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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 26, 2020

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES 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 or organization)

(I.R.S. Employer

Identification No.)

\

One Design Center Place, Suite 850, Boston, Massachusetts

(Address of principal executive offices)

02210

(Zip Code)

(617) 368-5000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class 

 

Trading

Symbol(s) 

 

Name of each exchange

on which registered 

Class A Common Stock. $0.01 par value

 

SAM

 

New York Stock Exchange

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes      No  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes      No  

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      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

The aggregate market value of the Class A Common Stock ($.01 par value) held by non-affiliates of the registrant totaled $5,952.53 million (based on the average price of the Company’s Class A Common Stock on the New York Stock Exchange on June 27, 2020). All of the registrant’s Class B Common Stock ($.01 par value) is held by an affiliate.

As of February 12, 2021, there were 10,088,372 shares outstanding of the Company’s Class A Common Stock ($.01 par value) and 2,177,983 shares outstanding of the Company’s Class B Common Stock ($.01 par value).

DOCUMENTS INCORPORATED BY REFERENCE

Certain parts of the registrant’s definitive Proxy Statement for its 2021 Annual Meeting to be held on May 20, 2021 are incorporated by reference into Part III of this report.

 

 

 

 


 

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

FORM 10-K

FOR THE PERIOD ENDED DECEMBER 26, 2020

 

PART I.

 

 

 

 

 

 

Page

Item 1.

Business

 

3

Item 1A.

Risk Factors

 

14

Item 1B.

Unresolved Staff Comments

 

23

Item 2.

Properties

 

23

Item 3.

Legal Proceedings

 

24

Item 4.

Mine Safety Disclosures

 

24

 

 

 

 

PART II.

 

 

 

 

 

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

25

Item 6.

Selected Consolidated Financial Data

 

28

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

29

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

 

37

Item 8.

Financial Statements and Supplementary Data

 

37

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosures

 

70

Item 9A.

Controls and Procedures

 

70

Item 9B.

Other Information

 

71

 

 

 

 

PART III.

 

 

 

 

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

 

72

Item 11.

Executive Compensation

 

72

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

72

Item 13.

Certain Relationships and Related Transactions, and Director Independence

 

72

Item 14.

Principal Accounting Fees and Services

 

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PART IV.

 

 

 

 

 

 

 

Item 15.

Exhibits, Financial Statement Schedules

 

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Item 16.

Form 10-K Summary

 

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Signatures

 

 

76

 

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PART I.

Item 1.Business

General

The Boston Beer Company, Inc. (“Boston Beer” or the “Company”) is a high-end alcoholic beverage company and one of the largest craft brewers in the United States. In fiscal 2020, Boston Beer sold approximately 7.4 million barrels of its proprietary products. The Company’s brands include Truly Hard Seltzer®, Twisted Tea®, Samuel Adams®, Angry Orchard® Hard Cider and Dogfish Head® Craft Brewery, as well as other local craft beer brands.

Boston Beer produces alcohol beverages, including hard seltzer, malt beverages (“beers”), and hard cider at Company-owned breweries and its cidery and under contract arrangements at other brewery locations. The four primary Company-owned breweries are focused on production and research and development and include breweries located in Boston, Massachusetts (the “Boston Brewery”), Cincinnati, Ohio (the “Cincinnati Brewery”), Milton, Delaware (the “Milton Brewery”) and Breinigsville, Pennsylvania (the “Pennsylvania Brewery”). These breweries, with the exception of the Pennsylvania Brewery, have tap rooms for retail sales on site. The Company produces a small amount of distilled spirits at the Milton Brewery.

The Company also owns five smaller local breweries that are mainly focused on brewing and packaging beers for retail sales on site at tap rooms and gift shops, restaurant activities, developing innovative and traditional beers and in some cases, supporting draft and package accounts in the respective local market areas. These local breweries are located in Boston, Massachusetts (the “Samuel Adams Boston Downtown Tap Room”), Rehoboth, Delaware (“Dogfish Head Brewings and Eats”), Los Angeles, California (the “Angel City Brewery”), Brooklyn, New York (the “Coney Island Brewery”) and Miami, Florida (the “Miami Brewery”).

In addition, the Company owns an apple orchard and cidery located in Walden, New York (the “Orchard” and “Cidery”), a restaurant in Rehoboth, Delaware (“Chesapeake & Maine”) and a boutique inn in Lewes, Delaware (the “Dogfish Inn”).

The Company sells its beverages in various packages. Sleek cans, standard cans and bottles are sold primarily for off-premise retailers, which include grocery stores, club stores, convenience stores and liquor stores. Kegs are sold primarily for on-premise retailers, which include bars, restaurants, stadiums and other venues.

The Company’s principal executive offices are located at One Design Center Place, Suite 850, Boston, Massachusetts 02210, and its telephone number is (617) 368-5000.

Industry Background

 

Most of the Company’s products are sold through off-premise retailers and the Company estimates the size of its markets using metrics from measured off-premise channels, which is standard in the beer industry.  The Company’s hard seltzers, beers, and hard ciders are primarily positioned in the market for High End beer occasions.  The Company defines “High End” beers as including hard seltzer and flavored malt beverages, craft beers, domestic specialty beers, and most imported beer and hard cider that are called for by a High End beer drinker occasion.  High End beers and beer occasions (the “High End category”) are determined by higher price, quality, image and taste, as compared with regular domestic beers.

 

This category has seen high single-digit compounded annual growth over the past ten years.  The Company believes that the High End category is positioned to increase market share, as drinkers continue to trade up in taste and quality.  Boston Beer is one of the largest suppliers in the High End category in the United States.  The Company estimates that in 2020 the High End category percentage volume growth was approximately 25%, with the craft beer category volume growth approximately 13%, and total beer category volume growth approximately 10%.  The Company believes that the High End category is now over 36% of the United States beer market and the Company has approximately a 9% market share of the High End category.

 

The domestic beer industry, excluding the High End category, has experienced a decline in shipment volume over the last twenty years.  The Company believes that this decline is due to declining alcohol consumption per person in the population, drinkers trading up to drink high quality, more flavorful beers, health and wellness trends and increased competition from wine and spirits companies.

Before Prohibition, the United States beer industry consisted of hundreds of small breweries that brewed full-flavored beers. After the end of Prohibition, most domestic brewers shifted production to less flavorful, lighter beers, which use lower-cost ingredients, and can be mass-produced to take advantage of economies of scale in production. This shift towards mass-

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produced beers coincided with consolidation in the beer industry that by 2008 ultimately resulted in the two largest breweries, Anheuser-Busch InBev (“AB InBev”) and Molson Coors Beverage Company (“Molson Coors”), comprising over 90% of all United States domestic beer production, excluding imports. During the last twenty years the number of breweries in the United States has increased significantly from approximately 1,500 in 2009 to over 8,000 in 2020. Most of these new breweries are craft (small and independent) brewers. The rise of craft breweries along with the growth of imported beers and hard seltzers has resulted in a significant decline in the volume of the two largest breweries who now comprise approximately 70% of all United States domestic beer production, excluding imports.

Description of the Company’s Business

The Company’s business goal is to become the leading supplier in the High End category by creating and offering high quality alcohol beverages. With the support of a large, well-trained sales organization and world-class brewers, the Company strives to achieve this goal by offering great hard seltzers, beers and hard ciders, and increasing brand availability and awareness through traditional media and digital advertising, point-of-sale, promotional programs and drinker education.

The Company’s hard seltzers, beers and hard cider are sold by the Company’s sales force to the same types of customers and drinkers in similar size quantities, at similar price points and through substantially the same channels of distribution. These beverages are manufactured using similar production processes, have comparable alcohol content and generally fall within the same regulatory environment.

The Company’s strategy is to create and offer a world-class variety of traditional and innovative alcohol beverages. The Company’s primary brands which include Truly Hard Seltzer, Twisted Tea, Samuel Adams, Angry Orchard and Dogfish Head brands are all available nationally. In 2016, the Company began national distribution of the Truly Hard Seltzer brand and it maintained its place as one of the leading brands in the hard seltzer category in 2020. The Twisted Tea brand family has grown each year since the product was first introduced in 2001 and has established a loyal drinker following. The Samuel Adams brand began in 1984 and the brand is recognized as one of the largest and most respected craft beer brands with a particular focus on lagers and seasonal beers. The Angry Orchard brand was launched in 2011 and since 2013, Angry Orchard has been the largest selling hard cider in the United States. The Dogfish Head brand began in 1995 and is recognized as one of the most innovative and respected craft beer brands with a particular focus on India Pale Ales (“IPAs”) and sour beers. In addition to its primary brands the Company has three local brewery brands that primarily focus on tap rooms and local and regional distribution, which include Angel City®, Coney Island® and Concrete Beach®.

The Company sells its beverages in various packages. Sleek cans, standard cans and bottles are sold primarily for off-premise retailers, which include grocery stores, club stores, convenience stores and liquor stores. Kegs are sold primarily for on-premise retailers, which include bars, restaurants, stadiums and other venues.

Truly Hard Seltzer

 

The Company’s Truly Hard Seltzer brand generally competes within the hard seltzer category that has similar characteristics to the beer industry for reporting and regulatory purposes.  This category is growing rapidly in its early stages of development over the last 5 years and is highly competitive and includes large international and domestic competitors as well as many smaller national, regional and local craft breweries and hard seltzer companies.  The Company believes that the hard seltzer category comprises approximately 7% of United States beer consumption and that the volume comprising the hard seltzer category grew approximately 160% in 2020.

The Company offers seventeen styles of hard seltzer in the Truly brand family, most of which are available nationally in the United States. The majority of the promotional and distribution efforts for the Truly brand family are focused on sleek can variety packages which include Truly Lemonade Seltzer Mix Pack, Truly Berry Mix Pack, Truly Tropical Mix Pack, Truly Citrus Mix Pack and Truly Tea Seltzer Mix Pack.

Twisted Tea

The Company’s Twisted Tea products generally competes within the flavored malt beverage (“FMB”) category of the beer industry (and the Company’s Twisted Tea products are included in generic references to the Company’s “beers” in this report). The Company believes that the FMB category comprises approximately 5% of United States beer consumption and that the volume comprising the FMB category grew approximately 13% in 2020. This category is highly competitive due to, among other factors, the presence of large brewers and spirits companies in the category and a fast pace of product innovation.

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The Company offers over ten styles of flavored malt beverages in the Twisted Tea brand family, most of which are available nationally in both the United States and Canada. The majority of the promotional and distribution efforts for the Twisted Tea brand family are focused on Twisted Tea Original and Twisted Tea Half and Half in various standard can packages.

Samuel Adams and Dogfish Head Beers

The Company’s Samuel Adams and Dogfish Head beers generally compete within the craft beer and domestic specialty beer category.  The Company believes that the category comprises approximately 8% of United States beer consumption and that the volume comprising the category grew approximately 13% in 2020. This category is highly competitive and includes large international and domestic competitors, as well as many smaller national, regional and local craft breweries.

The Company offers over twenty styles of beer in the Samuel Adams brand family and the brand is recognized for helping launch the craft beer industry. Samuel Adams Boston Lager® is the Company’s flagship beer that was first introduced in 1984. The Samuel Adams Seasonal program of beers was originally introduced in the late 1980’s and early 1990’s.

The majority of the promotional and distribution efforts for the Samuel Adams brand family are focused on Samuel Adams Boston Lager and the Samuel Adams Seasonal program of beers in various bottle, standard can and keg packages.

The Samuel Adams brand also releases a variety of specialty package and draft beers brewed in limited quantities at its Samuel Adams Downtown Boston Tap Room, Samuel Adams Boston Brewery Tap Room and Samuel Adams Cincinnati Brewery Tap Room.

The Company offers over twenty-five styles of beer in the Dogfish Head brand family. The Dogfish Head brand began in 1993 and it is recognized as an early leader in bringing culinary innovations to the U.S. craft beer market. The majority of the promotional and distribution efforts for the Dogfish Head brand family are focused on continually-hopped Dogfish Head 60 Minute and 90 Minute IPAs, along with Dogfish Head SeaQuench, an innovative session sour, and Dogfish Head Slightly Mighty, a low calorie IPA. These four styles are offered in various can, bottle and keg packages. The Company also offers over 15 styles of distilled spirits under the Dogfish Head brand in small quantities and to limited markets. The Dogfish Head brand also releases a variety of specialty package and draft beers brewed in limited quantities at its Dogfish Head Brewings and Eats brewery.  The Company does not own distribution rights to the Dogfish Head beer and distilled spirits brands outside of the United States and Canada.

Angry Orchard Hard Cider

The Company’s Angry Orchard ciders compete within the hard cider category that has similar characteristics to the beer industry. The Company believes that the hard cider category comprises less than 1% of United States beer consumption and the volume comprising the category grew 4% in 2020. This category is small and highly competitive and includes large international and domestic competitors, as well as many small regional and local hard cider companies.

 

The Company offers over ten styles of hard cider in the Angry Orchard brand family, most of which are available nationally in the United States. The majority of the promotional and distribution efforts for the Angry Orchard brand family are focused on Angry Orchard Crisp Apple, Angry Orchard Rosé and Angry Orchard Crisp Unfiltered in various bottle, can and keg packages. The Angry Orchard brand also releases a variety of specialty package and draft ciders fermented in limited quantities at is Company-owned Orchard and Cidery in Walden, New York.

The Company continually evaluates the performance of its various hard seltzer, beer and hard cider products and the rationalization of its product line as a whole. Periodically, the Company discontinues certain styles and packages. Certain styles or brands put on hiatus or discontinued in previous years may be produced for the Company’s variety packs or reintroduced.

The Company’s Dogfish Head Brewery Transaction

On May 8, 2019, the Company entered into definitive agreements to acquire Dogfish Head Brewery (“Dogfish Head”) and various related operations (the “Transaction”), through the acquisition of all of the equity interests held by certain private entities in Off-Centered Way LLC, the parent holding company of the Dogfish Head operations. In accordance with these agreements, the Company made a payment of $158.4 million, which was placed in escrow pending the satisfaction of certain closing conditions. The Transaction closed on July 3, 2019, for total consideration of $336.0 million consisting of $173.0 million in cash and 429,291 shares of restricted Class A Common Stock that had an aggregate market value as of

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July 3, 2019 of $163.0 million, after taking into account a post-closing cash related adjustment. As required under the definitive agreements, 127,146 of the 429,291 shares of restricted Class A Stock were placed in escrow and will be released no later than July 3, 2029.

These shares had a market value on July 3, 2019 of $48.3 million. The timing of the release of these escrowed shares is primarily related to the continued employment with the Company of Samuel A. Calagione III, one of the two Dogfish Head founders. As part of the transaction, distribution rights to the Dogfish Head brand outside of the United States and Canada were retained by the Dogfish Head founders. The fair value of the Transaction is estimated at approximately $317.7 million.

The results of operations from Dogfish Head have been included in the Company’s consolidated statements of operations since the July 3, 2019 Transaction closing date.

Product Innovations

The Company has a proven track record of innovation and building new brands and is committed to maintaining its position as a leading innovator. To that end, the Company continually tests new hard seltzers, beers, hard ciders, distilled spirits and other alcohol beverages and may sell them under various brand labels for evaluation of drinker interest. The Boston Brewery, the Milton Brewery and the Orchard, along with its other larger breweries and brewery tap rooms spend significant time ideating, testing and developing alcohol beverages for the Company’s potential future commercial development and evaluating ingredients and process improvements for existing beverages.

The Company’s most significant innovation in 2020 was the national launch of the Truly Lemonade Hard Seltzer Variety Pack, an innovative hard seltzer with a robust flavor, 100 calories and 1 gram of sugar which was among the top introductions in the Hard Seltzer Category during 2020.  In 2021 the Company has planned for several new product introductions, of which the most significant include Truly Iced Tea Hard Seltzer, Twisted Tea ‘Slightly Sweet’, Samuel Adams ‘Wicked Hazy’, Samuel Adams ‘Wicked Easy’, Samuel Adams ‘Just the Haze’, Angry Orchard Hard Fruit Cider and Dogfish Head Scratch-Made Canned Cocktails.  Samuel Adams’ Just the Haze is the Company’s first non-alcoholic beer. The Company is currently in the early stages of these introductions.

Sales, Distribution and Marketing

As dictated by the legal and regulatory environment, most all of the Company’s sales are made to a network of over 400 wholesalers in the United States and to a network of foreign wholesalers, importers or other agencies (collectively referred to as “Distributors”). These Distributors, in turn, sell the products to retailers, such as grocery stores, club stores, convenience stores, liquor stores, bars, restaurants, stadiums and other retail outlets, where the products are sold to drinkers, and in some limited circumstances to parties who act as sub-distributors. The Company sells its products predominantly in the United States, but also has markets in Canada, Europe, Israel, Australia, New Zealand, the Caribbean, the Pacific Rim, Mexico, and Central and South America.

With few exceptions, the Company’s products are not the primary brands in its Distributors’ portfolios. Thus, the Company, in addition to competing with other hard seltzers, beers and hard ciders for a share of the drinker’s business, competes with other brewers for a share of the Distributor’s attention, time and selling efforts. During 2020, the Company’s largest Distributor accounted for approximately 2% of the Company’s gross sales. The top three Distributors collectively accounted for approximately 5% of the Company’s gross sales. In some states and countries, the Company’s contracts with its Distributors may be affected by laws that restrict the enforcement of some contract terms, especially those related to the Company’s right to terminate the relationship.

Most of the Company’s products are shipped within days of packaging, resulting in limited finished goods at the Company’s breweries and third-party breweries. The Company receives most of its orders from Distributors in the first week of a month for products to be shipped the following month. Historically, Distributors would carry three to five weeks of packaged inventory and three to four weeks of draft inventory and the Company has been able to meet Distributor orders with limited out of stocks.

Beginning in 2019, primarily as a result of higher than anticipated demand for Truly Hard Seltzer and Twisted Tea brands and supply chain constraints, the Company began to have out of stocks and at times has not been able to fully meet Distributor demand, particularly at seasonal peaks during the summer months.  In response to these out of stocks, the Company began working with certain Distributors on plans to increase Distributor inventories of packaged inventory of Truly Hard Seltzer and Twisted Tea brands to ensure that drinker demand can be met. The Company believes distributor inventory

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as of December 26, 2020 averaged approximately 5 weeks on hand and was at an appropriate level, based on supply chain capacity constraints and inventory requirements to support the forecasted growth. The Company expects wholesaler inventory levels in terms of weeks on hand to be between 3 and 7 weeks for most of 2021.

Boston Beer has a sales force of approximately 515 people, which the Company believes is one of the largest in the domestic beer industry. The Company’s sales organization is designed to develop and strengthen relations at the Distributor, retailer and drinker levels by providing educational and promotional programs. The Company’s sales force has a high level of product knowledge and is trained in the details of the brewing and selling processes. Sales representatives typically carry samples of the Company’s hard seltzers, beers and hard ciders, certain ingredients, and other promotional materials to educate wholesale and retail buyers about the quality and taste of the Company’s products. The Company has developed strong relationships with its Distributors and retailers, many of which have benefited from the Company’s premium pricing strategy and growth.

The Company also engages in media campaigns — including television, digital and social media, radio, billboards and print. These media efforts are complemented by participation in sponsorships, which currently include the National Hockey League, the Boston Red Sox, the Boston Marathon, local concert and festivals, industry-related trade shows and promotional events at local establishments, to the extent permitted under local laws and regulations. The Company uses a wide array of point-of-sale items (banners, neon signs, umbrellas, glassware, display pieces, signs and menu stands) designed to stimulate impulse sales and continued awareness.

 

COVID-19

 

The Company began seeing the impact of the COVID-19 pandemic on its business in early March 2020.  The direct financial impact of the pandemic has primarily shown in significantly reduced keg demand from the on-premise channel and higher labor and safety-related costs at the Company’s breweries. In fiscal year 2020, shipments of kegs decreased to 3% of total shipment volume from 11% of shipments in 2019.  Also, in fiscal year 2020, the Company recorded COVID-19 related pre-tax reductions in net revenue and increases in other costs that total $16.0 million.  In addition to these direct financial impacts, COVID-19 related safety measures resulted in a reduction of brewery productivity. This has shifted more volume to third-party breweries, which increased production costs and negatively impacted gross margins.  Other impacts of COVID-19 on the Company’s business are discussed in “Packaging and Ingredients” below.

Packaging and Ingredients

Historically, the Company has been successful in obtaining sufficient quantities of the packaging materials and ingredients used in the production of its beverages.  In the fourth quarter of 2020, the Company experienced some can, cardboard wraps and glass shortages that impacted the Company’s production schedules. The Company enters into limited-term supply agreements with certain vendors in order to receive preferential pricing. The Company maintains competitive sources for most all packaging materials and ingredients. In 2020, certain flavorings, crowns and labels were each supplied by a single source; however, the Company believes that alternative suppliers are available. The most significant packaging and ingredients include:

Cans. Truly Hard Seltzer brand beverages are primarily packaged in sleek cans and Twisted Tea brand beverages are primarily packaged in standard cans.  In 2020, over 74% of the Company’s total volume was packaged in cans and the Company expects that percentage to further increase in 2021. The demand for cans in the beverage industry has significantly increased and there has been a shortage of capacity, as can manufacturers attempt to adjust their supply chains to keep up with the increased demand which has further accelerated during 2020 as the category grew household penetration and alcohol consumption shifted from on-premise to off-premise. In 2020, as the Truly brand family and the Twisted brand families have grown significantly, the Company has experienced supply shortages and in the fourth quarter of 2020, these supply shortages impacted the Company’s production schedules. The Company is working closely with its three can suppliers to ensure there are no further supply disruptions and the Company has an adequate supply. The Company currently believes that it will have sufficient supply of cans in 2021.

Flavorings.  The Company’s hard seltzers, beers and hard ciders include many unique and proprietary flavors and combinations of flavors and some of these flavorings are single sourced. Truly Hard Seltzer and Twisted Tea brand beverages are particularly reliant on the use of flavorings and variety of flavors as part of their appeal to drinkers. The Company is working closely with various flavoring suppliers to ensure it has an adequate supply and currently believes that it will have sufficient supply of flavorings in 2021.  

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Cardboard. The Company’s hard seltzers, beers and hard ciders are packaged primarily in cardboard wraps, carriers and cardboard shipping cases. During the fourth quarter of 2020 the Company had a disruption to its supply of cardboard wraps which impacted its production schedules. The Company is working closely with its various cardboard suppliers to ensure that there are no further disruptions and the Company has an adequate supply. The Company currently believes that it will have a sufficient supply of cardboard in 2021.

Glass.  Many of the Company’s beers and ciders are sold primarily in glass bottles. Due to the COVID -19 pandemic, the demand for glass bottles in the beverage industry has significantly increased and there has been a shortage of capacity, as glass manufacturers attempt to adjust their supply chains to keep up with the increased demand. During the fourth quarter of 2020 the Company had a disruption to its supply of glass bottles which impacted its production schedules. The Company is working closely with its two bottle suppliers to ensure there are no further supply disruptions and the Company has an adequate supply. The Company currently believes that it will have a sufficient supply of glass in 2021.

Malt. The two-row varieties of barley used in the Company’s malt are mainly grown in the United States and Canada. The 2020 North American barley crop, which will support 2021 malt needs, was generally consistent with historical long-term averages with regard to both quality and quantity. The Company purchased most of the malt used in the production of its beers from four suppliers during 2020. The Company currently has a multi-year contract with one of its suppliers and a one-year agreement with the other supplier. The Company also believes that there are other malt suppliers available that are capable of supplying its needs.

Hops. The Company uses Noble hop varieties from Europe for many of its Samuel Adams beers and also uses hops grown in the other areas of Europe, and in the United States, England and New Zealand. Noble hops are grown in several specific areas in Germany and the Czech Republic and are recognized for growing hops with superior taste and aroma properties. The Company uses hops in various formats including T-90 hop pellets, T-45 hop pellets and CO2 Extract. The Company stores its hops in multiple cold storage warehouses to minimize the impact of a catastrophe at a single site.

The Company enters into purchase commitments with nine primary hop dealers and attempts to maintain a one to two-year supply of essential hop varieties on-hand in order to limit the risk of an unexpected reduction in supply and procures hops needed for new beers, based on its best estimate of likely short-term demand. The Company classifies hops inventory in excess of two years of forecasted usage as other long term assets.

Variations to usage plans could result in hops shortages for specific beers or an excess of certain hops varieties.

Yeast. The Company uses multiple yeast strains for production of its beers, hard seltzers and hard ciders. While some strains are commercially available, other strains are proprietary. Since the proprietary strains cannot be replaced if destroyed, the Company protects these strains by storing multiple cultures of the same strain at different production locations and in several independent laboratories.

Apples. The Company uses special varieties and origins of apples in its hard ciders that it believes are important for their flavor profiles. In 2020, these apples were sourced primarily from Europe and the United States and include bittersweet apples from France and culinary apples from Italy, Washington State and New York. Purchases and commitments are denominated in Euros for European apples and US Dollars for United States apples. There is limited availability of some of these apple varieties, and many outside factors, including weather conditions, growers rotating from apples to other crops, competitor demand, government regulation and legislation affecting agriculture could affect both price and supply.

Quality Assurance

As of December 26, 2020, the Company employed twenty brewmasters to monitor the Company’s brewing operations and control the production of its hard seltzers, beers, and hard ciders both at Company-owned breweries and at the third-party breweries at which the Company’s products are brewed or fermented. Extensive tests, tastings and evaluations are typically required to ensure that each batch of the Company’s hard seltzers, beers and hard ciders conforms to the Company’s standards. The Company has on-site quality control labs at each of the Company-owned breweries and supports the smaller tap rooms and local breweries with additional centralized lab services.

With the exception of certain specialty products, the Company includes a clearly legible “freshness” code on every bottle, can and keg of its hard seltzer, beers and hard ciders, in order to ensure that its drinkers enjoy only the freshest products. Boston Beer was the first American brewer to use this practice.

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Production Strategy

The Company continues to pursue a production strategy that includes production at breweries owned by the Company and breweries and packaging facilities owned by others. During 2019 and 2020, the Company brewed, fermented and packaged approximately 74% and 65% of its volume at breweries owned by the Company, respectively. The Company made capital investments in 2020 of approximately $140.0 million, most of which represented investments in the Company’s breweries. These investments were made to increase production, drive efficiencies and cost reductions and support product innovation and future growth. Based on its current estimates of future volumes and mix, the Company expects to invest between $300 million and $400 million in 2021 to meet those estimates. Because actual capital investments are highly dependent on meeting demand, the actual amount spent may well be significantly different from the Company’s current expectations.

The Pennsylvania Brewery, the Cincinnati Brewery and the Milton Brewery produce most of the Company’s shipment volume from breweries owned by the Company during 2020. The Pennsylvania Brewery is the Company’s largest brewery.

Production and retail activities at the eight local breweries and tap rooms, is mainly for brewing and packaging beers for retail sales on site at tap rooms and gift shops, restaurant activities, developing innovative and traditional beers and in some cases supporting draft and package accounts in the respective local market areas.

The Cidery’s production is mainly for developing new types of innovative hard ciders and fermenting and packaging ciders for retail sales on site at the Cidery and supporting draft and package accounts in the local market area.

 

The Company currently has a brewing and packaging services agreement with subsidiaries of City Brewing Company, LLC (“City Brewing”).  During 2019 and 2020, City Brewing supplied approximately 23% and 33% of the Company’s annual shipment volume, respectively. In accordance with the brewing and packaging services agreement, the Company has paid to City Brewing $71.5 million dollars for capital improvements at City Brewing facilities and other pre-payments. The agreement includes a minimum capacity availability commitment by City Brewing and the Company is obligated to meet annual minimum volume commitments and is subject to contractual shortfall fees if these annual minimum volume commitments are not met.  The Company has the contractual right to extend its agreement with City Brewing beyond the December 31, 2024 termination date on an annual basis through December 31, 2035.

The Company will continue to add production capacity at breweries and packaging facilities owned by others and expects that the percentage of total production at breweries and packaging facilities owned by others will increase in 2021.  The Company carefully selects breweries and packaging facilities owned by others with: (i) sleek can packaging and automated variety packaging capability and capacity; (ii) first-rate quality control capabilities throughout the process; and (iii) the capability of utilizing traditional brewing, fermenting and finishing methods. Under its brewing and packaging arrangements with third parties, the Company is charged a service fee based on units produced at each of the facilities and bears the costs of raw materials, risk, excise taxes and deposits for pallets and kegs and specialized equipment required to produce and package the Company’s beverages.

The Company’s international business is supplied by breweries owned by the Company, under third-party brewing and packaging agreements, and production under license at international locations.

While the Company believes that it has alternatives available to it, in the event that production at any of its locations is interrupted, severe interruptions at the Pennsylvania Brewery or City Brewing facilities would be problematic, especially in seasonal peak periods. In addition, the Company may not be able to maintain its current economics, if interruptions were to occur, and could face significant delays in starting up replacement production locations. Potential interruptions at breweries include labor issues, governmental actions, quality issues, contractual disputes, machinery failures, operational shutdowns, or natural or other unavoidable catastrophes. Also, as the brewing industry has consolidated and the Company has grown, the capacity and willingness of breweries owned by others where the Company could produce some of its hard seltzers, beers and hard ciders, if necessary, has become a more significant concern. The Company would work with available contract brewers to attempt to minimize any potential disruptions.

Competition

The High End category within the United States is highly competitive due to large domestic and international brewers and the increasing number of craft brewers in this category who distribute similar products that have similar pricing and target drinkers.

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The two largest brewers in the United States, AB InBev and Molson Coors, participate actively in the High End category, through numerous launches of new hard seltzers from existing beer brands or new brands, importing and distributing import brands, and with their own domestic specialty beers, either by developing new brands or by acquiring, in whole or part, existing craft breweries.  In addition, AB InBev’s High End Division and Molson Coors’ Tenth and Blake were formed as business units headquartered in the United States that are focused exclusively on competing in the High End category. Imported beers, such as Corona®, Heineken®, Modelo Especial® and Stella Artois®, continue to compete aggressively in the United States and have gained market share over the last ten years. Heineken and Constellation Brands (owner of the United States Distribution rights to Corona and Modelo Especial) may have substantially greater financial resources, marketing strength and distribution networks than the Company.

The Company’s Truly Hard Seltzer beverages compete primarily within the hard seltzer category. This category has been growing quickly since 2016, is highly competitive and includes large international and domestic competitors. Hard seltzers are typically priced competitively with High End beers and may compete for drinkers with beer, wine, spirits, or FMBs. Some of these competitors include Mark Anthony Brands under the brand name “White Claw”; ABInBev under “Bud Light Seltzer”, “Natural Light Seltzer” and “Bon & Viv’s”; Diageo under “Smirnoff Spiked Sparkling Seltzer”; and MolsonCoors under “Vizzy Hard Sparkling Water” and “Coors Seltzer”. The Company expects numerous additional entrants in the hard seltzer category during 2021 from both large and smaller international and domestic competitors, as the category continues to develop distribution and drinker awareness. Most significantly, ABInbev introduced and launched nationally “Michelob Ultra Organic Seltzer” in January 2021 and Mark Anthony Brands has announced that “Mikes Hard Lemonade Seltzer” and “White Claw Hard Seltzer Iced Tea” will be introduced and launched nationally in Spring 2021.

The Company’s Twisted Tea beverages compete primarily within the FMB category of the beer industry.  FMBs, such as Twisted Tea, Mike’s Hard Lemonade®, Smirnoff Ice®, Bud Light Lime® Ritas, Redd’s® Apple Ale, Seagrams Escapes® and Arnold Palmer Spiked, are flavored malt beverages that are typically priced competitively with High End beers.  As noted earlier, this category is highly competitive due to, among other factors, the presence of large brewers and spirits companies in the category, the advertising of malt-based spirits brands in channels not available to the parent brands and a fast pace of product innovation.

The Company’s Samuel Adams and Dogfish Head beverages compete primarily within the craft beer and domestic specialty beer category of the beer industry.  The Company expects competition and innovation among domestic craft brewers to remain strong, as the number of craft brewers continues to grow. The Company estimates there are over 8,000 breweries in operation, up from approximately 1,500 operating breweries in 2009. Most of these new breweries are craft (small and independent) brewers. Also, some existing craft breweries are building more capacity, adding additional local tap rooms, expanding geographically and adding more SKUs and styles.

There have been numerous announcements of acquisitions of or investments in craft brewers by larger breweries and private equity and other investors. In 2019, a unit of global brewer Kirin Holdings Co. announced the acquisition of New Belgium Brewing, the fourth largest craft brewer, for a reported amount of $350 to $400 million. Also in 2019, global brewer Mahou San Miguel increased its ownership of Founders Brewing Co. from 30% to 90% for a reported valuation of approximately $300 million. The most significant acquisitions in the last few years include Heineken’s acquisition of Lagunitas Brewing Company for approximately $1 billion,  AB InBev’s purchase of multiple craft breweries, including Elysian Brewing Company, Golden Road Brewing, Four Peaks Brewing Company, Breckenridge Brewing, Devils Backbone, Karbach, Wicked Weed, Platform Beer and Craft Brew Alliance, and Molson Coors’ purchase of multiple craft breweries, including Hop Valley Brewing, Saint Archer Brewery and Revolver Brewing.

The Company’s Angry Orchard product line competes within the hard cider category. As noted earlier, this category is small and highly competitive and includes large international and domestic competitors, as well as many small regional and local hard cider companies. Hard ciders are typically priced competitively with High End Beers and may compete for drinkers with beer, wine, spirits, or FMBs. Some of these competitors include C&C Group PLC under the brand names ‘Woodchuck’, ‘Magners’ and ‘Hornsby’s’; Heineken under the brand names ‘Strongbow’; and AB InBev under ‘Stella Cidre’. In recent years, regional and local cideries, including ‘Bold Rock’ and ‘Austin East Ciders’, have built businesses that have gained share locally at the expense of the national brands.

The Company’s products also compete with other alcoholic beverages for drinker attention and consumption and the pace of innovation in the categories in which the Company competes is increasing. In recent years, wine and spirits have been competing more directly with beers. The Company monitors such activity and attempts to develop strategies which benefit from the drinker’s interest in trading up, in order to position its hard seltzers, beers and hard ciders competitively with wine and spirits.

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The Company competes with other beer and alcoholic beverage companies within a three-tier distribution system. The Company competes for a share of the Distributor’s attention, time and selling efforts. In retail establishments, the Company competes for shelf, cold box and tap space. From a drinker perspective, competition exists for brand acceptance and loyalty. The principal factors of competition in the market for High End beer occasions include product quality and taste, brand advertising and imagery, trade and drinker promotions, pricing, packaging and the development of innovative new products.

The Company distributes its products through independent Distributors who also distribute competitors’ products. Certain brewers have contracts with their Distributors that impose requirements on the Distributors that are intended to maximize the Distributors’ attention, time and selling efforts on that brewer’s products. These contracts generally result in increased competition among brewers as the contracts may affect the manner in which a Distributor allocates selling effort and investment to the brands included in its portfolio. The Company closely monitors these and other trends in its Distributor network and works to develop programs and tactics intended to best position its products in the market.

The Company has certain competitive advantages over the local and regional craft brewers, including a long history of awards for product quality, greater available resources and the ability to distribute and promote its products on a more cost-effective basis. Additionally, the Company believes it has competitive advantages over imported beers, including lower transportation costs, higher product quality, a lack of import charges and superior product freshness.

Regulation and Taxation

The alcoholic beverage industry is regulated by federal, state and local governments. These regulations govern the production, sale and distribution of alcoholic beverages, including permitting, licensing, marketing and advertising. To operate its production facilities, the Company must obtain and maintain numerous permits, licenses and approvals from various governmental agencies, including but not limited to, the Alcohol and Tobacco Tax and Trade Bureau (the “TTB”), the Food and Drug Administration, state alcohol regulatory agencies and state and federal environmental agencies.

Governmental entities may levy various taxes, license fees and other similar charges and may require bonds to ensure compliance with applicable laws and regulations. Beginning in 2018, as a result of the “Tax Cuts and Jobs Act”, the Company’s federal excise tax rate on hard seltzer and beer is $16 per barrel on all barrels below 6 million barrels produced annually. The top tier rate on hard cider (with alcohol by volume of 8.5% or less) is $0.226 per gallon, on hard cider (with non-qualifying fermentable fruits) is $1.07 per gallon, and on artificially carbonated wine (hard cider with high CO2 levels) is $3.30 per gallon. Prior to 2018, the federal excise tax on beer and hard seltzer was $18 per barrel, on hard cider (with alcohol by volume of 8.5% or less) was $0.226 per gallon, on hard cider (with non-qualifying fermentable fruits) was $1.07 per gallon, and on artificially carbonated wine (hard cider with high CO2 levels) was $3.30 per gallon. These lower rates for hard seltzer, beer and hard cider were made permanent at the end of 2020. States levy excise taxes at varying rates based on the type of beverage and alcohol content. Failure by the Company to comply with applicable federal, state or local laws and regulations could result in higher taxes, penalties, fees and suspension or revocation of permits, licenses or approvals. While there can be no assurance that any such regulatory action would not have a material adverse effect upon the Company or its operating results, the Company is not aware of any infraction affecting any of its licenses or permits that would materially impact its ability to continue its current operations.

Trademarks

The Company has obtained trademark registrations with the United States Patent and Trademark Office for over 400 trademarks, including Samuel Adams®, Sam Adams®, Samuel Adams Boston Lager®, Samuel Adams Brewing the American Dream®, Twisted Tea®, Truly®, Truly Hard Seltzer®, Angry Orchard®, Dogfish Head®, Coney Island®, Angel City Brewery® and Concrete Beach®. It also has a number of common law trademarks. Several Company trademarks are also registered or have registrations pending in various foreign countries. The Company regards its trademarks as having substantial value and as being an important factor in the marketing of its products. The Company is not aware of any trademark infringements that could materially affect its current business or any prior claim to the trademarks that would prevent the Company from using such trademarks in its business. The Company’s policy is to pursue registration of its marks whenever appropriate and to oppose infringements of its marks through available enforcement options.

Environmental, Health and Safety Regulations and Operating Considerations

The Company’s operations are subject to a variety of extensive and changing federal, state and local environmental and occupational health and safety laws, regulations and ordinances that govern activities or operations that may have adverse effects on human health or the environment. Environmental laws, regulations or ordinances may impose liability for the cost

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of remediation of, and for certain damages resulting from, sites of past releases of hazardous materials. The Company believes that it currently conducts, and in the past has conducted, its activities and operations in substantial compliance with applicable environmental laws, and believes that any costs arising from existing environmental laws will not have a material adverse effect on the Company’s financial condition or results of operations.

As part of its efforts to be environmentally responsible, the Company has adopted a number of practices designed to improve recycling, waste reduction, and utilities consumption at its breweries.

The Company has adopted various policies and procedures intended to ensure that its facilities meet occupational health and safety requirements. The Company believes that it currently is in compliance with applicable requirements and will continue to endeavor to remain in compliance. There can be no assurances, however, that new and more restrictive requirements might not be adopted, compliance with which might have a material, adverse financial effect on the Company and its operating results, or that such policies and procedures will be consistently followed and be sufficient to prevent serious accidents.

 

Human Capital Resources

 

As of December 26, 2020, the Company had 2,423 employees, of which 87 were represented by unions or similar organizations. The Company’s Executive Leadership Team (“ELT”) is comprised of our CEO and his six direct reports who collectively have management responsibility for our primary business areas, including but not limited to brewing, supply chain operations, sales, marketing, finance, and people and culture. The Company’s Board of Directors and the ELT believe that succession planning, talent management, culture, and diversity, equity, and inclusion are critical to the Company’s continued success.

Succession Planning and Talent Management

 

The Company regularly reviews talent development and succession plans for each of its functional areas to identify and develop a pipeline of talent to maintain business operations. The Company understands the potential costs and risks of bringing in an outside executive officer in today’s environment, and that businesses are often – but not always – more successful in promoting internal candidates. Accordingly, the Board of Directors and the ELT make efforts to identify potential successors for those positions long in advance of any potential positional vacancies, perform skills gap analyses for those internal candidates, and provide training and exposure on those gap areas to those candidates in order to develop better potential successors. The Board of Directors is primarily responsible for succession planning for the CEO, but also participates in succession planning discussions for other executive officer positions. The Company believes that its culture, compensation structure, long-term equity program, and robust training and development program provide motivation for talented leaders to remain with the Company.

Culture

 

The ELT discusses culture with its employees and the Board of Directors on a regular basis. The Company is continuously focused on developing an inclusive and respectful work environment where all employees at every level should feel empowered to honestly “discuss the undiscussables” with other employees at any level, all the way up to the Chairman and the CEO, without fear of retribution or retaliation. The Chairman teaches this philosophy during orientation to all new employees, and each company-wide meeting has time set aside to discuss the undiscussables. Additionally, each year the Board meets with a set of key senior managers, without the ELT present, so that the Board may seek direct feedback on the Company, its practices, culture, and employee benefits and programs.

 

The Company also fosters a culture of ongoing training and education. Some examples of trainings provided to employees include New Employee Orientation, Respectful and Effective Communications, Leading the Boston Beer Company Way, Selling Skills, Negotiations, and Building Brands. Employees also receive beer and cider education training during New Employee Orientation. Then, after having been with the Company for one year, employees are encouraged to participate in further beer and cider education courses where they can train to be certified as industry experts in those areas. The Company believes that it has the most beer industry experts, called “Certified Cicerones,” in the beer industry.

 

In October 2020, the Company rolled out a formal mentoring and leadership program to connect dozens of senior and junior employees across a range of backgrounds with the purpose of diversifying perspectives, building networks, developing capabilities, growing competencies, and cultivating leadership.

 

The Company also regularly conducts internal engagement surveys of its employee base to help ensure that it is maintaining its culture. In 2020, over 72% of employees participated in the survey, which resulted in high scores in response to the

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questions related to pride in working for the Company, believing in the Company’s values, the Company’s concern for employee safety, confidence in the future of the Company, and pride in the Company’s handling of the COVID-19 pandemic.

Diversity, Equity, and Inclusion

 

As an equal opportunity employer, the Company is committed to creating an inclusive and diverse work environment that promotes equal opportunity, dignity, and respect for all and increases diverse representation in leadership roles. The Company is focused on expanding the diverse perspectives of its employee base, which is critical to continued success. Over the past two years, the Company has taken numerous steps in furtherance of this goal:

 

 

Every employee of the Company is required to undergo extensive unconscious bias training.

 

Diversity was an area of discussion at our National Company Meetings.

 

The Company created an Employee Resource Group platform designed to provide an outlet for employees to come together around shared life experiences and provide a safe place to foster inclusivity and connection. As of 2020, the Company had six employee resource groups focused in the areas of diversity and inclusion, LGBTQIA+, working parents, veterans, drug and alcohol support, and sustainability.  

 

Diversity was the sole focus of our annual “Action Learning Project” in 2019, where a cross-functional group of high-potential employees is formed annually to tackle an issue of vital importance to the Company. The Action Learning Project Group met every week for over ten months, identifying potential solutions to improve diversity across the Company. The group presented its findings and proposed solutions to the Executive Leadership Team and a leadership group consisting of the Company’s key senior managers in late 2019.

 

In early 2020, the “Action Learning Project” project evolved into the creation of a Diversity & Inclusion Committee. The goal of the committee is to continue to advance the efforts of fostering open dialogue about diversity, equity, and inclusion, maintaining a culture that values everyone, regardless of their identity, and ensuring everyone at the Company is treated with dignity and respect. The Committee held monthly forum meetings over the course of 2020 open to all employees.

 

In early 2021, the Diversity & Inclusion Committee collaborated with the Company’s Talent Acquisition team to work on expanding the diversity of the employee candidate pipeline. Those efforts included auditing college and university partners, researching and reaching out to historically black colleges and Hispanic serving institutes, and focusing efforts on diverse recruiting and job board sites.

 

The Company sponsored a seminar series to bring guest speakers and experts across multiple facets of diversity and inclusion to speak to employees and business partners.

 

The Company established long-term relationships with the NAACP, Civic Alliance, and GLAAD to further our knowledge and support of issues facing black, brown, and LGTBQIA+ communities.

 

The Company participated in the #StopHateForProfit boycott that asked companies to halt spending advertising funds with certain social media platforms, with the purpose of encouraging those platforms to increase the monitoring and regulation of hate, racism, and disinformation by users.

 

In 2020, the Company appointed an employee to the newly-created full-time position of Diversity, Equity & Inclusion Leader to spearhead the Company’s diversity and inclusion efforts. The position also serves as a member of the Company’s newly-created Social Impact Team.

 

In 2020 the Company formed a multi-cultural task force, comprised of a cross-functional group of employees, to analyze and support the evolving makeup and needs of the Company’s consumer base.  Over the course of year, the Company leveraged its brands as external platforms to amplify these values and support diverse causes.

 

As of December 26, 2020, 2 of the 9 members of the Board of Directors were female and 1 of 9 self-identified as part of an underrepresented minority group; 3 of 11 Executive Officers were female and 1 of 11 self-identified as part of an underrepresented minority group. Across the Company’s broader professional population, approximately 34.5% are female and 16.6% self-identified as part of an underrepresented minority group. In 2020, approximately 41.8% of new hires were female and 19.8% identified as an underrepresented minority group, both of which were improvements over 2019.

Corporate Social Responsibility

The Company’s core philanthropic initiative is Samuel Adams Brewing the American Dream®. In partnership with ACCION, one of the nation’s largest non-profit micro-lenders, the program supports small business owners in the food, beverage, and

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brewing industries through access to business capital, coaching, and new market opportunities. The goal is to help strengthen small businesses, create local jobs and build vibrant communities. Since the inception of the Samuel Adams Brewing the American Dream program in 2008, the Company and ACCION have worked together to loan more than $64 million to more than 3,200 small business owners who have subsequently repaid these loans at a rate of more than 95%. The loan repayments received are reinvested into the program. Boston Beer employees, together with local business partners and community organizations, have provided coaching and mentoring to more than 12,000 business owners across the country. These efforts have helped to create or maintain more than 9,000 local jobs.

Other

The Company submitted the Section 12(a) CEO Certification to the New York Stock Exchange in accordance with the requirements of Section 303A of the NYSE Listed Company Manual. This Annual Report on Form 10-K contains at Exhibits 31.1 and 31.2 the certifications of the Chief Executive Officer and Chief Financial Officer, respectively, in accordance with the requirements of Section 302 of the Sarbanes-Oxley Act of 2002. The Company makes available free of charge copies of its Annual Report on Form 10-K, as well as other reports required to be filed by Section 13(a) or 15(d) of the Securities Exchange Act of 1934, on the Company’s investor relations website at www.bostonbeer.com, or upon written request to Investor Relations, The Boston Beer Company, Inc., One Design Center Place, Suite 850, Boston, Massachusetts 02210.

Item 1A.

Risk Factors

In addition to the other information in this Annual Report on Form 10-K, the risks described below should be carefully considered before deciding to invest in shares of the Company’s Class A Common Stock. These are risks and uncertainties that management believes are most likely to be material and therefore are most important for an investor to consider. The Company’s business operations and results may also be adversely affected by additional risks and uncertainties not presently known to it, or which it currently deems immaterial, or which are similar to those faced by other companies in its industry or business in general. If any of the following risks or uncertainties actually occurs, the Company’s business, financial condition, results of operations or cash flows would likely suffer. In that event, the market price of the Company’s Class A Common Stock could decline.

Risks Related to the COVID-19 Pandemic

 

The Global COVID-19 Pandemic Has Disrupted the Company’s Business and the Company’s Financial Condition and Operating Results Have Been and Are Expected To Continue to be Affected by the Outbreak and Its Effects.

 

The Company’s operations and business have been negatively affected and could continue to be materially and adversely affected by the COVID-19 pandemic and related weak, or weakening of, economic or other conditions, particularly in the United States where the Company derives most of its revenue and profit, but also in Europe, where some of the Company’s ingredient suppliers are located. National, state and local governments have responded to the COVID-19 pandemic in a variety of ways, including, without limitation, by declaring states of emergency, restricting people from gathering in groups or interacting within a certain physical distance (i.e., social distancing), and in certain cases, ordering businesses to close or limit operations or people to stay at home.  Although the Company has been permitted to continue to operate its breweries in all of the jurisdictions in which it operates, there is no assurance that the Company will be permitted to operate these facilities under every future government order or other restriction and in every location or that the third-party breweries on which the Company relies for production will similarly be permitted to continue to operate.  In particular, any limitations on, or closures of, the Company’s Pennsylvania, Cincinnati or Milton breweries or its third-party breweries, could have a material adverse impact on the Company’s ability to manufacture products and service customers and could have a material adverse impact on the Company’s business, financial condition and results of operations.

 

During the fifty-two weeks ended December 26, 2020, the principal impacts of the global COVID-19 pandemic were a significant reduction in keg demand from the on-premise channel and higher labor and safety related costs at Company-owned breweries.  The Company expects to continue to be impacted as the situation remains dynamic and subject to rapid and possibly material change.  Continued or additional disruptions to the Company’s business and potential associated impacts to the Company’s financial condition and results of operations include, but are not limited to:

 

 

reduced demand for the Company’s products, due to adverse and uncertain economic conditions, such as increased unemployment, a prolonged downturn in economic growth and other financial hardships, or a decline in consumer confidence, as a result of health concerns;

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unpredictable drinker behaviors and reduced demand for the Company’s products, due to on-premise closures, government quarantines and other restrictions on social gatherings;

 

inability to manufacture and ship the Company’s products in quantities necessary to meet drinker demand and achieve planned shipment and depletion targets, due to disruptions at the Company-owned breweries and third-party breweries caused by:

 

 

o

the Company’s inability to maintain a sufficient workforce at Company-owned breweries, due to the health-related effects of COVID-19 and similar staffing issues at third-party breweries;

 

o

disruptions at the Company-owned breweries and third-party breweries caused by an inability to maintain a sufficient quantity of essential supplies, such as ingredients and packaging materials, and maintain logistics and other manufacturing and supply chain capabilities necessary for the manufacture and distribution of the Company’s products;

 

o

failure of third parties on which the Company relies, including the Company’s packaging and ingredients suppliers, third-party breweries, distributors, and logistics and transportation providers, to continue to meet on a timely basis their obligations to the Company, which may be caused by their own financial or operational difficulties;

 

 

potential incremental costs associated with mitigating the effects of the pandemic on the Company’s operations, including increased labor, freight and logistics costs and other expenses; or

 

significant changes in the conditions in markets in which the Company produces, sells or distributes Company products, including prolonged or additional quarantines, governmental and regulatory actions, closures or other restrictions that limit or close the Company’s operating and manufacturing facilities, restrict the ability of the Company’s employees to perform necessary business functions, restrict or prevent consumers access to the Company products, or otherwise prevent the Company’s third-parties from sufficiently staffing operations, including operations necessary for the production, distribution, sale and support of Company products.

 

These impacts could place limitations on the Company’s ability to operate effectively and could have a material and adverse effect on the Company’s operations, financial condition and operating results. The Company has implemented policies and procedures at its Company-owned breweries to address potential risks, including entrance screening and temperature checks, face mask requirements, reorganizing work to increase social distancing between and among shifts, and adding two hours of workspace cleaning per shift.  As the situation continues to evolve and more information and guidance becomes available, the Company may adjust its current policies and procedures, so as to address the rapidly changing variables related to the pandemic. Additional impacts may arise, of which the Company is not currently aware. The nature and extent of such impacts will depend on future developments, which are highly uncertain and cannot be predicted.

Risks Associated with Our Industry

The Company Faces Substantial Competition.

The market for High End beer occasions within the United States is highly competitive, due to the introduction and expansion of hard seltzer brands, increasing number of domestic and international beverage companies with similar pricing and target drinkers, gains in market share achieved by domestic specialty beers and imported beers, the acquisition of craft brewers by larger brewers. Some of the largest of these competitors include AB InBev, Molson Coors, Constellation, Heineken and Mark Anthony Brands as they introduce new hard seltzers and expand their efforts behind existing brands and acquire craft brewers. Imported beers, such as Corona®, Heineken®, Modelo Especial® and Stella Artois®, also continue to compete aggressively in the United States beer market. The Company anticipates competition among domestic craft brewers will remain strong as some existing breweries are building more capacity, expanding geographically and adding more SKUs and styles. The continued growth in the sales of hard seltzers, craft-brewed domestic beers and imported beers is expected to increase the competition in the market for High End beer occasions within the United States and, as a result, prices and market share of the Company’s products may fluctuate and possibly decline.

The Company’s products compete generally with other alcoholic beverages. The Company competes with other beer and beverage companies not only for drinker acceptance and loyalty, but also for shelf, cold box and tap space in retail establishments and for marketing focus by the Company’s Distributors and their customers, all of which also distribute and sell other hard seltzers, beers and other alcoholic beverage products. Many of the Company’s competitors, including AB InBev, Molson Coors, Constellation, Heineken and Mark Anthony Brands, have substantially greater financial resources, marketing strength and distribution networks than the Company. Moreover, the introduction of new products by competitors

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that compete directly with the Company’s products or that diminish the importance of the Company’s products to retailers or Distributors may have a material adverse effect on the Company’s business and financial results.

Further, the beer industry has seen continued consolidation among brewers in order to take advantage of cost savings opportunities for supplies, distribution and operations. Illustrative of this consolidation is AB InBev’s $107 billion purchase of SAB Miller and the related sale by SAB Miller to Molson Coors of its 58% share of the MillerCoors joint venture with Molson Coors, as well as Heineken’s acquisition of Lagunitas Brewing Company for approximately $1 billion. Also, in the last several years, both AB InBev and Molson Coors have introduced numerous new hard seltzers and purchased multiple regional craft breweries with the intention to expand the capacity and distribution of these breweries. Due to the increased leverage that these combined operations will have in distribution and sales and marketing expenses, the costs to the Company of competing could increase. The potential also exists for these large competitors to increase their influence with their Distributors, making it difficult for smaller brewers to maintain their market presence or enter new markets. The continuing consolidation could also reduce the contract brewing capacity that is available to the Company. These potential increases in the number and availability of competing brands, the costs to compete, reductions in contract brewing capacity and decreases in distribution support and opportunities may have a material adverse effect on the Company’s business and financial results.

Changes in Public Attitudes and Drinker Tastes Could Harm the Company’s Business. Regulatory Changes in Response to Public Attitudes Could Adversely Affect the Company’s Business.

The alcoholic beverage industry has been the subject of considerable societal and political attention for several years, due to public concern over alcohol-related social problems, including driving under the influence, underage drinking and health consequences from the misuse of alcohol, including alcoholism. As an outgrowth of these concerns, the possibility exists that advertising by beer producers could be restricted, that additional cautionary labeling or packaging requirements might be imposed, that further restrictions on the sale of alcohol might be imposed or that there may be renewed efforts to impose increased excise or other taxes on beer sold in the United States.

The domestic beer industry, other than the market for High End beer occasions, has experienced a decline in shipments over the last ten years. The Company believes that this decline is due to declining alcohol consumption per person in the population, drinkers trading up to drink high quality, more flavorful hard seltzers and beers, health and wellness trends and increased competition from wine and spirits companies. If consumption of the Company’s products in general were to come into disfavor among domestic drinkers, or if the domestic beer industry were subjected to significant additional societal pressure or governmental regulations, the Company’s business could be materially adversely affected.

Certain states are considering or have passed laws and regulations that allow the sale and distribution of marijuana. Currently it is not possible to predict the impact of this on sales of alcohol, but it is possible that legal marijuana usage could adversely impact the demand for the Company’s products.

The Company Is Dependent on Its Distributors.

In the United States, where approximately 96% of its beer is sold, the Company sells most of its alcohol beverages to independent beer Distributors for distribution to retailers and, ultimately, to drinkers. Although the Company currently has arrangements with over 400 Distributors, sustained growth will require it to maintain such relationships and possibly enter into agreements with additional Distributors. Changes in control or ownership within the current distribution network could lead to less support of the Company’s products.

Contributing to distribution risk is the fact that the Company’s distribution agreements are generally terminable by the Distributor on relatively short notice. While these distribution agreements contain provisions giving the Company enforcement and termination rights, some state laws prohibit the Company from exercising these contractual rights. The Company’s ability to maintain its existing distribution arrangements may be adversely affected by the fact that many of its Distributors are reliant on one of the major beer producers for a large percentage of their revenue and, therefore, they may be influenced by such producers. If the Company’s existing distribution agreements are terminated, it may not be able to enter into new distribution agreements on substantially similar terms, which may result in an increase in the costs of distribution.

No assurance can be given that the Company will be able to maintain its current distribution network or secure additional Distributors on terms not less favorable to the Company than its current arrangements.

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Risks Related to Our Business and Operations

There Is No Assurance of Continued Growth or that the Company Can Adapt to the Challenges of the Changing Competitive Environment.

From 2015 to 2017, the Company experienced a decline in the demand for its products, as craft beer growth rates slowed and the hard cider category declined. From 2018 to 2020, the Company experienced increases in demand for its products, driven by growth in its Truly and Twisted Tea brands, and grew 13%, 22% and 37% in depletion volume for 2018, 2019 and 2020, respectively. The Company is targeting shipment and depletion volume growth of between 35% and 45% in 2021. The Company’s ability to sustain double digit growth trends may be affected by an increasing number of competing beverages. The development of new products by the Company to meet these challenges may lead to reduced sales of the Company’s existing brands and there is no guarantee that these new product initiatives will generate stable long term volume. Additionally, changes in the use of media and technology are changing the economics of how to market brands to drinkers and may be diminishing the traditional competitive advantage the Company may have had in buying national media relative to smaller brands. While the Company believes that a combination of innovation, new brand messaging and exploration of new media, and increased investment and sales execution can lead to increased demand, there is no guarantee that the Company’s actions will be successful in maintaining the Company’s historical levels of profitability. Reduced sales, among other factors, could lead to lower brewery utilization, lower funds available to invest in brand support and reduced profitability, and these challenges may require a different mix and level of marketing investments to stabilize and grow volumes. A lower growth environment or periods of sales declines will present challenges for the Company to motivate and retain employees, and to maintain the current levels of distributor and retailer support of its brands, it’s current brand investment levels, and current returns to shareholders, and could potentially require a review of long term organization and brewery needs. Currently, the Company believes it can continue to grow in 2021 and in future years but there is no guarantee it will be successful.

 

The Company May Not Be Able to Increase Supply to Meet the Increased Demand for Its Products.

 

Since 2017, demand for the Company’s products has grown significantly and the Company currently estimates depletion growth in 2021 to be between 35% and 45%. These estimated increases would result in 2021 depletion volume at over 2.5 times 2017 volumes.

 

As demand for its products has grown, the Company has faced increasing challenges in meeting that demand. The challenges have been both production constraints, primarily resulting from canning and variety pack capacity limitations, and can supply constraints.  The Company has also become more reliant on third party-owned breweries, particularly City Brewing Company, LLC, to meet demand as the percentage of its volume produced at Company owned breweries has decreased from over 90% in 2017 to approximately 65% in 2020, with a further decrease anticipated in 2021. The Company’s reliance on production at City Brewing Company, LLC to meet demand has grown from 23% of the Company’s total production volume in 2019 to 33% in 2020. 

 

The Company’s ability to grow and continue to meet increasing consumer demand will be affected by

 

 

its ability to meet production goals and/or targets at the Company’s owned breweries and third party-owned breweries;

 

its ability to enter into new brewing contracts with third party-owned breweries on commercially acceptable terms;

 

disruption or other operating performance issues at the Company’s owned breweries or limits on the availability of suitable production capacity at third party-owned breweries; and

 

its ability to obtain sufficient quantities of certain packaging materials and ingredients, such as cans, flavorings, cardboard wraps and glass bottles, from suppliers.

The Company’s Advertising and Promotional Investments May Affect the Company’s Financial Results but Not Be Effective.

The Company has made and expects to continue to make, significant advertising and promotional expenditures to enhance its brands. These expenditures may adversely affect the Company’s results of operations in a particular quarter or even for the full year, and may not result in increased sales. Variations in the levels of advertising and promotional expenditures have in the past caused, and are expected in the future to continue to cause, variability in the Company’s quarterly results of

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operations. While the Company attempts to invest only in effective advertising and promotional activities, it is difficult to correlate such investments with sales results, and there is no guarantee that the Company’s expenditures will be effective in building brand equity or growing long term sales.

 

The Company is Dependent on Key Packaging Suppliers and an Increase in Packaging Costs Could Harm the Company’s Financial Results.

 

The demand for packaging materials in the beverage industry has significantly increased and there has been a shortage of capacity, as manufacturers attempt to adjust their supply chains to keep up with the increased demand which has further increased due to the COVID-19 pandemic. Truly Hard Seltzer brand beverages are primarily packaged in sleek cans and Twisted Tea brand beverages are primarily packaged in standard cans. In 2020, as the Truly brand family and the Twisted brand families have grown significantly and overall demand for cans increased, the Company has experienced supply constraints for cans.  In the fourth quarter of 2020, the Company experienced some can, cardboard wrap and glass shortages that impacted the Company’s production schedules.  The Company is working closely with its suppliers to ensure there are no further supply disruptions and the Company has adequate supply of packaging materials.  In addition, the Company is working to increase packaging capacity to accommodate its expected needs for 2021 and currently expects to have sufficient supply and capacity to meet those needs.

 

The Company maintains competitive sources for the supply of packaging materials, such as cans, glass, cardboard wraps and shipping cases. The Company enters into limited-term supply agreements with certain vendors in order to receive preferential pricing.  In 2020, crowns and labels were each supplied by single sources.  Although the Company believes that alternative suppliers are available, the loss of any of the Company’s packaging materials suppliers could, in the short-term, adversely affect the Company’s results of operations, cash flows and financial position until alternative supply arrangements were secured.  Additionally, there has been acquisition, change in control and consolidation activity in several of the packaging supplier networks which could potentially lead to further disruption in supply and changes in economics. If packaging costs continue to increase, there is no guarantee that such costs can be fully passed along through increased prices.  The Company has entered into long-term supply agreements for certain packaging materials that have shielded it from some cost increases. These contracts have varying lengths and terms and there is no guarantee that the economics of these contracts can be replicated when renewed. The Company’s inability to preserve the current economics on renewal could expose the Company to significant cost increases in future years. Some of these contracts require the Company to make commitments on minimum volume of purchases based on Company forecasts.  If the Company's needs differ significantly from its forecasts, the Company would likely incur storage costs for excess production or contractual penalties that might be significant to Company financial results.

 

Impact of Reliance on Company-Owned Production Facilities, Reduced Availability of Breweries Owned by Others, and Inability to Leverage Investment in the Company-Owned Breweries Could Have a Material Adverse Effect on the Company’s Operations or Financial Results.

 

During 2020, the Company brewed, fermented and packaged approximately 65% of its volume at breweries owned by the Company.  This reliance on its own breweries exposes the Company to capacity constraints and risk of disruption of supply, as these breweries are operating at or close to current capacity in peak months. Management believes that it has alternatives available to it, in the event that production at any of its brewing locations is temporarily interrupted, although as volumes at the Pennsylvania Brewery increase, severe interruptions there would be problematic, particularly during peak seasons. In addition, if interruptions were to occur, the Company might not be able to maintain its current economics and could face significant delays in starting replacement brewing locations. Potential interruptions at breweries include labor issues, governmental action, quality issues, contractual disputes, machinery failures, operational shutdowns or natural or unavoidable catastrophes.  

 

The growth in the Company’s business and product complexity heighten the management challenges that the Company faces. In recent years, the Company has had product shortages and service issues.  The Company’s supply chain struggled under the increased volume and experienced increased operational and freight, costs as it reacted.  In response to these issues, the Company has significantly increased its packaging capabilities and tank capacity and added personnel to address these challenges.  There can be no assurance that the Company will effectively manage such increasing complexity without experiencing future planning failures, operating inefficiencies, insufficient employee training, control deficiencies or other issues that could have a material adverse effect on the Company’s business and financial results. The growth of the Company, changes in operating procedures and increased complexity have required significant capital investment. In the future, the Company on an overall basis may not see operating cost leverage from these investments and there is no guarantee that it will.

 

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The Company continues to avail itself of capacity at third-party breweries. During 2020, approximately 33% of the Company’s annual shipment volume was brewed and/or packaged under service agreements with City Brewing Company, LLC.  In selecting third party breweries for brewing services arrangements, the Company carefully weighs a brewery’s sleek can packaging and automated variety packaging capability and capacity, its quality control capabilities throughout the production process and its ability to utilize traditional brewing, fermenting and finishing methods. To the extent that the Company needs to avail itself of a third-party brewing services arrangement, it exposes itself to higher than planned costs of operating under such contract arrangements than would apply at the Company-owned breweries, potential lower service levels and reliability than internal production, and potential unexpected declines in the brewing capacity available to it, any of which could have a material adverse effect on the Company’s business and financial results. The use of such third party facilities also creates higher logistical costs and uncertainty in the ability to deliver product to the Company’s customers efficiently and on time.

 

As the beer industry continues to consolidate and the Company has grown, the capacity and willingness of breweries owned by others where the Company could brew, ferment or package some of its products, if necessary, has become a more significant concern and, thus, there is no guarantee that the Company’s needs will be uniformly met. The Company continues to work at its Company-owned breweries and with its third-party brewers to attempt to minimize any potential disruptions. Nevertheless, should an interruption occur, the Company could experience temporary shortfalls in production and/or increased production and/or distribution costs and be required to make significant capital investments to secure alternative capacity for certain brands and packages, the combination of which could have a material adverse effect on the Company’s business and financial results. A production interruption caused by an acquisition or change of control of City Brewing or a simultaneous interruption at several of the Company’s production locations would likely cause significant disruption, increased costs and, potentially, lost sales.

 

The Company’s emphasis on owning production facilities requires it to continue to make a significant level of capital expenditure to maintain and improve these facilities and to incur significant fixed operating costs to support them. In an uncertain volume environment, the Company faces the risk of not being able to support the owned brewery operating costs, if volumes were to decline. At the same time, despite making these expenditures and incurring these costs, if demand were to further increase above current volume estimates, the Company could still face the risk of not being able to meet the increased demand.

 

The Company attempts to mitigate production and distribution risks through a combination of owned breweries and access to third-party contract facilities, but there is no guarantee that this strategy is optimal, and it might result in short term costs and inefficiencies.

 

Turnover in Company Leadership or Other Key Positions May Lead to Loss of Key Knowledge or Capability and Adversely Impact Company Performance.

 

The Company has an experienced leadership team with an established track record of business success and innovation in the beverage and consumer goods industries.  Dave Burwick joined as President and Chief Executive Officer in 2018.  Prior to commencing that role, Mr. Burwick had served on Boston Beer’s Board of Directors since 2005.  His most recent role was Chief Executive Officer of Peet’s Coffee and prior to joining Peet’s, Mr. Burwick served as President of North America for Weight Watchers and in numerous leadership roles over 20 years at PepsiCo, including Chief Marketing Officer of Pepsi-Cola North America.  The Company may well experience changes in key leadership or key positions in the future.  The departure of key leadership personnel, especially a Chief Executive Officer, can take from the Company significant knowledge and experience. This loss of knowledge and experience can be mitigated through successful hiring and transition, but there can be no assurance that the Company will be successful in such efforts. Attracting, retaining, integrating and developing high performance individuals in key roles is a core component of the Company’s strategy for addressing its business opportunities. Attracting and retaining qualified senior leadership may be more challenging under adverse business conditions, such as the declining growth environment that faced the Company in prior years. Failure to attract and retain the right talent, or to manage the transition of responsibilities resulting from such turnover smoothly, would affect the Company's ability to meet its challenges and may cause the Company to miss performance objectives or financial targets.

 

The Company has Significantly Increased its Product Offerings and Distribution Footprint, which Increases Complexity and Could Adversely Affect the Company’s Performance and Financial Results.

 

The Company has significantly increased the number of commercially available hard seltzers, beers, and hard ciders that it produces.  In the last five years, the Company has introduced many new hard seltzers, beers, and hard ciders under the Truly Hard Seltzer, Twisted Tea, Samuel Adams, and Angry Orchard brands. In July 2019, the addition of the Dogfish Head brand

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added over 25 styles of beer, 15 styles of distilled spirits, two brewery tap rooms, a restaurant, and a boutique Inn.  In January 2020, the Company opened the Samuel Adams Tap Room and small brewery in downtown Boston.  The Company currently operates 10 retail locations, including eight brewery tap rooms, a cidery tasting room and a restaurant, where its beers, hard seltzers, hard ciders and distilled spirits are sold and consumed on-premise.  These additional brands and locations, along with the increases in demand for certain existing brands, have added to the complexity of the Company’s product development process, as well as its brewing, fermenting, packaging, marketing and selling processes and retail operations.  There can be no assurance that the Company will effectively manage such increased complexity, without experiencing coordination issues, operating inefficiencies, supply shortages or control deficiencies.  Such inefficiencies or deficiencies could have a material adverse effect on the Company’s business and financial results.

The Company’s Acquisition of Dogfish Head Involves a Number of Risks, the Occurrence of Which Could Adversely Affect Its Business, Financial Condition, and Operating Results.

On July 3, 2019, the Company completed its acquisition of Dogfish Head Brewery and various related operations, through the acquisition of all of the equity interests held by certain private entities in Off-Centered Way LLC, the parent holding company of the Dogfish Head Brewery operations. This transaction continues to involve certain risks, the occurrence of which could materially and adversely affect the Company’s business, liquidity, financial condition, and operating results, including:

 

potential loss of key Dogfish Head employees, suppliers, distributors and drinkers or other adverse effects on existing business relationships with suppliers, distributors and drinkers;

 

potential inability to fully integrate Dogfish Head’s Distributors into the Company’s existing wholesaler network

 

adverse impact on overall profitability, if the Company’s expanded operations do not achieve the growth prospects, net revenues, earnings, cost or revenue synergies, or other financial results projected in the Company’s valuation models, or delays in the realization thereof;

 

inaccurate assessment of undisclosed, contingent or other liabilities of the acquired operations, unanticipated costs associated with the transaction; and

 

the potential future write-off of significant amounts of goodwill, intangible assets and/or other tangible assets if the Dogfish Head business does not perform in the future as expected, or other potential financial accounting or reporting impacts

The Company cannot assure that it will realize the expected benefits of the Dogfish Head transaction. The Company’s failure to adequately manage the risks associated with the transaction could have a material adverse effect on its business, liquidity, financial condition or results of operations.

Changes in Drinker Attitudes on Brand Equity and Reliance on the Company’s Founders in the Samuel Adams and Dogfish Head Brand Communications May Adversely Affect Demand for the Company’s Production and Results of Operations.

The success of our brands depends upon the positive image that drinkers have of those brands and maintaining a good reputation is critical to selling our branded products. Our reputation could be impacted negatively by public perception, adverse publicity, negative comments in social media, or our responses to negative publicity or comments.  There is also no guarantee that the brand equities that the Company has built in its brands will continue to appeal to drinkers. Changes in drinker attitudes or demands, or competitor activity and promotion, could adversely affect the strength of the Company’s brands and the revenue that is generated from that strength. It is possible that the Company could react to such changes and reposition its brands, but there is no certainty that the Company would be able to maintain volumes, pricing power and profitability. It is also possible that marketing messages or other actions taken by the Company could damage its brand equities, as opposed to building them. If such damage were to occur, it would likely have a negative effect on the financial condition of the Company.

In addition to these inherent brand risks, C. James Koch, the founder and Chairman of the Company, as well as the founders of Dogfish Head brand, Samuel Calagione, Founder and Brewer, Dogfish Head Brewery and Mariah Calagione, Founder and Communitarian, Dogfish Head Brewery are an integral part of the Company’s history, equity and current and potential future brand messaging and the Company relies on the positive public perception of these founders. The role of these founders as founders, brewers and leaders of the Company is emphasized as part of the Company’s brand communication and has appeal to some drinkers. If these founders were not available to the Company to continue their active roles, their absence could

20


 

negatively affect the strength of the Company’s messaging and, accordingly, the Company’s growth prospects. The Company and its brands may also be impacted if drinkers’ perceptions of these founders including their social or political views, were to change negatively. If any negative changes were to occur, the Company might need to adapt its strategy for communicating its key messages regarding its history, equity and current and potential future brand messaging. Any such change in the Company’s messaging strategy might have a detrimental impact on the future growth of the Company.

The Company is Dependent on Key Ingredient Suppliers, Including Foreign Sources; Its Dependence on Foreign Sources Creates Foreign Currency Exposure for the Company; The Company’s Use of Natural Ingredients Creates Weather and Crop Reliability and Excess/Shortage Inventory Exposure for the Company.

The Company purchases a substantial portion of the ingredients used in its hard seltzers, beers and hard ciders, including its flavorings, malt, hops, apples and other ingredients, from a limited number of foreign and domestic suppliers. The Company has historically not experienced material difficulties in obtaining timely delivery from its ingredient suppliers and currently believes that it will have sufficient supply of ingredients in 2021.  The Company believes that there are alternative sources available for some of the ingredients, but there can be no assurance that the Company would be able to acquire such ingredients from substitute sources on a timely or cost-effective basis, in the event that current suppliers could not adequately fulfill orders. The loss or significant reduction in the capability of a supplier to support the Company’s requirements could, in the short-term, adversely affect the Company’s business and financial results, until alternative supply arrangements were secured.

The Companies hard seltzers, beers and hard ciders include many unique and proprietary flavors and combinations of flavors and some of these flavorings are single sourced.  Truly Hard Seltzer and Twisted Tea brand beverages are particularly reliant on the use of flavorings and variety of flavors as part of their appeal to drinkers.  

The Company purchased most of the malt used in the production of its beer from four suppliers during 2020. Nevertheless, the Company believes that there are other malt vendors available that are capable of supplying part of its needs. The Company is exposed to the quality of the barley crop each year, and significant failure of a crop would adversely affect the Company’s costs.

The Company uses Noble hop varieties from Europe for many of its Samuel Adams beers and also uses hops grown in the other areas of Europe, and in the United States, England and New Zealand. Noble hops are grown in several specific areas in Germany and the Czech Republic and are recognized for growing hops with superior taste and aroma properties. The Company stores its hops in multiple cold storage warehouses to minimize the impact of a catastrophe at a single site. The performance and availability of the hops, as with any agricultural product, may be materially adversely affected by factors such as adverse weather or pests and there is no guarantee the contracts will be fulfilled completely. The Company enters into purchase commitments with nine primary hop dealers and attempts to maintain a one to two-year supply of essential hop varieties on-hand in order to limit the risk of an unexpected reduction in supply and procures hops needed for new beers, based on its best estimate of likely short-term demand.  Variations in management’s assumptions regarding future sales growth, product mix and hops market conditions could result in future material losses.

The Company uses special varieties of apples in its ciders that it believes are important for the ciders’ flavor profile. These apples are sourced primarily from European and United States suppliers and include bittersweet apples from France and culinary apples from Italy and Washington state. There is limited availability of these apples and many outside factors, including weather conditions, farmers rotating from apples to other crops, government regulations and legislation affecting agriculture, could affect both price and supply.

The Company’s new product development can also be constrained by any limited availability of certain ingredients. Growth rates higher than planned or the introduction of new products requiring special ingredients could create demand for ingredients greater than the Company can source.

The Company’s contracts for certain hops and apples are payable in Euros, Pounds Sterling and New Zealand dollars, and therefore, the Company is subject to the risk that the Euro, Pound or New Zealand dollar may fluctuate adversely against the U.S. dollar. The Company has, as a practice, not hedged this exposure, although this practice is regularly reviewed. Significant adverse fluctuations in foreign currency exchange rates may have a material adverse effect on the Company’s business and financial results. The cost of hops has increased in recent years due to the rising market price of hops and exchange rate changes. The continuation of these trends will impact the Company’s product cost and potentially the Company’s ability to meet the demand for its beers. The Company buys some other ingredients and capital equipment from foreign suppliers for which the Company also carries exposure to foreign exchange rate changes.

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The Company’s Operations are Subject to Certain Operating Hazards Which Could Result in Unexpected Costs or Product Recalls That Could Harm the Company’s Business.

The Company’s operations are subject to certain hazards and liability risks faced by all brewers, such as potential contamination of ingredients or products by bacteria or other external agents that may be wrongfully or accidentally introduced into products or packaging, or defective packaging and handling. Such occurrences may create bad tasting hard seltzer, beer or hard ciders, or pose health risk to the consumer or risk to the integrity and safety of the packaging. These could result in unexpected costs to the Company and, in the case of a costly product recall, potentially serious damage to the Company’s reputation for product quality, as well as product liability claims.

The Company Relies Upon Complex Information Systems and Vulnerabilities or Disruptions of These Systems Could Expose Us to Liability and Harm Our Business and Operations.

The Company depends on information technology to be able to operate efficiently and interface with customers and suppliers, as well as maintain financial and accounting reporting accuracy to ensure compliance with all applicable laws. If the Company does not allocate and effectively manage the resources necessary to build and sustain the proper technology infrastructure, the Company could be subject to transaction errors, processing inefficiencies, the loss of customers, business disruptions, or the loss of or damage to intellectual property through security breach. The Company recognizes that many groups on a world-wide basis have experienced increases in security breaches, cyber-attacks, and other hacking activities such as denial of service, malware, and ransomware. The Company has dedicated internal and external resources to review and address such threats. However, as with all large information technology systems, the Company’s systems could be penetrated by outside parties intent on extracting confidential or proprietary information, corrupting information, disrupting business processes, or engaging in the unauthorized use of strategic information. Such unauthorized access could disrupt business operations and could result in the loss of assets or revenues, remediation costs or damage to the Company’s reputation, as well as litigation against the Company by third parties adversely affected by the unauthorized access. Such events could have a material adverse effect on the Company’s business and financial results. The Company also relies on third parties for supply of software, software and data hosting and telecommunications and networking, and is reliant on those third parties for the quality and integrity of these complex services. Failure by a third party supplier could have material adverse effects on the Company’s ability to operate.

An Increase in Energy Costs Could Harm the Company’s Financial Results.

In the last five years, the Company has experienced significant variation in direct and indirect energy costs, and energy costs could change unpredictably. Increased energy costs would result in higher transportation, freight and other operating costs, including increases in the cost of ingredients and supplies. The Company’s future operating expenses and margins could be dependent on its ability to manage the impact of such cost increases. If energy costs increase, there is no guarantee that such costs can be fully passed along through increased prices.

The Class B Shareholder Has Significant Control over the Company

 

The Company’s Class A Common Stock is not entitled to any voting rights except for the right as a class to (1) approve certain mergers, charter amendments and by-law amendments and (2) elect a minority of the directors of the Company. Although not as a matter of right, the Class A stockholders have also been afforded the opportunity to vote on an advisory basis on executive compensation. Consequently, the election of a majority of the Company’s directors and all other matters requiring stockholder approval are currently decided by C. James Koch, who is the founder and Chairman of the Company, as the holder of 100% of the voting rights to the outstanding shares of the Company’s Class B Common Stock. As a result, Mr. Koch is able to exercise substantial influence over all matters requiring stockholder approval, including the composition of the board of directors, approval of equity-based and other executive compensation and other significant corporate and governance matters, such as approval of the Company’s independent registered public accounting firm. This could have the effect of delaying or preventing a change in control of the Company and makes most material transactions difficult or impossible to accomplish without the support of Mr. Koch. While Mr. Koch is currently the 100% holder of the Company’s Class B Common Stock, there is nothing that prevents Mr. Koch or his heirs from transferring some or all shares of the Class B Common Stock to others.

22


 

Risks Related to Law and Regulations

Changes in Tax, Environmental and Other Regulations, Government Shutdowns or Failure to Comply with Existing Licensing, Trade or Other Regulations Could Have a Material Adverse Effect on the Company’s Financial Condition.

The Company’s business is highly regulated by federal, state and local laws and regulations regarding such matters as licensing requirements, trade and pricing practices, labeling, advertising, promotion and marketing practices, relationships with Distributors, environmental impact of operations and other matters. These laws and regulations are subject to frequent reevaluation, varying interpretations and political debate, and inquiries from governmental regulators charged with their enforcement. In addition, any delays in federal or state government required approvals caused by federal or state government shutdowns, similar to the January 2019 federal government shutdown, could prevent new brands or innovations from getting to market on time or at all. Failure to comply with existing laws and regulations to which the Company’s operations are subject or any revisions to such laws and regulations or the failure to pay taxes or other fees imposed on the Company’s operations and results could result in the loss, revocation or suspension of the Company’s licenses, permits or approvals, and could have a material adverse effect on the Company’s business, financial condition and results of operations. Changes in federal and other tax rates could have a significant effect on the Company’s financial results.

There Is No Guarantee that the Company Will Not Face Litigation that Could Harm the Company’s Business.

While the Company has from time to time in the past been involved in material litigation, it is not currently a party to any pending or threatened litigation, the outcome of which would be expected to have a material adverse effect on its financial condition or the results of its operations. In general, while the Company believes it conducts its business appropriately in accordance with laws, regulations and industry guidelines, claims, whether or not meritorious, could be asserted against the Company that might adversely impact the Company’s results. See Item 3 - Legal Proceedings below.

Risks Related to General Economic Conditions

The Company’s Operating Results and Cash Flow May Be Adversely Affected by Unfavorable Economic, Financial and Societal Market Conditions.

Volatility and uncertainty in the financial markets and economic conditions may directly or indirectly affect the Company’s performance and operating results in a variety of ways, including: (a) prices for energy and agricultural products may rise faster than current estimates, including increases resulting from currency fluctuations; (b) the Company’s key suppliers may not be able to fund their capital requirements, resulting in disruption in the supplies of the Company’s raw and packaging materials; (c) the credit risks of the Company’s Distributors may increase; (d) the impact of currency fluctuations on amounts owed to the Company by distributors that pay in foreign currencies; (e) the Company’s credit facility, or portion thereof, may become unavailable at a time when needed by the Company to meet critical needs; (f) overall beer consumption may decline; or (g) drinkers of the Company’s products may change their purchase preferences and frequency, which might result in sales declines.

Item 1B.

Unresolved Staff Comments

The Company has not received any written comments from the staff of the Securities and Exchange Commission (the “SEC”) regarding the Company’s periodic or current reports that (1) the Company believes are material, (2) were issued not less than 180 days before the end of the Company’s 2020 fiscal year, and (3) remain unresolved.

Item 2.

Properties

The Company maintains its principal corporate offices in approximately 54,200 square feet of leased space located in Boston, Massachusetts, the term of which is set to expire in 2031.

The Company owns approximately 76 acres of land in Breinigsville, Pennsylvania, consisting of the two parcels on which the Company’s Pennsylvania Brewery is located. The buildings on this property consist of approximately 1 million square feet of brewery and warehouse space.

The Company owns approximately 57 acres of land in Milton, Delaware, consisting of the two parcels on which the Company’s Milton Brewery is located. The buildings on this property consist of approximately 240,000 square feet of brewery and warehouse space.

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The Company owns approximately 10 acres of land in Cincinnati, Ohio, on which the Company’s Cincinnati Brewery is located, and leases, with an option to purchase, approximately 1 acre of land from the City of Cincinnati which abuts its property. The buildings on this property consist of approximately 128,500 square feet of brewery and warehouse space.

The Company owns approximately 62 acres of land in Walden, New York, consisting of an apple orchard and certain buildings, including a small cidery, gift shop and tour center. The small cidery, gift shop and tour center on this property consist of approximately 15,000 square feet of space.

The Company owns approximately 1 acre of land in Lewes, Delaware, on which the Company’s Dogfish Head Inn is located. The buildings on this property consists of approximately 8,400 square feet of space.

The Company leases approximately 43,000 square feet of space in Boston, Massachusetts, on which it maintains a Samuel Adams brand tap room and tour center. The current term of the lease for this facility will expire in 2034, although it has an option to extend the term for an additional fifteen years in five-year increments.

The Company leases approximately 48,650 square feet of space in Los Angeles, California, on which it maintains an Angel City brand tap room, small brewery and tour center. The current term of the lease for this facility will expire in 2021.

The Company leases approximately 11,365 square feet of space in Miami, Florida, on which it maintains a tap room, small brewery and tour center. The current term of the lease for this facility will expire in 2023.

The Company leases approximately 9,000 square feet of space in Boston, Massachusetts, on which it maintains a Samuel Adams brand tap room and small brewery. The current term of the lease for this facility will expire in 2028, although it has two options to extend the term for an additional 5 years.

The Company leases approximately 8,900 square feet of space in Cincinnati, Ohio, on which it maintains a Samuel Adams brand tap room and small brewery. The current term of the lease for this facility will expire in 2028.

The Company leases approximately 7,100 square feet of space within the retail section of MCU Park in Brooklyn, New York on which it maintains a Coney Island brand tap room and small brewery. The current term of the lease for this facility will expire in 2025.

The Company leases approximately 4,490 square feet of space in Rehoboth, DE, on which it maintains Dogfish Head Brewings and Eats, a tap room small brewery and the Chesapeake & Maine restaurant. The current term of the lease for this facility will expire in 2029.

The Company also leases small offices in Burlington, Cincinnati, Vermont and Montreal, Quebec as well as various warehousing facilities across the United States and Canada.

The Company believes that its facilities are adequate for its current needs and that suitable additional space will be available on commercially acceptable terms as required.

Item 3.

The Company is currently not a party to any pending or threatened litigation, the outcome of which would be expected to have a material adverse effect on its financial condition or the results of its operations.

Item 4.

Mine Safety Disclosures

Not Applicable

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PART II.

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The graph set forth below shows the value of an investment of $100 on January 1, 2016 in each of the Company’s stock (“The Boston Beer Company, Inc.”), the Standard & Poor’s 500 Index (“S&P 500 Index”) and the Standard & Poor’s 500 Beverage Index, which consists of producers of alcoholic and non-alcoholic beverages (“S&P 500 Beverages Index”) for the five years ending December 26, 2020.

Total Return To Shareholders

(Includes reinvestment of dividends)

 

 

 

ANNUAL RETURN PERCENTAGE

Years Ending

 

Company Name / Index

 

12/31/16

 

 

12/30/17

 

 

12/29/18

 

 

12/28/19

 

 

12/26/2020

 

The Boston Beer Company, Inc.

 

 

(17.31

)

 

 

12.51

 

 

 

24.97

 

 

 

58.59

 

 

 

167.97

 

S&P 500 Index

 

 

11.07

 

 

 

21.83

 

 

 

(5.20

)

 

 

32.97

 

 

 

16.40

 

S&P 500 Beverages Index

 

 

1.77

 

 

 

18.84

 

 

 

(3.29

)

 

 

23.99

 

 

 

6.56

 

 

 

 

 

 

 

 

INDEXED RETURNS

Years Ending

 

Company Name / Index

 

Base Period

12/26/15

 

 

12/31/16

 

 

12/30/17

 

 

12/29/18

 

 

12/28/19

 

 

12/26/2020

 

The Boston Beer Company, Inc.

 

 

100

 

 

 

82.69

 

 

 

93.04

 

 

 

116.27

 

 

 

184.40

 

 

 

494.12

 

S&P 500 Index

 

 

100

 

 

 

111.07

 

 

 

135.32

 

 

 

128.28

 

 

 

170.57

 

 

 

198.54

 

S&P 500 Beverages Index

 

 

100

 

 

 

101.77

 

 

 

120.94

 

 

 

116.97

 

 

 

145.03

 

 

 

154.54

 

 

 

 

 

The Company’s Class A Common Stock is listed for trading on the New York Stock Exchange under the symbol SAM.

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There were 7,859 holders of record of the Company’s Class A Common Stock as of February 12, 2021. Excluded from the number of stockholders of record are stockholders who hold shares in “nominee” or “street” name. The closing price per share of the Company’s Class A Common Stock as of February 12, 2021, as reported under the New York Stock Exchange-Composite Transaction Reporting System, was $1,167.13.

Class A Common Stock

At December 26, 2020, the Company had 22,700,000 authorized shares of Class A Common Stock with a par value of $.01, of which 10,070,649 were issued and outstanding, which includes 65,968 shares that have trading restrictions. The Class A Common Stock has no voting rights, except (1) as required by law, (2) for the election of Class A Directors, and (3) that the approval of the holders of the Class A Common Stock is required for (a) future authorizations or issuances of additional securities which have rights senior to Class A Common Stock, (b) alterations of rights or terms of the Class A or Class B Common Stock as set forth in the Articles of Organization of the Company, (c) certain other amendments of the Articles of Organization of the Company, (d) certain mergers or consolidations with, or acquisitions of, other entities, and (e) sales or dispositions of any significant portion of the Company’s assets.

Class B Common Stock

At December 26, 2020, the Company had 4,200,000 authorized shares of Class B Common Stock with a par value of $.01, of which 2,177,983 shares were issued and outstanding. The Class B Common Stock has full voting rights, including the right to (1) elect a majority of the members of the Company’s Board of Directors and (2) approve all (a) amendments to the Company’s Articles of Organization, (b) mergers or consolidations with, or acquisitions of, other entities, (c) sales or dispositions of any significant portion of the Company’s assets and, (d) equity-based and other executive compensation, and other significant corporate matters, such as approval of the Company’s independent registered public accounting firm. The Company’s Class B Common Stock is not listed for trading. Each share of Class B Common Stock is freely convertible into one share of Class A Common Stock, upon request of any Class B holder.

As of February 12, 2021, C. James Koch, the Company’s Chairman, was the direct holder of record of all of the Company’s issued and outstanding Class B Common Stock.

The holders of the Class A and Class B Common Stock are entitled to dividends, on a share-for-share basis, only if and when declared by the Board of Directors of the Company out of funds legally available for payment thereof. Since its inception, the Company has not paid dividends and does not currently anticipate paying dividends on its Class A or Class B Common Stock in the foreseeable future.

Repurchases of the Registrants Class A Common Stock

In 1998, the Board of Directors authorized management to implement a stock repurchase program with a limit of $931.0 million. As of December 26, 2020, the Company has repurchased a cumulative total of approximately 13.8 million shares of its Class A Common Stock for an aggregate purchase price of approximately $840.7 million.

26


 

During the twelve months ended December 26, 2020, the Company repurchased 480 shares of its Class A Common Stock as illustrated in the table below:

 

Period

 

Total Number

of Shares

Purchased

 

 

Average

Price Paid

per Share

 

 

Total Number

of Shares

Purchased as

Part of Publicly

Announced

Plans or

Programs

 

 

Dollar Value

of Shares that

May Yet be

Purchased

Under the

Plans or

Programs

(in thousands)

 

December 29, 2020 to February 1, 2020

 

 

167

 

 

$

132.37

 

 

 

 

 

$

90,335

 

February 2, 2020 to February 29, 2020

 

 

-

 

 

 

-

 

 

 

 

 

 

90,335

 

March 1, 2020 to March 28, 2020

 

 

58

 

 

 

105.56

 

 

 

 

 

 

90,335

 

March 29, 2020 to May 2, 2020

 

 

59

 

 

 

145.01

 

 

 

 

 

 

90,335

 

May 3, 2020 to May 30, 2020

 

 

-

 

 

 

-

 

 

 

 

 

 

90,335

 

May 31, 2020 to June 27, 2020

 

 

31

 

 

 

187.54

 

 

 

 

 

 

90,335

 

June 28, 2020 to August 1, 2020

 

 

-

 

 

 

-

 

 

 

 

 

 

90,335

 

August 2, 2020 to August 29, 2020

 

 

131

 

 

 

160.57

 

 

 

 

 

 

90,335

 

August 30, 2020 to September 26, 2020

 

 

26

 

 

 

187.54

 

 

 

 

 

 

90,335

 

September 27, 2020 to October 31, 2020

 

 

 

 

 

 

 

 

 

 

 

90,335

 

November 1, 2020 to November 28, 2020

 

 

 

 

 

 

 

 

 

 

 

90,335

 

November 29, 2020 to December 26, 2020

 

 

8

 

 

 

187.54

 

 

 

 

 

 

90,335

 

Total

 

 

480

 

 

145.85

 

 

 

 

 

$

90,335

 

 

All shares that were purchased during the period represent repurchases of unvested investment shares issued under the Investment Share Program of the Company’s Employee Equity Incentive Plan.

27


 

Item 6.

Selected Consolidated Financial Data

 

 

 

Year Ended

 

 

 

Dec. 26

2020

 

 

Dec. 28

2019

 

 

Dec. 29

2018

 

 

Dec. 30

2017

(53 weeks)

 

 

Dec. 31

2016

 

 

 

(in thousands, except per share and net revenue per barrel data)

 

Income Statement Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

1,851,813

 

 

$

1,329,108

 

 

$

1,057,495

 

 

$

921,736

 

 

$

968,994

 

Less excise taxes

 

 

115,381

 

 

 

79,284

 

 

 

61,846

 

 

 

58,744

 

 

 

62,548

 

Net revenue

 

 

1,736,432

 

 

 

1,249,824

 

 

 

995,649

 

 

 

862,992

 

 

 

906,446

 

Cost of goods sold

 

 

921,980

 

 

 

635,658

 

 

 

483,406

 

 

 

413,091

 

 

 

446,776

 

Gross profit

 

 

814,452

 

 

 

614,166

 

 

 

512,243

 

 

 

449,901

 

 

 

459,670

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advertising, promotional and selling expenses

 

 

447,568

 

 

 

355,613

 

 

 

304,853

 

 

 

258,649

 

 

 

244,213

 

General and administrative expenses

 

 

118,211

 

 

 

112,730

 

 

 

90,857

 

 

 

73,126

 

 

 

78,033

 

Impairment (gain on sale) of assets, net

 

 

4,466

 

 

 

911

 

 

 

652

 

 

 

2,451

 

 

 

(235

)

Total operating expenses

 

 

570,245

 

 

 

469,254

 

 

 

396,362

 

 

 

334,226

 

 

 

322,011

 

Operating income

 

 

244,207

 

 

 

144,912

 

 

 

115,881

 

 

 

115,675

 

 

 

137,659

 

Other income (expense), net

 

 

23

 

 

 

(542

)

 

 

405

 

 

 

467

 

 

 

(538

)

Income before provision for income taxes

 

 

244,230

 

 

 

144,370

 

 

 

116,286

 

 

 

116,142

 

 

 

137,121

 

Provision for income taxes

 

 

52,270

 

 

 

34,329

 

 

 

23,623

 

 

 

17,093

 

 

 

49,772

 

Net income

 

$

191,960

 

 

$

110,041

 

 

$

92,663

 

 

$

99,049

 

 

$

87,349

 

Net income per share - basic

 

$

15.73

 

 

$

9.26

 

 

$

7.90

 

 

$

8.18

 

 

$

6.93

 

Net income per share - diluted

 

$

15.53

 

 

$

9.16

 

 

$

7.82

 

 

$

8.09

 

 

$

6.79

 

Weighted average shares outstanding - basic

 

 

12,130

 

 

 

11,781

 

 

 

11,622

 

 

 

12,035

 

 

 

12,533

 

Weighted average shares outstanding - diluted

 

 

12,283

 

 

 

11,908

 

 

 

11,734

 

 

 

12,180

 

 

 

12,796

 

Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working capital

 

$

153,750

 

 

$

37,999

 

 

$

111,057

 

 

$

66,590

 

 

$

99,719

 

Total assets

 

$

1,378,825

 

 

$

1,054,057

 

 

$

639,851

 

 

$

569,624

 

 

$

623,297

 

Total long-term obligations

 

$

129,879

 

 

$

83,832

 

 

$

59,020

 

 

$

44,343

 

 

$

75,196

 

Total stockholders’ equity

 

$

956,967

 

 

$

735,636

 

 

$

460,317

 

 

$

423,523

 

 

$

446,582

 

Statistical Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Barrels sold

 

 

7,368

 

 

 

5,307

 

 

 

4,286

 

 

 

3,768

 

 

 

4,019

 

Net revenue per barrel

 

$

235.67

 

 

$

235.51

 

 

$

232.30

 

 

$

229.05

 

 

$

225.55

 

28


 

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

In this Form 10-K 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 future events or circumstances. 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 anticipated. Such risks and uncertainties include the factors set forth above and the other information set forth in this Form 10-K.

Introduction and COVID-19 Pandemic

The Boston Beer Company is engaged in the business of producing and selling alcohol beverages primarily in the domestic market and, to a lesser extent, in selected international markets. The Company’s revenues are primarily derived by selling its hard seltzers, beers and hard ciders to Distributors, who in turn sell the products to retailers and drinkers.

The Company’s hard seltzers, beers and hard ciders are primarily positioned in the market for High End beer occasions. The High End category has seen high single-digit compounded annual growth over the past ten years. The Company believes that the High End category is positioned to increase market share in the total beer category, as drinkers continue to trade up in taste and quality. Boston Beer is one of the largest suppliers in the High End category in the United States. In measured off-premise channels, the Company estimates that in 2020 the High End category percentage volume growth was approximately 25% with the craft beer category volume growth approximately 13% and total beer category volume growth approximately 10%. The Company believes that the High End category volume is over 35% of the United States beer market. Depletions or Distributor sales to retailers of the Company’s hard seltzers, beers and hard ciders for the 52 week fiscal period ended December 26, 2020, increased approximately 37% from the comparable 52 week fiscal period in the prior year, of which 35% is from Boston Beer legacy brands and 2% is from the addition of Dogfish Head brands beginning July 3, 2019.

The Company began seeing the impact of the COVID-19 pandemic on its business in early March 2020.  The direct financial impact of the pandemic has primarily shown in significantly reduced keg demand from the on-premise channel and higher labor and safety-related costs at the Company’s breweries. In the 52-week period ended December 26, 2020, the Company recorded COVID-19 related pre-tax reductions in net revenue and increases in other costs that total $16.0 million, of which $1.8 million was recorded in the fourth quarter.  The total amount consists of a $3.3 million reduction in net revenue for estimated keg returns from distributors and retailers and $12.7 million of other COVID-19 related direct costs, of which $8.2 million are recorded in cost of goods sold and $4.5 million are recorded in operating expenses.  In addition to these direct financial impacts, COVID-19 related safety measures resulted in a reduction of brewery productivity. This has shifted more volume to third-party breweries, which increased production costs and negatively impacted gross margins.  The Company will continue to assess and manage this situation and will provide a further update in each quarterly earnings release, to the extent that the effects of the COVID-19 pandemic are then known more clearly.

Outlook

Year-to-date depletions reported to the Company for the 6 weeks ended February 6, 2021 are estimated by the Company to have increased approximately 53% from the comparable weeks in 2020.

The Company is targeting Non-GAAP earnings per diluted share for 2021 of between $20.00 and $24.00, excluding the impact of ASU 2016-09, Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting, but actual results could vary significantly from this target. The Company is forecasting 2021 depletions and shipments percentage increases of between 35% and 45%. The Company is targeting national price increases of between 1% and 2%. Full-year 2021 gross margins are currently expected to be between 45% and 47%, a decrease from the previously communicated estimate of between 46% and 48%. The Company intends to increase advertising, promotional and selling expenses by between $120 million and $140 million for the full year 2021, a decrease from the previously communicated estimate of between $130 million and $150 million, which does not include any increases in freight costs for the shipment of products to its Distributors. The Company intends to increase its investment in its brands in 2021 commensurate with the

29


 

opportunities for growth that it sees, but there is no guarantee that such increased investments will result in increased volumes. The Company estimates a full-year 2021 Non-GAAP effective tax rate of approximately 26.5%, excluding the impact of ASU 2016-09. This effective tax rate estimate also, excludes the potential impact of changes to current federal income tax laws and regulations that could occur later in 2021. Non-GAAP earnings per diluted share and Non-GAAP effective tax rate are not defined terms under U.S. generally accepted accounting principles (“GAAP”). These Non-GAAP measures should not be considered in isolation or as a substitute for diluted earnings per share and effective tax rate data prepared in accordance with GAAP, and may not be comparable to calculations of similarly titled measures by other companies. Management believes these Non-GAAP measures provide meaningful and useful information to investors and analysts regarding our outlook and facilitate period to period comparisons of our forecasted financial performance. Non-GAAP earnings per diluted share and Non-GAAP effective tax rate exclude the potential impact of ASU 2016-09, which could be significant and will depend largely upon unpredictable future events outside the Company’s control, including the timing and value realized upon exercise of stock options versus the fair value of those options when granted. Therefore, because of the uncertainty and variability of the impact of ASU 2016-09, the Company is unable to provide, without unreasonable effort, a reconciliation of these Non-GAAP measures on a forward-looking basis.

The Company is continuing to evaluate 2021 capital expenditures. Its current estimates are between $300 million and $400 million, consisting mostly of continued investments in capacity and efficiency improvements at the Company’s breweries. The actual total amount spent on 2021 capital expenditures may well be different from these estimates. Based on information currently available, the Company believes that its capacity requirements for 2021 can be covered by its Company-owned breweries and contracted capacity at third-party brewers.

Results of Operations

Year Ended December 26, 2020 Compared to Year Ended December 28, 2019

 

 

 

Year Ended

(in thousands, except per barrel)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dec. 26

2020

 

 

Dec. 28

2019

 

 

Amount

change

 

 

% change

 

 

Per barrel

change

 

Barrels sold

 

 

 

 

 

 

7,368

 

 

 

 

 

 

 

 

 

 

 

5,307

 

 

 

 

 

 

 

2,061

 

 

 

38.8

%

 

 

 

 

 

 

 

 

 

 

Per barrel

 

 

% of net

revenue

 

 

 

 

 

 

Per barrel

 

 

% of net

revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

$

1,736,432

 

 

$

235.67

 

 

 

100.0

%

 

$

1,249,824

 

 

$

235.51

 

 

 

100.0

%

 

$

486,608

 

 

 

38.9

%

 

$

0.16

 

Cost of goods

 

 

921,980

 

 

 

125.13

 

 

 

53.1

%

 

 

635,658

 

 

 

119.78

 

 

 

50.9

%

 

 

286,322

 

 

 

45.0

%

 

 

5.35

 

Gross profit

 

 

814,452

 

 

 

110.54

 

 

 

46.9

%

 

 

614,166

 

 

 

115.73

 

 

 

49.1

%

 

 

200,286

 

 

 

32.6

%

 

 

(5.19

)

Advertising, promotional and selling

    expenses

 

 

447,568

 

 

 

60.74

 

 

 

25.8

%

 

 

355,613

 

 

 

67.01

 

 

 

28.5

%

 

 

91,955

 

 

 

25.9

%

 

 

(6.27

)

General and administrative

   expenses

 

 

118,211

 

 

 

16.04

 

 

 

6.8

%

 

 

112,730

 

 

 

21.24

 

 

 

9.0

%

 

 

5,481

 

 

 

4.9

%

 

 

(5.20

)

Impairment of assets, net

 

 

4,466

 

 

 

0.61

 

 

 

0.3

%

 

 

911

 

 

 

0.17

 

 

 

0.1

%

 

 

3,555