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Boston Beer Reports Over 15% Increase in Third Quarter Net Revenue

BOSTON, Nov. 2 /PRNewswire-FirstCall/ -- The Boston Beer Company, Inc. (NYSE: SAM) achieved third quarter 2005 diluted earnings per share of $0.29 and net income of $4.2 million, up $0.08 per share and $1.2 million, respectively, from the same period last year. Net revenue increased by 15.5% to $63.2 million in the third quarter of 2005, driven by an 11.8% increase in shipment volume and a 3.3% increase in net revenue per barrel as compared to the same quarter last year. For the nine months ended September 24, 2005, the Company recorded diluted earnings per share of $0.91 and net income of $13.3 million, up $0.24 per share and $3.6 million, respectively, versus the same period in 2004. Net revenue increased by 7.5% to $173.6 million during the first nine months of 2005 compared to the same period in the prior year.

Jim Koch, Chairman and Founder of the Company, commented, "We are very pleased by the almost 9% depletion growth achieved in the third quarter, which resulted in almost 5% growth for the first nine months as compared to the first nine months of 2004. The craft beer category has grown this year, despite price increases, while the beer industry as a whole has been relatively flat. We believe that the brand communication that we introduced in March 2005 has better positioned Samuel Adams to benefit from this category trend."

Martin Roper, Boston Beer Company President and CEO, added, "The depletion growth achieved through the end of the third quarter reflected improvements in all major brand trends. During the third quarter, we saw growth in the Samuel Adams Brand Family. Growth in Samuel Adams Seasonals and Brewmaster's Collection was offset somewhat by declines in Samuel Adams Boston Lager and Sam Adams Light. We think that our brand health has been positively impacted by the 'Take Pride in Your Beer' communication and are encouraged by our volume trends, which we believe are primarily benefiting from the health of Better Beer and the Craft category. We also experienced growth in Twisted Tea and we are evaluating the resources that are appropriate for the brand."

Third Quarter Results

Reported shipment volume for the period was approximately 0.4 million barrels, an 11.8% increase from the same period in 2004. Wholesaler inventory levels at the end of the third quarter of 2005 were at normal levels, based on historical measures.

Distributor sales of the Boston Beer brands to retail (depletions) increased by almost 9% during the third quarter of 2005 compared to the same period last year. The Samuel Adams Brand Family grew with increases in Samuel Adams(R) Seasonals and Brewmaster's Collection, offsetting some weakness in Samuel Adams Boston Lager(R) and Sam Adams Light(R). The Company also benefited from significant growth in sales of Twisted Tea(R) which is a regional brand sold in some states.

The Company's net income of $4.2 million, or $0.29 per diluted share, for the three months ended September 24, 2005, increased by $1.2 million or $0.08 per diluted share from the same period last year. Net revenue increased by $8.5 million, or 15.5%, during the third quarter of 2005 as compared to the prior year period due to the increase in shipment volume and a 3.3% increase in net revenue per barrel. The increase in net revenue per barrel is due to price increases and a shift in the product and package mix. Gross margin as a percentage of net sales increased to 59.1% in the third quarter of 2005 from 58.5% in the same quarter last year. The increase in gross margin during the third quarter of 2005 was due to price increases that were only partially offset by higher packaging material and production costs. Advertising, promotional and selling expenses increased by $3.4 million during the quarter as compared to the prior year, primarily due to higher freight fuel costs and advertising expenditures.

Year-to-Date Results

Reported shipment volume for the nine month period was 1.0 million barrels, a 4.8% increase from the same period in 2004.

Distributor sales of the Boston Beer brands to retail (depletions) increased by almost 5% during the first nine months of 2005 compared to the same period last year. The year to date brand trends are similar to the quarter trends.

The Company's recorded net income of $13.3 million, or $0.91 per diluted share for the nine months ended September 24, 2005, increased by $3.6 million, or $0.24 per diluted share, as compared to the same period last year. Net revenue increased $12.1 million or 7.5% due to the increase in shipment volume and a 2.6% increase in net revenue per barrel. The increase in net revenue per barrel is due primarily to price increases and a shift in the product and package mix. Gross margins as a percent of net sales increased to 60.0% from 59.5% in the same period last year, principally due to net price increases only partially offset by unfavorable packaging material and production costs. Advertising, promotional and selling expenses increased by $1.6 million, or 2.2%, for the nine months ended September 24, 2005 compared to the same period last year, driven by higher fuel costs. General and administrative expenses increased by $1.6 million compared to the same period last year, primarily due to increases in salaries and accounting and legal fees.

Other Matters

Shipments and orders in-hand suggest that core shipments for October and November 2005 could be up approximately 20% 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.

Martin Roper cautioned, "October and November growth rates are significantly ahead of known depletion brand trends, which is unexpected, and it is unclear at this time what impact, if any, this will have on wholesaler inventories at year end."

Bill Urich, Boston Beer's Chief Financial Officer, commented, "Our 2005 full year earnings per share target of between $0.96 and $1.00 remains essentially unchanged from what we have previously communicated. This earnings per share target assumes that fourth quarter shipments will be in line with year to date depletion trends. We expect gross margins for the rest of the year to be slightly below our third quarter 2005 rate and full year advertising, promotional and selling expenditures to exceed the full year 2004 by between $5.0 and $8.0 million. The increase in advertising, promotional and selling expenditures is higher than our previous projections because of increased fuel related freight costs and continued advertising and selling investment behind our brands. As we look forward to 2006, we are seeing extraordinary cost pressures on all items but especially freight costs, the size and consistency of which we have not seen before. We are evaluating potential price increases for 2006, but our ability to raise pricing will be affected by competitive moves and an assessment of such increases on our volume trends. Based on current cost increase knowledge and preliminary pricing expectations, 2006 gross margin could be down as much as one percentage point below full year 2005. Our ability to achieve historical levels of earnings growth in 2006 will be dependent on our ability to achieve challenging targets for volume, pricing and costs. We continue to pursue cost savings initiatives and all pricing opportunities in order to preserve our economics and allow us to continue to support our brands with appropriate investment and grow our volumes and earnings.

"We have substantially completed the $6.5 million expansion project at the Company's Cincinnati, Ohio brewery that we began earlier this year," Urich continued. "We now expect our capital expenditures for the year to be approximately $15.0 million. Our operating cash generated year to date is strong at $21.6 million, resulting in $61.6 million in cash and short term investments as of the end of the third quarter."

During the three months ended September 24, 2005, the Company repurchased $7.2 million of its Class A Common Stock. Through October 31, 2005, the Company has repurchased a cumulative total of approximately 7.6 million shares of its Class A Common Stock for an aggregate purchase price of $86.2 million, and had $13.8 million remaining on the $100.0 million share buyback expenditure limit. As of October 31, 2005, the Company had 9.8 million shares of Class A Common Stock and 4.1 million shares of Class B Common Stock outstanding.

The Boston Beer Company is America's leading brewer of handcrafted, full- flavored beers. Founder and Brewer, Jim Koch, brews Samuel Adams beers using the time-honored, traditional four-vessel brewing process, and the world's finest all-natural ingredients. With 18 distinctive, award-winning styles of beer, Samuel Adams offers discerning beer drinkers a variety of brews. The brewery has won more awards in international beer-tasting competitions in the last five years than any other brewery in the world. Samuel Adams is an independent brewery and has half of a percent of the domestic beer market. The Company's flagship brand, Samuel Adams(R) Boston Lager, is brewed using the same recipe and processes 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, 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: Michelle Sullivan
             The Boston Beer Company
             (617) 368-5165



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

    Operating Results:
                                           (unaudited)        (unaudited)
                                          Quarter Ended      9 Months Ended
                                        Sept. 24, Sept. 25, Sept. 24 Sept. 25
                                           2005     2004      2005      2004

      Barrels sold                           359      321       992       947

      Revenue                            $69,743  $60,477  $191,863  $178,303
      Less excise taxes                    6,533    5,743    18,311    16,898
      Net revenue                         63,210   54,734   173,552   161,405
      Cost of goods sold                  25,838   22,738    69,416    65,315
      Gross profit                        37,372   31,996   104,136    96,090
      Advertising, promotional and
       selling expenses                   26,816   23,391    71,697    70,129
      General and administrative
       expenses                            4,353    3,926    12,372    10,765
      Total operating expenses            31,169   27,317    84,069    80,894
      Operating income                     6,203    4,679    20,067    15,196
      Interest income                        425      183     1,205       570
      Other income (expense), net            175        1       393      (238)
      Income before income taxes           6,803    4,863    21,665    15,528
      Provision for income taxes           2,616    1,838     8,372     5,870
      Net income                          $4,187   $3,025   $13,293    $9,658

      Net income per share - basic         $0.30    $0.21     $0.94     $0.68
      Net income per share - diluted       $0.29    $0.21     $0.91     $0.67

      Weighted average number of common
       shares - basic                     14,070   14,162    14,201    14,103
      Weighted average number of common
       shares - diluted                   14,437   14,595    14,580    14,479

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)
                                               September 24,      December 25,
                                                    2005              2004

      Assets
           Current Assets:
                Cash and cash equivalents          $37,396           $35,794
                Short-term investments              24,250            24,000
                Accounts receivable, net
                 of allowance for
                 doubtful accounts of
                 $449 and $597 as of
                 September 24, 2005
                 and December 25,
                 2004, respectively                 14,438            12,826
                Inventories                         12,452            12,561
                Prepaid expenses and
                 other assets                        1,572             1,113
                Deferred income taxes                1,224             1,474
                     Total current assets           91,332            87,768

           Property, plant and equipment,net        25,072            17,222
           Other assets                              1,050             1,095
           Goodwill                                  1,377             1,377
                     Total assets                 $118,831          $107,462

      Liabilities and Stockholders'
       Equity
           Current Liabilities:
                Accounts payable                   $11,309            $9,744
                Accrued expenses                    20,787            16,494
                     Total current liabilities      32,096            26,238

           Deferred income taxes                     2,037             2,085
           Other liabilities                           721               769

           Stockholders' Equity
                Class A Common Stock,
                 $.01 par value;
                 22,700,000 shares
                 authorized;
                 9,799,527 and
                 10,088,869 issued
                 and outstanding as
                 of September 24,
                 2005 and December
                 25, 2004, respectively                 98               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                            69,380            66,157
                Unearned compensation                 (398)             (280)
                Accumulated other
                 comprehensive loss                   (140)             (203)
                Retained earnings                   14,996            12,554
                     Total stockholders'
                      equity                        83,977            78,370
                     Total liabilities
                      and stockholders'
                      equity                      $118,831          $107,462



    Consolidated Statements of Cash Flows:
      (in thousands)                                    (unaudited)
                                                     Nine Months Ended
                                                September 24,    September 25,
                                                     2005              2004

      Cash flows provided by operating
       activities:
           Net income                               $13,293            $9,658
           Adjustments to reconcile net
            income to net cash provided by
            operating activities:
                Depreciation and
                 amortization                         3,198             3,856
                Gain on disposal of
                 property, plant and
                 equipment                               (6)               (1)
                Bad debt (recovery) expense            (148)               65
                Realized loss on sale of
                 short-term investments                   -               229
                Stock option compensation expense       108                91
                Tax benefit from stock
                 options exercised                      853               709
           Changes in operating assets and
            liabilities:
                Accounts receivable                  (1,464)           (1,968)
                Inventories                             109            (1,005)
                Prepaid expenses and other assets      (433)            1,129
                Deferred income taxes                   280                29
                Accounts payable                      1,565             2,032
                Accrued expenses                      4,293             1,042
                Other liabilities                       (48)              (47)
                     Net cash provided by
                      operating activities           21,600            15,819

      Cash flows used in investing
       activities:
           Purchases of property, plant
            and equipment                           (10,950)           (3,530)
           Proceeds on disposal of
            property, plant and equipment                14                 1
           Purchases of short-term investments         (350)          (26,256)
           Proceeds from the sale of
            short-term investments                      100            20,983
                     Net cash used in
                      investing activities          (11,186)           (8,802)

      Cash flows (used in) provided by
       financing activities:
           Repurchase of stock                      (10,854)                -
           Proceeds from exercise of stock options    1,821             2,015
           Net proceeds from the sale of
            Investment Shares                           221               189
                     Net cash (used in)
                      provided by
                      financing activities           (8,812)            2,204

      Change in cash and cash equivalents             1,602             9,221

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

      Cash and cash equivalents at end of
       period                                       $37,396           $37,013

      Supplemental disclosure of cash flow
       information:
           Income taxes paid                         $6,134            $4,100

SOURCE The Boston Beer Company, Inc.

CONTACT:
Michelle Sullivan of The Boston Beer Company,
+1-617-368-5165