, the "Borrowers"). Capitalized terms used herein without definition have the meanings assigned to them in the Credit Agreement.
The Borrowers have requested that the Commitment be reduced as of the date hereof from $45,000,000 to $20,000,000. Therefore, the parties hereby agree that Section 1.1 of the Credit Agreement be, and hereby is, amended by deleting "$45,000,000" and substituting therefor "$20,000,000". The parties also agree that the definition of "Permitted Investments of the Credit Agreement be, and it hereby is, deleted in its entirety and substituted by "Permitted Investments: As applied to any Company shall be in conformance with the Company's investment policy as may be modified from time to time and as shown in Exhibit 3.16." The parties also agree that Section 4.1 (d) of the Credit Agreement be, and it is hereby deleted in its entirety. Except for the reduction in the Commitment to $20,000,000 and the other modifications specifically set forth in this letter agreement, the text of the Credit Agreement and all other Loan Documents shall remain unchanged and in full force and effect.
The Borrowers hereby confirm that no Default has occurred and is continuing as of the date hereof.
This letter agreement may be executed by the parties hereto on separate counterparts, which together shall constitute one and the same agreement. Delivery of an executed counterpart of this letter agreement by facsimile transmission shall be as effective as delivery of a manually executed counterpart hereof.
Very truly yours,
THE BOSTON BEER COMPANY, INC.
/s/ Martin F. Roper By:_________________________________ Martin F. Roper Name:____________________________ President and CEO Title:__________________________ |
BOSTON BEER CORPORATION
/s/ Martin F. Roper By:_________________________________ Martin F. Roper Name:____________________________ President and CEO Title:___________________________ |
Accepted and Agreed to as of June 18, 2004
FLEET NATIONAL BANK
/s/ Israel Lopez By:_______________________________________ Name: Israel Lopez_____________________ Title: Senior Vice President___________ |
EXHIBIT 3.16
THE BOSTON BEER COMPANY, INC. INVESTMENT POLICY
I. ADOPTION & PURPOSE
This Investment Policy Statement (the "Policy") establishes policies relating to and governing the investment of the surplus funds ("Funds") of the Company and all of its affiliated entities.
Funds are to be invested under the supervision of the Company's Chief Financial Officer or by other qualified personnel to whom the Company's Chief Executive Officer may from time to time delegate this responsibility.
The Company's Chief Financial Officer and those other qualified personnel designated by the Chief Executive Officer are authorized to utilize an agent or dealer for the purchasing of such investments.
II. INVESTMENT OBJECTIVES
Funds shall be invested to achieve the following objectives:
- Preserve Capital.
- Maintain adequate liquidity at all times.
- Optimize return on investments in authorized securities, taking into account
market performance, risk profile, and tax implications.
- Minimize fees, transaction cost and expenses associated with the selection and
management of the investment securities.
III. AUTHORIZED SECURITIES
The following classes of securities may be purchased with the Funds.
- Municipal Auction Rate Securities with 7, 28 or 35 day liquidity, rated AAA,
with geographic diversification.
- Vanguard and Bank of America money market or mutual bond funds not to exceed
average maturities of 12 months.
IV. INVESTMENT POLICY STATEMENT REVIEW
The Company's Chief Financial Officer shall review the Policy at least annually and report to the Company's Board of Directors to:
- Affirm that the Policy remains consistent with the financial objectives of the
Company and its affiliates;
- Affirm that the Policy reflects current market conditions as appropriate; and
- Recommend changes, if any, to the Policy.
On behalf of the Board of Directors of The Boston Beer Company, Inc,
______________, 2004
Exhibit 31.1
I, Martin F. Roper, President and Chief Executive Officer of The Boston Beer Company, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Boston Beer Company, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 4, 2004 /s/ Martin F. Roper ----------------------------------------- Martin F. Roper President and Chief Executive Officer [Principal Executive Officer] |
Exhibit 31.2
I, William F. Urich, Chief Financial Officer of The Boston Beer Company, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Boston Beer Company, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 4, 2004 /s/ William F. Urich ----------------------------------------- William F. Urich Chief Financial Officer [Principal Financial Officer] |
Exhibit 32.1
The Boston Beer Company, Inc.
Certification Pursuant To
18 U.S.C. Section 1350,
As Adopted Pursuant To
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of The Boston Beer Company, Inc. (the
"Company") on Form 10-Q for the period ended September 25, 2004 as filed with
the Securities and Exchange Commission (the "Report"), I, Martin F. Roper,
President and Chief Executive Officer of the Company, certify, pursuant to
Section 1350 of Chapter 63 of Title 18, United States Code, that this Report
fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and that the information contained in this Report fairly
presents, in all material respects, the financial condition and results of
operations of the Company.
Date: November 4, 2004 /s/ Martin F. Roper --------------------------- Martin F. Roper President and Chief Executive Officer |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to The Boston Beer Company, Inc. and will be retained by The Boston Beer Company, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
The Boston Beer Company, Inc.
Certification Pursuant To
18 U.S.C. Section 1350,
As Adopted Pursuant To
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of The Boston Beer Company, Inc. (the "Company") on Form 10-Q for the period ended September 25, 2004 as filed with the Securities and Exchange Commission (the "Report"), I, William F. Urich, Chief Financial Officer of the Company, certify, pursuant to Section 1350 of Chapter 63 of Title 18, United States Code, that this Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 4, 2004 /s/ William F. Urich ------------------------------- William F. Urich Chief Financial Officer |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to The Boston Beer Company, Inc. and will be retained by The Boston Beer Company, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.