UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) | |
| OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
| For the quarterly period ended September 27, 2003 | ||
OR
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) | |
| OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the transition period from _____ to_______
Commission file number: 001-14092
THE BOSTON BEER COMPANY, INC.
| MASSACHUSETTS (State or other jurisdiction of incorporation or organization) |
04-3284048 (I.R.S. Employer Identification No.) |
75 Arlington Street, Boston, Massachusetts
(Address of principal executive offices)
02116
(Zip Code)
(617) 368-5000
(Registrant’s telephone number, including area code)
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 [X] | No [ ] |
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.)
| Yes [X] | No [ ] |
Number of shares outstanding of each of the issuer’s classes of common stock, as of October 23, 2003:
| Class A Common Stock, $.01 par value Class B Common Stock, $.01 par value (Title of each class) |
9,710,440 4,107,355 (Number of shares) |
1
THE BOSTON BEER COMPANY, INC.
FORM 10-Q
QUARTERLY REPORT
SEPTEMBER 27, 2003
TABLE OF CONTENTS
| PAGE | ||||||
| PART I. | FINANCIAL INFORMATION | |||||
| Item 1. | Consolidated Financial Statements | |||||
| Consolidated Balance Sheets September 27, 2003 and December 28, 2002 | 3 | |||||
| Consolidated Statements of Operations for the Three and Nine Months Ended September 27, 2003 and September 28, 2002 | 4 | |||||
| Consolidated Statements of Cash Flows for the Nine Months Ended September 27, 2003 and September 28, 2002 | 5 | |||||
| Notes to Consolidated Financial Statements | 6-8 | |||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 9-14 | ||||
| Item 3. | Quantitative & Qualitative Disclosures about Market Risk | 14 | ||||
| Item 4. | Controls and Procedures | 14 | ||||
| PART II. | OTHER INFORMATION | |||||
| Item 1. | Legal Proceedings | 15 | ||||
| Item 2. | Changes in Securities | 15 | ||||
| Item 3. | Defaults Upon Senior Securities | 15 | ||||
| Item 4. | Submission of Matters to a Vote of Security Holders | 15 | ||||
| Item 5. | Other Information | 15 | ||||
| Item 6. | Exhibits and Reports on Form 8-K | 15-20 | ||||
| SIGNATURES | 21 | |||||
2
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
| September 27, | December 28, | ||||||||||
| 2003 | 2002 | ||||||||||
| (unaudited) | |||||||||||
Assets |
|||||||||||
Current Assets: |
|||||||||||
Cash and cash equivalents |
$ | 19,626 | $ | 20,608 | |||||||
Short-term investments |
15,131 | 32,001 | |||||||||
Accounts receivable, net of the allowance for doubtful accounts of
$524 and $689 as of September 27, 2003 and December 28, 2002,
respectively |
14,528 | 17,830 | |||||||||
Inventories |
11,248 | 8,342 | |||||||||
Prepaid expenses |
1,016 | 1,284 | |||||||||
Deferred income taxes |
1,461 | 1,959 | |||||||||
Other current assets |
1,950 | 1,513 | |||||||||
Total current assets |
64,960 | 83,537 | |||||||||
Property, plant and equipment, net |
18,134 | 20,202 | |||||||||
Other assets |
2,495 | 1,690 | |||||||||
Goodwill |
1,377 | 1,377 | |||||||||
Total assets |
$ | 86,966 | $ | 106,806 | |||||||
Liabilities and Stockholders’ Equity |
|||||||||||
Current Liabilities: |
|||||||||||
Accounts payable |
$ | 9,603 | $ | 8,997 | |||||||
Accrued expenses |
16,869 | 15,874 | |||||||||
Total current liabilities |
26,472 | 24,871 | |||||||||
Long-term deferred income taxes |
2,143 | 2,406 | |||||||||
Other long-term liabilities |
668 | 697 | |||||||||
Commitments and Contingencies |
|||||||||||
Stockholders’ Equity: |
|||||||||||
Class A Common Stock, $.01 par value;
22,700,000 shares authorized; 16,808,907 and 16,674,556 issued
as of September 27, 2003 and December 28, 2002, respectively |
168 | 166 | |||||||||
Class B Common Stock, $.01 par value;
4,200,000 shares authorized; 4,107,355 issued and outstanding |
41 | 41 | |||||||||
Additional paid-in-capital |
60,658 | 59,144 | |||||||||
Unearned compensation |
(284 | ) | (189 | ) | |||||||
Other comprehensive income |
147 | 419 | |||||||||
Retained earnings |
71,141 | 64,200 | |||||||||
Less: Treasury Stock at cost,
7,066,267 and 5,011,947 shares as of September 27, 2003 and
December 28, 2002, respectively |
(74,188 | ) | (44,949 | ) | |||||||
Total stockholders’ equity |
57,683 | 78,832 | |||||||||
Total liabilities and stockholders’ equity |
$ | 86,966 | $ | 106,806 | |||||||
The accompanying notes are an integral part of these consolidated financial statements
3
| Three months ended | Nine months ended | ||||||||||||||||
| September 27, | September 28, | September 27, | September 28, | ||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Revenue |
$ | 61,584 | $ | 62,602 | $ | 173,868 | $ | 178,298 | |||||||||
Less excise taxes |
6,039 | 6,043 | 16,684 | 17,207 | |||||||||||||
Net
revenue |
55,545 | 56,559 | 157,184 | 161,091 | |||||||||||||
Cost of sales |
22,853 | 23,569 | 63,590 | 65,450 | |||||||||||||
Gross profit |
32,692 | 32,990 | 93,594 | 95,641 | |||||||||||||
Operating expenses: |
|||||||||||||||||
Advertising, promotional and selling expenses |
22,239 | 29,366 | 71,555 | 75,643 | |||||||||||||
General and administrative expenses |
4,348 | 3,397 | 11,820 | 10,745 | |||||||||||||
Total operating expenses |
26,587 | 32,763 | 83,375 | 86,388 | |||||||||||||
Operating income |
6,105 | 227 | 10,219 | 9,253 | |||||||||||||
Other income: |
|||||||||||||||||
Interest income, net |
287 | 334 | 941 | 731 | |||||||||||||
Other income (expense) |
3 | 13 | (1 | ) | 1,039 | ||||||||||||
Total other income |
290 | 347 | 940 | 1,770 | |||||||||||||
Income before provision for income taxes |
6,395 | 574 | 11,159 | 11,023 | |||||||||||||
Provision for income taxes |
2,407 | 212 | 4,218 | 4,539 | |||||||||||||
Net income |
$ | 3,988 | $ | 362 | $ | 6,941 | $ | 6,484 | |||||||||
Earnings per common share – basic |
$ | 0.28 | $ | 0.02 | $ | 0.46 | $ | 0.40 | |||||||||
Earnings per common share - diluted |
$ | 0.28 | $ | 0.02 | $ | 0.46 | $ | 0.39 | |||||||||
Weighted average number of common shares – basic |
14,183 | 15,878 | 15,001 | 16,196 | |||||||||||||
Weighted average number of common shares – diluted |
14,465 | 16,175 | 15,254 | 16,520 | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements
4
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
| Nine months ended | |||||||||||
| September 27, | September 28, | ||||||||||
| 2003 | 2002 | ||||||||||
| (unaudited) | (unaudited) | ||||||||||
Cash flows from operating activities: |
|||||||||||
Net income |
$ | 6,941 | $ | 6,484 | |||||||
Adjustments to reconcile net income to net cash from operating activities: |
|||||||||||
Depreciation and amortization |
4,232 | 4,497 | |||||||||
Loss on disposal of fixed assets |
30 | 206 | |||||||||
Stock compensation expense |
65 | 64 | |||||||||
Bad debt expense |
(39 | ) | 116 | ||||||||
Realized gain on sale of marketable equity securities |
(128 | ) | (21 | ) | |||||||
Changes in assets and liabilities: |
|||||||||||
Accounts receivable |
3,344 | (699 | ) | ||||||||
Inventory |
(2,906 | ) | (2,343 | ) | |||||||
Prepaid expenses |
268 | 38 | |||||||||
Other current assets |
(704 | ) | (623 | ) | |||||||
Other assets |
(1,411 | ) | (942 | ) | |||||||
Deferred taxes |
234 | 380 | |||||||||
Accounts payable |
606 | 2,311 | |||||||||
Accrued expenses |
1,392 | 2,413 | |||||||||
Other long-term liabilities |
(29 | ) | (286 | ) | |||||||
Net cash provided by operating activities |
11,895 | 11,595 | |||||||||
Cash flows from investing activities: |
|||||||||||
Purchases of property, plant and equipment |
(1,504 | ) | (1,663 | ) | |||||||
Proceeds on disposal of fixed assets |
32 | 202 | |||||||||
Proceeds from the sale of available-for-sale investments |
20,410 | 16,080 | |||||||||
Purchases of available-for-sale securities |
(3,685 | ) | (36,130 | ) | |||||||
Purchases of held-to-maturity securities |
— | (9,027 | ) | ||||||||
Net cash provided by (used in) investing activities |
15,253 | (30,538 | ) | ||||||||
Cash flows from financing activities: |
|||||||||||
Purchase of treasury stock |
(29,239 | ) | (9,877 | ) | |||||||
Proceeds from exercise of stock options |
943 | 304 | |||||||||
Net proceeds from the sale of investment shares |
166 | 84 | |||||||||
Net cash used in financing activities |
(28,130 | ) | (9,489 | ) | |||||||
Change in cash and cash equivalents |
(982 | ) | (28,432 | ) | |||||||
Cash and cash equivalents at beginning of period |
$ | 20,608 | 45,838 | ||||||||
Cash and cash equivalents at end of period |
$ | 19,626 | $ | 17,406 | |||||||
Supplemental disclosure of cash flow information: |
|||||||||||
Income taxes paid |
$ | 3,339 | $ | 3,773 | |||||||
The accompanying notes are an integral part of these consolidated financial statements
5
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
| A. | Organization and Basis of Presentation |
The Boston Beer Company, Inc. and its subsidiaries (the “Company”) are engaged in the business of brewing and selling malt beverages and cider products throughout the United States and in selected international markets. The accompanying consolidated statement of financial position as of September 27, 2003 and the statement of consolidated operations and consolidated cash flows for the interim periods ending September 27, 2003 and September 28, 2002 have been prepared by the Company, without audit, in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 28, 2002.
Management’s Opinion
In the opinion of the Company’s management, the Company’s unaudited consolidated financial position as of September 27, 2003 and the results of its consolidated operations and consolidated cash flows for the interim periods ended September 27, 2003 and September 28, 2002, reflect all adjustments (consisting only of normal and recurring adjustments) necessary to present fairly the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year.
| B. | Short-Term Investments |
Short-term investments as of September 27, 2003 and December 28, 2002 were classified as follows, depending upon the Company’s intent and the nature of the investment:
| As September 27, 2003 | As of December 28, 2002 | |||||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Investment | Fair Market | Unrealized | Fair Market | Unrealized | ||||||||||||
| Classification | Value | Gain/(Loss) | Value | Gain/(Loss) | ||||||||||||
Available-for-sale |
$ | 15,071 | $ | 208 | $ | 31,941 | $ | 481 | ||||||||
Trading |
60 | — | 60 | — | ||||||||||||
Total |
$ | 15,131 | $ | 208 | $ | 32,001 | $ | 481 | ||||||||
The Company recorded realized gains of approximately $128,000 and $21,000 during the nine months ended September 27, 2003 and September 28, 2002, respectively.
| C. | Inventories |
Inventories, which consist principally of hops, brewery materials and packaging, are stated at the lower of cost, determined on a first-in, first-out (FIFO) basis, or market.
| Inventories consist of the following (in thousands): |
| September 27, | December 28, | |||||||
| 2003 | 2002 | |||||||
Raw materials, principally hops |
$ | 7,886 | $ | 6,548 | ||||
Work in process |
707 | 758 | ||||||
Finished goods |
2,655 | 1,036 | ||||||
| $ | 11,248 | $ | 8,342 | |||||
6
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| D. | Net Income per Share |
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
| For the three months ended | For the nine months ended | |||||||||||||||
| September 27, | September 28, | September 27, | September 28, | |||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
Net income |
$ | 3,988 | $ | 362 | $ | 6,941 | $ | 6,484 | ||||||||
Shares used in earnings per common share - basic |
14,183 | 15,878 | 15,001 | < | ||||||||||||