Boston Beer Company - 10-Q quarterly report FY

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

OR

THE BOSTON BEER COMPANY, INC.
FORM 10-Q

QUARTERLY REPORT
JUNE 24, 2000

TABLE OF CONTENTS

The accompanying notes are an integral part of the consolidated financial statements

The accompanying notes are an integral part of the consolidated financial statements

The Company has a contract with Genesee Brewing Company, Inc. ("Genesee") to brew certain Samuel Adams® products at the Genesee's brewery in Rochester, New York. In December 1999, Genesee announced its intentions to sell the Rochester brewery to City Brewing Company ("City Brewing"). On May 2, 2000, Genesee announced that the proposed transaction between Genesee and City Brewing was terminated. On June 28, 2000, Genesee announced that a special committee of the Corporation's Board of Directors has been formed to continue to explore strategic alternatives for Genesee Brewing Company, including a proposal for a management lead buyout.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
             RESULTS OF OPERATIONS

The following is a discussion of the financial condition and results of operations of the Company for the three and six-month periods ended June 24, 2000 as compared to the three and six-month periods ended June 26, 1999. This discussion should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations, Consolidated Financial Statements of the Company and Notes thereto included in the Form 10-K for the fiscal year ended December 25, 1999.

RESULTS OF OPERATIONS

For purposes of this discussion, Boston Beer's "core brands" include all products sold under Samuel Adams®, Oregon Original™, HardCore® or BoDean's Twisted Tea™ trademarks. "Core brands" do not include the products brewed at the Cincinnati Brewery under contract arrangements for third parties. Volume produced under contract arrangements is referred to below as "non-core products". Boston Beer's flagship brand is Samuel Adams Boston Lager®.

Three Months Ended June 24, 2000 compared to Three Months Ended June 26, 1999

Net sales. Net sales increased by $4.25 million or 9.0% to $51.4 million for the three months ended June 24, 2000 as compared to the three months ended June 26, 1999. The increase is primarily due to an increase in volume of Boston Beer's core brands.

Volume. Volume increased by 25,000 barrels or 8.0% to 336,000 barrels in the three months ended June 24, 2000 from 311,000 barrels in the three months ended June 26, 1999. Core brands increased by 8.3% to 322,000 barrels for the quarter ended June 24, 2000 from 298,000 barrels for the quarter ended June 26, 1999. The increase in core brands is primarily due to a 3.1% increase in the Company's flagship brand and to volume generated from the introduction of BoDean's Twisted Tea™ in March 2000.

Selling Price. The net selling price increased by approximately 1.0% to $153.17 per barrel for the three months ended June 24, 2000. This increase is primarily due to normal price increases as there were no significant changes in the packaging mix between kegs and bottles. The ratio of kegs to bottles remained consistent in core brands, with kegs representing 29.1% of total shipments relating to kegs for the three months ended June 24, 2000 and June 26, 1999.

Gross Profit. Gross profit and cost of sales as a percentage of net sales were 56.8% and 43.2%, respectively, for the three months ended June 24, 2000, and were consistent with the three months ended June 26, 1999. The gross profit per barrel increased by $1.25 to $87.02 for the three months ended June 24, 2000 as compared to $85.77 for the same period last year. This increase is primarily due to an increase in volume.

Advertising, promotional and selling. Advertising, promotional and selling expenses increased by $2.6 million or 14.5% to $20.6 million for the three months ended June 24, 2000 as compared to $18.0 million for the three months ended June 26, 1999. As a percentage of net sales, advertising, promotional and selling expenses increased to 40.0% for the three months ended June 24, 2000 as compared to 38.1% for the same period last year. This increase is primarily due to an increase in television advertising, promotional expenditures and to a lesser extent, higher freight costs.

Interest income. Interest income decreased by 17.6% to $433,000 for the three months ended June 24, 2000 as compared to $526,000 for the three months ended June 26, 1999. The decrease is partially due to lower monthly average cash and short-term investments balance of approximately $40.4 million during the three months ended June 24, 2000 as compared to an average balance of $49.0 million during the same period ended June 26, 1999. The lower balances are due to the stock repurchase program discussed below in "Liquidity and Capital Resources."

Additionally, the Company has recorded the change in fair value for its available-for-sale securities as a component of equity, in accordance with SFAS 115, Accounting for Investments. The amount of unrealized gain recorded as a component of equity was $195,000 and $0 for the three months ended June 24, 2000 and June 26, 1999, respectively.

Interest expense. There was no interest expense for the three months ended June 24, 2000 as compared to $3,000 for the three months ended June 26, 1999. There were no amounts outstanding on the Company's existing credit facilities during the three months ended June 24, 2000.

Other income (expense), net. Other income (expense), net, increased by $105,000 to income of $94,000 for the three months ended June 24, 2000 from expense of $11,000 for same period last year. The change is primarily due to a gain recognized from the disposal of fixed assets of $102,000 during the three months ended June 24, 2000.

Six Months Ended June 24, 2000 compared to Six Months Ended June 26, 1999

Net sales. Net sales increased by $7.6 million or 8.7% to $95.7 million for the six months ended June 24, 2000 as compared to the six months ended June 26, 1999. The increase is primarily due to an increase in volume of Boston Beer's core brands coupled with normal price increases.

Volume. Volume increased by 47,000 barrels or 8.1% to 626,000 barrels in the six months ended June 24, 2000 from 579,000 barrels in the six months ended June 26, 1999. Core brands increased by 8.3% to 601,000 barrels for the six months ended June 24, 2000 from 555,000 barrels for the six months ended June 26, 1999. The increase in core brands is primarily due to growth in the Company's flagship brand and to volume generated from the introduction of BoDean's Twisted Tea™.

Selling Price. The net selling price increased by approximately 1.0% to $152.90 per barrel for the six months ended June 24, 2000. This increase primarily is due to normal price increases as there were no significant changes in the packaging mix between kegs and bottles. The ratio of kegs to bottles remained consistent in core brands, with kegs representing 29.3% and 30.0% of total shipments relating to kegs for the six months ended June 24, 2000 and June 26, 1999, respectively.

Gross Profit. Gross profit and cost of sales as a percentage of net sales were 56.3% and 43.7%, respectively, for the six months ended June 24, 2000, and were consistent with the same period last year. The gross profit per barrel increased slightly to $86.06 for the six months ended June 24, 2000 as compared to $85.42 for the same period last year. This increase is primarily due to an increase in volume.

Advertising, promotional and selling. Advertising, promotional and selling expenses increased by $4.0 million or 12.1% to $36.7 million for the six months ended June 24, 2000 as compared to $32.8 million for the six months ended June 26, 1999. As a percentage of net sales, advertising, promotional and selling expenses increased to 38.4% for the six months ended June 24, 2000 as compared to 37.2% for the same period last year. This increase is primarily due to an increase in television advertising, promotional expenditures and to a lesser extent, higher freight costs.

Interest income. Interest income decreased by 13.0% to $947,000 for the six months ended June 24, 2000 as compared to $1.1 million for the six months ended June 26, 1999. This decrease is partially due to lower monthly average cash and short-term investments balance of approximately $41.7 million during the six months ended June 24, 2000 as compared to $53.1 million during the six months ended June 26, 1999. The lower balances are due to the stock repurchase program discussed below in "Liquidity and Capital Resources."

Additionally, the Company has recorded the change in fair value for its available-for-sale securities as a component of equity, in accordance with SFAS 115, Accounting for Investments. The amount of unrealized gain recorded as a component of equity was $195,000 and $0 for the six months ended June 24, 2000 and June 26, 1999, respectively.

Interest expense. There was no interest expense for the six months ended June 24, 2000 as compared to $148,000 for the six months ended June 26, 1999. The Company repaid the entire $10.0 million in borrowings on March 31, 1999 which was previously outstanding on its credit facility. There were no amounts outstanding on the Company's existing credit facility during the six months ended June 25, 2000.

Other income (expense), net. Other income (expense), net increased by $211,000 to income of $222,000 for the six months ended June 24, 2000 from income of $11,000 for same period last year. The change is primarily due to a gain recognized from the disposal of fixed assets of $192,000 during the six months ended June 24, 2000.

LIQUIDITY AND CAPITAL RESOURCES

The Company's financial condition continued to be strong during the first half of 2000. Cash and short-term investments decreased to $40.7 million as of June 24, 2000 from $44.3 million as of December 25, 1999. This decrease was primarily due to the repurchase by the Company of its stock under the stock repurchase program. During the six months ended June 24, 2000, the Company repurchased 1,089,100 shares of its outstanding Class A Common Stock at an aggregate cost of $8.3 million.

Cash provided by operating activities of $8.0 million for the six months ended June 24, 2000 partially offset the cash used in financing activities.

Effective October 15, 1998, the Board authorized management to implement a stock repurchase program, initially subject to an aggregate expenditure limitation of $10.0 million. In 1999 this limitation was increased to $20.0 million, and on April 14, 2000, the Board increased the aggregate expenditure limitation further to $25.0 million. As of June 24, 2000, the Company had repurchased 2,408,700 shares under this program at an aggregate cost of $18.1 million. As of June 26, 1999, the Company had not repurchased any Company shares.

Cash provided by operating activities increased by $4.9 million to $8.0 million for the six months ended June 24, 2000 as compared to $3.1 million for the six months ended June 26, 1999. This increase is primarily due to an increase in sales. The Company utilized an additional $2.4 million for purchases of capital equipment during the first half of the year compared to the same period last year.

With working capital of $56.4 million and $45.0 million in unused bank lines of credit as of June 24, 2000, the Company believes that its existing resources should be sufficient to meet the Company's short-term and long-term operating and capital requirements.

THE POTENTIAL IMPACT OF KNOWN FACTS, COMMITMENTS, EVENTS AND UNCERTAINTIES

Hops Purchase Commitments

The Company enters into purchase commitments for hops based upon forecasted future requirements, among other factors. In recent years, excluding the six months ended June 24, 2000, the Company's sales growth declined, resulting in an increase in hops inventory. As a result, existing purchase commitments may exceed projected future needs over the life of such commitments. The Company recorded a charge of $664,000 and $1,138,000 associated with the cancellation of contracts, the reserve for excess purchase commitments and excess inventory on hand during the quarters ended June 24, 2000 and June 26, 1999, respectively. The Company continues to manage inventory levels and purchase commitments in an effort to maximize utilization of hops on hand and hops under commitment.

The computation of the excess purchase commitment reserve requires management to make certain assumptions regarding future sales growth, product mix, cancellation costs and supply, among others. Actual results may differ materially from management's estimates

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Since December 25, 1999, there have been no significant changes in the Company's exposures to interest rate or foreign currency rate fluctuations. The Company currently does not enter into derivatives or other market risk sensitive instruments for the purpose of hedging or for trading purposes.

FORWARD-LOOKING STATEMENTS

In this Form 10-Q 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 events or circumstances after the date factor that may emerge, 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 unanticipated. Such risks and uncertainties include the factors set forth below in addition to the other information set forth in this Form 10-Q.

Exhibit No.	Title
10.7	Form of Indemnification Agreement between the Partnership and certain employees and Advisory Committee members (incorporated by reference to Exhibit 10.7 to the Company's Registration Statement No. 33-96162).
10.8	Stockholder Rights Agreement, dated as of December, 1995, among The Boston Beer Company, Inc. and the initial Stockholders (incorporated by reference to the Company's Form 10-K, filed on April 1, 1996).
+10.10	Agreement between Boston Brewing Company, Inc. and The Stroh Brewery Company, dated as of January 31, 1994 (incorporated by reference to Exhibit 10.9 to the Company's Registration Statement No. 33-96164).
+10.11	Agreement between Boston Brewing Company, Inc. and the Genesee Brewing Company, dated as of July 25, 1995 (incorporated by reference to Exhibit 10.10 to the Company's Registration Statement No. 33-96164).
+10.12	Amended and Restated Agreement between Pittsburgh Brewing Company and Boston Brewing Company, Inc. dated as of February 28, 1989 (incorporated by reference to Exhibit 10.11 to the Company's Registration Statement No. 33-96164).
10.13	Amendment to Amended and Restated Agreement between Pittsburgh Brewing Company, Boston Brewing Company, Inc., and G. Heileman Brewing Company, Inc., dated December 13, 1989 (incorporated by reference to Exhibit 10.12 to the Company's Registration Statement No. 33-96162).
+10.14	Second Amendment to Amended and Restated Agreement between Pittsburgh Brewing Company and Boston Brewing Company, Inc. dated as of August 3, 1992 (incorporated by reference to Exhibit 10.13 to the Company's Registration Statement No. 33-96164).
+10.15	Third Amendment to Amended and Restated Agreement between Pittsburgh Brewing Company and Boston Brewing Company, Inc. dated December 1,1994 (incorporated by reference to Exhibit 10.14 to the Company's Registration Statement No. 33-96164).
10.16	Fourth Amendment to Amended and Restated Agreement between Pittsburgh Brewing Company and Boston Brewing Company, Inc. dated as of April 7,1995 (incorporated by reference to Exhibit 10.15 to the Company's Registration Statement No. 33-96162).
+10.17	Letter Agreement between Boston Beer Company Limited Partnership and Joseph E. Seagram & Sons, Inc. (incorporated by reference to Exhibit 10.16 to the Company's Registration Statement No. 33-96162).
10.18	Services Agreement and Fee Schedule of Mellon Bank, N.A. Escrow Agent Services for The Boston Beer Company, Inc. dated as of October 27, 1995 (incorporated by reference to Exhibit 10.17 to the Company's Registration Statement No. 33-96164).
10.19	Amendment to Revolving Credit Agreement between Fleet Bank of Massachusetts, N.A. and the Partnership (incorporated by reference to Exhibit 10.18 to the Company's Registration Statement No. 33-96164).
10.20	1996 Stock Option Plan for Non-Employee Directors (incorporated by reference to the Company's Form 10-K, filed on March 27, 1998).

Exhibit No.	Title
+10.21	Production Agreement between The Stroh Brewery Company and Boston Beer Company Limited Partnership, dated January 14, 1997 (incorporated by reference to the Company's Form 10-K, filed on March 27, 1998).
+10.22	Letter Agreement between The Stroh Brewery Company and Boston Beer Company Limited Partnership, dated January 14, 1997 (incorporated by reference to the Company's Form 10-K, filed on March 27, 1998).
+10.23	Agreement between Boston Beer Company Limited Partnership and The Schoenling Brewing Company, dated May 22, 1996 (incorporated by reference to the Company's Form 10-K, filed on March 27, 1998).
10.24	Revolving Credit Agreement between Fleet Bank of Massachusetts, N.A. and The Boston Beer Company, Inc., dated as of March 21, 1997 (incorporated by reference to the Company's Form 10-Q, filed on May 12, 1997).
+10.25	Amended and Restated Agreement between Boston Brewing Company, Inc. and the Genesee Brewing Company, Inc. dated April 30, 1997 (incorporated by reference to the Company's Form 10-Q, filed on August 11, 1997).
+10.26	Fifth Amendment, dated December 31, 1997, to Amended and Restated Agreement between Pittsburgh Brewing Company and Boston Brewing Company, Inc. (incorporated by reference to the Company's Form 10-K, filed on March 27, 1998).
10.27	Extension letters, dated August 19, 1997, November 19, 1997, December 19, 1997, January 22, 1998, February 25, 1998 and March 11, 1998 between The Stroh Brewery Company and Boston Brewing Company, Inc. (incorporated by reference to the Company's Form 10-K, filed on March 27, 1998).
+10.28	Employee Equity Incentive Plan, as amended and effective on December 19, 1997 (incorporated by reference to the Company's Form 10-K, filed on March 27, 1998) .
+10.29	1996 Stock Option Plan for Non-Employee Directors, as amended and effective on December 19, 1997 (incorporated by reference to the Company's Form 10-K, filed March 27, 1998)..
+10.30	Glass Supply Agreement between The Boston Beer Company and Owens' Brockway Glass Container Inc., dated April 30, 1998 (incorporated by reference to the Company's Form 10-Q, filed on August 10, 1998).
10.31	Extension letters, dated April 13, 1998, April 27, 1998, June 11, 1998, June 25, 1998 and July 20, 1998 between The Stroh Brewery Company and Boston Brewing Company, Inc.
	(incorporated by reference to the Company's Form 10-Q, filed on August 10, 1998).
10.32	Extension letters, dated July 31, 1998, August 28, 1998, September 28, 1998, October 13, 1998, October 20, 1998 and October 23, 1998 between The Stroh Brewery Company and Boston Brewing Company, Inc. (incorporated by reference to the Company's Form 10-Q, filed on November 4, 1998).
+10.33	Amended and Restated Production Agreement between The Stroh Brewery Company and Boston Beer Company Limited Partnership, dated November 1, 1998 (incorporated by reference to the Company's Form 10-K, filed on March 25, 1999).

Exhibit No.	Title
10.34	Agreement between Boston Beer Company Limited Partnership, Pabst Brewing Company and Miller Brewing Company, dated February 5, 1999 (incorporated by reference to the Company's Form 10-K, filed on March 25, 1999).
+10.35	Amendment to Revolving Credit Agreement between Fleet Bank of Massachusetts, N.A. and The Boston Beer Company, Inc., dated March 30, 1999 (incorporated by reference to the Company's Form 10-Q, filed on May 10, 1999).
10.36	Agreement between Boston Beer Company Limited Partnership and Landstar Logistics and Transportation, dated January 9, 1999 (incorporated by reference to the Company's Form 10-Q, filed on May 10, 1999).
*11.1	The information required by exhibit 11 has been included in Note D of the notes to the consolidated financial statements.
21.1	List of subsidiaries of The Boston Beer Company, Inc. (incorporated by reference to the Company's Form 10-K, filed on March 28, 1997).
*27.1	Financial Data Schedule (electronic filing only).
+ Portions of this Exhibit have been omitted pursuant to an application for an oder declaring confidential treatment filed with the Securities and Exchange Commission

(b)                    Reports on Form 8-K.

The Company filed no reports on Form 8-K with the Securities and Exchange Commission during the quarter ended June 24, 2000.