UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
Commission file number:
THE BOSTON BEER COMPANY, INC.
(Exact name of registrant as specified in its charter)
Massachusetts | 04-3284048 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
\
One Design Center Place, Suite 850, Boston, Massachusetts
(Address of principal executive offices)
02210
(Zip Code)
(617)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Class A Common Stock. $0.01 par value | SAM | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule
The aggregate market value of the Class A Common Stock ($.01 par value) held by
As of February 14, 2020,12, 2021, there were 9,481,434
DOCUMENTS INCORPORATED BY REFERENCE
Certain parts of the registrant’s definitive Proxy Statement for its 20202021 Annual Meeting to be held on May 14, 202020, 2021 are incorporated by reference into Part III of this report.
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
FORM
FOR THE PERIOD ENDED DECEMBER 28, 2019
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PART I.
Item 1.Business
General
The Boston Beer Company, Inc. (“Boston Beer” or the “Company”) is a
Boston Beer produces alcohol beverages, including hard seltzer, malt beverages (“beers”), hard seltzer and hard cider at Company-owned breweries and its cidery and under contract arrangements at other brewery locations. The four primary Company-owned breweries are focused on production and research and development and include breweries located in Boston, Massachusetts (the “Boston Brewery”), Cincinnati, Ohio (the “Cincinnati Brewery”), Milton, Delaware (the “Milton Brewery”) and Breinigsville, Pennsylvania (the “Pennsylvania Brewery”). These breweries, with the exception of the Pennsylvania Brewery, have tap rooms for retail sales on site. The Company produces a small amount of distilled spirits at the Milton Brewery.
The Company also owns five smaller local breweries that are mainly focused on brewing and packaging beers for retail sales on site at tap rooms and gift shops, restaurant activities, developing innovative and traditional beers and in some cases, supporting draft and package accounts in the respective local market areas. These local breweries are located in Boston, Massachusetts (the “Samuel Adams Boston Downtown Tap Room”), Rehoboth, Delaware ( “Dogfish(“Dogfish Head BrewingBrewings and Eats”), Los Angeles, California (the “Angel City Brewery”), Miami, Florida (the “Concrete Beach Brewery”) and Brooklyn, New York (the “Coney Island Brewery”) and Miami, Florida (the “Miami Brewery”).
In addition, the Company owns an apple orchard and cidery located in Walden, New York (the “Orchard” and “Cidery”), a restaurant in Rehoboth, Delaware (“Chesapeake & Maine”) and a boutique inn in Lewes, Delaware (the “Dogfish Inn”).
The Company sells its beverages in various packages. Sleek cans, standard cans and bottles are sold primarily for off-premise retailers, which include grocery stores, club stores, convenience stores and liquor stores. Kegs are sold primarily for on-premise retailers, which include bars, restaurants, stadiums and other venues.
The Company’s principal executive offices are located at One Design Center Place, Suite 850, Boston, Massachusetts 02210, and its telephone number is (617)
Industry Background
Most of the Company’s products are sold through off-premise retailers and the Company estimates the size of its markets using metrics from measured off-premise channels, which is standard in the beer industry. The Company’s hard seltzers, beers, and hard ciders are primarily positioned in the market for High End beer occasions. The Company defines “High End” beers as including hard seltzer and flavored malt beverages, craft beers, domestic specialty beers, and most imported beer and hard cider that are called for by a High End beer drinker occasion. High End beers and beer occasions (the “High End category”) are determined by higher price, quality, image and taste, as compared with regular domestic beers.
This category has seen high single-digit compounded annual growth over the past ten years. The Company believes that the High End category is positioned to increase market share, as drinkers continue to trade up in taste and quality. Boston Beer is one of the largest suppliers in the High End category in the United States. The Company estimates that in 2020 the High End category percentage volume growth was approximately 25%, with the craft beer category volume growth approximately 13%, and total beer category volume growth approximately 10%.The Company believes that the High End category is now over 36% of the United States beer market and the Company has approximately a 9% market share of the High End category.
The domestic beer industry, excluding the High End category, has experienced a decline in shipment volume over the last twenty 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, health and wellness trends and increased competition from wine and spirits companies.
Before Prohibition, the United States beer industry consisted of hundreds of small breweries that brewed full-flavored beers. After the end of Prohibition, most domestic brewers 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. This shift towards mass-producedmass-
produced beers coincided with consolidation in the beer industry that by 2008 ultimately resulted in the two largest breweries, Anheuser-Busch InBev (“AB InBev”) and Molson Coors Beverage Company (“Molson Coors”), comprising over 90% of all United States domestic beer production, excluding imports. During the last twenty years the number of breweries in the United States has increased significantly from approximately 1,500 in 2009 to over 8,000 in 2019.2020. Most of these new breweries are craft (small and independent) brewers. The rise of craft breweries along with the growth of imported beers and hard seltzers has resulted in a significant decline in the volume of the two largest breweries who now comprise approximately 70% of all United States domestic beer production, excluding imports.
Description of the largest suppliers in the High End category in the United States. The Company estimates that in 2019 the High End category percentage volume growth was approximately 11%, with the craft beer category volume growth approximately 5%, and total beer category volume growth approximately 2%.
The Company’s business goal is to become the leading supplier in the High End category by creating and offering high quality alcohol beverages. With the support of a large, well-trained sales organization and world-class brewers, the Company strives to achieve this goal by offering great beers, hard seltzers, beers and hard ciders, and increasing brand availability and awareness through traditional media and digital advertising,
The Company’s Dogfish Head Brewery Transaction
The Company’s strategy is to create and offer a world-class variety of traditional and innovative alcohol beverages. The Samuel Adams, Twisted Tea,Company’s primary brands which include Truly Hard Seltzer, Twisted Tea, Samuel Adams, Angry Orchard and Dogfish Head brands are all available nationally, while Dogfish Head is currently availablenationally. In 2016, the Company began national distribution of the Truly Hard Seltzer brand and it maintained its place as one of the leading brands in over 45 statesthe hard seltzer category in 2020. The Twisted Tea brand family has grown each year since the product was first introduced in 2001 and is expected to be available nationally during the first half of 2020. Local breweries brands focus on local and regional distribution and tap rooms.has established a loyal drinker following. The Samuel Adams brand began in 1984 and the brand is recognized as one of the largest and most respected craft beer brands with a particular focus on lagers and seasonal beers. The Twisted Tea brand family has grown each year since the product was first introduced in 2001 and has established a loyal drinker following. In 2016, the Company began national distribution of the Truly Hard Seltzer brand and it maintained its place as one of the leading brands in the hard seltzer category in 2019. The Angry Orchard brand family was launched in the second half of 2011 in several markets and achieved national distribution in 2012. Sincesince 2013, Angry Orchard has been the largest selling hard cider in the United States. The Dogfish Head brand began in 1995 and is recognized as one of the most innovative and respected craft beer brands with a particular focus on India Pale Ales (“IPAs”) and sour beers. A&S Brewing hadIn addition to its primary brands the Company has three local brewery brands in 2019,that primarily focus on tap rooms and local and regional distribution, which include Angel City
The Company sells its beverages in various packages. KegsSleek cans, standard cans and bottles are sold primarily for
Truly Hard Seltzer
The Company’s Truly Hard Seltzer brand generally competes within the hard seltzer category that has similar characteristics to the beer industry for reporting and regulatory purposes. This category is growing rapidly in its early stages of development over the last 5 years and is highly competitive and includes large international and domestic competitors as well as many smaller national, regional and local craft breweries and hard seltzer companies. The Company believes that the hard seltzer category comprises approximately 7% of United States beer consumption and that the volume comprising the hard seltzer category grew approximately 160% in 2020.
The Company offers over 20seventeen styles of beerhard seltzer in the Samuel AdamsTruly brand family, and the brand is recognized for helping launch the craft beer industry. Samuel Adams Boston Lager
Twisted Tea
The Company’s Twisted Tea products generally competes within the Samuel Adams Seasonal programflavored malt beverage (“FMB”) category of beersthe beer industry (and the Company’s Twisted Tea products are included in various bottle, cangeneric references to the Company’s “beers” in this report). The Company believes that the FMB category comprises approximately 5% of United States beer consumption and keg packages. After some test launchesthat the volume comprising the FMB category grew approximately 13% in late 2017,2020. This category is highly competitive due to, among other factors, the Company began the national launchpresence of large brewers and spirits companies in the first quartercategory and a fast pace of 2018 of Samuel Adams Sam ’76, a revolutionary beer that is a uniquely flavorful lager. Later in 2018 and on a more limited basis, the Company launched Samuel Adams New England IPA, a hazy unfiltered IPA with citrusy hop flavor. Sam ’76 and Samuel Adams New England IPA are viewed as important innovations and opportunities for sales volume growth within the Samuel Adams brand family.product innovation.
The Company offers elevenover ten styles of flavored malt beverages in the Twisted Tea brand family, most of which are available nationally in both the United States and Canada. The majority of the promotional and distribution efforts for the Twisted Tea brand family are focused on Twisted Tea Original and Twisted Tea Half and Half in various standard can packages.
Samuel Adams and Dogfish Head Beers
The Company’s Samuel Adams and Dogfish Head beers generally compete within the craft beer and domestic specialty beer category. The Company believes that the category comprises approximately 8% of United States beer consumption and that the volume comprising the category grew approximately 13% in 2020. This category is highly competitive and includes large international and domestic competitors, as well as many smaller national, regional and local craft breweries.
The Company offers seventeenover twenty styles of hard seltzerbeer in the TrulySamuel Adams brand family mostand the brand is recognized for helping launch the craft beer industry. Samuel Adams Boston Lager® is the Company’s flagship beer that was first introduced in 1984. The Samuel Adams Seasonal program of which are available nationallybeers was originally introduced in the United States. late 1980’s and early 1990’s.
The majority of the promotional and distribution efforts for the TrulySamuel Adams brand family are focused on sleek can variety packages which include Truly Berry Mix Pack, Truly Citrus Mix Pack, Truly Tropical Mix PackSamuel Adams Boston Lager and Truly Lemonade Seltzer Mix Pack.
The Samuel Adams brand also releases a variety of specialty package and draft beers brewed in limited quantities at its Samuel Adams Downtown Boston Tap Room, Samuel Adams Boston Brewery Tap Room and Samuel Adams Cincinnati Brewery Tap Room.
The Company offers over 25twenty-five styles of beer in the Dogfish Head brand family. The Company is in the process of increasing distribution from over 45 states to full national distribution in the United States. The Dogfish Head brand began in 1993 and it is recognized as an early leader in bringing culinary innovations to the U.S. craft beer market. The majority of the promotional and distribution efforts for the Dogfish Head brand family are focused on continually-hopped Dogfish Head 60 Minute and 90 Minute IPAs, along with Dogfish Head SeaQuench, an innovative session sour, and Dogfish Head Slightly Mighty, a low calorie IPA. These four styles are offered in various can, bottle and keg packages. The Company also offers over 15 styles of distilled spirits under the Dogfish Head brand in small quantities and to limited markets. The Dogfish Head brand also releases a variety of specialty package and draft beers brewed in limited quantities at its Dogfish Head Brewings and Eats brewery.The Company does not own thedistribution rights outside of the United States and Canada forto the Dogfish Head beer and distilled spirits brands.
Angry Orchard Hard Cider
The Company’s Angry Orchard ciders compete within the hard cider category that has similar characteristics to the beer industry. The Company believes that the hard cider category comprises less than 1% of United States beer consumption and the volume comprising the category grew 4% in 2020. This category is small and highly competitive and includes large international and domestic competitors, as well as many small regional and local hard cider companies.
The Company offers over ten styles of hard cider in the Angry Orchard brand family, most of which are available nationally in the United States. The majority of the promotional and distribution efforts for the Angry Orchard brand family are focused on Angry Orchard Crisp Apple, Angry Orchard Rosé and Angry Orchard Crisp Unfiltered in various bottle, can and keg packages. The Angry Orchard brand also releases a variety of specialty package and draft ciders fermented in limited quantities at is Company-owned Orchard and Cidery in Walden, New York.
The Company continually evaluates the performance of its various beer, hard seltzer, beer and hard cider products and the rationalization of its product line as a whole. Periodically, the Company discontinues certain styles and packages. Certain styles or brands put on hiatus or discontinued in previous years may be produced for the Company’s variety packs or reintroduced.
The Company’s Dogfish Head Brewery Transaction
On May 8, 2019, the Company entered into definitive agreements to acquire Dogfish Head Brewery (“Dogfish Head”) and various related operations (the “Transaction”), through the acquisition of all of the equity interests held by certain private entities in Off-Centered Way LLC, the parent holding company of the Dogfish Head operations. In accordance with these agreements, the Company made a payment of $158.4 million, which was placed in escrow pending the satisfaction of certain closing conditions. The Transaction closed on July 3, 2019, for total consideration of $336.0 million consisting of $173.0 million in cash and 429,291 shares of restricted Class A Common Stock that had an aggregate market value as of
July 3, 2019 of $163.0 million, after taking into account a post-closing cash related adjustment. As required under the definitive agreements, 127,146 of the 429,291 shares of restricted Class A Stock were placed in escrow and will be released no later than July 3, 2029.
These shares had a market value on July 3, 2019 of $48.3 million. The timing of the release of these escrowed shares is primarily related to the continued employment with the Company of Samuel A. Calagione III, one of the two Dogfish Head founders. As part of the transaction, distribution rights to the Dogfish Head brand outside of the United States and Canada were retained by the Dogfish Head founders. The fair value of the Transaction is estimated at approximately $317.7 million.
The results of operations from Dogfish Head have been included in the Company’s consolidated statements of operations since the July 3, 2019 Transaction closing date.
Product and Packaging Innovations
The Company has a proven track record of innovation and building new brands and is committed to maintaining its position as a leading innovator. To that end, the Company continually tests new hard seltzers, beers, hard seltzers and hard
The Company’s most significant innovation in their respective categories. The Company is currently in the early stages of2020 was the national launch of the Truly Lemonade Hard Seltzer Variety Pack, an innovative hard seltzer with a robust flavor, 100 calories and 1 gram of sugar.
Sales, Distribution and Marketing
As dictated by the legal and regulatory environment, most all of the Company’s sales are made to a network of over 400 wholesalers in the United States and to a network of foreign wholesalers, importers or other agencies (collectively referred to as “Distributors”). These Distributors, in turn, sell the products to retailers, such as grocery stores, club stores, convenience stores, liquor stores, bars, restaurants, stadiums and other retail outlets, where the products are sold to drinkers, and in some limited circumstances to parties who act as
With few exceptions, the Company’s products are not the primary brands in its Distributors’ portfolios. Thus, the Company, in addition to competing with other beers, hard seltzers, beers and hard ciders for a share of the drinker’s business, competes with other brewers for a share of the Distributor’s attention, time and selling efforts. During 2019,2020, the Company’s largest Distributor accounted for approximately 2% of the Company’s gross sales. The top three Distributors collectively accounted for approximately 6%5% of the Company’s gross sales. In some states and countries, the Company’s contracts with its Distributors may be affected by laws that restrict the enforcement of some contract terms, especially those related to the Company’s right to terminate the relationship.
Most of the Company’s products are shipped within days of packaging, resulting in limited product order backlog.finished goods at the Company’s breweries and third-party breweries. The Company has historically receivedreceives most of its orders from domestic Distributors in the first week of a month for products to be shipped the following month and the Distributormonth. Historically, Distributors would then carry three to five weeks of packaged inventory (usually at ambient temperatures) and three to four weeks of draft inventory.
Beginning in several markets. The goal2019, primarily as a result of the Freshest Beer Program is to work in cooperation with the Distributors to provide better
as of December 28, 201926, 2020 averaged approximately 45 weeks on hand and was at an appropriate level, based on supply chain capacity constraints and inventory requirements to support the forecasted growth. The Company expects wholesaler inventory levels in terms of weeks on hand to remainbe between 3 and 57 weeks for most of 2020.
Boston Beer has a sales force of approximately 430515 people, which the Company believes is one of the largest in the domestic beer industry. The Company’s sales organization is designed to develop and strengthen relations at the Distributor, retailer and drinker levels by providing educational and promotional programs. The Company’s 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 samples of the Company’s beers, hard seltzers, beers and hard ciders, certain ingredients, such as hops and barley, and other promotional materials to educate wholesale and retail buyers about the quality and taste of the Company’s products. The Company has developed strong relationships with its Distributors and retailers, many of which have benefited from the Company’s premium pricing strategy and growth.
The Company also engages in media campaigns — including television, radio, digital and social media, radio, billboards and print. These media efforts are complemented by participation in sponsorships, which currently include the National Hockey League, the Boston Red Sox, the Kentucky Derby, the Boston Marathon, local beerconcert and 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
COVID-19
The Company’s core philanthropic initiative is Samuel Adams BrewingCompany began seeing the American Dream
Packaging and Ingredients
Historically, the program. Boston Beer employees, together with local business partners and community organizations, have provided coaching and mentoring to more than 11,000 business owners across the country. These efforts have helped to create or maintain more than 8,750 local jobs.
Cans. Truly Hard Seltzer brand beverages are primarily packaged in sleek cans and Twisted Tea brand beverages are primarily packaged in standard cans. In 2020, over 74% of the Company’s total volume was packaged in cans and the Company expects that percentage to further increase in 2021. The demand for cans in the beverage industry has significantly increased and there has been a shortage of capacity, as can manufacturers attempt to adjust their supply chains to keep up with the increased demand which has further accelerated during 2020 as the category grew household penetration and alcohol consumption shifted from on-premise to off-premise. In 2020, as the Truly brand family and the Twisted brand families have grown significantly, the Company has experienced supply shortages and in the fourth quarter of 2020, these supply shortages impacted the Company’s production schedules. The Company is working closely with its three can suppliers to ensure there are no further supply disruptions and the Company has an adequate supply. The Company currently believes that it will have sufficient supply of cans in 2021.
Flavorings. The Company’s hard seltzers, beers and hard ciders include many unique and proprietary flavors and combinations of flavors and some of these flavorings are single sourced. Truly Hard Seltzer and Twisted Tea brand beverages are particularly reliant on the use of flavorings and variety of flavors as part of their appeal to drinkers. The Company is working closely with various flavoring suppliers to ensure it has an adequate supply and currently believes that it will have sufficient supply of flavorings in 2021.
Cardboard. The Company’s hard seltzers, beers and hard ciders are packaged primarily in cardboard wraps, carriers and cardboard shipping cases. During the fourth quarter of 2020 the Company had a disruption to its supply of cardboard wraps which impacted its production schedules. The Company is working closely with its various cardboard suppliers to ensure that there are no further disruptions and the Company has an adequate supply. The Company currently believes that it will have a sufficient supply of cardboard in 2021.
Glass. Many of the Company’s beers and ciders are sold primarily in glass bottles. Due to the COVID -19 pandemic, the demand for glass bottles in the beverage industry has significantly increased and there has been a shortage of capacity, as glass manufacturers attempt to adjust their supply chains to keep up with the increased demand. During the fourth quarter of 2020 the Company had a disruption to its supply of glass bottles which impacted its production schedules. The Company is working closely with its two bottle suppliers to ensure there are no further supply disruptions and the Company has an adequate supply. The Company currently believes that it will have a sufficient supply of glass in 2021.
Malt
Hops
The Company enters into purchase commitments with nine primary hop dealers based on the Company’s projected future volumes and brewing needs. The dealers either have the hops that are committed or will contract with farmers to meet the Company’s needs. The contracts with the hop dealers are denominated in Euros for the German and Czech Republic hops, in Pounds Sterling for some English hops, US Dollars for United States hops and New Zealand Dollars for the New Zealand hops. The Company does not currently hedge its forward currency commitments.
Variations to planusage plans could result in hops shortages for specific beers or an excess of certain hops varieties.
Yeast
Apples.
Quality Assurance
As of December 28, 2019,26, 2020, the Company employed over sixteentwenty brewmasters to monitor the Company’s brewing operations and control the production of its beers, hard seltzers, beers, and hard ciders both at Company-owned breweries and at the third-party breweries at which the Company’s products are brewed.brewed or fermented. Extensive tests, tastings and evaluations are typically required to ensure that each batch of the Company’s hard seltzers, beers and hard ciders and hard seltzers conforms to the Company’s standards. The Company has
With the exception of the Dogfish Head brand and certain specialty products, the Company includes a clearly legible “freshness” code on every bottle, can and keg of its beers, hard seltzer, beers and hard ciders, in order to ensure that its drinkers enjoy only the freshest products. Boston Beer was the first American brewer to use this practice. The Dogfish Head brand will adopt this practice for most of its beers during 2020.
Production Strategy
The Company continues to pursue a production strategy that includes production at breweries owned by the Company and breweries and packaging facilities owned by others. During 2019 and 2020, the Company brewed, fermented and packaged approximately 74% and 65% of its volume at breweries owned by the Company.Company, respectively. The Company made capital investments in 20192020 of approximately $94$140.0 million, most of
The Pennsylvania Brewery, the Cincinnati Brewery and the Milton Brewery produce most of the Company’s shipment volume.volume from breweries owned by the Company during 2020. The Pennsylvania Brewery is the Company’s largest brewery and the Cincinnati Brewery is the primary brewery for the production of most of the Company’s specialty, lower volume packaged bottle products. The Milton Brewery currently produces only Dogfish Head brand beers and distilled spirits.
Production and retail activities at the eight local breweries and tap rooms, which include the Samuel Adams Downtown Boston Tap Room, Samuel Adams Boston Brewery Tap Room, Samuel Adams Cincinnati Brewery Tap Room, Dogfish Head Brewing and Eats, Dogfish Head Milton Brewery Tasting Room and the three A&S Brewing breweries is mainly for brewing and packaging beers for retail sales on site at tap rooms and gift shops, restaurant activities, developing innovative and traditional beers and in some cases supporting draft and package accounts in the respective local market areas.
The Cidery’s production is mainly for developing new types of innovative hard ciders and fermenting and packaging ciders for retail sales on site at the cidery and gift shopCidery and supporting draft and package accounts in the local market area.
The Company currently has a brewing and packaging services agreement with subsidiaries of City Brewing Company, LLC (“City Brewing”). During 2019 and 2020, City Brewing supplied approximately 23% and 33% of the Company’s annual shipment volume, respectively. In accordance with the brewing and packaging services agreement, the Company has paid to City Brewing $71.5 million dollars for capital improvements at City Brewing facilities and other pre-payments. The agreement includes a minimum capacity availability commitment by City Brewing and the Company is obligated to meet annual minimum volume commitments and is subject to contractual shortfall fees if these annual minimum volume commitments are not met. The Company has the contractual right to extend its agreement with City Brewing beyond the December 31, 2024 termination date on an annual basis through December 31, 2035.
The Company will continue to add production capacity at breweries and packaging facilities owned by others and expects that the percentage of total production at breweries and packaging facilities owned by others will increase in 2021. The Company carefully selects breweries and packaging facilities owned by others with: (i) sleek can packaging and automated variety packaging capability and capacity; (ii) first-rate quality control capabilities throughout the process; and (iii) the capability of utilizing traditional brewing, fermenting and finishing methods; (ii) first-rate quality control capabilities throughout the process: and (iii) sleek can packaging and automated variety packaging capability and capacity.methods. Under its brewing and packaging arrangements with third parties, the Company is charged a service fee based on units produced at each of the facilities and bears the costs of raw materials, risk, excise taxes and deposits for pallets and kegs and specialized equipment required to produce and package the Company’s beverages. The Company currently has a brewing services agreement with subsidiaries of City Brewing Company, LLC (“City Brewing”). During 2018 and 2019, the Company amended the brewing services agreement to include a minimum capacity availability commitment by City Brewing. The amendment grants the Company the right to extend the agreement beyond the December 31, 2021 termination date on an annual basis through December 31, 2029. The amendments require the Company to pay up to $26.5 million dollars for capital improvements at City Brewing facilities of which $20.5 million has been paid as of December 28, 2019 and the remaining amount of $6.0 million is expected to be paid in May 2020. During 2019, City Brewing supplied approximately 23% of the Company’s annual shipment volume.
The Company’s Internationalinternational business is supplied by breweries owned by the Company, under third-party brewing and packaging agreements, that may include packaging bulk shipments of beer and hard cider, and production under license at international locations.
While the Company believes that it has alternatives available to it, in the event that production at any of its locations is interrupted, severe interruptions at the Pennsylvania Brewery or City Brewing facilities would be problematic, especially in seasonal peak periods. In addition, the Company may not be able to maintain its current economics, if interruptions were to occur, and could face significant delays in starting up replacement production locations. Potential interruptions at breweries include labor issues, governmental actions, quality issues, contractual disputes, machinery failures, operational shutdowns, or natural or other unavoidable catastrophes. Also, as the brewing industry has consolidated and the Company has grown, the capacity and willingness of breweries owned by others where the Company could produce some of its beers, hard seltzers, beers and hard ciders, if necessary, has become a more significant concern. The Company would work with available contract brewers to attempt to minimize any potential disruptions.
Competition
The High End category within the United States is highly competitive due to large domestic and international brewers and the increasing number of craft brewers in this category who distribute similar products that have similar pricing and target drinkers. The Company expects competition and innovation among domestic craft brewers to remain strong, as the number of craft brewers continues to grow. The Company estimates there are over 8,000 breweries in operation, up from approximately 1,500 operating breweries in 2009. Most of these new breweries are craft (small and independent) brewers. Also, existing craft breweries are building more capacity, adding additional local tap rooms, expanding geographically and adding more SKUs and styles.
The two largest brewers in the United States, AB InBev and Molson Coors, participate actively in the High End category, both through numerous launches of new hard seltzers from existing beer brands or new brands, importing and distributing foreignimport brands, that compete in the High End category and with their own domestic specialty beers, either by developing new brands or by acquiring, in whole or part, existing craft breweries. In addition, AB InBev’s High End Division and Molson Coors’ Tenth and Blake were formed as business units headquartered in the United States that are focused exclusively on competing in the High End category.
The Company’s Truly Hard Seltzer beverages compete primarily within the hard seltzer category. This category has been growing quickly since 2016, is highly competitive and includes large international and domestic competitors. Hard seltzers are typically priced competitively with High End beers and may compete for drinkers with beer, wine, spirits, or FMBs. Some of these competitors include Mark Anthony Brands under the brand name “White Claw”; ABInBev under “Bud Light Seltzer”, “Natural Light Seltzer” and “Bon & Viv’s”; Diageo under “Smirnoff Spiked Sparkling Seltzer”; and MolsonCoors under “Vizzy Hard Sparkling Water” and “Coors Seltzer”. The Company expects numerous additional entrants in the hard seltzer category during 2021 from both large and smaller international and domestic competitors, as the category continues to develop distribution and drinker awareness. Most significantly, ABInbev introduced and launched nationally “Michelob Ultra Organic Seltzer” in January 2021 and Mark Anthony Brands has announced that “Mikes Hard Lemonade Seltzer” and “White Claw Hard Seltzer Iced Tea” will be introduced and launched nationally in Spring 2021.
The Company’s Twisted Tea beverages compete primarily within the FMB category of the beer industry. FMBs, such as Twisted Tea, Mike’s Hard Lemonade®, Smirnoff Ice®, Bud Light Lime® Ritas, Redd’s® Apple Ale, Seagrams Escapes® and Arnold Palmer Spiked, are flavored malt beverages that are typically priced competitively with High End beers. As noted earlier, this category is highly competitive due to, among other factors, the presence of large brewers and spirits companies in the category, the advertising of malt-based spirits brands in channels not available to the parent brands and a fast pace of product innovation.
The Company’s Samuel Adams and Dogfish Head beverages compete primarily within the craft beer and domestic specialty beer category of the beer industry. The Company expects competition and innovation among domestic craft brewers to remain strong, as the number of craft brewers continues to grow. The Company estimates there are over 8,000 breweries in operation, up from approximately 1,500 operating breweries in 2009. Most of these new breweries are craft (small and independent) brewers. Also, some existing craft breweries are building more capacity, adding additional local tap rooms, expanding geographically and adding more SKUs and styles.
There have been numerous announcements of acquisitions of or investments in craft brewers by larger breweries and private equity and other investors. Most recentlyIn 2019, a unit of global brewer Kirin Holdings Co. announced the acquisition of New Belgium Brewing, the fourth largest craft brewer, for a reported amount of $350 to $400 million. EarlierAlso in 2019, global brewer Mahou San Miguel increased its ownership of Founders Brewing Co. from 30% to 90% for a reported valuation of approximately $300 million. The most significant acquisitions in the last few years include Heineken’s acquisition of Lagunitas Brewing Company for approximately $1 billion, Constellation Brands’ acquisition of Ballast Point Brewing & Spirits for approximately $1 billion, AB InBev’s purchase of multiple craft breweries, including Elysian Brewing Company, Golden Road Brewing, Four Peaks Brewing Company, Breckenridge Brewing, Devils Backbone, Karbach, Wicked Weed, Platform Beer and Craft Brew Alliance, and Molson Coors’ purchase of multiple craft breweries, including Hop Valley Brewing, Saint Archer Brewery and Revolver Brewing.
The Company’s Angry Orchard product line competes within the hard cider category. As noted earlier, this category is small and highly competitive and includes large international and domestic competitors, as well as many small regional and local hard cider companies. Hard ciders are typically priced competitively with High End Beers and may compete for drinkers with beer, wine, spirits, or FMBs. Some of these competitors include C&C Group PLC under the brand names ‘Woodchuck’, ‘Magners’ and ‘Hornsby’s’; Heineken under the brand names ‘Strongbow’; and AB InBev also acquired Spiked Seltzer, a previously independent hard seltzer company.
The Company’s products also compete with other alcoholic beverages for drinker attention and consumption and the pace of innovation in the categories in which the Company competes is increasing. In recent years, wine and spirits have been competing more directly with beers. The Company monitors such activity and attempts to develop strategies which benefit from the drinker’s interest in trading up, in order to position its beers, hard seltzers, beers and hard ciders 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 Distributor’s attention, time and selling efforts. In retail establishments, the Company competes for shelf, cold box and tap space. From a drinker perspective, competition exists for brand acceptance and loyalty. The principal factors of competition in the market for High End beer occasions include product quality and taste, brand advertising and imagery, trade and drinker promotions, pricing, packaging and the development of innovative new products.
The Company distributes its products through independent Distributors who also distribute competitors’ products. Certain brewers have contracts with their Distributors that impose requirements on the Distributors that are intended to maximize the Distributors’ attention, time and selling efforts on that brewer’s 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 local and 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.
Regulation and Taxation
The alcoholic beverage industry is regulated by federal, state and local governments. These regulations govern the production, sale and distribution of alcoholic beverages, including permitting, licensing, marketing and advertising. To operate its production facilities, the Company must obtain and maintain numerous permits, licenses and approvals from various governmental agencies, including but not limited to, the Alcohol and Tobacco Tax and Trade Bureau (the “TTB”), the Food and Drug Administration, state alcohol regulatory agencies and state and federal environmental agencies.
Governmental entities may levy various taxes, license fees and other similar charges and may require bonds to ensure compliance with applicable laws and regulations. Beginning in 2018, as a result of the “Tax Cuts and Jobs Act”, the Company’s federal excise tax rate on beerhard seltzer and hard seltzerbeer is $16 per barrel on all barrels below 6 million barrels produced annually. The top tier rate on hard cider (with alcohol by volume of 8.5% or less) is $0.226 per gallon, on hard cider (with
Trademarks
The Company has obtained trademark registrations with the United States Patent and Trademark Office for over 450400 trademarks, including Samuel Adams
Environmental, Health and Safety Regulations and Operating Considerations
The Company’s operations are subject to a variety of extensive and changing federal, state and local environmental and occupational health and safety laws, regulations and ordinances that govern activities or operations that may have adverse effects on human health or the environment. Environmental laws, regulations or ordinances may impose liability for the cost
of remediation of, 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 Company’s financial condition or results of operations.
As part of its efforts to be environmentally friendly,responsible, the Company has adopted a number of practices designed to improve recycling, and reduce waste reduction, and utilities consumption at its breweries. The Company also continues to reuse 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, 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 its current used glass practices.
The Company has adopted various policies and procedures intended to ensure that its facilities meet occupational health and safety requirements. The Company believes that it currently is in compliance with applicable requirements and will continue to endeavor to remain in compliance. There can be no assurances, however, that new and more restrictive requirements might not be adopted, compliance with which might have a material, adverse financial effect on the Company and its operating results, or that such policies and procedures will be consistently followed and be sufficient to prevent serious accidents.
Human Capital Resources
As of December 28, 2019,26, 2020, the Company employed 2,128 people,had 2,423 employees, of which 8187 were coveredrepresented by collective bargaining agreements atunions or similar organizations. The Company’s Executive Leadership Team (“ELT”) is comprised of our CEO and his six direct reports who collectively have management responsibility for our primary business areas, including but not limited to brewing, supply chain operations, sales, marketing, finance, and people and culture. The Company’s Board of Directors and the Cincinnati Brewery. ELT believe that succession planning, talent management, culture, and diversity, equity, and inclusion are critical to the Company’s continued success.
Succession Planning and Talent Management
The collective bargaining agreements involve three labor
Culture
The ELT discusses culture with its employees and the Board of Directors on a good working relationshipregular basis. The Company is continuously focused on developing an inclusive and respectful work environment where all employees at every level should feel empowered to honestly “discuss the undiscussables” with other employees at any level, all three labor unionsthe way up to the Chairman and the CEO, without fear of retribution or retaliation. The Chairman teaches this philosophy during orientation to all new employees, and each company-wide meeting has no reasontime set aside to believediscuss the undiscussables. Additionally, each year the Board meets with a set of key senior managers, without the ELT present, so that the good working relationship will not continue. Board may seek direct feedback on the Company, its practices, culture, and employee benefits and programs.
The Company has experienced no work stoppagesalso fosters a culture of ongoing training and education. Some examples of trainings provided to employees include New Employee Orientation, Respectful and Effective Communications, Leading the Boston Beer Company Way, Selling Skills, Negotiations, and Building Brands. Employees also receive beer and cider education training during New Employee Orientation. Then, after having been with the Company for one year, employees are encouraged to participate in further beer and cider education courses where they can train to be certified as industry experts in those areas. The Company believes that it has the most beer industry experts, called “Certified Cicerones,” in the beer industry.
In October 2020, the Company rolled out a formal mentoring and leadership program to connect dozens of senior and junior employees across a range of backgrounds with the purpose of diversifying perspectives, building networks, developing capabilities, growing competencies, and cultivating leadership.
The Company also regularly conducts internal engagement surveys of its employee relationsbase to help ensure that it is maintaining its culture. In 2020, over 72% of employees participated in the survey, which resulted in high scores in response to the
questions related to pride in working for the Company, believing in the Company’s values, the Company’s concern for employee safety, confidence in the future of the Company, and pride in the Company’s handling of the COVID-19 pandemic.
Diversity, Equity, and Inclusion
As an equal opportunity employer, the Company is committed to creating an inclusive and diverse work environment that promotes equal opportunity, dignity, and respect for all and increases diverse representation in leadership roles. The Company is focused on expanding the diverse perspectives of its employee base, which is critical to continued success. Over the past two years, the Company has taken numerous steps in furtherance of this goal:
• | Every employee of the Company is required to undergo extensive unconscious bias training. |
• | Diversity was an area of discussion at our National Company Meetings. |
• | The Company created an Employee Resource Group platform designed to provide an outlet for employees to come together around shared life experiences and provide a safe place to foster inclusivity and connection. As of 2020, the Company had six employee resource groups focused in the areas of diversity and inclusion, LGBTQIA+, working parents, veterans, drug and alcohol support, and sustainability. |
• | Diversity was the sole focus of our annual “Action Learning Project” in 2019, where a cross-functional group of high-potential employees is formed annually to tackle an issue of vital importance to the Company. The Action Learning Project Group met every week for over ten months, identifying potential solutions to improve diversity across the Company. The group presented its findings and proposed solutions to the Executive Leadership Team and a leadership group consisting of the Company’s key senior managers in late 2019. |
• | In early 2020, the “Action Learning Project” project evolved into the creation of a Diversity & Inclusion Committee. The goal of the committee is to continue to advance the efforts of fostering open dialogue about diversity, equity, and inclusion, maintaining a culture that values everyone, regardless of their identity, and ensuring everyone at the Company is treated with dignity and respect. The Committee held monthly forum meetings over the course of 2020 open to all employees. |
• | In early 2021, the Diversity & Inclusion Committee collaborated with the Company’s Talent Acquisition team to work on expanding the diversity of the employee candidate pipeline. Those efforts included auditing college and university partners, researching and reaching out to historically black colleges and Hispanic serving institutes, and focusing efforts on diverse recruiting and job board sites. |
• | The Company sponsored a seminar series to bring guest speakers and experts across multiple facets of diversity and inclusion to speak to employees and business partners. |
• | The Company established long-term relationships with the NAACP, Civic Alliance, and GLAAD to further our knowledge and support of issues facing black, brown, and LGTBQIA+ communities. |
• | The Company participated in the #StopHateForProfit boycott that asked companies to halt spending advertising funds with certain social media platforms, with the purpose of encouraging those platforms to increase the monitoring and regulation of hate, racism, and disinformation by users. |
• | In 2020, the Company appointed an employee to the newly-created full-time position of Diversity, Equity & Inclusion Leader to spearhead the Company’s diversity and inclusion efforts. The position also serves as a member of the Company’s newly-created Social Impact Team. |
• | In 2020 the Company formed a multi-cultural task force, comprised of a cross-functional group of employees, to analyze and support the evolving makeup and needs of the Company’s consumer base. Over the course of year, the Company leveraged its brands as external platforms to amplify these values and support diverse causes. |
As of December 26, 2020, 2 of the 9 members of the Board of Directors were female and 1 of 9 self-identified as part of an underrepresented minority group; 3 of 11 Executive Officers were female and 1 of 11 self-identified as part of an underrepresented minority group. Across the Company’s broader professional population, approximately 34.5% are good.female and 16.6% self-identified as part of an underrepresented minority group. In 2020, approximately 41.8% of new hires were female and 19.8% identified as an underrepresented minority group, both of which were improvements over 2019.
Corporate Social Responsibility
The Company’s core philanthropic initiative is Samuel Adams Brewing the American Dream®. In partnership with ACCION, one of the nation’s largest non-profit micro-lenders, the program supports small business owners in the food, beverage, and
brewing industries through access to business capital, coaching, and new market opportunities. The goal is to help strengthen small businesses, create local jobs and build vibrant communities. Since the inception of the Samuel Adams Brewing the American Dream program in 2008, the Company and ACCION have worked together to loan more than $64 million to more than 3,200 small business owners who have subsequently repaid these loans at a rate of more than 95%. The loan repayments received are reinvested into the program. Boston Beer employees, together with local business partners and community organizations, have provided coaching and mentoring to more than 12,000 business owners across the country. These efforts have helped to create or maintain more than 9,000 local jobs.
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
Item 1A. | Risk Factors |
In addition to the other information in this Annual Report on Form
Risks Related to the COVID-19 Pandemic
The Global COVID-19 Pandemic Has Disrupted the Company’s Business and the Company’s Financial Condition and Operating Results Have Been and Are Expected To Continue to be Affected by the Outbreak and Its Effects.
The Company’s operations and business have been negatively affected and could continue to be materially and adversely affected by the COVID-19 pandemic and related weak, or weakening of, economic or other conditions, particularly in the United States where the Company derives most of its revenue and profit, but also in Europe, where some of the Company’s ingredient suppliers are located. National, state and local governments have responded to the COVID-19 pandemic in a variety of ways, including, without limitation, by declaring states of emergency, restricting people from gathering in groups or interacting within a certain physical distance (i.e., social distancing), and in certain cases, ordering businesses to close or limit operations or people to stay at home. Although the Company has been permitted to continue to operate its breweries in all of the jurisdictions in which it operates, there is no assurance that the Company will be permitted to operate these facilities under every future government order or other restriction and in every location or that the third-party breweries on which the Company relies for production will similarly be permitted to continue to operate. In particular, any limitations on, or closures of, the Company’s Pennsylvania, Cincinnati or Milton breweries or its third-party breweries, could have a material adverse impact on the Company’s ability to manufacture products and service customers and could have a material adverse impact on the Company’s business, financial condition and results of operations.
During the fifty-two weeks ended December 26, 2020, the principal impacts of the global COVID-19 pandemic were a significant reduction in keg demand from the on-premise channel and higher labor and safety related costs at Company-owned breweries. The Company expects to continue to be impacted as the situation remains dynamic and subject to rapid and possibly material change. Continued or additional disruptions to the Company’s business and potential associated impacts to the Company’s financial condition and results of operations include, but are not limited to:
• | reduced demand for the Company’s products, due to adverse and uncertain economic conditions, such as increased unemployment, a prolonged downturn in economic growth and other financial hardships, or a decline in consumer confidence, as a result of health concerns; |
• | unpredictable drinker behaviors and reduced demand for the Company’s products, due to on-premise closures, government quarantines and other restrictions on social gatherings; |
• | inability to manufacture and ship the Company’s products in quantities necessary to meet drinker demand and achieve planned shipment and depletion targets, due to disruptions at the Company-owned breweries and third-party breweries caused by: |
o | the Company’s inability to maintain a sufficient workforce at Company-owned breweries, due to the health-related effects of COVID-19 and similar staffing issues at third-party breweries; |
o | disruptions at the Company-owned breweries and third-party breweries caused by an inability to maintain a sufficient quantity of essential supplies, such as ingredients and packaging materials, and maintain logistics and other manufacturing and supply chain capabilities necessary for the manufacture and distribution of the Company’s products; |
o | failure of third parties on which the Company relies, including the Company’s packaging and ingredients suppliers, third-party breweries, distributors, and logistics and transportation providers, to continue to meet on a timely basis their obligations to the Company, which may be caused by their own financial or operational difficulties; |
• | potential incremental costs associated with mitigating the effects of the pandemic on the Company’s operations, including increased labor, freight and logistics costs and other expenses; or |
• | significant changes in the conditions in markets in which the Company produces, sells or distributes Company products, including prolonged or additional quarantines, governmental and regulatory actions, closures or other restrictions that limit or close the Company’s operating and manufacturing facilities, restrict the ability of the Company’s employees to perform necessary business functions, restrict or prevent consumers access to the Company products, or otherwise prevent the Company’s third-parties from sufficiently staffing operations, including operations necessary for the production, distribution, sale and support of Company products. |
These impacts could place limitations on the Company’s ability to operate effectively and could have a material and adverse effect on the Company’s operations, financial condition and operating results. The Company has implemented policies and procedures at its Company-owned breweries to address potential risks, including entrance screening and temperature checks, face mask requirements, reorganizing work to increase social distancing between and among shifts, and adding two hours of workspace cleaning per shift. As the situation continues to evolve and more information and guidance becomes available, the Company may adjust its current policies and procedures, so as to address the rapidly changing variables related to the pandemic. Additional impacts may arise, of which the Company is not currently aware. The nature and extent of such impacts will depend on future developments, which are highly uncertain and cannot be predicted.
Risks Associated with Our Industry
The Company Faces Substantial Competition.
The market for High End beer occasions within the United States is highly competitive, due to the introduction and expansion of hard seltzer brands, increasing number of domestic and international beverage companies with similar pricing and target drinkers, gains in market share achieved by domestic specialty beers and imported beers, the acquisition of craft brewers by larger brewers and the introduction and expansion of hard seltzers.brewers. Some of the largest of these competitors include AB InBev, Molson Coors, Constellation, Heineken and Mark Anthony Brands as they acquire craft brewers or introduce new domestic specialty brands and hard seltzers to many markets and expand their efforts behind existing brands.brands and acquire craft brewers. Imported beers, such as Corona
The Company’s products 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, cold box and tap space in retail establishments and for marketing focus by the Company’s Distributors and their customers, all of which also distribute and sell other hard seltzers, beers and other alcoholic beverage products. Many of the Company’s competitors, including AB InBev, Molson Coors, Constellation, Heineken and ConstellationMark Anthony Brands, 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 Company’s products or that diminish the importance of
Further, the beer industry has seen continued consolidation among brewers in order to take advantage of cost savings opportunities for supplies, distribution and operations. Illustrative of this consolidation is AB InBev’s $107 billion purchase of SAB Miller and the related sale by SAB Miller to Molson Coors of its 58% share of the MillerCoors joint venture with Molson Coors, as well as Heineken’s acquisition of Lagunitas Brewing Company for approximately $1 billion. Also, in the last fewseveral years, both AB InBev and Molson Coors have introduced numerous new hard seltzers and purchased multiple regional craft breweries with the intention to expand the capacity and distribution of these breweries. Due to the increased leverage that these combined operations will have in distribution and sales and marketing expenses, the costs to the Company of competing could increase. The potential also exists for these large competitors to increase their influence with their Distributors, making it difficult for smaller brewers to maintain their market presence or enter new markets. The continuing consolidation could also reduce the contract brewing capacity that is available to the Company. These potential increases in the number and availability of competing brands, the costs to compete, reductions in contract brewing capacity and decreases in distribution support and opportunities may have a material adverse effect on the Company’s business and financial results.
Changes in Public Attitudes and Drinker Tastes Could Harm the Company’s Business. Regulatory Changes in Response to Public Attitudes Could Adversely Affect the Company’s Business.
The alcoholic beverage industry has been the subject of considerable societal and political attention for several years, due to public concern over alcohol-related social problems, including driving under the influence, 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 the market for High End beer occasions, has experienced a 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 hard seltzers and beers, health and wellness trends and increased competition from wine and spirits companies. If consumption of the Company’s products in general were to come into disfavor among domestic drinkers, or if the domestic beer industry were subjected to significant additional societal pressure or governmental regulations, the Company’s business could be materially adversely affected.
Certain states are considering or have passed laws and regulations that allow the sale and distribution of marijuana. Currently it is not possible to predict the impact of this on sales of alcohol, but it is possible that legal marijuana usage could adversely impact the demand for the Company’s products.
The Company Is Dependent on Its Distributors.
In the United States, where approximately 96% of its beer is sold, the Company sells most of its alcohol beverages to independent beer Distributors for distribution to retailers and, ultimately, to drinkers. Although the Company currently has arrangements with over 400 Distributors, sustained growth will require it to maintain such relationships and possibly enter into agreements with additional Distributors. Changes in control or ownership within the current distribution network could lead to less support of the Company’s products.
Contributing to distribution risk is the fact that the Company’s distribution agreements are generally terminable by the Distributor on relatively short notice. While these distribution agreements contain provisions giving the Company enforcement and termination rights, some state laws prohibit the Company from exercising these contractual rights. The Company’s ability to maintain its existing distribution arrangements 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 Company’s 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.
No assurance can be given that the Company will be able to maintain its current distribution network or secure additional Distributors on terms not less favorable to the Company than its current arrangements.
Risks Related to Our Business and Operations
There Is No Assurance of Continued Growth andor that the Company Can Adapt to the Challenges of the Changing Competitive Environment.
From 2015 to 2017, the Company experienced a decline in the demand for its products, as craft beer growth rates slowed and the hard cider category declined. InFrom 2018 and 2019,to 2020, the Company experienced increases in demand for its products, driven by growth in its Truly and Twisted Tea brands, and grew 13%, 22% and 22% respectively37% in depletion volume compared to prior years.for 2018, 2019 and 2020, respectively. The Company is targeting shipment and depletion volume growth of between 15%35% and 25%45% in 2020.2021. The Company’s ability to sustain double digit growth trends may be affected by an increasing number of competitors and markets where drinker interest is primarily in new or local products, rather than national brands.competing beverages. The development of new products by the Company to meet these challenges may lead to reduced sales of the Company’s existing brands and there is no guarantee that these new product initiatives will generate stable long term volume. Additionally, changes in the use of media and technology are changing the economics of how to market brands to drinkers and may be diminishing the traditional competitive advantage the Company may have had in buying national media relative to smaller brands. While the Company believes that a combination of innovation, new brand messaging and exploration of new media, and increased investment and sales execution can lead to increased demand, there is no guarantee that the Company’s actions will be successful in maintaining the Company’s historical levels of profitability. Reduced sales, among other factors, could lead to lower brewery utilization, lower funds available to invest in brand support and reduced profitability, and these challenges may require a different mix and level of marketing investments to stabilize and grow volumes. A lower growth environment or periods of sales declines will present challenges for the Company to motivate and retain employees, and to maintain the current levels of distributor and retailer support of its brands, it’s current brand investment levels, and current returns to shareholders, and could potentially require a review of long term organization and brewery needs. Currently, the Company believes it can continue to grow in 20202021 and in future years but there is no guarantee it will be successful.
The Company May Not Be Able to Increase Supply to Meet the Increased Demand for Its Products.
Since 2017, demand for the Company’s products has grown significantly and the Company currently estimates depletion growth in 2021 to be between 35% and 45%. These estimated increases would result in 2021 depletion volume at over 2.5 times 2017 volumes.
As demand for its products has grown, the Company has faced increasing challenges in meeting that demand. The challenges have been both production constraints, primarily resulting from canning and variety pack capacity limitations, and can supply constraints. The Company has also become more reliant on third party-owned breweries, particularly City Brewing Company, LLC, to meet demand as the percentage of its volume produced at Company owned breweries has decreased from over 90% in 2017 to approximately 65% in 2020, with a further decrease anticipated in 2021. The Company’s reliance on production at City Brewing Company, LLC to meet demand has grown from 23% of the Company’s total production volume in 2019 to 33% in 2020.
The Company’s ability to grow and continue to meet increasing consumer demand will be affected by
• | its ability to meet production goals and/or targets at the Company’s owned breweries and third party-owned breweries; |
• | its ability to enter into new brewing contracts with third party-owned breweries on commercially acceptable terms; |
• | disruption or other operating performance issues at the Company’s owned breweries or limits on the availability of suitable production capacity at third party-owned breweries; and |
• | its ability to obtain sufficient quantities of certain packaging materials and ingredients, such as cans, flavorings, cardboard wraps and glass bottles, from suppliers. |
The Company’s Advertising and Promotional Investments May Affect the Company’s Financial Results but Not beBe Effective.
The Company has incurred,made and expects to continue to incur,make, significant advertising and promotional expenditures to enhance its brands. These expenditures may adversely affect the Company’s results of operations in a particular quarter or even for the full year, and may not result in increased sales. 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 Company’s quarterly results of
operations. While the Company attempts to invest only in effective advertising and promotional activities, it is difficult to correlate such investments with sales results, and there is no guarantee that the Company’s expenditures will be effective in building brand equity or growing long term sales.
The Company is Dependent on Key Packaging Suppliers and an Increase in Public Attitudes and Drinker TastesPackaging Costs Could Harm the Company’s Business. Regulatory ChangesFinancial Results.
The demand for packaging materials in Response to Public Attitudes Could Adversely Affect the Company’s Business.
The Company maintains competitive sources for the supply of packaging materials, such as cans, glass, cardboard wraps and shipping cases. The Company enters into limited-term supply agreements with certain vendors in shipments overorder to receive preferential pricing. In 2020, crowns and labels were each supplied by single sources. Although the last ten years. The Company believes that this decline is due to declining alcohol consumption per person inalternative suppliers are available, the population, drinkers trading up to drink high quality, more flavorful beers, health and wellness trends and increased competition from wine and spirits companies. If consumptionloss of any of the Company’s productspackaging materials suppliers could, in generalthe short-term, adversely affect the Company’s results of operations, cash flows and financial position until alternative supply arrangements were secured. Additionally, there has been acquisition, change in control and consolidation activity in several of the packaging supplier networks which could potentially lead to further disruption in supply and changes in economics. If packaging costs continue to increase, there is no guarantee that such costs can be fully passed along 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 lengths and terms and there is no guarantee that the economics of these contracts can be replicated when renewed. The Company’s inability to preserve the current economics on renewal could expose the Company to significant cost increases in future years. Some of these contracts require the Company to make commitments on minimum volume of purchases based on Company forecasts. If the Company's needs differ significantly from its forecasts, the Company would likely incur storage costs for excess production or contractual penalties that might be significant to Company financial results.
Impact of Reliance on Company-Owned Production Facilities, Reduced Availability of Breweries Owned by Others, and Inability to Leverage Investment in the Company-Owned Breweries Could Have a Material Adverse Effect on the Company’s Operations or Financial Results.
During 2020, the Company brewed, fermented and packaged approximately 65% of its volume at breweries owned by the Company. This reliance on its own breweries exposes the Company to capacity constraints and risk of disruption of supply, as these breweries are operating at or close to current capacity in peak months. Management believes that it has alternatives available to it, in the event that production at any of its brewing locations is temporarily interrupted, although as volumes at the Pennsylvania Brewery increase, severe interruptions there would be problematic, particularly during peak seasons. In addition, if interruptions were to come into disfavor among domestic drinkers, or if the domestic beer industry were subjected to significant additional societal pressure or governmental regulations, the Company’s business could be materially adversely affected.
The Company’s Recent Acquisition of Dogfish Head Involves a Number of Risks, the Occurrence of Which Could Adversely Affect its Business, Financial Condition, and Operating Results.
The Company continues to avail itself of capacity at third-party breweries. During 2020, approximately 33% of the Company’s annual shipment volume was brewed and/or packaged under service agreements with City Brewing Company, LLC. In selecting third party breweries for brewing services arrangements, the Company carefully weighs a brewery’s sleek can packaging and automated variety packaging capability and capacity, its business, liquidity, financial condition or resultsquality control capabilities throughout the production process and its ability to utilize traditional brewing, fermenting and finishing methods. To the extent that the Company needs to avail itself of operations.
As the beer industry continues to consolidate and the Company has grown, the capacity and willingness of breweries owned by others where the Company could brew, ferment or package some of its products, if necessary, has become a more significant concern and, thus, there is also no guarantee that the brand equities thatCompany’s needs will be uniformly met. The Company continues to work at its Company-owned breweries and with its third-party brewers to attempt to minimize any potential disruptions. Nevertheless, should an interruption occur, the Company has builtcould experience temporary shortfalls in itsproduction and/or increased production and/or distribution costs and be required to make significant capital investments to secure alternative capacity for certain brands will continue to appeal to drinkers. Changes in drinker attitudesand packages, the combination of which could have a material adverse effect on the Company’s business and financial results. A production interruption caused by an acquisition or demands,change of control of City Brewing or competitor activity and promotion, could adversely affect the strengtha simultaneous interruption at several of the Company’s brandsproduction locations would likely cause significant disruption, increased costs and, potentially, lost sales.
The Company’s emphasis on owning production facilities requires it to continue to make a significant level of capital expenditure to maintain and improve these facilities and to incur significant fixed operating costs to support them. In an uncertain volume environment, the revenue that is generated from that strength. It is possible thatCompany faces the risk of not being able to support the owned brewery operating costs, if volumes were to decline. At the same time, despite making these expenditures and incurring these costs, if demand were to further increase above current volume estimates, the Company could reactstill face the risk of not being able to such changesmeet the increased demand.
The Company attempts to mitigate production and reposition its brands,distribution risks through a combination of owned breweries and access to third-party contract facilities, but there is no certaintyguarantee that the Company would be able to maintain volumes, pricing powerthis strategy is optimal, and profitability. It is also possible that marketing messages or other actions taken by the Company could damage its brand equities, as opposed to building them. If such damage were to occur, it would likely have a negative effect on the financial condition of the Company.
Turnover in Company Leadership or Other Key Positions May Lead to Loss of Key Knowledge or Capability and Adversely Impact Company Performance.
The Company has an experienced leadership team with an established track record of business success and innovation in the Company’s then Presidentbeverage and Chief Executive Officer, Martin Roper, announced his plans to retire in 2018 after leading the Company for more than 17 years. In the second quarter of 2018,consumer goods industries. Dave Burwick joined as President and Chief Executive Officer.Officer in 2018. Prior to commencing that role, Mr. Burwick had an established track record of innovation and business success in the beverage and consumer goods industries and had served on Boston Beer’s Board of Directors since 2005. His most recent role was Chief Executive Officer of Peet’s Coffee and prior to joining Peet’s, Mr. Burwick served as President of North America for Weight Watchers and in numerous leadership roles over 20 years at PepsiCo, including Chief Marketing Officer of Pepsi-Cola North America. The Company may well experience further changes in key leadership or key positions in the future. The departure of key leadership personnel, especially a Chief Executive Officer, can take from the Company significant knowledge and experience. This loss of knowledge and experience can be mitigated through successful hiring and transition, but there can be no assurance that the Company will be successful in such efforts. Attracting, retaining, integrating and developing high performance individuals in key roles is a core component of the Company’s strategy for addressing its business opportunities. Attracting and retaining qualified senior leadership may be more challenging under adverse business conditions, such as the declining growth environment that faced the Company in prior years. Failure to attract and retain the right talent, or to manage the transition of responsibilities resulting from such turnover smoothly, would affect the Company’sCompany's ability to meet its challenges and may cause the Company to miss performance objectives or financial targets.
The Company has Significantly Increased its Product Offerings and Distribution Footprint, which Increases Complexity and Could Adversely Affect the Company’s Performance and Financial Results.
The Company has significantly increased the number of commercially available beers, hard seltzers, beers, and hard ciders that it produces. In the last five years, the Company has introduced many new beers, hard seltzers, beers, and hard ciders under the Samuel Adams, Twisted Tea, Truly Hard Seltzer, Twisted Tea, Samuel Adams, and Angry Orchard and three A&S Brewing brands. In early 2019, the Company introduced new brands including Wild Leaf Hard Tea, a craft hard tea, and Tura Alcoholic Kombucha, an alcoholic kombucha tea. In July 2019, the addition of the Dogfish Head brand
added over 25 styles of beer, 15 styles of distilled spirits, two brewery tap rooms, a restaurant, and a boutique Inn. In January 2020, the Company opened the Samuel Adams Tap Room and small brewery in downtown Boston. The Company currently operates 10 retail locations, including eight brewery tap rooms, a cidery tasting room and a restaurant, where its beers, hard seltzers, hard ciders and distilled spirits are sold and consumed and operating inefficiencies, supply shortages or control deficiencies. Such inefficiencies or deficiencies could have a material adverse effect on the Company’s business and financial results.
The Company’s Acquisition of Reliance on Company-Owned Production Facilities, Reduced AvailabilityDogfish Head Involves a Number of Breweries Owned by Others,Risks, the Occurrence of Which Could Adversely Affect Its Business, Financial Condition, and Inability to Leverage Investment in the Company-Owned Breweries Could Have A Material Adverse Effect on the Company’s Operations or FinancialOperating Results.
On July 3, 2019, the Company brewed, fermentedcompleted its acquisition of Dogfish Head Brewery and packaged approximately 74%various related operations, through the acquisition of its volume at breweries ownedall of the equity interests held by certain private entities in Off-Centered Way LLC, the Company. The Company expectsparent holding company of the Dogfish Head Brewery operations. This transaction continues to continue to produceinvolve certain risks, the majorityoccurrence of its domestic volume in 2020 at its Company-owned breweries. This reliance on its own breweries exposes the Company to capacity constraintswhich could materially and risk of disruption of supply, as these breweries are operating at or close to current capacity in peak months. Management believes that it has alternatives available to it, in the event that production at any of its
• | potential loss of key Dogfish Head employees, suppliers, distributors and drinkers or other adverse effects on existing business relationships with suppliers, distributors and drinkers; |
• | potential inability to fully integrate Dogfish Head’s Distributors into the Company’s existing wholesaler network |
• | adverse impact on overall profitability, if the Company’s expanded operations do not achieve the growth prospects, net revenues, earnings, cost or revenue synergies, or other financial results projected in the Company’s valuation models, or delays in the realization thereof; |
• | inaccurate assessment of undisclosed, contingent or other liabilities of the acquired operations, unanticipated costs associated with the transaction; and |
• | the potential future write-off of significant amounts of goodwill, intangible assets and/or other tangible assets if the Dogfish Head business does not perform in the future as expected, or other potential financial accounting or reporting impacts |
The Company cannot assure that it will realize the Company’s reliance on its owned breweries heightenexpected benefits of the management challenges that the Company faces. In recent years, the Company has had product shortages and service issues.Dogfish Head transaction. The Company’s supply chain struggled underfailure to adequately manage the increased volume and experienced increased operational and freight costs as it reacted. In response to these issues,risks associated with the Company has significantly increased its packaging capabilities and tank capacity and added personnel to address these challenges. There can be no assurance that the Company will effectively manage such increasing complexity without experiencing future planning failures, operating inefficiencies, insufficient employee training, control deficiencies or other issues thattransaction could have a material adverse effect on the Company’sits business, liquidity, financial condition or results of operations.
Changes in Drinker Attitudes on Brand Equity and financial results. The prior growth of the Company, changes in operating procedures and increased complexity have required significant capital investment. To date, the Company on an overall basis has not seen operating cost leverage from these investments and there is no guarantee that it will.
The success of our brands depends upon the beer industry continuespositive image that drinkers have of those brands and maintaining a good reputation is critical to consolidate and the Company has grown, the capacity and willingness of breweries ownedselling our branded products. Our reputation could be impacted negatively by others where the Company could brew, fermentpublic perception, adverse publicity, negative comments in social media, or package some of its products, if necessary, has become a more significant concern and, thus, thereour responses to negative publicity or comments. There is also 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, or competitor activity and promotion, could adversely affect the strength of the Company’s needs will be uniformly met. The Company continues to work at its Company-owned breweriesbrands and with its contract brewers to attempt to minimize any potential disruptions. Nevertheless, should an interruption occur,the revenue that is generated from that strength. It is possible that the Company could experience temporary shortfalls in production and/or increased production and/or distribution costsreact to such changes and be required to make significant capital investments to secure alternative capacity for certainreposition its brands, and packages, the combination of which could have a material adverse effect on the Company’s business and financial results. A simultaneous interruption at several of the Company’s production locations or an unexpected interruption at one of the Company-owned breweries would likely cause significant disruption, increased costs and, potentially, lost sales.
In addition to these inherent brand risks, C. James Koch, the founder and Chairman of the Company, as well as the founders of Dogfish Head brand, Samuel Calagione, Founder and Brewer, Dogfish Head Brewery and Mariah Calagione, Founder and Communitarian, Dogfish Head Brewery are an integral part of the Company’s history, equity and current and potential future brand messaging and the Company relies on the positive public perception of these founders. The role of these founders as founders, brewers and leaders of the Company is emphasized as part of the Company’s brand communication and has appeal to some drinkers. If these founders were not available to the Company to continue their active roles, their absence could
negatively affect the strength of the Company’s messaging and, accordingly, the Company’s growth prospects. The Company and its brands may also be impacted if drinkers’ perceptions of these founders including their social or political views, were to change negatively. If any negative changes were to occur, the Company might need to adapt its strategy is optimal,for communicating its key messages regarding its history, equity and itcurrent and potential future brand messaging. Any such change in the Company’s messaging strategy might result in short term costs and inefficiencies.
The Company is Dependent on Key Ingredient Suppliers, Including Foreign Sources; Its Dependence on Foreign Sources Creates Foreign Currency Exposure for the Company; The Company’s Use of Natural Ingredients Creates Weather and Crop Reliability and Excess/Shortage Inventory Exposure for the Company.
The Company purchases a substantial portion of the raw materialsingredients used in the brewing of its products,hard seltzers, beers and hard ciders, including its flavorings, malt, hops, apples and other ingredients, from a limited number of foreign and domestic suppliers. The Company purchased most of the malt used in the production of its beer from two suppliers during 2019. Nevertheless, the Company believes that there are other malt vendors available that are capable of supplying part of its needs. The Company is exposed to the quality of the barley crop each year, and significant failure of a crop would adversely affect the Company’s costs.
The Companies hard seltzers, beers and hard ciders include many unique and proprietary flavors and combinations of flavors and some of these flavorings are single sourced. Truly Hard Seltzer and Twisted Tea brand beverages are particularly reliant on the use of flavorings and variety of flavors as part of their appeal to drinkers.
The Company purchased most of the malt used in the production of its beer from four suppliers during 2020. Nevertheless, the Company believes that there are other malt vendors available that are capable of supplying part of its needs. The Company is exposed to the quality of the barley crop each year, and significant failure of a crop would adversely affect the Company’s costs.
The Company uses Noble hop varieties from Europe for many of its Samuel Adams beers and also uses hops grown in the other areas of Europe, and in the United States, England and New Zealand. Noble hops are grown in several specific areas in Germany and the Czech Republic and are recognized for growing hops with superior taste and aroma properties. The Company stores its hops in multiple cold storage warehouses to minimize the impact of a catastrophe at a single site. The performance and availability of the hops, as with any agricultural product, may be materially adversely affected by factors such as adverse weather or pests and there is no guarantee the contracts will be fulfilled completely. The Company enters into purchase commitments with nine primary hop dealers and attempts to maintain a one to two-year supply of essential hop varieties on-hand in order to limit the risk of an unexpected reduction in supply and procures hops needed for new beers, based on its best estimate of likely short-term demand. Variations in management’s assumptions regarding future sales growth, product mix and hops market conditions could result in future material losses.
The Company uses special varieties of apples in its ciders that it believes are important for the ciders’ flavor profile. These apples are sourced primarily from European and United States suppliers and include bittersweet apples from France and culinary apples from Italy and Washington state. There is limited availability of these apples and many outside factors, including weather conditions, farmers rotating from apples to other crops, government regulations and legislation affecting agriculture, could affect both price and supply.
The Company’s new product development can also be constrained by any limited availability of certain ingredients. Growth rates higher than planned or the introduction of new products requiring special ingredients could create demand for ingredients greater than the Company can source.
The Company’s contracts for certain hops and apples are payable in Euros, Pounds Sterling and New Zealand dollars, and therefore, the Company is subject to the risk that the Euro, Pound or New Zealand dollar may fluctuate adversely against the U.S. dollar. The Company has, as a practice, not hedged this exposure, although this practice is regularly reviewed. Significant adverse fluctuations in foreign currency exchange rates may have a material adverse effect on the Company’s business and financial results. The cost of hops has increased in recent years due to the rising market price of hops and exchange rate changes. The continuation of these trends will impact the Company’s product cost and potentially the Company’s ability to meet the demand for its beers. The Company buys some other ingredients and capital equipment from foreign suppliers for which the Company also carries exposure to foreign exchange rate changes.
The Company’s Operations are Subject to Certain Operating Hazards Which Could Result in Unexpected Costs or Product Recalls That Could Harm the Company’s Business.
The Company’s 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, or defective packaging and handling. Such occurrences may create bad tasting beer, hard seltzer, beer or hard ciders, or pose health risk to the consumer or risk to the integrity and safety of the packaging. These could result in unexpected costs to the Company and, in the case of a costly product recall, potentially serious damage to the Company’s reputation for product quality, as well as product liability claims.
The Company Relies Upon Complex Information Systems
The Company depends on information technology to be able to operate efficiently and interface with customers and suppliers, as well as maintain financial and accounting reporting accuracy to ensure compliance with all applicable laws. If the Company does not allocate and effectively manage the resources necessary to build and sustain the proper technology infrastructure, the Company could be subject to transaction errors, processing inefficiencies, the loss of customers, business disruptions, or the loss of or damage to intellectual property through security breach. The Company recognizes that many groups on a world-wide basis have experienced increases in security breaches, cyber-attacks, and other hacking activity.activities such as denial of service, malware, and ransomware. The Company has dedicated internal and external resources to review and address such threats. However, as with all large information technology systems, the Company’s systems could be penetrated by outside parties intent on extracting confidential or proprietary information, corrupting information, disrupting business processes, or engaging in the unauthorized use of strategic information. Such unauthorized access could disrupt business operations and could result in the loss of assets or revenues, remediation costs or damage to the Company’s reputation, as well as litigation against the Company by third parties adversely affected by the unauthorized access. Such events could have a material adverse effect on the Company’s business and financial results. The Company also relies on third parties for supply of software, software and data hosting and telecommunications and networking, and is reliant on those third parties for the quality and integrity of these complex services. Failure by a third party supplier could have material adverse effects on the Company’s ability to operate.
An Increase in Energy Costs Could Harm the Company’s Financial Results.
In the last five years, the Company has experienced significant variation in direct and indirect energy costs, and energy costs could change unpredictably. Increased energy costs would result in higher transportation, freight and other operating costs, including increases in the cost of ingredients and supplies. The Company’s future operating expenses and margins could be dependent on its ability to manage the impact of such cost increases. If energy costs increase, there is no guarantee that such costs can be fully passed along through increased prices.
The Class B Shareholder Has Significant Control over the Company
The Company’s Class A Common Stock is not entitled to any voting rights except for the right as a class to (1) approve certain mergers, charter amendments and
Risks Related to Law and Regulations
Changes in Tax, Environmental and Other Regulations, Government Shutdowns or Failure to Comply with Existing Licensing, Trade or Other Regulations Could Have a Material Adverse Effect on the Company’s Financial Condition.
The Company’s business is highly regulated by federal, state and local laws and regulations regarding such matters as licensing requirements, trade and pricing practices, labeling, advertising, promotion and marketing practices, relationships with Distributors, environmental impact of operations and other matters. These laws and regulations are subject to frequent reevaluation, varying interpretations and political debate, and inquiries from governmental regulators charged with their enforcement. In addition, any delays in federal or state government required approvals caused by federal or state government shutdowns, similar to the January 2019 federal government shutdown, could prevent new brands or innovations from getting to market on time or at all. Failure to comply with existing laws and regulations to which the Company’s operations are subject or any revisions to such laws and regulations or the failure to pay taxes or other fees imposed on the Company’s operations and results could result in the loss, revocation or suspension of the Company’s licenses, permits or approvals, and could have a material adverse effect on the Company’s business, financial condition and results of operations. Changes in federal and other tax rates could have a significant effect on the Company’s financial results.
There Is No Guarantee that the Company Will Not Face Litigation that Could Harm the Company’s Business.
While the Company has from time to time in the past been involved in material litigation, it is not currently a party to any pending or threatened litigation, the outcome of which would be expected to have a material adverse effect on its financial condition or the results of its operations. In general, while the Company believes it conducts its business appropriately in accordance with laws, regulations and industry guidelines, claims, whether or not meritorious, could be asserted against the Company that might adversely impact the Company’s results. See Item 3 - Legal Proceedings below.
Risks Related to General Economic Conditions
The Company’s Operating Results and Cash Flow May Be Adversely Affected by Unfavorable Economic, Financial and Societal Market Conditions.
Volatility and uncertainty in the financial markets and economic conditions may directly or indirectly affect the Company’s performance and operating results in a variety of ways, including: (a) prices for energy and agricultural products may rise faster than current estimates, including increases resulting from currency fluctuations; (b) the Company’s key suppliers may not be able to fund their capital requirements, resulting in disruption in the supplies of the Company’s raw and packaging materials; (c) the credit risks of the Company’s Distributors may increase; (d) the impact of currency fluctuations on amounts owed to the Company by distributors that pay in foreign currencies; (e) the Company’s credit facility, or portion thereof, may become unavailable at a time when needed by the Company to meet critical needs; (f) overall beer consumption may decline; or (g) drinkers of the Company’s products may change their purchase preferences and frequency, which might result in sales declines.
Item 1B. | Unresolved Staff Comments |
The Company has not received any written comments from the staff of the Securities and Exchange Commission (the “SEC”) regarding the Company’s periodic or current reports that (1) the Company believes are material,
Item 2. | Properties |
The Company maintains its principal corporate offices in approximately 54,200 square feet of leased space located in Boston, Massachusetts, the term of which is set to expire in 2031.
The Company owns approximately 76 acres of land in Breinigsville, Pennsylvania, consisting of the two parcels on which the Company’s Pennsylvania Brewery is located. The buildings on this property consist of approximately 1 million square feet of brewery and warehouse space.
The Company owns approximately 57 acres of land in Milton, Delaware, consisting of the two parcels on which the Company’s Milton Brewery is located. The buildings on this property consist of approximately 240,000 square feet of brewery and warehouse space.
The Company owns approximately 10 acres of land in Cincinnati, Ohio, on which the Company’s Cincinnati Brewery is located, and leases, with an option to purchase, approximately 1 acre of land from the City of Cincinnati which abuts its property. The buildings on this property consist of approximately 128,500 square feet of brewery and warehouse space.
The Company owns approximately 62 acres of land in Walden, New York, consisting of an apple orchard and certain buildings, including a small cidery, gift shop and tour center. The small cidery, gift shop and tour center on this property consist of approximately 15,000 square feet of space.
The Company owns approximately 1 acre of land in Lewes, Delaware, on which the Company’s Dogfish Head Inn is located. The buildings on this property consists of approximately 8,400 square feet of space.
The Company leases approximately 43,000 square feet of space in Boston, Massachusetts, on which it maintains a Samuel Adams brand tap room and tour center. The current term of the lease for this facility will expire in 2029,2034, although it has an option to extend the term for an additional fifteen years in five yearfive-year increments.
The Company leases approximately 48,650 square feet of space in Los Angeles, California, on which it maintains an Angel City brand tap room, small brewery and tour center. The current term of the lease for this facility will expire in 2021.
The Company leases approximately 11,365 square feet of space in Miami, Florida, on which it maintains a Concrete Beach brand tap room, small brewery and tour center. The current term of the lease for this facility will expire in 2023.
The Company leases approximately 9,000 square feet of space in Boston, Massachusetts, on which it maintains a Samuel Adams brand tap room and small brewery. The current term of the lease for this facility will expire in 2028, although it has two options to extend the term for an additional 5 years.
The Company leases approximately 8,900 square feet of space in Cincinnati, Ohio, on which it maintains a Samuel Adams brand tap room and small brewery. The current term of the lease for this facility will expire in 2028.
The Company leases approximately 7,100 square feet of space within the retail section of MCU Park in Brooklyn, New York on which it maintains a Coney Island brand tap room and small brewery. The current term of the lease for this facility will expire in 2020, although it has an option to extend the term for an additional 5 years.
The Company leases approximately 4,490 square feet of space in Rehoboth, DE, on which it maintains Dogfish Head BrewingBrewings and Eats, a tap room small brewery and the Chesapeake & Maine restaurant. The current term of the lease for this facility will expire in 2029.
The Company also leases a small officeoffices in Burlington, Cincinnati, Vermont and Montreal, Quebec.
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 is currently not a party to any pending or threatened litigation, the outcome of which would be expected to have a material adverse effect on its financial condition or the results of its operations.
Item 4. | Mine Safety Disclosures |
Not Applicable
PART II.
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
The graph set forth below shows the value of an investment of $100 on January 1, 20152016 in each of the Company’s stock (“The Boston Beer Company, Inc.”), the Standard & Poor’s 500 Index (“S&P 500 Index”), and the Standard & Poor’s 500 Beverage Index, which consists of producers of alcoholic and
Total Return To Shareholders
(Includes reinvestment of dividends)
|
| ANNUAL RETURN PERCENTAGE Years Ending |
| |||||||||||||||||
Company Name / Index |
| 12/31/16 |
|
| 12/30/17 |
|
| 12/29/18 |
|
| 12/28/19 |
|
| 12/26/2020 |
| |||||
The Boston Beer Company, Inc. |
|
| (17.31 | ) |
|
| 12.51 |
|
|
| 24.97 |
|
|
| 58.59 |
|
|
| 167.97 |
|
S&P 500 Index |
|
| 11.07 |
|
|
| 21.83 |
|
|
| (5.20 | ) |
|
| 32.97 |
|
|
| 16.40 |
|
S&P 500 Beverages Index |
|
| 1.77 |
|
|
| 18.84 |
|
|
| (3.29 | ) |
|
| 23.99 |
|
|
| 6.56 |
|
|
|
|
|
|
| INDEXED RETURNS Years Ending |
| |||||||||||||||||
Company Name / Index |
| Base Period 12/26/15 |
|
| 12/31/16 |
|
| 12/30/17 |
|
| 12/29/18 |
|
| 12/28/19 |
|
| 12/26/2020 |
| ||||||
The Boston Beer Company, Inc. |
|
| 100 |
|
|
| 82.69 |
|
|
| 93.04 |
|
|
| 116.27 |
|
|
| 184.40 |
|
|
| 494.12 |
|
S&P 500 Index |
|
| 100 |
|
|
| 111.07 |
|
|
| 135.32 |
|
|
| 128.28 |
|
|
| 170.57 |
|
|
| 198.54 |
|
S&P 500 Beverages Index |
|
| 100 |
|
|
| 101.77 |
|
|
| 120.94 |
|
|
| 116.97 |
|
|
| 145.03 |
|
|
| 154.54 |
|
ANNUAL RETURN PERCENTAGE Years Ending | ||||||||||||||||||||
Company Name / Index | 12/26/15 | 12/31/16 | 12/30/17 | 12/29/18 | 12/28/19 | |||||||||||||||
The Boston Beer Company, Inc. | -30.55 | -17.31 | 12.51 | 24.97 | 58.59 | |||||||||||||||
S&P 500 Index | 0.77 | 11.07 | 21.83 | -5.20 | 32.97 | |||||||||||||||
S&P 500 Beverages Index | 10.52 | 1.77 | 18.84 | -3.29 | 23.99 | |||||||||||||||
Peer Group | 25.35 | 6.10 | -13.68 | -30.08 | 0.20 | |||||||||||||||
INDEXED RETURNS Years Ending | ||||||||||||||||||||||||
Company Name / Index | Base Period 12/27/14 | 12/26/15 | 12/31/16 | 12/30/17 | 12/29/18 | 12/28/19 | ||||||||||||||||||
The Boston Beer Company, Inc. | 100 | 69.45 | 57.43 | 64.62 | 80.75 | 128.07 | ||||||||||||||||||
S&P 500 Index | 100 | 100.77 | 111.92 | 136.35 | 129.26 | 171.88 | ||||||||||||||||||
S&P 500 Beverages Index | 100 | 110.52 | 112.48 | 133.67 | 129.27 | 160.29 | ||||||||||||||||||
Peer Group | 100 | 125.35 | 133.00 | 114.81 | 80.27 | 80.43 | ||||||||||||||||||
The Company’s Class A Common Stock is listed for trading on the New York Stock Exchange under the symbol SAM.
There were 8,4777,859 holders of record of the Company’s Class A Common Stock as of February 14, 2020.12, 2021. 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 Company’s Class A Common Stock as of February 14, 2020,12, 2021, as reported under the New York Stock Exchange-Composite Transaction Reporting System, was $408.91.
Class A Common Stock
At December 28, 2019,26, 2020, the Company had 22,700,000 authorized shares of Class A Common Stock with a par value of $.01, of which 9,470,39710,070,649 were issued and outstanding, which includes 99,87165,968 shares that have trading restrictions. 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 Company’s assets.
Class B Common Stock
At December 28, 2019,26, 2020, the Company had 4,200,000 authorized shares of Class B Common Stock with a par value of $.01, of which 2,672,9832,177,983 shares were issued and outstanding. The Class B Common Stock has full
As of February 14, 2020,12, 2021, C. James Koch, the Company’s Chairman, was the direct holder of record of all of the Company’s issued and outstanding Class B Common Stock.
The holders of the Class A and Class B Common Stock are entitled to dividends, on a
Repurchases of the Registrants Class A Common Stock
In 1998, the Board of Directors authorized management to implement a stock repurchase program with a limit of $931.0 million. As of December 28, 2019,26, 2020, the Company has repurchased a cumulative total of approximately 13.8 million shares of its Class A Common Stock for an aggregate purchase price of approximately $840.7 million.
During the twelve months ended December 28, 2019,26, 2020, the Company repurchased 900480 shares of its Class A Common Stock as illustrated in the table below:
Period |
| Total Number of Shares Purchased |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (in thousands) |
| ||||
December 29, 2020 to February 1, 2020 |
|
| 167 |
|
| $ | 132.37 |
|
|
| — |
|
| $ | 90,335 |
|
February 2, 2020 to February 29, 2020 |
|
| - |
|
|
| - |
|
|
| — |
|
|
| 90,335 |
|
March 1, 2020 to March 28, 2020 |
|
| 58 |
|
|
| 105.56 |
|
|
| — |
|
|
| 90,335 |
|
March 29, 2020 to May 2, 2020 |
|
| 59 |
|
|
| 145.01 |
|
|
| — |
|
|
| 90,335 |
|
May 3, 2020 to May 30, 2020 |
|
| - |
|
|
| - |
|
|
| — |
|
|
| 90,335 |
|
May 31, 2020 to June 27, 2020 |
|
| 31 |
|
|
| 187.54 |
|
|
| — |
|
|
| 90,335 |
|
June 28, 2020 to August 1, 2020 |
|
| - |
|
|
| - |
|
|
| — |
|
|
| 90,335 |
|
August 2, 2020 to August 29, 2020 |
|
| 131 |
|
|
| 160.57 |
|
|
| — |
|
|
| 90,335 |
|
August 30, 2020 to September 26, 2020 |
|
| 26 |
|
|
| 187.54 |
|
|
| — |
|
|
| 90,335 |
|
September 27, 2020 to October 31, 2020 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 90,335 |
|
November 1, 2020 to November 28, 2020 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 90,335 |
|
November 29, 2020 to December 26, 2020 |
|
| 8 |
|
|
| 187.54 |
|
|
| — |
|
|
| 90,335 |
|
Total |
|
| 480 |
|
| 145.85 |
|
|
| — |
|
| $ | 90,335 |
| |
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (in thousands) | ||||||||||||
December 30, 2018 to February 2, 2019 | 116 | $ | 127.05 | — | $ | 90,335 | ||||||||||
February 3, 2019 to March 2, 2019 | 219 | 115.78 | — | 90,335 | ||||||||||||
March 3, 2019 to March 30, 2019 | 13 | 187.54 | — | 90,335 | ||||||||||||
March 31, 2019 to May 4, 2019 | 107 | 182.03 | — | 90,335 | ||||||||||||
May 5, 2019 to June 1, 2019 | 79 | 175.67 | — | 90,335 | ||||||||||||
June 2, 2019 to June 29, 2019 | 32 | 187.54 | — | 90,335 | ||||||||||||
June 30, 2019 to August 3, 2019 | 73 | 114.14 | — | 90,335 | ||||||||||||
August 4, 2019 to August 31, 2019 | 261 | 135.26 | — | 90,335 | ||||||||||||
September 1, 2019 to September 28, 2019 | — | — | — | 90,335 | ||||||||||||
September 29, 2019 to November 2, 2019 | — | — | — | 90,335 | ||||||||||||
November 3, 2019 to November 30, 2019 | — | — | — | 90,335 | ||||||||||||
December 1, 2019 to December 28, 2019 | — | — | — | 90,335 | ||||||||||||
Total | 900 | 0 | $ | 90,335 | ||||||||||||
All shares that were purchased during the period represent repurchases of
Item 6. | Selected Consolidated Financial Data |
|
| Year Ended |
| |||||||||||||||||
|
| Dec. 26 2020 |
|
| Dec. 28 2019 |
|
| Dec. 29 2018 |
|
| Dec. 30 2017 (53 weeks) |
|
| Dec. 31 2016 |
| |||||
|
| (in thousands, except per share and net revenue per barrel data) |
| |||||||||||||||||
Income Statement Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 1,851,813 |
|
| $ | 1,329,108 |
|
| $ | 1,057,495 |
|
| $ | 921,736 |
|
| $ | 968,994 |
|
Less excise taxes |
|
| 115,381 |
|
|
| 79,284 |
|
|
| 61,846 |
|
|
| 58,744 |
|
|
| 62,548 |
|
Net revenue |
|
| 1,736,432 |
|
|
| 1,249,824 |
|
|
| 995,649 |
|
|
| 862,992 |
|
|
| 906,446 |
|
Cost of goods sold |
|
| 921,980 |
|
|
| 635,658 |
|
|
| 483,406 |
|
|
| 413,091 |
|
|
| 446,776 |
|
Gross profit |
|
| 814,452 |
|
|
| 614,166 |
|
|
| 512,243 |
|
|
| 449,901 |
|
|
| 459,670 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising, promotional and selling expenses |
|
| 447,568 |
|
|
| 355,613 |
|
|
| 304,853 |
|
|
| 258,649 |
|
|
| 244,213 |
|
General and administrative expenses |
|
| 118,211 |
|
|
| 112,730 |
|
|
| 90,857 |
|
|
| 73,126 |
|
|
| 78,033 |
|
Impairment (gain on sale) of assets, net |
|
| 4,466 |
|
|
| 911 |
|
|
| 652 |
|
|
| 2,451 |
|
|
| (235 | ) |
Total operating expenses |
|
| 570,245 |
|
|
| 469,254 |
|
|
| 396,362 |
|
|
| 334,226 |
|
|
| 322,011 |
|
Operating income |
|
| 244,207 |
|
|
| 144,912 |
|
|
| 115,881 |
|
|
| 115,675 |
|
|
| 137,659 |
|
Other income (expense), net |
|
| 23 |
|
|
| (542 | ) |
|
| 405 |
|
|
| 467 |
|
|
| (538 | ) |
Income before provision for income taxes |
|
| 244,230 |
|
|
| 144,370 |
|
|
| 116,286 |
|
|
| 116,142 |
|
|
| 137,121 |
|
Provision for income taxes |
|
| 52,270 |
|
|
| 34,329 |
|
|
| 23,623 |
|
|
| 17,093 |
|
|
| 49,772 |
|
Net income |
| $ | 191,960 |
|
| $ | 110,041 |
|
| $ | 92,663 |
|
| $ | 99,049 |
|
| $ | 87,349 |
|
Net income per share - basic |
| $ | 15.73 |
|
| $ | 9.26 |
|
| $ | 7.90 |
|
| $ | 8.18 |
|
| $ | 6.93 |
|
Net income per share - diluted |
| $ | 15.53 |
|
| $ | 9.16 |
|
| $ | 7.82 |
|
| $ | 8.09 |
|
| $ | 6.79 |
|
Weighted average shares outstanding - basic |
|
| 12,130 |
|
|
| 11,781 |
|
|
| 11,622 |
|
|
| 12,035 |
|
|
| 12,533 |
|
Weighted average shares outstanding - diluted |
|
| 12,283 |
|
|
| 11,908 |
|
|
| 11,734 |
|
|
| 12,180 |
|
|
| 12,796 |
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital |
| $ | 153,750 |
|
| $ | 37,999 |
|
| $ | 111,057 |
|
| $ | 66,590 |
|
| $ | 99,719 |
|
Total assets |
| $ | 1,378,825 |
|
| $ | 1,054,057 |
|
| $ | 639,851 |
|
| $ | 569,624 |
|
| $ | 623,297 |
|
Total long-term obligations |
| $ | 129,879 |
|
| $ | 83,832 |
|
| $ | 59,020 |
|
| $ | 44,343 |
|
| $ | 75,196 |
|
Total stockholders’ equity |
| $ | 956,967 |
|
| $ | 735,636 |
|
| $ | 460,317 |
|
| $ | 423,523 |
|
| $ | 446,582 |
|
Statistical Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barrels sold |
|
| 7,368 |
|
|
| 5,307 |
|
|
| 4,286 |
|
|
| 3,768 |
|
|
| 4,019 |
|
Net revenue per barrel |
| $ | 235.67 |
|
| $ | 235.51 |
|
| $ | 232.30 |
|
| $ | 229.05 |
|
| $ | 225.55 |
|
Year Ended | ||||||||||||||||||||
Dec. 29 2018 | Dec. 29 2018 | Dec. 30 2017 (53 weeks) | Dec. 31 2016 | Dec. 26 2015 | ||||||||||||||||
(in thousands, except per share and net revenue per barrel data) | ||||||||||||||||||||
Income Statement Data: | ||||||||||||||||||||
Revenue | $ | 1,329,108 | $ | 1,057,495 | $ | 921,736 | $ | 968,994 | $ | 1,024,040 | ||||||||||
Less excise taxes | 79,284 | 61,846 | 58,744 | 62,548 | 64,106 | |||||||||||||||
Net revenue | 1,249,824 | 995,649 | 862,992 | 906,446 | 959,934 | |||||||||||||||
Cost of goods sold | 635,658 | 483,406 | 413,091 | 446,776 | 458,317 | |||||||||||||||
Gross profit | 614,166 | 512,243 | 449,901 | 459,670 | 501,617 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Advertising, promotional and selling expenses | 355,613 | 304,853 | 258,649 | 244,213 | 273,629 | |||||||||||||||
General and administrative expenses | 112,730 | 90,857 | 73,126 | 78,033 | 71,556 | |||||||||||||||
Impairment (gain on sale) of assets, net | 911 | 652 | 2,451 | (235 | ) | 258 | ||||||||||||||
Settlement proceeds | — | — | — | — | — | |||||||||||||||
Total operating expenses | 469,254 | 396,362 | 334,226 | 322,011 | 345,443 | |||||||||||||||
Operating income | 144,912 | 115,881 | 115,675 | 137,659 | 156,174 | |||||||||||||||
Other (expense) income, net | (542 | ) | 405 | 467 | (538 | ) | (1,164 | ) | ||||||||||||
Income before provision for income taxes | 144,370 | 116,286 | 116,142 | 137,121 | 155,010 | |||||||||||||||
Provision for income taxes | 34,329 | 23,623 | 17,093 | 49,772 | 56,596 | |||||||||||||||
Net income | $ | 110,041 | $ | 92,663 | $ | 99,049 | $ | 87,349 | $ | 98,414 | ||||||||||
Net income per share - basic | $ | 9.26 | $ | 7.90 | $ | 8.18 | $ | 6.93 | $ | 7.46 | ||||||||||
Net income per share - diluted | $ | 9.16 | $ | 7.82 | $ | 8.09 | $ | 6.79 | $ | 7.25 | ||||||||||
Weighted average shares outstanding - basic | 11,781 | 11,622 | 12,035 | 12,533 | 13,123 | |||||||||||||||
Weighted average shares outstanding - diluted | 11,908 | 11,734 | 12,180 | 12,796 | 13,520 | |||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||
Working capital | $ | 37,999 | $ | 111,057 | $ | 66,590 | $ | 99,719 | $ | 112,443 | ||||||||||
Total assets | $ | 1,054,057 | $ | 639,851 | $ | 569,624 | $ | 623,297 | $ | 645,400 | ||||||||||
Total long-term obligations | $ | 83,832 | $ | 59,020 | $ | 44,343 | $ | 75,196 | $ | 73,019 | ||||||||||
Total stockholders’ equity | $ | 735,636 | $ | 460,317 | $ | 423,523 | $ | 446,582 | $ | 461,221 | ||||||||||
Statistical Data: | ||||||||||||||||||||
Barrels sold | 5,307 | 4,286 | 3,768 | 4,019 | 4,256 | |||||||||||||||
Net revenue per barrel | $ | 235.51 | $ | 232.30 | $ | 229.05 | $ | 225.55 | $ | 225.55 | ||||||||||
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Forward-Looking Statements
In this Form
Introduction
The Boston Beer Company is engaged in the business of producing and selling alcohol beverages primarily in the domestic market and, to a lesser extent, in selected international markets. The Company’s revenues are primarily derived by selling its beers, hard seltzers, beers and hard ciders to Distributors, who in turn sell the products to retailers and drinkers. The Company completed the previously reported Dogfish Head Brewery transaction and began consolidating the Dogfish Head financial results on July 3, 2019.
The Company’s beers, hard seltzers, beers and hard ciders are primarily positioned in the market for High End beer occasions. The High End category has seen high single-digit compounded annual growth over the past ten years. The Company believes that the High End category is positioned to increase market share in the total beer category, as drinkers continue to trade up in taste and quality. Boston Beer is one of the largest suppliers in the High End category in the United States. TheIn measured off-premise channels, the Company estimates that in 20192020 the High End category percentage volume growth was approximately 11%25% with the craft beer category volume growth approximately 5%13% and total beer category volume growth approximately 2%10%. The Company believes that the High End category volume is over 30%35% of the United States beer market. Depletions or Distributor sales to retailers of the Company’s beers, hard seltzers, beers and hard ciders for the 52 week fiscal period ended December 28, 2019,26, 2020, increased approximately 22%37% from the comparable 52 week fiscal period in the prior year, of which 19%35% is from Boston Beer legacy brands and 3%2% is from the addition of Dogfish Head brands beginning July 3, 2019.
The Company began seeing the impact of the COVID-19 pandemic on its business in early March 2020. The direct financial impact of the pandemic has primarily shown in significantly reduced keg demand from the on-premise channel and higher labor and safety-related costs at the Company’s breweries. In the 52-week period ended December 26, 2020, the Company recorded COVID-19 related pre-tax reductions in net revenue and increases in other costs that total $16.0 million, of which $1.8 million was recorded in the fourth quarter. The total amount consists of a $3.3 million reduction in net revenue for estimated keg returns from distributors and retailers and $12.7 million of other COVID-19 related direct costs, of which $8.2 million are recorded in cost of goods sold and $4.5 million are recorded in operating expenses. In addition to these direct financial impacts, COVID-19 related safety measures resulted in a reduction of brewery productivity. This has shifted more volume to third-party breweries, which increased production costs and negatively impacted gross margins. The Company will continue to assess and manage this situation and will provide a further update in each quarterly earnings release, to the extent that the effects of the COVID-19 pandemic are then known more clearly.
Outlook
Year-to-date
The Company is targeting
opportunities for growth that it sees, but there is no guarantee that such increased investments will result in increased volumes. The Company estimates a full-year 202027%26.5%, excluding the impact of ASU
The Company is continuing to evaluate 20202021 capital expenditures. Its current estimates are between $135$300 million and $155 million, an increase in the previously communicated estimate of between $95 million and $115$400 million, consisting mostly of continued investments in capacity and efficiency improvements at the Company’s breweries. The actual total amount spent on 20202021 capital expenditures may well be different from these estimates. Based on information currently available, the Company believes that its capacity requirements for 20202021 can be covered by its Company-owned breweries and existing contracted capacity at third-party brewers.
Results of Operations
Year Ended December 28, 201926, 2020 Compared to Year Ended December 29, 201828, 2019
|
| Year Ended (in thousands, except per barrel) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
| Dec. 26 2020 |
|
| Dec. 28 2019 |
|
| Amount change |
|
| % change |
|
| Per barrel change |
| |||||||||||||||||||||
Barrels sold |
|
|
|
|
|
| 7,368 |
|
|
|
|
|
|
|
|
|
|
| 5,307 |
|
|
|
|
|
|
| 2,061 |
|
|
| 38.8 | % |
|
|
|
|
|
|
|
|
|
| Per barrel |
|
| % of net revenue |
|
|
|
|
|
| Per barrel |
|
| % of net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net revenue |
| $ | 1,736,432 |
|
| $ | 235.67 |
|
|
| 100.0 | % |
| $ | 1,249,824 |
|
| $ | 235.51 |
|
|
| 100.0 | % |
| $ | 486,608 |
|
|
| 38.9 | % |
| $ | 0.16 |
|
Cost of goods |
|
| 921,980 |
|
|
| 125.13 |
|
|
| 53.1 | % |
|
| 635,658 |
|
|
| 119.78 |
|
|
| 50.9 | % |
|
| 286,322 |
|
|
| 45.0 | % |
|
| 5.35 |
|
Gross profit |
|
| 814,452 |
|
|
| 110.54 |
|
|
| 46.9 | % |
|
| 614,166 |
|
|
| 115.73 |
|
|
| 49.1 | % |
|
| 200,286 |
|
|
| 32.6 | % |
|
| (5.19 | ) |
Advertising, promotional and selling expenses |
|
| 447,568 |
|
|
| 60.74 |
|
|
| 25.8 | % |
|
| 355,613 |
|
|
| 67.01 |
|
|
| 28.5 | % |
|
| 91,955 |
|
|
| 25.9 | % |
|
| (6.27 | ) |
General and administrative expenses |
|
| 118,211 |
|
|
| 16.04 |
|
|
| 6.8 | % |
|
| 112,730 |
|
|
| 21.24 |
|
|
| 9.0 | % |
|
| 5,481 |
|
|
| 4.9 | % |
|
| (5.20 | ) |
Impairment of assets, net |
|
| 4,466 |
|
|
| 0.61 |
|
|
| 0.3 | % |
|
| 911 |
|
|
| 0.17 |
|
|
| 0.1 | % |
|
| 3,555 |
|
|
| 390.2 | % |
|
| 0.44 |
|
Total operating expenses |
|
| 570,245 |
|
|
| 77.39 |
|
|
| 32.8 | % |
|
| 469,254 |
|
|
| 88.42 |
|
|
| 37.5 | % |
|
| 100,991 |
|
|
| 21.5 | % |
|
| (11.03 | ) |
Operating income |
|
| 244,207 |
|
|
| 33.14 |
|
|
| 14.1 | % |
|
| 144,912 |
|
|
| 27.31 |
|
|
| 11.6 | % |
|
| 99,295 |
|
|
| 68.5 | % |
|
| 5.83 |
|
Other income (expense), net |
|
| 23 |
|
|
| 0.00 |
|
|
| 0.0 | % |
|
| (542 | ) |
|
| (0.10 | ) |
|
| 0.0 | % |
|
| 565 |
|
|
| (104.2 | )% |
|
| 0.10 |
|
Income before provision for income taxes |
|
| 244,230 |
|
|
| 33.15 |
|
|
| 14.1 | % |
|
| 144,370 |
|
|
| 27.20 |
|
|
| 11.6 | % |
|
| 99,860 |
|
|
| 69.2 | % |
|
| 5.95 |
|
Provision for income taxes |
|
| 52,270 |
|
|
| 7.09 |
|
|
| 3.0 | % |
|
| 34,329 |
|
|
| 6.47 |
|
|
| 2.7 | % |
|
| 17,941 |
|
|
| 52.3 | % |
|
| 0.62 |
|
Net income |
| $ | 191,960 |
|
| $ | 26.05 |
|
|
| 11.1 | % |
| $ | 110,041 |
|
| $ | 20.74 |
|
|
| 8.8 | % |
| $ | 81,919 |
|
|
| 74.4 | % |
| $ | 5.31 |
|
Year Ended (in thousands, except per barrel) | ||||||||||||||||||||||||||||||||||||
Dec. 28 2019 | Dec. 29 2018 | Amount change | % change | Per barrel change | ||||||||||||||||||||||||||||||||
Barrels sold | 5,307 | 4,286 | 1,021 | 23.8 | % | |||||||||||||||||||||||||||||||
Per barrel | % of net revenue | Per barrel | % of net revenue | |||||||||||||||||||||||||||||||||
Net revenue | $ | 1,249,824 | $ | 235.51 | 100.0 | % | $ | 995,649 | $ | 232.30 | 100.0 | % | $ | 254,175 | 25.5 | % | $ | 3.21 | ||||||||||||||||||
Cost of goods | 635,658 | 119.78 | 50.9 | % | 483,406 | 112.79 | 48.6 | % | 152,252 | 31.5 | % | 6.99 | ||||||||||||||||||||||||
Gross profit | 614,166 | 115.73 | 49.1 | % | 512,243 | 119.52 | 51.4 | % | 101,923 | 19.9 | % | (3.79 | ) | |||||||||||||||||||||||
Advertising, promotional and selling expenses | 355,613 | 67.01 | 28.5 | % | 304,853 | 71.13 | 30.6 | % | 50,760 | 16.7 | % | (4.12 | ) | |||||||||||||||||||||||
General and administrative expenses | 112,730 | 21.24 | 9.0 | % | 90,857 | 21.20 | 9.1 | % | 21,873 | 24.1 | % | 0.04 | ||||||||||||||||||||||||
Impairment of assets, net | 911 | 0.17 | 0.1 | % | 652 | 0.15 | 0.1 | % | 259 | 39.7 | % | 0.02 | ||||||||||||||||||||||||
Total operating expenses | 469,254 | 88.42 | 37.5 | % | 396,362 | 92.48 | 39.8 | % | 72,892 | 18.4 | % | (4.06 | ) | |||||||||||||||||||||||
Operating income | 144,912 | 27.31 | 11.6 | % | 115,881 | 27.04 | 11.6 | % | 29,031 | 25.1 | % | 0.27 | ||||||||||||||||||||||||
Other (expense) income, net | (542 | ) | (0.10 | ) | 0.0 | % | 405 | 0.09 | 0.0 | % | (947 | ) | -233.8 | % | (0.19 | ) | ||||||||||||||||||||
Income before provision for income taxes | 144,370 | 27.20 | 11.6 | % | 116,286 | 27.13 | 11.7 | % | 28,084 | 24.2 | % | 0.07 | ||||||||||||||||||||||||
Provision for income taxes | 34,329 | 6.47 | 2.7 | % | 23,623 | 5.51 | 2.4 | % | 10,706 | 45.3 | % | 0.96 | ||||||||||||||||||||||||
Net income | $ | 110,041 | $ | 20.74 | 8.8 | % | $ | 92,663 | $ | 21.62 | 9.3 | % | $ | 17,378 | 18.8 | % | $ | (0.88 | ) | |||||||||||||||||
Net revenue.
Volume.
Depletions, or sales by Distributors to retailers, of the Company’s products for the year ended December 28, 2019 increased by approximately 22%37% compared to the prior year, primarily due to increases in depletions of Truly Hard Seltzer and Twisted Tea brands and the addition of the Dogfish Head brands, partially offset by decreases in its Samuel Adams and Angry Orchard brands.
Net Revenue per barrel.
Cost of goods sold. Cost of goods sold was $125.13 per barrel for the year ended December 29, 2018, primarily due to price increases.
Gross profit.
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 Company’s 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 were 25.8% of net revenue, or $60.74 per barrel, for the year ended December 26, 2020, as compared to 28.5% of net revenue, or $67.01 per barrel, for the year ended December 28, 2019, as compared to 30.6% of net revenue, or $71.13 per barrel, for the year ended December 29, 2018.2019. The Company will invest in advertising and promotional campaigns that it believes are effective, but there is no guarantee that such investment will generate sales growth.
The Company conducts certain advertising and promotional activities in its Distributors’ markets, and the Distributors make contributions to the Company for such efforts. These amounts are included in the Company’s statement of operations as reductions to advertising, promotional and selling expenses. Historically, contributions from Distributors for advertising and promotional activities have amounted to between 2% and 3% of net sales. The Company may adjust its promotional efforts in the Distributors’ markets, if changes occur in these promotional contribution arrangements, depending on the industry and market conditions.
General and administrative.
Impairment of assets.
Stock-based compensation expense.
Provision for income taxes.
Liquidity and Capital Resources
Cash decreasedincreased to $163.3 million as of December 26, 2020 from $36.7 million as of December 28, 2019, from $108.4 million as of December 29, 2018, reflecting cash used for the Dogfish Head Brewery Transactionprovided by operating activities and proceeds from exercise of stock options and sale of investment shares, partially offset by purchases of property, plant and equipment, partially offset by cash provided by operating and financing activities.
Cash provided by or used in operating activities consists of net income, adjusted for certain
Cash provided by operating activities increased from $163.4 million in 2018 to $178.2 million in 2019 to $253.3 million in 2020 principally as a result of increases in shipments and operating income, partially offset by higher investments in working capital, particularly higher inventory and third party brewery prepayments due under production agreements to support increased demand.
Cash used in investing activities decreased from $258.8 million in investing activities during 2019 to $139.1 million in 2020, primarily as compared to $55.3 million during 2018. Investing activities in 2019 primarily consisteda result of $165.5 million ofthe investment in Dogfish Head netin fiscal 2019. Investing activities in 2020 primarily consisted of cash acquired, and capital investments made mostly in the Company’s breweries to increase capacity, drive efficiencies and cost reductions, and support product innovation and future growth.
Cash provided by financing activities was $8.9$12.3 million during 2019,2020, as compared to $65.3$8.9 million used inprovided by financing activities during 2018.2019. The $74.2$3.4 million increase in cash provided by financing activities in 20192020 from 20182019 is primarily due to a decrease in stock repurchases under the Company’s Stock Repurchase Program and an increase inhigher proceeds from the exercise of stock options.
In 1998, the Board of Directors authorized management to implement a stock repurchase program. During the year ended December 28, 2019,26, 2020, the Company did not repurchase any shares of its Class A Common Stock under the stock repurchase program. As of December 28, 2019,26, 2020, the Company had repurchased a cumulative total of approximately 13.8 million shares of its Class A Common Stock for an aggregate purchase price of $840.7 million. From December 29, 201927, 2020 through February 14, 2020,12, 2021, the Company did not repurchase any shares of its Class A Common Stock. The Company has approximately $90.3 million remaining on the $931.0 million stock repurchase expenditure limit set by the Board of Directors.
The Company expects that its cash balance as of December 28, 201926, 2020 of $36.7$163.3 million, along with future operating cash flow and the Company’s unused line of credit of $150.0 million, will be sufficient to fund future cash requirements. The Company’s $150.0 million credit facility has a term not scheduled to expire until March 31, 2023. As of the date of this filing, 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.
Critical Accounting Policies
The discussion and analysis of the Company’s financial condition and results of operations is based upon its consolidated financial statements, which have been prepared in accordance with U.S. generally accepted
Provision for Excess or Expired Inventory
The provisions for excess or expired inventory are based on management’s estimates of forecasted usage of inventories on hand and under contract. Forecasting usage involves significant judgments regarding future demand for the Company’s various existing products and products under development as well as the potency and shelf-life of various ingredients. 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 and have historically been adequate to provide for losses on its inventory. Provision for excess or expired inventory included in cost of goods sold was $11.3 million, $8.1 million $4.2 million and $5.8$4.2 million in fiscal years 2020, 2019 and 2018, and 2017, respectively.
Valuation of Property, Plant and Equipment
The carrying value of property, plant and equipment, net of accumulated depreciation, at December 28, 201926, 2020 was $430.6$623.1 million. For purposes of determining whether there are any impairment losses, as further discussed below, management has historically examined the carrying value of the Company’s identifiable long-lived assets, including their useful lives, semi-annually, or more frequently when indicators of impairment are present. Evaluations of whether indicators of impairment exist involve judgments regarding the current and future business environment and the length of time the Company intends to use the asset. 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. Estimating the amount of impairment, if any, requires significant judgments including identification of potential impairments, market comparison to similar assets, estimated cash flows to be generated by the asset, discount rates, and the remaining useful life of the asset. Impairment of assets included in operating expenses was $4.4 million, $0.9 million $0.7 million and $2.5$0.7 million in fiscal years 2020, 2019 and 2018, and 2017, respectively.
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 historical or projected future operating results; (2) significant changes in the manner of use of acquired assets or the strategy for the Company’s 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 28, 201926, 2020 and December 29, 2018.
Valuation of Goodwill and Indefinite Lived Intangible Assets
The Company has recorded intangible assets with indefinite lives and goodwill for which impairment testing is required at least annually or more frequently if events or circumstances indicate that these assets might be
The Company’s otherannual intangible asset impairment evaluation analysis indicated that the fair value of the intangible assets were greater than the carrying value and there was no impairment to record during 2020. The Company’s intangible assets consist primarily of a trademark and customer relationships and a trademark obtained through the Company’s Dogfish Head acquisition. Customer relationships are amortized over their estimated useful lives. The Dogfish Head trademark which was determined
to have an indefinite useful life is not amortized. The guidance for indefinite lived intangible asset impairment testing allows an entity to assess qualitative factors to determine whether the existence of events or circumstances indicates that it is more likely than not that the indefinite lived intangible asset is impaired or to proceed directly to performing the quantitative impairment test. Under the quantitative assessment, the trademark is evaluated for impairment by comparing the carrying value of the trademark to its estimated fair value. The estimated fair value of the trademark is calculated based on an income approach using the relief from royalty method. The estimate of fair value is then compared to the carrying value the trademark. If the estimated fair value is less than the carrying value of the trademark, then an impairment charge is recognized to reduce the carrying value of the trademark to its estimated fair value.
The fair value
The Company performed a sensitivity analysis on our significant assumptions used in the Dogfish Head trademark fair value calculation, each of which we determined to be reasonable, and determined the following:
• | A decrease in the revenue growth rates of 26.8% would decrease the fair value calculation from 117.7% of carrying value to 100% of carrying value. |
• | A decrease in the discount rate of 1.5% would increase the fair value to 141.2% of carrying value and an increase of the discount rate of 1.5% would decrease the fair value to 100.5% of carrying value. |
Business Combinations
On July 3, 2019, the Company completed its acquisition of Dogfish Head Brewery and various related operations (the “Transaction”), through the acquisition of all of the equity interests held by certain private entities in
Revenue Recognition and Classification of Customer Programs and Incentives
The Company recognizes revenue when obligations under the terms of a contract with its customer are satisfied; generally, this occurs with the transfer of control of its products. Revenue is measured as the amount of consideration expected to be received in exchange for transferring products. If the conditions for revenue recognition are not met, the Company defers the revenue until all conditions are met. As of December 28, 201926, 2020 and December 29, 2018,28, 2019, the Company has deferred $7.0$13.5 million and $4.6$7.0 million, respectively in revenue related to product shipped prior to these dates. These amounts are included in accrued expenses and other current liabilities in the accompanying consolidated balance sheets.
The Company is committed to maintaining the freshness of the product in the market. In certain circumstances and with the Company’s approval, the Company accepts and destroys stale beer that is returned by Distributors. The Company generally credits approximately fifty percent of the distributor’s cost of the beer that has passed its expiration date for freshness when it is returned to the Company or destroyed. The Company reduces revenue and establishes an accrual based upon both historical returns, which is applied to an estimated lag time for receipt of product, and knowledge of specific return transactions. Estimating this reserve involves significant judgments and estimates, including comparability of historical return trends to future trends, lag time from date of sale to date of return, and product mix of returns. Stale beer expense is reflected in the accompanying financial statements as a reduction of revenue. Historically, the cost of actual stale beer returns has been in line with established reserves, however, the cost could differ materially from the estimated reserve which would impact revenue. As of December 28, 201926, 2020 and December 29, 2018,28, 2019, the stale beer reserve was $3.1 million and $1.8 million, and $2.1 million, respectively.
Customer programs and incentives are a common practice in the alcohol beverage industry. Amounts paid in connection with customer programs and incentives are recorded as reductions to net revenue or as advertising, promotional and selling expenses, based on the nature of the expenditure. Customer incentives and other payments made to Distributors are primarily based upon performance of certain marketing and advertising activities. Depending on applicable state laws and regulations, these activities promoting the Company’s products may include, but are not limited to
Customer promotional discount programs are entered into with Distributors for certain periods of time. Amounts paid to Distributors in connection with these programs in fiscal years 2020, 2019 and 2018 and 2017 were $59.3 million, $43.9 million $34.5 million and $30.2$34.5 million, respectively. The reimbursements for discounts to Distributors are recorded as reductions to net revenue. The agreed-upon discount rates are applied to certain Distributors’ sales to retailers, based on volume metrics, in order to determine the total discounted amount. The computation of the discount allowance requires that management make certain estimates and assumptions that affect the timing and amounts of revenue and liabilities recorded. Actual promotional discounts owed and paid have historically been in line with allowances recorded by the Company, however, the amounts could differ from the estimated allowance.
Customer incentives and other payments are made primarily to Distributors based upon performance of certain marketing and advertising activities. Depending on applicable state laws and regulations, these activities promoting the Company’s products may include, but are not limited to
In connection with its preparation of financial statements and other financial reporting, management is required to make certain estimates and assumptions regarding the amount, timing and classification of expenditures resulting from these activities. Actual expenditures incurred could differ from management’s estimates and assumptions.
Stock-Based Compensation
The Company accounts for share-based awards in accordance with ASC Topic 718, Compensation – Stock Compensation (“ASC 718”), 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 comprehensive income is based on the awards ultimately expected to vest, and therefore, reduced for estimated forfeitures. Stock-based compensation was $15.3 million, $12.3 million $10.0 million and $6.3$10.0 million in fiscal years 2020, 2019 and 2018, and 2017, respectively.
As permitted by ASC 718, the Company elected to use a lattice model, such as the trinomial option-pricing model, to estimate the fair values of stock options..options. All option-pricing models require the input of subjective assumptions. These assumptions include the estimated volatility of the Company’s common stock price over the expected term, the expected dividend rate, the estimated post-vesting forfeiture rate, the risk-free interest rate and expected exercise behavior. See Note LN of the Notes to Consolidated Financial Statements for further discussion of the application of the option-pricing models.
In addition, an estimated
Business Environment
The alcoholic beverage industry is highly regulated at the federal, state and local levels. The TTB and the Justice Department’s 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 Company’s results of operations. State and regulatory authorities have the ability to suspend or revoke the Company’s 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 Company’s business, results of operations, cash flows and financial position.
The High End category within the United States is highly competitive due to large domestic and international brewers and the increasing number of craft brewers in this category 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 brands, while realizing that economic pricing pressures may affect future pricing levels. Large domestic and international 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 competition among domestic craft brewers will remain strong, as the number of craft brewers continues to grow. 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 Company’s overall performance within the High End category. As the market matures and the High End 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 its over 400 Distributors nationwide and the Company’s sales force of approximately 426515 people, as well as a commitment to maintaining its innovation capability, brand equity and quality, the Company believes it is well positioned to compete in the High End Beer category.
The Potential Impact of Known Facts, Commitments, Events and Uncertainties
Contractual Obligations
See Note JL of the Notes to Consolidated Financial Statements.
Recent Accounting Pronouncements
See Note B of the Notes to Consolidated Financial Statements.
Off-Balance
The Company has not entered into any material
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, as described in Note JL of the Notes to Consolidated Financial Statements, and makes purchases of other ingredients, equipment and machinery denominated in foreign currencies. The cost of these commitments changes as foreign exchange rates fluctuate. Currently, it is not the Company’s policy to hedge against foreign currency fluctuations.
The interest rate for borrowings under the Company’s credit facility is based on either (i) the Alternative Prime Rate (4.75%(3.25% at December 28, 2019)26, 2020) or (ii) the applicable LIBOR rate (1.75%(0.15% at December 28, 2019)26, 2020) plus 0.45%, and therefore, subjects the Company to fluctuations in such rates. As of December 28, 2019,26, 2020, 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 $3.8$2.5 million as of December 28, 2019.
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.
Item 8. | Financial Statements and Supplementary Data |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of
The Boston Beer Company, Inc.
Boston, Massachusetts
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of The Boston Beer Company, Inc. and subsidiaries (the “Company”"Company") as of December 28, 201926, 2020 and December 29, 2018 and28, 2019, the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows, for each of the three fiscal years in the period ended December 28, 2019,26, 2020, and the related notes. In our opinion, the financial statements present fairly, in all material respects, the financial position of The Boston Beer Company, Inc. and subsidiaries as of December 28, 201926, 2020 and December 29, 201828, 2019, and the results of its operations and its cash flows for each of the three fiscal years in the period ended December 28, 2019,26, 2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’sCompany's internal control over financial reporting as of December 28, 2019,26, 2020, based on criteria established in
Basis for Opinion
These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company’sCompany's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our
Dogfish Head Brewerybrand Name Intangible — Refer to Note CH to the financial statements
Critical Audit Matter Description
The Company completed the acquisition of Dogfish Head Brewery for total consideration of $336 million on July 3, 2019. The Company accounted for this transaction under the acquisition method of accounting for business combinations. Accordingly, the purchase price was allocated, on a preliminary basis, to the assets acquired and liabilities assumed based on their respective fair values, including identified intangible assets of $102.3 million and resulting goodwill of $108.8 million. Of the identified intangible assets acquired, the most significant is a brandhas an indefinite lived intangible asset consisting of $98.5 millionthe Dogfish Head Brand Name (the “Dogfish Head brand trade name”“brand intangible asset”). The Company estimatedAs of December 26, 2020, the carrying value of the brand intangible asset was $98.5 million. Management estimates the fair value of the Dogfish Head brand trade nameintangible asset annually on its elected assessment date which is the last day of the Company’s August fiscal month, using the relief-from-royalty method, which is a specific applicationdiscounted cash flow method. The results of the discounted-cash-flow-method that requiredimpairment test indicated the estimated fair value of the brand intangible asset was in excess of the carrying value, and accordingly, no impairment existed. The determination of fair value requires management to make significant estimates and assumptions related to forecasts of revenue growth projections,future revenues, including growth rates for a
We identified the Dogfish Headvaluation of the brand trade name for Dogfish Head Breweryintangible asset as a critical audit matter because of the significant estimatesjudgments and assumptions management made tomakes in estimating the fair value this asset for purposes of recording the acquisition.brand intangible asset. This required a high degree of auditor judgment and an increased extent of effort, when performing audit procedures, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s forecasts of future revenue, specifically the long-term growth rate, as well asand the selection of the royalty rates,rate, discount ratesrate, and the overall valuation methodologies utilized in the valuation models.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the forecasts of future revenue growth projections, theand selection of the royalty rates,rate, discount rates,rate, as well as the methodologies utilized in the valuation models forin estimating the Dogfish Headfair value of the brand trade name intangible asset included the following, among others:
• | We tested the effectiveness of controls over management’s intangible asset impairment evaluation, including those over the determination of the fair value of the brand intangible asset, such as controls related to management’s forecasts of future revenue and the selection of the royalty rate and discount rate. |
• | We evaluated management’s ability to accurately forecast future revenues by comparing actual revenues to management’s historical forecasts. |
• | We evaluated the reasonableness of management’s forecasts of future revenues by: |
• | Comparing the projections of future revenues to historical results and internal communications to management and the Board of Directors. |
• | Assessing the reasonableness of the projected revenue mix based on historical revenue mix and the Company’s ongoing investments in the brand. |
• | Calculating independent revenue projections based on objectively verifiable information and comparing to management’s revenue projections. |
• | With the assistance of our fair value specialists, we evaluated the reasonableness of the management’s forecast of future revenues and the selection of the royalty rate, discount rate, and valuation methodologies by: |
• | Testing the source information underlying a) the determination of revenue growth projections, specifically the long-term growth rate b) the royalty rate and discount rate and c) testing the mathematical accuracy of the calculation. |
• | Developing a range of independent estimates for the discount rate and comparing those to the discount rate selected by management. |
/s/ Deloitte & Touche LLP |
Boston, Massachusetts |
February |
We have served as the Company’s auditor since 2015.
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share data)
|
| Year Ended |
| |||||||||
|
| December 26, 2020 |
|
| December 28, 2019 |
|
| December 29, 2018 |
| |||
Revenue |
| $ | 1,851,813 |
|
| $ | 1,329,108 |
|
| $ | 1,057,495 |
|
Less excise taxes |
|
| 115,381 |
|
|
| 79,284 |
|
|
| 61,846 |
|
Net revenue |
|
| 1,736,432 |
|
|
| 1,249,824 |
|
|
| 995,649 |
|
Cost of goods sold |
|
| 921,980 |
|
|
| 635,658 |
|
|
| 483,406 |
|
Gross profit |
|
| 814,452 |
|
|
| 614,166 |
|
|
| 512,243 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Advertising, promotional and selling expenses |
|
| 447,568 |
|
|
| 355,613 |
|
|
| 304,853 |
|
General and administrative expenses |
|
| 118,211 |
|
|
| 112,730 |
|
|
| 90,857 |
|
Impairment of assets |
|
| 4,466 |
|
|
| 911 |
|
|
| 652 |
|
Total operating expenses |
|
| 570,245 |
|
|
| 469,254 |
|
|
| 396,362 |
|
Operating income |
|
| 244,207 |
|
|
| 144,912 |
|
|
| 115,881 |
|
Other income (expense), net: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest (expense) income, net |
|
| (199 | ) |
|
| 647 |
|
|
| 1,292 |
|
Other income (expense), net |
|
| 222 |
|
|
| (1,189 | ) |
|
| (887 | ) |
Total other income (expense), net |
|
| 23 |
|
|
| (542 | ) |
|
| 405 |
|
Income before provision for income tax |
|
| 244,230 |
|
|
| 144,370 |
|
|
| 116,286 |
|
Provision for income taxes |
|
| 52,270 |
|
|
| 34,329 |
|
|
| 23,623 |
|
Net income |
| $ | 191,960 |
|
| $ | 110,041 |
|
| $ | 92,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share - basic |
| $ | 15.73 |
|
| $ | 9.26 |
|
| $ | 7.90 |
|
Net income per common share - diluted |
| $ | 15.53 |
|
| $ | 9.16 |
|
| $ | 7.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares - Class A basic |
|
| 9,734 |
|
|
| 8,908 |
|
|
| 8,620 |
|
Weighted-average number of common shares - Class B basic |
|
| 2,396 |
|
|
| 2,873 |
|
|
| 3,002 |
|
Weighted-average number of common shares - diluted |
|
| 12,283 |
|
|
| 11,908 |
|
|
| 11,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 191,960 |
|
| $ | 110,041 |
|
| $ | 92,663 |
|
Other comprehensive income (loss) , net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment |
|
| 25 |
|
|
| 47 |
|
|
| 25 |
|
Defined benefit plans liability adjustment |
|
| 1,392 |
|
|
| (519 | ) |
|
| 277 |
|
Impact of ASU 2018-02 |
|
| — |
|
|
| — |
|
|
| (211 | ) |
Total other comprehensive income (loss), net of tax: |
|
| 1,417 |
|
|
| (472 | ) |
|
| 91 |
|
Comprehensive income |
| $ | 193,377 |
|
| $ | 109,569 |
|
| $ | 92,754 |
|
Year Ended | ||||||||||||
December 28, | December 29, | December 30, | ||||||||||
2019 | 2018 | 2017 | ||||||||||
Revenue | $ | 1,329,108 | $ | 1,057,495 | $ | 921,736 | ||||||
Less excise taxes | 79,284 | 61,846 | 58,744 | |||||||||
Net revenue | 1,249,824 | 995,649 | 862,992 | |||||||||
Cost of goods sold | 635,658 | 483,406 | 413,091 | |||||||||
Gross profit | 614,166 | 512,243 | 449,901 | |||||||||
Operating expenses: | ||||||||||||
Advertising, promotional and selling expenses | 355,613 | 304,853 | 258,649 | |||||||||
General and administrative expenses | 112,730 | 90,857 | 73,126 | |||||||||
Impairment of assets | 911 | 652 | 2,451 | |||||||||
Total operating expenses | 469,254 | 396,362 | 334,226 | |||||||||
Operating income | 144,912 | 115,881 | 115,675 | |||||||||
Other (expense) income, net: | ||||||||||||
Interest income | 647 | 1,292 | 549 | |||||||||
Other expense, net | (1,189 | ) | (887 | ) | (82 | ) | ||||||
Total other (expense) income, net | (542 | ) | 405 | 467 | ||||||||
Income before provision for income tax | 144,370 | 116,286 | 116,142 | |||||||||
Provision for income taxes | 34,329 | 23,623 | 17,093 | |||||||||
Net income | $ | 110,041 | $ | 92,663 | $ | 99,049 | ||||||
Net income per common share - basic | $ | 9.26 | $ | 7.90 | $ | 8.18 | ||||||
Net income per common share - diluted | $ | 9.16 | $ | 7.82 | $ | 8.09 | ||||||
Weighted-average number of common shares - Class A basic | 8,908 | 8,620 | 8,933 | |||||||||
Weighted-average number of common shares - Class B basic | 2,873 | 3,002 | 3,102 | |||||||||
Weighted-average number of common shares - diluted | 11,908 | 11,734 | 12,180 | |||||||||
Net income | $ | 110,041 | $ | 92,663 | $ | 99,049 | ||||||
Other comprehensive (loss) income, net of tax: | ||||||||||||
Currency translation adjustment | 47 | 25 | 17 | |||||||||
Defined benefit plans liability adjustment | (519 | ) | 277 | (202 | ) | |||||||
Impact of ASU 2018-02 | — | (211 | ) | — | ||||||||
Total other comprehensive (loss) income, net of tax: | (472 | ) | 91 | (185 | ) | |||||||
Comprehensive income | $ | 109,569 | $ | 92,754 | $ | 98,864 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
|
| December 26, 2020 |
|
| December 28, 2019 |
| ||
Assets |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 163,282 |
|
| $ | 36,670 |
|
Accounts receivable |
|
| 78,358 |
|
|
| 54,404 |
|
Inventories |
|
| 130,910 |
|
|
| 106,038 |
|
Prepaid expenses and other current assets |
|
| 30,230 |
|
|
| 12,077 |
|
Income tax receivable |
|
| 10,393 |
|
|
| 9,459 |
|
Total current assets |
|
| 413,173 |
|
|
| 218,648 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
| 623,083 |
|
|
| 541,068 |
|
Operating right-of-use assets |
|
| 58,483 |
|
|
| 53,758 |
|
Goodwill |
|
| 112,529 |
|
|
| 112,529 |
|
Intangible assets |
|
| 103,930 |
|
|
| 104,272 |
|
Other assets |
|
| 67,627 |
|
|
| 23,782 |
|
Total assets |
| $ | 1,378,825 |
|
| $ | 1,054,057 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 121,647 |
|
| $ | 76,374 |
|
Accrued expenses and other current liabilities |
|
| 129,544 |
|
|
| 99,107 |
|
Current operating lease liabilities |
|
| 8,232 |
|
|
| 5,168 |
|
Total current liabilities |
|
| 259,423 |
|
|
| 180,649 |
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
| 92,665 |
|
|
| 75,010 |
|
Non-current operating lease liabilities |
|
| 59,171 |
|
|
| 53,940 |
|
Other liabilities |
|
| 10,599 |
|
|
| 8,822 |
|
Total liabilities |
|
| 421,858 |
|
|
| 318,421 |
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (See Note L) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity: |
|
|
|
|
|
|
|
|
Class A Common Stock, $.01 par value; 22,700,000 shares authorized; 10,004,681 and 9,370,526 shares issued and outstanding as of December 26, 2020 and December 28, 2019, respectively |
|
| 100 |
|
|
| 94 |
|
Class B Common Stock, $.01 par value; 4,200,000 shares authorized; 2,177,983 and 2,672,983 shares issued and outstanding as of December 26, 2020 and December 28, 2019, respectively |
|
| 22 |
|
|
| 27 |
|
Additional paid-in capital |
|
| 599,737 |
|
|
| 571,784 |
|
Accumulated other comprehensive loss, net of tax |
|
| (252 | ) |
|
| (1,669 | ) |
Retained earnings |
|
| 357,360 |
|
|
| 165,400 |
|
Total stockholders’ equity |
|
| 956,967 |
|
|
| 735,636 |
|
Total liabilities and stockholders’ equity |
| $ | 1,378,825 |
|
| $ | 1,054,057 |
|
December 28, | December 29, | |||||||
2019 | 2018 | |||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 36,670 | $ | 108,399 | ||||
Accounts receivable | 54,404 | 34,073 | ||||||
Inventories | 106,038 | 70,249 | ||||||
Prepaid expenses and other current assets | 12,077 | 13,136 | ||||||
Income tax receivable | 9,459 | 5,714 | ||||||
Total current assets | 218,648 | 231,571 | ||||||
Property, plant and equipment, net | 541,068 | 389,789 | ||||||
Operating right-of-use assets | 53,758 | — | ||||||
Goodwill | 112,529 | 3,683 | ||||||
Intangible assets | 104,272 | 2,099 | ||||||
Other assets | 23,782 | 12,709 | ||||||
Total assets | $ | 1,054,057 | $ | 639,851 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 76,374 | $ | 47,102 | ||||
Accrued expenses and other current liabilities | 99,107 | 73,412 | ||||||
Current operating lease liabilities | 5,168 | — | ||||||
Total current liabilities | 180,649 | 120,514 | ||||||
Deferred income taxes | 75,010 | 49,169 | ||||||
Non-current operating lease liabilities | 53,940 | — | ||||||
Other liabilities | 8,822 | 9,851 | ||||||
Total liabilities | 318,421 | 179,534 | ||||||
Commitments and Contingencies | ||||||||
Stockholders’ Equity: | ||||||||
Class A Common Stock, $.01 par value; 22,700,000 shares authorized; 9,370,526 and 8,580,593 shares issued and outstanding as of December 28, 2019 and December 29, 2018, respectively | 94 | 86 | ||||||
Class and 29 , 2018 , | 27 | 29 | ||||||
Additional paid-in capital | 571,784 | 405,711 | ||||||
Accumulated other comprehensive loss, net of tax | (1,669 | ) | (1,197 | ) | ||||
Retained earnings | 165,400 | 55,688 | ||||||
Total stockholders’ equity | 735,636 | 460,317 | ||||||
Total liabilities and stockholders’ equity | $ | 1,054,057 | $ | 639,851 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Years Ended December 26, 2020, December 28, 2019, and December 29, 2018 and December 30, 2017
(in thousands)
|
| Class A Common Shares |
|
| Class A Common Stock, Par |
|
| Class B Common Shares |
|
| Class B Common Stock, Par |
|
| Additional Paid-in Capital |
|
| Accumulated Other Comprehensive Loss, net of tax |
|
| Retained Earnings |
|
| Total Stockholders’ Equity |
| ||||||||
Balance at December 30, 2017 |
|
| 8,603 |
|
| $ | 86 |
|
|
| 3,018 |
|
| $ | 30 |
|
| $ | 372,590 |
|
| $ | (1,288 | ) |
| $ | 52,105 |
|
| $ | 423,523 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 92,663 |
|
|
| 92,663 |
|
Stock options exercised and restricted shares activities |
|
| 227 |
|
|
| 2 |
|
|
|
|
|
|
|
|
|
|
| 23,086 |
|
|
|
|
|
|
|
|
|
|
| 23,088 |
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 10,035 |
|
|
|
|
|
|
|
|
|
|
| 10,035 |
|
Repurchase of Class A Common Stock |
|
| (350 | ) |
|
| (3 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (88,309 | ) |
|
| (88,312 | ) |
Conversion from Class B to Class A |
|
| 100 |
|
|
| 1 |
|
|
| (100 | ) |
|
| (1 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Defined benefit plans liability adjustment, net of tax of $93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 277 |
|
|
|
|
|
|
| 277 |
|
Currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 25 |
|
|
|
|
|
|
| 25 |
|
One time effect of adoption of ASU 2014-09, Revenue from Contracts with Customers, net of tax of $329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (982 | ) |
|
| (982 | ) |
One time effect of adoption of ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (211 | ) |
|
| 211 |
|
|
| — |
|
Balance at December 29, 2018 |
|
| 8,580 |
|
| $ | 86 |
|
|
| 2,918 |
|
| $ | 29 |
|
| $ | 405,711 |
|
| $ | (1,197 | ) |
| $ | 55,688 |
|
| $ | 460,317 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 110,041 |
|
|
| 110,041 |
|
Stock options exercised and restricted shares activities |
|
| 116 |
|
|
| 1 |
|
|
|
|
|
|
|
|
|
|
| 8,998 |
|
|
|
|
|
|
|
|
|
|
| 8,999 |
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 12,337 |
|
|
|
|
|
|
|
|
|
|
| 12,337 |
|
Shares issued in connection with Dogfish Head merger |
|
| 430 |
|
|
| 5 |
|
|
|
|
|
|
|
|
|
|
| 144,738 |
|
|
|
|
|
|
|
|
|
|
| 144,743 |
|
Conversion from Class B to Class A |
|
| 245 |
|
|
| 2 |
|
|
| (245 | ) |
|
| (2 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
Defined benefit plans liability adjustment, net of tax of $176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (519 | ) |
|
|
|
|
|
| (519 | ) |
Adoption of ASU 2014-09, Revenue from Contracts with Customers, tax adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (329 | ) |
|
| (329 | ) |
Currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 47 |
|
|
|
|
|
|
| 47 |
|
Balance at December 28, 2019 |
|
| 9,371 |
|
| $ | 94 |
|
|
| 2,673 |
|
| $ | 27 |
|
| $ | 571,784 |
|
| $ | (1,669 | ) |
| $ | 165,400 |
|
| $ | 735,636 |
|
Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 191,960 |
|
| $ | 191,960 |
|
Stock options exercised and restricted shares activities |
|
| 139 |
|
|
| 1 |
|
|
|
|
|
|
|
|
|
|
| 12,671 |
|
|
|
|
|
|
|
|
|
|
| 12,672 |
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 15,282 |
|
|
|
|
|
|
|
|
|
|
| 15,282 |
|
Conversion from Class B to Class A |
|
| 495 |
|
|
| 5 |
|
|
| (495 | ) |
|
| (5 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
Defined benefit plans liability adjustment, net of tax of $467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,392 |
|
|
|
|
|
|
| 1,392 |
|
Currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 25 |
|
|
|
|
|
|
| 25 |
|
Balance at December 26, 2020 |
|
| 10,005 |
|
| $ | 100 |
|
|
| 2,178 |
|
| $ | 22 |
|
| $ | 599,737 |
|
| $ | (252 | ) |
| $ | 357,360 |
|
| $ | 956,967 |
|
Class A Common Shares | Class A Common Stock, Par | Class B Common Shares | Class B Common Stock, | Additional Paid-in Capital | Accumulated Other Comprehensive Loss, net of tax | Retained Earnings | Total Stockholders’ Equity | |||||||||||||||||||||||||
Balance at December 31, 2016 | 9,171 | 92 | 3,197 | 32 | 349,913 | (1,103 | ) | 97,648 | 446,582 | |||||||||||||||||||||||
Net income | 99,049 | 99,049 | ||||||||||||||||||||||||||||||
Stock options exercised and restricted shares activities | 217 | 2 | 16,361 | 16,363 | ||||||||||||||||||||||||||||
Stock-based compensation expense | 6,316 | 6,316 | ||||||||||||||||||||||||||||||
Repurchase of Class A Common Stock | (964 | ) | (10 | ) | (144,592 | ) | (144,602 | ) | ||||||||||||||||||||||||
Conversion from Class B to Class A | 179 | 2 | (179 | ) | (2 | ) | — | |||||||||||||||||||||||||
Defined benefit plans liability adjustment, net of tax of $68 | (202 | ) | (202 | ) | ||||||||||||||||||||||||||||
Currency translation adjustment | 17 | 17 | ||||||||||||||||||||||||||||||
Balance at December 30, 2017 | 8,603 | $ | 86 | 3,018 | $ | 30 | $ | 372,590 | $ | (1,288 | ) | $ | 52,105 | $ | 423,523 | |||||||||||||||||
Net income | 92,663 | 92,663 | ||||||||||||||||||||||||||||||
Stock options exercised and restricted shares activities | 227 | 2 | 23,086 | 23,088 | ||||||||||||||||||||||||||||
Stock-based compensation expense | 10,035 | 10,035 | ||||||||||||||||||||||||||||||
Repurchase of Class A Common Stock | (350 | ) | (3 | ) | (88,309 | ) | (88,312 | ) | ||||||||||||||||||||||||
Conversion from Class B to Class A | 100 | 1 | (100 | ) | (1 | ) | — | |||||||||||||||||||||||||
Defined benefit plans liability adjustment, net of tax of $93 | 277 | 277 | ||||||||||||||||||||||||||||||
Currency translation adjustment | 25 | 25 | ||||||||||||||||||||||||||||||
One time effect of adoption of ASU 2014-09, Revenue from Contracts with Customers, net of tax of $329 | (982 | ) | (982 | ) | ||||||||||||||||||||||||||||
One time effect of adoption of ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income | (211 | ) | 211 | — | ||||||||||||||||||||||||||||
Balance at December 29, 2018 | 8,580 | $ | 86 | 2,918 | $ | 29 | $ | 405,711 | $ | (1,197 | ) | $ | 55,688 | $ | 460,317 | |||||||||||||||||
Net income | 110,041 | 110,041 | ||||||||||||||||||||||||||||||
Stock options exercised and restricted shares activities | 116 | 1 | 8,998 | 8,999 | ||||||||||||||||||||||||||||
Stock-based compensation expense | 12,337 | 12,337 | ||||||||||||||||||||||||||||||
Shares issued in connection with Dogfish Head merger | 430 | 5 | 144,738 | 144,743 | ||||||||||||||||||||||||||||
Repurchase of Class A Common Stock | — | |||||||||||||||||||||||||||||||
Conversion from Class B to Class A | 245 | 2 | (245 | ) | (2 | ) | — | |||||||||||||||||||||||||
Defined benefit plans liability adjustment, net of tax of $176 | (519 | ) | (519 | ) | ||||||||||||||||||||||||||||
Adoption of ASU 2014-09, Revenue from Contracts with Customers, tax adjustment | (329 | ) | (329 | ) | ||||||||||||||||||||||||||||
Currency translation adjustment | 47 | 47 | ||||||||||||||||||||||||||||||
Balance at December 28, 2019 | 9,371 | $ | 94 | 2,673 | $ | 27 | $ | 571,784 | $ | (1,669 | ) | $ | 165,400 | $ | 735,636 | |||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
| Year Ended |
| |||||||||
|
| December 26, 2020 |
|
| December 28, 2019 |
|
| December 29, 2018 |
| |||
Cash flows provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 191,960 |
|
| $ | 110,041 |
|
| $ | 92,663 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 65,657 |
|
|
| 56,271 |
|
|
| 51,968 |
|
Impairment of assets |
|
| 4,466 |
|
|
| 911 |
|
|
| 652 |
|
(Gain) loss on disposal of property, plant and equipment |
|
| (639 | ) |
|
| 871 |
|
|
| 64 |
|
Change in ROU assets |
|
| 7,355 |
|
|
| 4,207 |
|
|
| — |
|
Bad debt expense |
|
| 488 |
|
|
| 45 |
|
|
| 2 |
|
Stock-based compensation expense |
|
| 15,282 |
|
|
| 12,337 |
|
|
| 10,035 |
|
Deferred income taxes |
|
| 17,655 |
|
|
| 7,404 |
|
|
| 14,350 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (24,014 | ) |
|
| (12,260 | ) |
|
| (1,636 | ) |
Inventories |
|
| (24,463 | ) |
|
| (24,932 | ) |
|
| (21,312 | ) |
Prepaid expenses, income tax receivable and other current assets |
|
| (19,411 | ) |
|
| (1,530 | ) |
|
| (552 | ) |
Other assets |
|
| (44,322 | ) |
|
| (12,332 | ) |
|
| — |
|
Accounts payable |
|
| 40,771 |
|
|
| 21,417 |
|
|
| 6,352 |
|
Accrued expenses and other current liabilities |
|
| 24,469 |
|
|
| 18,618 |
|
|
| 10,130 |
|
Change in operating lease liability |
|
| (3,786 | ) |
|
| (3,277 | ) |
|
| — |
|
Other liabilities |
|
| 1,939 |
|
|
| 451 |
|
|
| 731 |
|
Net cash provided by operating activities |
|
| 253,407 |
|
|
| 178,242 |
|
|
| 163,447 |
|
Cash flows used in investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
| (139,996 | ) |
|
| (93,233 | ) |
|
| (55,460 | ) |
Proceeds from sale of property, plant and equipment |
|
| 487 |
|
|
| 165 |
|
|
| 27 |
|
Cash paid for acquisition of intangible assets |
|
| — |
|
|
| — |
|
|
| (50 | ) |
Investment in Dogfish Head, net of cash acquired |
|
| — |
|
|
| (165,517 | ) |
|
| — |
|
Other investing activities |
|
| 392 |
|
|
| (244 | ) |
|
| 139 |
|
Net cash used in investing activities |
|
| (139,117 | ) |
|
| (258,829 | ) |
|
| (55,344 | ) |
Cash flows provided by (used in) financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of Class A Common Stock |
|
| — |
|
|
| — |
|
|
| (88,312 | ) |
Proceeds from exercise of stock options and sale of investment shares |
|
| 15,274 |
|
|
| 9,236 |
|
|
| 23,049 |
|
Net cash paid on note payable and finance leases |
|
| (1,260 | ) |
|
| (378 | ) |
|
| (78 | ) |
Cash borrowed on line of credit |
|
| 100,000 |
|
|
| 97,000 |
|
|
| — |
|
Cash paid on line of credit |
|
| (100,000 | ) |
|
| (97,000 | ) |
|
| — |
|
Payment of tax withholdings on stock-based payment awards and investment shares |
|
| (1,692 | ) |
|
| — |
|
|
| 0 |
|
Net cash provided by (used in) financing activities |
|
| 12,322 |
|
|
| 8,858 |
|
|
| (65,341 | ) |
Change in cash and cash equivalents |
|
| 126,612 |
|
|
| (71,729 | ) |
|
| 42,762 |
|
Cash and cash equivalents at beginning of year |
|
| 36,670 |
|
|
| 108,399 |
|
|
| 65,637 |
|
Cash and cash equivalents at end of period |
| $ | 163,282 |
|
| $ | 36,670 |
|
| $ | 108,399 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Non cash consideration issued in Dogfish Head Transaction |
| $ | — |
|
| $ | 144,743 |
|
| $ | — |
|
Income taxes paid |
| $ | 36,032 |
|
| $ | 30,760 |
|
| $ | 11,353 |
|
Income taxes refunded |
| $ | 60 |
|
| $ | 18 |
|
| $ | 5,000 |
|
Cash paid for amounts included in measurement of lease liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
| $ | 6,194 |
|
| $ | 4,696 |
|
| $ | — |
|
Operating cash flows from finance leases |
| $ | 143 |
|
| $ | 56 |
|
| $ | — |
|
Financing cash flows from finance leases |
| $ | 1,192 |
|
| $ | 313 |
|
| $ | — |
|
Right-of-use assets obtained in exchange for operating lease obligations |
| $ | 12,081 |
|
| $ | 57,966 |
|
| $ | — |
|
Right-of-use assets obtained in exchange for finance lease obligations |
| $ | 2,689 |
|
| $ | 2,837 |
|
| $ | — |
|
Interest paid on revolving credit facility |
| $ | 246 |
|
| $ | 451 |
|
| $ | — |
|
Change in purchase of property, plant and equipment in accounts payable and accrued expenses |
| $ | 9,387 |
|
| $ | 6,632 |
|
| $ | 2,609 |
|
Year Ended | ||||||||||||
December 28, | December 29, | December 30, | ||||||||||
2019 | 2018 | 2017 | ||||||||||
Cash flows provided by operating activities: | ||||||||||||
Net income | $ | 110,041 | $ | 92,663 | $ | 99,049 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 56,271 | 51,968 | 51,256 | |||||||||
Impairment of assets | 911 | 652 | 2,451 | |||||||||
Loss on disposal of property, plant and equipment | 871 | 64 | 764 | |||||||||
Change in ROU assets | 4,207 | — | — | |||||||||
Bad debt expense | 45 | 2 | — | |||||||||
Stock-based compensation expense | 12,337 | 10,035 | 6,316 | |||||||||
Deferred income taxes | 7,404 | 14,350 | (22,442 | ) | ||||||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable | (12,260 | ) | (1,636 | ) | 2,945 | |||||||
Inventories | (24,932 | ) | (21,312 | ) | (1,741 | ) | ||||||
Prepaid expenses, income tax receivable and other assets | (13,862 | ) | (552 | ) | (4,511 | ) | ||||||
Accounts payable | 21,417 | 6,352 | 245 | |||||||||
Accrued expenses and other current liabilities | 18,618 | 10,130 | 2,671 | |||||||||
Change in operating lease liability | (3,277 | ) | — | — | ||||||||
Other liabilities | 451 | 731 | (1,021 | ) | ||||||||
Net cash provided by operating activities | 178,242 | 163,447 | 135,982 | |||||||||
Cash flows used in investing activities: | ||||||||||||
Purchases of property, plant and equipment | (93,233 | ) | (55,460 | ) | (32,987 | ) | ||||||
Proceeds from sale of property, plant and equipment | 165 | 27 | 25 | |||||||||
Cash paid for acquisition of intangible assets | — | (50 | ) | — | ||||||||
Investment in Dogfish Head, net of cash acquired | (165,517 | ) | — | — | ||||||||
Other investing activities | (244 | ) | 139 | 33 | ||||||||
Net cash used in investing activities | (258,829 | ) | (55,344 | ) | (32,929 | ) | ||||||
Cash flows provided by (used in) financing activities: | ||||||||||||
Repurchase of Class A Common Stock | — | (88,312 | ) | (144,602 | ) | |||||||
Proceeds from exercise of stock options | 8,063 | 22,143 | 15,415 | |||||||||
Payment of taxes related to exercise of stock options | — | — | ||||||||||
Net cash paid on note payable and finance leases | (378 | ) | (78 | ) | (60 | ) | ||||||
Cash borrowed on line of credit | 97,000 | — | — | |||||||||
Cash paid on line of credit | (97,000 | ) | — | — | ||||||||
Net proceeds from sale of investment shares | 1,173 | 906 | 796 | |||||||||
Net cash provided by (used in) financing activities | 8,858 | (65,341 | ) | (128,451 | ) | |||||||
Change in cash and cash equivalents | (71,729 | ) | 42,762 | (25,398 | ) | |||||||
Cash and cash equivalents at beginning of year | 108,399 | 65,637 | 91,035 | |||||||||
Cash and cash equivalents at end of period | $ | 36,670 | $ | 108,399 | $ | 65,637 | ||||||
Supplemental disclosure of cash flow information: | ||||||||||||
Non cash consideration issued in Dogfish Head Transaction | $ | 144,743 | $ | — | $ | — | ||||||
Income taxes paid | $ | 30,760 | $ | 11,353 | $ | 43,006 | ||||||
Income taxes refunded | $ | 18 | $ | 5,000 | $ | — | ||||||
Cash paid for amounts included in measurement of lease liabilities | ||||||||||||
Operating cash flows from operating leases | $ | 4,696 | $ | — | $ | — | ||||||
Operating cash flows from finance leases | $ | 56 | $ | — | $ | — | ||||||
Financing cash flows from finance leases | $ | 313 | $ | — | $ | — | ||||||
Right-of-use assets obtained in exchange for operating lease obligations | $ | 57,966 | $ | — | $ | — | ||||||
| �� | ||||||||||||
Right-of-use assets obtained in exchange forfinance lease obligations | $ | 2,837 | $ | — | $ | — | ||||||
Interest paid on revolving credit facility | $ | 451 | $ | — | $ | — | ||||||
Increase (decrease) in accounts payable for purchase of property, plant and equipment | $ | 3,994 | $ | 2,609 | $ | (2,689 | ) | |||||
Increase in accrued expenses for purchase of property, plant and equipment | $ | 2,638 | $ | — | $ | — | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 28, 2019
A. | Organization and Basis of Presentation |
The Boston Beer Company, Inc. and certain subsidiaries (the “Company”) are engaged in the business of selling alcohol beverages throughout the United States and in selected international markets, under the trade names “The Boston Beer Company
B. | Summary of Significant Accounting Policies |
Fiscal Year
The Company’s fiscal year is a
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.
COVID-19
The Company began seeing the impact of the COVID-19 pandemic on its business in early March 2020. The direct financial impact of the pandemic has primarily shown in significantly reduced keg demand from the on-premise channel and higher labor and safety-related costs at the Company’s breweries. In fiscal year 2020, shipments of kegs decreased to 3% of total shipment volume from 11% of shipments in 2019. Also, in fiscal year 2020, the Company recorded COVID-19 related pre-tax reductions in net revenue and increases in other costs that total $16.0 million. In addition to these direct financial impacts, COVID-19 related safety measures resulted in a reduction of brewery productivity. This has shifted more volume to third-party breweries, which increased production costs and negatively impacted gross margins. The Company will continue to assess and manage this situation and will provide a further update in each quarterly earnings release, to the extent that the effects of the COVID-19 pandemic are then known more clearly.
Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents at December 26, 2020 and December 28, 2019 and December 29, 2018 included cash
Accounts Receivable and Allowance for Doubtful Accounts
The Company’s accounts receivable primarily consist of trade receivables. 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 management’s estimate of future potential recoverability. Receivables are written off against the allowance after all attempts to collect a receivable have failed. The Company believes its allowance for doubtful accounts as of December 28, 201926, 2020 and December 29, 201828, 2019 are adequate, but actual write-offs could exceed the recorded allowance.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash equivalents and trade receivables. The Company places its cash equivalents with high credit quality financial institutions. As of December 28, 2019,26, 2020, the Company’s cash and cash equivalents were invested in investment-grade, highly liquid U.S. government agency corporate money market accounts.
The Company sells primarily to a network of independent wholesalers in the United States and to a network of foreign wholesalers, importers or other agencies (collectively referred to as “Distributors”). In 2020, 2019 2018 and 2017,2018, sales to foreign Distributors were approximately 4% of total sales. Receivables arising from these sales are not collateralized; however, credit risk is minimized as a result of the large and diverse nature of the Company’s customer base. There were 0 individual customer accounts receivable balances outstanding at December 28, 201926, 2020 or December 29, 201828, 2019 that were in excess of 10% of the gross accounts receivable balance on those dates. NaN individual customers represented more than 10% of the Company’s revenues in fiscal years 2020, 2019, 2018, or 2017.
Financial Instruments and Fair Value of Financial Instruments
The Company’s primary financial instruments at December 28, 201926, 2020 and December 29, 201828, 2019 consisted of cash equivalents, accounts receivable,
Inventories and Provision for Excess or Expired Inventory
Inventories consist of raw
The provisions for excess or expired inventory are based on management’s estimates of forecasted usage of inventories on hand and under contract. Forecasting usage involves significant judgments regarding future demand for the Company’s various existing products and products under development as well as the potency and shelf-life of various ingredients. 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 and have historically been adequate to cover incurred inventory losses. Provision for excess or expired inventory included in cost of goods sold was $11.3 million, $8.1 million, $4.2 million, and $5.8$4.2 million in fiscal years 2020, 2019, and 2018 and 2017 respectively.
Property, Plant and Equipment
Property, plant, and equipment are stated at cost.cost or fair value as of the date of acquisition. Expenditures for repairs and maintenance are expensed as incurred. Major renewals and betterments that extend the life of the property are capitalized. Depreciation is
Kegs | 5 years | |
Computer software and equipment | 2 to 5 years | |
Office equipment and furniture | 3 to 7 years | |
Machinery and plant equipment | 3 20 years, or the term of the production agreement, whichever is shorter | |
Leasehold improvements | Lesser of the remaining term of the lease or estimated useful life of the asset | |
Building and building improvements | 12 20 years, or the remaining useful life of the building, whichever is shorter |
The carrying value of property, plant and equipment, net of accumulated depreciation, at December 28, 201926, 2020 was $538.5$623.1 million. For purposes of determining whether there are any impairment losses, as further discussed below, management has historically examined the carrying value of the Company’s identifiable long-lived assets, including their useful lives, semi-annually, or more frequently when indicators of impairment are present. Evaluations of whether indicators of impairment exist involve judgments regarding the current and future business environment and the length of time the Company intends to use the asset. If an impairment loss is
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 historical or projected future operating results; (2) significant changes in the manner of use of acquired assets or the strategy for the Company’s 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 as of December 26, 2020 and December 28, 2019 and December 29, 2018 was realizable.
Segment Reporting
The Company consists of one operating segment that produces and sells alcohol beverages under the Company’s Samuel Adams, Twisted Tea, Truly Hard Seltzer, Twisted Tea, Samuel Adams, , Angry Orchard, Dogfish Head, Angel City, Coney Island, and Concrete Beach, Wild Leaf and Tura brands. All brands are predominantly beverages that are manufactured using similar production processes, have comparable alcohol content, generally fall under the same regulatory environment, and are sold to the same types of customers in similar size quantities at similar price points and through the same channels of distribution.
Goodwill and Intangible Assets
The Company does not amortize goodwill and tradename intangible assets but evaluates the recoverability by comparing the carrying value and the fair value annually at the end of the fiscal month of August, or more
Refundable Deposits on Kegs and Pallets
The Company distributes its packaged hard seltzer, beer and hard cider primarily in cans and glass bottles and its draft beer in kegs and packaged beer primarily in glasssuch cans, bottles and cans and such kegs bottles and cans are shipped on pallets to Distributors. Most kegs and pallets are owned by the Company. Kegs are reflected in the Company’s balance sheets at cost and are depreciated over the estimated useful life of the keg, while pallets are expensed upon purchase. Upon shipment of beer to Distributors, the Company collects a refundable deposit on the kegs and pallets, which is included in current liabilities in the Company’s balance sheets. Upon return of the kegs and pallets to the Company, the deposit is refunded to the Distributor.
The Company has experienced some loss of kegs and pallets and anticipates that some loss will occur in future periods due to the significant volume of kegs and pallets handled by each Distributor and retailer, the homogeneous nature of kegs and pallets owned by most brewers, and the relatively small deposit collected for each keg when compared with its market value. The Company believes that this is an industry-wide issue and that the Company’s loss experience is not atypical. The Company believes that the loss of kegs and pallets, after considering the forfeiture of related deposits, has not been material to the financial statements. The Company uses internal records, records maintained by Distributors, records maintained by other third-party vendors and historical information to estimate the physical count of kegs and pallets held by Distributors. These estimates affect the amount recorded as property, plant and equipment and current liabilities as of the date of the financial statements. The actual liability for refundable deposits could differ from these estimates. For the year ended December 26, 2020, the Company decreased its liability for refundable deposits, gross property, plant and equipment and related accumulated depreciation by $0.4 million, $0.8 million and $0.8 million, respectively. For the year ended December 28, 2019, the Company decreased its liability for refundable deposits, gross property, plant and equipment and related accumulated depreciation by $0.8 million, $1.3 million and $1.3 million, respectively. For the year ended December 29, 2018, the Company decreased its liability for refundable deposits, gross property, plant and equipment and related accumulated depreciation by $1.2 million, $1.1 million and $1.1 million, respectively. As of December 28, 2019,26, 2020, and December 29, 2018,28, 2019, the Company’s balance sheet includes $19.5$15.5 million and $17.0$19.5 million, respectively, in refundable deposits on kegs and pallets and $0.5$0.3 million and $1.9$0.5 million, respectively, in kegs, net of accumulated depreciation.
Income Taxes
Income tax expense was $52.3 million, $34.3 million, $23.6 million, and $17.1$23.6 million in fiscal years 2020, 2019, 2018, and 2017,2018, respectively. 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 Company’s consolidated financial statements or tax returns. This results in differences between the book and tax basis of the Company’s assets, 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 when recovery of deferred tax assets does not meet the more likely than not standards as defined in ASC Topic 740,
The calculation of the Company’s 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 that do not meet the more likely than not standards as defined in ASC Topic 740,
Revenue Recognition and Classification of Customer Programs and Incentives
During fiscal years 2020, 2019 2018 and 20172018 approximately 95% of the Company’s revenue was from shipments of its products to domestic Distributors and 4% from shipments to international Distributors, primarily located in Canada. ApproximatelyLess than 1% of the Company’s revenue is from retail beer, cider, food and merchandise sales at the Company’s retail locations.
The Company recognizes revenue when obligations under the terms of a contract with its customer are satisfied; generally, this occurs with the transfer of control of its products. Revenue is measured as the amount of consideration expected to be received in exchange for transferring products. If the conditions for revenue recognition are not met, the Company defers the revenue until all conditions are met. As of December 28, 2019,26, 2020, and December 29, 2018,28, 2019, the Company had deferred revenue of $7.0$13.5 million and $4.6$7.0 million, respectively, related to product shipped prior to these dates. These amounts are included in accrued expenses and other current liabilities in the accompanying consolidated balance sheets.
The Company is committed to maintaining the freshness of its products in the market. In certain circumstances and with the Company’s approval, the Company accepts and destroys stale beer that is returned by Distributors. The Company generally credits approximately fifty percent of the distributor’s cost of beer that has passed its freshness expiration date when it is
returned to the Company or destroyed. The Company reduces revenue and establishes an accrual based upon both historical returns, which is applied to an estimated lag time for receipt of product, and knowledge of specific return transactions. Estimating this reserve involves significant judgments and estimates, including comparability of historical return trends to future trends, lag time from date of sale to date of return, and product mix of returns. Stale beer expense is reflected in the accompanying financial statements as a reduction of revenue. Historically, the cost of actual stale beer returns has been in line with established reserves; however, the cost could differ materially from the reserves which would impact revenue. As of December 28, 2019,26, 2020, and December 29, 2018,28, 2019, the stale beer reserve was $1.8$3.1 million and $2.1$1.8 million, respectively. These amounts are included in accrued expenses and other current liabilities in the accompanying consolidated balance sheets.
Customer programs and incentives are a common practice in the alcohol beverage industry. Amounts paid in connection with customer programs and incentives are recorded as reductions to net revenue or as advertising, promotional and selling expenses, based on the nature of the expenditure. Customer incentives and other payments made to Distributors are primarily based upon the performance of certain marketing and advertising activities. Depending on applicable state laws and regulations, these activities promoting the Company’s products may include, but are not limited to,
Customer promotional discount programs are entered into with Distributors for certain periods of time. Amounts paid to Distributors in connection with these programs in fiscal years 2020, 2019 and 2018 and 2017 were $59.3 million, $43.9 million $34.5 million and $30.2$34.5 million, respectively. The reimbursements for discounts to Distributors are recorded as reductions to net revenue. The agreed-upon discount rates are applied to certain Distributors’ sales to retailers, based on volume metrics, in order to determine the total discounted amount. The computation of the discount allowance requires that management make certain estimates and assumptions that affect the timing and amounts of revenue and liabilities recorded. Actual promotional discounts owed and paid have historically been in line with allowances recorded by the Company; however, the amounts could differ from the estimated allowances.
Customer incentives and other payments are made primarily to Distributors based upon the performance of certain marketing and advertising activities. Depending on applicable state laws and regulations, these 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, timing and classification of expenditures resulting from these activities. Actual expenditures incurred could differ from management’s estimates and assumptions.
Excise Taxes
The Company is responsible for compliance with the Alcohol and Tobacco Tax and Trade Bureau of the U.S. Treasury Department (the “TTB”) regulations, including making timely and accurate excise tax payments. The Company is subject to periodic compliance audits by the TTB. Individual states also impose excise taxes on alcohol beverages in varying amounts. The Company calculates its excise tax expense based upon units shipped and on its understanding of the applicable excise tax laws.
The Company benefited from a reduction in federal excise taxes of $8.9
Cost of Goods Sold
The following expenses are included in cost of goods sold: raw material costs, packaging
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 comprehensive income. The Company incurred shipping costs of $97.6 million, $69.1 million, $61.8 million, and $45.3$61.8 million in fiscal years 2020, 2019 and 2018, and 2017, respectively.
Advertising and Sales
The following expenses are included in advertising, promotional and selling expenses in the accompanying consolidated statements of comprehensive income: media advertising and production costs, sales and marketingbrand related expenses, sales and brand salary and benefit expenses, andstock compensation, meals, travel and entertainment expenses, for the sales, brand and sales support workforce, promotional activity expenses, shipping costs related to shipments of finished goods from manufacturing locations to distributor locations and
The Company conducts certain advertising and promotional activities in its Distributors’ markets and the Distributors make contributions to the Company for such efforts. Reimbursements from Distributors for advertising and promotional activities are recorded as reductions to advertising, promotional and selling expenses.
General and Administrative
The following expenses are included in general and administrative expenses in the accompanying consolidated statements of comprehensive income: general and administrative salary and benefit expenses, stock compensation, insurance costs, consulting and professional service fees, rent and utility expenses, meals, travel and entertainment expenses for general and administrative employees, and other general and administrative overhead costs.
Stock-Based Compensation
The Company accounts for share-based awards in accordance with ASC Topic 718,
As permitted by ASC 718, the Company elected to use a lattice model, such as the trinomial option-pricing model, to estimate the fair values of stock options. All option-pricing models require the input of subjective assumptions. These assumptions include the estimated volatility of the Company’s common stock price over the expected term, the expected dividend rate, the estimated post-vesting forfeiture rate, the risk-free interest rate and expected exercise behavior. See Note N for further discussion of the application of the option-pricing models.
In addition, an estimated
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 or the
Accounting Pronouncements Recently
In June 2016, the FASB issued ASU
In January 2017, the FASB issued ASU No.
Accounting Pronouncements Not Yet Effective
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The standard includes multiple key provisions, including removal of certain exceptions to ASC 740, Income Taxes, and simplification in several other areas such as accounting for a franchise tax (or similar tax) that is partially based on income. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently assessing the impact of adopting this standard but does not expect the adoption of ASU
C. | Dogfish Head Brewery Transaction |
On May 8, 2019, the Company entered into definitive agreements to acquire Dogfish Head Brewery (“Dogfish Head”) and various related operations (the “Transaction”), through the acquisition of all of the equity interests held by certain private entities in
The fair valueCompany’s allocation of consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed in the Transaction is based on estimated at approximately $317.7 million. The Company estimates that transaction-related and othernon-recurringcosts incurred and estimatedto be incurredas a result of the Transaction will total approximately $12.0 million.Of this total, $10.0 million had been expensedfair values as of December 28,July 3, 2019, andconsists of $3.3 million in transaction costs and $6.7 million in othernon-recurringcosts.Ofthe $10.0 million costsincurred, $7.8 millionwererecordedin general and administrative expenseand $2.2millionwere recorded in cost of goods sold withinin the accompanying statements of comprehensive income. As part of the Transaction, certain members of Dogfish Head management entered into employment agreements with the Company and were granted906shares of restricted stock units that vest in one year and have a fair value of approximately $345,000. The Company funded the cash component of the Transaction through cashon-handand its existing line of credit.
|
| Total (In Thousands) |
| |
Cash and cash equivalents |
| $ | 7,476 |
|
Accounts receivable |
|
| 8,081 |
|
Inventories |
|
| 9,286 |
|
Prepaid expenses and other current assets |
|
| 847 |
|
Property, plant and equipment |
|
| 106,964 |
|
Goodwill |
|
| 108,846 |
|
Brand |
|
| 98,500 |
|
Other intangible assets |
|
| 3,800 |
|
Other assets |
|
| 378 |
|
Total assets acquired |
|
| 344,178 |
|
Accounts payable |
|
| 3,861 |
|
Accrued expenses and other current liabilities |
|
| 4,085 |
|
Deferred income taxes |
|
| 18,437 |
|
Other liabilities |
|
| 59 |
|
Total liabilities assumed |
|
| 26,442 |
|
Net assets acquired |
| $ | 317,736 |
|
Cash consideration |
| $ | 172,993 |
|
Nominal value of equity issued |
|
| 162,999 |
|
Fair Value reduction due to liquidity |
|
| (18,256 | ) |
Estimated total purchase price |
| $ | 317,736 |
|
Total (In Thousands) | ||||
Cash and cash equivalents | $ | 7,476 | ||
Accounts receivable | 8,081 | |||
Inventories | 9,286 | |||
Prepaid expenses and other current assets | 847 | |||
Property, plant and equipment | 106,964 | |||
Goodwill | 108,846 | |||
Brand | 98,500 | |||
Other intangible assets | 3,800 | |||
Other assets | 378 | |||
Total assets acquired | 344,178 | |||
Accounts payable | 3,861 | |||
Accrued expenses and other current liabilities | 4,085 | |||
Deferred income taxes | 18,437 | |||
Other liabilities | 59 | |||
Total liabilities assumed | 26,442 | |||
Net assets acquired | $ | 317,736 | ||
Cash consideration | $ | 172,993 | ||
Nominal value of equity issued | 162,999 | |||
Fair Value reduction due to liquidity | (18,256 | ) | ||
Estimated total purchase price | $ | 317,736 | ||
The Company accounted for the acquisition in accordance with the accounting standards codification guidance for business combinations, whereby the total purchase price was allocated to the acquired net tangible and intangible assets of Dogfish Head based on their fair values as of the Transaction closing date. The Company believes that the information available as of the Transaction closing date provides a reasonable basis for estimating the fair values of the assets acquired and liabilities assumed; however, the Company is continuing to finalize these amounts, particularly with respect to income taxes and valuation of inventories, fixed assets, and intangible assets. Thus, the preliminary measurements of fair value reflected are subject to change as additional information becomes available and as additional analysis is performed. The Company expects to finalize the valuation and complete the allocation of the purchase price as soon as practicable, but no later than one year from the closing date of the acquisition, as required.
The fair value of the Dogfish Head brand trade name is estimated at approximately $98.5 million and the fair value of customer relationships is estimated at $3.8 million. The Company estimated the Dogfish Head brand trade name will have an indefinite life and customer relationships will have an estimated useful life of 15 years. The customer relationship intangible asset will be amortized on a straight-line basis over the 15 year estimated useful life. The fair value of the deferred income tax liability assumed is $18.4 million, representing
The fair value of the brand trade name was determined utilizing the relief from royalty method which is a form of the income approach. Under this method, a royalty rate based on observed market royalties is applied to projected revenue supporting the trade name and discounted to present value using an appropriate discount rate. The fair value of the property, plant and equipment was determined utilizing the cost and market valuation approaches.
The results of operations from Dogfish Head have been included in the Company’s consolidated statements of
Consistent with prior periods and considering post-merger reporting structures, the Company will continue to report as one
production processes, have comparable alcohol content, generally fall under the same regulatory environment, and are sold to the same types of customers in similar size quantities at similar price points and through the same channels of distribution.
The following unaudited pro forma information has been prepared, as if the Transaction and the related debt financing had occurred as of December 31, 2017, the first day of the Company’s 2018 fiscal year. The pro forma amounts reflect the combined historical operational results for Boston Beer and Dogfish Head, after giving effect to adjustments related to the impact of purchase accounting, transaction costs and financing. The unaudited pro forma financial information is not indicative of the operational results that would have been obtained had the Transaction occurred as of that date, nor is it necessarily indicative of the Company’s future operational results. The following adjustments have been made:
(i) | Depreciation and amortization expenses were updated to reflect the fair value adjustments to Dogfish Head property, plant and equipment and intangible assets beginning December 31, 2017. |
(ii) | Transaction costs incurred in the fifty-two weeks ended December 28, 2019 have beenre-assigned to the first period of the comparative fiscal year. |
(iii) | Interest expense has been included at a rate of approximately 3% which is consistent with the borrowing rate on the Company’s current line of credit. |
(iv) | The tax effects of the pro forma adjustments at an estimated statutory rate of 25.6%. |
(v) | Earnings per share amounts are calculated using the Company’s historical weighted average shares outstanding plus the 429,291 shares issued in the merger. |
|
| Fifty-two weeks ended |
| |
|
| December 28, 2019 |
| |
|
|
| ||
Net revenue |
| $ | 1,304,239 |
|
Net income |
| $ | 116,868 |
|
Basic earnings per share |
| $ | 9.83 |
|
Diluted earnings per share |
| $ | 9.73 |
|
Fifty-two weeks ended | ||||||||
December 28, 2019 | December 29, 2018 | |||||||
(in thousands , ex cept per share data) | ||||||||
Net revenue | $ | 1,304,239 | $ | 1,103,061 | ||||
Net income | $ | 116,868 | $ | 98,700 | ||||
Basic earnings per share | $ | 9.83 | $ | 8.12 | ||||
Diluted earnings per share | $ | 9.73 | $ | 8.04 | ||||
D. | Inventories |
Inventories consisted of the following:
|
| December 26, 2020 |
|
| December 28, 2019 |
| ||
|
| (in thousands) |
| |||||
Current inventory: |
|
|
|
|
|
|
|
|
Raw materials |
| $ | 69,272 |
|
| $ | 61,522 |
|
Work in process |
|
| 16,846 |
|
|
| 12,631 |
|
Finished goods |
|
| 44,792 |
|
|
| 31,885 |
|
Total current inventory |
|
| 130,910 |
|
|
| 106,038 |
|
Long term inventory |
|
| 9,639 |
|
|
| 10,048 |
|
Total inventory |
| $ | 140,549 |
|
| $ | 116,086 |
|
December 28, 2019 | December 29, 2018 | |||||||
(in thousands) | ||||||||
Current inventory: | ||||||||
Raw materials | $ | 61,522 | $ | 44,655 | ||||
Work in process | 12,631 | 8,252 | ||||||
Finished goods | 31,885 | 17,342 | ||||||
Total current inventory | 106,038 | 70,249 | ||||||
Long term inventory | 10,048 | 11,619 | ||||||
Total inventory | $ | 116,086 | $ | 81,868 | ||||
E. | Prepaid Expenses and Other Current Assets |
Prepaid expenses and other current assets consisted of the following:
|
| December 26, 2020 |
|
| December 28, 2019 |
| ||
|
| (in thousands) |
| |||||
Prepaid brewing services fee - short term (see Note L) |
| $ | 14,816 |
|
| $ | 4,936 |
|
Prepaid advertising, promotional and selling |
|
| 4,876 |
|
|
| 1,649 |
|
Down payments to vendors |
|
| 4,693 |
|
|
| 24 |
|
Other |
|
| 5,845 |
|
|
| 5,468 |
|
|
| $ | 30,230 |
|
| $ | 12,077 |
|
December 28, 2019 | December 29, 2018 | |||||||
(in thousands) | ||||||||
Prepaid brewing services fee - short term(see Note L) | $ | 4,936 | $ | 3,789 | ||||
Prepaid advertising, promotional and selling | 1,649 | 1,518 | ||||||
Prepaid software expense | 1,224 | 754 | ||||||
Prepaid insurance | 1,206 | 1,111 | ||||||
Excise and other tax receivables | 1,173 | 2,179 | ||||||
Other | 1,889 | 3,785 | ||||||
| $ | 12,077 | $ | 13,136 | |||||
F. | Property, Plant and Equipment |
Property, plant and equipment consisted of the following:
|
| December 26, 2020 |
|
| December 28, 2019 |
| ||
|
| (in thousands) |
| |||||
Machinery and plant equipment |
| $ | 641,790 |
|
| $ | 571,506 |
|
Kegs |
|
| 61,582 |
|
|
| 66,011 |
|
Land |
|
| 25,753 |
|
|
| 25,759 |
|
Building and building improvements |
|
| 174,328 |
|
|
| 130,311 |
|
Office equipment and furniture |
|
| 31,115 |
|
|
| 29,202 |
|
Leasehold improvements |
|
| 43,157 |
|
|
| 48,528 |
|
Assets under construction |
|
| 84,564 |
|
|
| 59,027 |
|
|
|
| 1,062,289 |
|
|
| 930,344 |
|
Less accumulated depreciation |
|
| (439,206 | ) |
|
| (389,276 | ) |
|
| $ | 623,083 |
|
| $ | 541,068 |
|
December 28, 2019 | December 29, 2018 | |||||||
(in thousands) | ||||||||
Machinery and plant eq u ipment | $ | 571,506 | $ | 459,352 | ||||
Kegs | 66,011 | 67,940 | ||||||
Land | 25,759 | 22,295 | ||||||
Building and building improvements | 130,311 | 115,748 | ||||||
Office equipment and furniture | 29,202 | 25,728 | ||||||
Leasehold improvements | 48,528 | 20,830 | ||||||
Assets under construction | 59,027 | 22,160 | ||||||
930,344 | 734,053 | |||||||
Less accumulated depreciation | (389,276 | ) | (344,264 | ) | ||||
| $ | 541,068 | $ | 389,789 | |||||
The Company recorded depreciation expense related to these assets of $
Impairment of Assets
The Company evaluates its assets for impairment when events indicate that an asset or asset group may have suffered impairment. During fiscal years 2020, 2019 2018 and 2017,2018, the Company recorded impairment charges of $
G. | Leases |
The Co
liabilities | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Classification |
| December 26, 2020 |
|
| December 28, 2019 |
| ||
Right-of-use assets |
|
|
| (in thousands) |
| |||||
Operating lease assets |
| Operating right-of-use assets |
| $ | 58,483 |
|
| $ | 53,758 |
|
Finance lease assets |
| Property, plant and equipment, net |
|
| 4,035 |
|
|
| 2,531 |
|
Lease Liabilities |
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities |
| Current operating lease liabilities |
|
| 8,232 |
|
|
| 5,168 |
|
Finance lease liabilities |
| Accrued expenses and other current liabilities |
|
| 1,453 |
|
|
| 546 |
|
Non-current |
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities |
| Non-current operating lease liabilities |
|
| 59,171 |
|
|
| 53,940 |
|
Finance lease liabilities |
| Other liabilities |
|
| 2,631 |
|
|
| 2,042 |
|
The gross value and accumulated depreciation of ROU assets
|
| Finance Leases |
| |||||
|
| December 26, 2020 |
|
| December 28, 2019 |
| ||
|
| (in thousands) |
| |||||
Gross value |
| $ | 5,526 |
|
| $ | 2,837 |
|
Accumulated amortization |
|
| (1,491 | ) |
|
| (306 | ) |
Carrying value |
| $ | 4,035 |
|
| $ | 2,531 |
|
|
|
|
|
|
|
|
|
|
Leases | ||||
Components of leas
|
| Lease Cost |
| |||||
|
| December 26, 2020 |
|
| December 28, 2019 |
| ||
|
| (in thousands) |
| |||||
Operating lease cost |
| $ | 9,764 |
|
| $ | 5,625 |
|
Variable lease costs not included in liability |
|
| 1,643 |
|
|
| 1,064 |
|
Finance lease cost: |
|
|
|
|
|
|
|
|
Amortization of right-of-use asset |
| $ | 1,185 |
|
| $ | 306 |
|
Interest on lease liabilities |
|
| 143 |
|
|
| 56 |
|
Total finance lease cost |
| $ | 1,328 |
|
| $ | 362 |
|
Lease Cost | ||||
(in thousands) | ||||
Operating lease cost | $ | 5,625 | ||
Variable lease costs not included in liability | 1,064 | |||
Finance lease cost: | ||||
Amortization of right-of-use asset | $ | 306 | ||
Interest on lease liabilities | 56 | |||
Total finance lease cost | $ | 362 | ||
Maturities of lease liabilities as of December 28, 201926, 2020 are as follows:
|
| Operating |
|
| Finance |
|
| Weighted-Average Remaining Term in Years |
| |||||||
|
| Leases |
|
| Leases |
|
| Operating Leases |
|
| Finance Leases |
| ||||
|
| (in thousands) |
|
|
|
|
|
|
|
|
| |||||
2021 |
| $ | 10,454 |
|
| $ | 1,572 |
|
|
|
|
|
|
|
|
|
2022 |
|
| 9,908 |
|
|
| 1,572 |
|
|
|
|
|
|
|
|
|
2023 |
|
| 9,737 |
|
|
| 863 |
|
|
|
|
|
|
|
|
|
2024 |
|
| 9,714 |
|
|
| 265 |
|
|
|
|
|
|
|
|
|
2025 |
|
| 6,389 |
|
|
| 8 |
|
|
|
|
|
|
|
|
|
Thereafter |
|
| 32,891 |
|
|
| 15 |
|
|
|
|
|
|
|
|
|
Total lease payments |
|
| 79,093 |
|
|
| 4,295 |
|
|
|
|
|
|
|
|
|
Less imputed interest (based on 3.5% weighted- average discount rate) |
|
| (11,690 | ) |
|
| (211 | ) |
|
|
|
|
|
|
|
|
Present value of lease liability |
| $ | 67,403 |
|
| $ | 4,084 |
|
|
| 8.8 |
|
|
| 2.9 |
|
H. | Goodwill and Intangible Assets |
Operating Leases | Finance Leases | Weighted-Average | ||||||||||||||
Operating | Finance Leases | |||||||||||||||
(in thousands) | ||||||||||||||||
2020 | $ | 5,755 | $ | 626 | ||||||||||||
2021 | 9,241 | 626 | ||||||||||||||
2022 | 9,036 | 626 | ||||||||||||||
2023 | 8,995 | 626 | ||||||||||||||
2024 | 8,729 | 265 | ||||||||||||||
Thereafter | 27,567 | 23 | ||||||||||||||
Total lease payments | 69,323 | 2,792 | ||||||||||||||
Less imputed interest (based on 3.5 % weighted-average discount rate) | (10,215 | ) | (204 | ) | ||||||||||||
Present value of lease liability | $ | 59,108 | $ | 2,588 | 8.3 | 4.4 | ||||||||||
The change in the carrying value of goodwill and intangible assets during the
|
| Fifty-two weeks ended |
| |||||
|
| December 26, |
|
| December 28, |
| ||
|
| 2020 |
|
| 2019 |
| ||
|
| (in thousands) |
| |||||
Goodwill as of beginning of period |
| $ | 112,529 |
|
| $ | 3,683 |
|
Acquired goodwill |
|
| — |
|
|
| 108,846 |
|
Impairment of goodwill |
|
| — |
|
|
| — |
|
Goodwill as of end of period |
| $ | 112,529 |
|
| $ | 112,529 |
|
Fifty-two weeks ended | ||||||||
December 28, | December 29, | |||||||
2019 | 2018 | |||||||
( in thousands) | ||||||||
Goodwill as of beginning of period | $ | 3,683 | $ | 3,683 | ||||
Acquired goodwill | 108,846 | — | ||||||
Impairment of goodwill | — | — | ||||||
Goodwill as of end of period | $ | 112,529 | $ | 3,683 | ||||
The $108.8 million of goodwill acquired during the
The Company’s intangible assets as of December 28, 201926, 2020 and December 29, 201828, 2019 were as follows:
|
|
|
|
|
| As of December 26, 2020 |
|
| As of December 28, 2019 |
| ||||||||||||||||||
|
| Estimated Useful Life (Years) |
|
| Gross Carrying Value |
|
| Accumulated Amortization |
|
| Net Book Value |
|
| Gross Carrying Value |
|
| Accumulated Amortization |
|
| Net Book Value |
| |||||||
|
|
|
|
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||
Customer Relationships |
|
| 15 |
|
| $ | 3,800 |
|
| $ | (380 | ) |
| $ | 3,420 |
|
| $ | 3,800 |
|
| $ | (127 | ) |
| $ | 3,673 |
|
Trade Names |
| Indefinite |
|
|
| 100,510 |
|
|
| — |
|
|
| 100,510 |
|
|
| 100,599 |
|
|
| — |
|
|
| 100,599 |
| |
Total intangible assets |
|
|
|
|
| $ | 104,310 |
|
| $ | (380 | ) |
| $ | 103,930 |
|
| $ | 104,399 |
|
| $ | (127 | ) |
| $ | 104,272 |
|
As of December 28, 2019 | As of December 29, 2018 | |||||||||||||||||||||||||||
Estimated | Gross | Accumulated | Net Book | Gross | Accumulated | Net | ||||||||||||||||||||||
Life (Years) | Value | Amortization | Value | Value | Amortization | Value | ||||||||||||||||||||||
( in thou sands) | ( in thou sands) | |||||||||||||||||||||||||||
Customer Relationships | 15 | $ | 3,800 | $ | (127 | ) | $ | 3,673 | $ | — | $ | — | $ | — | ||||||||||||||
Trade Names | Indefinite | 100,599 | — | 100,599 | 2,099 | — | 2,099 | |||||||||||||||||||||
Total intangible assets | $ | 104,399 | $ | (127 | ) | $ | 104,272 | $ | 2,099 | $ | — | $ | 2,099 | |||||||||||||||
During the
Fiscal Year | Amount (in th ousands) | |||
2020 | 253 | |||
2021 | 253 | |||
2022 | 253 | |||
2023 | 253 | |||
2024 | 253 | |||
Fiscal Year |
| Amount |
| |
|
| (in thousands) |
| |
2021 |
| $ | 253 |
|
2022 |
|
| 253 |
|
2023 |
|
| 253 |
|
2024 |
|
| 253 |
|
2025 |
|
| 253 |
|
I. | Accrued Expenses and Other Current Liabilities |
Accrued expenses and other
|
| December 26, 2020 |
|
| December 28, 2019 |
| ||
|
| (in thousands) |
| |||||
Employee wages, benefits and reimbursements |
| $ | 50,938 |
|
| $ | 35,394 |
|
Advertising, promotional and selling expenses |
|
| 15,752 |
|
|
| 17,009 |
|
Accrued deposits |
|
| 15,616 |
|
|
| 20,483 |
|
Deferred revenue |
|
| 13,522 |
|
|
| 6,984 |
|
Accrued taxes |
|
| 10,133 |
|
|
| 3,316 |
|
Accrued capital expenditures |
|
| 7,523 |
|
|
| 2,621 |
|
Other accrued liabilities |
|
| 16,060 |
|
|
| 13,300 |
|
|
| $ | 129,544 |
|
| $ | 99,107 |
|
December 28, 2019 | December 29, 2018 | |||||||
(in thousands) | ||||||||
Employee wages, benefits and reimbursements | $ | 35,394 | $ | 27,074 | ||||
Accrued deposits | 20,483 | 18,171 | ||||||
Advertising, promotional and selling expenses | 17,009 | 9,079 | ||||||
Deferred revenue | 6,984 | 4,587 | ||||||
Accrued utilities and third party fees | 4,075 | 1,881 | ||||||
Accrued excise taxes | 2,758 | 2,335 | ||||||
Accrued capital expenditures | 2,621 | — | ||||||
Accrued freight | 2,091 | 1,668 | ||||||
Other accrued liabilities | 7,692 | 8,616 | ||||||
| $ | 99,107 | $ | 73,412 | |||||
J. | Revolving Line of Credit |
The Company has a credit facility in place that provides for a $150.0 million revolving line of credit which has a term not scheduled to expire until March 31, 2023. The Company may elect an interest rate for borrowings under the credit facility based on either (i) the Alternative Prime Rate (4.75%(3.25% at December 2
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 lender’s prior written consent, make or maintain any investments other than those permitted in the credit agreement, or enter into any transactions with affiliates outside of the ordinary course of business. 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
K. | Income Taxes |
Significant components of the provision for income taxes are as follows:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
|
| (in thousands) |
| |||||||||
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
| $ | 25,115 |
|
| $ | 18,510 |
|
| $ | 4,471 |
|
State |
|
| 9,455 |
|
|
| 8,084 |
|
|
| 4,894 |
|
Total current |
|
| 34,570 |
|
|
| 26,594 |
|
|
| 9,365 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
| 16,363 |
|
|
| 8,081 |
|
|
| 12,860 |
|
State |
|
| 1,337 |
|
|
| (346 | ) |
|
| 1,398 |
|
Total deferred |
|
| 17,700 |
|
|
| 7,735 |
|
|
| 14,258 |
|
Total provision for income taxes |
| $ | 52,270 |
|
| $ | 34,329 |
|
| $ | 23,623 |
|
2019 | 2018 | 2017 | ||||||||||
(in thousands) | ||||||||||||
Current: | ||||||||||||
Federal | $ | 18,510 | $ | 4,471 | $ | 34,255 | ||||||
State | 8,084 | 4,894 | 5,225 | |||||||||
Total current | 26,594 | 9,365 | 39,480 | |||||||||
Deferred: | ||||||||||||
Federal | 8,081 | 12,860 | (22,489 | ) | ||||||||
State | (346 | ) | 1,398 | 102 | ||||||||
Total deferred | 7,735 | 14,258 | (22,387 | ) | ||||||||
Total provision for income taxes | $ | 34,329 | $ | 23,623 | $ | 17,093 | ||||||
The Company’s reconciliations to statutory rates are as follows:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Statutory rate |
|
| 21.0 | % |
|
| 21.0 | % |
|
| 21.0 | % |
State income taxes, net of federal benefit |
|
| 4.4 |
|
|
| 4.6 |
|
|
| 4.6 |
|
Deduction relating to excess stock based compensation |
|
| (4.3 | ) |
|
| (3.2 | ) |
|
| (3.6 | ) |
Non-deductable meals & entertainment |
|
| 0.2 |
|
|
| 0.7 |
|
|
| 1.1 |
|
Accounting method changes |
|
| — |
|
|
| — |
|
|
| (3.9 | ) |
Change in valuation allowance |
|
| 0.1 |
|
|
| 0.4 |
|
|
| 0.7 |
|
Other |
|
| — |
|
|
| 0.3 |
|
|
| 0.4 |
|
|
|
| 21.4 | % |
|
| 23.8 | % |
|
| 20.3 | % |
2019 | 2018 | 2017 | ||||||||||
Statutory rate | 21.0 | % | 21.0 | % | 35.0 | % | ||||||
State income taxes, net of federal benefit | 4.6 | 4.6 | 3.6 | |||||||||
Deduction relating to U.S. production activities | — | — | (3.2 | ) | ||||||||
Deduction relating to excess stock based compensation | (3.2 | ) | (3.6 | ) | (3.7 | ) | ||||||
Change relating to enacted Tax Cuts and Jobs Act | — | — | (17.5 | ) | ||||||||
Non-deductable meals & entertainment | 0.7 | 1.1 | 0.9 | |||||||||
Accounting method changes | — | (3.9 | ) | — | ||||||||
Change in valuation allowance | 0.4 | 0.7 | — | |||||||||
Other | 0.3 | 0.4 | (0.4 | ) | ||||||||
23.8 | % | 20.3 | % | 14.7 | % | |||||||
Due to a change of tax accounting methods for depreciation of certain property, plant and equipment for the
Significant components of the Company’s defer
|
| December 26, 2020 |
|
| December 28, 2019 |
| ||
|
| (in thousands) |
| |||||
Deferred tax assets: |
|
|
|
|
|
|
|
|
Lease Liabilities |
| $ | 17,951 |
|
| $ | 15,567 |
|
Inventory |
|
| 2,525 |
|
|
| 5,868 |
|
Stock-based compensation expense |
|
| 5,568 |
|
|
| 5,818 |
|
Accrued expenses |
|
| 3,171 |
|
|
| 3,232 |
|
Other |
|
| 2,212 |
|
|
| 1,914 |
|
Total deferred tax assets |
|
| 31,427 |
|
|
| 32,399 |
|
Valuation allowance |
|
| (2,022 | ) |
|
| (1,866 | ) |
Total deferred tax assets net of valuation allowance |
|
| 29,405 |
|
|
| 30,533 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
| (88,947 | ) |
|
| (78,232 | ) |
Right-of-use Assets |
|
| (15,695 | ) |
|
| (14,203 | ) |
Amortization |
|
| (12,900 | ) |
|
| (10,899 | ) |
Prepaid expenses |
|
| (4,528 | ) |
|
| (2,209 | ) |
Total deferred tax liabilities |
|
| (122,070 | ) |
|
| (105,543 | ) |
Net deferred tax liabilities |
| $ | (92,665 | ) |
| $ | (75,010 | ) |
December 28, | December 29, | |||||||
2019 | 2018 | |||||||
(in thousands) | ||||||||
Deferred tax assets: | ||||||||
Lease Liabilities | $ | 15,567 | $ | — | ||||
Inventory | 5,868 | 1,356 | ||||||
Stock-based compensation expense | 5,818 | 5,156 | ||||||
Accrued expenses | 3,232 | 1,913 | ||||||
Other | 1,914 | 2,478 | ||||||
Total deferred tax assets | 32,399 | 10,903 | ||||||
Valuation allowance | (1,866 | ) | (1,291 | ) | ||||
Total deferred tax assets net of valuation allowance | 30,533 | 9,612 | ||||||
Deferred tax liabilities: | ||||||||
Property, plant and equipment | (78,232 | ) | (57,099 | ) | ||||
Right-of-use Assets | (14,203 | ) | — | |||||
Amortization | (10,899 | ) | (733 | ) | ||||
Prepaid expenses | (2,209 | ) | (949 | ) | ||||
Total deferred tax liabilities | (105,543 | ) | (58,781 | ) | ||||
Net deferred tax liabilities | $ | (75,010 | ) | $ | (49,169 | ) | ||
The Company’s 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 $
2020, 2019, 2018, and 2017,2018, respectively. Accrued interest and penalties amounted to $0.1$0.2 million and $0.1 million at December 26, 2020 and December 28, 2019, and December 29, 2018, respectively.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
| 2020 |
|
| 2019 |
| ||
|
| (in thousands) |
| |||||
Balance at beginning of year |
| $ | 811 |
|
| $ | 836 |
|
Increases related to current year tax positions |
|
| — |
|
|
| 101 |
|
Increases (decreases) related to prior year tax positions |
|
| 13 |
|
|
| (63 | ) |
Decreases related to lapse of statute of limitations |
|
| (12 | ) |
|
| (63 | ) |
Balance at end of year |
| $ | 812 |
|
| $ | 811 |
|
2019 | 2018 | |||||||
(in thousands) | ||||||||
Balance at beginning of year | $ | 836 | $ | 292 | ||||
Increases related to current year tax positions | 101 | 8 | ||||||
(Decreases) Increases related to prior year tax positions | (63 | ) | 636 | |||||
Decreases related to settlements | — | (100 | ) | |||||
Decreases related to lapse of statute of limitations | (63 | ) | — | |||||
Balance at end of year | $ | 811 | $ | 836 | ||||
Included in the balance of unrecognized tax benefits at December 28, 201926, 2020 and December 29, 201828, 2019 are potential net benefits of $
In September 2017, the Internal Revenue Service (“IRS”) commenced an examination of the Company’s 2015 consolidated corporate income tax return. The examination was completed in July 2018 resulting in a no change report. As of December 28, 2019,26, 2020, the Company’s 2016, 2017, 2018, and 20182019 federal income tax returns remain subject to examination by IRS. The Company’s state income tax returns remain subject to examination for three
It is reasonably possible that the Company’s unrecognized tax benefits may increase or decrease in 2020 if there are changes as a result of potential 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 Company’s financial position, results of operations or cash flows.
As of December 28, 2019,26, 2020, the Company’s deferred tax assets included a capital loss carryforward totaling $
L. | Commitments and Contingencies |
Contractual Obligations
As of December 28, 2019,26, 2020, projected cash outflows under
|
| Payments Due by Period |
| |||||||||||||||||||||||||
|
| Total |
|
| 2021 |
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| 2025 |
|
| Thereafter |
| |||||||
|
| (in thousands) |
| |||||||||||||||||||||||||
Ingredients (excluding hops and malt) |
| $ | 91,414 |
|
| $ | 91,414 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Brand support |
|
| 87,459 |
|
|
| 61,154 |
|
|
| 8,646 |
|
|
| 8,397 |
|
|
| 4,703 |
|
|
| 4,559 |
|
|
| — |
|
Equipment and machinery |
|
| 79,379 |
|
|
| 79,379 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Hops and malt |
|
| 51,988 |
|
|
| 41,103 |
|
|
| 4,667 |
|
|
| 2,317 |
|
|
| 2,175 |
|
|
| 1,726 |
|
|
| — |
|
Other |
|
| 11,659 |
|
|
| 9,854 |
|
|
| 1,633 |
|
|
| 172 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total contractual obligations |
| $ | 321,899 |
|
| $ | 282,904 |
|
| $ | 14,946 |
|
| $ | 10,886 |
|
| $ | 6,878 |
|
| $ | 6,285 |
|
| $ | — |
|
Payments Due by Period | ||||||||||||||||||||||||||||
Total | 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Brand support | 80,157 | $ | 47,380 | $ | 9,827 | $ | 9,652 | $ | 4,760 | $ | 4,338 | $ | 4,200 | |||||||||||||||
Apples and other ingredients | 52,904 | 47,810 | 2,547 | 2,547 | — | — | — | |||||||||||||||||||||
Hops, barley and wheat | 52,466 | 35,589 | 6,346 | 4,503 | 2,288 | 2,157 | 1,583 | |||||||||||||||||||||
Equipment and machinery | 35,528 | 35,528 | — | — | — | — | — | |||||||||||||||||||||
Other | 20,422 | 17,123 | 2,620 | 364 | 170 | 45 | 100 | |||||||||||||||||||||
Total contractual obligations | $ | 241,477 | $ | 188,524 | $ | 18,793 | $ | 14,519 | $ | 7,218 | $ | 6,540 | $ | 5,883 | ||||||||||||||
The Company’s accounting policy for inventory and purchase commitments is to recognize a loss by establishing a reserve to the extent inventory levels and commitments exceed forecasted needs. The computation of the excess inventory requires management to make certain assumptions regarding future sales growth, product mix, cancellation costs and supply, among others. Actual results may differ materially from management’s estimates. The Company continues to manage inventory
levels and purchase commitments in an effort to maximize utilization. However, changes in management’s assumptions regarding future sales growth, product mix and hops market conditions could result in future material losses.
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
Currently, the Company has entered into contracts for barley and wheat used in the Company’s malt with 24 major suppliers. The contracts include crop year 20192020 and 20202021 and cover the Company’s barley, wheat, and malt requirements for 2020.2021. These purchase commitments outstanding at December 28, 201926, 2020 totaled $
For the fiscal year ended December 28, 2019,26, 2020, the Company brewed approximately 74%65% of its volume at Company-owned breweries. In the normal course of its business, the Company has historically entered into various production arrangements with other brewing companies. Pursuant to these arrangements, the Company supplies raw materials to those brewing companies, and incurs conversion fees for labor at the time the liquid is produced and packaged.
The Company is also obligated to meet annual volume requirements in conjunction with certain production arrangements, which are not material to the Company’s operations.
In accordance with the City Brewing contract and other production arrangements, the Company is obligated to meet annual minimum volume commitments and is subject to contractual shortfall fees if these annual minimum volume commitments are not met. At December 26, 2020, if volume for the remaining term of the production arrangements were zero, the contractual shortfall fees would total $70.7 million through December 31, 2026. Based on current production volume projections, the Company believes that it will meet all annual volume commitments under these production arrangements and will not incur any shortfall fees. If future volume projections are reduced below the minimum annual volume commitments and the Company estimates that shortfall fees will be incurred, the Company will expense the estimated shortfall fees in the period when incurring the shortfall fees becomes probable.
The Company’s arrangements with other brewing companies require it to periodically purchase equipment in support of brewery operations. As of December 28, 2019,26, 2020, there were no significant equipment purchase requirements outstanding under existing contracts. Changes to the Company’s brewing strategy or existing production arrangements, new production relationships or the introduction of new products in the future may require the Company to purchase equipment to support the contract breweries’ operations.
The Company continues to review the impact the COVID-19 pandemic will have on its future commitments and contingencies but does not believe that the future commitments will be materially impacted.
Litigation
The Company is currently not a party to any pending or threatened litigation, the outcome of which would be expected to have a material adverse effect on its financial condition or the results of its operations.
M. | Fair Value Measures |
The Company defines fair value as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company applies the following fair value
hierarchy,
• | Level 1 — Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. |
• | Level 2 — Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability. |
• | Level 3 — Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date. |
The Company’s money market funds are measured at fair value on a recurring basis (at least annually) and are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The
At December 26, 2020 and December 28, 2019, and December 29, 2018, the Company had money market funds with a “Triple A” rated money market fund. The Company considers the “Triple A” rated money market fund to be a large, highly-rated investment-grade institution. As of December 28, 2019,26, 2020, and December 29, 2018,28, 2019, the Company’s cash and cash equivalents balance was $36.7$163.3 million and $108.4$36.7 million, respectively, including money market funds amounting to $157.6 million and $29.5 million, and $107.5 million, respectively.
N. | Common Compensation |
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 Company’s 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 Company’s Board of Directors and (2) approve all (a) amendments to the Company’s Articles of Organization, (b) mergers or consolidations with, or acquisitions of, other entities, (c) sales or dispositions of any significant portion of the Company’s assets, and (d) equity-based and other executive compensation and other significant corporate matters. The Company’s Class B Common Stock is not listed for trading. Each share of Class B Common Stock is freely convertible into one share of Class A Common Stock, upon request of any Class B holder, and participates equally in earnings.
All distributions with respect to the Company’s capital stock are restricted by the Company’s credit agreement, 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
Employee Stock Compensation Plan
The Company’s Employee Equity Incentive Plan (the “Equity Plan”) currently provides for the grant of discretionary options, restricted stock awards and restricted stock units to employees, and provides for shares to be sold to employees of the Company at a discounted purchase price under its investment share program. The Equity 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 Company’s 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 three to fivefive-year-year periods and, with respect to certain options granted to members of senior management, based on the Company’s performance. Generally, the maximum contractual term of stock options is ten years, although the Board of Directors may grant options that exceed the
During fiscal years 2020, 2019, and 11,827 shares related to service-based stock options.
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 employee’s 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 years 2020, 2019, 2018, and 2017,2018, employees elected to purchase an aggregate of 9,127 investment shares, 7,901 investment shares, and 9,214 investment shares, and 10,146 investment shares, respectively.
The Company has reserved 6.7 million shares of Class A Common Stock for issuance pursuant to the Equity Plan, of which 1.11.0 million shares were available for grant as of December 28, 2019.26, 2020. Shares reserved for issuance under cancelled employee stock options and forfeited restricted stock are returned to the reserve under the Equity Plan for future grants or purchases. The Company also purchases unvested investment shares from employees who have left the Company at the lesser of (i) the price paid for the shares when the employee acquired the shares or (ii) the fair market value of the shares as of the date next preceding the date on which the shares are called for redemption by the Company. These shares are also returned to the reserve under the Equity Plan for future grants or purchases.
Non-Employee
The Company has a stock option plan for
The Company has reserved 0.6 million shares of Class A Common Stock for issuance pursuant to the
Option Activity
Information related to stock options under the Equity Plan and the
|
| Shares |
|
| Weighted- Average Exercise Price |
|
| Weighted-Average Remaining Contractual Term in Years |
|
| Aggregate Intrinsic Value (in thousands) |
| ||||
Outstanding at December 28, 2019 |
|
| 315,678 |
|
| $ | 186.53 |
|
|
|
|
|
|
|
|
|
Granted |
|
| 26,402 |
|
|
| 393.54 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| (2,595 | ) |
|
| 242 |
|
|
|
|
|
|
|
|
|
Exercised |
|
| (97,638 | ) |
|
| 136.87 |
|
|
|
|
|
|
|
|
|
Outstanding at December 26, 2020 |
|
| 241,847 |
|
| $ | 228.58 |
|
|
| 5.93 |
|
| $ | 190,176 |
|
Exercisable at December 26, 2020 |
|
| 53,638 |
|
| $ | 211.32 |
|
|
| 5.16 |
|
| $ | 43,104 |
|
Vested and expected to vest at December 26, 2020 |
|
| 217,604 |
|
| $ | 227.97 |
|
|
| 5.91 |
|
| $ | 171,246 |
|
Shares | Weighted- Average Exercise Price | Weighted-Average Remaining Contractual Term in Years | Aggregate Intrinsic Value (in thousands) | |||||||||||||
Outstanding at December 29, 2018 | 366,829 | $ | 155.75 | |||||||||||||
Granted | 31,286 | 313.56 | ||||||||||||||
Forfeited | — | — | ||||||||||||||
Expired | — | — | ||||||||||||||
Exercised | (82,437 | ) | 97.80 | |||||||||||||
Outstanding at December 28, 2019 | 315,678 | $ | 186.53 | 5.75 | $ | 60,680 | ||||||||||
Exercisable at December 28, 2019 | 93,113 | $ | 148.60 | 4.08 | $ | 21,430 | ||||||||||
Vested and expected to vest at December 28, 2019 | 286,312 | $ | 184.83 | 5.67 | $ | 55,522 | ||||||||||
Of the total options outstanding at December 28, 2019, 65,30626, 2020, 14,962 shares were performance-based options for which the performance criteria had yet to be achieved and 40,60724,699 shares were performance-based options for which the performance criteria had been met but yet to be approved for vesting by the Board of Directors.
Stock Compensation to Chief Executive
On April 30, 2018, the Company granted its incoming Chief Executive Officer a performance-based stock option to purchase 9,959 shares of the Company’s Class A Common stock with a weighted average fair value of $100.50 per share, which vests through 2022. The incoming Chief Executive Officer was also granted 64,325 restricted stock awards with a weighted-average fair value of $229.30 per share with service-based vesting through 2023.
Stock-Based Compensation
The following table provides information regarding stock-based compensation expense included in operating expenses in the accompanying consolidated statements of comprehensive income:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
|
| (in thousands) |
| |||||||||
Amounts included in advertising, promotional and selling expenses |
| $ | 4,467 |
|
| $ | 3,996 |
|
| $ | 3,243 |
|
Amounts included in general and administrative expenses |
|
| 10,815 |
|
|
| 8,341 |
|
|
| 6,792 |
|
Total stock-based compensation expense |
| $ | 15,282 |
|
| $ | 12,337 |
|
| $ | 10,035 |
|
Amounts related to performance-based stock awards included in total stock-based compensation expense |
| $ | 2,771 |
|
| $ | 1,944 |
|
| $ | 1,750 |
|
2019 | 2018 | 2017 | ||||||||||
(in thousands) | ||||||||||||
Amounts included in advertising, promotional and selling expenses | $ | 3,996 | $ | 3,243 | $ | 2,868 | ||||||
Amounts included in general and administrative expenses | 8,341 | 6,792 | 3,448 | |||||||||
Total stock-based compensation expense | $ | 12,337 | $ | 10,035 | $ | 6,316 | ||||||
Amounts related to performance-based stock awards included in total stock-based compensation expense | $ | 1,944 | $ | 1,750 | $ | 36 | ||||||
As permitted by ASC 718, the Company uses a lattice model, such as the trinomial option-pricing model, to estimate the fair values of stock options. The Company believes that the Black-Scholes option-pricing model is
Weighted average assumptions used to estimate fair values of stock options on the date of grants are as follows:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Expected volatility |
|
| 32.6 | % |
|
| 32.1 | % |
|
| 34.0 | % |
Risk-free interest rate |
|
| 1.09 | % |
|
| 2.63 | % |
|
| 2.68 | % |
Expected dividends |
|
| 0 | % |
|
| 0 | % |
|
| 0 | % |
Exercise factor |
| 2.1 times |
|
| 2.33 times |
|
| 2.52 times |
| |||
Discount for post-vesting restrictions |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 0.0 | % |
2019 | 2018 | 2017 | ||||||||||
Expected volatility | 32.1 | % | 34.0 | % | 36.2 | % | ||||||
Risk-free interest rate | 2.63 | % | 2.68 | % | 2.30 | % | ||||||
Expected dividends | 0 | % | 0 | % | 0 | % | ||||||
Exercise factor | 2.33 times | 2.52 times | 3.63 times | |||||||||
Discount for post-vesting restrictions | 0.0 | % | 0.0 | % | 0.0 | % | ||||||
Expected volatility is based on the Company’s historical realized volatility. The risk-free interest rate represents the implied yields available from the U.S. Treasury
Fair value of restricted stock awards is based on the Company’s traded stock price on the date of the grants. Fair value of investment shares is calculated using the trinomial option-pricing model.
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.
The Company recognizes compensation expense, less estimated forfeitures of 11.0%13.0%. The forfeiture rate is based upon historical experience and the Company periodically reviews this rate to ensure proper projection of future
The total fair value of options vested during fiscal years 2020, 2019, and 2018 and 2017 was $4.8 million, $2.5 million, $3.2 million, and $2.9$3.2 million, respectively. The aggregate intrinsic value of stock options exercised during fiscal years 2020, 2019, and 2018 and 2017 was $45.9 million, $20.9 million, and $19.2 million, and $14.9 million, respectively.
Based on equity awards outstanding as of December 28, 2019,26, 2020, there is $24.8$28.6 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 2.0 years. The following table summarizes the estimated future annual stock-based compensation expense related to share-based arrangements existing as of
2020 | $ | 10,231 | ||
2021 | 7,529 | |||
2022 | 5,000 | |||
2023 | 1,731 | |||
2024 | 334 | |||
Total | $ | 24,825 | ||
Non-Vested
The following table summarizes vesting activities of shares issued under the investment share program and restricted stock awards:
|
| Number of Shares |
|
| Weighted Average Fair Value |
| ||
Non-vested at December 28, 2019 |
|
| 122,142 |
|
| $ | 213.52 |
|
Granted |
|
| 42,530 |
|
|
| 350.96 |
|
Vested |
|
| (45,860 | ) |
|
| 214.23 |
|
Forfeited |
|
| (4,496 | ) |
|
| 236.63 |
|
Non-vested at December 26, 2020 |
|
| 114,316 |
|
| $ | 263.47 |
|
Number Shares | Weighted Average Value | |||||||
Non-vested at December 29, 2018 | 126,720 | $ | 192.74 | |||||
Granted | 30,410 | 269.91 | ||||||
Vested | (33,205 | ) | 188.63 | |||||
Forfeited | (1,783 | ) | 161.42 | |||||
Non-vested at December 28, 2019 | 122,142 | $ | 213.52 | |||||
45,860 shares vested in 2020 with a weighted average fair value of $214.23, 33,205 shares vested in 2019 with a weighted average fair value of $188.63.$188.63, and 20,678 shares vested in 2018 with a weighted average fair value of $156.50. 22,213 shares vested in 2017 with a weighted average fair value of $151.32.
Stock Repurchase Program
In 1998, the Board of Directors authorized management to implement a stock repurchase program. As of December 28, 2019,26, 2020, the Company has repurchased a cumulative total of approximately 13.8 million shares of its Class A Common Stock for an aggregate purchase price of approximately $840.7 million as follows:
|
| Number of Shares |
|
| Aggregate Purchase Price |
| ||
|
| (in thousands) |
| |||||
Repurchased at December 30, 2017 |
|
| 13,447,346 |
|
| $ | 752,352 |
|
2018 repurchases |
|
| 349,691 |
|
|
| 88,312 |
|
Repurchased at December 29, 2018 |
|
| 13,797,037 |
|
|
| 840,664 |
|
2019 repurchases |
|
| — |
|
|
| — |
|
Repurchased at December 28, 2019 |
|
| 13,797,037 |
|
|
| 840,664 |
|
2020 repurchases |
|
| — |
|
|
| — |
|
Repurchased at December 26, 2020 |
|
| 13,797,037 |
|
| $ | 840,664 |
|
Number of Shares | Aggregate Purchase | |||||||
(in thousands) | ||||||||
Repurchased at December 31, 2016 | 12,483,556 | $ | 607,750 | |||||
2017 repurchases | 963,790 | 144,602 | ||||||
Repurchased at December 30, 2017 | 13,447,346 | 752,352 | ||||||
2018 repurchases | 349,691 | 88,312 | ||||||
Repurchased at December 29, 2018 | 13,797,037 | 840,664 | ||||||
2019 repurchases | — | — | ||||||
Repurchased at December 28, 2019 | 13,797,037 | $ | 840,664 | |||||
O. | Employee Retirement Plans and Post-Retirement Medical Benefits |
The Company has 1 retirement plan covering substantially all non-union employees; 2 other retirement plans, one of which covers substantially all union employees, and the other of which covers employees of a specific union;union which was terminated in 2020; and post-retirement medical benefits covering substantially all union employees.
Non-Union
The Boston Beer Company 401(k) Plan (the “Boston Beer 401(k) Plan”), which was established by the Company in 1993, is a Company-sponsored defined contribution plan that covers a majority of the Company’s
As part of the Dogfish Head Transaction, the Company acquired The Dogfish Head 401(k) Plan (the “Dogfish Head 401(k) Plan”), which is a Company-sponsored defined contribution plan that is available to all Dogfish Head employees. Participants may make voluntary contributions up to 60% of their annual compensation, subject to IRS limitations. The Company matches each participant’s contribution. A maximum of 5% of compensation is taken into account in determining the amount of the match. The Company matches 100% of the first 3% of the eligible compensation participants contribute. Thereafter, the Company matches 50% of the eligible contribution. The Company’s contributions to the Dogfish Head 401(k) Plan amounted to $0.3
million in fiscal year 2019. In January 2020, the Dogfish Head 401(k) Plan merged with the Boston Beer 401(k) Plan.Union Plans
The Samuel Adams Cincinnati Brewery 401(k) Plan for Represented Employees (the “SACB 401(k) Plan”) is a Company-sponsored defined contribution plan. It was established in 1997 and is available to all union employees upon commencement of employment or, if later, attaining age 21. Participants may make voluntary contributions up to 60% of their annual compensation to the SACB 401(k) Plan, subject to IRS limitations. Company contributions for fiscal years 20192020 and 20182019 were insignificant. The basic annual administrative fee for the SACB 401(k) Plan is paid by the Plan’s investment fund
revenue. In addition, per the Service Provider Payment Agreement, a credit up to a maximum of two basis points multiplied by the total amount of assets under the Plan per year, excluding participant loans, is available for paying eligible Plan expenses. The Company is responsible for the payment of any additional fees related to the management of the SACB 401(k) Plan. Such fees are not material to the Company.
The Samuel Adams Brewery Company, Ltd. Local Union No. 1199 Pension Plan (the “Local 1199 Pension Plan”) iswas a Company-sponsored defined benefit pension plan. It was established in 1991 and is was open to all union employees who are covered by the Company’s collective bargaining agreement with Teamsters Local Union
The Company provides a supplement to eligible retirees from Local 1, Local 20, and Local Union 1199 to assist them with the cost of Medicare gap coverage after their retirement on account of age or permanent disability. To qualify for this benefit (collectively, the “Retiree Medical Plan”), an employee must have worked for at least 20 years for the Company or its predecessor at the Company’s Cincinnati Brewery, must have been enrolled in the Company’s group medical insurance plan for at least 5 years before retirement and, in the case of retirees from
In addition, the comprehensive medical plan offered to currently employed members of Local 20 remains available to them should they retire after reaching age 57, and before reaching age 65, with at least 20 years of service with the Company or its predecessor at the Company’s Cincinnati Brewery. These eligible retirees may choose to continue to be covered under the Company’s comprehensive group medical plan until they reach the age when they are eligible for Medicare health benefits under the Social Security Act or coverage under a comparable State health benefit plan. Eligible retirees pay 100% of the cost of the coverage.
The funded status of the Local 1199 Pension Plan and the Retiree Medical Plan are as follows:
|
| Local 1199 Pension Plan |
|
| Retiree Medical Plan |
| ||||||||||
|
| December 26, 2020 |
|
| December 28, 2019 |
|
| December 26, 2020 |
|
| December 28, 2019 |
| ||||
|
| (in thousands) |
| |||||||||||||
Fair value of plan assets at end of fiscal year |
| $ | — |
|
| $ | 3,946 |
|
| $ | — |
|
| $ | — |
|
Benefit obligation at end of fiscal year |
|
| — |
|
|
| 6,680 |
|
|
| 1,077 |
|
|
| 888 |
|
Unfunded Status |
| $ | — |
|
| $ | (2,734 | ) |
| $ | (1,077 | ) |
| $ | (888 | ) |
Local 1199 Pension Plan | Retiree Medical Plan | |||||||||||||||
December 28, 2019 | December 29, 2018 | December 28, 2019 | December 29, 2018 | |||||||||||||
(in thousands) | ||||||||||||||||
Fair value of plan assets at end of fiscal year | $ | 3,946 | $ | 3,322 | $ | — | $ | — | ||||||||
Benefit obligation at end of fiscal year | 6,680 | 5,357 | 888 | 731 | ||||||||||||
Unfunded Status | $ | (2,734 | ) | $ | (2,035 | ) | $ | (888 | ) | $ | (731 | ) | ||||
The Local 1199 Plan’s investments are considered category 1 assets in the fair value hierarchy and the fair values were determined by reference to
Asset Category |
| December 26, 2020 |
|
| December 28, 2019 |
| ||
Cash equivalents |
|
| 0 | % |
|
| 100 | % |
Equity securities |
|
| 0 | % |
|
| 0 | % |
Debt securities |
|
| 0 | % |
|
| 0 | % |
Total |
|
| 0 | % |
|
| 100 | % |
Asset Category | December 28, 2019 | December 29, 2018 | ||||||
Cash equivalents | 100 | % | 0 | % | ||||
Equity securities | 0 | % | 61 | % | ||||
Debt securities | 0 | % | 39 | % | ||||
Total | 100 | % | 100 | % | ||||
P. | Net Income per Share |
Net Income per Common Share
The following table sets forth the computation of basic net income per share using the two-class method:
|
| December 26, |
|
| December 28, |
|
| December 29, |
| |||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
|
| (in thousands, except per share data) |
| |||||||||
Net Income |
| $ | 191,960 |
|
| $ | 110,041 |
|
| $ | 92,663 |
|
Allocation of net income for basic: |
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock |
| $ | 153,106 |
|
| $ | 82,474 |
|
| $ | 68,080 |
|
Class B Common Stock |
|
| 37,690 |
|
|
| 26,600 |
|
|
| 23,710 |
|
Unvested participating shares |
|
| 1,164 |
|
|
| 967 |
|
|
| 873 |
|
|
| $ | 191,960 |
|
| $ | 110,041 |
|
| $ | 92,663 |
|
Weighted average number of shares for basic: |
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock |
|
| 9,734 |
|
|
| 8,908 |
|
|
| 8,620 |
|
Class B Common Stock* |
|
| 2,396 |
|
|
| 2,873 |
|
|
| 3,002 |
|
Unvested participating shares |
|
| 74 |
|
|
| 105 |
|
|
| 111 |
|
|
|
| 12,204 |
|
|
| 11,886 |
|
|
| 11,733 |
|
Net income per share for basic: |
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock |
| $ | 15.73 |
|
| $ | 9.26 |
|
| $ | 7.90 |
|
Class B Common Stock |
| $ | 15.73 |
|
| $ | 9.26 |
|
| $ | 7.90 |
|
December 28, 2019 | December 29, 2018 | December 30, 2017 | ||||||||||
(in thousands, except per share data) | ||||||||||||
Net Income | $ | 110,041 | $ | 92,663 | $ | 99,049 | ||||||
Allocation of net income for basic: | ||||||||||||
Class A Common Stock | $ | 82,474 | $ | 68,080 | $ | 73,114 | ||||||
Class B Common Stock | 26,600 | 23,710 | 25,391 | |||||||||
Unvested participating shares | 967 | 873 | 544 | |||||||||
| $ | 110,041 | $ | 92,663 | $ | 99,049 | |||||||
Weighted average number of shares for basic: | ||||||||||||
Class A Common Stock | 8,908 | 8,620 | 8,933 | |||||||||
Class B Common Stock* | 2,873 | 3,002 | 3,102 | |||||||||
Unvested participating shares | 105 | 111 | 67 | |||||||||
11,886 | 11,733 | 12,102 | ||||||||||
Net income per share for basic: | ||||||||||||
Class A Common Stock | $ | 9.26 | $ | 7.90 | $ | 8.18 | ||||||
Class B Common Stock | $ | 9.26 | $ | 7.90 | $ | 8.18 | ||||||
* | Change in Class B Common Stock resulted from the conversion of 100,000 100,000 shares to Class A Common stock on August 8, 2019 and145,000 shares to Class A Common stock on December 13, 2019, 150,000 shares to Class A Common Stock on March 11, 2020, 215,000 shares to Class A Common Stock on May 6, 2020 and 130,000 shares to Class A Common Stock on November 3, 2020 with the ending number of shares reflecting the weighted average for the period. |
Net Income per Common Share
The Company calculates diluted net income per share for common stock using the more dilutive of (1) the treasury stock method, or (2) the
The following tables set forth the computation of diluted net income per share, assuming the conversion of all Class B Common Stock into Class A Common Stock and using the
|
| Fifty-two weeks ended December 26, 2020 |
| |||||||||
|
| Earnings to Common Shareholders |
|
| Common Shares |
|
| EPS |
| |||
|
| (in thousands, except per share data) |
|
|
|
|
| |||||
As reported - basic |
| $ | 153,106 |
|
|
| 9,734 |
|
| $ | 15.73 |
|
Add: effect of dilutive potential common shares |
|
|
|
|
|
|
|
|
|
|
|
|
Share-based awards |
|
| — |
|
|
| 153 |
|
|
|
|
|
Class B Common Stock |
|
| 37,690 |
|
|
| 2,396 |
|
|
|
|
|
Net effect of unvested participating shares |
|
| 14 |
|
|
|
|
|
|
|
|
|
Net income per common share - diluted |
| $ | 190,810 |
|
| $ | 12,283 |
|
|
| 15.53 |
|
Fifty-two weeks ended December 28, 2019 | ||||||||||||
Earnings to Common Shareholders | Common | EPS | ||||||||||
(in thousands, except per | ||||||||||||
As reported - basic | $ | 82,474 | 8,908 | $ | 9.26 | |||||||
| Add: effect of dilutive potential common shares | ||||||||||||
Share-based awards | — | 127 | ||||||||||
Class B Common Stock | 26,600 | 2,873 | ||||||||||
Net effect of unvested participating shares | 10 | — | ||||||||||
Net income per common share - diluted | $ | 109,084 | 11,908 | 9.16 | ||||||||
|
| Fifty-two weeks ended December 28, 2019 |
| |||||||||
|
| Earnings to Common Shareholders |
|
| Common Shares |
|
| EPS |
| |||
|
| (in thousands, except per share data) |
|
|
|
|
| |||||
As reported - basic |
| $ | 82,474 |
|
|
| 8,908 |
|
| $ | 9.26 |
|
Add: effect of dilutive potential common shares |
|
|
|
|
|
|
|
|
|
|
|
|
Share-based awards |
|
| — |
|
|
| 127 |
|
|
|
|
|
Class B Common Stock |
|
| 26,600 |
|
|
| 2,873 |
|
|
|
|
|
Net effect of unvested participating shares |
|
| 10 |
|
|
| — |
|
|
|
|
|
Net income per common share - diluted |
| $ | 109,084 |
|
|
| 11,908 |
|
|
| 9.16 |
|
|
| Fifty-two weeks ended December 29, 2018 |
| |||||||||
|
| Earnings to Common Shareholders |
|
| Common Shares |
|
| EPS |
| |||
|
| (in thousands, except per share data) |
|
|
|
|
| |||||
As reported - basic |
| $ | 68,080 |
|
|
| 8,620 |
|
| $ | 7.90 |
|
Add: effect of dilutive potential common shares |
|
|
|
|
|
|
|
|
|
|
|
|
Share-based awards |
|
| — |
|
|
| 112 |
|
|
|
|
|
Class B Common Stock |
|
| 23,710 |
|
|
| 3,002 |
|
|
|
|
|
Net effect of unvested participating shares |
|
| 8 |
|
|
| — |
|
|
|
|
|
Net income per common share - diluted |
| $ | 91,798 |
|
|
| 11,734 |
|
| $ | 7.82 |
|
Fifty-two weeks ended December 29, 2018 | ||||||||||||
Earnings to Common Shareholders | Common Shares | EPS | ||||||||||
(in thousands, except per | ||||||||||||
As reported - basic | $ | 68,080 | 8,620 | $ | 7.90 | |||||||
Add: effect of dilutive potential c o mmon shares | ||||||||||||
Share-based awards | — | 112 | ||||||||||
Class B Common Stock | 23,710 | 3,002 | ||||||||||
Net effect of unvested participating shares | 8 | — | ||||||||||
Net income per common share - diluted | $ | 91,798 | 11,734 | $ | 7.82 | |||||||
Fifty-two weeks ended December 30, 2017 | ||||||||||||
Earnings to Common Shareholders | Common Shares | EPS | ||||||||||
(in thousands, except per | ||||||||||||
As reported - basic | $ | 73,114 | 8,933 | $ | 8.18 | |||||||
| Add: effect of dilutive potential common shares | ||||||||||||
Share-based awards | — | 145 | ||||||||||
Class B Common Stock | 25,391 | 3,102 | ||||||||||
Net effect of unvested participating shares | 7 | — | ||||||||||
Net income per common share - diluted | $ | 98,512 | 12,180 | $ | 8.09 | |||||||
Basic net income per common share for each share of Class A
There were 0 stock options with anti-dilutive effects that were excluded in computing diluted income during fiscal 2020. Weighted average stock options to purchase 23,000, 100,000, and 785,000100,000 shares of Class A Common Stock were outstanding during fiscal 2019, 2018, and 2017,2018, respectively, but not included in computing diluted income per share because their effects were anti-dilutive. Additionally, performance-based stock options to purchase 10,000, 10,000, and 36,00010,000 shares of Class A Common Stock were outstanding during fiscal 2019, and 2018, and
Q. | Accumulated Other Comprehensive Loss |
Accumulated other comprehensive loss represents amounts of unrecognized actuarial gains or losses related to the Company sponsored defined benefit pension plan and post-retirement medical plan, net of tax effect, and cumulative currency translation adjustments. Changes in accumulated other comprehensive loss represent actuarial losses or gains, net of tax effect, recognized as components of net periodic benefit costs and currency translation adjustments due to tax rate changes in
the period. The following table details the changes in accumulated other comprehensive loss for 2020, 2019, 2018, and 20172018 (in thousands):
|
| Accumulated Other Comprehensive (Loss) Income |
| |
Balance at December 30, 2017 |
| $ | (1,288 | ) |
Deferred pension and other post-retirement benefit costs, net of taxes of $64 |
|
| 191 |
|
Amortization of Deferred benefit costs, net of taxes of $29 |
|
| 86 |
|
One time effect of adoption of ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income |
|
| (211 | ) |
Currency translation adjustment |
|
| 25 |
|
Balance at December 29, 2018 |
| $ | (1,197 | ) |
Deferred pension and other post-retirement benefit costs, net of taxes of $150 |
|
| (442 | ) |
Amortization of Deferred benefit costs, net of taxes of $26 |
|
| (77 | ) |
Currency translation adjustment |
|
| 47 |
|
Balance at December 28, 2019 |
| $ | (1,669 | ) |
Deferred pension and other post-retirement benefit costs, net of tax benefit of $502 |
|
| 1,611 |
|
Amortization of Deferred benefit costs, net of taxes of $35 |
|
| (219 | ) |
Currency translation adjustment |
|
| 25 |
|
Balance at December 26, 2020 |
| $ | (252 | ) |
|
|
|
|
|
Comprehensive (Loss) Income | ||||
R. | Valuation and Qualifying Accounts |
The Company maintains reserves against accounts receivable for doubtful accounts and inventory for obsolete and slow-moving inventory. The Company also maintains reserves against accounts receivable for distributor promotional allowances. In addition, the Company maintains a reserve for estimated returns of stale beer, which is included in accrued expenses.
Allowance for Doubtful Accounts |
| Balance at Beginning of Period |
|
| Net Provision (Recovery) |
|
| Amounts Charged Against Reserves |
|
| Balance at End of Period |
| ||||
|
| (In thousands) |
| |||||||||||||
2020 |
| $ | 47 |
|
| $ | 488 |
|
| $ | — |
|
| $ | 535 |
|
2019 |
| $ | 2 |
|
| $ | 45 |
|
| $ | — |
|
| $ | 47 |
|
2018 |
| $ | — |
|
| $ | 2 |
|
| $ | — |
|
| $ | 2 |
|
Allowance for Doubtful Accounts | Balance at Beginning Period | Net Provision (Recovery) | Amounts Charged Against Reserves | Balance at End of | ||||||||||||
(In thousands) | ||||||||||||||||
2019 | $ | 2 | $ | 45 | $ | 0 | $ | 47 | ||||||||
2018 | $ | — | $ | 2 | $ | — | $ | 2 | ||||||||
2017 | $ | — | $ | — | $ | — | $ | — | ||||||||
Discount Accrual |
| Balance at Beginning of Period |
|
| Net Provision (Recovery) * |
|
| Amounts Charged Against Reserves |
|
| Balance at End of Period |
| ||||
|
| (In thousands) |
| |||||||||||||
2020 |
| $ | 6,272 |
|
| $ | 59,279 |
|
| $ | (56,194 | ) |
| $ | 9,357 |
|
2019 |
| $ | 4,636 |
|
| $ | 43,920 |
|
| $ | (42,284 | ) |
| $ | 6,272 |
|
2018 |
| $ | 3,072 |
|
| $ | 36,213 |
|
| $ | (34,649 | ) |
| $ | 4,636 |
|
Inventory Obsolescence Reserve |
| Balance at Beginning of Period |
|
| Net Provision (Recovery) |
|
| Amounts Charged Against Reserves |
|
| Balance at End of Period |
| ||||
|
| (In thousands) |
| |||||||||||||
2020 |
| $ | 6,375 |
|
| $ | 11,248 |
|
| $ | (11,292 | ) |
| $ | 6,331 |
|
2019 |
| $ | 2,580 |
|
| $ | 8,092 |
|
| $ | (4,297 | ) |
| $ | 6,375 |
|
2018 |
| $ | 1,826 |
|
| $ | 4,175 |
|
| $ | (3,421 | ) |
| $ | 2,580 |
|
Stale Beer Reserve |
| Balance at Beginning of Period |
|
| Net Provision (Recovery) |
|
| Amounts Charged Against Reserves |
|
| Balance at End of Period |
| ||||
|
| (In thousands) |
| |||||||||||||
2020 |
| $ | 1,828 |
|
| $ | 8,411 |
|
| $ | (7,147 | ) |
| $ | 3,092 |
|
2019 |
| $ | 2,146 |
|
| $ | 4,406 |
|
| $ | (4,724 | ) |
| $ | 1,828 |
|
2018 |
| $ | 3,023 |
|
| $ | 2,691 |
|
| $ | (3,568 | ) |
| $ | 2,146 |
|
Discount Accrual | Balance Beginning Period | Net (Recovery) * | Amounts Charged Reserves | Balance at End of | ||||||||||||
(In thousands) | ||||||||||||||||
2019 | $ | 4,636 | $ | 43,920 | $ | (42,284 | ) | $ | 6,272 | |||||||
2018 | $ | 3,072 | $ | 36,213 | $ | (34,649 | ) | $ | 4,636 | |||||||
2017 | $ | 3,078 | $ | 30,171 | $ | (30,177 | ) | $ | 3,072 | |||||||
Inventory Obsolescence Reserve | Balance at Beginning Period | Net Provision (Recovery) | Amounts Charged Reserves | Balance at End of | ||||||||||||
(In thousands) | ||||||||||||||||
2019 | $ | 2,580 | $ | 8,092 | $ | (4,297 | ) | $ | 6,375 | |||||||
2018 | $ | 1,826 | $ | 4,175 | $ | (3,421 | ) | $ | 2,580 | |||||||
2017 | $ | 2,262 | $ | 5,751 | $ | (6,187 | ) | $ | 1,826 | |||||||
Stale Beer Reserve | Balance at Beginning Period | Net Provision (Recovery) | Amounts Charged Against Reserves | Balance at End of | ||||||||||||
(In thousands) | ||||||||||||||||
2019 | $ | 2,146 | $ | 4,406 | $ | (4,724 | ) | $ | 1,828 | |||||||
2018 | $ | 3,023 | $ | 2,691 | $ | (3,568 | ) | $ | 2,146 | |||||||
2017 | $ | 5,226 | $ | 5,449 | $ | (7,652 | ) | $ | 3,023 | |||||||
* | 2018 net provision of the discount accrual includes $1.7 million related to the cumulative effect adjustment to retained earnings and the current year adjustment to deferred revenue related to the adoption of ASU 2014-09. |
S. | Related Party Transactions |
The Company has entered into a lease with the Dogfish Head founders and other owners of buildings used in certain of the Company’s restaurant operations. The lease is for ten years with renewal options. The total payments due under the initial ten year term is $3.6 million. Total related party expense recognized for fiscal 20192020 was approximately $183,000.
T. | Subsequent Events |
The Company evaluated subsequent events occurring after the balance sheet date, December 28, 2019,26, 2020, and concluded that there were no events of which management was aware that occurred after the balance sheet date that would require any adjustment to or disclosure in the accompanying consolidated financial statements.
U. | Quarterly Results (Unaudited) |
The Company’s 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 management’s 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 quartersquarters.
|
| For Quarters Ended |
| |||||||||||||||||||||||||||||
|
| December 26, 2020 |
|
| September 26, 2020 |
|
| June 27, 2020 |
|
| March 28, 2020 |
|
| December 28, 2019 (1) |
|
| September 28, 2019 (1) |
|
| June 29, 2019 (1) |
|
| March 30, 2019 |
| ||||||||
|
| (13 weeks) |
|
| (13 weeks) |
|
| (13 weeks) |
|
| (13 weeks) |
|
| (13 weeks) |
|
| (13 weeks) |
|
| (13 weeks) |
|
| (13 weeks) |
| ||||||||
|
| (In thousands, except per share data) |
| |||||||||||||||||||||||||||||
Net revenue |
| $ | 460,937 |
|
| $ | 492,792 |
|
| $ | 452,138 |
|
| $ | 330,565 |
|
| $ | 301,300 |
|
| $ | 378,466 |
|
| $ | 318,407 |
|
| $ | 251,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
| 216,270 |
|
|
| 240,585 |
|
|
| 209,624 |
|
|
| 147,973 |
|
|
| 142,789 |
|
|
| 187,835 |
|
|
| 159,002 |
|
|
| 124,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
| 42,125 |
|
|
| 101,781 |
|
|
| 78,769 |
|
|
| 21,532 |
|
|
| 17,702 |
|
|
| 59,836 |
|
|
| 37,932 |
|
|
| 29,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 32,817 |
|
| $ | 80,768 |
|
| $ | 60,141 |
|
| $ | 18,234 |
|
| $ | 13,762 |
|
| $ | 44,729 |
|
| $ | 27,856 |
|
| $ | 23,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share – basic |
| $ | 2.68 |
|
| $ | 6.61 |
|
| $ | 4.93 |
|
| $ | 1.50 |
|
| $ | 1.13 |
|
| $ | 3.70 |
|
| $ | 2.39 |
|
| $ | 2.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share – diluted |
| $ | 2.64 |
|
| $ | 6.51 |
|
| $ | 4.88 |
|
| $ | 1.49 |
|
| $ | 1.12 |
|
| $ | 3.65 |
|
| $ | 2.36 |
|
| $ | 2.02 |
|
For Quarters Ended | ||||||||||||||||||||||||||||||||
December 28, 2019 (2) | September 28, 2019 (2) | June 29, 2019 (2) | March 30, 2019 | December 29, 2018 | September 29, 2018 (1) | June 30, 2018 | March 31, 2018 | |||||||||||||||||||||||||
(13 weeks) | (13 weeks) | (13 weeks) | (13 weeks) | (13 weeks) | (13 weeks) | (13 weeks) | (13 weeks) | |||||||||||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||||||||||||||
Net revenue | $ | 301,300 | $ | 378,466 | $ | 318,407 | $ | 251,651 | $ | 225,222 | $ | 306,870 | $ | 273,100 | $ | 190,457 | ||||||||||||||||
Gross profit | 142,789 | 187,835 | 159,002 | 124,540 | 116,949 | 157,227 | 141,970 | 96,097 | ||||||||||||||||||||||||
Operating income | 17,702 | 59,836 | 37,932 | 29,443 | 28,851 | 46,728 | 31,064 | 9,238 | ||||||||||||||||||||||||
Net income | $ | 13,762 | $ | 44,729 | $ | 27,856 | $ | 23,694 | $ | 21,811 | $ | 38,007 | $ | 23,535 | $ | 9,310 | ||||||||||||||||
Net income per share – basic | $ | 1.13 | $ | 3.70 | $ | 2.39 | $ | 2.04 | $ | 1.88 | $ | 3.25 | $ | 1.99 | $ | 0.79 | ||||||||||||||||
Net income per share – diluted | $ | 1.12 | $ | 3.65 | $ | 2.36 | $ | 2.02 | $ | 1.86 | $ | 3.21 | $ | 1.98 | $ | 0.78 | ||||||||||||||||
(1) |
During the second, third and fourth quarter of 2019, the Company recorded $1.9 million, $5.9 million and $2.1 million innon-reoccurring transaction fees related to the Dogfish Head Transaction, respectively. |
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 Company’s management, including the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules
(b) Management’s 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
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 28, 2019. As described in Item 1 and in Note C of the Notes to Consolidated Financial Statements, we completed the Dogfish Head Brewery Transaction in July 2019. As permitted by the rules and regulations of the SEC, we excluded from our assessment the internal control over financial reporting at Dogfish Head Brewery, whose financial statements reflect total assets and net revenues constituting approximately 12% and 4%, respectively, of the consolidated financial statement amounts as of and for the year ended December 28, 2019.26, 2020. In making this assessment, the Company used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
The effectiveness of the Company’s internal control over financial reporting as of December 28, 201926, 2020 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report.
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.
(c) Changes in internal control over financial reporting
No changes in the Company’s internal control over financial reporting occurred during the quarter ended December 26, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and Board of Directors of
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of The Boston Beer Company, Inc. and subsidiaries (the “Company”) as of December 28, 2019,26, 2020, based on criteria established in
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 28, 2019,26, 2020, of the Company and our report dated February 19, 202017, 2021 expressed an unqualified opinion on those financial statements and included an explanatory paragraph related to the Company’s adoption of FASB Accounting Standards Updatestatements.
Basis for Opinion
The Company’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, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control over Financial Reporting
A company’s 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 company’s 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
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.
/s/ Deloitte & Touche LLP |
Boston, Massachusetts |
February |
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 Company’s investor relations website,
The information required by Item 10 is hereby incorporated by reference from the registrant’s definitive Proxy Statement for the 20202021 Annual Meeting to be held on May 14, 2020.
Item 11. | Executive Compensation |
The Information required by Item 11 is hereby incorporated by reference from the registrant’s definitive Proxy Statement for the 20202021 Annual Meeting to be held on May 14, 2020.
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 registrant’s definitive Proxy Statement for the 20202021 Annual Meeting to be held on May 14, 2020.
Related Stockholder Matters
EQUITY COMPENSATION PLAN INFORMATION
Plan Category |
| Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights |
|
| Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights |
|
| Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans |
| |||
Equity Compensation Plans Approved by Security Holders |
|
| 241,847 |
|
| $ | 228.58 |
|
|
| 1,108,791 |
|
Equity Compensation Plans Not Approved by Security Holders |
| N/A |
|
| N/A |
|
| N/A |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
| 241,847 |
|
| $ | 228.58 |
|
|
| 1,108,791 |
|
Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans | |||||||||
Equity Compensation Plans Approved by Security Holders | 315,678 | $ | 186.53 | 1,170,632 | ||||||||
Equity Compensation Plans Not Approved by Security Holders | N/A | N/A | N/A | |||||||||
Total | 315,678 | $ | 186.53 | 1,170,632 | ||||||||
Item 13. | Certain Relationships and Related Transactions, and Director Independence |
The information required by Item 13 is hereby incorporated by reference from the registrant’s definitive Proxy Statement for the 20202021 Annual Meeting to be held on May 14, 2020.
Item 14. | Principal Accounting Fees and Services |
The information required by Item 14 is hereby incorporated by reference from the registrant’s definitive Proxy Statement for the 20202021 Annual Meeting to be held on May 14, 2020.19, 2021.
PART IV.
Item 15. | Exhibits, Financial Statement Schedules |
(a)1. Financial Statements.
The following financial statements are filed as a part of this report:
Page | ||||
38 | ||||
Consolidated Financial Statements: | ||||
41 | ||||
40 | ||||
42 | ||||
43 | ||||
44 |
(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 | |||
2.1 | ||||
2.2 | ||||
2.3 | ||||
3.1 | ||||
3.2 | ||||
4.1 | Form of Class A Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement No. 33-96164). (P) | |||
4.2 |
(incorporated by reference to Exhibit | ||||
10.1 | Stockholder Rights Agreement, dated as of December 1995, among The Boston Beer Company, Inc. and the initial Stockholders (incorporated by reference to the Company’s Form 10-K, filed on April 1, 1996). (P) | |||
Exhibit No. | Title | |||
10.2 | ||||
10.3 | ||||
10.4 | ||||
10.5 | ||||
+10.6 | ||||
+10.7 | ||||
+10.8 | Office Lease Agreement between Boston Design Center LLC and Boston Beer Corporation dated March 24, 2006 (“Office Lease Agreement”), as amended on September 29, 2006, October 31, 2007, March 25, 2008, August 27, 2012, February 22, 2013, and June 3, 2015 (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on May 11, 2006 and Annual Report on Form 10-K filed on February 18, 2016). | |||
*+10.9 | ||||
** | The 1996 Stock Option Plan for Non-Employee Directors, originally adopted in 1996 and amended and restated on October 19, 2004, as amended on October 30, 2009, effective as of January 1, 2010 (incorporated by reference to the Company’s Post-Effective Amendment to its Registration Statement on Form S-8 filed on November 28, 2009); amended and restated on December 12, 2012, effective as of January 1, 2012; amended and restated on March 9, 2016, effective as of March 9, 2016 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form10-Q filed on July 21, 2016). | |||
10.11 | ||||
**10.12 |
**10.13 | ||||
**10.14 | ||||
10.15 | ||||
Exhibit No. | Title | |||
** | ||||
**10.17 | ||||
10.18 | ||||
**10.19 | ||||
**10.20 | ||||
**10.21 | ||||
*21.1 | List of subsidiaries of The Boston Beer Company, Inc. effective as of December | |||
*23.1 | ||||
*31.1 | ||||
*31.2 | ||||
*32.1 | ||||
*32.2 | ||||
*101.INS | XBRL Instance Document | |||
*101.SCH | Inline XBRL Taxonomy Extension Schema Document | |||
*101.CAL | Inline XBRL Taxonomy Calculation Linkbase Document | |||
*101.LAB | Inline XBRL Label Linkbase Document | |||
*101.PRE | Inline XBRL Taxonomy Presentation Linkbase Document | |||
*101DEF | Inline XBRL Definition Linkbase Document | |||
104 | Cover Page Interactive Data File (formatted as inline XBRL and included in Exhibit 101). |
* | Filed with this report. |
+ | Portions of this Exhibit were omitted pursuant to an application for an order declaring confidential treatment filed with and approved by the Securities and Exchange Commission. |
** | Indicates management contract or compensatory plan or arrangement. |
Item 16. | Form 10-K Summary |
Not applicable.
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 19
THE BOSTON BEER COMPANY, INC. | ||
/s/ David A. Burwick | ||
David A. Burwick | ||
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/ David A. Burwick David A. Burwick | President, Chief Executive Officer (principal executive officer) and Director | |
/s/ Frank H. Smalla Frank H. Smalla | Chief Financial Officer (principal financial officer) | |
/s/ Matthew D. Murphy Matthew D. Murphy | Chief Accounting Officer (principal accounting officer) | |
/s/ Samuel A. Calagione III | Brewer and Director | |
/s/ Cynthia A. Fisher Cynthia A. Fisher | Director | |
/s/ Meghan V. Joyce Meghan V. Joyce | Director | |
/s/ C. James Koch C. James Koch | Chairman and Director | |
/s/ Michael M. Lynton Michael M. Lynton | Director | |
/s/ Julio N. Nemeth Julio N. Nemeth | Director | |
/s/ Michael Spillane Michael Spillane | Director | |
/s/ Jean-Michel Valette Jean-Michel Valette | Director |
76