10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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| þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the quarterly period ended September 26, 2009
OR
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| o |
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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: 1-14092
THE BOSTON BEER COMPANY, INC.
(Exact name of registrant as specified in its charter)
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MASSACHUSETTS
(State or other jurisdiction of incorporation
or organization)
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04-3284048
(I.R.S. Employer
Identification No.) |
One Design Center Place, Suite 850, Boston, Massachusetts
(Address of principal executive offices)
02210
(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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to
submit and post such files). Yes o No o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
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| Large accelerated filer o |
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Accelerated filer þ
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Non-accelerated filer o
(Do not check if a smaller reporting
company) |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act.) Yes o No þ
Number of shares outstanding of each of the issuer’s classes of common stock, as of November 3, 2009:
| |
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|
Class A Common Stock, $.01 par value
Class B Common Stock, $.01 par value
(Title of each class)
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10,145,059
4,107,355
(Number of shares) |
THE BOSTON BEER COMPANY, INC.
FORM 10-Q
QUARTERLY REPORT
SEPTEMBER 26, 2009
TABLE OF CONTENTS
2
PART I. Item 1. FINANCIAL INFORMATION
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
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September 26, |
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December 27, |
|
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2009 |
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2008 |
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|
(unaudited) |
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Assets |
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|
|
|
|
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Current Assets: |
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|
|
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Cash and cash equivalents |
|
$ |
44,802 |
|
|
$ |
9,074 |
|
Accounts receivable, net of allowance for
doubtful accounts of $300 and $255 as of
September 26, 2009 and December 27, 2008,
respectively |
|
|
24,331 |
|
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|
18,057 |
|
Inventories |
|
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24,132 |
|
|
|
22,708 |
|
Prepaid expenses and other assets |
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6,736 |
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|
16,281 |
|
Deferred income taxes |
|
|
1,988 |
|
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|
2,734 |
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|
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Total current assets |
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101,989 |
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68,854 |
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Property, plant and equipment, net |
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146,665 |
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147,920 |
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Other assets |
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1,530 |
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1,606 |
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Goodwill |
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1,377 |
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|
1,377 |
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Total assets |
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$ |
251,561 |
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$ |
219,757 |
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Liabilities and Stockholders’ Equity |
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Current Liabilities: |
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Accounts payable |
|
$ |
18,709 |
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$ |
20,203 |
|
Accrued expenses |
|
|
55,273 |
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46,854 |
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|
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|
|
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Total current liabilities |
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73,982 |
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67,057 |
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Deferred income taxes |
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9,617 |
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9,617 |
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Other liabilities |
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2,656 |
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3,055 |
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Total liabilities |
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86,255 |
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79,729 |
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Commitments and Contingencies |
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Stockholders’ Equity: |
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Class A Common Stock, $.01 par value;
22,700,000 shares authorized; 10,144,258 and
10,068,486 shares issued and outstanding as of
September 26, 2009 and December 27, 2008,
respectively |
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101 |
|
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|
101 |
|
Class B Common Stock, $.01 par value; 4,200,000
shares authorized; 4,107,355 shares issued and
outstanding |
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|
41 |
|
|
|
41 |
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Additional paid-in capital |
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108,350 |
|
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|
102,653 |
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Accumulated other comprehensive loss, net of tax |
|
|
(431 |
) |
|
|
(431 |
) |
Retained earnings |
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57,245 |
|
|
|
37,664 |
|
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|
|
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|
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Total stockholders’ equity |
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165,306 |
|
|
|
140,028 |
|
|
|
|
|
|
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Total liabilities and stockholders’ equity |
|
$ |
251,561 |
|
|
$ |
219,757 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
3
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
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Three months ended |
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Nine months ended |
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September 26, |
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September 27, |
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September 26, |
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September 27, |
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2009 |
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2008 |
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2009 |
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2008 |
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Revenue (net of product recall returns of $979
and $13,307 for the three and nine months in
2008, respectively) |
|
$ |
118,851 |
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$ |
110,467 |
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$ |
335,967 |
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$ |
323,446 |
|
Less excise taxes |
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10,129 |
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9,339 |
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28,102 |
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28,823 |
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Net revenue |
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108,722 |
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101,128 |
|
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307,865 |
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|
294,623 |
|
Cost of goods sold (including costs associated
with product recall of $1,254 and $9,546 for the
three and nine months in 2008, respectively) |
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50,417 |
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57,237 |
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149,540 |
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159,281 |
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Gross profit |
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58,305 |
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43,891 |
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158,325 |
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135,342 |
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Operating expenses: |
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Advertising, promotional and selling expenses |
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32,737 |
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|
34,004 |
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|
89,792 |
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|
101,249 |
|
General and administrative expenses |
|
|
8,388 |
|
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|
9,368 |
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27,149 |
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|
26,017 |
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|
|
|
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|
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|
|
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Total operating expenses |
|
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41,125 |
|
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43,372 |
|
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|
116,941 |
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127,266 |
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|
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|
|
|
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Operating income |
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17,180 |
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|
519 |
|
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|
41,384 |
|
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|
8,076 |
|
Other income, net: |
|
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|
|
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|
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|
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|
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Interest income |
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46 |
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|
134 |
|
|
|
85 |
|
|
|
1,316 |
|
Other (expense) income, net |
|
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(4 |
) |
|
|
(14 |
) |
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— |
|
|
|
200 |
|
|
|
|
|
|
|
|
|
|
|
|
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Total other income, net |
|
|
42 |
|
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|
120 |
|
|
|
85 |
|
|
|
1,516 |
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|
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|
|
|
|
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|
|
|
|
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|
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Income before provision for income taxes |
|
|
17,222 |
|
|
|
639 |
|
|
|
41,469 |
|
|
|
9,592 |
|
Provision for income taxes |
|
|
6,848 |
|
|
|
934 |
|
|
|
17,811 |
|
|
|
5,101 |
|
|
|
|
|
|
|
|
|
|
|
|
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Net income (loss) |
|
$ |
10,374 |
|
|
$ |
(295 |
) |
|
$ |
23,658 |
|
|
$ |
4,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
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|
|
|
|
|
|
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|
Net income (loss) per common share — basic |
|
$ |
0.74 |
|
|
$ |
(0.02 |
) |
|
$ |
1.68 |
|
|
$ |
0.32 |
|
|
|
|
|
|
|
|
|
|
|
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|
Net income (loss) per common share — diluted |
|
$ |
0.72 |
|
|
$ |
(0.02 |
) |
|
$ |
1.65 |
|
|
$ |
0.31 |
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Weighted-average number of common shares — basic |
|
|
14,008 |
|
|
|
13,934 |
|
|
|
14,054 |
|
|
|
13,890 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
Weighted-average number of common shares — diluted |
|
|
14,334 |
|
|
|
13,934 |
|
|
|
14,322 |
|
|
|
14,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
4
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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Nine months ended |
|
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September 26, |
|
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September 27, |
|
| |
|
2009 |
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2008 |
|
|
|
|
|
|
|
|
|
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Cash flows provided by operating activities: |
|
|
|
|
|
|
|
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Net income |
|
$ |
23,658 |
|
|
$ |
4,491 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
12,679 |
|
|
|
8,289 |
|
Impairment of long-lived assets |
|
|
589 |
|
|
|
— |
|
(Gain) loss on disposal of property, plant and equipment |
|
|
(1 |
) |
|
|
25 |
|
Bad debt expense (recovery) |
|
|
49 |
|
|
|
(7 |
) |
Stock-based compensation expense |
|
|
2,408 |
|
|
|
3,354 |
|
Excess tax benefit from stock-based compensation arrangements |
|
|
(1,174 |
) |
|
|
(4,578 |
) |
Deferred income taxes |
|
|
746 |
|
|
|
— |
|
Proceeds from sale of trading securities |
|
|
— |
|
|
|
16,200 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(6,323 |
) |
|
|
(3,331 |
) |
Inventories |
|
|
(1,424 |
) |
|
|
(5,714 |
) |
Prepaid expenses and other assets |
|
|
9,641 |
|
|
|
(754 |
) |
Accounts payable |
|
|
(1,494 |
) |
|
|
6,890 |
|
Accrued expenses |
|
|
9,593 |
|
|
|
2,649 |
|
Other liabilities |
|
|
(399 |
) |
|
|
(343 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
48,548 |
|
|
|
27,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Cash flows used in investing activities: |
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(11,900 |
) |
|
|
(45,339 |
) |
Proceeds from disposal of property, plant and equipment |
|
|
— |
|
|
|
11 |
|
Purchase of brewery assets |
|
|
— |
|
|
|
(44,960 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(11,900 |
) |
|
|
(90,288 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used in financing activities: |
|
|
|
|
|
|
|
|
Repurchase of Class A common stock |
|
|
(4,077 |
) |
|
|
(15,324 |
) |
Proceeds from exercise of stock options |
|
|
1,642 |
|
|
|
4,842 |
|
Excess tax benefit from stock-based compensation arrangements |
|
|
1,174 |
|
|
|
4,578 |
|
Net proceeds from sale of investment shares |
|
|
341 |
|
|
|
301 |
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(920 |
) |
|
|
(5,603 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
35,728 |
|
|
|
(68,720 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
9,074 |
|
|
|
79,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
44,802 |
|
|
$ |
10,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Income taxes paid |
|
$ |
7,336 |
|
|
$ |
8,329 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
5
THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Organization and Basis of Presentation
The Boston Beer Company, Inc. and its subsidiaries (the “Company”) are engaged in the business of
selling low alcohol beverages throughout the United States and in selected international markets,
under the trade names, “The Boston Beer Company,” “Twisted Tea Brewing Company” and “HardCore Cider
Company.” The Company’s Samuel Adams® beer and Sam Adams Light® are produced and sold under the
trade name, “The Boston Beer Company.” The accompanying consolidated statement of financial
position as of September 26, 2009 and the statements of consolidated operations and consolidated
cash flows for the interim periods ended September 26, 2009 and September 27, 2008 have been
prepared by the Company, without audit, in accordance with U.S. generally accepted accounting
principles 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 for complete financial statements by generally accepted accounting principles
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 27, 2008.
Management’s Opinion
In the opinion of the Company’s management, the Company’s unaudited consolidated financial position
as of September 26, 2009 and the results of its consolidated operations and consolidated cash flows
for the interim periods ended September 26, 2009 and September 27, 2008, 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
In January 2008, the Company liquidated all of its short-term investments, which resulted in no
gains or losses. There were no realized gains or losses on short-term investments recorded during
fiscal year 2008.
C. Inventories
Inventories consist of raw materials, work in process and finished goods. Raw materials, which
principally consist of hops, other brewing materials and packaging, are stated at the lower of
cost, determined on the first-in, first-out basis, or market. The cost elements of work in process
and finished goods inventory consist of raw materials, direct labor and manufacturing overhead.
Inventories consist of the following:
| |
|
|
|
|
|
|
|
|
| |
|
September 26, |
|
|
December 27, |
|
| |
|
2009 |
|
|
2008 |
|
| |
|
(in thousands) |
|
Raw materials |
|
$ |
13,966 |
|
|
$ |
14,965 |
|
Work in process |
|
|
5,580 |
|
|
|
4,520 |
|
Finished goods |
|
|
4,586 |
|
|
|
3,223 |
|
|
|
|
|
|
|
|
|
|
$ |
24,132 |
|
|
$ |
22,708 |
|
|
|
|
|
|
|
|
6
D. Net Income (Loss) per Share
The following table sets forth the computation of basic and diluted net income (loss) per share:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended |
|
|
Nine months ended |
|
| |
|
September 26, |
|
|
September 27, |
|
|
September 26, |
|
|
September 27, |
|
| |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
| |
|
(in thousands, except per share data) |
|
Net income (loss) |
|
$ |
10,374 |
|
|
$ |
(295 |
) |
|
$ |
23,658 |
|
|
$ |
4,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of Class A Common Stock |
|
|
9,901 |
|
|
|
9,827 |
|
|
|
9,947 |
|
|
|
9,783 |
|
Weighted average shares of Class B Common Stock |
|
|
4,107 |
|
|
|
4,107 |
|
|
|
4,107 |
|
|
|
4,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in net income per common share — basic |
|
|
14,008 |
|
|
|
13,934 |
|
|
|
14,054 |
|
|
|
13,890 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
297 |
|
|
|
— |
|
|
|
254 |
|
|
|
419 |
|
Non-vested investment shares and restricted stock |
|
|
29 |
|
|
|
— |
|
|
|
14 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares |
|
|
326 |
|
|
|
— |
|
|
|
268 |
|
|
|
443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in net income per common share — diluted |
|
|
14,334 |
|
|
|
13,934 |
|
|
|
14,322 |
|
|
|
14,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share — basic |
|
$ |
0.74 |
|
|
$ |
(0.02 |
) |
|
$ |
1.68 |
|
|
$ |
0.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share — diluted |
|
$ |
0.72 |
|
|
$ |
(0.02 |
) |
|
$ |
1.65 |
|
|
$ |
0.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net
income (loss) per common share for each share of Class A Common Stock and Class B Common
Stock is $0.74 and $(0.02) for the three months ended September 26, 2009 and September 27, 2008,
respectively, and $1.68 and $0.32 for the nine months ended September 26, 2009 and September 27,
2008, respectively, as each share of Class A and Class B participates equally in earnings. Shares
of Class B are convertible at any time into shares of Class A on a one-for-one basis at the option
of the stockholder.
During the three months ended September 26, 2009, the Company had 1.4 million potential common
shares outstanding, which were not included in the computation of net
income or loss per diluted
share because their effect was anti-dilutive.
E. Comprehensive Income or Loss
Comprehensive income or loss represents net income or loss, plus defined benefit plans liability
adjustments, net of tax effect. The defined benefit plans liability adjustments for the interim
periods ended September 26, 2009 and September 27, 2008 were not material.
F. Commitments and Contingencies
Purchase Commitments
The Company had outstanding non-cancelable purchase commitments related to advertising contracts
of approximately $16.2 million at September 26, 2009.
The Company has entered into contracts for the supply of a portion of its hops requirements.
These purchase contracts extend through crop year 2015 and specify both the quantities and prices,
mostly denominated in euros, to which the Company is committed. Hops purchase commitments
outstanding at September 26, 2009 totaled $42.7 million, based on the exchange rates on that date.
The Company had outstanding non-cancelable purchase commitments related to capital expenditures for
its brewery located in
Lehigh Valley, Pennsylvania (the “Pennsylvania Brewery”) of $1.8 million as of September 26, 2009.
7
For the nine months ended September 26, 2009, the Company brewed more than 95% of its volume at
Company owned breweries. In the normal course of its business, the Company has historically entered
into various production arrangements with other brewing companies. Pursuant to these arrangements,
the Company purchases the liquid produced by those brewing companies, including the raw materials
that are used in the liquid, at the time such liquid goes into fermentation. The Company is
required to repurchase all unused raw materials purchased by the brewing company specifically for
the Company’s beers at the brewing company’s cost upon termination of the production arrangement.
The Company is also obligated to meet annual volume requirements in conjunction with certain
production arrangements. In 2009, the Company has minimum production commitments of approximately
$100,000 in aggregate with other brewing companies.
The Company has been informed that ownership of the High Falls brewery located in Rochester, New
York (the “Rochester Brewery”) changed in February 2009 and that the new owners would not assume
the Company’s existing contract for brewing services at the Rochester Brewery. The new owners have
indicated a willingness to negotiate a new production arrangement, but only on terms less favorable
to the Company. Brewing of the Company’s products at the Rochester Brewery ceased in April 2009,
pending resolution of the contract issues. The Company has the matter under advisement, including
an assessment of its legal rights, remedies and obligations, but does not believe that any
inability to avail itself of production capacity at the Rochester Brewery will have a material
impact on its ability to meet demand for its products.
As of January 1, 2009, the Company became subject to a Glass Bottle Supply Agreement with Anchor
Glass Container Corporation (“Anchor”) under which Anchor will be the exclusive supplier of
certain glass bottles for the Company’s Cincinnati, Ohio brewery (the “Cincinnati Brewery”) and
its Pennsylvania Brewery. This agreement also establishes the terms on which Anchor may supply
glass bottles to other breweries where the Company brews its beers. Under the Anchor agreement,
the Company has minimum and maximum purchase commitments that are based on Company-provided
production estimates, which, under normal business conditions, are expected to be fulfilled.
The Company had various other non-cancelable purchase commitments at September 26, 2009, which
amounted to $3.2 million in the aggregate.
Packaging Services Agreement with Diageo North America, Inc.
In connection with the Company’s acquisition of the Pennsylvania Brewery, Diageo North America,
Inc. (“Diageo”) and the Company entered into a Packaging Services Agreement (the “Packaging
Services Agreement”), pursuant to which the Company agreed to blend and package the Diageo products
that were being produced at the Pennsylvania Brewery by Diageo. The Packaging Services Agreement
commenced on June 2, 2008, the date on which the Company purchased the Pennsylvania Brewery, and
called for a term of approximately two years, subject to certain early termination rights. Similar
to contracts that the Company has historically entered into to meet its supply needs, the Packaging
Services Agreement provided for guaranteed service capacity and production service for producing
Diageo products, which included labor, machinery and warehouse space; however, there were no
minimum volume guarantees by Diageo and the capacity commitment by the Company declined in phases
over the term of the agreement.
In November 2008, Diageo notified the Company of its intention to terminate the Packaging Services
Agreement at the conclusion of the second phase and on May 2, 2009, the Packaging Services
Agreement terminated. No early termination penalties were applicable.
During the three and nine months ended September 26, 2009, the Company recorded $0 million and
$5.1 million, respectively, in revenue under the Packaging Services Agreement, based upon units
produced.
Freetown Land
The Company owns land in Freetown, Massachusetts that it had purchased for approximately $6.0
million in 2007 and subsequently placed on the market in February 2008. While the Company has not
classified this asset as held for sale in its accompanying balance sheet, the Company continues to
actively market the land for amounts in excess of its carrying value. The future realization of
the asset is dependent on the future cash flows associated with either the sale or use of this
asset. The Company continues to monitor this asset for any potential impairment of value.
8
G. Income Taxes
As of September 26, 2009 and December 27, 2008, the Company had approximately $6.2 million and $5.5
million, respectively, of unrecognized income tax benefits. An incremental increase of $0.7 million
in unrecognized tax benefits was recorded for the nine months ended September 26, 2009.
The Company’s practice is to classify interest and penalties related to income tax matters in
income tax expense. As of September 26, 2009 and December 27, 2008, the Company had $2.5 million
and $1.6 million, respectively, accrued for interest and penalties.
During the nine months ended September 26, 2009, the Company filed its 2008 federal income tax
return and received aggregate refunds of $10.2 million, which is reflected in prepaid expenses and
other assets in the accompanying consolidated balance sheets and statements of cash flows.
The Company’s state income tax returns remain subject to examination for three or four years
depending on a particular state’s statute of limitations. In addition, the Company is generally
obligated to report changes in taxable income arising from federal income tax audits.
In August 2008, the Massachusetts Department of Revenue (“MA DOR”) commenced an examination of the
Company’s 2004, 2005 and 2006 corporate income tax returns, which examination was continuing as of
September 26, 2009. In addition, in October 2009, the MA DOR expanded the original examination to
include the 2007 and 2008 corporate income tax returns. The Company is also being audited by three
other states as of September 26, 2009.
In July 2009, the Internal Revenue Service commenced an examination of the Company’s 2008
consolidated corporate income tax return and the related loss carry back claim to 2006.
It is reasonably possible that the Company’s unrecognized tax benefits may increase or decrease
significantly in 2009 due to the commencement or completion of income tax audits. However,
the Company cannot estimate the range of such possible changes. The Company does not expect that
any potential changes would have a material impact on the Company’s financial position, results of
operations, or cash flows.
H. Fair Value Measurements
In accordance with Accounting Standards Codification (“ASC”) topic 820, Fair Value Measurements and
Disclosures, formerly known as Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair
Value Measurements, effective December 28, 2008, the first day of the Company’s current fiscal
year, the Company adopted the applicable provisions which establish a framework for measuring fair
value and expand disclosures about fair value measurements including nonfinancial assets and
liabilities. The adoption did not have a material impact on the Company’s consolidated financial
position, results of operations or cash flows.
I. Product Recall
On April 7, 2008, the Company announced a voluntary product recall of certain glass bottles of its
Samuel Adams® products. The recall was a precautionary step and resulted from routine quality
control inspections at the Cincinnati Brewery, which detected glass inclusions in certain bottles
of beer. The bottles were from a single glass plant that supplied bottles to the Company. The
glass plant in question supplied approximately 25% of the Company’s glass bottles during the first
quarter of 2008.
The recall process was substantially completed during the fourth quarter of 2008, and the Company
made no material changes in its estimate of overall recall costs during the nine months ended
September 26, 2009.
9
The following table summarizes the Company’s reserves and reserve activities for the product recall
for the nine months ended September 26, 2009 (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Reserves at |
|
|
|
|
|
|
|
|
|
|
Reserves at |
|
| |
|
December 27, |
|
|
Changes in |
|
|
Reserves |
|
|
September 26, |
|
| |
|
2008 |
|
|
Estimates |
|
|
Used |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product returns |
|
$ |
23 |
|
|
$ |
7 |
|
|
$ |
(30 |
) |
|
$ |
— |
|
Excise tax credit |
|
|
(961 |
) |
|
|
— |
|
|
|
803 |
|
|
|
(158 |
) |
Recall-related costs |
|
|
502 |
|
|
|
(319 |
) |
|
|
147 |
|
|
|
330 |
|
Inventory reserves |
|
|
2,497 |
|
|
|
163 |
|
|
|
(255 |
) |
|
|
2,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,061 |
|
|
$ |
(149 |
) |
|
$ |
665 |
|
|
$ |
2,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company currently believes it has claims against the supplier of these glass bottles for the
impact of the recall, but it is impossible to predict the outcome of such claims. Consequently, no
amounts have been recorded as receivable as of September 26, 2009 for any potential recoveries from
third parties and there can be no assurance there will be any recoveries. The Company carries
product liability insurance, but does not carry product recall insurance.
J. Line of Credit
The Company has a credit facility in place that provides for a $50.0 million revolving line of
credit which has a term not scheduled to expire until March 31, 2013. As of September 26, 2009,
the Company was not in violation of any of its covenants to the lender under the credit facility,
there were no borrowings outstanding, and the line of credit was fully available to the Company for
borrowing.
K. Subsequent Events
The Company evaluated subsequent events occurring after the balance sheet date and up to the time
of filing with the SEC on November 5, 2009 of its Quarterly Report on Form 10-Q for the three
months ended September 26, 2009, and concluded that there was no event of which management was
aware that occurred after the balance sheet date that would require any adjustment to the
accompanying consolidated financial statements.
10
|
|
|
| PART I. Item 2. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS |
The following is a discussion of the significant factors affecting the consolidated operating
results, financial condition and liquidity and cash flows of The Boston Beer Company, Inc. (the
“Company” or “Boston Beer”) for the three and nine-month periods ended September 26, 2009, as
compared to the three and nine-month periods ended September 27, 2008. This discussion should be
read in conjunction with the Management’s Discussion and Analysis of Financial Condition and
Results of Operations, and the Consolidated Financial Statements of the Company and Notes thereto
included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 27, 2008.
RESULTS OF OPERATIONS
Boston Beer’s flagship product is Samuel Adams Boston Lagerâ. For purposes of this
discussion, Boston Beer’s “core brands” include all products sold under the Samuel Adamsâ,
Sam Adamsâ, Twisted Teaâ and HardCoreâ trademarks. “Core brands” do not include
the products brewed at the Company’s brewery in Cincinnati, Ohio (the “Cincinnati Brewery”) or the
products packaged at the Company’s brewery in Lehigh Valley, Pennsylvania (the “Pennsylvania
Brewery”) under contract arrangements for third parties.
Three Months Ended September 26, 2009 compared to Three Months Ended September 27, 2008
Net revenue. Net revenue increased by $7.6 million, or 7.5%, to $108.7 million for the three
months ended September 26, 2009, as compared to $101.1 million for the three months ended September
27, 2008. Excluding the negative $1.0 million impact associated with the voluntary product recall
in the third quarter of 2008, net revenue increased by $6.6 million compared to the three months
ended September 27, 2008. The increase was due to increases in core shipment volume and the 2009
increases in net selling prices, partially offset by a decrease in non-core revenue.
Volume. Total shipment volume decreased by 18.8% to 545,000 barrels for the three months ended
September 26, 2009, as compared to 671,000 barrels for the three months ended September 27, 2008,
primarily due to the termination of the 2008 Diageo Packaging Services Agreement in May 2009,
partially offset by increases in core shipment volume. Shipment volume for the core brands
increased by 7.4% to 538,000 barrels, primarily driven by growth in Samuel Adams®
Seasonals, the Samuel
Adams®
Brewmaster’s collection and the Twisted
Tea®
brand family, partially offset by
declines in Samuel Adams Boston Lager® and Sam Adams Light®. Prior to the reversal of
shipments related to the recall in 2008, the core volume increase was 6.3%.
Shipments and orders in-hand suggest that gross core shipments through December of 2009 will be up
approximately 1% as compared to the same period in 2008, after adjusting the 2008 shipments for
the total volume credited to wholesalers for the product recall during 2008. Actual shipments may
differ, however, and no inferences should be drawn with respect to shipments in future periods.
Depletions, or sales by wholesalers to retailers, of the Company’s core products for the third
quarter of 2009 increased by approximately 6% versus the same period in 2008. October year-to-date
depletions reported to the Company increased approximately 2% versus 2008, with two fewer selling
days in 2009. The Company believes inventories at wholesalers at the end of the third quarter were
at appropriate levels given the current volumes and trends.
Net Selling Price. The net selling price per barrel for core brands increased by 3.8% to $201.10
per barrel for the three months ended September 26, 2009, as compared to $193.83 for the same
period last year. This increase in net selling price per barrel is primarily due to price
increases taken in 2009.
Gross profit. Gross profit for core products was $108.14 per barrel for the three months ended
September 26, 2009, as compared to $90.59 for the three months ended September 27, 2008. Gross
margin for core products was 53.8% for the three months ended September 26, 2009, as compared to
46.7% for the three months ended September 27, 2008. The increase in gross profit per barrel of
$17.55 and gross margin of 7.1 percentage points is primarily due to price increases taken in 2009
and lower costs per barrel. Excluding the impact of product recall costs, gross profit for core
products for the third quarter of 2008 was $94.11 per barrel and gross margin was 48.5%.
11
Cost of goods sold for core brands was $92.96 per barrel for the three months ended September 26,
2009, as compared to $103.24 per barrel for the three months ended September 27, 2008. Excluding
the impact of recall costs of $2.50 per barrel in
2008, cost of goods sold was $100.74 per barrel for the third quarter of 2008. Not including the
recall costs, the 2009 decrease in cost of goods sold of $7.78 per barrel primarily resulted from
the full year shortfall fees incurred in 2008 and lower per barrel costs of operating the Company’s
breweries, driven by lower energy costs, partially offset by increased package material costs.
Based on available cost increase information and preliminary pricing expectations, 2009 full year
core gross margin as a percent of net revenue is currently projected to be approximately the same
as full year 2008 levels, excluding the impact of the product recall.
The Company includes freight charges related to the movement of finished goods from its
manufacturing locations to wholesaler locations in its advertising, promotional and selling expense
line item. As such, the Company’s gross margins may not be comparable to other entities that
classify costs related to distribution differently.
Advertising, promotional and selling. Advertising, promotional and selling expenses decreased by
$1.3 million, or 3.8%, to $32.7 million for the three months ended September 26, 2009, as compared
to $34.0 million for the three months ended September 27, 2008. Such expenses for core brands were
30.3% of net revenue, or $60.85 per barrel, for the three months ended September 26, 2009, as
compared to 35.0% of net revenue, or $67.87 per barrel, for the three months ended September 27,
2008. The decreases in advertising, promotional and selling expenses per barrel and as a
percentage of net revenue are a result of decreases in freight expenses for shipping beer to
wholesalers, driven primarily by reduced fuel costs, and the timing of certain marketing programs,
offset by an increase in advertising and salary and benefit costs related to the addition of sales
personnel. The Company will invest in advertising and promotional campaigns that it believes are
effective, but there is no guarantee that such investment will generate sales growth.
The Company conducts certain advertising and promotional activities in its wholesalers’ markets,
and the wholesalers make contributions to the Company for such efforts. These amounts are included
in the Company’s statement of operations as reductions to advertising, promotional and selling
expenses. Historically, contributions from wholesalers for advertising and promotional activities
have amounted to between 2% and 4% of net sales. The Company may adjust its promotional efforts in
the wholesalers’ markets if changes occur in these promotional contribution arrangements, depending
on the industry and market conditions.
General and administrative. General and administrative expenses decreased by $1.0 million, or
10.6%, to $8.4 million for the three months ended September 26, 2009, as compared to $9.4 million
for the same period last year. The decrease primarily resulted from decreases in salary and
benefit costs.
Total other income, net. Total other income, net, was $42,000 for the three months ended September
26, 2009, as compared to $0.1 million for the three months ended September 27, 2008, primarily due
to less interest earned on cash balances during the third quarter of 2009, as compared to the same
period in 2008.
Provision for income taxes. The income tax provision for the three months ended September 26, 2009
increased by $5.9 million to $6.8 million from $0.9 million for the same period last year as a
result of higher pre-tax income. The Company’s effective tax rate decreased to 39.8% for the three
months ended September 26, 2009 from 146.2% for the same period last year. The decrease in the
effective tax rate is primarily due to lower pre-tax income in 2008 with no corresponding reduction
in non-deductible expenses. The Company expects the effective tax rate to be approximately 43% for
the full year 2009.
Nine Months Ended September 26, 2009 compared to Nine Months Ended September 27, 2008
Net revenue. Net revenue increased by $13.3 million, or 4.5%, to $307.9 million for the nine
months ended September 26, 2009, from $294.6 million for the nine months ended September 27, 2008.
Excluding the $13.3 million negative impact associated with the product recall in 2008, net revenue
was flat, as decreases in core shipment volume were offset by 2009 increases in net selling prices
per core barrel. For the nine months ended September 26, 2009, non-core revenue was flat as
compared to the same period in 2008.
Volume. Total shipment volume decreased by 2.0% to 1,689,000 barrels for the nine months ended
September 26, 2009, as compared to 1,723,000 barrels for the
nine months ended September 27, 2008.
Excluding the 57,000 barrel negative impact associated with the product recall in 2008, shipment
volume decreased by 92,000 barrels, or 5.2%. This decrease was due to
a decrease in core shipments
of 52,000 barrels, or 3.3%, and a decrease in non-core shipments of
40,000 barrels, or 16.9%.
12
Net Selling Price. The net selling price per barrel for core brands increased by approximately
4.0% to $201.82 per barrel for the nine months ended September 26, 2009, as compared to the prior
year. This increase in net selling price per barrel is primarily due to core product price
increases. Excluding the 2008 impact of the recall, net selling price per core barrel increased by
3.3%.
Gross profit. Gross profit for core brands was $106.07 per barrel for the nine months ended
September 26, 2009, as compared to $92.41 for the nine months ended September 27, 2008. Gross
margin for core products was 52.6% for the first nine months of 2009, as compared to 47.6% for the
same period in 2008. The increase is primarily due to product recall costs of $22.8 million in the
first nine months of 2008 and an increase in net selling price per barrel in 2009. Excluding the
impact of costs associated with the recall in 2008, gross profit for core products was $103.73 per
barrel and gross margin was 53.1% for the first nine months of 2008.
Cost of goods sold for core products decreased to $95.77 per barrel for the nine months ended
September 26, 2009, as compared to $101.57 per barrel for the same period last year. Excluding the
impact of recall costs of $6.42 per barrel in 2008, cost of goods sold was $95.15 per barrel for
the nine months ended September 27, 2008. Not including the recall costs, the increase in costs of
goods sold of $0.62 per barrel was primarily due to higher package material costs, partially offset
by lower per barrel costs of operating the Company’s breweries, driven by lower energy costs, and
the full year shortfall fee taken in 2008.
Advertising, promotional and selling. Advertising, promotional and selling expenses decreased by
$11.4 million, or 11.3%, to $89.8 million for the nine months ended September 26, 2009, as compared
to $101.2 million for the nine months ended September 27, 2008. Advertising, promotional and
selling expenses for core brands were 29.8% of net revenue, or $60.14 per barrel, for the nine
months ended September 26, 2009, as compared to 35.1% of net revenue, or $68.09 per barrel, for the
nine months ended September 27, 2008. The decreases in advertising, promotional and selling
expenses per barrel and as a percentage of net revenue are primarily a result of
reductions in freight expenses to wholesalers and better advertising rates and utilization, as well
as more efficient spending and the timing of marketing programs that were only partially offset by
increases in salaries and benefits due to the addition of sales personnel.
General and administrative. General and administrative expenses increased by 4.4%, or $1.1
million, to $27.1 million for the nine months ended
September 26, 2009, as compared to the same
period last year. The increase is largely driven by a full nine months of operating costs related
to the Pennsylvania Brewery, which was purchased in June 2008, partially offset by a decrease in
salary and benefit costs at the Company’s corporate office.
Total other income, net. Other income, net, decreased by $1.4 million to $85,000 for the nine
months ended September 26, 2009, as compared to the nine months ended September 27, 2008. This
decrease is due to less interest earned on lower average cash and cash equivalents balances during
the nine months ended September 26, 2009, as compared to the same period in 2008.
Provision for income taxes. The Company recorded a tax provision of $17.8 million for the nine
months ended September 26, 2009, compared to $5.1 million in the prior year. The Company’s
effective tax rate decreased to approximately 43.0% for the nine months ended September 26, 2009
from 53.2% for the same period last year. The decrease in the effective tax rate is primarily due
to lower pretax income in 2008, as a result of the 2008 product recall, with no corresponding
reduction in non-deductible expenses.
LIQUIDITY AND CAPITAL RESOURCES
Cash and
cash equivalents increased to $44.8 million as of September 26, 2009, from $9.1 million as
of December 27, 2008, primarily as a result of cash flows provided by operating activities,
partially offset by purchases of property, plant and equipment and cash flows used in financing
activities.
Cash flows provided by operating activities consist of net income, adjusted for certain non-cash
items, such as depreciation and amortization, stock-based compensation expense and related excess
tax benefit, and other non-cash items included in operating results. Also affecting cash flows
provided by operating activities are changes in operating assets and liabilities, such as accounts
receivable, inventory, prepaid expenses and other assets, accounts payable and accrued expenses.
13
Cash flows provided by operating activities of $48.5 million for the nine months ended September
26, 2009 primarily resulted from net income of $23.7 million, non-cash items of $15.3 million and a
net decrease in operating assets and liabilities of $9.6 million. Cash flows provided by operating
activities of $27.2 million for the nine months ended September 27, 2008 primarily resulted from
the sale of all of the Company’s remaining trading securities of $16.2 million, net income of $4.5
million and non-cash items of $7.1 million, partially offset by a net increase in operating assets
and liabilities of $0.6 million.
Comparing the nine month periods ended September 26, 2009 and September 27, 2008, cash flows
provided by operating activities increased by $21.4 million. The increase resulted from a $19.2
million increase in net income, a $10.2 million net decrease in operating assets and liabilities
and an $8.2 million increase in non-cash items, partially offset by a decrease in sales of trading
securities of $16.2 million. The net decrease in operating assets and liabilities of $9.6 million
in 2009, as compared to the $0.6 million net increase in 2008, is attributable to changes in
inventories of $4.3 million, prepaid expenses and other assets of $10.4 million and accrued
expenses of $6.9 million, offset by a change in accounts payable
of $8.4 million and accounts
receivable of $3.0 million.
The Company used $11.9 million in investing activities during the nine months ended September 26,
2009, as compared to $90.3 million during the nine months ended September 27, 2008. The $78.4
million decrease in investing activities primarily resulted from a reduction in capital
expenditures at the Pennsylvania Brewery, as the purchase and major investments necessary to
restart and upgrade the brewhouse were completed in 2008.
Cash used in financing activities was $0.9 million during the nine months ended September 26, 2009,
as compared to $5.6 million of cash used in financing activities during the nine months ended
September 27, 2008. The $4.7 million decrease in cash used for financing activities is primarily
due to a $11.2 million decrease in repurchases of Class A Common Stock from the prior year,
partially offset by a reduction in proceeds from the exercise of stock options of $3.2 million and
a reduction in excess tax benefits from stock-based compensation arrangements of $3.4 million.
During the nine months ended September 26, 2009, the Company repurchased approximately 139,600
shares of its Class A Common Stock for a total cost of $4.1 million. On August 10, 2009, the Board
of Directors of the Company increased the aggregate expenditure limit for the Company’s Stock
Repurchase Program by $20.0 million, thereby increasing the limit from $120.0 million to $140.0
million. Through September 26, 2009, the Company had repurchased a cumulative total of
approximately 8.6 million shares of its Class A Common Stock for an aggregate purchase price of
$118.1 million, and had approximately $21.9 million remaining on the $140.0 million share buyback
expenditure limit set by the Board of Directors.
The Company expects that its cash balances as of September 26, 2009 of $44.8 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’s $50.0 million credit facility has a
term not scheduled to expire until March 31, 2013. The Company was not in violation of any of its
covenants to the lender under the credit facility and there were no amounts outstanding under the
credit facility as of the date of this filing.
2009 and 2010 Outlook
Based on information of which the Company is currently aware and its projection that 2009
depletions will increase approximately 2 to 3% compared to 2008, the Company projects 2009 earnings
per diluted share of between $1.75 and $2.05, but actual results could vary significantly from this
target. The Company is committed to maintaining volume and healthy pricing, and is prepared to
invest to accomplish this, even if these investments cause short term earnings decreases.
The Company currently expects 2009 capital expenditures to be between $14.0 million and $18.0
million. This amount includes approximately $7.0 million of carryover projects committed in 2008
for the Pennsylvania Brewery and completed during the first half of 2009. The Company is focused
on projects that will increase efficiency and productivity at its breweries. 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.
Looking forward to 2010, based on information of which the Company is currently aware, the Company
hopes to increase revenue per barrel by 2% through minor front line and deal level adjustments and
forecasts stability on costs of packaging and ingredients and a continued improvement in operating
costs at the Pennsylvania Brewery. If successful, the Company could have full year 2010 gross
margins that are consistent with the gross margin levels realized in the third quarter of 2009.
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. The Company intends to increase investment in its brands in 2010 commensurate with
the opportunities for growth that it sees, but there is no guarantee such increased investments
will result in increased volumes. The Company will provide further 2010 guidance when the Company
presents full year 2009 results.
The Company is currently evaluating 2010 capital expenditures and, based on current information,
its initial estimates are between $15.0 million and $25.0 million, most of which relate to
continued investments in the Pennsylvania Brewery, as the Company pursues efficiency initiatives.
The actual amount spent may well be different from these estimates as the Company continues to
analyze its investment opportunities. Based on information currently available, the Company
believes it could support growth in 2010 in excess of 10% without significant capacity expansion.
14
THE POTENTIAL IMPACT OF KNOWN FACTS, COMMITMENTS, EVENTS AND UNCERTAINTIES
Off-balance Sheet Arrangements
At September 26, 2009, the Company did not have off-balance sheet arrangements as defined in
03(a)(4)(ii) of Regulation S-K.
Contractual Obligations
There were no material changes outside of the ordinary course of the Company’s business to
contractual obligations during the nine month period ended September 26, 2009 other than the
contract relating to production at the Rochester Brewery.
The Company has been informed that ownership of the brewery located in Rochester, New York owned by
High Falls Brewing Company (the “Rochester Brewery”) changed in February 2009 and that the new
owners would not assume the Company’s existing contract for brewing services at the Rochester
Brewery. The new owners have indicated a willingness to negotiate a new production arrangement, but
only on terms less favorable to the Company. Brewing of the Company’s products at the Rochester
Brewery ceased in April 2009, pending resolution of the contract issues. The Company has the
matter under advisement, including an assessment of its legal rights, remedies and obligations, but
does not believe that any inability to avail itself of production capacity at the Rochester Brewery
will have a material impact on its ability to meet demand for its products.
Critical Accounting Policies
There were no material changes to the Company’s critical accounting policies during the nine month
period ended September 26, 2009.
Recent Accounting Pronouncements
The Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) became
effective for the Company in the quarter ended September 26, 2009. The Codification brings together
in one place all authoritative Generally Accepted Accounting
Principals (“GAAP”) and substantially retains
existing GAAP. This change did not
affect the Company’s consolidated financial statements.
In accordance with ASC topic 820, Fair Value Measurements and Disclosures, formerly known as
Statement of Financial Accounting Standards (“SFAS”) 157, Fair Value Measurements, effective
December 28, 2008, the first day of the Company’s current fiscal year, the Company adopted the
applicable provisions which establishes a framework for measuring fair value and expands
disclosures about fair value measurements including nonfinancial assets and liabilities. The
adoption did not have a material impact on the Company’s consolidated financial position, results
of operations or cash flows.
In December 2007, the general standards of accounting for and disclosure of business combinations
was modified. In accordance with ASC 805, Business Combinations, formerly known as SFAS 141R,
Business Combinations, in a business combination transaction an acquiring entity is required to
recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date
fair value with limited exceptions. In addition to new financial statement disclosures, ASC 805
also outlines and addresses the accounting treatment for certain specific items, including the
expensing of acquisition costs and restructuring costs associated with a business combination, and
changes in deferred tax asset valuation allowances and income tax uncertainties after the
acquisition date, which generally affects income tax expense. ASC 805 applies prospectively to
business combinations for which the acquisition date is on or after the beginning of the Company’s
fiscal 2009 period, with the exception of the accounting of valuation allowances on deferred tax
assets and acquired tax contingencies for which the adoption is retroactive. The Company will
evaluate the impact of ASC 805 on its consolidated financial statements in the event future
business combinations are contemplated.
In December 2007, general standards of accounting for disclosure of events that have occurred
after the balance sheet date but before financial statements are issued were established. ASC 855,
Subsequent Events, formerly known as SFAS 165, Subsequent Events, provides the general standards
which are applicable for interim or annual financial periods ending after June 15, 2009. Effective
June 15, 2009, the Company adopted the provisions of ASC 855 and has evaluated subsequent
events through the date of this filing. The Company does not believe there are any material
subsequent events which would require disclosure.
15
FORWARD-LOOKING STATEMENTS
In this Quarterly Report on 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 subsequent events or circumstances. 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 anticipated. Such risks and
uncertainties include the factors set forth below in addition to the other information set forth
in this Quarterly Report on Form 10-Q and in the section titled “Other Risks and Uncertainties” in
the Company’s Annual Report on Form 10-K for the year ended December 27, 2008.
|
|
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| Item 3. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Since December 27, 2008, 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.
|
|
|
| Item 4. |
|
CONTROLS AND PROCEDURES |
As of September 26, 2009, the Company conducted an evaluation under the supervision and with the
participation of the Company’s management, including the Company’s Chief Executive Officer and
Chief Financial Officer (its principal executive officer and principal financial officer,
respectively) regarding the effectiveness of the design and operation of the Company’s disclosure
controls and procedures as defined in Rule 13a-15 of the Securities Exchange Act of 1934 (the
“Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company’s disclosure controls and procedures were effective to ensure
that information required to be disclosed by the Company in reports that it files or submits under
the Exchange Act is recorded, processed, summarized and reported within the requisite time periods
and that such disclosure controls and procedures were effective to ensure that information required
to be disclosed by the Company in the reports that it files or submits under the Exchange Act is
accumulated and communicated to its management, including its principal executive and principal
financial officers, or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure.
There was no change in the Company’s internal control over financial reporting that occurred
during the quarter ended September 26, 2009 that has materially affected, or is reasonably likely
to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
|
|
|
| Item 1. |
|
LEGAL PROCEEDINGS |
From time to time the Company has been, and expects to continue to be, subject to legal proceedings
and claims in the ordinary course of its business. Such claims, even if not meritorious, could
result in the expenditure of significant financial and managerial resources. Currently, the Company
is not a party to any material pending or threatened litigation.
16
In addition to the other information set forth in this report, careful consideration should be
given to the factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on
Form 10-K for the year ended December 27, 2008, which could materially affect the Company’s
business, financial condition or future results. The risks described in the Company’s Annual
Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties
not currently known to the Company or that it currently deems to be immaterial also may materially adversely affect its
business, financial condition and/or operating results.
|
|
|
| Item 2. |
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
On August 10, 2009, the Board of Directors of the Company increased the aggregate expenditure limit
for the Company’s Stock Repurchase Program by $20.0 million, thereby increasing the limit from
$120.0 million to $140.0 million. As of September 26, 2009, the Company has repurchased a
cumulative total of approximately 8.6 million shares of its Class A Common Stock for an aggregate
purchase price of $118.1 million and had $21.9 million remaining on the $140.0 million share
buyback expenditure limit.
During the nine months ended September 26, 2009, the Company repurchased 141,735 shares of its
Class A Common Stock as illustrated in the table below.
| |
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|
| |
|
|
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|
|
|
Total Number of |
|
|
Approximate Dollar |
|
| |
|
Total |
|
|
|
|
|
|
Shares Purchased as |
|
|
Value of Shares that |
|
| |
|
Number of |
|
|
Average |
|
|
Part of Publicly |
|
|
May Yet be Purchased |
|
| |
|
Shares |
|
|
Price Paid |
|
|
Announced Plans or |
|
|
Under the Plans or |
|
| Period |
|
Purchased |
|
|
per Share |
|
|
Programs |
|
|
Programs |
|
December 28, 2008 to January 31, 2009 |
|
|
943 |
|
|
$ |
19.26 |
|
|
|
— |
|
|
$ |
5,988,654 |
|
February 1, 2009 to February 28, 2009 |
|
|
297 |
|
|
|
25.44 |
|
|
|
— |
|
|
|
5,988,654 |
|
March 1, 2009 to March 28, 2009 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,988,654 |
|
March 29, 2009 to May 2, 2009 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,988,654 |
|
May 3, 2009 to May 30, 2009 |
|
|
12,689 |
|
|
|
28.33 |
|
|
|
12,499 |
|
|
|
5,632,879 |
|
May 31, 2009 to June 27, 2009 |
|
|
85,733 |
|
|
|
29.11 |
|
|
|
85,566 |
|
|
|
3,140,921 |
|
June 28, 2009 to August 1, 2009 |
|
|
41,670 |
|
|
|
29.60 |
|
|
|
41,516 |
|
|
|
1,910,649 |
|
August 2, 2009 to August 29, 2009 |
|
|
308 |
|
|
|
19.59 |
|
|
|
— |
|
|
|
21,910,649 |
|
August 30, 2009 to September 26, 2009 |
|
|
95 |
|
|
|
19.14 |
|
|
|
— |
|
|
|
21,910,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
141,735 |
|
|
$ |
29.08 |
|
|
|
139,581 |
|
|
$ |
21,910,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the nine months ended September 26, 2009, the Company repurchased 2,154 shares of unvested
investment shares issued under the Investment Share Program of the Company’s Employee Equity
Incentive Plan.
As of
November 3, 2009, the Company had 10.1 million shares of Class A Common Stock outstanding and
4.1 million shares of Class B Common Stock outstanding.
|
|
|
| Item 3. |
|
DEFAULTS UPON SENIOR SECURITIES |
Not Applicable
|
|
|
| Item 4. |
|
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
Not Applicable
|
|
|
| Item 5. |
|
OTHER INFORMATION |
Not Applicable
17
| |
|
|
|
|
| Exhibit No. |
|
Title |
| |
|
|
|
|
| |
11.1 |
|
|
The information required by Exhibit 11 has been included in
Note D of the notes to the consolidated financial statements. |
| |
|
|
|
|
| |
*31.1 |
|
|
Certification of the President and Chief Executive Officer
pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
|
|
|
|
| |
*31.2 |
|
|
Certification of the Chief Financial Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
|
|
|
|
| |
*32.1 |
|
|
Certification of the President and Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
| |
|
|
|
|
| |
*32.2 |
|
|
Certification of the Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 |
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
| |
|
|
|
|
| |
THE BOSTON BEER COMPANY, INC.
(Registrant)
|
|
| Date: November 5, 2009 |
/s/ Martin F. Roper
|
|
| |
Martin F. Roper |
|
| |
President and Chief Executive Officer
(principal executive officer) |
|
| |
|
|
| Date: November 5, 2009 |
/s/ William F. Urich
|
|
| |
William F. Urich |
|
| |
Chief Financial Officer
(principal accounting and financial officer) |
|
19
EXHIBIT INDEX
| |
|
|
|
|
| Exhibit No. |
|
Title |
| |
|
|
|
|
| |
11.1 |
|
|
The information required by Exhibit 11 has been included in
Note D of the notes to the consolidated financial statements. |
| |
|
|
|
|
| |
*31.1 |
|
|
Certification of the President and Chief Executive Officer
pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
|
|
|
|
| |
*31.2 |
|
|
Certification of the Chief Financial Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
|
|
|
|
| |
*32.1 |
|
|
Certification of the President and Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
| |
|
|
|
|
| |
*32.2 |
|
|
Certification of the Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 |
20