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Boston Beer Reports Second Quarter Volume, Revenue and Earnings

BOSTON, Aug. 3 /PRNewswire-FirstCall/ -- The Boston Beer Company, Inc. (NYSE: SAM) achieved second quarter 2005 diluted earnings per share of $0.35 and net income of $5.1 million, down $0.02 and $0.2 million, respectively, from the same period last year. Net revenue decreased 0.6% in the second quarter of 2005, and gross profit declined to 59.9% from 60.5% as compared to the second quarter of 2004. For the six months ended June 25, 2005, the Company recorded diluted earnings per share of $0.62 and net income of $9.1 million, up $0.16 and $2.5 million versus 2004. Net revenue increased by 3.4% to $110.3 million during the first six months 2005 compared to the prior year.

Distributor sales of the Boston Beer brands to retail (depletions) increased approximately 4% in the second quarter of 2005 over the second quarter of 2004.

Jim Koch, chairman and founder of the Company, commented, "We are pleased by the depletion growth in the second quarter, which resulted in approximately 2% growth for the first six months as compared to the prior year. It is too early to say whether the depletion growth experienced in the second quarter is related to our new brand communication that we introduced in March 2005. We have, however, received numerous favorable comments from our wholesalers on the brand advertising, and we are encouraged by this positive feedback. We expect to have a clearer view of any impact the new brand messaging has on the brands' success towards this year end."

Martin Roper, Boston Beer Company President and CEO, said, "The depletion growth achieved in the second quarter reflected a strong performance in June. During the quarter, we saw continued strong growth in Twisted Tea, Samuel Adams Seasonals and Brewmaster's Collection, which was offset by some declines in Samuel Adams Boston Lager and Sam Adams Light. On-premise trends improved, and were positive for the latest quarter driven by growth in our seasonal business and improvement in Lager draft trends. We also saw some improvement in bottled beer packages, which was primarily driven by the growth in our Brewmaster's Collection and Seasonal styles. As Jim noted, it is too early to tell whether these improvements in trends were influenced by our recent brand initiatives."

"Pricing remained reasonably stable during the quarter and we expect this to continue. We did choose to respond selectively to some competitive better beer discounting in a couple of markets, and will react to any future activity as appropriate," Mr. Roper added.

Second Quarter Results

As reflected on the following chart, reported shipment volume for the period was 0.4 million barrels, a 2.8% decline from prior year.


    In Barrels (not in 000's)       Q2-2005         Q2-2004          %Chg
    Total Boston Beer Brands        351,000         359,000         -2.2%
    Third Party Contract Brewing      2,000           4,000        -50.0%
    Total Company                   353,000         363,000         -2.8%

Distributor sales of the Boston Beer brands to retail (depletions) increased by approximately 4% during the second quarter of 2005 compared to the same period last year. The 4% growth is primarily due to increases in Twisted Tea(R), Brewmaster's Collection and Samuel Adams(R) Seasonals, offset by some weakness in Samuel Adams Boston Lager(R) and Sam Adams Light(R). An inventory build that occurred at the wholesaler level during the first quarter of 2005 resulted in the disparity between the 2.2% decline in shipments of Boston Beer core brands and the 4% increase in depletions during the second quarter of 2005. Wholesaler inventory levels at the end of the second quarter of 2005 were at normal levels, based on historical measures.

The Company's recorded net income of $5.1 million, or $0.35 per diluted share, for the three months ended June 25, 2005, decreased by $0.2 million or $0.02 per diluted share from the same period last year. The slight decline in net revenue and gross margin during the second quarter of 2005 was due to an adjustment of estimated excise taxes payable of approximately $0.5 million. The decline in gross profit as a percentage of net sales was further driven by a 3.7% increase in cost of goods sold per barrel, which was primarily the result of changes in the product and package mix, and increases in the cost of packaging compared to the same quarter last year.

Year-to-Date Results

As reflected on the following chart, reported shipment volume for the period was 0.6 million barrels, a 1.1% increase from the prior year.


    In Barrels (not in 000's)    6 MOS-2005      6 MOS-2004          %Chg
    Total Boston Beer Brands        629,000         620,000          1.5%
    Third Party Contract Brewing      4,000           6,000        -33.3%
    Total Company                   633,000         626,000         1.1 %

Distributor sales of the Boston Beer brands to retail (depletions) increased by approximately 2% during the first half of 2005 compared to the same period last year. Similar to the quarter trends, the 2% growth is primarily attributable to increases in Twisted Tea(R), Brewmaster's Collection and Samuel Adams(R) Seasonals, offset by some weakness in Samuel Adams Boston Lager(R) and Sam Adams Light(R).

The Company's recorded net income of $9.1 million, or $0.62 per diluted share for the six months ended June 25, 2005, increased by $2.5 million, or $0.16 per diluted share as compared to the same period last year. Net revenue per barrel increased by 2.3% during the period primarily because of net price increases and a shift in the product and package mix. Gross margins as a percent of net sales increased to 60.5% from 60.1% in the same period last year, principally due to net price increases partially offset by unfavorable production costs and an adjustment to the provision for excise taxes payable. Advertising, promotional and selling expenses for the six months were down by $1.9 million, or 4.0%, compared to the same period last year. General and administrative expenses increased by $1.2 million compared to the same period last year, because of increases in wages, accounting, audit and legal fees.

Bill Urich, Boston Beer Chief Financial Officer, commented, "Our 2005 full year earnings per share target of between $0.94 and $1.00 remains unchanged from what we have previously communicated. Our slight gross margin decline in the second quarter was primarily driven by the excise tax adjustment, and we expect gross margins for the rest of the year to be approximately equal to our year-to-date rate, provided the product mix is stable. Our production costs have been in line with expectations, with the exception of increasing fuel cost pressures. We expect to offset these increases with certain efficiency initiatives."

"The $6.5 million Cincinnati brewery expansion project remains on schedule for completion in the third quarter," Urich continued. "We continue to expect our capital expenditures for the year to be between $12.0 and $15.0 million. For the full year 2005, we expect to increase our brand support in advertising, promotional and selling expenditures by between $3.0 and $5.0 million over the full year 2004."

Other Matters

Shipments and orders in-hand suggest that core shipments for July and August 2005 could be up approximately 11% as compared to the same period in 2004. Actual shipments may differ, however, and no inferences should be drawn with respect to shipments in future periods.

During three months ended June 25, 2005, the Company repurchased $3.6 million of its Class A Common Stock. Effective July 26, 2005, the Company's Board of Directors increased the aggregate expenditure limitation on the Company's Stock Repurchase Program from $80.0 million to $100.0 million. As of August 2, 2005, the Company has repurchased a total of approximately 7.3 million shares of its Class A Common Stock for an aggregate purchase price of $80.0 million, and had $20.0 million remaining on the $100.0 million share buyback expenditure limit. As of August 2, 2005, the Company had 10.0 million shares of Class A Common Stock outstanding and 4.1 million shares of Class B Common Stock outstanding.

The Boston Beer Company is America's leading brewer of hand-crafted, full- flavored beer. Founder and brewer Jim Koch brews Samuel Adams(R) beers using the time-honored, traditional four-vessel brewing process and the world's finest all-natural ingredients. Beer lovers can enjoy many styles of Samuel Adams(R) beers that range from light-bodied to bold, traditional to extreme. In the last twenty years, the brewery has won more awards in international beer tasting competitions than any other brewery in the world. Samuel Adams Boston Lager(R), the Company's flagship brand, is brewed using the same recipe and techniques that Jim Koch's great-great grandfather used in the mid-1800s. The result is a beer renowned by drinkers for its full flavor, balance, complexity and consistent quality. For more information about Samuel Adams(R) beers, visit http://www.samueladams.com or visit http://www.bostonbeer.com for financial information.

Statements made in this press release that state the Company's or management's intentions, hopes, beliefs, expectations or predictions of the future are forward-looking statements. It is important to note that the Company's actual results could differ materially from those projected in such forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward- looking statements is contained from time to time in the Company's SEC filings, including, but not limited to, the Company's report on Form 10-K for the years ended December 25, 2004 and December 27, 2003. Copies of these documents may be found on the Company's website, http://www.bostonbeer.com or obtained by contacting the Company or the SEC.

    Contact:
     Sally Jackson
     The Boston Beer Company
     (617) 368-5866


                        THE BOSTON BEER COMPANY, INC.
                              Financial Results
                    (in thousands, except per share data)


                                          Quarter Ended      6 Months Ended
                                        June 25, June 26,  June 25,  June 26,
                                          2005     2004      2005      2004

      Barrels sold                           353      363       633       626

      Revenue                            $68,495  $68,520  $122,120  $117,827
      Less excise taxes                    6,862    6,503    11,778    11,155
      Net revenue                         61,633   62,017   110,342   106,672
      Cost of goods sold                  24,701   24,504    43,578    42,577
      Gross profit                        36,932   37,513    66,764    64,095
      Advertising, promotional and
       selling expenses                   25,073   25,217    44,881    46,739
      General and administrative
       expenses                            3,999    3,630     8,019     6,839
      Total operating expenses            29,072   28,847    52,900    53,578
      Operating income                     7,860    8,666    13,864    10,517
      Interest income, net                   479      187       780       387
      Other income (expense), net             60     (231)      218      (239)
      Income before income taxes           8,399    8,622    14,862    10,665
      Provision for income taxes           3,256    3,259     5,756     4,031
      Net income                          $5,143   $5,363    $9,106    $6,634

      Net income per share - basic         $0.36    $0.38     $0.64     $0.47
      Net income per share - diluted       $0.35    $0.37     $0.62     $0.46

      Weighted average number of common
       shares - basic                     14,258   14,126    14,267    14,073
      Weighted average number of common
       shares - diluted                   14,614   14,465    14,653    14,406


     Copies of The Boston Beer Company's press releases, including quarterly
                                financial results,
               are available on the Internet at http://www.bostonbeer.com



    Consolidated Balance Sheets:
      (in thousands, except share data)         (unaudited)
                                                  June 25,        December 25,
                                                    2005               2004

      Assets
           Current Assets:
                Cash and cash equivalents          $40,591            $35,794
                Short-term investments              24,100             24,000
                Accounts receivable, net
                 of allowance for doubtful
                 accounts of $423 and $597
                 as of June 25, 2005 and
                 December 25, 2004, respectively    12,455             12,826
                Inventories                         12,146             12,561
                Prepaid expenses                     1,032                883
                Deferred income taxes                1,505              1,474
                Other assets                           370                230
                     Total current assets           92,199             87,768

           Property, plant and equipment, net       22,214             17,222
           Other assets                              1,083              1,095
           Goodwill                                  1,377              1,377
                     Total assets                 $116,873           $107,462

      Liabilities and Stockholders' Equity
           Current Liabilities:
                Accounts payable                    $9,533             $9,744
                Accrued expenses                    18,761             16,494
                     Total current liabilities      28,294             26,238

           Deferred income taxes                     1,609              2,085
           Other liabilities                           722                769

           Stockholders' Equity
                Class A Common Stock,
                 $.01 par value; 22,700,000 shares
                 authorized; 10,077,963 and
                 10,088,869 issued and outstanding
                 as of June 25, 2005 and December 25,
                 2004, respectively                    101                101
                Class B Common Stock,
                 $.01 par value; 4,200,000 shares
                 authorized; 4,107,355 issued
                 and outstanding                        41                 41
                Additional paid-in capital          68,621             66,157
                Unearned compensation                 (439)              (280)
                Accumulated other
                 comprehensive loss                   (101)              (203)
                Retained earnings                   18,025             12,554
                     Total stockholders' equity     86,248             78,370
                     Total liabilities and
                      stockholders' equity        $116,873           $107,462



    Consolidated Statements of Cash Flows:
                                                          (unaudited)
                                                        Six Months Ended
                                                   June 25,          June 26,
                                                     2005              2004

      Cash flows from operating
       activities:
           Net income                                $9,106            $6,634
           Adjustments to reconcile net
            income to net cash from
            operating activities:
                Depreciation and amortization         2,059             2,526
                Gain on disposal of fixed assets        (10)                -
                Realized loss on sale of
                 short-term investments                   -               229
                Stock option compensation expense        71                63
                Tax benefit from stock
                 options exercised                      588               689
           Changes in assets and liabilities:
                Accounts receivable                     371            (4,841)
                Inventories                             415               710
                Prepaid expenses                       (149)               82
                Other assets                            (10)            1,522
                Deferred income taxes                  (405)               32
                Accounts payable                       (211)            1,781
                Accrued expenses                      2,267             3,263
                Other liabilities                       (47)              (46)
                     Net cash from
                      operating activities           14,045            12,644

      Cash flows (used in) from investing activities:
           Purchases of property, plant
            and equipment                            (6,981)           (2,051)
           Proceeds on disposal of
            property, plant and equipment                12                 -
           Purchases of short-term
            investments                                (200)           (9,257)
           Proceeds from the sale of
            short-term investments                      100            20,983
                     Net cash (used in) from
                      investing activities           (7,069)            9,675

      Cash flows (used in) from financing
       activities:
           Repurchase of stock                       (3,635)                -
           Proceeds from exercise of stock
            options                                   1,311             1,845
           Net proceeds from the sale of
            Investment Shares                           145               112
                     Net cash (used in) from
                      financing activities           (2,179)            1,957

      Change in cash and cash equivalents             4,797            24,276

      Cash and cash equivalents at
       beginning of period                           35,794            27,792

      Cash and cash equivalents at end of
       period                                       $40,591           $52,068

      Supplemental disclosure of cash flow
       information:
           Income taxes paid                         $4,882              $533

SOURCE The Boston Beer Company, Inc. 08/03/2005

CONTACT:
Sally Jackson of The Boston Beer Company
+1-617-368-5866