0000949870 us-gaap:CommonClassAMember 2011-07-29 0000949870 us-gaap:CommonClassBMember 2011-07-29 0000949870 2011-06-25 0000949870 2010-12-25 0000949870 us-gaap:CommonClassAMember 2011-06-25 0000949870 us-gaap:CommonClassAMember 2010-12-25 0000949870 us-gaap:CommonClassBMember 2011-06-25 0000949870 us-gaap:CommonClassBMember 2010-12-25 0000949870 2011-03-27 2011-06-25 0000949870 2010-03-28 2010-06-26 0000949870 2010-12-26 2011-06-25 0000949870 2009-12-27 2010-06-26 0000949870 2009-12-26 0000949870 2010-06-26 iso4217:USD xbrli:shares xbrli:shares iso4217:USD BOSTON BEER CO INC 0000949870 --12-31 No No Yes Accelerated Filer 10-Q false 2011-06-25 Q2 2011 480108943

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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; "> <div align="center" style="font-size: 10pt; margin-top: 0pt"><b></b> </div> <div align="left"> </div> <div align="center" style="font-size: 10pt"><b></b></div> <div align="left" style="font-size: 10pt; margin-top: 10pt"><b>A. Organization and Basis of Presentation</b> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">The Boston Beer Company, Inc. and its subsidiaries (the “Company”) are engaged in the business of selling alcohol beverages throughout the United States and in selected international markets, under the trade names, “The Boston Beer Company,” “Twisted Tea Brewing Company” and “HardCore Cider Company.” The Company’s Samuel Adams<sup style="font-size: 85%; vertical-align: text-top">®</sup> beer and Sam Adams Light<sup style="font-size: 85%; vertical-align: text-top">®</sup> are produced and sold under the trade name, “The Boston Beer Company.” The accompanying consolidated balance sheet as of June 25, 2011 and the consolidated statements of operations and consolidated statements of cash flows for the interim periods ended June 25, 2011 and June 26, 2010 have been prepared by the Company, without audit, in accordance with U.S. 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 25, 2010. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%"><b>Management’s Opinion</b> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">In the opinion of the Company’s management, the Company’s unaudited consolidated balance sheet as of June 25, 2011 and the results of its consolidated operations and consolidated cash flows for the interim periods ended June 25, 2011 and June 26, 2010, 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. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; "> <div align="left" style="font-size: 10pt; margin-top: 10pt"><b>B. Inventories</b> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">Inventories consist of raw materials, work in process and finished goods. Raw materials, which principally consist of hops, other brewing materials and packaging, are stated at the lower of cost, determined on the first-in, first-out basis, or market. The cost elements of work in process and finished goods inventory consist of raw materials, direct labor and manufacturing overhead. Inventories consist of the following: </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="72%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 10pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>June 25,</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>December 25,</b></td> <td> </td> </tr> <tr style="font-size: 10pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> </tr> <tr style="font-size: 10pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6"><b>(in thousands)</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Raw materials </div></td> <td> </td> <td align="left">$</td> <td align="right">20,416</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">15,986</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Work in process </div></td> <td> </td> <td> </td> <td align="right">5,297</td> <td> </td> <td> </td> <td> </td> <td align="right">5,048</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Finished goods </div></td> <td> </td> <td> </td> <td align="right">6,115</td> <td> </td> <td> </td> <td> </td> <td align="right">5,580</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td align="left">$</td> <td align="right">31,828</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">26,614</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; "> </div>

<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; "> <div align="left" style="font-size: 10pt; margin-top: 10pt"><b>C. Net Income per Share</b> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">The following table sets forth the computation of basic and diluted net income per share: </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="44%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 10pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Three months ended</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Six months ended</b></td> <td> </td> </tr> <tr style="font-size: 10pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>June 25,</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>June 26,</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>June 25,</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>June 26,</b></td> <td> </td> </tr> <tr style="font-size: 10pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> </tr> <tr style="font-size: 10pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="14"><b>(in thousands, except per share data)</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Net income </div></td> <td> </td> <td align="left">$</td> <td align="right">28,019</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">16,270</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">31,978</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">22,530</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Weighted average shares of Class A Common Stock </div></td> <td> </td> <td> </td> <td align="right">9,116</td> <td> </td> <td> </td> <td> </td> <td align="right">9,731</td> <td> </td> <td> </td> <td> </td> <td align="right">9,142</td> <td> </td> <td> </td> <td> </td> <td align="right">9,792</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Weighted average shares of Class B Common Stock </div></td> <td> </td> <td> </td> <td align="right">4,107</td> <td> </td> <td> </td> <td> </td> <td align="right">4,107</td> <td> </td> <td> </td> <td> </td> <td align="right">4,107</td> <td> </td> <td> </td> <td> </td> <td align="right">4,107</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Shares used in net income per common share — basic </div></td> <td> </td> <td> </td> <td align="right">13,223</td> <td> </td> <td> </td> <td> </td> <td align="right">13,838</td> <td> </td> <td> </td> <td> </td> <td align="right">13,249</td> <td> </td> <td> </td> <td> </td> <td align="right">13,899</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Effect of dilutive securities: </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Stock options </div></td> <td> </td> <td> </td> <td align="right">676</td> <td> </td> <td> </td> <td> </td> <td align="right">502</td> <td> </td> <td> </td> <td> </td> <td align="right">680</td> <td> </td> <td> </td> <td> </td> <td align="right">443</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Non-vested investment shares and restricted stock </div></td> <td> </td> <td> </td> <td align="right">48</td> <td> </td> <td> </td> <td> </td> <td align="right">50</td> <td> </td> <td> </td> <td> </td> <td align="right">48</td> <td> </td> <td> </td> <td> </td> <td align="right">39</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Dilutive potential common shares </div></td> <td> </td> <td> </td> <td align="right">724</td> <td> </td> <td> </td> <td> </td> <td align="right">552</td> <td> </td> <td> </td> <td> </td> <td align="right">728</td> <td> </td> <td> </td> <td> </td> <td align="right">482</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Shares used in net income per common share — diluted </div></td> <td> </td> <td> </td> <td align="right">13,947</td> <td> </td> <td> </td> <td> </td> <td align="right">14,390</td> <td> </td> <td> </td> <td> </td> <td align="right">13,977</td> <td> </td> <td> </td> <td> </td> <td align="right">14,381</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Net income per common share — basic </div></td> <td> </td> <td align="left">$</td> <td align="right">2.12</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">1.18</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">2.41</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">1.62</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Net income per common share — diluted </div></td> <td> </td> <td align="left">$</td> <td align="right">2.01</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">1.13</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">2.29</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">1.57</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">Basic net income per common share for each share of Class A Common Stock and Class B Common Stock is $2.12 and $1.18 for the three months ended June 25, 2011 and June 26, 2010, respectively, and $2.41 and $1.62 for the six months ended June 25, 2011 and June 26, 2010, respectively, as each share of Class A and Class B participates equally in earnings. Shares of Class B are convertible at any time into shares of Class A on a one-for-one basis at the option of the stockholder. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">During the three and six-months ended June 25, 2011, weighted-average options to purchase approximately 243,600 and 210,200 shares, respectively, of Class A Common Stock were outstanding but not included in computing diluted income per share because their effects were anti-dilutive. During the three and six-months ended June 26, 2010, weighted-average options to purchase approximately 65,700 and 60,300 shares, respectively, of Class A Common Stock were outstanding but not included in computing diluted income per share because their effects were anti-dilutive. Additionally, performance-based stock options to purchase 67,850 and 115,000 shares of Class A Common Stock were outstanding as of June 25, 2011 and June 26, 2010, respectively, but not included in computing diluted income per share because the performance criteria of these stock options were not expected to be met as of the respective dates. Furthermore, performance-based stock options to purchase 229,700 shares of Class A Common Stock were not included in computing diluted income per share because the performance criteria of these stock options were not met and the options were cancelled during the six months ended June 26, 2010. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; "> <div align="left" style="font-size: 10pt; margin-top: 10pt"><b>D. Comprehensive Income or Loss</b> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">Comprehensive income or loss represents net income or loss, plus defined benefit plans liability adjustment, net of tax effect. The defined benefit plans liability adjustments for the interim periods ended June 25, 2011 and June 26, 2010 were not material. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; "> <div align="left" style="font-size: 10pt; margin-top: 10pt"><b>E. Commitments and Contingencies</b> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt"><i>Purchase Commitments</i> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">The Company had outstanding non-cancelable purchase commitments related to advertising contracts of approximately $6.5 million at June 25, 2011. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">The Company has entered into contracts for the supply of a portion of its hops requirements. These purchase contracts extend through crop year 2015 and specify both the quantities and prices, mostly denominated in Euros, to which the Company is committed. Hops purchase commitments outstanding at June 25, 2011 totaled $38.6 million, based on the exchange rates on that date. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; "> <div align="left" style="font-size: 10pt; margin-top: 10pt">Currently, the Company has entered into contracts for barley with one major supplier. The contracts include crop years 2010 and 2011 and cover the Company’s barley requirements for 2011 and a portion of 2012. Barley purchase commitments outstanding at June 25, 2011 totaled $14.2 million. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">The Company sources glass bottles pursuant to a Glass Bottle Supply Agreement with Anchor Glass Container Corporation (“Anchor”) under which Anchor is the exclusive supplier of certain glass bottles for the Company’s breweries in Cincinnati, Ohio (the “Cincinnati Brewery”) and Breinigsville, Pennsylvania (the “Pennsylvania Brewery”). This agreement also establishes the terms on which Anchor may supply glass bottles to other breweries where the Company brews its beers. Under the agreement with Anchor, the Company has minimum and maximum purchase commitments that are based on Company-provided production estimates, which, under normal business conditions, are expected to be fulfilled. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">Currently, the Company brews more than 95% of its volume at Company owned breweries. In the normal course of its business, the Company has historically entered into various production arrangements with other brewing companies. Pursuant to these arrangements, the Company purchases the liquid produced by those brewing companies, including the raw materials that are used in the liquid, at the time such liquid goes into fermentation. The Company is required to repurchase all unused raw materials purchased by the brewing company specifically for the Company’s beers at the brewing company’s cost upon termination of the production arrangement. The Company is also obligated to meet annual volume requirements in conjunction with certain production arrangements, which are not material to the Company’s operations. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">The Company had various other non-cancelable purchase commitments at June 25, 2011, which amounted to $3.6 million. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt"><i>Litigation</i> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">In May 2011, the Company and its former glass bottle supplier entered into an agreement to settle all claims regarding the recall implemented by the Company in 2008. Pursuant to the settlement agreement, the Company received a cash payment of $20.5 million and all parties released each other of any claims as they relate to this matter. The Company recorded the settlement as an offset to operating expenses. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">In 2009, the Company was informed that ownership of the High Falls brewery located in Rochester, New York (the “Rochester Brewery”) changed and that the new owners would not assume the Company’s existing contract for brewing services at the Rochester Brewery. Brewing of the Company’s products at the Rochester Brewery subsequently ceased in April 2009. In February 2010, the Company filed a Demand for Arbitration with the American Arbitration Association (the “arbitration”) which, as amended, asserted a breach of contract claim against the previous owner of the Rochester Brewery. In March 2010, the new and previous owners of the Rochester Brewery filed a complaint in federal court seeking a declaratory judgment and injunction to require certain of the Company’s claims to proceed in court, rather than in the arbitration. In April 2010, the Company filed an answer to that complaint and asserted certain counterclaims, including a claim against the new owners of the Rochester Brewery for interference with contract. The court denied the new and previous owners’ motion for a preliminary injunction in June 2010. A hearing in the arbitration was held in October 2010. In January 2011, the arbitrator issued an award of approximately $1.3 million in damages and expenses to be paid by High Falls Brewery Company, LLC to the Company, although the likelihood of collection of such award is in doubt. A hearing was held on a pre-trial motion in the federal court action in April 2011, but no ruling has yet been received. The Company does not believe that its inability to avail itself of production capacity at the Rochester Brewery will, in the near future, have a material impact on its ability to meet demand for its products. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">In February 2011, the Company filed a complaint with the International Trade Commission (ITC) against a brewery and a glass manufacturer/importer asserting that the glass design used by the brewery to promote its products infringed on the Company’s patented glass design. The matter was resolved by settlement agreement in May 2011 under which the brewery and glass manufacturer/importer agreed to discontinue all sale, use and promotion of the glass. A consent order has been issued by the ITC prohibiting them from engaging in any importation, distribution, or sale of their glass design or any glass having a design substantially similar to the Company’s patented glass design. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">The Company is not a party to any pending or threatened litigation, the outcome of which would be expected to have a material adverse effect upon its financial condition or the results of its operations. In general, while the Company believes it conducts its business appropriately in accordance with laws, regulations and industry guidelines, claims, whether or not meritorious, could be asserted against the Company that might adversely impact the Company’s results. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; "> </div>

<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; "> <div align="left" style="font-size: 10pt; margin-top: 10pt"><b>F. Income Taxes</b> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">As of June 25, 2011 and December 25, 2010, the Company had approximately $7.2 million and $7.1 million, respectively, of unrecognized income tax benefits. An increase of $97,000 in unrecognized tax benefits was recorded for the six months ended June 25, 2011. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">The Company’s practice is to classify interest and penalties related to income tax matters in income tax expense. As of June 25, 2011 and December 25, 2010, the Company had $4.0 million and $3.7 million, respectively, accrued for interest and penalties. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">The Company’s state income tax returns remain subject to examination for three or four years depending on the state’s statute of limitations. In addition, the Company is generally obligated to report changes in taxable income arising from federal income tax audits. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">In August 2008, the Massachusetts Department of Revenue (“MA DOR”) commenced an examination of the Company’s 2004, 2005 and 2006 corporate income tax returns. In addition, in October 2009, the MA DOR expanded the original examination to include the 2007 and 2008 corporate income tax returns. At June 25, 2011, the examination was completed and the Company is in the process of appealing the results of the audit. The Company continues to believe that the reserves related to this audit were adequate as of June 25, 2011. The Company is also being audited by two other states as of June 25, 2011. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">It is reasonably possible that the Company’s unrecognized tax benefits may increase or decrease in 2011 if there is a commencement or completion of federal income tax audits or certain state income tax audits; however, the Company cannot estimate the range of such possible changes. The Company does not expect that any potential changes would have a material impact on the Company’s financial position, results of operations, or cash flows. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; "> <div align="left" style="font-size: 10pt; margin-top: 10pt"><b>G. Product Recall</b> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">In April 2008, the Company announced a voluntary product recall of certain glass bottles of its Samuel Adams<sup style="font-size: 85%; vertical-align: text-top">®</sup> products. The recall was a precautionary step and resulted from routine quality control inspections at the Cincinnati Brewery, which detected glass inclusions in certain bottles of beer. The recall process was substantially completed during the fourth quarter of 2008. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">The following table summarizes the Company’s reserves and reserve activities for the product recall for the six months ended June 25, 2011 (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="44%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 10pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Reserves at</b></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Reserves at</b></td> <td> </td> </tr> <tr style="font-size: 10pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>December 25,</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Changes in</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Reserves</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>June 25,</b></td> <td> </td> </tr> <tr style="font-size: 10pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Estimates</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Used</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td> <td> </td> </tr>   <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Excise tax credit </div></td> <td> </td> <td align="left">$</td> <td align="right">(158</td> <td nowrap="nowrap">)</td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">(158</td> <td nowrap="nowrap">)</td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Recall-related costs </div></td> <td> </td> <td> </td> <td align="right">255</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">—</td> <td> </td> <td> </td> <td> </td> <td align="right">255</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Inventory reserves </div></td> <td> </td> <td> </td> <td align="right">2,796</td> <td> </td> <td> </td> <td> </td> <td align="right">25</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(469</td> <td nowrap="nowrap">)</td> <td> </td> <td> </td> <td align="right">2,352</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td align="left">$</td> <td align="right">2,893</td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">25</td> <td> </td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(469</td> <td nowrap="nowrap">)</td> <td> </td> <td align="left">$</td> <td align="right">2,449</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">During the second quarter of 2011, the Company and its former glass bottle supplier entered into an agreement to settle all claims regarding the recall. The Company received a cash payment of $20.5 million, which was recorded as an offset to operating expenses, and all parties have released each other on any claims as they relate to this matter. In addition, the Company reversed approximately $0.6 million in reserves against invoices due to the supplier, which was recorded as an offset to cost of goods sold. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">Although the Company is not aware of any additional quality or safety issues that are likely to result in material recalls or withdrawals, there can be no assurance that additional issues will not be identified in the future. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; "> </div>

<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; "> <div align="left" style="font-size: 10pt; margin-top: 10pt"><b>H. Line of Credit</b> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">The Company has a credit facility in place that provides for a $50.0 million revolving line of credit which expires on March 31, 2013. As of June 25, 2011, there were no borrowings outstanding and the line of credit was fully available to the Company for borrowing. The Company was not in violation of any of its covenants to the lender under the credit facility. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; "> <div align="left" style="font-size: 10pt; margin-top: 10pt"><b>I. Fair Value of Financial Instruments</b> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">The Company determines the fair value of its financial assets and liabilities in accordance with ASC Topic 820. The Company believes that the carrying amount of its cash, accounts receivable, accounts payable and accrued expenses approximates fair value due to the short-term nature of these assets and liabilities. The Company is not exposed to significant interest, currency or credit risks arising from these financial assets and liabilities. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; "> <div align="left" style="font-size: 10pt; margin-top: 10pt"><b>J. Stock-Based Option Grants</b> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">On January 1, 2011, the Company granted options to purchase an aggregate of 188,200 shares of the Company’s Class A Common Stock with a weighted average fair value of $44.80 per share, of which 175,000 shares were special long-term retention stock options to certain members of management. All of the special long-term retention stock options are service-based options with 75% of the shares vesting on January 1, 2016 and the remaining shares vesting annually in equal tranches over the following four years. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">On March 11, 2011, the Company granted an additional option to purchase 40,000 shares of the Company’s Class A Common Stock with a weighted average fair value of $40.39 per share. The option is a service-based stock option and vests annually at approximately 33% per year starting on the third anniversary of the grant date. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">On May 25, 2011, the Company granted options to purchase an aggregate of 30,000 shares of the Company’s Class A Common Stock to the Company’s non-employee Directors. These options have a weighted average fair value of $35.81 per share. All of the options vested immediately on the date of grant. </div> </div>

<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; "> <div align="left" style="font-size: 10pt; margin-top: 10pt"><b>K. Subsequent Events</b> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">On July 26, 2011, the Board of Directors approved an increase of $25.0 million to the previously approved $225.0 million share buyback expenditure limit, for a new limit of $250.0 million. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">The Company evaluated subsequent events occurring after the balance sheet date, June 25, 2011, and concluded that there were no other events of which management was aware that occurred after the balance sheet date that would require any adjustment to the accompanying consolidated financial statements. </div> </div>

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