Press Release

<< Back
Boston Beer Reports Fourth Quarter 2008 Results

BOSTON, March 10 /PRNewswire-FirstCall/ -- The Boston Beer Company, Inc. (NYSE: SAM) reported a fourth quarter core product depletions increase of 2% and net revenue growth of 13%. Net income for the fourth quarter was $3.6 million, or $0.25 per diluted share, a decrease of 46%, or $0.21 per diluted share, from the fourth quarter of 2007, primarily driven by increased costs of raw and packaging materials, Pennsylvania Brewery costs which include start-up expenses, and an asset impairment charge relating to investments in the Latrobe Brewery. Depletions growth was driven by Samuel Adams(R) Seasonals, Twisted Tea(R) and the Samuel Adams(R) Brewmaster's Collection. Net revenue for the fourth quarter of 2008 was $103.8 million, an increase of $11.6 million, or 13%, over the same period last year, primarily due to volume and pricing gains.

Jim Koch, Chairman and Founder of the Company, commented, "We reported 2% depletions growth in the fourth quarter, bringing depletions growth for the second half of 2008 to 7%, as compared to 10% depletions growth in the first half of 2008. Our trends in the first two months of 2009 have slowed slightly from the fourth quarter and while the better beer category appears reasonably healthy, we believe we may be losing share in recent months as the drinker is faced with more choices. We believe that craft beer will continue to grow and that we are well positioned to share in that growth through the quality of our beers, our innovation capability and our sales execution, coupled with our strong financial position and ability to invest in growing our brand. While we are disappointed with our recent depletion trends, we believe that the history, authenticity and quality of the Samuel Adams brand, our unique beers, and our ability to invest, position us well for future growth. We are proud of our acquisition and integration of the Pennsylvania Brewery during 2008 and especially pleased that we were able to meet the product demands of our wholesalers and drinkers without disruption during this transition."

    Key highlights of the fourth quarter and year were:
    --  Depletions grew 2% for the quarter and 8% for the year.
    --  Net pricing increased approximately 5% for the year.
    --  The initial capital investment for the Pennsylvania Brewery start-up
        was completed in line with expectations for capital cost and timing.
    --  The Pennsylvania Brewery continued to ramp up brewing of the Company's
        beers and the Company fulfilled the product demands of its wholesalers
        and drinkers without disruption.
    --  The product recall process was substantially completed and there were
        no material changes to the Company's estimated recall costs during the
        quarter.
    --  In the fourth quarter, the Company stopped brewing at the Latrobe
        Brewery and incurred an impairment charge for machinery and equipment
        it owns at the brewery of $1.9 million, or $0.08 per diluted share,
        net of tax benefit.
    --  Current estimate of earnings per diluted share for 2009 is between
        $1.40 and $1.70.
    --  The Company finished the year with $9.1 million in cash and no
        borrowings under its $50.0 million line of credit.  The Company
        expects to end 2009 with no borrowings under its line of credit or
        incur any other debt.

For the fiscal year ended December 27, 2008, the Company reported depletions growth of 8% and net revenue of $398.4 million, an increase of $56.8 million, or 17%, over the same period last year. The Company's earnings per diluted share were $0.56, a decrease of $0.97 from the prior year. The decrease is primarily a result of provisions taken for the product recall in the second and third quarters of 2008, which have an estimated negative impact on net income of $12.0 million, or $0.84 per diluted share.

Martin Roper, the Company's President and CEO, stated, "During the fourth quarter of 2008 we experienced some slowing of trends in our brands, as did the imports and the overall craft category. As we enter 2009, this has continued, and we also have seen signs of inventory reductions at both retail and wholesale levels which could depress shipments and depletion levels. We believe these effects are generally reflective and consistent with recent economic developments and while there is considerable uncertainty about short term trends, we remain confident about the long term prospect for our category and brands. We feel we are in a good position to compete effectively through the strength of our brand, our sales force and our ability to invest in long term brand building activities and that this positions ourselves well for the future and should enable us to gain share."

Mr. Roper continued, "Brewing and packaging volumes at the Pennsylvania Brewery increased compared to third quarter levels but is yet to reach its expected full potential, as we continue to co-pack for Diageo. Through the end of fiscal year 2008, we had spent $43.9 million on capital improvements at the Pennsylvania Brewery to upgrade portions of the facility and to restart the brew house with several additional projects committed to and in progress, but not yet completed. Most of the major investments necessary to upgrade the facility have been completed, and we will now move to focus on projects that will drive efficiency and increase productivity. We have been experiencing some higher operating expenditures than expected, mostly in material yields, repairs and maintenance and compensation costs. However, as we look forward to 2009, we believe we will make progress on the efficiencies, capacity and costs at our breweries as we start to benefit from the investments we are making. We are pleased with our decision to purchase the Pennsylvania Brewery, with the tremendous effort made by our whole employee team during the acquisition and start-up, and with our progress to date, generally. We believe that owning our own breweries puts us in a good position to control our brewing future and to improve our efficiencies and costs long term."

Commenting on the recall, Mr. Roper said, "On April 7th, 2008, we announced a voluntary product recall of certain glass bottles of Samuel Adams products. The recall process was substantially completed during the fourth quarter, and we made no material changes in our estimate of overall recall costs during the quarter. We continue to evaluate potential legal avenues we may pursue as a result of the recall, but cannot comment on any definitive plans at this time."

4th Quarter Results

Core shipment volume for the three months ended December 27, 2008 was approximately 505,000 barrels, a 3% increase over the same period in 2007. Total Company depletions in the fourth quarter grew 2%, driven by growth in Samuel Adams(R) Seasonals, Twisted Tea(R) and the Samuel Adams(R) Brewmaster's Collection. The Company believes that wholesaler inventory levels at December 27, 2008 were slightly higher than last year's levels, as reflected in shipments exceeding depletions for the full year, and we currently expect such inventory to unwind during 2009.

The Company's net income of $3.6 million, or $0.25 per diluted share, for the three months ended December 27, 2008 represented a decrease of $3.2 million, or $0.21 per diluted share, from the same period last year, primarily as a result of increases in cost of goods sold, general and administrative expenses and the impairment of machinery and equipment previously used in production at the Latrobe Brewery, partially offset by an increase in net revenue and a decrease in income taxes. Net revenue increased by $11.6 million, or 13%, during the three months ended December 27, 2008, as compared to the same period in 2007. The increase in net revenue is due to volume and price increases of core products and an increase in non-core revenue associated with the production under the Diageo contract. Cost of goods sold increased primarily due to the increased costs of raw and packaging materials, increases in volume for core products and the Pennsylvania Brewery start-up costs. General and administrative costs increased by $2.4 million during the quarter as compared to the prior year, driven by the addition of recurring planned administrative costs related to the Pennsylvania Brewery and a reimbursement in 2007 of prior period legal costs due to a settlement reached in the fourth quarter of 2007 with insurers. During the fourth quarter of 2008, the Company stopped brewing at the Latrobe Brewery. After reviewing the circumstances under which brewing at the Latrobe Brewery could restart, it was determined that an impairment charge for related machinery and equipment of $1.9 million was appropriate. The income tax provision for the three months ended December 27, 2008 decreased to $2.7 million from $8.5 million for the same period in 2007, primarily as a result of lower pretax income in fiscal 2008. The provision for income taxes in the fourth quarter of 2007 included an adjustment for certain additional permanent items.

The Company expects that its cash and investment balances as of December 27, 2008 of $9.1 million, along with future operating cash flow and the Company's unused line of credit of $50.0 million, will be sufficient to fund future cash requirements. The Company continues to be in compliance with all of its debt covenants and has affirmed the availability of its line of credit. The Company has not yet borrowed any funds under its line of credit and the timing of future borrowings will depend on the timing of inventory purchases and capital expenditures. The Company anticipates using the line of credit at some time in the next twelve months, as it continues its capital investments and has seasonal inventory changes related to hop purchases and other timing issues on certain payments. The Company expects to end 2009 with no borrowings under its line of credit or incur any other debt.

Year-to-Date Results

Core shipment volume for the fiscal year ended December 27, 2008, net of recall returns but including any recall related replenishment shipments, was slightly less than 2.0 million barrels, an 8% increase from the same period in the prior year.

Total Company depletions grew 8% during the 2008 fiscal year, driven by double digit growth in Samuel Adams(R) Seasonals, the Samuel Adams(R) Brewmaster's Collection and Twisted Tea(R).

The Company's net income of $8.1 million, or $0.56 per diluted share, for the fiscal year ended December 27, 2008 represented a decrease of $14.4 million, or $0.97 per diluted share, compared to the 2007 fiscal year, primarily as a result of the product recall and increases in cost of goods sold, advertising, promotional and selling expenses, and general and administrative expenses, partially offset by an increase in net revenue and a decrease in taxes and impairment charges. Cost of goods sold increased primarily due to increases in volume of core products, increases in the costs of raw and packaging materials, the Pennsylvania Brewery start-up costs and the accrual for full-year shortfall fees that resulted from brewing less than required minimum volumes at our contract breweries. Advertising, promotional and selling expenses increased by $8.4 million during the 2008 fiscal year as compared to the prior year, primarily due to increases in freight expenses to wholesalers and salary and benefit costs. General and administrative costs increased by $10.4 million during 2008 as compared to the prior year, driven by salary and benefit costs, start-up and recurring planned administrative costs related to the Pennsylvania Brewery and legal costs. The Company's effective tax rate for the 2008 fiscal year increased to 48.9% from the 2007 rate of 46.0% as a result of lower than expected pretax income primarily due to the recall, but with no corresponding reduction in non-deductible expenses.

Other matters

The March 2009 year-to-date shipments and orders in-hand indicate that gross core shipments will be down approximately 14% versus the same period in 2008. The March 2009 year-to-date shipments and orders reflect volume approximately 2% lower than the depletions from the same period in the prior year. Year-to-date depletions reported to the Company through February 2009 were down approximately 9% from the same period in 2008, with two fewer selling days in 2009. Year-to-date depletions adjusted for comparable selling days through February 2009 are estimated to be down approximately 4% from the same period in 2008. The Company believes it is seeing inventory reductions at wholesalers and retailers compared to prior years that could be depressing the year-to-date shipments, orders in-hand and depletions, and that the shipments and orders in-hand are generally consistent with the depletions trends. Considering those inventory adjustments for the full year, shipments should be expected to more closely mirror full year depletion trends. Actual shipments may differ and no inferences should be drawn with respect to shipments in future periods.

During the third quarter of 2008, the Company submitted a settlement proposal and made a payment of $3.7 million to the U.S. Alcohol and Tobacco Tax and Trade Bureau, or TTB, to resolve events identified by the TTB during its audit in the fall of 2007. During the first quarter of 2009, the Company and the TTB reached a final settlement and no additional funds are due. The Company has no remaining TTB liability related to this matter at December 27, 2008.

Looking forward to 2009, based on information of which the Company is currently aware, the Company sees cost increases of between 7% and 9%, primarily in packaging costs due to a new contract for its glass bottles and due to the depreciation and operating costs of the Pennsylvania Brewery. While the costs of operating the new brewery are higher than rates under the Company's historic brewing arrangements under contracts with others, the Company believes that such costs may be lower than future available contract brewing rates and that the advantages of controlling the brewing process and security of supply outweigh any potential additional costs. These cost increases will be somewhat offset by price increases, currently targeted at 3%, and operational efficiency initiatives currently underway, but the Company anticipates that its 2009 gross margin percentage could be lower than its full-year 2008 gross margin, excluding the impact of the recall on gross margin in 2008. While the Company continues to experience a healthy pricing environment, there is no guarantee that it will be able to achieve the planned price increases. It is also difficult to predict what full year volume trends for shipments and depletions will be based on current conditions. The Company is committed to trying to grow market share and to maintain volume and healthy pricing, and is prepared to invest to accomplish this even if this causes short term earnings decreases. Based upon the Company's best estimates at this time, the Company is targeting 2009 earnings per diluted share to be between $1.40 and $1.70, but actual results could vary significantly from this target. The Company continues to evaluate 2009 capital expenditures, but currently expects them to be between $20.0 million and $30.0 million, which includes approximately $7.0 million of carryover projects committed to in 2008 and in progress at the Pennsylvania Brewery. The Company anticipates focusing on projects that will increase efficiency and productivity at the breweries, and decisions as to which projects will actually be undertaken will depend, in part, on their projected returns on investment. Accordingly, actual 2009 capital expenditures may well be different from these estimates.

During the three months ended December 27, 2008, the Company did not repurchase any shares of its Class A Common Stock. Through March 6, 2009, the Company has repurchased a cumulative total of approximately 8.5 million shares of its Class A Common Stock for an aggregate purchase price of $114.0 million, and had approximately $6.0 million remaining on the $120.0 million share buyback expenditure limit set by the Board of Directors. As of March 6, 2009, the Company had 10.1 million shares of Class A Common Stock and 4.1 million shares of Class B Common Stock outstanding.

The Boston Beer Company began in 1984 with a generations-old family recipe that Founder and Brewer Jim Koch uncovered in his father's attic. After bringing the recipe to life in his kitchen, Jim brought it to bars in Boston with the belief that drinkers would appreciate a complex, full-flavored beer, brewed fresh in America. That beer was Samuel Adams Boston Lager(R), and it helped catalyze what became known as the American craft beer revolution.

Today, the Company brews more than 21 styles of beer. The Company uses the traditional four vessel brewing process and often takes extra steps like dry-hopping and a secondary fermentation known as krausening. It passionately pursues the development of new styles and the perfection of its classic beers by constantly searching for the world's finest ingredients. While resurrecting traditional brewing methods, the Company has earned a reputation as a pioneer in another revolution, the "extreme beer" movement, where it seeks to challenge drinkers' perceptions of what beer can be. The Boston Beer Company strives to elevate the image of American craft beer by entering festivals and competitions the world over, and in the past five years it has won more awards in international beer competitions than any other brewery in the world. The Company remains independent, and brewing quality beer remains its single focus. While the Company is the country's largest-selling craft beer, it accounts for only about one half of one percent of the U.S. beer market. For more information, please visit www.samueladams.com.

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 27, 2008 and December 29, 2007. Copies of these documents may be found on the Company's website, www.bostonbeer.com, or obtained by contacting the Company or the SEC.



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

    Operating Results:
                                  (unaudited)
                              Three Months Ended       Twelve Months Ended
                          December 27, December 29, December 27, December 29,
                                 2008         2007         2008         2007

    Barrels sold                  618          497        2,341        1,876

    Revenue, net of product
     recall returns of ($85)
     and $13,222 for the
     three and twelve months
     ended December 27, 2008,
     respectively            $112,886     $101,382     $436,332     $380,575
    Less excise taxes           9,109        9,195       37,932       38,928
      Net revenue             103,777       92,187      398,400      341,647
    Cost of goods sold         55,305       39,004      205,040      152,288
    Costs associated with
     product recall               (73)           -        9,473            -
      Gross profit             48,545       53,183      183,887      189,359
    Operating expenses:
      Advertising, promotional
       and selling expenses    31,652       32,375      132,901      124,457
      General and
       administrative
       expenses                 8,971        6,579       34,988       24,574
      Impairment of
       long-lived assets        1,936            -        1,936        3,443

        Total operating
         expenses              42,559       38,954      169,825      152,474
    Operating income            5,986       14,229       14,062       36,885
    Other income, net:
    Interest income               288        1,051        1,604        4,252
    Other income (expense),
     net                          (26)           3          174          507
        Total other income,
         net                      262        1,054        1,778        4,759
    Income before income taxes  6,248       15,283       15,840       41,644
    Income tax provision        2,651        8,528        7,752       19,153
        Net income             $3,597       $6,755       $8,088      $22,491

    Net income per common
     share - basic              $0.26        $0.48        $0.58        $1.58

    Net income per common
     share - diluted            $0.25        $0.46        $0.56        $1.53


    Weighted-average number
     of common
     shares - basic            14,039       14,214       13,927       14,193

    Weighted-average number
     of common
     shares - diluted          14,365       14,731       14,341       14,699


    Consolidated Balance Sheets:
    (in thousands, except share data)
                                   December 27,  December 29,
                                          2008          2007
             Assets
    Current Assets:
      Cash and cash equivalents         $9,074       $79,289
      Short-term investments                 -        16,200
      Accounts receivable, net of
       allowance for doubtful
       accounts of $255 and  $249
       as of December 27, 2008 and
       December 29, 2007, respectively  18,057        17,972
      Inventories                       22,708        18,090
      Prepaid expenses and
       other assets                     16,281         4,252
      Deferred income taxes              2,734         2,090
        Total current assets            68,854       137,893
    Property, plant and equipment,
     net                               147,920        46,198
    Other assets                         1,606        12,487
    Goodwill                             1,377         1,377
        Total assets                  $219,757      $197,955

          Liabilities and Stockholders' Equity
    Current Liabilities:
      Accounts payable                 $20,203       $17,708
      Accrued expenses                  46,854        42,449
        Total current liabilities       67,057        60,157
    Deferred income taxes                9,617         1,215
    Other liabilities                    3,055         2,995
        Total liabilities               79,729        64,367

    Commitments and Contingencies
    Stockholders' Equity:
      Class A Common Stock, $.01
       par value; 22,700,000 shares
       authorized; 10,068,486 and
       10,095,573 issued and
       outstanding as of December 27,
       2008 and December 29, 2007,
       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       102,653        88,754
      Accumulated other comprehensive
       loss, net of tax                   (431)         (204)
      Retained earnings                 37,664        44,896
        Total stockholders' equity     140,028       133,588
        Total liabilities and
         stockholders' equity         $219,757      $197,955



    Consolidated Statements of Cash Flows:
    (in thousands)
                                                 Twelve Months Ended
                                             December 27,  December 29,
                                                    2008          2007

    Cash flows provided by operating
     activities:
      Net income                                  $8,088       $22,491
      Adjustments to reconcile net income
       to net cash provided by operating
       activities:
        Depreciation and amortization             12,503         6,654
        Impairment of long-lived assets            1,936         3,443
        Loss on disposal of property, plant
         and equipment                               119           161
        Bad debt expense                              57            34
        Stock-based compensation expense           4,148         3,058
        Excess tax benefit from stock-based
         compensation arrangements                (4,065)       (1,792)
        Deferred income taxes                      7,758        (1,702)
        Purchases of trading securities                -       (47,520)
        Proceeds from sale of trading
         securities                               16,200        50,543
        Changes in operating assets and
         liabilities:
          Accounts receivable                       (142)         (236)
          Inventories                             (4,618)       (1,056)
          Prepaid expenses and other assets       (8,875)          963
          Accounts payable                         2,495          (234)
          Accrued expenses                         4,405        19,521
          Other liabilities                         (167)         (534)
            Net cash provided by operating
             activities                           39,842        53,794

    Cash flows used in investing activities:
      Purchases of property, plant and
       equipment                                 (59,539)      (25,607)
      Proceeds from disposal of property,
       plant and equipment                            11             5
      Acquisition of brewery assets              (44,960)      (11,507)
        Net cash used in investing activities   (104,488)      (37,109)

    Cash flows used in financing activities:
      Repurchase of Class A Common Stock         (15,324)       (6,084)
      Proceeds from exercise of stock options      5,274         3,448
      Excess tax benefit from stock-based
       compensation arrangements                   4,065         1,792
      Net proceeds from sale of investment
       shares                                        416           301
          Net cash used in financing activities   (5,569)         (543)

    Change in cash and cash equivalents          (70,215)       16,142

    Cash and cash equivalents at beginning of
     period                                       79,289        63,147

    Cash and cash equivalents at end of period    $9,074       $79,289

    Supplemental disclosure of cash flow
     information:
      Income taxes paid                           $8,837       $14,721
      Reclassification of deposits and costs
       related to brewery acquisition  to
       property, plant and equipment             $11,507            $-

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

SOURCE Boston Beer Company, Inc.

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

/Web Site: http://www.bostonbeer.com http://www.samueladams.com

Boston Beer Company, Inc. ST: Massachusetts IN: ALC BEV SU: ERN ERP PR -- NE81047 -- 6147 03/10/200916:11 EDThttp://www.prnewswire.com -->