Back to GetFilings.com

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission file number: 1-14092

The Boston Beer Company, Inc.

75 Arlington Street, Boston, Massachusetts

02116

(617) 368-5000

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:     None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.)     Yes þ          No o

The aggregate market value of the Class A Common Stock ($.01 par value) held by non-affiliates of the Registrant totaled $165,774,960 (based on the average price of the Company’s Class A Common Stock on the New York Stock Exchange on June 29, 2002). All of the Registrant’s Class B Common Stock ($.01 par value) is held by an affiliate.

As of March 19, 2003 there were 11,417,337 shares outstanding of the Company’s Class A Common Stock ($.01 par value) and 4,107,355 shares outstanding of the Company’s Class B Common Stock ($.01 par value).

DOCUMENTS INCORPORATED BY REFERENCE

Certain parts of the Registrant’s definitive Proxy Statement for its 2003 Annual Meeting to be held on May 28, 2003 are incorporated by reference into Part III of this report.

Table of Contents

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

FORM 10-K

1

Table of Contents

PART I

Item 1.     Business

General

The Boston Beer Company, Inc. (“Boston Beer” or the “Company”) is the largest craft brewer and believes it is the fifth largest brewer overall in the United States. In fiscal 2002, Boston Beer sold 1,280,589 barrels of its proprietary products (“core brands”) and brewed 5,786 barrels under contract (“non-core products”) for third parties.

The Company produced a total of fifteen beers under the Boston Beer Company name, two cider products under the HardCore Cider Company name, and two alternative malt beverage products under the Twisted Tea Brewing Company name during 2002. Boston Beer produces malt beverages and hard cider products at Company-owned breweries and under contract. The Company-owned breweries are located in Cincinnati, Ohio and Boston, Massachusetts. The Company brewed its beer under contract at five breweries during 2002 (located in Eden, North Carolina; Tumwater, Washington; Rochester, New York; Utica, New York; and La Crosse, Wisconsin).

The Company’s principal executive offices are located at 75 Arlington Street, 5th Floor, Boston, Massachusetts 02116, and its telephone number is (617) 368-5000.

Beer Industry Background

The Company’s beer products are primarily positioned in the “Better Beer” category of the beer industry, which includes craft beers and most imports sold at premium prices. Better Beers are determined by higher price, quality, image and taste, as compared with regular domestic beers.

The Better Beer category is approximately 14% of United States beer consumption and has experienced low double-digit compounded annual growth over the last ten years. Samuel Adams Boston Lager® is the third largest brand in the Better Beer category of the United States brewing industry, trailing only Heineken® and Corona®. In comparison, the domestic beer industry, excluding Better Beers, has experienced a slight decline in shipments over the last ten years.

During 2002, the Better Beer category grew by approximately 5%, driven by the growth of imports, Boston Beer, and other domestic Better Beers. Although per capita beer consumption in the United States has declined from its peak in the early 1980’s, beer consumption has been increasingly focused on more flavorful or otherwise distinctive beers. In the early 1980’s, imported beers from Holland, Germany, Canada, and Mexico met this demand. Beginning in the late 1980’s, domestic craft brewers began producing richer, more full-flavored beers, usually sold in small, local geographic markets, and sometimes, through their own brewpubs. When Samuel Adams Boston Lager® was first brewed in 1984, only a handful of craft breweries existed, few of which distributed outside their immediate geographical areas. In response to increased consumer demand for more flavorful beers, the number of craft-brewed beers increased dramatically. Currently there are over 1,000 craft brewers and brewpubs in the United States. In addition to the many independent brewers, the three major brewers (Anheuser-Busch Inc., Miller Brewing Company, and Coors Brewing Company) have all entered this craft market, either by developing their own beers or acquiring, in whole or part, existing craft brewers.

Before Prohibition, the United States beer industry consisted of hundreds of small breweries that brewed such full-flavored beers. Since the end of Prohibition, most domestic brewers have shifted production to less flavorful, lighter beers, which use lower-cost ingredients, and can be mass-produced to take advantage of economies of scale in production and advertising. This shift towards mass-produced beers has coincided with consolidation in the beer industry. Today, the three major brewers comprise over 90% of all United States domestic beer shipments, excluding imports.

During 2002, major domestic brewers achieved growth of approximately 1%, primarily due to the growth of domestic light beers and alternative malt beverages. Light beers are beers with fewer calories than

2

Table of Contents

Since 2001, significant investments have been made in the alternative malt beverage or “malternative” category of the beer industry. Malternatives are flavored malt beverages such as Smirnoff Ice®, BacardiSilver® or Mike’s Hard Lemonade®, and are typically priced competitively with Better Beers. Within the past two years, the malternative category has grown from approximately 2% of total beer consumption to approximately 4% of beer consumption.

Narrative Description of Business

The Company’s business goal is to become the leading brewer in the Better Beer category by creating and offering high quality full-flavored beers. With the support of a large, well-trained sales organization, the Company strives to achieve this goal by increasing brand awareness through advertising, point-of-sale and promotional programs.

Products marketed

The Company’s product strategy is to create and offer a world-class variety of traditional beers and other alcoholic beverages with a focus on promoting the Samuel Adams® product line. During 2002, the Company marketed all continuing styles listed below. The Company’s Samuel Adams Boston Lager® accounts for the majority of the Company’s sales. The following is a list of continuing styles as of December 28, 2002.

3

Table of Contents

The Company continually evaluates the performance of its various beer and hard cider brands and the rationalization of its product line, as a whole. Periodically, the Company discontinues certain styles. HardCore® Golden Cider was discontinued during 2002. Certain products discontinued in previous years may be produced for the Company’s seasonal variety packs. During 2002, Samuel Adams® Cranberry Lambic and Old Fezziwig® were produced and included in Samuel Adams® Winter Classics variety pack and Samuel Adams® White Ale was produced and included in the Samuel Adams® World-Class Mix Pack.

In July 2001, the Company launched Sam Adams Light®, a Better Light Beer, in test markets in Maine and Rhode Island. During 2002, the Company achieved national distribution of Sam Adams Light®. Sam Adams Light® is a unique light beer made with only two-row barley malt and noble hops. The Company believes that an opportunity exists to sell a Better Light Beer. While Better Beer accounts for 25% of regular beer consumption in the United States, Better Light Beers account for approximately 2% of the light beer segment and appear underdeveloped. Sam Adams Light® has been well received by retailers and wholesalers, and generated the growth for the Company in 2002. In support of the National rollout, the Company invested significant advertising, sales force and promotional resources behind Sam Adams Light® during 2002. The Company devoted the majority of its resources to the launch of Sam Adams Light® and the Company experienced some declines during the later half of 2002 in other of its Samuel Adams® styles. The Company believes that these declines are coming from a combination of consumer cannibalization, retail shelf space losses, and the focus by the Company and its wholesalers on Sam Adams Light® rather than Samuel Adams Boston Lager® and Seasonals.

Product Innovations

The Company is committed to remaining a leading innovator in the Better Beer category by developing new products. These new products allow the Samuel Adams® drinker to try new styles of malt beverages while remaining loyal to the Samuel Adams® brand. In October 2002, the Company introduced Samuel Adams® Vienna Style Lager. Samuel Adams® Vienna Style Lager is a lager with a rich, deep, malt flavor, coppery color and a full creamy head that offers a crisp, but not bitter finish. This style was available in 2002 in the Company’s Samuel Adams® World-Class Mix Pack and our Samuel Adams® Winter Classics variety pack, and will be distributed in other packages beginning in 2003.

Sales, Distribution and Marketing

The Company sells its products to a network of approximately 400 wholesale distributors, who then sell to retailers such as pubs, restaurants, grocery chains, package stores, and other retail outlets. With few exceptions, the Company’s products are not the primary brands in distributors’ portfolios. Thus, the Company, in addition to competing with other malt beverages for a share of the consumer’s business, competes with other brewers for a share of the distributor’s attention, time, and selling efforts.

The Company sells its products predominantly in the United States, but also has markets in Canada, Europe, the Caribbean, and the Pacific Rim. During 2002, the Company’s largest distributor accounted for approximately 5% of the Company’s net sales, and the Company’s second largest distributor accounted for approximately 3% of the Company’s net sales. No other distributor accounted for more than 3% of the Company’s net sales. In some states, the terms of the Company’s contracts with its distributors may be affected by laws that restrict the enforcement of some contract terms, especially those related to the Company’s right to terminate the services of its distributors. The Company typically receives orders in the

4

Table of Contents

Boston Beer sells its products through a sales force of approximately 175 people, which the Company believes is the largest of any craft brewer and one of the largest in the domestic beer industry. The Company’s sales organization is designed to develop and strengthen relations at each level of the three-tier distribution system by providing educational and promotional programs encompassing distributors, retailers, and consumers. The Company’s sales force has a high level of product knowledge and is trained in the details of the brewing and the selling processes. Sales representatives typically carry hops, barley, and other samples to educate wholesale and retail buyers about the quality and taste of the Company’s beers. The Company has developed strong relationships with its distributors and retailers, many of which have benefited from the Company’s premium pricing strategy and growth.

The Company has also engaged in media campaigns, primarily television, radio, billboards and print. These media efforts are complemented by participation in sponsorships of cultural and community events, local beer festivals, industry-related trade shows, and promotional events at local establishments, to the extent permitted under local laws and regulations. The Company uses a wide array of point-of-sale items (banners, neons, umbrellas, glassware, display pieces, signs, and menu stands) designed to stimulate impulse sales and continued awareness.

Ingredients and Packaging

The Company has been successful to date in obtaining sufficient quantities of the ingredients used in the production of its beers. These ingredients include:

Malt. The Company purchased the majority of malt used in the production of its beer from two suppliers during 2002. The two-row varieties of barley used in the Company’s malt are grown in the United States and Canada. The last two crop years of barley in both the United States and Canada have been well below ten-year averages for both volume and quality of crop, which has resulted in some barley shortages and increased prices. To date, the Company’s relationships with its suppliers have allowed it to weather this disruption.

Hops. The Company uses Noble hops for its Samuel Adams® lagers. Noble hops are varieties from several specific growing areas recognized for superior taste and aroma properties and include Hallertau-Hallertauer, Tettnang-Tettnanger, and Spalt-Spalter from Germany. Noble hops are rare and more expensive than other varieties of hops. Traditional English hops, namely, East Kent Goldings and English Fuggles, are used in the Company’s ales. The Company stores its hops in multiple cold storage warehouses to minimize the impact of a catastrophe at a single site.

The Company purchases its hops from two hops dealers, the largest of which accounted for over half of annual hops purchases during 2002. The Company enters into forward purchase commitments for hops from these dealers, based on the Company’s projected future volumes and brewing needs. The dealers then contract with farmers to ensure that the Company’s needs are met.

Yeast. The Company maintains a supply of proprietary strains of yeast used in its breweries and supplies them to its contract brewers. Since these yeasts would be impossible to duplicate if destroyed, the Company maintains secure supplies in several locations. In addition, the Company’s contract brewers maintain a supply of yeasts that are reclaimed from the batches of brewed beer. The contract brewers are obligated by their production contracts to use the Company’s proprietary strains of yeasts only to brew the Company’s beers and such yeasts cannot be used without the Company’s approval to brew any other beers produced at the respective breweries.

Apple Juice Concentrate. The Company imported apple juice concentrate from two apple juice suppliers during 2002. A mixture of these concentrates is used in production of its hard cider. The Company believes that alternative suppliers are available.

5

Table of Contents

Other Ingredients. The Company maintains competitive sources for the supply of other ingredients used in some of its specialty malt-based products.

Packaging Materials. The Company maintains competitive sources for the supply of packaging materials, such as shipping cases, six-pack carriers and crowns. Currently, glass and labels are each supplied by a single source, although the Company believes that alternative suppliers are available. The Company enters into limited term supply agreements with certain vendors in order to receive preferential pricing.

The Company initiates bottles deposits and reuses some of the glass bottles that are returned pursuant to certain state bottle recycling laws and derives some economic benefit from this practice. The cost associated with reusing the glass varies, based on the costs of collection, sorting and handling, including arrangements with retailers, wholesalers and dealers in recycled products. There is no guaranty that the current economics relating to the use of returned glass will continue or that the Company will continue to reuse returnable bottles.

Quality Assurance

As of December 28, 2002, the Company employed ten brew masters and retained a world-recognized brewing authority as a consulting brew master to monitor the Company’s contract brewing operations and control the production of its beers. Over 125 tests, tastings and evaluations are typically required to ensure that each batch of Samuel Adams® beer, Twisted Tea®, and Hardcore® hard cider conforms to the Company’s standards. The Company has on-site quality control labs at each brewery, including a lab located in Boston, Massachusetts.

In order to ensure that its customers enjoy only the freshest beer, the Company includes a clearly legible “freshness” date on every bottle and keg of its Samuel Adams® products. Boston Beer was the first American brewer to use this practice.

Brewing Strategy

The Company believes that its current strategy of combining brewery ownership with contract brewing, which utilizes the excess capacity of other breweries, provides the Company flexibility as well as quality and cost advantages over its competitors. The Company carefully selects breweries with (i) the capability of utilizing traditional brewing methods and (ii) first rate quality control capabilities throughout brewing, fermentation, finishing, and packaging. Furthermore, by brewing in multiple locations, the Company reduces its distribution costs and is better able to deliver fresher beer to its customers than other craft brewers with broad distribution from a single brewery.

The Company brews over 40% of its volume at a Company-owned brewery located in Cincinnati, Ohio (the “Cincinnati Brewery”). The Company believes that this brewery complements the contract breweries by providing greater flexibility for brewing production.

The Company uses its brewery located in Boston, Massachusetts (the “Boston Brewery”) to develop new types of innovative and traditional products and to supply, in limited quantities, beers for the local market. All of Boston Beer’s products are brewed at the Boston Brewery in the course of a year. Product development entails researching market needs and competitive products, sample brewing, and market taste testing.

The Company also currently has contracts to produce its products with the breweries listed below. Under its contract brewing arrangements, the Company is charged a per unit rate for the production of its products at each of the breweries and bears the costs of raw materials, excise taxes and deposits for pallets and kegs and specialized equipment required to brew the Company’s beers.

High Falls Brewing Company, LLC. Throughout 2002, the Company brewed its beer at a brewery located in Rochester, NY (the “Rochester Brewery”) under a contract that was entered into in 1997 with The Genesee Brewing Company (“Genesee”), and later renegotiated in April 2002. The renegotiated contract extends the Company’s option to produce at the Rochester Brewery through 2010. In connection

6

Table of Contents

Miller Brewing Company. In 2002, the Company brewed its beer at two breweries owned and operated by the Miller Brewing Company (“Miller”). The Company’s west coast supply was primarily produced in Tumwater, Washington (the “Tumwater Brewery”), and a portion of its east coast supply was produced in Eden, North Carolina (the “Eden Brewery”).

During the fourth quarter of 2002, Miller filed with the American Arbitration Association a demand for arbitration with respect to its legal right to terminate its obligation to continue production for the Company after May 30, 2004. In its response, the Company, in addition to denying that Miller has the right to terminate, asserted certain counterclaims against Miller. Miller has also notified the Company of its intention to close the Tumwater Brewery no later than July 1, 2003. Based on ongoing discussions with Miller, the Company believes that Tumwater production will be moved to the Eden Brewery in the near-term, with Miller assuming the cost of the incremental freight to the areas previously supplied by the Tumwater Brewery. Regardless of the potential outcome of the arbitration, the Company is in active discussions with brewers on each coast, as well as investigating the expansion of the Cincinnati Brewery and believes that it will be able to maintain sources of supply adequate to meet the expected demand for the Company’s products beyond May 30, 2004 even if it is determined in the arbitration that Miller need not produce for the Company after that date. However, the Company is unable to quantify at this time any additional costs, capital or operating, if any, that it might incur in securing access to such capacity and ensuring that its products are produced to its quality and service requirements.

City Brewing Company, LLC. In July 2002, the Company entered into a production agreement with City Brewing Company, LLC of La Crosse, Wisconsin, under which the Company is guaranteed the availability of a certain volume. The Company had modest levels of production at the La Crosse facility in 2002.

The Matt Brewing Co., Inc. During the first quarter 2002, the Company brewed small quantities of its beer at the brewery in Utica, New York owned by The Matt Brewing Company, Inc. (“Matt Brewing”) in trial production runs. Subsequently, effective March 10, 2003, the Company and Matt Brewing entered into a contract brewing agreement and in early 2003 started further brewing of the Company’s products.

Competition

The Better Beer category of the United States beer market is highly competitive due to the recent gains in market share achieved by imported beers, the large number of craft brewers, and the recent arrival of major spirits-branded malternatives with pricing and target customers similar to the Better Beers. The Company anticipates competition among domestic craft brewers to remain strong as existing craft brewers retrench to their key markets and core brands. Imported beers, such as Heineken® and Corona®, have gained market share and increased volumes within the growing Better Beer segment as they continue to compete aggressively in the United States. These competitors may have substantially greater financial resources, marketing strength, and distribution networks than the Company. The Company believes that it may benefit from the success of the imports, as they educate beer drinkers about the Better Beer segment and increase the pool of Better Beer drinkers. In addition, large domestic brewers have developed or are developing niche brands, such as Miller’s Leinenkugel®, and have acquired interests in small brewers to compete in the craft-brewed segment.

The Company competes with other beer and alcoholic beverage companies within the three-tier distribution system. The Company competes for a share of the distributor’s attention, time and selling efforts. In retail establishments, the Company competes for shelf and tap space. From a consumer perspective, competition exists for brand acceptance and loyalty. The principal factors of competition in the Better Beer segment of the beer industry include product quality and taste, brand advertising, trade and consumer promotions, pricing, packaging and the development of new products.

The Company distributes its products through independent distributors who may also distribute competitors’ products. In recent years, certain brewers have introduced new contracts with their

7

Table of Contents

The Company has certain competitive advantages over the regional craft brewers, as the Company’s contract brewing strategy provides greater flexibility, higher quality and lower initial capital costs, freeing up capital for other uses. In addition, use of contract brewers allows the Company’s beer to be brewed closer to major markets around the country, providing fresher beer to customers and affording lower transportation costs. The Company also believes that the Cincinnati Brewery complements its strategy of contract brewing while providing added flexibility of production. Additionally, the Company believes it has competitive advantages over imported beers, including lower transportation costs, higher product quality, a lack of import charges, and superior product freshness.

The increased activity in the malternative category may significantly change the competitive landscape due to, among other factors, the arrival of large spirits companies into the beer business, the widespread advertising of malt-based spirits brands, and wholesalers having more brands on which to focus. These factors may affect the Company by making the Company’s brands not as significant to its wholesalers and retailers and by reducing the impact of the Company’s own marketing efforts. The Company does not believe that the malternative activity adversely affected the Company’s business significantly in 2002, but there are no guarantees that this is indicative of the future. Although the Company does market its Twisted Tea® brand products, which are flavored malt beverages, the Company intends to focus on traditional beer products, Samuel Adams Boston Lager®, Sam Adams Light®, and Samuel Adams® Seasonals, which the Company believes to have more potential to create long-term value than malternatives.

The competitive advantage of the Company is enhanced by the following factors: uncompromising product quality, development of new beer styles, innovative point-of-sale materials, a large sales force, tactical introduction of seasonal beers and pricing strategies. Management believes that as the industry consolidates, Boston Beer will be in a position to leverage its strengths and successfully compete in a maturing market.

Alcoholic Beverage Regulation and Taxation

The manufacture and sale of alcoholic beverages is a highly regulated and taxed business. The Company’s operations are subject to more restrictive regulations and increased taxation by federal, state, and local governmental entities than are those of non-alcohol related beverage businesses. Federal, state, and local laws and regulations govern the production and distribution of beer, including permitting, licensing, trade practices, labeling, advertising, marketing, distributor relationships, and related matters. Federal, state, and local governmental entities also levy various taxes, license fees, and other similar charges and may require bonds to ensure compliance with applicable laws and regulations. Failure by the Company to comply with applicable federal, state, or local laws and regulations could result in penalties, fees, suspension, or revocation of permits, licenses, or approvals. There can be no assurance that other or more restrictive laws, regulations or higher taxes will not be enacted in the future.

Licenses and Permits

The Company, through its wholly-owned subsidiary, Boston Beer Corporation, produces and sells its alcoholic beverages to distributors pursuant to a federal wholesaler’s basic permit and a federal brewer’s notice. Brewery and wholesale operations require various federal, state, and local licenses, permits, and approvals. In addition, some states prohibit any supplier, such as the Company, and/or wholesaler from holding an interest in any retailer. Violation of such regulations can result in the loss or revocation of existing licenses by the wholesaler, retailer, and/or the supplier. The loss or revocation of any existing

8

Table of Contents

At the federal level, effective January 23, 2003, the Alcohol and Tobacco Tax and Trade Bureau (“TTB”), a newly formed bureau within the Department of the Treasury, has been created to administer and enforce the federal laws and tax code provisions related to the production and taxation of alcohol products. This activity was formerly handled by the Bureau of Alcohol, Tobacco and Firearms. Brewers are required to file an amended notice with the TTB in the event of a material change in the production process, production equipment, brewery’s location, brewery’s management, or a material change in the brewery’s ownership. The TTB permits and registrations can be suspended, revoked, or otherwise adversely affected for failure to pay tax, keep proper accounts, pay fees, bond premises, abide by federal alcoholic beverage production and distribution regulations, and to notify the TTB of any change. Permits, licenses, and approvals from state regulatory agencies can be revoked for many of the same reasons. The Company’s operations are subject to audit and inspection by the TTB at any time.

At the state and local level, some jurisdictions merely require notice of any material change in the operations, management, or ownership of the permit or licensee. Some jurisdictions require advance approvals and require that new licenses, permits, or approvals must be applied for and obtained in the event of a change in the management or ownership of the permit or licensee. State and local laws and regulations governing the sale of beer within a particular state by an out-of-state brewer or wholesaler vary from locale to locale.

Because of the many and various state and federal licensing and permitting requirements, there is a risk that one or more regulatory agencies could determine that the Company has not complied with applicable licensing or permitting regulations or has not maintained the approvals necessary for it to conduct business within its jurisdiction. There can be no assurance that any such regulatory action would not have a material adverse effect upon the Company or its operating results.

Taxation

The federal government and all of the states levy excise taxes on alcoholic beverages, including beer. For brewers producing no more than 2.0 million barrels of malt beverages per calendar year, the federal excise tax is $7.00 per barrel on the first 60,000 barrels of malt beverages removed for consumption or sale during a calendar year, and $18.00 per barrel for each barrel in excess of 60,000. For brewers producing more than 2.0 million barrels of malt beverages for domestic consumption in a calendar year, the federal excise tax is $18.00 per barrel. The Company has been able to take advantage of this reduced tax on the first 60,000 barrels of its malt beverages produced. Individual states also impose excise taxes on alcoholic beverages in varying amounts, which have also been subject to change. The determination of who is responsible, the Company or the distributor, to bear the liability of these taxes varies by state. Twisted Tea® is classified as a beer and is taxed accordingly. In addition, the federal government and each of the states levy taxes on hard cider. The federal excise tax rate on qualifying hard cider is $7.00 per barrel.

Federal and state legislators routinely consider various proposals to impose additional excise taxes on the production and distribution of alcoholic beverages, including beer and hard cider. Further increases in excise taxes on beer and/or hard cider, if enacted, could result in a general reduction in sales for the affected products or in the profit realized from the sales of affected products.

Trademarks

The Company has obtained United States Trademark Registrations for several trademarks, including Samuel Adams®, Sam Adams®, the design logo of Samuel Adams®, Samuel Adams Boston Lager®, Samuel Adams Cherry Wheat®, Sam Adams Light®, Twisted Tea® and HardCore®. The Company has a pending trademark application for its other house mark, Oregon Original^TM. The Samuel Adams® trademark and the Samuel Adams Boston Lager® trademark (including the design logo of Samuel Adams) and other Company trademarks are also registered or registration is pending in various foreign countries. The Company regards its “Samuel Adams” family of trademarks and other trademarks as

9

Table of Contents

Environmental Regulations and Operating Considerations

The Company’s operations are subject to a variety of extensive and changing federal, state, and local environmental laws, regulations, and ordinances that govern activities or operations that may have adverse effects on human health or the environment. Such laws, regulations, or ordinances may impose liability for the cost of remediation, and for certain damages resulting from, sites of past releases of hazardous materials. The Company believes that it currently conducts, and in the past has conducted, its activities and operations in substantial compliance with applicable environmental laws, and believes that any costs arising from existing environmental laws will not have a material adverse effect on the Company’s financial condition or results of operations. However, there can be no assurance that environmental laws will not become more stringent in the future or that the Company will not incur costs in the future in order to comply with such laws.

The Company’s operations are subject to certain hazards and liability risks faced by all producers of alcoholic beverages, such as potential contamination of ingredients or products by bacteria or other external agents that may be wrongfully or accidentally introduced into products or packaging. While the Company has never experienced a contamination problem in its products, the occurrence of such a problem could result in a costly product recall and serious damage to the Company’s reputation for product quality, as well as give rise to product liability claims. The Company and its contract brewers maintain insurance which the Company believes is sufficient to cover any product liability claims which might result from a contamination problem in its products.

As part of its efforts to be environment friendly, the Company has reused its glass returned from certain states that have bottle deposit bills. The Company believes that it benefits economically from washing and reusing this glass which has a lower cost than purchasing new glass, and that it benefits the environment by the reduction in landfill usage, the reduction of usage of raw materials, and the reduction in utilities required in reusing glass versus producing it. The economics of using recycled glass varies based on the cost of collection, sorting and handling, and may be affected by local regulation, retailer, wholesaler and glass dealer behavior. There is no guarantee that the current economics of using returned glass will continue, and that the company will continue to do so.

Employees

During 2002, the Company employed approximately 363 people, of which approximately 65 at the Cincinnati Brewery were covered by collective bargaining agreements. The representation involves three labor unions, all of whose contracts were successfully renegotiated and extended for an additional five years in 2002. The Company believes it maintains a good working relationship with all three labor unions and has no reason to believe that a good working relationship will not continue. The Company has experienced no work stoppages and believes that its employee relations are good.

The Company maintains its principal corporate offices and a brewery in Boston, Massachusetts and a brewery in Cincinnati, Ohio. The Company believes that its facilities are adequate for its current needs and that suitable additional space will be available on commercially acceptable terms as required.

Miller Brewing Company (“Miller”) filed a Demand for Arbitration with the American Arbitration Association seeking a determination as to whether Miller has the right to terminate its existing contractual

10

Table of Contents

The Company is party to certain claims and litigation in the ordinary course of business. The Company does not believe any of these proceedings will, individually or in the aggregate, have a material adverse effect upon its financial condition or results of operations.

There were no matters submitted to a vote of the holders of Class A or Class B Common Stock of the Company during the fourth quarter ended December 28, 2002.

PART II

The Company’s Class A Common Stock is listed for trading on the New York Stock Exchange. The Company’s NYSE symbol is SAM. For the fiscal periods indicated, the high and low per share sales daily close prices for the Class A Common Stock of The Boston Beer Company, Inc. as reported on the New York Stock Exchange-Composite Transaction Reporting System were as follows:

There were approximately 16,000 holders of record of the Company’s Class A Common Stock as of March 19, 2003. Excluded in the number of stockholders of record are stockholders who hold shares in “nominee” or “street” name. The closing price per share of the Company’s Class A Common Stock as of March 19, 2003, as reported under the New York Stock Exchange-Composite Transaction Reporting System, was $14.70.

Class A Common Stock

There were 16,674,556 shares issued and 22,700,000 shares authorized of Class A Common Stock with a par value of $.01 as of December 28, 2002. The Class A Common Stock has no voting rights, except (1) as required by law, (2) for the election of Class A Directors, and (3) that the approval of the holders of the class A Common Stock is required for certain (a) future authorizations or issuances of additional securities which have rights senior to Class A Common Stock, (b) alterations of rights or terms of the Class A or Class B Common Stock as set forth in the Articles of Organization of the Company, (c) other amendments of the Articles of Organization of the Company, (d) mergers or consolidations with, or acquisitions of, other entities, and (e) sales or dispositions of any significant portion of the Company’s assets.

11

Table of Contents

Class B Common Stock

There were 4,107,355 shares issued and outstanding and 4,200,000 shares authorized of Class B Common Stock with a par value of $.01 at December 28, 2002. The Class B Common Stock has full voting rights, including the right to (1) elect a majority of the members of the Company’s Board of Directors and (2) approve all (a) amendments to the Company’s Articles of Organization, (b) mergers or consolidations with, or acquisitions of, other entities, and (c) sales or dispositions of any significant portion of the Company’s assets. The Company’s Class B Common Stock is not listed for trading. Each share of Class B Common Stock is freely convertible into one share of Class A Common Stock, upon request of any Class B holder.

As of March 19, 2003, C. James Koch was the sole holder of record of all the Company’s Class B Common Stock then issued and outstanding.

The holders of the Class A and Class B Common Stock are entitled to dividends, on a share-for-share basis, only if and when declared by the Board of Directors of the Company out of funds legally available for payment thereof. Since its inception, the Company has not paid dividends and does not currently anticipate paying dividends on its Class A or Class B Common Stock in the foreseeable future. It should be further noted that under the terms of the existing credit agreement dated July 1, 2002, the Company is prohibited from paying dividends.

12

Table of Contents

THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES

SELECTED CONSOLIDATED FINANCIAL DATA