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Boston Beer Reports Record First Quarter Volume and Revenue

BOSTON, May 10, 2006 /PRNewswire-FirstCall via COMTEX News Network/ -- The Boston Beer Company, Inc. (NYSE: SAM) achieved record first quarter 2006 net revenue of $56.9 million, an increase of 16.8% over the first quarter 2005. The net revenue increase in the first quarter was primarily driven by a 13.7% core shipment volume increase and price increases of approximately 2%. Net income decreased in the first quarter by $2.1 million, mainly due to significant increases in production and freight costs, increases in salary and benefit costs and the timing of certain advertising, promotional and selling expenses. Despite this decrease, the Company believes that it can achieve its full year earnings target with incremental volume potentially defraying the cost pressures the Company is experiencing and planned increases in brand support. First quarter 2006 diluted earnings per share were $.13, a decrease of $.14 from the same period last year.

Distributor sales of the Boston Beer brands to retail (depletions) increased approximately 18% from the first quarter 2005. Jim Koch, Chairman and Founder of the Company, commented, "We are pleased with our first quarter depletions growth which appears to reflect the increased drinker appeal of the Craft beer category that we saw in the second half of 2005. We believe that Samuel Adams is well positioned to continue to grow with the Craft beer category and maintain our leading brand position."

Martin Roper, Boston Beer President and CEO, said, "While the 18% depletions growth benefited from an extra selling day and easy comparisons to the soft first quarter in 2005, we are optimistic about drinkers' tastes continuing to move towards more full-flavored, better quality beers, and we believe that the Company has benefited from this trend in the first quarter as well as from our continued investments in brand support and sales people."

Bill Urich, Boston Beer CFO, added, "During first quarter 2006, our gross margin decreased due to increased packaging material and production costs, as well as continued cost pressures relating to utilities and fuel cost which our price increases of approximately 2% did not fully absorb. We also experienced higher production and excise tax costs related to Twisted Tea due to changes in federal formulation requirements and regulation changes in certain states. In addition, our net income in the first quarter was unfavorably impacted by the timing of certain advertising and selling expenses."

Martin Roper, commenting on the full year prospects said, "We currently expect that, if our volume gains continue for the rest of the year, we will be able to reach our previously communicated earnings goals, despite the significant cost pressures and our increased brand support. Nevertheless, we have intensified our review of all opportunities to optimize both revenue and costs, so that we can continue investing behind our brands at appropriate levels for long term growth."

1st Quarter Results

For the 13-week period ended April 1, 2006, the Company recorded net revenue of $56.9 million, a 16.8% increase over the same period in 2005. Net revenue per barrel for core products increased by 2.1%, primarily due to price increases implemented in the first quarter, offset partially by a shift in package mix from cases to kegs.

Distributor sales of the Boston Beer brands to retail (depletions) totaled approximately 292,000 barrels, an 18% increase from the first quarter 2005, primarily a result of increases in Samuel Adams(R) brand family and Twisted Tea(R) volume. The Company posted double digit percentage depletion increases on all Samuel Adams brands with the exception of Samuel Adams Boston Lager(R). Twisted Tea(R) volume also posted a double digit increase for the first quarter of 2006. The Company believes inventories at wholesalers at the end of the quarter were at appropriate levels.

The Company's recorded net income of $1.8 million or $.13 per diluted share for the first quarter 2006 decreased by $2.1 million or $.14 per diluted share from the same period last year. Gross margin for core products as a percent of net sales decreased to 57.8% from 61.4% in the first quarter of 2005, principally due to increases in utility costs, packaging costs, production costs, increases in state excise tax related to Twisted Tea(R) and a shift in product mix, offset partially by increases in pricing. Advertising, promotional and selling expenses for the quarter were up by $5.6 million compared to the same period last year. This increase was primarily a result of an increase of approximately $3.0 million in point of sale merchandise expense, promotional commitment expenses and advertising over the limited spending in the first quarter 2005 prior to the launch of the Company's "Take Pride in Your Beer" campaign in March 2005. Increases in freight costs, selling salaries and benefit costs and stock compensation cost also contributed to the increase. General and administrative expenses increased by $0.9 million compared to the same period last year, due to an increase in salary and benefit costs, stock compensation expense, insurance costs, and legal fees.

Other matters

Shipments and orders in-hand suggest that core shipments for the second quarter 2006 appear to be up approximately 17% as compared to the same period in 2005. Actual shipments may differ, however, and no inferences should be drawn with respect to shipments in future periods.

Martin Roper stated, "April year-to-date depletions are estimated to be up approximately 16% over 2005. We believe our 2006 depletions have been favorably impacted by the continued positive trends of the Craft beer category."

Based on current known information, the Company is facing overall production and freight cost increases of between 5% and 10% over full year 2005, which could vary depending on actual energy costs during 2006, as well as other factors, and 2006 gross margin could be down 1% to 2% below full year 2005.

The Company still expects 2006 earnings per diluted share to be between $1.10 and $1.18, absent any significant change in currently planned levels of brand support and before accounting for the impact of the adoption of FASB 123R, Share-Based Compensation, based on volume increases above the original expectation for the full year offsetting these cost pressures. The Company estimates that its adoption of FASB 123R will reduce earnings per diluted share by between $0.06 and $0.11 in 2006, including a $0.01 per diluted share impact which has been recorded in the first quarter 2006. This impact will depend on the vesting of certain performance-based options. The Company's ability to attain earnings growth in 2006 is dependent on achieving challenging targets for volume, pricing and costs. The Company continues to pursue cost savings initiatives and pricing opportunities, and hopes to preserve its economics to allow for continued investment in support of its brands in order to grow volume and earnings.

The Company continues to evaluate its long term production strategy, including potential ownership or construction of a new brewery, or new contract relationships. Subsequent to April 1, 2006, the Company received the anticipated notice from Miller Brewing Company terminating the Company's existing contract relationship with Miller Brewing Company, effective October 31, 2008; the termination is in accordance with the contract and the 2003 arbitration award. While the Company believes that there will be adequate other contract capacity to absorb its production requirements at acceptable economics, there is no guarantee that the current economics can be maintained. Accordingly, the Company is accelerating its review of available production options. If the Company chooses to execute a strategy of 100% production capacity ownership and builds a brewery, it currently estimates that this could require a capital investment of $70.0 to $90.0 million over two years, with the expectation that there would be some improvement in operating and freight costs resulting from this investment. This estimate could change based on the actual production capacity and capability built. The Company currently estimates total capital expenditures in 2006 to be between $7.0 and $10.0 million, but this estimate could change significantly based on the outcome of the Company's evaluation of its long term production strategy.

During the three months ended April 1, 2006, the Company repurchased $1.9 million of its Class A Common Stock. Through May 9, 2006, the Company has repurchased a cumulative total of approximately 7.7 million shares of its Class A Common Stock for an aggregate purchase price of $89.2 million, and had $10.8 million remaining on the $100.0 million share buyback expenditure limit set by the Board of Directors. As of May 9, 2006, the Company had 9.9 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 over 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 Boston Lager(R), 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 or visit 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 31, 2005 and December 25, 2004. Copies of these documents may be found on the Company's website, or obtained by contacting the Company or the SEC.

                              Financial Results
                    (In thousands, except per share data)

    Operating Results:
                                                         Quarter Ended
                                                   April 1,         March 26,
                                                     2006              2005

      Barrels sold                                     324               280

      Revenue                                      $62,738           $53,625
      Less excise taxes                              5,850             4,916
      Net revenue                                   56,888            48,709
      Cost of goods sold                            24,215            18,877
      Gross profit                                  32,673            29,832
      Operating expenses:
      Advertising, promotional and
       selling expenses                             25,378            19,808
      General and administrative expenses            4,926             4,020
      Total operating expenses                      30,304            23,828
      Operating income                               2,369             6,004
      Other income, net:
      Interest income                                  588               301
      Other income, net                                 61               158
      Total other income, net                          649               459
      Income before provision for income
       taxes                                         3,018             6,463
      Provision for income taxes                     1,197             2,500
      Net income                                    $1,821            $3,963

      Net income per common share -- basic           $0.13             $0.28
      Net income per common share -- diluted         $0.13             $0.27

      Weighted-average number of common
       shares -- basic                              13,856            14,275
      Weighted-average number of common
       shares -- diluted                            14,293            14,698

     Copies of The Boston Beer Company's press releases, including quarterly
                               financial results,
               are available on the Internet at

    Consolidated Balance Sheets:
      (in thousands, except share data)         (unaudited)
                                                  April 1,        December 31,
                                                     2006              2005

           Current Assets:
                Cash and cash equivalents           $59,173           $41,516
                Short-term investments                  -              22,425
                Accounts receivable, net
                 of allowance for doubtful
                 accounts of $199 and
                     $116 as of April 1, 2006
                      and December 31, 2005,
                      respectively                   15,820             9,534
                Inventories                          13,367            13,649
                Prepaid expenses and other assets     1,980             1,236
                Deferred income taxes                   829               829
                     Total current assets            91,169            89,189

           Property, plant and equipment, net        26,310            26,525
           Other assets                               2,174             1,963
           Goodwill                                   1,377             1,377
                     Total assets                  $121,030          $119,054

      Liabilities and Stockholders' Equity
           Current Liabilities:
                Accounts payable                    $10,573           $11,378
                Accrued expenses                     16,970            17,361
                     Total current liabilities       27,543            28,739

           Deferred income taxes                      2,390             2,390
           Other long-term liabilities                1,897             1,946
                     Total liabilities               31,830            33,075

           Commitments and Contingencies

           Stockholders' Equity
                Class A Common Stock, $.01
                 par value; 22,700,000
                 shares authorized;
                  9,921,018 and 9,814,457 issued and
                  outstanding as of April 1, 2006
                  and December 31, 2005, respectively    99                98
                Class B Common Stock, $.01
                 par value; 4,200,000
                 shares authorized;
                     4,107,355 issued and
                     outstanding                         41                41
                Additional paid-in capital           73,709            70,808
                Unearned compensation                     -              (353)
                Accumulated other
                 comprehensive loss, net of tax        (196)             (196)
                Retained earnings                    15,547            15,581
                     Total stockholders' equity      89,200            85,979
                     Total liabilities and
                      stockholders' equity         $121,030          $119,054

    Consolidated Statements of Cash Flows:
      (in thousands)                                       (unaudited)
                                                           Quarter Ended
                                                    April 1,         March 26,
                                                       2006              2005

      Cash flows provided by operating
           Net income                                $1,821            $3,963
           Adjustments to reconcile net
              income to net cash provided by
              operating activities:
             Depreciation and amortization            1,131               980
             Loss on disposal of property,
              plant and equipment                        26                 -
             Bad debt expense                           105                 -
             Stock-based compensation expense           378                36
             Deferred income taxes                        -              (422)
             Excess tax benefit from stock-based
              compensation arrangements                (587)              413
             Purchases of trading securities         (6,050)           (1,500)
             Proceeds from sale of trading
              securities                             28,475             1,600
             Changes in operating
              assets and liabilities:
             Accounts receivable                     (6,391)            2,337
             Inventories                                282              (194)
             Prepaid expenses and other assets         (458)           (4,657)
             Accounts payable                          (805)           (3,780)
             Accrued expenses                           196             5,645
             Other liabilities                          (49)                -
               Net cash provided by
                operating activities                 18,074             4,421

      Cash flows used in investing activities:
           Purchases of property, plant
            and equipment                              (907)           (2,465)
           Proceeds from disposal of
            property, plant and equipment                 1                 -
           Increase in other long-term
            assets                                      (45)                -
               Net cash used in
                investing activities                   (951)           (2,465)

      Cash flows provided by financing
           Repurchase of Class A common
            stock                                    (1,855)                -
           Proceeds from exercise of stock
            options                                   1,764               697
           Excess tax benefit from stock-
            based compensation
            arrangements                                587                 -
           Net proceeds from sale of
            investment shares                            38                76
               Net cash provided by
                financing activities                    534               773

      Change in cash and cash equivalents            17,657             2,729

      Cash and cash equivalents at
       beginning of year                             41,516            35,794

      Cash and cash equivalents at end of period    $59,173           $38,523

      Supplemental disclosure of cash flow
           Income taxes paid                           $255              $856

SOURCE Boston Beer Company

Michelle Sullivan of The Boston Beer Company,