| 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-month period ended March
25, 2000 as compared to the three-month period ended March 27, 1999. 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 25, 1999.
RESULTS OF OPERATIONS
Three Months Ended March 25, 2000 compared to Three Months
Ended March 27, 1999
For purposes of this discussion, Boston Beer's "core
brands" include all products sold under Samuel Adams®, Oregon
Original™, HardCore® or BoDEAN's Twisted Tea™ 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®
("Boston Lager").
Net sales. Net sales increased by $3.4 million or
8.3% to $44.3 million for the three months ended March 25, 2000 from $40.9
million for the three months ended March 27, 1999. The increase is primarily
due to an increase in volume of Boston Beer's core brands.
Volume. Total volume increased by 8.3% to 290,000
barrels in the three months ended March 25, 2000 from 268,000 barrels in the
three months ended March 27, 1999. Core brands increased by 8.4% to 279,000
barrels for the quarter ended March 25, 2000 from 257,000 barrels for the
quarter ended March 27, 1999. The increase in core brands is primarily due
to an increase volume of Boston Lager, in addition to volume generated from
the initial rollout of a new product, BoDEAN's Twisted Tea. Volume from
non-core products was 11,000 barrels for the quarter ended March 25, 2000
and was flat with the same period last year.
Selling Price. The selling price per barrel
increased less than 1.0% to $152.58 per barrel for the quarter ended March
25, 2000. This increase is due to normal price increases that were partially
offset by changes in the packaging mix.
Significant changes in the packaging mix could have a
material effect on sales per barrel. The Company packages its core brands in
bottles and kegs. Assuming the same level of production, a shift in the mix
from bottles to kegs would effectively decrease revenue per barrel, as the
selling price per equivalent barrel is lower for kegs than for bottles. The
ratio of kegs to bottles increased slightly in core brands, with kegs
representing 28.8% of total shipments relating to kegs in the three months
ended March 25, 2000 as compared to 28.3% for the same period last
year.
Gross Profit. Gross profit was 55.7% as a percentage
of net sales or approximately $85.00 per barrel for the quarters ended March
25, 2000 and March 27, 1999. Cost of sales was 44.3% as a percentage of net
sales for the quarter ended March 25, 2000 and was consistent with the same
period last year.
Advertising, promotional and selling. Advertising,
promotional and selling expenses increased by $1.4 million or 9.3% to $16.1
million for the three months ended March 25, 2000 as compared to $14.8
million for the three months ended March 27, 1999. This increase is
primarily due to an increase in freight costs and promotional expenditures.
The increase in freight costs was primarily due to fuel surcharges. As a
percentage of net sales, advertising, promotional and selling expenses
increased slightly to 36.5% for the three months ended March 25, 2000 from
36.2% for the same period last year.
Interest income. Interest income decreased by 8.6%
to $514,000 due to a decrease in average cash and short-term investments to
approximately $42.3 million during the first quarter 2000 from $53.1 million
during the first quarter 1999. The decline of cash and short-term
investments was primarily due to the repurchase of Company shares under a
repurchase program which began during the fourth quarter in 1999. See
Liquidity and Capital Resources for further explanation.
Interest expense. There was no interest expense for
the three months ended March 25, 2000 as compared to $145,000 for the three
months ended March 27, 1999. There were no amounts outstanding on the $15.0
million revolving line of credit nor the $30.0 million credit facility
during the three months ended March 25, 2000.
| Item 2. |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued) |
Other income (expense), net. Other
income (expense), net increased by $104,000 to income of $128,000 for the
three months ended March 25, 2000 from income of $24,000 for same period
last year. The change is primarily due to a gain recognized from the
disposal of fixed assets of $155,000 during the quarter ended March 25,
2000.
Provision for income taxes. The
effective income tax rate remained at approximately 42.0% for the three
months ended March 25, 2000 and March 27, 1999.
LIQUIDITY AND CAPITAL
RESOURCES
Although cash and short-term investments
decreased by $4.1 million to $40.2 million as of March 25, 2000 from $44.3
million as of December 25, 1999, the Company's financial condition continued
to be strong during the first quarter of 2000. This decrease was primarily
due to the repurchase by the Company of its stock under the stock repurchase
program discussed below. During the quarter ended March 25, 2000, the
Company repurchased 776,300 shares of its outstanding Class A Common Stock
at an aggregate cost of $5.8 million. Cash provided by operating activities
of $2.9 million and cash provided by investing activities of $1.9 million
for the three months ended March 25, 2000, partially offset the cash used in
financing activities.
Effective October 15, 1998, the Board
authorized management to implement a stock repurchase program, initially
subject to an aggregate expenditure limitation of $10.0 million. In 1999
this limitation was increased to $20.0 million, and on April 14, 2000, the
Board increased the aggregate expenditure limitation further to $25.0
million. As of March 25, 2000, the Company had repurchased 2,095,900 shares
under this program at an aggregate cost of $15.6 million. As of March 27,
1999, the Company had not repurchased any Company shares.
The Company had cash inflows of $3.2
million resulting from maturities of short-term investments during the
quarter ended March 25, 2000 as compared to $50,000 as of March 27, 1999.
The Company has historically invested its excess cash in money market funds,
short-term treasury and agency bills, and high-grade commercial
paper.
With working capital of $56.4 million and
$45.0 million in unused bank lines of credit as of March 25, 2000, 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
Year 2000
The Company believes that it has
successfully completed its system remediation efforts regarding date
recognition for the year 2000. The total cost incurred related to the year
2000 conversion efforts of its internal systems was approximately $12,000.
As of May 9, 2000, the Company has not encountered any problems processing
date information in the year 2000. The year 2000 issue has had no material
effect on the Company's results of operations, statement of financial
position or statement of cash flows for the quarter ended March 25, 2000,
nor does the Company anticipate that this issue will have a material effect
on its financial position or operations going forward.
Hops Purchase
Commitments
The Company enters into purchase
commitments for hops based upon forecasted future requirements, among other
factors. In recent years the Company's sales growth declined, resulting in
an increase in hops inventory. Although sales have increased in the first
quarter, existing purchase commitments may exceed projected future needs
over the life of such commitments. The Company recorded a charge of $397,000
and $250,000 associated with the cancellation of contracts and the reserve
for excess purchase commitments and excess inventory on hand during the
quarters ended March 25, 2000 and March 27, 1999, respectively. The Company
continues to manage inventory levels in an effort to maximize utilization of
hops on hand and hops under commitment.
The computation of the excess purchase
commitment reserve requires management to make certain assumptions regarding
future sales growth, product mix, cancellation costs and supply, among
others. Actual results may differ materially from management's
estimates.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Since December 25, 1999, 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.
| PART II. |
|
OTHER INFORMATION |
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Item 1. |
|
LEGAL PROCEEDINGS
A claim has been asserted against the Company and its
subsidiary, Samuel Adams Brewery Company, Ltd., as alleged successors to
The Schoenling Brewing Company ("Schoenling"), by the City of
Cincinnati, Ohio for closure costs and related remedial response costs for
the closure of a City landfill at which Schoenling purportedly disposed of
certain materials. Neither the Company nor its subsidiary has ever made
use of this landfill. The Company does not believe that it is legally a
successor to Schoenling's business and is vigorously contesting the claim.
Further, Schoenling has agreed to indemnify the Company with respect to
this claim. The Company does not believe that this claim will have a
material, adverse effect upon the future results of operations, financial
position or cash flows. |
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The Company is a party to other 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. |
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Item 2. |
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CHANGES IN SECURITIES |
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Not Applicable |
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Item 3. |
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DEFAULTS UPON SENIOR SECURITIES |
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Not Applicable |
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Item 4. |
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SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS |
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Not Applicable |
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Item 5. |
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OTHER INFORMATION |
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Not Applicable |
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Item 6.
|
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EXHIBITS AND REPORTS ON FORM
8-K |
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(a) |
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Exhibits |
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Exhibit No.
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Title
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3.1
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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). |
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3.2
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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). |
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4.1
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Form of Class A Common Stock
Certificate (incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement No. 33-96164). |
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10.1
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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). |
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10.2
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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). |
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Exhibit No. |
Title
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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). |
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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).
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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).
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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).
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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).
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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).
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†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).
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†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).
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†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).
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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). |
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†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). |
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†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). |
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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 10.15 to the Company's Registration Statement No.
33-96162). |
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†10.17 |
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). |
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Exhibit No. |
Title
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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 Exhibit 10.17
to the Company's Registration Statement No. 33-96164).
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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).
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10.20 |
1996 Stock Option Plan for Non-Employee
Directors (incorporated by reference to the Company's Form 10-K, filed on
March 27, 1998).
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†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 27, 1998).
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†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 27, 1998).
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†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 27,
1998). |
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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). |
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†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). |
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†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). |
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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). |
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†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) . |
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†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 27, 1998). |
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†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). |
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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). |
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Exhibit No. |
Title
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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). |
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†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).
|
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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). |
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10.35 |
Amendment to Revolving Credit Agreement
between Fleet Bank of Massachusetts, N.A. and The Boston Beer Company,
Inc., dated March 30, 1999.
|
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†10.36 |
Agreement between Boston Beer Company
Limited Partnership and Landstar Logistics and
Transportation, dated January 9, 1999.
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*11.1 |
The information required by exhibit 11
has been included in Note D of the notes to the consolidated financial
statements. |
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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).
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*27.1 |
Financial Data Schedule (electronic
filing only).
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† |
|
Portions of this Exhibit have been
omitted pursuant to an application for an order declaring confidential
treatment filed with the Securities and Exchange Commission. |
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(b) |
|
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Reports on Form 8-K. |
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The Company filed no reports on Form
8-K with the Securities and Exchange Commission during the quarter ended
March 25, 2000.
|
SIGNATURES
THE BOSTON BEER COMPANY, INC.
(Registrant)
| Date: May 9, 2000 |
|
|
By: /s/ C. James Koch |
| |
|
|
|
C. James Koch
Chief Executive Officer,
(principal executive
officer) |
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|
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| Date: May 9, 2000 |
|
|
By: |
/s/ Richard P. Lindsay |
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|
|
|
Richard P. Lindsay
Chief Financial Officer,
(principal accounting and financial officer) |
5
1,000
3-MOS
DEC-30-2000
DEC-26-1999
MAR-25-2000
4,358
35,830
19,977
(925)
15,876
79,648
47,935
(21,827)
109,914
23,298
0
0
0
207
81,185
109,914
45,276
44,257
19,615
38,738
642
0
0
6,161
2,588
3,573
0
0
0
3,573
0.19
0.19
THIS NUMBER INCLUDES 16,455,956 SHARES OF CLASS A COMMON STOCK WITH A PAR VALUE
OF $165,000 AND 4,107,355 SHARES OF CLASS B STOCK WITH A PAR VALUE OF $41,000.
