Boston Beer Co., Inc.

Harvard Business School Case #196-138

Case Software #XLS-029

Copyright © 2010 President and Fellows of Harvard College. No part of this product may be
reproduced, stored in a retrieval system or transmitted in any form or by any means—electronic,
mechanical, photocopying, recording or otherwise—without the permission of Harvard Business
School.
Exhibit 1 Brewing Capacity and Utilization of Major U.S. Brewers

Total Capacity 1994 Volume Free Capacity Capacity Utilization

(Million Barrels) (Million Barrels) (Million Barrels) (%)

Anheuser-Busch 94.9 88.2 6.7 93%

Miller Brewing 46.4 45.2 1.2 97%

Coors 25.0 20.2 4.8 81%

Strohs 17.9 11.9 6.0 66%

G. Heileman 13.2 8.3 4.9 63%

Pabst 10.5 6.6 3.9 63%

Source: M.J. Rietbrock et. al., “Redhook Ale Brewery,” Analyst Report, Smith Barney, September 15, 1995. Reprinted from
Beer Marketers Insights.
Exhibit 2 Shipments of U.S. Beer Companies, 1990-1994

1990 1991 1992 1993 1994

(000's Barrels) (000's Barrels) (000's Barrels) (000's Barrels) (000's Barrels)

Top Tier Annheuser-Busch 86,499 86,037 86,846 87,306 88,159

Miller Brewing 43,500 43,556 42,145 44,024 45,200
Coors 19,300 19,550 20,000 20,000 20,200

Subtotal 149,299 149,143 148,991 151,330 153,559

2nd Tier Strohs 16,200 14,800 14,000 12,610 11,850

G. Heileman 10,914 9,377 9,133 8,940 8,315
Pabst 6,700 6,600 6,900 7,000 6,630
Genesee 2,200 2,220 2,150 2,000 1,800
Latrobe 713 803 882 1,035 1,060
Falstaff/Pearl/Genesee 850 800 900 800 700
Pittsburg 700 700 670 575 470
All Others 1,871 2,554 3,907 2,582 1,473

Subtotal 40,148 37,854 38,542 35,542 32,298

Imports All Imports 8,922 8,031 8,409 9,348 10,602

Craft Brewers
Boston Beer 121 174 294 475 714
Pete's Brewing 9 15 29 69 180
Redhook 24 34 50 74 94
All Others 566 737 817 1,092 1,642

Subtotal 720 960 1,190 1,710 2,630

Total 199,089 195,988 197,132 197,930 199,089

Sources: M.J. Rietbrock et al., “Redhook Ale Brewery,” Analyst Report, Smith Barney, September 15, 1995, and L. Adelman, “Pete’s Brewing Company,” Analyst Report, Dean
Witter Reynolds, December 6, 1995
Exhibit 3 Stock Price Data For Pete's Brewing Company and Redhook Ale Brewery

Pete's Brewing Company Redhook Ale Brewery

Offering Price $18 $17

Date of Offering November 7, 1995 August 17, 1995
Number of Shares Offered 3,000,000 2,575,497
Fully Diluted Average Shares 8,460,000 9,300,000
1st Day Close $25 1/4 $27
Low Trade as of 11/20/95 $23 3/4 $24 3/4
High Trade as of 11/20/95 $26 1/4 $34 3/4
Stock Price Close on 11/20/95 $24 3/4 $27
P/E Ratio on 11/20/95 100 36
P/B Ratio on 11/20/95 129 3

Additional Market Information

Beta for Anheuser Busch 1.00

AAA Corporate Debt in November, 1995 7.02%
Treasury Bill Rate in November, 1995 5.35%
Government 30-Year Treasury Notes 6.26%

Source: Datastream (stock price data), ValueLine (Beta), and The Wall Street Journal (interest rates).

P/B was calculated using shareholders equity as of September 30, 1995.

P/E was based on P/B and annualized 3rd quarter ROEs. Annualized ROEs were 129.3% and 8.6% for Pete’s Brewing and
Redhook, respectively.
Exhibit 4 Financial Summary of Pete' Brewing Company and Redhook Ale Brewery

Pete's Brewing Company Redhook Ale Brewery

Year Ended 9 Months Ending Year Ended 9 Months Ending

31-Dec-93 31-Dec-94 30-Sep-95 31-Dec-93 31-Dec-94 30-Sep-95

Return on Equity
Profit Before Taxes/Net Sales (a) 1.07% 1.67% 3.50% 27.80% 22.20% 18.00%
x Net Sales/Average Assets 5.70 6.83 4.44 0.77 0.55 0.30
x Average Assets/Average Equity (b) 6.74 6.21 6.24 1.50 1.29 1.19
= Return on Equity (pre-tax) 41.11% 70.83% 96.97% 31.97% 15.62% 6.44%

Margins
Gross Profit/Net Sales 46.85% 45.20% 49.65% 46.34% 41.82% 34.35%
SGA/Net Sales 45.50% 43.20% 42.80% 17.42% 18.76% 17.59%
Operating Profit/Net Sales 1.36% 1.96% 3.85% 28.92% 23.06% 16.76%
Interest Expense/Net Sales 0.30% 0.30% 0.40% 1.38% 0.87% N/A
Inventory Turnover 4.99 10.69 6.54 23.62 15.02 10.32
Avg Collection Period (c) 11.90 11.20 39.40 29.60 28.00 32.90
Avg Accts Pay Period (c) (d) 58.50 43.70 41.90 78.60 85.02 99.10

Aggregate Size Measures

Net Sales (000's) 12,236 30,837 41,988 11,484 14,929 17,929
Barrels Sold (000's) 69 180 246 74 94 111
Total Assets (000's) 3,118 5,918 12,983 20,044 34,689 84,553
Total Shareholders Equity 400 1,040 1,987 15,000 26,059 74,372
Total Employees N/A N/A 76 N/A N/A 138
Total Salespersons N/A N/A 56 N/A N/A 16

(a)
Net sales are exclusive of excise taxes.
(b)
For Redhook, equity includes convertible, redeemable preferred stock.
(c)
1995 figures are based on 272 days.
(d)
Payables include trade payables only (no accrued liabilities). Purchases include cost of sales plus increase in inventory during the year.
Exhibit 5 Excerpts from the Boston Beer Company’s Offering Prospectus

Summary Financial Data (in thousands, except per share, per barrel and employees data)

Nine Months Ended

Year Ended December 31, September 30,
1990 1991 1992 1993 1994 1994 1995
Income Statement Data:
Net sales $18,922 $29,457 $48,178 $77,151 $114,833 $81,620 $108,905
Gross profit 10,813 16,418 26,150 41,670 61,982 44,074 56,290
Operating income 15 2,066 1,769 4,896 8,886 8,024 7,427
Net income (1) 291 2,089 1,645 4,894 9,085 8,109 8,261
Pro forma net income (2) 161 1,230 954 2,854 5,320 4,749 4,702
Pro forma earnings per $.29 $0.26
share (2) (3)
Shares outstanding, fully 18,268 18,273
diluted (3)

Statistical Data:
Barrels sold 121 174 294 475 714 510 688
Net sales per barrel $156 $169 $164 $162 $161 $160 $158
Employees 65 69 87 110 138 124 174
Net sales per employee $291 $427 $554 $701 $832 $658 $626

September 30, 1995

Actual As Adjusted (4)

Balance Sheet Data:

Working capital $9,451 $17,128
Total assets 33,398 49,686
Total debt (including current portion) 1,950 1,950
Partners’/Stockholders’ equity 13,229 29,517

(1) Does not reflect any provision for income taxes because the Company, as a partnership, was not subject to income taxes.
(2) Reflects pro forma provisions for income taxes using statutory federal and state corporate income tax rates that would have been applied had the
Company been required to file income tax returns during the indicated periods. See Note C of Notes to the financial statements included elsewhere in this
Prospectus.

(3) Reflects weighted average number of common and common equivalent shares of the Class A and Class B Common Stock assumed to be outstanding
during the respective periods. See Note C of Notes to the financial statements included elsewhere in this Prospectus.

(4) Adjusted to give effect to the Recapitalization and receipt of estimated net proceeds of the Offerings by the Company based upon an assumed initial
public offering price of $12.50 per share (the mid-point of the range of the initial public offering prices set forth on the cover page of the Underwritten
Prospectus), the application of the estimated net proceeds as described under “Use of Proceeds” assuming $7,000,000 of capital expenditures,
distributions of approximately $12,500,000 (the “$12,500,000 Distribution”) to partners during November 1995 (including $100,000 to be distributed to
partners to fund tax liabilities in accordance with past practice) and repayment of any indebtedness used to fund liabilities in accordance with past
practice) and repayment of any indebtedness used to fund such distributions and the recording of a deferred tax asset of $2,080,000 arising from the
Recapitalization. See “Certain Transactions—Recapitalization.”
Exhibit 5 Excerpts from the Boston Beer Company’s Offering Prospectus (cont.)

Balance Sheets December 31, 1993 and 1994 and September 30, 1995

(in thousands)

Pro forma
September 30,
December 31, September 30, 1995
1993 1994 1995 (Note C)
Assets (Unaudited)
Cash and cash equivalents $8,827 $7,801 $1,552 ---
Accounts receivable 8,112 10,060 15,073 $15,073
Inventory 3,706 7,755 8,485 8,485
Prepaid expenses 216 501 907 907
Other current assets 512 1,105 1,703 1,703
Total current assets 21,373 27,222 27,270 26,168
Restricted investments 579 605 602 602
Equipment and leasehold improvements,
net 1,864 3,539 3,963 3,963
Other assets 238 410 1,113 1,113
Total assets $24,054 $31,776 $33,398 $31,846

Liabilities and Partners’ Equity

Accounts payable 2,917 9,270 6,539 6,539
Accrued expenses 10,233 13,906 11,680 11,680
Current maturities of long-term debt 50 50 50 50
Total current liabilities 13,200 23,226 18,269 18,269
Long-term debt, less current maturities 2,000 1,950 1,900 12,848
Commitments and contingencies (Note H)
Partners’ equity 8,854 6,600 13,229 729
Total liabilities and partners’ equity $24,054 $31,776 $33,398 $31,846

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

Exhibit 5 Excerpts from the Boston Beer Company’s Offering Prospectus (cont.)

Statements of Income

For the years ended December 31, 1992, 1993 and 1994 and the nine months ended September 30,
1994 (Unaudited) and 1995 (Unaudited)

(in thousands except for share data)

For the Years Ended Nine Months Ended

December 31, September 30,
1992 1993 1994 1994 1995
(Unaudited)
Sales $53,343 $85,758 $128,077 $91,098 $121,895
Less excise taxes 5,165 8,607 13,244 9,478 12,990
Net sales 48,178 77,151 114,833 81,620 108,905
Cost of goods sold 22,028 35,481 52,851 37,546 51,615
Gross profit 26,150 41,670 61,982 44,074 56,290
Advertising, promotional and selling
expenses 21,075 32,669 46,303 31,734 43,408
General and administrative expenses 3,306 4,105 6,793 4,316 5,455
Total operating expenses 24,381 36,774 53,096 36,050 48,863
Operating income 1,769 4,896 8,886 8,024 7,427
Other income (expense):
Interest income 221 230 429 269 203
Interest expense (243) (239) (233) (177) (173)
Other, net (102) 7 3 (7) 804
Total other income (124) (2) 199 85 834
Net income $1,645 $4,894 $9,085 $8,109 $8,261
Pro forma data (Unaudited):
Income before pro forma income taxes $1,645 $4,894 $9,085 $8,109 $8,261
Pro forma net income tax expense 691 2,040 3,765 3,360 3,559
Pro forma net income $954 $2,854 $5,320 $4,749 $4,702
Pro forma earnings per share $0.29 $0.26
Pro forma weighted average
 number of shares outstanding 18,267,706 18,272,741

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

Exhibit 5 Excerpts from the Boston Beer Company’s Offering Prospectus (cont.)

Statements of Partners’ Equity for the years ended December 31, 1992, 1993 and 1994 and the nine months
ended September 30, 1995

(in thousands)

Unearned Total Partners

General Limited Compensation Equity

Balance, December 31,1991 $160 $5,794 $5,954

Add:
Net income for the year 407 1,238 1,645
Compensation associated with unit options 330 330
Deduct:
Withdrawals (367) (1,126) (1,493)
Balance, December 31, 1992 200 6,236 6,436
Add:
Net income for the year 1,208 3,686 4,894
Deduct:
Withdrawals (605) (1,871) (2,476)
Balance, December 31, 1993 803 8,051 8,854
Add:
Net income for the year 2,242 6,843 9,085
Compensation associated with unit options 280 280
Deduct:
Withdrawals (2,813) (8,806) (11,619)
Balance, December 31, 1994 232 6,368 6,600
Add:
Net income for the nine months 2,039 6,222 8,261
Conversion of unit plans to unit options 4,352 $(618) 3,734
Issuance of unit options 141 (141) ----
Amortization of unearned compensation expense 189 189
Deduct:
Withdrawals (1,364) (4,191) (5,555)
Balance, September 30, 1995 (Unaudited) $907 $12,892 $(570) $13,229

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

Exhibit 5 Excerpts from the Boston Beer Company’s Offering Prospectus (cont.)

Statements of Cash Flow, for the years ended December 31, 1992, 1993 and 1994 and the nine months ended
September 30, 1994 (Unaudited) and 1995 (Unaudited)

(in thousands)

Nine Months Ended

Years Ended December 31, September 30,
1992 1993 1994 1994 1995
(Unaudited)
Cash flows from operating activities
Net income $1,645 $4,894 $9,085 $8,109 $8,261
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 341 476 925 525 1,086
(Gain) loss on disposal of fixed asset 69 (3) 21 21 (19)
Stock option compensation expense 330 --- 280 --- 188
Changes in assets and liabilities:
Accounts receivable (1,393) (3,689) (1,948) (7,217) (5,013)
Inventory (919) (1,847) (4,049) (1,255) (730)
Prepaid expenses (135) 2 (285) (393) (406)
Other current assets (308) 3 (593) (190) (598)
Other assets 28 (34) (172) (178) (703)
Accounts payable 908 728 6,353 5,129 (2,731)
Accrued expenses 2,361 5,079 3,673 3,520 1,508
Total adjustments 1,282 715 4,205 (38) (7,418)
Net cash provided by (used for) operating activities 2,927 5,609 13,290 8,071 843

Cash flows from investing activities:

Additions to fixed assets (749) (893) (2,621) (1,830) (1,535)
Proceeds on disposal of fixed assets 12 --- --- --- 45
Purchases of restricted investments (18) (209) (1,171) (815) (612)
Maturities of restricted investments --- 297 1,145 799 615
Net cash used in investing activities (755) (805) (2,647) (1,846) (1,487)
Cash flows from financing activities
Principal payments on long-term debt (50) (50) (50) (50) (50)
Proceeds from revolving line of credit --- --- --- --- 700
Repayments of revolving line of credit --- --- --- --- (700)
Partners’ distributions (1,493) (2,477) (11,669) (5,610) (5,555)
Net cash used in financing activities (1,543) (2,527) (11,669) (5,660) (5,605)

Net (decrease) increase in cash and cash equivalents 629 2,277 (1,026) 565 (6,249)
Cash and cash equivalents at beginning of period 5,921 6,550 8,827 8,827 7,801
Cash and cash equivalents at end of period $6,550 $8,827 $7,801 $9,392 $1,552

Supplemental disclosure of cash flow information:

Interest paid $247 $242 $236 $236 $230

In 1995, the Partnership credited $3,734,000 from accrued expenses to equity in connection with conversion of unit plans to unit options.

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

Exhibit 5 Excerpts from the Boston Beer Company’s Offering Prospectus (cont.)

Current Long-Term Total

(In thousands)
Incentive/investment unit and option plans $73 $1,822 $1,895
Reserves 162 162
Other 234 (211) 23
$469 $1,611 $2,080
Exhibit 5 Excerpts from the Boston Beer Company’s Offering Prospectus
(cont.)

December 31, September 30,

1993 1994 1995

(in thousands) (unaudited)

Raw materials, principally hops $3,236 $6,465 $7,409
Work in process --- 402 $7,409
Finished goods 470 888 1,002
$3,706 $7,755 $8,485
Exhibit 5 Excerpts from the Boston Beer Company’s Offering Prospectus (cont.)

December 31, September 30,

1993 1994 1995
(in thousands) (Unaudited)
Kegs and equipment $1,916 $3,594 $4,593
Office equipment and furniture 614 1,112 1,810
Leasehold improvements 260 911 677
Construction-in-progress 254 - --
3,044 5,617 7,080
Less accumulated depreciation 1,180 2,078 3,117
$1,864 $3,539 $3,963
Exhibit 5 Excerpts from the Boston Beer Company’s Offering Prospectus (cont.)

December 31, September 30,

1993 1994 1995
(in thousands) (unaudited)
Advertising $3,588 $4,011 $4,589
Keg deposits 575 876 1,116
Freight 550 1,017 1,460
Employee wages and reimbursements 614 911 1,147
Incentive/investment unit plans 3,118 4,451 526
Point of sale related accruals 500 800 985
Other accrued liabilities 1,288 1,840 1,857
$10,233 $13,906 $11,680
Exhibit 5 Excerpts from the Boston Beer Company’s
Offering Prospectus (cont.)

(in thousands)
1996 75
1997 75
1998 75
1999 100
2000 100
Thereafter 1,525
1,950
Less: current portion 50
Total long-term debt $1,900
Exhibit 5 Excerpts from the Boston Beer
Company’s Offering Prospectus (cont.)

(in thousands)
1995 $300
1996 304
1997 298
1998 293
1999 281
Thereafter 189
$1,665
Exhibit 5 Excerpts from the Boston Beer Company’s Offering Prospectus (cont.)

Additions
Balance at Charged to
Beginning of Costs and Net Additions Balance at
Description Period Expenses (Deductions) End of Period
Allowance for Doubtful Accounts

1992 $113 $94 $(26) $181

1993 181 (23) (12) 146
1994 146 47 (11) 182
1995 182 102 (112) 172

Inventory Reserves
1992 $27 $47 $(54) $20
1993 20 474 (37) 457
1994 457 381 (590) 248
1995 248 560 (503) 305