UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 29, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number: 1-14092
THE BOSTON BEER COMPANY, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3284048
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
75 ARLINGTON STREET, BOSTON, MASSACHUSETTS
(Address of principal executive offices)
02116
(Zip Code)
(617) 368-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Number of shares outstanding of each of the issuer's classes of common stock, as
of November 7, 2001:
CLASS A COMMON STOCK, $.01 PAR VALUE 12,186,278
CLASS B COMMON STOCK, $.01 PAR VALUE 4,107,355
(Title of each class) (Number of shares)
1
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTERLY REPORT
SEPTEMBER 29, 2001
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of
September 29, 2001 and December 30, 2000 3
Consolidated Statements of Operations for the
Three and Nine Months Ended September 29, 2001
and September 23, 2000 4
Consolidated Statements of Cash Flows for the
Nine Months Ended September 29, 2001 and
September 23, 2000 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of
Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12-15
SIGNATURES 16
2
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
September 29, December 30,
2001 2000
------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 11,139 $ 6,256
Short-term investments 33,334 28,858
Accounts receivable, net of the allowance for doubtful
accounts of $625 as of September 29, 2001 and December 30,
2000, respectively 16,712 12,593
Inventories 15,640 15,739
Prepaid expenses 965 1,619
Deferred income taxes 2,415 2,415
Other current assets 725 927
-------- --------
Total current assets 80,930 68,407
-------- --------
Property, plant and equipment, net of accumulated depreciation
of $28,169 and $24,906 as of September 29, 2001 and December 30,
2000, respectively 25,309 27,047
Goodwill, net of accumulated amortization $91 and $16 as of
September 29, 2001 and December 30, 2000, respectively 1,402 1,477
Other assets 1,215 1,671
-------- --------
Total assets $108,856 $ 98,602
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 7,868 $ 6,506
Accrued expenses 15,280 13,940
-------- --------
Total current liabilities 23,148 20,446
-------- --------
Long-term deferred taxes 1,833 1,833
Other long-term liabilities 1,763 2,634
Stockholders' Equity:
Class A Common Stock, $.01 par value;
22,700,000 shares authorized; 16,380,583 and 16,458,857 issued
and outstanding as of September 29, 2001 and December 30, 2000,
respectively 164 165
Class B Common Stock, $.01 par value;
4,200,000 shares authorized; 4,107,355 issued and outstanding 41 41
Additional paid-in-capital 57,197 56,859
Unearned compensation (217) (156)
Unrealized gain on short-term investments 201 --
Retained earnings 58,734 47,814
Less: Treasury stock
(4,232,150 and 3,906,700 shares as of September 29, 2001 and
December 30, 2000, respectively) at cost (34,008) (31,034)
-------- --------
Total stockholders' equity 82,112 73,689
-------- --------
Total liabilities and stockholders' equity $108,856 $ 98,602
======== ========
3
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three months ended Nine months ended
----------------------------------------------------------------------------
September 29, September 23, September 29, September 23,
2001 2000 2001 2000
------------------ ----------------- ---------------- ----------------
Sales $54,515 $51,221 $154,610 $157,744
Less excise taxes 5,410 5,230 15,196 16,056
------- ------- -------- --------
Net sales 49,105 45,991 139,414 141,688
Cost of sales 20,397 19,831 57,263 61,662
------- ------- -------- --------
Gross profit 28,708 26,160 82,151 80,026
Operating expenses:
Advertising, promotional and selling expenses 21,168 20,108 54,744 56,844
General and administrative expenses 3,121 2,935 9,958 8,965
------- ------- -------- --------
Total operating expenses 24,289 23,043 64,702 65,809
------- ------- -------- --------
Operating income 4,419 3,117 17,449 14,217
------- ------- -------- --------
Other income (expense):
Interest income 383 514 1,214 1,462
Other income (expense), net (26) 224 70 445
------- ------- -------- --------
Total other income, net 357 738 1,284 1,907
------- ------- -------- --------
Income before provision for income taxes 4,776 3,855 18,733 16,124
Provision for income taxes 2,021 1,619 7,813 6,772
------- ------- -------- --------
Net income $ 2,755 $ 2,236 $ 10,920 $ 9,352
======= ======= ======== ========
Earnings per share - basic $ 0.17 $ 0.12 $ 0.66 $ 0.51
======= ======= ======== ========
Earnings per share - diluted $ 0.17 $ 0.12 $ 0.66 $ 0.51
======= ======= ======== ========
Weighted average shares - basic 16,409 18,117 16,443 18,407
======= ======= ======== ========
Weighted average shares - diluted 16,568 18,187 16,556 18,463
======= ======= ======== ========
The accompanying notes are an integral part of the
consolidated financial statements
4
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine months ended
---------------------------------
September 29, September 23,
2001 2000
--------------- --------------
Cash flows from operating activities:
Net income $10,920 $ 9,352
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,885 4,653
Gain on disposal of fixed assets (46) (260)
Recovery of bad debt -- (225)
Amortization of unearned compensation 64 61
Changes in assets and liabilities:
Accounts receivable (3,960) 2,684
Inventory 99 (3,167)
Prepaid expenses 654 1,477
Other current assets 104 62
Other assets (51) (32)
Accounts payable 1,362 (1,129)
Accrued expenses 1,340 2,866
Other long-term liabilities (473) (1,493)
------- --------
Net cash provided by operating activities 14,898 14,849
------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment (2,959) (4,842)
Purchases of short-term investments (18,843) (24,340)
Proceeds from the sale of short-term investments 14,568 27,667
Proceeds on disposal of fixed assets 46 284
------- --------
Net cash used in investing activities (7,188) (1,231)
------- --------
Cash flows from financing activities:
Repurchase of treasury stock (2,974) (9,373)
Net proceeds from sale of Investment Shares 147 84
------- --------
Net cash used in financing activities (2,827) (9,289)
------- --------
Net increase in cash and cash equivalents 4,883 4,329
Cash and cash equivalents at beginning of period 6,256 5,346
------- --------
Cash and cash equivalents at end of period $11,139 $ 9,675
======= ========
Supplemental disclosure of cash flow information:
Interest paid $ 11 $ --
======= ========
Income taxes paid $ 4,110 $ 4,178
======= ========
The accompanying notes are an integral part of the
consolidated financial statements
5
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The Boston Beer Company, Inc. (the "Company") is engaged in the business of
brewing and selling beer and hard cider products throughout the United States
and in select international markets. The accompanying consolidated financial
position as of September 29, 2001 and the results of its consolidated operations
and consolidated cash flows for the three and nine months ended September 29,
2001 and September 23, 2000 have been prepared by the Company, without audit, in
accordance with generally accepted accounting principles for interim financial
information and pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the information and
footnotes required for complete financial statements by generally accepted
accounting principles and should be read in conjunction with the audited
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 30, 2000.
MANAGEMENT'S OPINION
In the opinion of the Company's management, the unaudited consolidated financial
position as of September 29, 2001 and the results of its consolidated operations
and consolidated cash flows for the interim periods ended September 29, 2001 and
September 23, 2000, reflect all adjustments (consisting only of normal and
recurring adjustments) necessary to present fairly the results of the interim
periods presented. The operating results for the interim periods presented are
not necessarily indicative of the results expected for the full year.
B. SHORT-TERM INVESTMENTS
The Company's investments in debt securities, which typically mature in one year
or less, are valued at amortized cost, which approximates fair value. The
Company has the positive intent and ability to hold these securities until
maturity. The aggregate fair value at September 29, 2001 and December 30, 2000
was $7.0 million and $9.4 million, respectively, for investments in US
government obligations and corporate debt.
Available-for-sale investments consist of investments in mutual funds backed by
US government securities and are recorded at fair market value. The periodic
change in fair value is excluded from earnings and recorded as a component of
other comprehensive income. The aggregate cost of available-for-sale securities
at September 29, 2001 and December 30, 2000 was $26.1 million and $19.5 million,
respectively. The Company had recorded unrealized gains of approximately
$201,000 and $339,000 on available-for-sale securities as of September 29, 2001
and September 23, 2000, respectively. There were no realized gains or losses
recorded during the period ended September 29, 2001 and September 23, 2000.
C. INVENTORIES
Inventories, which consist principally of hops, brewery materials and packaging,
are stated at the lower of cost, determined on a first-in, first-out (FIFO)
basis, or market.
Inventories consist of the following (in thousands):
September 29, December 30,
2001 2000
------------- ------------
Raw materials, principally hops $12,665 $14,076
Work in process 905 787
Finished goods 2,070 876
------- -------
$15,640 $15,739
======= =======
D. EARNINGS PER SHARE
The Company follows Statement of Financial Accounting Standards No. 128,
"Earnings per Share". In accordance with this statement, basic earnings per
share (EPS) is calculated by dividing net income by the weighted average common
shares outstanding. Dilutive EPS is calculated by dividing net income by the
weighted average common shares and potentially dilutive securities outstanding
during the period (in thousands, except per share data):
6
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
D. EARNINGS PER SHARE (CONTINUED)
For the three months ended For the nine months ended
--------------------------------- ----------------------------------
September 29, September 23, September 29, September 23,
2001 2000 2001 2000
------------ ------------ ------------- -------------
Net income $ 2,755 $ 2,236 $10,920 $ 9,352
Shares used in earnings per common share - basic 16,409 18,117 16,443 18,407
Dilutive effect of common equivalent shares 159 70 113 56
------- ------- ------- -------
Shares used in earnings per common share - diluted 16,568 18,187 16,556 18,463
======= ======= ======= =======
Earnings per common share - basic $ 0.17 $ 0.12 $ 0.66 $ 0.51
======= ======= ======= =======
Earnings per common share - diluted $ 0.17 $ 0.12 $ 0.66 $ 0.51
======= ======= ======= =======
E. COMPREHENSIVE INCOME
The Company follows Statement of Financial Accounting Standards No. 130 ("SFAS
130"), "Reporting Comprehensive Income". This statement established standards
for reporting and displaying comprehensive income and its components. The
components of comprehensive income include revenues, expenses, gains and losses
that are excluded from net income under current accounting standards, including
foreign currency translation items and unrealized gains and losses on certain
investments in debt and equity securities (in thousands):
For the three months ended For the nine months ended
------------------------------ ------------------------------
September 29, September 23, September 29, September 23,
2001 2000 2001 2000
------------- ------------- ------------- -------------
Net income $2,755 $2,236 $10,920 $9,352
Plus: Unrealized gain on available-for-sale
securities 95 144 201 339
------ ------ ------- ------
Comprehensive income $2,850 $2,380 $11,121 $9,691
====== ====== ======= ======
Accumulated other comprehensive income calculated in accordance with SFAS No.
130 is as follows (in thousands):
For the three months ended For the nine months ended
------------------------------ ------------------------------
September 29, September 23, September 29, September 23,
2001 2000 2001 2000
------------- ------------- ------------- -------------
Beginning Balance $106 $195 $ -- $ --
Unrealized gain on
available-for-sale-securities 95 144 201 339
---- ---- ---- ----
Ending balance $201 $339 $201 $339
==== ==== ==== ====
F. BREWERY TRANSACTIONS
On September 21, 2001, the Pabst Brewing Company closed its Lehigh, Pennsylvania
brewery ("Lehigh Brewery"), where approximately 20% of the Company's beer was
brewed. Pursuant to a guarantee by Miller Brewing Company of Pabst's obligations
under the Company's production agreement, the Company has transferred production
to existing contract breweries and the Miller-owned brewery in Eden, North
Carolina ("Eden Brewery"). The Company has been brewing at the Eden Brewery for
over six months on a trial basis, but does not expect to reach full capacity
there until the end of the year. While the Company has not experienced any
significant disruptions to its business or any other problems during the
transition thus far, the ultimate impact of this transition on the Company's
business and financial statements, both during and after the transition period,
cannot be predicted.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the three and nine-month periods ended September
29, 2001 as compared to the three and nine-month periods ended September 23,
2000. This discussion should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations,
Consolidated Financial Statements of the Company and Notes thereto included in
the Form 10-K for the fiscal year ended December 30, 2000.
RESULTS OF OPERATIONS
For purposes of this discussion, Boston Beer's "core brands" include all
products sold under Samuel Adams(R), Oregon Original(TM), HardCore(R) and
Twisted Tea(TM) trademarks. "Core brands" do not include the products brewed at
the Cincinnati Brewery under contract arrangements for third parties. Volume
produced under contract arrangements is referred to below as "non-core
products". Boston Beer's flagship brand is Samuel Adams Boston Lager(R) ("Boston
Lager").
THREE MONTHS ENDED SEPTEMBER 29, 2001 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 23, 2000
NET SALES. Net sales increased by $3.1 million or 6.8% to $49.1 million for the
three months ended September 29, 2001 as compared to the three months ended
September 23, 2000. The increase was primarily due to volume growth in core
brands as well as price increases.
Volume. Volume decreased by 1,000 barrels to 301,000 barrels in the three months
ended September 29, 2001 from 302,000 barrels in the three months ended
September 23, 2000. The decline in volume was primarily due to a decrease in
non-core products, offset by an increase in core brands.
Non-core volume decreased by 12,000 barrels for the three months ended September
29, 2001 to 2,000 barrels from 14,000 barrels in the three months ended
September 23, 2000. The decrease in non-core products was primarily due to the
expiration of the production contract with the Company's largest non-core
customer. As gross profit is significantly lower on non-core products as
compared to core brands, the Company does not believe that this change will have
a material impact on its financial position, results of operations or cash flows
in the short and long-term.
Core brands increased by 3.8% to 299,000 barrels for the quarter ended September
29, 2001 from 288,000 barrels for the quarter ended September 23, 2000. The
increase in core brands was primarily due to increases in Twisted Tea(TM) and
seasonal beers, offset by declines in year-round styles.
Selling Price. The net selling price per barrel increased by approximately 6.8%
to $163.21 per barrel for the three months ended September 29, 2001. This
increase was primarily due to a decline in non-core volume, price increases for
core brands and changes in packaging mix. As net selling price is significantly
lower for non-core products as compared to core brands, a decline in non-core
volume effectively increased the combined net selling price per equivalent
barrel.
GROSS PROFIT. Gross profit was 58.5% as a percentage of net sales or $95.42 per
barrel for the quarter ended September 29, 2001, as compared to 56.9% and $86.75
for the quarter ended September 23, 2000. The increase was primarily due to a
decline in non-core volume, price increases and packaging mix changes, slightly
offset by increases in cost of sales.
Cost of sales increased by $2.03 per barrel to $67.79 per barrel for the quarter
ended September 29, 2001, as compared to $65.76 per barrel for the quarter ended
September 23, 2000. This is primarily due to a decline in non-core volume as
well as packaging mix changes, partially offset by freight savings.
As a percentage of net sales, cost of sales has declined to 41.5% for the
quarter ended September 29, 2001, as compared to 43.1% for the quarter ended
September 23, 2000.
ADVERTISING, PROMOTIONAL AND SELLING. Advertising, promotional and selling
expenses increased by $1.1 million or 5.3% to $21.2 million or $70.36 per barrel
for the three months ended September 29, 2001, as compared to $66.68 per barrel
for the three months ended September 23, 2000. The increase was primarily due to
radio advertising, production costs, and promotional related expenditures. These
increases were partially offset by declines in television media spending.
8
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by
6.3% or $186,000 to $3.1 million for the three months ended September 29, 2001
as compared to the same period last year. This increase was primarily due to bad
debt recovery and depreciation expense. For the three months ended September 23,
2000, the Company had recognized a $75,000 recovery of bad debt. There were no
such recoveries in the three months ended September 29, 2001. Additionally,
depreciation expense related to the purchase of computers was higher for the
three months ended September 29, 2001, as compared to the three months ended
September 23, 2000.
INTEREST INCOME. Interest income decreased by 25.5% to $383,000 for the three
months ended September 29, 2001 from $514,000 for the three months ended
September 23, 2000. This decrease was primarily due to lower short-term interest
rates during the three months ended September 29, 2001 as compared to the same
period last year.
OTHER INCOME (EXPENSE), NET. Other income (expense), net decreased by $250,000
to an expense of $26,000 from income of $224,000, for the three months ended
September 23, 2000, as compared to the same period last year. The Company
received proceeds of $224,000 from the sale of fixed assets for the three months
ended September 23, 2000. There were no proceeds from the sale of fixed assets
for the three months ended September 29, 2001.
NINE MONTHS ENDED SEPTEMBER 29, 2001 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 23, 2000
NET SALES. Net sales decreased by $2.3 million or 1.6% to $139.4 million for the
nine months ended September 29, 2001 as compared to the nine months ended
September 23, 2000. The decrease was primarily due to a decrease in volume of
Boston Beer's core brands, which was partially offset by increases in selling
prices.
Volume. Volume decreased by 52,000 barrels or 5.6% to 875,000 barrels in the
nine months ended September 29, 2001 from 927,000 barrels in the nine months
ended September 23, 2000. Core brands decreased by 4.5% to 849,000 barrels for
the nine months ended September 29, 2001 from 889,000 barrels for the nine
months ended September 23, 2000. The decrease in core brands was primarily due
to decreases in other year-round products, which was partially offset by
increases in seasonal products.
Non-core volume decreased by 12,000 barrels to 26,000 barrels in the nine months
ended September 29, 2001 from 38,000 barrels in the nine months ended September
23, 2000. The decrease in non-core products was primarily due to the expiration
of the production contract with the Company's largest non-core customer. As
gross profit is significantly lower on non-core products as compared to core
brands, the Company does not believe that this change will have a material
impact on its financial position, results of operations or cash flows in the
short and long-term.
Selling Price. The selling price per barrel increased by approximately 4.3% to
$159.27 per barrel for the nine months ended September 29, 2001, as compared to
the nine months ended September 23, 2000. This increase was primarily due to
price increases and a decline in non-core products, partially offset by
packaging mix changes. As net selling price is significantly lower for non-core
products as compared to core brands, a decline in non-core products effectively
increased the combined net selling price per equivalent barrel.
GROSS PROFIT. Gross profit was 58.9% as a percentage of net sales or $93.85 per
barrel for the nine months ended September 29, 2001, as compared to 56.5% and
$86.29 for the nine months ended September 23, 2000. The increase was primarily
due to price increases, a decline in non-core volume, and a decline in cost of
sales.
Cost of sales decreased by $1.07 per barrel to 41.1% as a percentage of net
sales or $65.42 per barrel for the nine months ended September 29, 2001, as
compared to 43.5% as a percentage of net sales or $66.49 per barrel for the nine
months ended September 23, 2000. This is primarily due to a one-time recovery of
water and sewer charges, lower hops related costs, and a decline in non-core
volume during the nine months ended September 29, 2001. The one-time recovery of
$400,000 was due to a re-assessment and subsequent abatement of 2000 water and
sewer charges at the Cincinnati Brewery. See Hop Purchase Commitments for
further discussion on potential future losses relating to hops.
ADVERTISING, PROMOTIONAL AND SELLING. Advertising, promotional and selling
expenses were 39.3% as a percentage of net sales, or $62.54 per barrel for the
nine months ended September 29, 2001 as compared to 40.1% as a percentage of net
sales or $61.29 per barrel for the nine months ended September 23, 2000.
Advertising, promotional and selling expenses decreased by $2.1 million or 3.7%
to $54.7 million for the nine months ended September 29, 2001. The decrease was
primarily due to a delay in media spending to the later half of the year.
9
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by
11.1% or $993,000 to $10.0 million for the nine months ended September 29, 2001
as compared to the same period last year. The increase was primarily due to an
increase in depreciation and amortization expense, changes in bad debt expense,
and higher legal, recruiting, and consulting expenditures. Depreciation and
amortization expense increased due to purchases of computer equipment and the
addition of goodwill amortization. The Company had recognized $215,000 as a
recovery of bad debt for the nine months ended September 23, 2000. There were no
such recoveries during the nine months ended September 29, 2001. Litigation
costs and corporate restructure fees resulted in higher legal-related costs.
INTEREST INCOME. Interest income decreased by 17.0% or $248,000 to $1.2 million
for the nine months ended September 29, 2001 from $1.5 million for the nine
months ended September 23, 2000. This decrease was primarily due to lower
average cash and short-term investments balances coupled with lower short-term
interest rates during the nine months ended September 29, 2001, as compared to
the same period last year.
OTHER INCOME (EXPENSE), NET. Other income (expense), net decreased by $376,000
to $70,000 for the nine months ended September 29, 2001 from $446,000 for the
nine months ended September 23, 2000. For the nine months ended September 29,
2001, the Company received proceeds of $46,000 from the sale of fixed assets as
compared to $404,000 for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition continued to be strong during the first nine
months of 2001. Cash and short-term investments increased to $44.5 million as of
September 29, 2001 from $35.1 million as of December 30, 2000. This increase is
primarily due to cash provided by operating activities partially offset by cash
used for the repurchase of the Company's stock and cash used for the purchase of
capital equipment. Cash provided by operating activities of $14.9 million was
partially offset by cash used in investing and financing activities of $10.0
million, for the nine months ended September 29, 2001.
During the first nine months of 2001, the Company repurchased 325,000 shares of
its outstanding Class A Common Stock at an aggregate cost of $3.0 million under
its stock repurchase program. Under this program, the Company has repurchased a
total of 4.2 million shares at an aggregate cost of $34.0 million as of
September 29, 2001. Effective August 17, 2001, the Board of Directors increased
the aggregate expenditure limitation on the Company's stock repurchase program
by $5.0 million to $45.0 million.
With working capital of $57.8 million and $45.0 million in unused bank lines of
credit as of September 29, 2001, the Company believes that its existing
resources should be sufficient to meet the Company's short-term and long-term
operating and capital requirements.
THE POTENTIAL IMPACT OF KNOWN FACTS, COMMITMENTS, EVENTS AND UNCERTAINTIES
HOPS PURCHASE COMMITMENTS
The Company utilizes several varieties of hops in the production of its malt
beverages. To ensure adequate supplies of these varieties, the Company entered
into advanced multi-year purchase commitments based on forecasted future hop
requirements among other factors. The Company now believes that its actual
future requirements will be significantly lower than the original forecast on
which its existing purchase commitments were based. Factors affecting the
current forecast of requirements include: the slow down of sales growth during
the 1990's, the discontinuation of certain beer styles, and the improved
utilization of hops in production due to process improvements and higher brewing
utility values of recent hop crops.
Since the late 1990's there has also been a decline in the market prices of
hops. The decline in market price is due to an oversupply of certain varieties
and changes in foreign exchange rates and appears to be non-temporary in nature.
After intensive review of the options with regards to our excess hop commitments
and inventory levels, the Company intends to dispose of certain hop types and
cancel some hop future contracts during the fourth quarter 2001. The Company
believes that the transactions contemplated will bring hop inventory levels and
future contracts into balance with our current brewing volume and hop usage.
As a result of the hop transactions that are expected to be completed in the
fourth quarter of 2001, the Company expects to incur a non-recurring pretax
charge between $2.2 million and $5.6 million. The exact amount will depend on
the nature and extent of the disposal transactions actually consummated. This
non-recurring charge is expected to reduce fourth quarter after-tax earnings
between $.08 and $.20 per share.
10
Generally accepted accounting principles require the Company to reserve for
losses related to excess inventory and purchase commitments by estimating the
range of potential losses and, because no amount within this range represents a
better estimate of the loss than any other, recording a reserve at the lower
value of the range. As of September 29, 2001, the Company had reserved for an
estimated loss of $1.6 million. Generally accepted accounting principles
preclude the Company from recording a lower of cost or market reserve for the
decline in hops market prices because the Company can still recover its cost
through the sale of finished products.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard No. 141, "Business Combinations" (SFAS No. 141)
and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No.141 requires
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method of accounting, and broadens the criteria for recording
intangible assets separate from goodwill. SFAS No. 142 requires the use of a
non-amortization approach to account for purchased goodwill and certain
intangibles. The Company is required to adopt these provisions on January 1,
2002. The Company has evaluated the provisions of SFAS No. 141 and SFAS No. 142
and does not believe that the adoption of such statements will have a material
impact on its financial position, results of operations or cash flows.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS No. 143 is effective for financial
statements issued for fiscal years beginning after June 15, 2002. The Company
does not believe the adoption of SFAS No. 143 will have a material impact on its
results of operations or financial position and will adopt such standards on
July 29, 2002, as required.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement supercedes FASB Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," and the accounting and reporting provisions of APB
Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." Under this statement it is required that one
accounting model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired, and it broadens the
presentation of discontinued operations to include more disposal transactions.
The provisions of this statement are effective for financial statements issued
for fiscal years beginning after December 15, 2001, and interim periods within
those fiscal years, with early adoption permitted. The Company is currently
evaluating whether it will early adopt the provisions of SFAS No. 144, and
management will not be able to determine the ultimate impact of this statement
on its results of operations or financial position until such time as its
provisions are analyzed.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Since December 30, 2000, there have been no significant changes in the Company's
exposures to interest rate or foreign currency rate fluctuations. The Company
currently does not enter into derivatives or other market risk sensitive
instruments for the purpose of hedging or for trading purposes.
FORWARD-LOOKING STATEMENTS
In this Form 10-Q and in other documents incorporated herein, as well as in oral
statements made by the Company, statements that are prefaced with the words
"may," "will," "expect," "anticipate," "continue," "estimate," "project,"
"intend," "designed" and similar expressions, are intended to identify
forward-looking statements regarding events, conditions, and financial trends
that may affect the Company's future plans of operations, business strategy,
results of operations and financial position. These statements are based on the
Company's current expectations and estimates as to prospective events and
circumstances about which the Company can give no firm assurance. Further, any
forward-looking statement speaks only as of the date on which such statement is
made, and the Company undertakes no obligation to update any forward-looking
statement to reflect events or circumstances after the date factor that may
emerge, forward-looking statements should not be relied upon as a prediction of
actual future financial condition or results. These forward-looking statements,
like any forward-looking statements, involve risks and uncertainties that could
cause actual results to differ materially from those projected or unanticipated.
Such risks and uncertainties include the factors set forth below in addition to
the other information set forth in this Form 10-Q.
11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Two complaints were filed against the Company in 2000 relating to its
use of the word "BoDean's" in connection with its BoDean's Twisted Tea
product. Both of the lawsuits have been settled. Neither suit, nor the
two suits in combination, had a materially adverse impact on the
results of operation, cash flow or financial position of the Company.
The Company is party to certain claims and litigation in the ordinary
course of business. The Company does not believe any of these
proceedings will, individually or in the aggregate, have a material
adverse effect upon its financial condition or results of operations
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT INDEX
EXHIBIT NO. TITLE
----------- -----
3.1 Amended and Restated By-Laws of the Company, dated June
2, 1998 (incorporated by reference to Exhibit 3.5 to the
Company's Form 10-Q filed on August 10, 1998).
3.2 Restated Articles of Organization of the Company, dated
July 21, 1998 (incorporated by reference to Exhibit 3.6
to the Company's Form 10-Q filed on August 10, 1998).
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).
10.1 Revolving Credit Agreement between Fleet Bank of
Massachusetts, N.A. and Boston Beer Company Limited
Partnership (the "Partnership"), dated as of May 2, 1995
(incorporated by reference to Exhibit 10.1 to the
Company's Registration Statement No. 33-96162).
10.2 Loan Security and Trust Agreement, dated October 1,
1987, among Massachusetts Industrial Finance Agency, the
Partnership and The First National Bank of Boston, as
Trustee, as amended (incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement No.
33-96164).
12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
(a) Exhibits (continued)
EXHIBIT INDEX (CONTINUED)
EXHIBIT NO. TITLE
----------- -----
10.4 The Boston Beer Company, Inc. Employee Equity Incentive
Plan, as adopted effective November 20, 1995 and amended
effective February 23, 1996 (incorporated by reference
to Exhibit 4.1 to the Company's Registration Statement
No. 333-1798).
10.5 Form of Employment Agreement between the Partnership and
employees (incorporated by reference to Exhibit 10.5 to
the Company's Registration Statement No. 33-96162).
10.6 Services Agreement between The Boston Beer Company, Inc.
and Chemical Mellon Shareholder Services, dated as of
October 27, 1995 (incorporated by reference to the
Company's Form 10-K, filed on April 1, 1996).
10.7 Form of Indemnification Agreement between the
Partnership and certain employees and Advisory Committee
members (incorporated by reference to Exhibit 10.7 to
the Company's Registration Statement No. 33-96162).
10.8 Stockholder Rights Agreement, dated as of December,
1995, among The Boston Beer Company, Inc. and the
initial Stockholders (incorporated by reference to the
Company's Form 10-K, filed on April 1, 1996).
+10.9 Agreement between Boston Brewing Company, Inc. and The
Stroh Brewery Company, dated as of January 31, 1994
(incorporated by reference to Exhibit 10.9 to the
Company's Registration Statement No. 33-96164).
+10.10 Agreement between Boston Brewing Company, Inc. and the
Genesee Brewing Company, dated as of July 25, 1995
(incorporated by reference to Exhibit 10.10 to the
Company's Registration Statement No. 33-96164).
+10.11 Amended and Restated Agreement between Pittsburgh
Brewing Company and Boston Brewing Company, Inc. dated
as of February 28, 1989 (incorporated by reference to
Exhibit 10.11 to the Company's Registration Statement
No. 33-96164).
10.12 Amendment to Amended and Restated Agreement between
Pittsburgh Brewing Company, Boston Brewing Company,
Inc., and G. Heileman Brewing Company, Inc., dated
December 13, 1989 (incorporated by reference to Exhibit
10.12 to the Company's Registration Statement No.
33-96162).
+10.13 Second Amendment to Amended and Restated Agreement
between Pittsburgh Brewing Company and Boston Brewing
Company, Inc. dated as of August 3, 1992 (incorporated
by reference to Exhibit 10.13 to the Company's
Registration Statement No. 33-96164).
+10.14 Third Amendment to Amended and Restated Agreement
between Pittsburgh Brewing Company and Boston Brewing
Company, Inc. dated December 1,1994 (incorporated by
reference to Exhibit 10.14 to the Company's Registration
Statement No. 33-96164).
10.15 Fourth Amendment to Amended and Restated Agreement
between Pittsburgh Brewing Company and Boston Brewing
Company, Inc. dated as of April 7,1995 (incorporated by
reference to Exhibit 10.15 to the Company's Registration
Statement No. 33-96162).
13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
(a) Exhibits (continued)
EXHIBIT INDEX (CONTINUED)
EXHIBIT NO. TITLE
----------- -----
+10.16 Letter Agreement between Boston Beer Company Limited
Partnership and Joseph E. Seagram & Sons, Inc.
(incorporated by reference to Exhibit 10.16 to the
Company's Registration Statement No. 33-96162).
10.17 Services Agreement and Fee Schedule of Mellon Bank, N.A.
Escrow Agent Services for The Boston Beer Company, Inc.
dated as of October 27, 1995 (incorporated by reference
to Exhibit 10.17 to the Company's Registration Statement
No. 33-96164).
10.18 Amendment to Revolving Credit Agreement between Fleet
Bank of Massachusetts, N.A. and the Partnership
(incorporated by reference to Exhibit 10.18 to the
Company's Registration Statement No. 33-96164).
10.19 1996 Stock Option Plan for Non-Employee Directors
(incorporated by reference to the Company's Form 10-K,
filed on March 31, 1997).
+10.20 Production Agreement between The Stroh Brewery Company
and Boston Beer Company Limited Partnership, dated
January 14, 1997 (incorporated by reference to the
Company's Form 10-K, filed on March 31, 1997).
+10.21 Letter Agreement between The Stroh Brewery Company and
Boston Beer Company Limited Partnership, dated January
14, 1997 (incorporated by reference to the Company's
Form 10-K, filed on March 31, 1997).
+10.22 Agreement between Boston Beer Company Limited
Partnership and The Schoenling Brewing Company, dated
May 22, 1996 (incorporated by reference to the Company's
Form 10-K, filed on March 31, 1997).
10.23 Revolving Credit Agreement between Fleet Bank of
Massachusetts, N.A. and The Boston Beer Company, Inc.,
dated as of March 21, 1997 (incorporated by reference to
the Company's Form 10-Q, filed on May 12, 1997).
+10.24 Amended and Restated Agreement between Boston Brewing
Company, Inc. and the Genesee Brewing Company, Inc.
dated April 30, 1997 (incorporated by reference to the
Company's Form 10-Q, filed on August 11, 1997).
+10.26 Fifth Amendment, dated December 31, 1997, to Amended and
Restated Agreement between Pittsburgh Brewing Company
and Boston Brewing Company, Inc. (incorporated by
reference to the Company's Form 10-K, filed on March 26,
1998).
10.27 Extension letters, dated August 19, 1997, November 19,
1997, December 19, 1997, January 22, 1998, February 25,
1998 and March 11, 1998 between The Stroh Brewery
Company and Boston Brewing Company, Inc. (incorporated
by reference to the Company's Form 10-K, filed on March
26, 1998).
+10.28 Employee Equity Incentive Plan, as amended and effective
on December 19, 1997 (incorporated by reference to the
Company's Form 10-K, filed on March 26, 1998).
+10.29 1996 Stock Option Plan for Non-Employee Directors, as
amended and effective on December 19, 1997 (incorporated
by reference to the Company's Form 10-K, filed March 26,
1998).
14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
(a) Exhibits (continued)
EXHIBIT INDEX (CONTINUED)
EXHIBIT NO. TITLE
----------- -----
+10.30 Glass Supply Agreement between The Boston Beer Company
and Owens' Brockway Glass Container Inc., dated April
30, 1998 (incorporated by reference to the Company's
Form 10-Q, filed on August 10, 1998).
10.31 Extension letters, dated April 13, 1998, April 27, 1998,
June 11, 1998, June 25, 1998 and July 20, 1998 between
The Stroh Brewery Company and Boston Brewing Company,
Inc. (incorporated by reference to the Company's Form
10-Q, filed on August 10, 1998).
10.32 Extension letters, dated July 31, 1998, August 28, 1998,
September 28, 1998, October 13, 1998, October 20, 1998
and October 23, 1998 between The Stroh Brewery Company
and Boston Brewing Company, Inc. (incorporated by
reference to the Company's Form 10-Q, filed on November
4, 1998).
+10.33 Amended and Restated Production Agreement between The
Stroh Brewery Company and Boston Beer Company Limited
Partnership, dated November 1, 1998 (incorporated by
reference to the Company's Form 10-K, filed on March 25,
1999).
10.34 Agreement between Boston Beer Company Limited
Partnership, Pabst Brewing Company and Miller Brewing
Company, dated February 5, 1999 (incorporated by
reference to the Company's Form 10-K, filed on March 25,
1999).
10.35 Amendment to Revolving Credit Agreement between Fleet
Bank of Massachusetts, N.A. and The Boston Beer Company,
Inc., dated March 30, 1999 (incorporated by reference to
the Company's Form 10-Q, filed on May 10, 1999).
+10.36 Agreement between Boston Beer Company Limited
Partnership and Landstar Logistics and Transportation,
dated January 9, 1999 (incorporated by reference to the
Company's Form 10-Q, filed on May 10, 1999).
*11.1 The information required by exhibit 11 has been included
in Note D of the notes to the consolidated financial
statements.
21.1 List of subsidiaries of The Boston Beer Company, Inc.
(incorporated by reference to the Company's Form 10-K,
filed on March 31, 1997).
* Filed with this report.
+ Portions of this Exhibit have been omitted pursuant to an
application for an order declaring confidential treatment filed with
the Securities and Exchange Commission.
(b) REPORTS ON FORM 8-K.
The Company filed a report on Form 8-K under Item 5, other events and
regulation FD disclosure, with the Securities and Exchange Commission
on September 28, 2001.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Form 10-Q to be signed on its
behalf by the undersigned thereunto duly authorized.
THE BOSTON BEER COMPANY, INC.
(Registrant)
Date: November 13, 2001 By: /s/ Martin F. Roper
-----------------------------------------
Martin F. Roper
President and Chief Executive Officer
(principal executive officer)
Date: November 13, 2001 By: /s/ Richard P. Lindsay
-----------------------------------------
Richard P. Lindsay
Chief Financial Officer (principal
financial and accounting officer)
16