<PAGE>
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 26, 1998
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 incorporation (I.R.S. Employer
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 October 31, 1998:
CLASS A COMMON STOCK, $.01 PAR VALUE 16,393,948
CLASS B COMMON STOCK, $.01 PAR VALUE 4,107,355
(Title of each class) (Number of shares)
<PAGE>
THE BOSTON BEER COMPANY, INC.
FORM 10-Q
QUARTERLY REPORT
SEPTEMBER 26, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
September 26, 1998 and December 27, 1997 3
Consolidated Statements of Operations for the
Three and Nine Months Ended September 26, 1998 and
September 27, 1997 4
Consolidated Statements of Cash Flows for the
Nine Months Ended September 26, 1998 and
September 27, 1997 5
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of
Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14-18
SIGNATURES 19
</TABLE>
2
<PAGE>
THE BOSTON BEER COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
September 26, December 27,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 11,571 $ 13
Short term investments 37,858 35,787
Accounts receivable, net of allowance for doubtful
accounts, of $1,208 and $1,153 in 1998 and 1997,
respectively 16,996 16,483
Inventories 18,264 13,675
Prepaid expenses 1,751 4,344
Deferred tax assets 2,266 2,266
Other current assets 1,272 1,308
------------ ------------
Total current assets 89,978 73,876
Equipment and leasehold improvements, net 29,631 28,781
Other assets 2,489 2,742
------------ ------------
Total assets $ 122,098 $ 105,399
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 10,669 $ 9,556
Accrued expenses 17,288 13,770
------------ ------------
Total current liabilities 27,957 23,326
Long-term debt, less current maturities 10,000 10,000
Long-term deferred taxes 789 789
Other long-term liabilities 2,250 -
Stockholders' Equity:
Class A Common Stock, $.01 par value;
22,700,000 shares authorized; 16,393,948 and
16,337,744 issued and outstanding as of
September 26, 1998 and December 27, 1997, respectively 164 163
Class B Common Stock, $.01 par value;
4,200,000 shares authorized; 4,107,355 issued and
outstanding as of September 26, 1998 and December 27, 1997 41 41
Additional paid-in-capital 56,559 56,445
Unearned compensation (277) (423)
Unrealized loss on investments in a marketable security - (2,223)
Unrealized loss on forward exchange contract - (290)
Retained earnings 24,615 17,571
------------ ------------
Total stockholders' equity 81,102 71,284
------------ ------------
Total liabilities and stockholders' equity $ 122,098 $ 105,399
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
3
<PAGE>
THE BOSTON BEER COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
--------------------------------- ---------------------------------
September 26, September 27, September 26, September 27,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $ 52,205 $ 55,664 $ 157,674 $ 159,621
Less excise taxes 6,832 7,047 20,523 19,311
------------- ------------- ------------- -------------
Net sales 45,373 48,617 137,151 140,310
Cost of sales 21,195 22,000 64,854 68,578
------------- ------------- ------------- -------------
Gross profit 24,178 26,617 72,297 71,732
------------- ------------- ------------- -------------
Operating expenses:
Advertising, promotional and selling expenses 17,382 17,415 49,316 51,802
General and administrative expenses 2,842 3,190 9,280 9,217
------------- ------------- ------------- -------------
Total operating expenses 20,224 20,605 58,596 61,019
------------- ------------- ------------- -------------
Operating income 3,954 6,012 13,701 10,713
------------- ------------- ------------- -------------
Other income (expense):
Interest income 599 451 1,550 1,340
Interest expense (159) (183) (486) (540)
Other income (expense), net (14) (511) (1,732) (389)
------------- ------------- ------------- -------------
Total other income (expense) 426 (243) (668) 411
Income before provision for income taxes 4,380 5,769 13,033 11,124
Provision for income taxes 1,743 2,521 5,989 4,861
------------- ------------- ------------- -------------
Net income $ 2,637 $ 3,248 $ 7,044 $ 6,263
============= ============= ============= =============
Earnings per share - basic $0.13 $0.16 $0.34 $0.31
============= ============= ============= =============
Earnings per share - diluted $0.13 $0.16 $0.34 $0.31
============= ============= ============= =============
Weighted average shares - basic 20,495 20,425 20,481 20,283
============= ============= ============= =============
Weighted average shares - diluted 20,573 20,557 20,579 20,463
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements
4
<PAGE>
THE BOSTON BEER COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
Sept 26, Sept 27,
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,044 $ 6,263
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,920 3,029
Loss on disposition of marketable security 1,435 -
Deferred income taxes - 42
Bad debt expense 325 118
Amortization of unearned compensation 152 185
Changes in assets and liabilities:
Accounts receivable (721) (3,353)
Inventory (4,589) (3,533)
Prepaid expenses 2,593 206
Other current assets 209 1,106
Other assets 253 502
Accounts payable 1,113 (9,032)
Accrued expenses 3,518 2,019
Other long-term liabilities 2,250 -
---------- ----------
Net cash provided by (used in) operating activities 17,502 (2,448)
---------- ----------
Cash flows from investing activities:
Purchases of equipment (4,770) (15,042)
Proceeds from the sale of marketable security 2,851 -
Net (purchases) maturities of short-term investments (4,134) (1,232)
Purchases of restricted investments - (625)
Proceeds from maturities of restricted investments - 1,236
---------- ----------
Net cash used in investing activities (6,053) (15,663)
---------- ----------
Cash flows from financing activities:
Proceeds from exercise of management incentive options 37 628
Proceeds from from sale of common stock under stock
purchase plan 74 23
Repurchase of shares under employee investment and
incentive share plans (2) -
Principal payments on long-term debt - (1,875)
Net borrowings under line of credit - 14,275
---------- ----------
Net cash provided by financing activities 109 13,051
---------- ----------
Net increase (decrease) in cash and cash equivalents 11,558 (5,060)
Cash and cash equivalents at beginning of period 13 5,060
---------- ----------
Cash and cash equivalents at end of period $ 11,571 $ -
========== ==========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 513 $ 391
========== ==========
Income taxes $ 3,629 $ 5,471
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
5
<PAGE>
THE BOSTON BEER COMPANY, INC.
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, ale and cider products throughout the United States
and select international markets. The accompanying unaudited consolidated
financial statements have been prepared by the Company, 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
by generally accepted accounting principles for complete financial statements
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 27,
1997. In the opinion of the management of the Company, the Company's unaudited
consolidated financial position as of September 26, 1998 and the results of its
consolidated operations and consolidated cash flows for the interim periods
ended September 26, 1998 and September 27, 1997, 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:
At September 26, 1998 short term investments consisted exclusively of money
market funds, treasury bills, treasury repurchase agreements and securities
backed by various agencies of the U.S. Government. At December 27, 1997, short
term investments also included a marketable equity security with a cost of
$4,286,000 and a market value of $2,063,000. The disposition of this security
during the second quarter of 1998 resulted in a realized loss of $1,435,000.
The Company's money market funds, treasury bills, treasury repurchase agreements
and securities backed by various agencies of the U.S. Government have a cost of
$37,858,000 and $33,724,000 at September 26, 1998 and December 27, 1997,
respectively, which approximate fair value.
C. INVENTORIES:
Inventories, which consist principally of hops, brewing materials and packaging,
are stated at the lower of cost, determined on a first-in, first-out (FIFO)
basis, or market.
Inventories consist of the following:
<TABLE>
<CAPTION>
September 26, December 27,
1998 1997
------------- ------------
<S> <C> <C>
Raw materials, principally hops $ 15,328,000 $ 12,481,000
Work in process 726,000 511,000
Finished goods 2,210,000 683,000
------------- -------------
$ 18,264,000 $ 13,675,000
============= =============
</TABLE>
6
<PAGE>
THE BOSTON BEER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
D. INCOME TAXES:
The Company's effective tax rate decreased to 39.8% for the three months ended
September 26, 1998 from 43.7% for the three months ended September 27, 1997 and
increased to 45.9% for the nine months ended September 26, 1998 from 43.7% for
the nine months ended September 27, 1997. The following table reconciles the
Company's federal statutory rate to the effective rate:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
------------------- --------------------
Sept 26, Sept 27, Sept 26, Sept 27,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0% 35.0%
State income tax, net
of federal benefit 8.1 8.7 8.1 8.7
Permanent differences (1.0) - 2.1 -
Other (2.3) - 0.7 -
-------- -------- -------- --------
Effective tax rate 39.8% 43.7% 45.9% 43.7%
======== ======== ======== ========
</TABLE>
The changes in the Company's effective tax rate for both the three and nine
month periods were influenced primarily by the accounting for the marketable
equity security described in Note B, as the Company does not expect that it will
be able to fully realize the tax benefit associated with the disposition of the
security. The lower tax rate for the three months ended September 26, 1998 is
due to a partial reversal of the provision recorded in the first quarter which
assumed a greater loss on the marketable security than the loss that was
realized upon disposition of the security in the second quarter.
E. COMPREHENSIVE INCOME:
The Company adopted the Statement of Financial Accounting Standard No. 130
"Reporting Comprehensive Income" (SFAS 130) in the first quarter of 1998. This
standard requires disclosure of comprehensive income which is defined as net
income plus direct adjustments to stockholders' equity such as foreign currency
items and unrealized gains and losses on certain investments. Comprehensive
income for the three months ended September 26, 1998 and September 27, 1997
totaled $2,645,000 and $2,267,000, respectively. For the nine months ended
September 26, 1998 and September 27, 1997, comprehensive income totaled
$9,557,000 and $4,806,000, respectively.
<TABLE>
<CAPTION>
FOR THREE MONTHS ENDED FOR THREE MONTHS ENDED
SEPTEMBER 26, 1998 SEPTEMBER 27, 1997
---------------------- ------------------------
<S> <C> <C> <C> <C>
Net income $2,637,000 $ 3,248,000
---------- -----------
Other comprehensive income, net of tax:
Foreign currency translation adjustments $ 8,000 $ 37,000
Unrealized losses on security:
Unrealized holding loss arising during period $ - $(1,018,000)
Plus: reclassification adjustments for capital
(gains) included in net income $ - $ - $ - $(1,018,000)
--------- ---------- ----------- -----------
Other comprehensive income $ 8,000 $ (981,000)
---------- -----------
Comprehensive income $2,645,000 $ 2,267,000
========== ===========
</TABLE>
7
<PAGE>
THE BOSTON BEER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
E. COMPREHENSIVE INCOME: (CONTINUED):
<TABLE>
<CAPTION>
FOR NINE MONTHS ENDED FOR NINE MONTHS ENDED
SEPTEMBER 26, 1998 SEPTEMBER 27, 1997
---------------------- ------------------------
<S> <C> <C> <C> <C>
Net income $7,044,000 $ 6,263,000
---------- -----------
Other comprehensive income, net of tax:
Foreign currency translation adjustments $ 290,000 $ (31,000)
Unrealized losses on security:
Unrealized holding gain (loss) arising during period $ 788,000 $(1,426,000)
Plus: reclassification adjustments for capital
losses included in net income $1,435,000 $2,223,000 $ - $(1,426,000)
---------- ---------- ----------- -----------
Other comprehensive income $2,513,000 $(1,457,000)
---------- -----------
Comprehensive income $9,557,000 $ 4,806,000
========== ===========
</TABLE>
F. EARNINGS PER SHARE:
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
(in thousands)
Three months ended Nine months ended
------------------ ------------------
Sept 26, Sept 27, Sept 26, Sept 27,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income............................ $ 2,637 $ 3,248 $ 7,044 $ 6,263
-------- ------- -------- --------
Shares used in net earnings per
common share - basic................ 20,495 20,425 20,481 20,283
Dilutive effect on potential
common shares .................... 78 132 98 180
-------- ------- -------- --------
Shares used in net earnings per
common share - diluted.............. 20,573 20,557 20,579 20,463
Earnings per common share - basic..... $ 0.13 $ 0.16 $ 0.34 $ 0.31
======== ======= ======== ========
Earnings per common share - diluted.... $ 0.13 $ 0.16 $ 0.34 $ 0.31
======== ======= ======== ========
</TABLE>
G. NEW ACOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). This statement requires that all derivative
financial instruments be reflected on the balance sheet at fair value, with
changes in fair value recognized periodically in earnings or as a component of
equity, depending on the nature of the underlying instrument being hedged. In
the event that an entity does not effectively hedge against the underlying
derivative, changes in the fair market value of the underlying derivative will
be recognized currently in the income statement. SFAS 133 is required to be
adopted no later than the beginning of fiscal year 2000. Management is
currently evaluating the effects that this statement is expected to have on the
Company's financial statements.
8
<PAGE>
THE BOSTON BEER COMPANY, INC.
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
26, 1998 as compared to the three and nine-month periods ended September 27,
1997. It should be read in conjunction with the "Consolidated Financial
Statements" of the Company and related "Notes to the Financial Statements"
included in this Form 10-Q.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 26, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 27, 1997
SALES. Volume decreased by 13.2% to 310,000 barrels in the three months ended
September 26, 1998 from 357,000 barrels in the three months ended September 27,
1997. This decrease is due mainly to discontinued and decreased contract brewing
arrangements with third parties for products produced in the Company's
Cincinnati brewery. This reduced volume accounted for approximately 35,000
barrels. The remaining decline in volume is a result of a decrease in sales from
the Samuel Adams year round styles and Oregon Original line, partially offset by
an increase in Samuel Adams Boston Lager, Samuel Adams seasonals and Hardcore
cider. Net sales decreased by 6.6% to $45,373,000 in the three-month period
ended September 26, 1998 from $48,617,000 in the three-month period ended
September 27, 1997. The decrease in net sales was due to the Company's reduced
volume and to a lesser extent the packaging shift from six packs to twelve
packs. Twelve packs are a promotional package and sell for a lower per unit net
price.
GROSS PROFIT. Gross profit decreased by 9.2% to $24,178,000 in the three months
ended September 26, 1998 from $26,617,000 in the three months ended September
27, 1997. Cost of sales increased to 46.7% of net sales in the three months
ended September 26, 1998 from 45.3% in the three months ended September 27,
1997. This is primarily due to an increase in depreciation expense, an accrual
for pallet liability caused by the discontinuance of a packaging supplier and an
increase in deposit items returned by distributors. Offsetting these increases
are continued favorable trends in raw material and packaging costs.
ADVERTISING, PROMOTIONAL AND SELLING. Advertising, promotional and selling
expenses remained stable at $17,382,000 in the three months ended September 26,
1998 compared to $17,415,000 in the three months ended September 27, 1997. As a
percentage of net sales, total advertising, promotional and selling expenses
increased to 38.3% in the three months ended September 26, 1998 from 35.8% in
the three months ended September 27, 1997. Although total spending was level,
the Company incurred increased expenses in preparation of a new advertising
campaign, which will be rolled out in the beginning of the fourth quarter. The
Company anticipates a continued increase in advertising expense during the
fourth quarter ended December 26, 1998.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased by
10.9% to $2,842,000 in the three months ended September 26, 1998 from $3,190,000
in the three months ended September 27, 1997. As a percentage of net sales,
general and administrative expenses decreased to 6.3% for the three months ended
September 26, 1998 from 6.6% for the three months ended September 27, 1997. This
decrease is due to cost savings in consulting, employee and legal related
charges.
OPERATING INCOME. Operating income decreased by 34.2% to $3,953,000 in the
three months ended September 26, 1998 from $6,012,000 in the three months ended
September 27, 1997. This decrease was caused by the Company's reduction in its
contract volume, reduced volume from its core brands and the increase in cost of
sales.
OTHER INCOME (EXPENSE), NET: Other income (expense) net, was $426,000 for the
three months ended September 26, 1998, versus ($243,000) for the three months
ended September 27, 1997. This increase is due in part to additional interest
income the Company earned in the three months ended September 26, 1998. Also,
other expense in 1997 was adversely affected by a repurchase of an overseas
distribution right.
9
<PAGE>
THE BOSTON BEER COMPANY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
NET INCOME. Net income decreased by 18.8% to $2,636,000 in the three months
ended September 26, 1998 from $3,248,000 in the three months ended September 27,
1997. The decrease is primarily due to reduced contract and core volume and an
increase in cost of sales. Income tax expense decreased to 39.8% of pretax
income or $1,743,000 for the three months ended September 26, 1998 from 43.7% of
pretax income or $2,521,000 for the three months ended September 27, 1997. The
Company recorded a loss of $1,435,000 on the disposition of a marketable equity
security during the second quarter of 1998. The Company does not anticipate that
it will be able to fully realize the tax benefit associated with this loss. In
the first quarter, the Company recorded a tax provision that assumed a greater
loss than was realized. The lower tax rate for the current quarter reflects the
partial reversal of the provision recorded in the first quarter.
NINE MONTHS ENDED SEPTEMBER 26, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 27, 1997
SALES. Sales volume decreased by 8.0% to 943,000 barrels in the first nine
months of 1998 from 1,025,000 barrels in the first nine months of 1997. This
decrease is due to discontinued and decreased contract brewing arrangements with
third parties for products produced in the Company's Cincinnati brewery. Net
sales decreased to $137,151,000 in the first nine months of 1998 from
$140,309,000 in the first nine months of 1997. The decrease is due to the
Company's reduced contract volume and a packaging shift from the six pack
package to the twelve pack package. Net sales price per barrel increased 6.2%
due primarily to the reduction in the contract volume which is sold at lower
prices than the Company's core products and also increased pricing across the
Company's Samuel Adams product line during 1998. Additionally, there has been a
shift in the packaging mix from keg sales to bottles which generate higher
revenues per barrel.
GROSS PROFIT. Gross profit increased by 0.8% to $72,297,000 in the first nine
months of 1998 from $71,731,000 in the first nine months of 1997. Cost of sales
decreased to 47.3% of net sales in the first nine months of 1998 from 48.9% of
net sales in the first nine months of 1997. This decrease is primarily due to a
favorable trend in raw material and packaging costs.
ADVERTISING, PROMOTIONAL AND SELLING. Advertising, promotional, and selling
expenses decreased by 4.8% to $49,316,000 in the first nine months of 1998 from
$51,802,000 in the first nine months of 1997. As a percentage of net sales,
total advertising, promotional, and selling expenses decreased to 36.0% in the
first nine months of 1998 from 36.9% in the first nine months of 1997. This
decrease was primarily attributable to reduced employee-related expenses, point
of sale-related expenses, and promotional spending, partially offset by an
increase in advertising expenses. Point of sale spending was reduced during the
first two quarters in contemplation of the introduction of the Company's new
logo. The Company anticipates an increase in promotional spending during the
fourth quarter, continuing the trend which began in the third quarter. During
1998, the Company changed advertising firms and is currently in the process of
rolling out a new advertising campaign. The Company anticipates continued
increases in advertising expenditures during the fourth quarter ending December
26, 1998.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the nine
months ended September 26, 1998 are comparable to that for the nine months ended
September 27, 1997. The Company experienced cost savings in consulting fees
which were offset by the inclusion of an additional two months of expense
incurred by the Company's Cincinnati brewery. Since the Company purchased the
brewery on March 1, 1997 the additional general and administrative expense
incurred by the acquisition only included seven months for the comparable 1997
period.
OPERATING INCOME. Operating income increased by 27.9% to $13,701,000 in the
first nine months ended September 26, 1998 from $10,713,000 in the first nine
months ended September 27, 1997. This increase is due to the decrease in cost of
sales and reduced selling and promotional spending.
OTHER INCOME (EXPENSE), NET: Other income (expense) net, was ($668,000) for the
first nine months of 1998 as compared to $411,000 for the first nine months of
1997. This change is due to the loss of $1,435,000 on the sale of a marketable
security that was recognized upon disposition of the security in 1998, partially
offset by an increase in interest income.
10
<PAGE>
THE BOSTON BEER COMPANY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
NET INCOME. Net income increased by 12.5% to $7,044,000 in the first nine
months of 1998 compared to $6,263,000 in the first nine months of 1997. The
increase is primarily due to reductions in cost of sales, lower spending in
promotional and selling expenses offset by the loss on the sale of the
marketable security. Income tax expense increased to 45.9% of pretax income or
$5,989,000 for the nine months ended September 26, 1998 from 43.7% of pretax
income or $6,263,000 for the nine months ended September 27, 1997. This increase
in the tax rate is due to the loss on the sale of the marketable security that
was recognized for financial statement purposes during 1998, but from which the
Company does not expect to be able to fully realize the tax benefit..
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased to $11,558,000 at September 26, 1998 from
$13,000 at December 27, 1997 and $0 at September 27, 1997. This significant
increase in cash is primarily due to cash provided by operating activities of
$17,502,000 for the nine months ended September 26, 1998 as compared to cash
utilized in operating activities of $2,448,000 for the nine months ended
September 27, 1997. The primary source of cash flow during the nine months ended
September 26, 1998 was generated from net income of $7,044,000 as compared to
net income of $6,263,000 for the nine months ended September 27, 1997.
Adjustments to reconcile net income to net cash provided by operating activities
during 1998 were primarily comprised of depreciation expense, the amortization
of a long term deferred contract incentive, and the realized loss on the
marketable security that was disposed of in the second quarter. This was
partially offset by an increase in inventory, primarily due to the purchase of
hops which exceeded the hop usage during the nine months.
Cash provided by operating activities during the first nine months of 1998 was
partially offset by cash utilized in investing activities of $6,053,000 as
compared to cash utilized in investing activities of $15,663,000 for the nine
months ended September 27, 1997. The Company purchased $4,770,000 of equipment
during the nine months ended September 26, 1998 as compared to $15,042,000 for
the nine months ended September 27, 1997. The difference is primarily due to the
acquisition of the Cincinnati brewery on March 1, 1997 and the purchase of
additional sankey kegs during 1997. Additionally, the Company utilized
$4,134,000 for net purchases of short term investments during 1998, which was
partially offset by proceeds from the sale of a marketable security of
$2,851,000.
Net cash provided by financing activities decreased to $109,000 for the nine
months ended September 26, 1998 from $13,051,000 for the nine months ended
September 27, 1997. This decrease is primarily due to net borrowings under
existing lines of credit of $14,275,000 in the prior year as compared to $0 in
the current year. As of September 26, 1998, $10,000,000 is outstanding which is
unchanged from the balance outstanding at December 27, 1997.
The Company believes that working capital of $62,021,000 as of September 26,
1998 (of which 79.7% is comprised of cash and equivalents and short term
investments), in conjunction with existing lines of credit, should be sufficient
to meet the Company's operating, capital and debt service requirements over the
next few years.
Management is in the process of evaluating alternative programs for investing
the Company's substantial cash balance.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133). This statement requires that all derivative financial
instruments be reflected on the balance sheet at fair value, with changes in
fair value recognized periodically in earnings or as a component of equity,
depending on the nature of the underlying instrument being hedged. In the
event that an entity does not effectively hedge against the underlying
derivative, changes in the fair market value of the underlying derivative will
be recognized currently in the income statement. SFAS 133 is required to be
adopted no later than the beginning fiscal year 2000. Management is currently
evaluating the effects that this statement is expected to have on the Company's
financial statements.
11
<PAGE>
THE BOSTON BEER COMPANY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
The Company has entered into purchase commitments to ensure it has the necessary
supply of hops to meet future requirements. The Company's hops purchase
commitments are denominated in German marks or English pounds, depending upon
the location of the supplier. The Company has entered into forward contracts in
the past in efforts to hedge foreign currency risk associated with these
purchase commitments. There are no forward contracts existing as of September
26, 1998. Future hedging practices, if any, will directly affect the impact that
Statement of Financial Accounting Standard No. 133 (SFAS 133) will have on the
Company's financial statements. Management is in the process of evaluating its
hedging practices for future periods.
YEAR 2000
As has been widely publicized, many computer systems and microprocessors are not
programmed to accommodate dates beyond the year 1999. The Company's exposure to
this year 2000 ("Y2K") problem comes not only from its own internal computer
systems and microprocessors, but also from the systems and microprocessors of
its key vendors, including by way of illustration its contract breweries, raw
material suppliers, utility companies, payroll services and banks, and its
distributors and other customers. A failure of any of these internal or external
systems could adversely affect the Company's ability to brew, package, sell,
ship and bill for product and to collect invoices and account for collections.
In effect, any significant computer failure could have a material, adverse
effect on the Company's operations. With this in mind, the Company has commenced
a comprehensive review of potential Y2K issues, both with respect to the
Company's internal systems and those of third parties with which it has
significant relationships.
The Company currently believes that all of its internal systems will be year
2000 compliant by the end of the first quarter of 1999. This belief is based on
its own internal evaluations and testing and on assurances from its systems
vendors. Current estimates are that the total cost to achieve internal year 2000
compliance, other than at the Company's Cincinnati brewery, will not exceed
$125,000, exclusive of amounts to be expended on contingency plans. None of the
$125,000 has yet been spent. This $125,000 anticipated upgrade cost is in
addition to other planned information technology ("IT") projects. While the
intensive effort expected to achieve Y2K compliance has caused and may continue
to cause delays in other IT projects, the Company does not expect that any of
these delays will have a significant effect on the Company's business or that
any of the Company's other IT projects will be canceled or postponed to pay for
the Y2K upgrades.
The Company is currently evaluating all of its microprocessors and control
systems at its Cincinnati brewery in light of the Y2K problem. As part of this
process, the Company is conducting an inventory of the brewery's automated
machinery and other computerized equipment and will be contacting applicable
vendors for information regarding Y2K compliance. The Company will then upgrade
or otherwise modify the brewery's microprocessors and control systems, to the
extent necessary, and the Company will develop applicable contingency plans.
Testing of all brewery systems should be completed by the end of the first
quarter of 1999. Preliminary estimates of the cost to bring all brewery systems
into Y2K compliance do not exceed $150,000, but a more accurate estimate will
not be possible until all brewery equipment has been identified and evaluated.
Process controls at the brewery are integral to the brewery's operations. A
failure of any of these controls could adversely affect the Company's ability to
continue brewing operations; however, because many of the brewing processes can
be controlled manually, the actual risk that the Company will be unable to brew
is low. In addition, the Company currently plans to shut the brewery down for
the first several days of January 2000 for testing purposes and will be able to
operate much of the brewery equipment manually, if necessary for product supply
reasons.
The Company relies extensively on its suppliers and contract breweries. Because
their systems are not directly under the Company's control, the Company is at
risk that all required external Y2K compliance efforts will not be completed on
time and significant business disruptions will result. The Company has formed a
committee to assure that all vendor and other relationship Y2K issues are
analyzed and addressed. Under the direction of this committee, the Company has
compiled a list of all of its vendors and, as to each vendor, assessed the
impact that a Y2K failure would likely have on the Company's business and
operations. The Company then sent a Y2K questionnaire to each vendor believed to
present a possibly critical risk, in order to ascertain the Y2K compliance
status of each. The Company is currently in the process of compiling and
analyzing the information submitted by these vendors. To date, questionnaires
have been sent to 37 critical vendors. Of these, 28 vendors have
12
<PAGE>
THE BOSTON BEER COMPANY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
responded, all have asserted that they are addressing the Y2K problem or are
already in compliance. The Company intends to continue to pursue vendors who
have not as yet responded, and to monitor the progress toward compliance of
those not yet compliant. The Company intends to issue questionnaires to non-
critical vendors in the coming months.
In addition to obtaining and assessing information concerning vendor Y2K status,
the Company is requiring all new vendors and all existing vendors entering into
new contracts with the Company to warrant Y2K compliance. Management understands
the potentially serious consequences of a system failure and also understands
that not all vendors may be Y2K compliant on time. For this reason, the Company
is developing contingency plans for all critical services and supplies. As part
of this contingency planning, the Company is assessing the cost of vendor
shutdown, understanding that, because of the complex nature of the Company's
supply chain and the lack of clarity as to the effect of multiple vendor
failure, any assessment process is imprecise.
The Company believes that the most significant threats to its ability to operate
are presented by possible disruptions of brewing operations at its contract
breweries, and its supply of glass and malt. Because the Company brews its
products at multiple facilities, Management believes that it has significant
operating risk only if more than one of these facilities is unable to produce.
In addition, Management expects that, as is the case with the Company's
Cincinnati brewery, in the event of a system failure at a contract brewery, the
brewery would be able to recommence operations fairly rapidly, but on an
inefficient, manual basis.
A systems failure at the Company's glass supplier could significantly affect the
Company's ability to package and ship product. The Company's current supplier is
one of the world's largest and the Company believes that finding alternate
sources of supply would be problematic. Because of the nature of this risk, the
Company has worked closely with its supplier on this issue and has received
assurances that Y2K compliance will be achieved on time. A similar situation
exists with respect to malt. If the Company's supply of malt were interrupted,
the Company's ability to meet production schedules could be affected, although
alternate sources of supply might be available, albeit at a higher cost. The
Company also believes that its current vendors could run the malting process
manually and that, accordingly, the risk of a significant disruption is slight.
In the unlikely event that the Company is unable to produce or ship any product
(the "Worst Case"), the Company estimates its financial exposure to be in the
range of $4.3 million per week of lost revenue, over the short term. Using
forward planning ratios, this lost revenue translates into lost variable gross
profit, in the absence of mitigating cost cutting, of $1.7 million per week. A
production disruption for an extended period is likely to affect the
availability of the Company's products to consumers, leading to a decline in
brand equity, the financial consequences of which are not susceptible to
estimation. The Company does not expect to encounter the Worst Case. The
financial consequences of a less significant disruption are difficult to
predict, as they will depend on the exact circumstances and duration of the
disruption.
It is possible that the conclusions reached by the Company from its analysis to
date will change, with the result that the cost estimates and target completion
dates outlined above will change. The Company will continue to explore
contingency plans, so as to be in a position to mitigate the consequences of any
disruption.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
This Form 10-Q filing contains forward-looking statements within the meaning of
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. Such forward-looking statements are based on management's current
expectations and involve known and unknown risks, uncertainties, and other
factors which may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements.
Factors which may cause actual future results to differ from forward-looking
statements include, among others, the following: changes in consumer
preferences; general economic and business conditions; increasing competition in
the craft-brewed and high-end beer segments; success of operating initiatives;
possible future increases in operating costs; advertising and promotional
efforts; changes in brand awareness; the existence or absence of adverse
publicity; changes in business strategy; quality of management; availability,
terms and deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employee benefit costs; change
in, or the failure to comply with, government regulations; and other factors.
13
<PAGE>
THE BOSTON BEER COMPANY, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to certain claims and litigation in the
ordinary course of business. The Company does not believe any of
these proceedings will result, individually or in the aggregate,
in 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
In accordance with the provisions of Rule 14a-4 ( c ) promulgated
under the Securities Exchange Act of 1934, if the company does
not receive notice of a shareholder proposal to be raised at its
1999 Annual Meeting on or before February 26, 1999, then in such
event, the management proxies shall be allowed to use their
discretionary voting authority when the proposal is raised at the
1999 Annual Meeting of Stockholders.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT INDEX
Exhibit No. TITLE
- ----------- ------------------------------------------------------------------
3.1 Articles of Organization (incorporated by reference to Exhibit 3.2
to the Company's Registration Statement No. 33-96162).
3.2 By-Laws of the Company (incorporated by reference to Exhibit 3.2
to the Company's Registration Statement No. 33-96162).
3.3 Restated Articles of Organization of the Company (incorporated by
reference to Exhibit 3.3 to the Company's Form 10-K filed on
April 1, 1996).
3.4 Amended and Restated By-Laws of the Company (incorporated by
reference to Exhibit 3.4 to the Company's Form 10-K filed on
April 1, 1996).
3.5 Amended and Restated By-Laws of the Company (as amended through
June 2, 1998).
14
<PAGE>
THE BOSTON BEER COMPANY, INC.
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
Exhibit Index (CONTINUED)
EXHIBIT NO. TITLE
----------- -----
3.6 Restated Articles of Organization of the Company, dated
July 21, 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).
10.3 Deferred Compensation Agreement between the Partnership and
Alfred W. Rossow, Jr., effective December 1, 1992
(incorporated by reference to Exhibit 10.3 to the Company's
Registration Statement No. 33-96162).
10.4 The Boston Beer Company, Inc. Employee Equity Incentive
Plan, as adopted effective November 20, 1995 and amended
effective February 23, 1996 (incorporated by reference to
Exhibit 4.1 to the 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).
+10.10 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).
+10.11 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).
15
<PAGE>
THE BOSTON BEER COMPANY, INC.
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
Exhibit Index (CONTINUED)
EXHIBIT NO. TITLE
----------- -----
+10.12 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).
10.13 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).
+10.14 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).
+10.15 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).
10.16 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 10.16 to the Company's Registration Statement No.
33-96162).
+10.17 Letter Agreement between Boston Beer Company Limited
Partnership and Joseph E. Seagram & Sons, Inc. (incorporated
by reference to Exhibit 10.17 to the Company's Registration
Statement No. 33-96162).
10.18 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
the Company's Registration Statement No. 33-96162).
10.19 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).
10.20 1996 Stock Option Plan for Non-Employee Directors
(incorporated by reference to the Company's Form 10-K,
filed on March 28, 1997).
+10.21 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 28, 1997).
+10.22 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 28, 1997).
16
<PAGE>
THE BOSTON BEER COMPANY, INC.
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
Exhibit Index (CONTINUED)
EXHIBIT NO. TITLE
----------- -----
+10.23 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 28, 1997).
10.24 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).
+10.25 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 27, 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 27, 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 27, 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 on March 27,
1998).
+10.30 Glass Supply Agreement between The Boston Beer Company and
Owens' Brockway Glass Container Inc., dated April 30, 1998
(incorporated by reference to the 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.
11 The information required by exhibit 11 has been included in
Note F 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 28, 1997).
*27 Financial Data Schedule (electronic filing only).
17
<PAGE>
THE BOSTON BEER COMPANY, INC.
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
Exhibit Index (CONTINUED)
* 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 Form 8-K on June 18, 1998 with the
Securities and Exchange Commission. The filing was
regarding a change in the Company's independent accountants
effective fiscal year 1998.
18
<PAGE>
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: Nov 4, 1998 By: /s/: C. JAMES KOCH
- ------------------ ----------------------------
C. James Koch
President, Chief Executive Officer,
Clerk and Director (principal executive
officer)
Date: Nov 4, 1998 By: /s/: ALFRED W. ROSSOW, JR.
- ------------------ ----------------------------
Alfred W. Rossow, Jr.
Executive Vice President, Chief
Financial Officer, Treasurer and
Director (principal financial officer)
Date: Nov 4, 1998 By: /s/: RICHARD P. LINDSAY
- ------------------ -----------------------------
Richard P. Lindsay
Vice President of Finance and Controller
(principal accounting officer)
19
<PAGE>
Exhibit 10.32
July 31, 1998
THE STROH BREWERY COMPANY
100 River Place
Detroit, MI 48207
Attention: Christopher T. Sortwell, Senior Vice President, Finance
RE: PRODUCTION AGREEMENT, DATED JANUARY 14, 1997, BETWEEN THE STROH
BREWERY COMPANY ("STROH") AND BOSTON BEER COMPANY LIMITED
PARTNERSHIP ("BOSTON BEER") (THE "PRODUCTION AGREEMENT), LETTER
AGREEMENT DATED JANUARY 14, 1997, BETWEEN STROH AND BOSTON BEER
("LETTER AGREEMENT") AND EXTENSION LETTERS, DATED AUGUST 19, 1997,
NOVEMBER 19, 1997, DECEMBER 19, 1997, JANUARY 22, 1998, FEBRUARY 25,
1998, MARCH 11, 1998, APRIL 13, 1998, APRIL 27, 1998, JUNE 11, 1998,
JUNE 25, 1998 AND JULY 20, 1998 ("EXTENSION LETTERS")
Dear Chris,
The following is intended to set forth the agreement between Stroh and Boston
Beer with respect to a further extension of the Letter Agreement, as previously
extended by the Extension Letters:
1. All references in the Letter Agreement, as amended by the Extension
Letters, to "August 3, 1998" are hereby deleted and substituted with
"August 31, 1998".
2. All references in the Production Agreement to a termination date of
"February 5, 1999", including the reference contained in Section 6(a)
of the Production Agreements are hereby deleted and substituted with
"March 5, 1999".
If you are in agreement with the above, please sign and return the enclosed copy
of this letter indicating your acceptance.
Very truly yours,
BOSTON BEER COMPANY LIMITED PARTNERSHIP
BY: BOSTON BREWING COMPANY, INC., ITS GENERAL PARTNER
By:
-------------------------------
Martin F. Roper, Vice President
ACCEPTED AND AGREED TO THIS 3RD DAY OF AUGUST, 1998.
THE STROH BREWING COMPANY
BY:
-----------------------------------------------
Christopher T. Sortwell, Senior Vice President,
Finance
<PAGE>
August 28, 1998
THE STROH BREWERY COMPANY
100 River Place
Detroit, MI 48207
Attention: Christopher T. Sortwell, Senior Vice President, Finance
RE: PRODUCTION AGREEMENT, DATED JANUARY 14, 1997, BETWEEN THE STROH
BREWERY COMPANY ("STROH") AND BOSTON BEER COMPANY LIMITED
PARTNERSHIP ("BOSTON BEER") (THE "PRODUCTION AGREEMENT"), LETTER
AGREEMENT DATED JANUARY 14, 1997, BETWEEN STROH AND BOSTON BEER
("LETTER AGREEMENT") AND EXTENSION LETTERS, DATED AUGUST 19, 1997,
NOVEMBER 19, 1997, DECEMBER 19, 1997, JANUARY 22, 1998, FEBRUARY 25,
1998, MARCH 11, 1998, APRIL 13, 1998, APRIL 27, 1998, JUNE 11, 1998,
JUNE 25, 1998, JULY 20, 1998 AND JULY 31, 1998 ("EXTENSION LETTERS")
Dear Chris:
The following is intended to set forth the agreement between Stroh and Boston
Beer with respect to a further extension of the Letter Agreement, as previously
extended by the Extension Letters:
1. All references in the Letter Agreement, as amended by the Extension
Letters, to "August 31, 1998" are hereby deleted and substituted
with "September 30, 1998".
2. All references in the Production Agreement to a termination date of
"March 5, 1999", including the reference contained in Section 6(a)
of the Production Agreement are hereby deleted and substituted with
"April 5, 1999".
If you are in agreement with the above, please sign and return the enclosed copy
of this letter indicating your acceptance.
Very truly yours,
BOSTON BEER COMPANY LIMITED PARTNERSHIP
By: Boston Brewing Company, Inc., its General Partner
By: __________________________________
Martin F. Roper, Vice President
ACCEPTED AND AGREED TO THIS ____ DAY OF AUGUST, 1998.
THE STROH BREWERY COMPANY
By: _______________________________________________________
Christopher T. Sortwell, Senior Vice President, Finance
<PAGE>
September 28, 1998
THE STROH BREWERY COMPANY
100 River Place
Detroit, MI 48207
Attention: Christopher T. Sortwell, Senior Vice President, Finance
RE: PRODUCTION AGREEMENT, DATED JANUARY 14, 1997, BETWEEN THE STROH
BREWERY COMPANY ("STROH") AND BOSTON BEER COMPANY LIMITED
PARTNERSHIP ("BOSTON BEER") (THE "PRODUCTION AGREEMENT), LETTER
AGREEMENT DATED JANUARY 14, 1997, BETWEEN STROH AND BOSTON BEER
("LETTER AGREEMENT") AND EXTENSION LETTERS, DATED AUGUST 19, 1997,
NOVEMBER 19, 1997, DECEMBER 19, 1997, JANUARY 22, 1998, FEBRUARY 25,
1998, MARCH 11, 1998, APRIL 13, 1998, APRIL 27, 1998, JUNE 11, 1998,
JUNE 25, 1998, JULY 20, 1998, JULY 31, 1998, AND AUGUST 28, 1998
("EXTENSION LETTERS")
Dear Chris,
The following is intended to set forth the agreement between Stroh and Boston
Beer with respect to a further extension of the Letter Agreement, as previously
extended by the Extension Letters:
1. All references in the Letter Agreement, as amended by the Extension
Letters, to "September 30, 1998" are hereby deleted and substituted
with "October 15, 1998".
2. All references in the Production Agreement to a termination date of
"April 5, 1999", including the reference contained in Section 6(a)
of the Production Agreements are hereby deleted and substituted with
"April 20, 1999".
If you are in agreement with the above, please sign and return the enclosed copy
of this letter indicating your acceptance.
Very truly yours,
BOSTON BEER COMPANY LIMITED PARTNERSHIP
BY: BOSTON BREWING COMPANY, INC., ITS GENERAL PARTNER
By:
-------------------------------
Martin F. Roper, Vice President
ACCEPTED AND AGREED TO THIS DAY OF SEPTEMBER, 1998
---
THE STROH BREWING COMPANY
BY:
-------------------------------------------------------
Christopher T. Sortwell, Senior Vice President, Finance
<PAGE>
October 13, 1998
THE STROH BREWERY COMPANY
100 River Place
Detroit, MI 48207
Attention: Christopher T. Sortwell, Senior Vice President, Finance
RE: PRODUCTION AGREEMENT, DATED JANUARY 14, 1997, BETWEEN THE STROH
BREWERY COMPANY ("STROH") AND BOSTON BEER COMPANY LIMITED
PARTNERSHIP ("BOSTON BEER") (THE "PRODUCTION AGREEMENT), LETTER
AGREEMENT DATED JANUARY 14, 1997, BETWEEN STROH AND BOSTON BEER
("LETTER AGREEMENT") AND EXTENSION LETTERS, DATED AUGUST 19, 1997,
NOVEMBER 19, 1997, DECEMBER 19, 1997, JANUARY 22, 1998, FEBRUARY 25,
1998, MARCH 11, 1998, APRIL 13, 1998, APRIL 27, 1998, JUNE 11, 1998,
JUNE 25, 1998, JULY 20, 1998, JULY 31, 1998, AUGUST 28, 1998, AND
SEPTEMBER 28, 1998 ("EXTENSION LETTERS")
Dear Chris,
The following is intended to set forth the agreement between Stroh and Boston
Beer with respect to a further extension of the Letter Agreement, as previously
extended by the Extension Letters:
1. All references in the Letter Agreement, as amended by the Extension
Letters, to "October 15, 1998" are hereby deleted and substituted
with "October 21, 1998".
2. All references in the Production Agreement to a termination date of
"April 20, 1999", including the reference contained in Section 6(a)
of the Production Agreements are hereby deleted and substituted with
"April 27, 1999".
If you are in agreement with the above, please sign and return the enclosed copy
of this letter indicating your acceptance.
Very truly yours,
BOSTON BEER COMPANY LIMITED PARTNERSHIP
BY: BOSTON BREWING COMPANY, INC., ITS GENERAL PARTNER
By:
-------------------------------
Martin F. Roper, Vice President
ACCEPTED AND AGREED TO THIS DAY OF OCTOBER, 1998
---
THE STROH BREWERY COMPANY
BY:
-------------------------------------------------------
Christopher T. Sortwell, Senior Vice President, Finance
<PAGE>
October 20, 1998
THE STROH BREWERY COMPANY
100 River Place
Detroit, MI 48207
Attention: Christopher T. Sortwell, Senior Vice President, Finance
RE: PRODUCTION AGREEMENT, DATED JANUARY 14, 1997, BETWEEN THE STROH
BREWERY COMPANY ("STROH") AND BOSTON BEER COMPANY LIMITED
PARTNERSHIP ("BOSTON BEER") (THE "PRODUCTION AGREEMENT), LETTER
AGREEMENT DATED JANUARY 14, 1997, BETWEEN STROH AND BOSTON BEER
("LETTER AGREEMENT") AND EXTENSION LETTERS, DATED AUGUST 19, 1997,
NOVEMBER 19, 1997, DECEMBER 19, 1997, JANUARY 22, 1998, FEBRUARY 25,
1998, MARCH 11, 1998, APRIL 13, 1998, APRIL 27, 1998, JUNE 11, 1998,
JUNE 25, 1998, JULY 20, 1998, JULY 31, 1998, AUGUST 28, 1998,
SEPTEMBER 28, 1998, AND OCTOBER 13, 1998 ("EXTENSION LETTERS")
Dear Chris,
The following is intended to set forth the agreement between Stroh and Boston
Beer with respect to a further extension of the Letter Agreement, as previously
extended by the Extension Letters:
1. All references in the Letter Agreement, as amended by the Extension
Letters, to "October 21, 1998" are hereby deleted and substituted
with "October 23, 1998".
2. All references in the Production Agreement to a termination date of
"April 27, 1999", including the reference contained in Section 6(a)
of the Production Agreements are hereby deleted and substituted
with "April 29, 1999".
If you are in agreement with the above, please sign and return the enclosed copy
of this letter indicating your acceptance.
Very truly yours,
BOSTON BEER COMPANY LIMITED PARTNERSHIP
BY: BOSTON BREWING COMPANY, INC., ITS GENERAL PARTNER
By:
-------------------------------
Martin F. Roper, Vice President
ACCEPTED AND AGREED TO THIS DAY OF OCTOBER, 1998
---
THE STROH BREWERY COMPANY
BY:
-------------------------------------------------------
Christopher T. Sortwell, Senior Vice President, Finance
<PAGE>
October 23, 1998
THE STROH BREWERY COMPANY
100 River Place
Detroit, MI 48207
Attention: Christopher T. Sortwell, Senior Vice President, Finance
RE: PRODUCTION AGREEMENT, DATED JANUARY 14, 1997, BETWEEN THE STROH
BREWERY COMPANY ("STROH") AND BOSTON BEER COMPANY LIMITED
PARTNERSHIP ("BOSTON BEER") (THE "PRODUCTION AGREEMENT), LETTER
AGREEMENT DATED JANUARY 14, 1997, BETWEEN STROH AND BOSTON BEER
("LETTER AGREEMENT") AND EXTENSION LETTERS, DATED AUGUST 19, 1997,
NOVEMBER 19, 1997, DECEMBER 19, 1997, JANUARY 22, 1998, FEBRUARY 25,
1998, MARCH 11, 1998, APRIL 13, 1998, APRIL 27, 1998, JUNE 11, 1998,
JUNE 25, 1998, JULY 20, 1998, JULY 31, 1998, AUGUST 28, 1998,
SEPTEMBER 28, 1998, OCTOBER 13, 1998, AND OCTOBER 20, 1998
("EXTENSION LETTERS")
Dear Chris,
The following is intended to set forth the agreement between Stroh and Boston
Beer with respect to a further extension of the Letter Agreement, as previously
extended by the Extension Letters:
1. All references in the Letter Agreement, as amended by the Extension
Letters, to "October 23, 1998" are hereby deleted and substituted with
"November 6, 1998".
2. All references in the Production Agreement to a termination date of
"April 29, 1999", including the reference contained in Section 6(a) of
the Production are hereby deleted and substituted with "May 13, 1999".
If you are in agreement with the above, please sign and return the enclosed copy
of this letter indicating your acceptance.
Very truly yours,
BOSTON BEER COMPANY LIMITED PARTNERSHIP
BY: BOSTON BREWING COMPANY, INC., ITS GENERAL PARTNER
By:
-------------------------------
Martin F. Roper, Vice President
ACCEPTED AND AGREED TO THIS 23RD DAY OF OCTOBER, 1998
THE STROH BREWERY COMPANY
BY:
-------------------------------------------------------
Christopher T. Sortwell, Senior Vice President, Finance
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BOSTON BEER COMPANY, INC.'S
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-START> DEC-28-1997
<PERIOD-END> SEP-26-1998
<CASH> 11,571
<SECURITIES> 37,858
<RECEIVABLES> 18,204
<ALLOWANCES> (1,208)
<INVENTORY> 18,264
<CURRENT-ASSETS> 89,978
<PP&E> 44,422
<DEPRECIATION> (14,791)
<TOTAL-ASSETS> 122,098
<CURRENT-LIABILITIES> 27,957
<BONDS> 0
0
0
<COMMON> 205<F1>
<OTHER-SE> 80,897
<TOTAL-LIABILITY-AND-EQUITY> 122,098
<SALES> 157,674
<TOTAL-REVENUES> 137,151
<CGS> 64,854
<TOTAL-COSTS> 123,450
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (486)
<INCOME-PRETAX> 13,033
<INCOME-TAX> 5,989
<INCOME-CONTINUING> 7,044
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,044
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
<FN>
<F1>This number includes 16,393,948 shares of class A common stock with a par
value of $164,000 and 4,107,355 shares of class B stock with a par value of
$41,000.
</FN>
</TABLE>
