The Boston Beer Co.

KrauseFundResearch|Spring2016
ConsumerStaples
TheBostonBeerCo.(NYSE:SAM)
Recommendation:HOLD
Analysts
KolRath
[email protected]
CurrentPrice:$156.08
TargetPrice:$156-160
ShaneShaddox
[email protected]
CompanyOverview
BostonBeerCo.StrugglestoRecapture
PreviousGrowth
The Boston Beer Company is one of the largest craft
brewers in the U.S. Boston Beer manufacturers and sells
craft beer, flavored malt beverages, and hard ciders,
primarily in the domestic market. Founded in 1984 by C.
James Koch and headquartered in Boston Massachusetts,
BostonBeersoldover120differentkindsofbeerin2015.
Boston Beer’s most popular brands include: Samuel
Adams,TwistedTea,andAngryOrchard.Forthefiscalyear
ended12/26/15,totalrevenuesrose6%to$1.024billion.1
• Driven by trends in consumer preferences and aging
millennials,weexpectthecraftbeercategorytocontinue
to increase its market share of the overall beer industry.
TheBostonBeerCompany’sabilitytotapintothisgrowth
well enough to recapture previous levels of revenue
growthdependsonthecompany’sabilitytomakestrategic
acquisitionsanddevelopandmarketinnovativeproducts.
• Withrevenuegrowthfallingto6%in2015from22%and
27%in2014and2013,respectively,theBostonBeerCo.is
suffering from a loss of market share to small, local craft
breweries.
StockPerformanceHighlights
52-WeekHigh
$270.00
52-WeekLow
$160.84
Beta
0.86
• Large producers, such as the Boston Beer Co. struggle
with being perceived as too mainstream or unauthentic.
These producers must develop strategies to disconnect
theirbignamesfromtheirproductsandearntheloyaltyof
customers.
ShareHighlights
MarketCapitalization
SharesOutstanding
BookValuepershare
EPS(2015)
May1,2016
$2.30B
12.83M
$36.33
$7.46
P/ERatio(ttm)
24.8
DividendYield
NA
• Continued concerns of alcohol abuse make the
possibilityoffederalandstateexcisetaxincreasesalikely
event in the near future, putting downward pressure on
thebottomlineofcompaniesliketheBostonBeerCo.
CompanyPerformanceHighlights
ROA
15.74%
ROE
21.93%
ROIC
22.11%
Sales
$1.024B
FinancialRatios
CurrentRatio
2.01
GrossMargin
52.26%
Source:Bloomberg
Importantdisclosuresappearonthelastpageofthisreport.
1
Unemployment
ExecutiveSummary
We are initiating our coverage of the Boston Beer
Company with a HOLD rating. Shares are currently
tradingatalevelthatwefeelisneitherovervaluednor
undervalued.WhilewefeelthattheBostonBeerCo.is
well-positioned in the craft beer industry, we are
uncertainofthecompany’sabilitytoregainlostmarket
share and successfully market new products to craft
beerdrinkerswhoperceiveproductsfromlargebrewers
asmainstreamandunauthentic.
Similar to GDP, low levels of unemployment contribute
toincreasedsalesinthealcoholicbeveragesindustry.As
more people become employed, disposable income in
the economy increases. This increase enables
consumers to spend more dollars on non-essential
items, such as craft beer. On the other hand, when
unemployment rises beer drinkers may choose to
purchasecheaperbrandsortogiveupdrinkingalcoholic
beveragesalltogether.
Unemployment levels have been steadily decreasing
overthepastseveralyearsandhavelingeredaround5%
for almost a year.3 We expect the level of
unemployment to remain at roughly 5% in the short
term. Over the next 2-3 years we predict the
unemployment rate will decrease to 4.5% as GDP
recoverstoperformancelevelsseeninrecentyears.
EconomicAnalysis
GrossDomesticProduct(GDP)
As a key measurement of economic growth,
expectationsforGDPcanbeobservedasanindicatorof
future performance within the alcoholic beverages
industry, and specifically for the Boston Beer Co. As a
producer of specialty beers that are pricier than other
products in the beer industry, the Boston Beer Co.’s
revenuetendstobemoreprocyclicthantheconsumer
staplessectorasawhole,andthushasastrongpositive
relationshipwithGDP.
Real GDP increased 2.4% in 2015, the same rate as in
2014. Most recent data (fourth quarter of 2015) shows
GDPincreasedatanannualrateof1.4%,downfrom2%
inthethirdquarterof2015.2Whilethesefiguresshowa
relatively stable, sluggish trend in economic growth,
consumer spending has been an underlying strength of
totalrealGDP.
Source:U.S.BureauofLaborStatistics
CommodityPrices
Raw materials, such as hops, malt, barley, and apples,
accountforasubstantialportionofthecostsassociated
with brewing craft beers and hard ciders.1 The Boston
Beer Co. purchases these materials from both foreign
anddomesticsuppliers.Whilepricesofcommodities in
general have been low, demand for the mentioned
materials has increased in recent years due to positive
growthinthecraftbeermarket.Weexpectthistrendto
continue, thus increasing demand for these raw
materials and thereby increasing input cost in the
industry.
IntheshorttermweexpectrealGDPgrowthtoremain
relativelystable,ataround2.1%in2016.Lookingout23 years we predict real GDP growth to be consistent
withperformanceinrecentyears,atroughly2.6%.
Inflation
Source:U.S.BureauofEconomicAnalysis
As prices increase it can be difficult for producers to
pass increased production cost down to the consumer.
When this occurs, the profit margins of the producer
shrink.Inaddition,inflationcandiminishthepurchasing
Importantdisclosuresappearonthelastpageofthisreport.
2
power of consumers if wage growth doesn’t coincide,
therebydecreasingdisposableincome,andpurchasesof
specialty products, such as craft beer. Finally, the
Federal Reserve uses inflation statistics as a key
indicator of the health of the economy. An increase in
inflationmayprompttheFedtoraisethefederalfunds
rate, making borrowing more expensive. While the
BostonBeerCompanycurrentlydoesnotutilizedebt,an
increaseinthecostofdebtcouldhindertheirabilityto
dosointhefuture.
IndustryTrends
Thecraftbeermarkethasexperiencedsuccessinrecent
years, growing 19% per year on average over the past
five years.5 At the same time the overall beer market
has been stagnate, with overall production falling
slightly,duetoincreasedcompetitionfromthewineand
spirits category, and less alcohol consumption by
consumers.Thegrowthinthecraftbeermarketcanbe
attributed to changing customer preferences and
shifting demographics. Millennials, who make up about
twenty-fivepercentofthetotalU.S.populationandthe
entirety of the coveted 21-35 year old beer drinkers
segment, have been the key driver of the increased
popularity of craft beer. We expect this age
demographic to continue to drive growth in the craft
beer market as more millennials become of legal
drinking age and secure incomes suitable for the
consumption of pricier beer. As the popularity of craft
beer continues to grow, so too will its market share in
the overall beer industry, now standing at roughly 21%
The inflation rate has been falling since 2011, with a
slightuptickin2016;bothJanuaryandFebruaryof2016
saw upward pressure. Core CPI in February was 2.3%,
above the 2% mark the Fed likes to see before raising
rates.3Weexpectinflationratestolingeraround1%in
theshortterm,andtoincreasetoaround3%inthenext
2-3 years as oil prices rebound and consumer spending
continuestoincrease.
intermsofdollarsales.
Source:U.S.BureauofLaborStatistics
Source: U.S. Department of the Treasury, Alcohol and Tobacco Tax
andTradeBureau;IBISWorld
IndustryAnalysis
The craft beer market comprises 12% of the beer
industry,anindustryclassifiedinthebeveragessegment
of the consumer staples sector.4 To qualify as a craft
breweracompany’sannualproductionmustnotexceed
six million barrels and the company must not be more
than25%ownedorcontrolledbyanalcoholicbeverage
industrymemberthatisnotinitselfacraftbrewer.4The
Boston Beer Co. qualifies as a craft brewer under the
mentionedcriteria,however,giventhesizeandproduct
mix of the Boston Beer Co., it makes sense to analyze
the company both in the context of the craft beer
industryandintheoverallbeerindustry.
4
In addition to increased popularity of craft beer, the
beerindustryhasbeenexperiencingtheintroductionof
new products such as hard tea, hard cider, hard soda,
and most recently, hard water. These easy to drink,
alcoholic beverages aim to capture the attention of
millennials.
Acquisitionshavebeenverypopularinthebeerindustry
recentlyandshownosignsofslowingdown.Largebeer
producers have been acquiring craft breweries left and
right, trying to cash in on the growth of the craft beer
market. We will discuss acquisitions further in
subsequentsections.
Importantdisclosuresappearonthelastpageofthisreport.
3
benefit of local market loyalty and they produce
products that are perceived as more authentic by craft
beer drinkers, while larger companies, such as the
Boston Beer Co. struggle with being perceived as too
mainstream. Large companies, like Boston Beer, are
usingstrategies(whichwillbediscussedinthefollowing
section)tocombatthisproblem.Inaddition,imported
beers, such as Corona, Heinekenand Modelo Especial,
continue to compete aggressively in the United States
andhavegainedmarketshareoverthelasttenyears.1
CompetitiveOutlook
As shown in the chart below, the U.S. beer market is
dominated by two companies: Anheuser-Busch InBev
and MillerCoors. Anheuser-Busch InBev controls almost
halfofthedomesticbeermarket,sellingbrandssuchas
BudLight,Budweiser,MichelobUltra,StellaArtois,etc.11
Anheuser-Busch InBev is currently in the process of
acquiring the second largest brewer in the world,
SABMiller, for $108 billion.12 Completion of this
acquisition would give Anheuser-Busch InBev a
dominantpresenceinnearlyeverymajormarketandan
estimated 28.4% market share world-wide after
expected divestitures.13 Miller Coors is a joint venture,
58% owned by London based SABMiller, and 42%
owned by Denver based Molson Coors.14 Miller Coors
ownsroughlyone-thirdoftheU.S.beermarket,selling
brandssuchasCoorsBanquet,CoorsLight,BlueMoon,
Keystone, etc.15 Molson Coors announced plans to
acquire the remaining ownership of Miller Coors from
SABMiller for $12 billion.14 These plans could be
disturbed by Anheuser-Busch InBev’s plans to acquire
SABMillerbytheendof2016.
Company
Anheuser-BuschInBev
MillerCoors
PabstBrewingCompany
BostonBeerCo.
D.G.Yuengling&SonInc.
U.S.MarketShare
2015U.S.BeerSales($M)byBrand
BudLight
CoorsLight
MillerLight
Budweiser
BuschLight
MichelobUltraLight
NaturalLight
MillerHighLife
KeystoneLight
0
800 1200 1600 2000
Source:Statista
Beerproducerscompetewithinathree-tierdistribution
system. Companies compete for a share of the
distributor’s attention, time and selling efforts. In retail
establishments,companiescompeteforshelf,coldbox,
andtapspace.Fromadrinkerperspective,competition
exists for brand acceptance and loyalty.1 Because
distributors also distribute competitors’ products,
negotiating contracts is a common practice when
establishing and maintaining a competitive distribution
network.Distributioncontractsimposerequirementson
distributors that are intended to maximize the
distributors’ attention, time and selling efforts on the
brewer’sproducts.1
45%
26%
3%
1%
1%
Source:Statista
The two largest American craft brewers are the Boston
Beer Co. and D.G. Yuengling & Son Inc. Each of these
companiescontroljustoveronepercentofthedomestic
beermarketandroughly19%ofthecraftbeermarket.4
Yuengling&SonInc.,theoldestbreweryinAmerica,isa
private,family-ownedcompany.
The growth experienced by the craft beer market has
come at the cost of increased competition. In their Q4
2015earningscall,managementattheBostonBeerCo.
stated:“Webelievewehavelost(market)share,asnew
craft brewers enter the market and more existing craft
brewers are expanding their regional distribution, with
the result that drinkers are seeing more choices,
including a wave of new beers in all markets.6 The
majority of new craft brewers are small, privately
owned,regionaloperations.Theseoperationshavethe
400
CatalystforGrowth
As small craft brewers continue to drive the growth of
the craft beer segment’s market share in the overall
beer market, larger producers must develop strategies
to tap into that growth. Large companies have been
doingthisbycreatingnewproductsandacquiringsmall
craft breweries. The difficulty with creating new
products is the struggle of disconnecting the product
from the large company. Craft beer drinkers often
regard a product as too mainstream or unauthentic
when produced by a large beer manufacturer, and
prefertoconsumeproductsfromsmall,localbrewers.
Importantdisclosuresappearonthelastpageofthisreport.
4
Acquisitionshavebeenakeystrategyincombatingthis
problem. Anheuser-Busch InBev for example,
announced in December of 2015 that they would be
purchasing three more craft breweries, bringing their
total craft brewery portfolio to eight companies.7 The
Boston Beer Co. has used its subsidiary, Alchemy &
Science, to create and acquire a number of small
breweries, including, Angel City Brewery, Concrete
Beach Brewery, and Coney Island Brewery.1 We expect
this trend of acquisitions to continue as the craft beer
segment continues to grow and the cost of capital
remainslow.
Date
Acquirer
Acquired
Anheuser-Busch
Mar'14
OrientalBrewingCo.
InBev
Jun'13
Constellation
Brands
CompaniaCervecera
deCoahuila
Anheuser-Busch
GrupoModelo
InBev
Starbev
Jun'12 MolsonCoors
Management
Dec'11 SABMiller
Foster'sGroup
Jun'13
Boston Beer has slightly increased shares outstanding
from2014to2015 but has recently seen adecreaseof
holdings in many of its largest share. 87% of the
company’s Class A shares are held by institutional
investorsandmutualfunds,and7.4%ofsharesareheld
by insiders. In the past six months, there has been an
18% decrease in the shares held by insiders and a 4%
decreaseininstitutionalshareholders.10
FinancialSummary
Boston Beer saw an increase in net income of $7.7
million to $98.4 million, up 8.5% from 2014 sales of
$90.7 million. This increase was largely due to a 2.6%
increase in revenue per barrel and a 3.6% increase of
the company’s core brands shipment volumes. The
company’sgrossprofitmarginslightlyincreasedby0.8%
to52.3%in2015.1
BostonBeerhasseenanaveragegrowthinnetrevenue
of15.9%overthepastfiveyears,butgrowthslowedto
6.3%from2014to2015.Totaloperatingexpenseshave
increasedconsistentlyyear-after-year,slightlyunderthe
average growth of net revenue. This is mainly due to
additional advertising and promotions which can be
eludedtotheconsistentincreaseincompetitionwithin
thecraftbeermarket.
Value(M)
$5,632
2,900
17,617
3,525
13,051
Source:FactSet
CompanyAnalysis
Holder
GeneralOverview
The Boston Beer Co. (SAM) was founded in 1984 by C.
JamesKoch.ThecompanyisheadquarteredinBoston,
Massachusetts and owns breweries in four additional
states. Having experienced tremendous success, the
companylaterwentontobecomepublicin1995.SAM
stock has increased roughly 800 percent since the
company’s initial public offering. The Company’s
business goal is to become the leading supplier in the
Better Beer and hard cider categories by creating and
offeringhighqualityfull-flavoredbeersandhardciders.1
Ownership
The founder and Chairman, C. James Koch, holds 100%
ownership of the Boston Beer Co.’s Class B Common
Stockand28.7%ofthecompany’stotalstock.1Company
decisions including the compositions of the board of
directors and other significant decisions have to be
approved by Class B Common Stockshare holders. This
givesMr.Kochsubstantialcontrolandgovernanceover
thecompanydirection.
PercentOwnership
TheVanguardGroup,Inc.
6.88%
TybourneCapitalManagement(HK)Limited
5.85%
FidelityContrafundInc
5.73%
BlackRockFundAdvisors
4.87%
NeubergerBermanGroup,LLC
Source:YahooFinance
4.76%
ProductsandMarkets
The Boston Beer Co. generates the majority of its
revenue by selling alcoholic beverages, which it
considerstobeofthe“BetterBeer”productscategory.
The Better Beer category includes craft beers and
imported beers. According to the company’s annual
report, these beers are considered to be of superior
quality, image and taste, and thus have the ability to
generate higher revenue per barrel compared to
traditionaldomesticlagers.
TheBostonBeerCo.breaksdownitsproductsintotwo
categories,corebrandsandnon-corebrands.Lessthan
onepercentofthecompany’srevenuecanbeattributed
Importantdisclosuresappearonthelastpageofthisreport.
5
to non-core brands. Non-core brands include products
brewedandpackagedatthecompany’sCincinnati,Ohio
brewery under a contract arrangement for a third
party.1 The company’s core brands include all products
sold under the Samuel Adams, Twisted Tea, Angry
OrchardandAlchemy&Sciencetradenames.1Because
core-brands consistently generate over 99% of the
company’s revenue, and because knowledge of noncore brands is limited, our analysis will focus on the
company’score-brands.During2015,theCompanysold
over sixty beers under the Samuel Adamsand the Sam
Adamsbrand names, twelve flavored malt beverages
under the Twisted Teabrand name, ten hard cider
beverages under the Angry Orchardbrand name, and
over forty beers under four of the brand names of its
Alchemy&ScienceSubsidiary.1
The Company’s hard cider brand, Angry Orchard, was
introduced in 2011 and has been the most selling hard
cider in the United States since 2013.1 Growth in the
hard cider market slowed dramatically in 2015; we
expectthistrendtocontinueduetochangingconsumer
preferences, resulting in downward pressure on the
BostonBeerCo.’sfuturerevenuegrowth.
Source:TheBostonBeerCo.2015AnnualReport
New products, such as hard soda, hard water and hard
rootbeerhaverecentlyemergedtocompetewithbeer
and cider products. Hard root beer has been the most
successful. The Boston Beer Co. began national
distribution of its Coney Island Hard Root Beer product
in2015.1ConeyIslandHardRootBeerisnumbertwoin
the hard root beer market to Not Your Father’s Root
Beer,whichisresponsiblefor75%ofallhardrootbeer
sales.17 We expect the Boston Beer Co.’s Coney Island
brandtocontinuetoslowlyincreaseitsmarketshare,
however,weexpectgrowththehardrootbeercategory
to slow in coming years. The Boston Beer Co. recently
announced plans to introduce a hard water product
called Truly Spiked & Sparkling. Truly Spiked and
Sparkling is not the first hard water product to hit the
market.TheBoathouseBeverageCo.initiallyintroduced
hardwaterin2013andWachusettBrewinglaunchedits
Nauti Seltzer inFebruary of this year, but neither
company has the size and distribution network to
experiment with the product on a national level. The
Boston Beer Co. is the first large brewer to experiment
with hard water on a national level.18 Boston Beer’s
TrulySpiked&Sparklinghardwaterisaneasytodrink,
flavorfulbeveragewith5%alcoholand100calories.The
product is aimed at the younger females and beginner
drinkers. We expect the potential success or failure of
this product to have little impact on the company’s
financials.
Products are sold to distributors who in turn sell to
retailers, such as restaurants, grocery stores, bars, etc.
where the products are sold to the end consumer. In
2015, the company’s largest customer accounted for
approximately 7% of the company’s net sales.1 The
company’s top three distributors account for roughly
12% of the company’s net sales. If, for any reason, the
company lost these customers, net sales would be
significantlyimpacted.
The company engages in a variety of sales and
marketing activities to attract and retain customers.
Advertising,promotionalandsellingforcorebrandswas
28.5%ofnetrevenue,or$64.53perbarrel,fortheyear
endedDecember26,2015,andthecompanyintendsto
increase promotional and selling expenses by $10
millionto$20millioninthe2016fiscalyear.1
ProductionandDistribution
ThemajorityofBostonBeersrawmaterialscomesfrom
the United States, Canada and England. Some of the
company’s necessary ingredients, such as specialty
applesandcertainstrainsofyeastcanbeinshortsupply
and easily affected by outside factors, creating
uncertain and potential increased input costs. The
company brews and stores the majority of its core
products in a one million square foot facility on
companyownedlandinBreinigsville,Pennsylvania.This
facility makes up approximately 77% of the companies
owned and leased facilities in the United States,
including its corporate headquarters office.1 Based on
thepastfiveyears,thecompany’scostofgoodssoldhas
Importantdisclosuresappearonthelastpageofthisreport.
6
been increasing at a rate exceeding that of revenues.
Thecompany’s2015costofgoodsoldperbarrelofcore
productsis$107.89,$0.98higherthanin2014,primarily
duetohigherbreweryoperatingcostsandnewproduct
packaging. When certain product manufacturing is
outsourced, the company enters into limited-term
supply agreements with specific vendors to ensure
preferred pricing. The company is then charged a base
fee for the service provided to create each unit and
charged additionally for all the raw materials used and
distribution costs incurred by each of the suppliers.
Boston Beer currently outsources all of its bottling and
packagingtoonesupplier.
The Boston Beer Co. has a network of 350 third-party
distributors in the United States and more globally.1
Distributors are in charge of selling the products to
retailers across the countries including: pubs, grocery
stores,conveniencestores,restaurantsandmanymore.
The company invests a lot of time and energy to
reachinggoalstosubstantiallyreduceinventorylevelsat
the distributors, in attempt to deliver fresher, higher
qualityproductstoconsumers,byforecastingsalesand
providing better on-time service for shipments. Among
the 350 distributors, a small number contribute to a
largeportionofthecompany’srevenue,creatingalevel
ofrisktolostrevenueifanythingbadweretohappen.
Competition
Asmentionedabove,thecompanyconstantlycompetes
with other beer producers for new and existing
distributors’ time and efforts to sell their products, in
addition to competing for retailers’ shelf space in
grocery stores, fridge space in convenient stores and
taps in pubs and restaurants. Boston Beer is also
competing for customers to obtain a larger portion of
market share by acquiring new customers and creating
brand loyalty. The company currently lacks the buying
power that some of its larger competitors have with
distributors.
Company
BostonBeer
Co.
MarketCap
NetSales2015(millions)
EPS(ttm)
BarrelsSold(thousands)
NetRevenue/Barrel
GrossMargin
ForeignSales
DomesticSales
2.3B
$960
$7.25
4,256
$225.55
52.3%
4.0%
96.0%
AnheuserBuschInBev
199.5B
$43,604
$4.96
389,711
$111.89
60.1%
74.2%
25.8%
MolsonCoors Constellation
BrewingCo. Brands,INC.
20.5B
$3,568
$1.93
25,789
$138.33
39.2%
97.0%
3.0%
31.5B
$6,028
$5.03
201,400
$218.13
42.8%
65.6%
34.4%
Source:ThomsonONE,BostonBeerCo.201510K,MolsonCoors
BrewingCo.201510K,Anheuser-BuschInBev2015AnnualReport,
ConstellationBrands201510kIBISWorld,Bloomberg
To compete with new craft brewers and differentiate
themselves,theBostonBeerCo.primarilyfocusestheir
efforts on product quality, promotions and
advertisement, pricing and cost reduction, and
placement of their products. Advertising, promotional
and selling expenses was the companies largest
operating expense, accounting for 28.5% of the
company’snetrevenue.1Thecompany’sadvertisingand
promotions expenses have consistently increased yearafter-year to maintain its current market share and
potentiallygrowitscustomerbase.
Regulations
Thealcoholicbeverageindustryishighlyregulatedatall
three levels of government, federal, state and local
levels. These regulations can restrict and alter the
companies approach to marketing, pricing and
distribution. To abide by the rules and regulations, the
company has to receive permits and licenses to be
granted permission to produce and distribute its
products. Some states have imposed new regulations
restricting the advertisement of controlled substances
due to the increase of incidences of drunk driving and
underage drinking. This trend could lead to a
diminishing demand for the company’s products in
thoseareas.
The federal excise tax on malt beverages is
approximately 7.98% of the 2015 price per barrel of
$226.18,$0.226pergallononhardcidersand$3.30per
gallononartificiallycarbonatedwine.1Thegovernment
has the ability to increase the excise tax rates at any
pointintimeandwilllikelyincreasethe rateovertime
onthefederalandstatelevel.
CatalystforGrowthandChange
With the increasing number of craft breweries in the
market,it’simportantthattheBostonBeerCo.focuses
on differentiating themselves from others. To do that,
theyneedtocontinuetoproduceexceptionalqualityin
their products to be strategic to grow their market
share.Advertisementandpromotionswillbeakeytool
in helping the company to acquire new customers and
generate awareness to new specialty and seasonal
products. If the company is able to gain a larger
customerbaseandcontinuetoincreaseunitsales,they
will generate more buying power with their suppliers
and distributors, and in turn will decrease costs and
increaseprofits.
Importantdisclosuresappearonthelastpageofthisreport.
7
It’scrucialthatthecompanymaintainsitsprofitmargins
and keeps its operating expenses down. It will be
beneficial for Boston Beer to continue to innovate
existing products and to continue experimenting with
new product categories, such as its most recent hard
sparkling water. New product categories will help
diversifythecompanyandhedgeagainstpotentialrisks
from regulation changes and increased competition.
Entering new markets would allow the company to
obtainnewcustomersegments.
KeyInvestmentPositivesandNegatives
Positives:BostonBeerisoneofthelargestcraftbrewers
intheUnitedStatesandhasbeenaroundsince1984.It
hasanetworkof350distributorsandwholesalersinthe
United States. They have the ability to scale up their
operations and production if necessary. There is
expected to be continued growth in the craft brewer
market. The company is taking initiatives to be
innovativewithitsproducts.
Negatives: A large portion of the company’s raw
materials is derived from a specific area of the world
and limited to a minimal amount of suppliers. Certain
necessaryrawmaterialsmaybeinshortsupplycausing
unpredictabilitywithpricingforbothspotpurchasesand
forward contract pricing. The company lacks buying
power with its suppliers and distributors and is
dependent on its relationship with its distributors. The
craft beer industry is seeing a continuous increase in
competition. Potential changes in government
regulations are unpredictable and impactful to the
company’s net revenue business operations. The
company’scans,bottlesandlabelsareeachsuppliedby
a single source. There is declining alcohol consumption
perpersoninthepopulation.
ValuationAnalysis
Revenue
Our revenue forecasts is broken down into two
segments: core brands and non-core brands. Revenues
were forecasted by holding volume of barrels sold
constant and increasing the sell price per barrel at a
steadyinflationrateof1.5%,guidedbycommentsfrom
management. Revenue growth numbers were then
manipulatedbasedonexpectationsforindustrytrends,
theeconomy,guidancefrommanagement,etc.
TheBostonBeerCo.experiencedadecreaseinrevenue
growth from 22% in the year ending 2014 to 6% in the
yearending2015.Thisdecreaseingrowthissaidtobea
result of decreased market share due to increased
competition from new craft breweries. We expect this
trend to continue through 2016, leading to decreased
revenuegrowthof4.5%,beforereturningto5%through
2018 as GDP returns to normal growth rates. As 2018
passes, we expect the company’s growth to slowly
declinetoasteadystaterateof3%inyear2021.
Costs
Cost of Goods Sold – Cost of goods sold is forecasted
basedonanalysisofrecenthistoricalcostsasapercent
ofnetsales,withaslightincreasegoingintothesteady
state period as commodity prices rise with increased
competition.
Advertising, Promotional and Selling Expenses – 2016
expenses are forecasted with direct guidance from
management. In the Boston Beer Co.’s 2015 annual
report management states that the company “intends
to increase advertising, promotional and selling
expensesbybetween$10millionand$20millionforthe
full year 2016.” Beyond 2016 expenses are forecasted
based on analysis of recent historical expenses as a
percentageofnetsales.
General and Administrative Expenses – Expenses are
forecastedbasedonanalysisofhistoricalexpensesasa
percentageofnetsales.
CapitalExpenditures&DepreciationExpense
CapitalExpenditures–Capitalexpendituresfor2016are
forecasted with guidance from management. In the
Boston Beer Co.’s 2015 annual report management
statesthatthecompanycurrentlyestimatestoexpense
between $60million and $80million for capital
expenditures. Beyond 2016, capital expenditures are
forecasted based on analysis of historical capital
expendituresasapercentageofnetsales.
Depreciation Expense – Depreciation expense is
forecastedbasedonafive-yearaverageofdepreciation
expense as a percent of gross property, plant and
equipment.
WeightedAverageCostofCapital(WACC)
CostofEquity–Costofequitywascalculatedusingthe
CAPMapproach.TheyieldontheUnitedStates30-year
Treasurywasusedastherisk-freerate.Betawas
Importantdisclosuresappearonthelastpageofthisreport.
8
estimatedusinganaverageof2-yearweeklydataand5yearmonthlydataprovidedbyBloomberg.
CostofDebt–Onceagain,theyieldontheUnitedStates
30-year Treasury was used as the risk-free rate when
estimating the cost of debt. Because the Boston Beer
Co.hasnooutstandingdebt,thecurrentyieldsonlongterm debt of competitors were considered when
determiningtheyieldspreadovertheriskfreerate.Due
to the company’s capital structure of more than 99%
equity, our assumptions on the cost of debt have very
littleimpactontheWACCcalculation.
Beta vs. Market Risk Premium – Given the capital
structure of the Boston Beer Co., our chosen beta and
marketriskpremiumbothhaveatremendouseffecton
the calculation of our target price. Analysis of the
sensitivityofthesetwovariablesshowthatbetaismuch
influential to our target price than the market risk
premium. An increase of just ten basis points in beta,
while holding the market risk premium constant,
decreasesthetargetpriceby18%.Asimilarincreasein
the market risk premium decreases the target price by
lessthan5%.
Betavs.RiskFreeRate–AstheFedcontinuestotalkof
potential increases in the federal funds rate we find it
reasonable to test the sensitivity of our target price to
movementsintheriskfreerate,holdingbetaconstant.
Our analysis indicates that a 15 basis point increase in
the risk-free rate would decrease our target price by
roughlythreepercent.
DiscountedCashFlowandEconomicProfit
Thediscountedcashflowandeconomicprofitmethods
imply stock prices of $176. After adjusting for the
passage of time since the company’s fiscal year of
December26th2015,themodelimpliesapriceof$184,
3% higher than the current market price of $179. This
valuation supports our recommendation of “Hold” on
theBostonBeerCo.
DividendDiscountModel
Our dividend discount model implies an adjusted stock
price of $176, however, the Boston Beer Co. has never
paidadividendandshowsnointentionsofdoingso.For
thisreason,wefindthedividenddiscountmodeltobea
poor model method for forecasting the value of the
Boston Beer Co. Thus, we place most emphasis on the
discountedcashflowandeconomicprofitmethods.
RelativeP/E
We compared Boston Beer to variety of competitors
based on their industry, size and target market. We
compared the company to other similar alcohol
companies and to other beverage companies as a
whole. We chose to include soft drink companies like
Coca-Cola,PepsiandSnapplebecausethesecompanies
can target similar consumer segments as Boston Beer
does.
The Relative P/E is an inconclusive metric to find the
relativevalueofthecompany,duetothethevastrange
of product lines offered from other competitors. Some
of the competitors’ sizes are quite large compared to
Boston Beers market cap, making it difficult to
respectivelycomparetoone-another.
SensitivityAnalysis
Wechosetofocusoursensitivityanalysisontheimplied
adjusted stock price provided by our discounted cash
flowandeconomicprofitmodels.
2016 COGS vs. CV ROIC – As Boston Beer’s largest
expense,wefinditrelevanttoanalyzetheeffectofour
forecasted cost of goods sold on our target price.
BecauseCOGSisconsistentlyforecastedasapercentage
ofnetsales,analyzingyear2016givesusagoodideaof
how future COGS might affect our target price, when
holdingthereturnoninvestedcapitalconstant.Analysis
ofthesensitivityofCOGSindicatethata100basispoint
increaselowersourtargetpricebysixpercent.
WACC vs. Marginal Tax Rate – The Boston Beer Co.
operates in number of states which have varying tax
rates.Asoperationsgrowinexistingstatesandemerge
and other states, the company’s marginal tax rate is
subjecttochange.Inthissensitivityanalysisweevaluate
the effect of a change in the marginal tax rate when
holdingtheweightedaveragecostofcapitalconstantat
various levels. Our analysis indicates that marginal tax
rate has a minimal effect on our target stock price. An
increase to the marginal tax rate of 150 basis points
decreasesourcurrenttargetpriceof$184.13to$184.
2017Advertising,PromotionalandSellingExpensesvs.CV
Growth of NOPLAT – As Advertising, Promotional and
Selling Expenses being Boston Beer’s largest operating
expense,weseeitbeingbeneficialtoanalyzetheeffects
it has on our target price. Increasing the company’s
advertising, promotional and selling expenses by one
percent and holding all else constant, results in a total
decreaseintargetpriceof7.3%.
Importantdisclosuresappearonthelastpageofthisreport.
9
This report was created by students enrolled in the
Applied Equity Valuation (FIN:4250) course at the
University of Iowa. The report was originally created to
offer an internal investment recommendation for the
University of Iowa Krause Fund and its advisory board.
The report also provides potential employers and other
interested parties an example of the students’ skills,
knowledgeandabilities.MembersoftheKrauseFundare
not registered investment advisors, brokers or officially
licensed financial professionals. The investment advice
contained in this report does not represent an offer or
solicitationtobuyorsellanyofthesecuritiesmentioned.
Unlessotherwisenoted,factsandfiguresincludedinthis
report are from publicly available sources. This report is
not a complete compilation of data, and its accuracy is
not guaranteed. From time to time, the University of
Iowa, its faculty, staff, students, or the Krause Fund may
hold a financial interest in the companies mentioned in
thisreport.
8
References
1
TheBostonBeerCo.201510K
http://www.bostonbeer.com/phoenix.zhtml?c=69432
&p=irol-overview
2
U.S.BureauofEconomicAnalysis
http://www.bea.gov/
3
U.S.BureauofLaborStatistics
http://www.bls.gov/
4
BrewersAssociation
https://www.brewersassociation.org/statistics/craftbrewer-defined/
5
IBISWorld–craftbeerproduction–industry
performance
http://clients1.ibisworld.com.proxy.lib.uiowa.edu/rep
orts/us/industry/currentperformance.aspx?entid=430
2
6
BostonBeerReportsFourthQuarter2015Results
http://www.bostonbeer.com/phoenix.zhtml?c=69432
&p=irol-newsArticle&ID=2140743
7
CNNMoney http://money.cnn.com/2015/12/23/investing/anheuse
r-busch-inbev-craft-brewery-acquisitions/
ImportantDisclaimer
U.S.DepartmentoftheTreasury,AlcoholandTobacco
TaxandTradeBureau
https://www.ttb.gov/beer/beer-stats.shtml
9
IBISWorld,CraftBeerIndustry
http://clients1.ibisworld.com.proxy.lib.uiowa.edu/rep
orts/us/industry/currentperformance.aspx?entid=430
2
10
YahooFinance
https://beta.finance.yahoo.com/quote/SAM
11
Anheuser-BuschInBev2015AnnualReport
http://annualreport.ab-inbev.com/
12
MilwaukeeBusinessJournal
http://www.bizjournals.com/milwaukee/news/2016/0
4/15/a-b-inbev-pledges-not-to-cut-south-africanjobs.html?ana=yahoo
13
TheWallStreetJournal
http://www.wsj.com/articles/ab-inbev-takeover-ofsabmiller-would-reshuffle-global-beer-industry1444743235
14
MolsonCoors
http://www.molsoncoors.com/en/news/unitedstates/corporate/2015/november/11/molson-coorsto-acquire-full-ownership-of-millercoors
15
MillerCoors
http://www.millercoors.com/beers/great-beers
16
Yuengling
https://www.yuengling.com/our_story/
17
BonAppetite
http://www.bonappetit.com/drinks/beer/article/hardroot-beer-popularity
18
Fool.com
http://www.fool.com/investing/general/2016/04/09/
will-boston-beers-new-brand-pop-sodastreaminterna.aspx?source=yahoo2&utm_campaign=article&utm_medium=feed&utm_s
ource=yahoo-2
Importantdisclosuresappearonthelastpageofthisreport.
10
The Boston Beer Company
Revenue Decomposition
Fiscal Years Ending Dec. 26
Revenue ‐ Core Brands
Revenue ‐ Non‐Core Brands
Net Revenue
Growth
Volume (in 1000 barrels)
Core Brands
Non‐Core Brands
Total Volume
Price ($ per barrel)
Core Brands Non‐Core Brands
2013
2014
2015
2016E
2017E
2018E
2019E
2020E 2021E (CV)
738,247 902,343 959,229 949,637 987,623 1,027,127 1,068,213 1,105,600 1,138,768 806 664 705 736 773 812 844 874 900 739,053 903,007 959,934 950,373 988,396 1,027,939 1,069,057 1,106,474 1,139,668 27.37%
22.18%
6.30%
‐1.00%
4.00%
4.00%
4.00%
3.50%
3.00%
3,403 4,093 4,241 4,137 4,238 4,343 4,450 4,537 4,605
24.79%
20.28%
3.62%
‐2.46%
2.46%
2.46%
2.46%
1.97%
1.48%
13 10 15 15 16 17 17 17 18
‐31.58%
‐23.08%
50.00%
2.96%
3.45%
3.45%
2.46%
1.97%
1.48%
3,416 4,103 4,256 4,152 4,254 4,359 4,467 4,555 4,622
24%
20%
4%
‐2%
2%
2%
2%
2%
1%
216.94 220.46 226.18 229.57 233.02 236.51 240.06 243.66 247.31
2.15%
1.62%
2.59%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
62.01 66.42 46.97 47.68 48.39 49.12 49.86 50.61 51.36
8.20%
7.11%
‐29.28%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
The Boston Beer Company
Income Statement
Fiscal Years Ending Dec. 26
2013
2014
2015
2016E
2017E
2018E
2019E
2020E 2021E (CV)
Revenue
Less excise taxes
Net revenue
Cost of goods sold
Depreciation Gross profit
793,705
54,652
739,053
328,228
25,903
384,922
966,478
63,471
903,007
402,858
35,138
465,011
1,024,040
64,106
959,934
415,432
42,885
501,617
1,012,148 61,774 950,373 412,160 44,019 494,194 1,052,641 64,246 988,396 424,629 49,801 513,966 1,094,755 66,816 1,027,939 437,596 55,814 534,528 1,138,546 69,489 1,069,057 451,079 62,068 555,910 1,178,395 71,921 1,106,474 461,847 69,261 575,366 1,213,746 74,078 1,139,668 470,372 76,668 592,627 Operating expenses:
Advertising, promotional and selling expenses
General and administrative expenses
Impairment of assets
Settlement proceeds
Total operating expenses
Operating income
207,930
62,332
1,567
‐
271,829
113,093
250,696
65,971
1,777
‐ 318,444
146,567
273,629
71,556
258
‐ 345,443
156,174
283,629
71,278
1,422
‐
356,329
137,865
286,635
74,130
1,609
‐
362,373
151,592
292,963
77,095
1,803
‐
371,861
162,667
304,681
80,179
2,005
‐
386,866
169,044
309,813
82,986
2,238
‐
395,036
180,331
319,107
85,475
2,477
‐
407,059
185,568
Other income (expense), net:
Interest income
Other income (expense), net
Total other income (expense), net
Income (loss) before provision for income tax
31
(583)
(552)
112,541
21
(994)
(973)
145,594
56
(1,220)
(1,164)
155,010
85
(1,200)
(1,115)
136,750
60
(1,200)
(1,140)
150,452
66
(1,200)
(1,134)
161,533
82
(1,200)
(1,118)
167,926
99
(1,200)
(1,101)
179,230
122
(1,200)
(1,078)
184,491
Provision for income taxes
Net income
42,149
70,392
54,851
90,743
56,596
98,414
50,597
86,152
55,667
94,785
59,767
101,766
62,133
105,794
66,315
112,915
68,262
116,229
Net income per common share — basic
Weighted‐average shares outstanding — basic
Dividends declared per share
5.47
12,766
‐
6.96
12,968
‐ 7.46
13,123
‐ 6.96
12,370
‐ 7.74
12,250
‐ 8.37
12,160
‐ 8.75
12,097
‐ 9.36
12,059
‐ 9.65
12,046
‐ The Boston Beer Company
Balance Sheet
Fiscal Years Ending Dec. 26
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E (CV)
Assets Current Assets:
Cash & cash equivalents
Accounts receivable, net
Inventories
Prepaid expenses & other assets
Income taxes receivable
Deferred income taxes
Total current assets
49,524
42,001
56,397
10,644
1,038
5,712
164,278
76,402
36,860
51,307
12,887
21,321
8,685
207,462
94,193
38,984
56,462
12,053
14,928
6,983
223,603
66,203 38,015 57,022 14,256 9,108
8,582
193,185
72,843 39,536 59,304 14,826 10,020
10,341
206,869
91,584 41,118 61,676 15,419 10,758
12,230
232,785
110,118 48,108 64,143 16,036 11,184
14,193
263,781
136,018 49,791 66,388 16,597 11,937
16,289
297,020
167,774 51,285 68,380 17,095 12,287
18,446
335,267
Property, plant & equipment, gross
Less accumulated depreciation
Property, plant & equipment, net
409,689
143,131
266,558
553,979
172,410
381,569
617,214
207,288
409,926
677,214
251,307
425,907
766,170
301,108
465,062
858,684
356,922
501,762
954,899
418,991
535,908
1,065,547
488,251
577,295
1,179,513
564,920
614,594
Other assets
Goodwill
Total assets
9,556
3,683
444,075
12,447
3,683
605,161
8,188
3,683
645,400
9,504
3,683
632,279
10,378
3,683
685,992
10,279
3,683
748,509
11,225
3,683
814,598
11,065
3,683
889,063
11,967
3,683
965,510
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable
Current portion of debt & capital lease obligations
Accrued expenses & other current liabilities
Total current liabilities
34,424
53
69,900
104,377
35,576
55
74,539
110,170
42,718
58
68,384
111,160
41,341
50
68,902
110,293
42,995
44
71,659
114,698
44,715
38
74,526
119,279
46,504
34
77,507
124,044
48,132
30
80,219
128,381
49,576
26
82,626
132,228
Deferred income taxes
Debt & capital lease obligations, less current portion
Other liabilities
Total liabilities
32,394
584
4,635
141,990
50,717
528
7,606
169,021
56,001
471
16,547
184,179
63,854
413
9,979
184,539
72,493
363
9,884
197,438
81,769
320
10,793
212,162
91,412
281
10,691
226,429
101,704
248
11,618
241,951
112,298
218
11,397
256,141
Stockholder's Equity:
Common equity
Accumulated other comprehensive income (loss), net of tax
Retained earnings (accumulated deficit)
Common stock held in treasury, at cost
Total stockholders' equity (deficit)
Total liabilities and stockholders’ equity
173,153
(417)
129,349
‐
302,085
444,075
225,040
(1,133)
212,233
‐ 436,140
605,161
290,224
(951)
171,948
‐ 461,221
645,400
311,252
(912)
258,100
(120,700)
447,741
632,279
332,281
(912)
352,885
(195,700)
488,554
685,992
353,309
(912)
454,651
(270,700)
536,348
748,509
374,337
(912)
560,444
(345,700)
588,169
814,598
395,366
(912)
673,359
(420,700)
647,112
889,063
416,394
(912)
789,588
(495,700)
709,370
965,510
The Boston Beer Company
Cash Flow Statement
Fiscal Years Ending Dec. 26
2013
2014
2015
Cash flows provided by operating activities:
Net income Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation & amortization
Impairment of assets
Loss (gain) on disposal of property, plant & equipment
Bad debt expense (recovery)
Stock‐based compensation expense
Excess tax benefit from stock‐based compensation arrangements
Deferred income taxes
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses, income tax receivable & other assets
Accounts payable
Accrued expenses & other current liabilities
Other liabilities
Net cash flows from operating activities
Cash flows used in investing activities:
Purchases of property, plant & equipment
Cash paid for acquisition of brewery assets & other intangible assets
Change in restricted cash
Proceeds from disposal of property, plant & equipment
Net cash flows from investing activities
(100,655) (151,784) (74,187)
(2753)
(100)
(100)
62
53
57
18
‐
‐
(103,328) (151,831) (74,230)
Cash flows (used in) provided by financing activities:
Repurchase of class A common stock
Proceeds from exercise of stock options
Proceeds from note payable
Cash paid on note payable & capital lease
Excess tax benefit from stock‐based compensation arrangements
Net proceeds from sale of investment shares
Net cash flows from financing activities
(29,585)
2,541
‐
(787)
5,282
956
(21,593)
Change in cash & cash equivalents
Cash & cash equivalents at beginning of year
Cash & cash equivalents at end of period
(24,939)
26,878
74,463 49,524
49,524 76,402
70,392
90,743
98,414
25,903
1,567
462
19
7,318
(5,282)
11,630
35,138
1,777
434
(16)
6,857
(17,353)
15,350
42,885
258
515
165
6,665
(15,350)
6,986
(10,542)
(12,036)
(7,616)
3,173
14,633
361
99,982
5,157
5,090
(9,447)
884
4,578
2,019
141,211
(2,289)
(5,155)
11,858
5,985
9,014
8,732
168,683
(7,859)
27,272
‐
(53)
17,353
785
37,498
(135,705)
42,339
‐
(54)
15,350
1,408
(76,662)
17,791
76,402
94,193
The Boston Beer Company
Cash Flow Statement
Fiscal Years Ending Dec. 26
Cash flows provided by operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation & amortization
Gross Cash from Operations
Changes in Working Capital Accounts:
Accounts receivable, net
Inventories
Prepaid expenses & other assets
Income taxes receivable
Accounts payable
Accrued expenses & other current liabilities
Other liabilities
Net cash flows from operating activities
2016E
2017E
2018E
2019E
2020E
2021E (CV)
86,152 94,785 101,766 105,794 112,915 116,229 44,019 49,801 55,814 62,068 69,261 76,668 130,171 144,586 157,580 167,862 182,175 192,897 969
(560)
(2,203)
5,820
(1,377)
518
(6,568)
(3,400)
(1,521)
(2,281)
(570)
(913)
1,654
2,757
(95)
(970)
(1,582)
(2,373)
(593)
(738)
1,720
2,867
909
211
(6,990)
(2,467)
(617)
(426)
1,789
2,981
(103)
(5,833)
(1,684)
(2,245)
(561)
(753)
1,628
2,713
927
25
(1,494)
(1,992)
(498)
(350)
1,444
2,407
(221)
(704)
126,771 143,616 157,791 162,029 182,200 192,193
Cash flows used in investing activities:
Property, plant & equipment, gross
Other assets
Deferred income tax assets
Net cash flows from investing activities
(60,000)
(1,316)
(1,599)
(62,915)
(88,956)
(874)
(1,759)
(91,589)
(92,515)
99
(1,889)
(94,304)
(96,215)
(946)
(1,963)
(99,124)
(110,647)
160
(2,096)
(112,583)
(113,967)
(902)
(2,157)
(117,026)
Cash flows (used in) provided by financing activities:
Repurchase of class A common stock
Proceeds from exercise of stock options
Deferred income tax liabilities
Current portion of debt & capital lease obligations
Cash paid on note payable & capital lease
Accumulated other comprehensive income (loss), net of tax
Net cash flows from financing activities
(120,700)
21,028
7853
(8)
(58)
39
(91,846)
(75,000)
21,028
8640
(6)
(50)
‐
(45,388)
(75,000)
21,028
9276
(5)
(44)
‐
(44,745)
(75,000)
21,028
9643
(5)
(38)
‐
(44,372)
(75,000)
21,028
10292
(4)
(34)
‐
(43,717)
(75,000)
21,028
10594
(4)
(30)
‐
(43,411)
Change in cash & cash equivalents
Cash & cash equivalents at beginning of year
Cash & cash equivalents at end of period
(27,990) 6,639 18,742 18,533 25,900 31,757
94,193 66,203 72,843 91,584 110,118 136,018
66,203 72,843 91,584 110,118 136,018 167,774
The Boston Beer Company
Common Size Income Statement
Fiscal Years Ending Dec. 26
Revenue
Less excise taxes
Net revenue
Cost of goods sold
Gross profit
Operating expenses:
Advertising, promotional and selling expenses
General and administrative expenses
Settlement proceeds
Total operating expenses
Operating income
Other income (expense), net:
Interest income
Other income (expense), net
Total other income (expense), net
Income (loss) before provision for income tax
Provision for income taxes
Net income
2013
2014
2015
2016E
2017E
2018E
2019E
2020E 2021E (CV)
107.39%
7.39%
100.00%
44.41%
52.08%
107.03%
7.03%
100.00%
44.61%
51.50%
106.68%
6.68%
100.00%
43.28%
52.26%
106.50%
6.50%
100.00%
43.37%
52.00%
106.50%
6.50%
100.00%
42.96%
52.00%
106.50%
6.50%
100.00%
42.57%
52.00%
106.50%
6.50%
100.00%
42.19%
52.00%
106.50%
6.50%
100.00%
41.74%
52.00%
106.50%
6.50%
100.00%
41.27%
52.00%
28.13%
8.43%
0.00%
36.78%
15.30%
27.76%
7.31%
0.00%
35.26%
16.23%
28.50%
7.45%
0.00%
35.99%
16.27%
29.84%
7.50%
0.00%
37.49%
14.51%
29.00%
7.50%
0.00%
36.66%
15.34%
28.50%
7.50%
0.00%
36.18%
15.82%
28.50%
7.50%
0.00%
36.19%
15.81%
28.00%
7.50%
0.00%
35.70%
16.30%
28.00%
7.50%
0.00%
35.72%
16.28%
0.00%
‐0.08%
‐0.07%
15.23%
5.70%
9.52%
0.00%
‐0.11%
‐0.11%
16.12%
6.07%
10.05%
0.01%
‐0.13%
‐0.12%
16.15%
5.90%
10.25%
0.01%
‐0.13%
‐0.12%
14.39%
5.32%
9.07%
0.01%
‐0.12%
‐0.12%
15.22%
5.63%
9.59%
0.01%
‐0.12%
‐0.11%
15.71%
5.81%
9.90%
0.01%
‐0.11%
‐0.10%
15.71%
5.81%
9.90%
0.01%
‐0.11%
‐0.10%
16.20%
5.99%
10.20%
0.01%
‐0.11%
‐0.09%
16.19%
5.99%
10.20%
The Boston Beer Company
Common Size Balance Sheet
Fiscal Years Ending Dec. 26
Assets Current Assets:
Cash & cash equivalents
Accounts receivable, net
Inventories
Prepaid expenses & other assets
Income taxes receivable
Deferred income taxes
Total current assets
Property, plant & equipment, gross
Property, plant & equipment, net
Other assets
Goodwill
Total assets
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable
Current portion of debt & capital lease obligations
Accrued expenses & other current liabilities
Total current liabilities
Deferred income taxes
Debt & capital lease obligations, less current portion
Other liabilities
Total liabilities
Stockholder's Equity:
Additional paid‐in capital
Accumulated other comprehensive income (loss), net of tax
Retained earnings (accumulated deficit)
Total stockholders' equity (deficit)
Total liabilities and stockholders’ equity
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E (CV)
6.70%
5.68%
7.63%
1.44%
0.14%
0.77%
22.23%
55.43%
36.07%
1.29%
0.50%
60.09%
8.46%
4.08%
5.68%
1.43%
2.36%
0.96%
22.97%
61.35%
42.26%
1.38%
0.41%
67.02%
9.81%
4.06%
5.88%
1.26%
1.56%
0.73%
23.29%
64.30%
42.70%
0.85%
0.38%
67.23%
6.97%
4.00%
6.00%
1.50%
0.96%
0.90%
20.33%
71.26%
44.81%
1.00%
0.39%
66.53%
7.37%
4.00%
6.00%
1.50%
1.01%
1.05%
20.93%
77.52%
47.05%
1.05%
0.37%
69.40%
8.91%
4.00%
6.00%
1.50%
1.05%
1.19%
22.65%
83.53%
48.81%
1.00%
0.36%
72.82%
10.30%
4.50%
6.00%
1.50%
1.05%
1.33%
24.67%
89.32%
50.13%
1.05%
0.34%
76.20%
12.29%
4.50%
6.00%
1.50%
1.08%
1.47%
26.84%
96.30%
52.17%
1.00%
0.33%
80.35%
14.72%
4.50%
6.00%
1.50%
1.08%
1.62%
29.42%
103.50%
53.93%
1.05%
0.32%
84.72%
4.66%
0.01%
9.46%
14.12%
4.38%
0.08%
0.63%
19.21%
3.94%
0.01%
8.25%
12.20%
5.62%
0.06%
0.84%
18.72%
4.45%
0.01%
7.12%
11.58%
5.83%
0.05%
1.72%
19.19%
4.35%
0.01%
7.25%
11.61%
6.72%
0.04%
1.05%
19.42%
4.35%
0.00%
7.25%
11.60%
7.33%
0.04%
1.00%
19.98%
4.35%
0.00%
7.25%
11.60%
7.95%
0.03%
1.05%
20.64%
4.35%
0.00%
7.25%
11.60%
8.55%
0.03%
1.00%
21.18%
4.35%
0.00%
7.25%
11.60%
9.19%
0.02%
1.05%
21.87%
4.35%
0.00%
7.25%
11.60%
9.85%
0.02%
1.00%
22.48%
23.43%
‐0.06%
17.50%
40.87%
60.09%
24.92%
‐0.13%
23.50%
48.30%
67.02%
30.23%
‐0.10%
17.91%
48.05%
67.23%
32.75%
‐0.10%
27.16%
47.11%
66.53%
33.62%
‐0.09%
35.70%
49.43%
69.40%
34.37%
‐0.09%
44.23%
52.18%
72.82%
35.02%
‐0.09%
52.42%
55.02%
76.20%
35.73%
‐0.08%
60.86%
58.48%
80.35%
36.54%
‐0.08%
69.28%
62.24%
84.72%
The Boston Beer Company
Weighted Average Cost of Capital (WACC) Estimation
Cost of Equity (CAPM)
Risk Free Rate
Market Risk Premium Beta
Cost of Equity
2.59%
5.15%
0.87
7.06%
Cost of Debt
Risk Free Rate ‐ 30 Yr US Treasury
Spread on Comparable Note
Pretax Cost of Debt
Marginal Tax Rate
After Tax Cost of Debt
2.59%
2.03%
4.62%
38%
1.77%
Weights
Equity:
Stock Price
No. Shares Outstanding Market Value (Thousands)
Debt:
Short Term Debt
Long Term Debt
PV Operating Leases
Total Value of Debt
Total Value
Equity Weight
Debt Weight
WACC
$156.08
12,833
$2,002,922
58
471
14,828
$15,357
$2,018,279
99.24%
0.76%
7.02%
The Boston Beer Company
Value Driver Estimation
Fiscal Years Ending Dec. 26
NOPLAT
EBITA
Net sales
‐ Cost of goods sold
‐ Depreciation
2011
2012
2013
2014
2015
513,000 580,222 739,053 903,007 959,934 209,641 244,804 328,228 402,858 415,432 18,792 20,208 25,903 35,138 42,885
157,261 169,306 207,930 250,696 273,629 43,485 50,171 62,332 65,971 71,556
2016E
2017E
2018E
2019E
2020E
2021E (CV)
950,373
412,160
44,019
283,629
71,278
988,396
424,629
49,801
286,635
74,130
1,027,939
437,596
55,814
292,963
77,095
1,069,057
451,079
62,068
304,681
80,179
1,106,474
461,847
69,261
309,813
82,986
1,139,668
470,372
76,668
319,107
85,475
228 214 373 383 297 684
84,049 95,947 115,033 148,727 156,729 139,972
711
153,912
777
165,247
838
171,887
895
183,463
964
189,009
37,441
21
80
88
256
37,844
36,050
12
38
82
57
36,215
42,149
12
224
143
602
43,106
54,851
8
382
147
682
56,054
56,596
22
468
114
99
57,256
50,597
33
461
263
546
51,835
55,667
23
461
273
618
56,996
59,767
25
461
298
692
61,193
62,133
32
461
322
770
63,654
66,315
38
461
344
859
67,941
68,262
47
461
370
951
69,997
17,349
4,363
(12,986)
453
20,463
5,411
(15,052)
(2,066)
32,394
5,712
(26,682)
(11,630)
50,717
8,685
(42,032)
(15,350)
56,001
6,983
(49,018)
(6,986)
63,854
8,582
(55,272)
(6,254)
72,493
10,341
(62,152)
(6,880)
81,769
12,230
(69,540)
(7,387)
91,412
14,193
(77,219)
(7,680)
101,704
16,289
(85,416)
(8,197)
112,298
18,446
(93,853)
(8,437)
NOPLAT
46,658
57,666
60,297
77,323
92,487
81,883
90,036
96,666
100,554
107,326
110,575
Invested Capital
Operating Current Assets
Normal Cash (lesser of actual or %)
Accounts Receivable, Net
Inventory
PPD Expenses
Income Tax Receivable Operating Current Assets
10,260
23,233
34,072
14,605
7,762
89,932
11,604
31,479
44,361
6,628
1,645
95,717
14,781
42,001
56,397
10,644
1,038
124,861
18,060
36,860
51,307
12,887
21,321
140,435
19,199
38,984
56,462
12,053
14,928
141,626
19,007
38,015
57,022
14,256
9,108
128,300
19,768
39,536
59,304
14,826
10,020
133,433
20,559
41,118
61,676
15,419
10,758
138,772
21,381
48,108
64,143
16,036
11,184
149,668
22,129
49,791
66,388
16,597
11,937
154,906
22,793
51,285
68,380
17,095
12,287
159,554
Operating Current Liabilities
Accounts Payable
Accrued Expenses
Operating Current Liabilitie
18,806 28,303 34,424 35,576 42,718 41,341
48,243 60,529 69,900 74,539 68,384 68,902
67,049 88,832 104,324 110,115 111,102 110,243
42,995
71,659
114,654
44,715
74,526
119,241
46,504
77,507
124,011
48,132
80,219
128,351
49,576
82,626
132,201
Net Operating Working Capita
22,883 6,885 20,537 30,320 30,524 18,057
18,780
19,531
25,657
26,555
27,352
Plus: Net PPE
Plus: PV of Operating Leases
143,586
4,627
189,948
8,080
266,558
8,289
381,569
6,440
409,926
14,828
425,907
15,406
465,062
16,823
501,762
18,150
535,908
19,385
577,295
20,883
614,594
22,232
Invested Capital
171,096
204,913
295,384
418,329
455,278
459,371
500,664
539,443
580,951
624,733
664,177
Value Drivers
NOPLAT
Beginning Invested Capital
Return on Invested Capital (ROIC)
46,658 57,666 60,297 77,323 92,487 81,883 90,036 96,666 100,554 107,326 110,575
149,918
171,096 204,913 295,384 418,329 455,278 459,371 500,664 539,443 580,951 624,733
31.12%
33.70%
29.43%
26.18%
22.11%
17.99%
19.60%
19.31%
18.64%
18.47%
17.70%
‐ Advertising, promotional and selling expenses
‐ General and administrative expenses
+ Implied interest on operating leases
EBITA
Less: Adjusted Taxes
Provision for income taxes
‐ Interest income
+ Other expenses (income), net
+ Tax shield on implied lease interest
+ tax on impairment
Adjusted taxes
Plus: Change in Deferred Taxes
Deferred tax liabilities
Deferred tax assets
Net deferred taxes
Change in deferred taxes
NOPLAT
Δ Invested Capital
Free Cash Flow (FCF)
46,658
21,178
25,480
57,666
33,816
23,849
60,297 77,323 92,487
90,471 122,945 36,949
(30,174) (45,623) 55,538
81,883
4,093
77,791
90,036
41,293
48,743
96,666
38,779
57,887
100,554
41,508
59,045
107,326
43,782
63,544
110,575
39,444
71,131
Beginning Invested Capital
ROIC ‐ WACC
Economic Profit (EP)
149,918
171,096 204,913 295,384 418,329 455,278 459,371 500,664 539,443 580,951 624,733
24.10%
26.68%
22.41%
19.16%
15.09%
10.97%
12.58%
12.29%
11.62%
11.45%
10.68%
36,134 45,655 45,912 56,587 63,121 49,923 57,788 61,520 62,685 66,543 66,719
The Boston Beer Company
Discounted Cash Flow (DCF) Model
Key Inputs:
CV Growth of NOPLAT
CV ROIC
WACC
CV NOPLAT
Fiscal Years Ending Dec. 26
3.03%
17.70%
7.02%
110,575
2016E
2017E
2018E
2019E
2020E
2021E (CV)
DCF Model
Period
FCF
Continuing Value
PV
V (operating)
1
2
3
4
5
5
77,791 48,743 57,887 59,045 63,544 71,131 2,296,911 72,688 42,558 47,227 45,012 45,264 1,636,139 1,888,887
Non‐operating Assets:
Excess Cash
Other Assets
V(non‐operating)
74,994
8,188
83,182
Debt:
Current Portion of Debt
Long Debt, Less Current Portion V(debt)
58
471
529
Non‐operating Liabilities:
PV Operating Leases
Other Liabilities
V(other)
14,828
16,547
31,375
V(equity)
Shares Outstanding Intrinsic Value of Stock (FY End '15)
Adjusted Stock Price (Today)
1,940,165
12,833
151.19
158.01
Current Share Price
156.08
The Boston Beer Company
Discounted Cash Flow (DCF) Model
Key Inputs:
CV Growth of NOPLAT
CV ROIC
WACC
CV NOPLAT
Fiscal Years Ending Dec. 26
3.03%
17.70%
7.02%
110,575
2016E
2017E
2018E
2019E
2020E
2021E (CV)
DCF Model
Period
FCF
Continuing Value
PV
V (operating)
1
2
3
4
5
5
77,791 48,743 57,887 59,045 63,544 71,131 2,296,911 72,688 42,558 47,227 45,012 45,264 1,636,139 1,888,887
Non‐operating Assets:
Excess Cash
Other Assets
V(non‐operating)
74,994
8,188
83,182
Debt:
Current Portion of Debt
Long Debt, Less Current Portion V(debt)
58
471
529
Non‐operating Liabilities:
PV Operating Leases
Other Liabilities
V(other)
14,828
16,547
31,375
V(equity)
Shares Outstanding Intrinsic Value of Stock (FY End '15)
Adjusted Stock Price (Today)
1,940,165
12,833
151.19
158.01
Current Share Price
156.08
The Boston Beer Company
Dividend Discount Model (DDM) or Fundamental P/E Valuation Model
Fiscal Years Ending Dec. 26
EPS
2016E
2017E
2018E
2019E
$ 6.96 $ 7.74 $ 8.37 $ 8.75 $ 9.36 $ 9.65
Key Assumptions
CV growth
CV ROE
Cost of Equity
Future Cash Flows
P/E Multiple (CV Year)
EPS (CV Year)
Future Stock Price
Dividends Per Share
Discount Factor
Discounted Cash Flows
2020E 2021E (CV)
3.00%
17.14%
7.06%
0
1.07
0
Intrinsic Value of Stock (FY End '15)
$ 139.38
Adjusted Stock Price (Today)
$ 145.70
0
1.15
0
0
1.23
0
0
1.31
0
20.32
9.65
196.03
0
0
1.41
1.41
0
139.38
The Boston Beer Company
Relative Valuation Model ‐ Alcoholic Beverage Companies
EPS
2016E
$4.75 $2.20 $3.21 $5.38 $3.37 EPS
2017E
$5.32 $2.29 $5.26 $6.10 $3.54 Average
Ticker
BUD
SBMRY
TAP
STZ
BF‐B
Company
AB Inbev
SABMiller PLC
Molson Coors Brewing Compan
Constellation Brands, INC.
Brown‐Forman Corp
Price
$121.89
$60.46
$95.40
$149.41
$96.54
SAM
The Boston Beer Company
$156.08 6.96 7.74 22.4 20.2
Implied Value:
Relative P/E (EPS16)
Relative P/E (EPS17)
P/E 16
25.7
27.5
29.7
27.8
28.6
27.9
P/E 17
22.9
26.4
18.1
24.5
27.3
23.8
$ 194.00 $ 184.48
Relative Valuation Model ‐ Beverage Companies
EPS
2016E
$4.75 $2.20 $3.21 $5.38 $3.37 $1.95 $4.68 $4.31 EPS
2017E
$5.32 $2.29 $5.26 $6.10 $3.54 $2.05 $5.06 $4.67 Average
Ticker
BUD
SBMRY
TAP
STZ
BF‐B
KO
PEP
DPS
Company
AB Inbev
SABMiller PLC
Molson Coors Brewing Compan
Constellation Brands, INC.
Brown‐Forman Corp
The Coca‐Cola Company
Pepsico, INC.
Dr Pepper Snapple Group, INC.
Price
$121.89
$60.46
$95.40
$149.41
$96.54
$45.80
$100.98
$89.44
SAM
The Boston Beer Company
$156.08 6.96 7.74 22.4 20.2
Implied Value:
Relative P/E (EPS16)
Relative P/E (EPS17)
$ 178.55 $ 174.73
P/E 16
25.7
27.5
29.7
27.8
28.6
23.5
21.6
20.8
25.6
P/E 17
22.9
26.4
18.1
24.5
27.3
22.3
20.0
19.2
22.6
The Boston Beer Company
Key Management Ratios
Fiscal Years Ending Dec. 26
Liquidity Ratios
Current Ratio
Current Assets/Current Liabilities
Quick Ratio (Current Assets ‐ Inventories)/Current Liabilties
Cash Ratio
Cash & Cash Equivalents/Current Liabilities
Activity or Asset‐Management Ratios
Total Asset Turnover
Net Sales/Average Total Assets
Inventory Turnover
Net Sales/Inventory
Receivables Turnover
Net Sales/Accounts Receivable Financial Leverage Ratios
Debt‐to‐Equity Ratio
Total Debt/Total Equity
Equity Multiplier
Total Assets/Total Equity
LT Liabilities Ratio
Total Long‐Term Liabilities/Total Assets
Profitability Ratios
Gross Profit Margin
Gross Profit/Net Sales
Net Profit Margin
Net Income/Net Sales
ROA
Net Income/Avg. Total Assets
ROE
Net Income/Avg. Total Equity
2013
2014
2015
2016E
2017E
2018E
2019E
2020E 2021E (CV)
1.57
1.88
2.01
1.75
1.80
1.95
2.13
2.31
2.54
1.03
1.42
1.50
1.23
1.29
1.43
1.61
1.80
2.02
0.47
0.69
0.85
0.60
0.64
0.77
0.89
1.06
1.27
1.84
1.72
1.54
1.49
1.50
1.43
1.37
1.30
1.23
13.10
17.60
17.00
16.67
16.67
16.67
16.67
16.67
16.67
17.60
24.50
24.62
25.00
25.00
25.00
22.22
22.22
22.22
0.2%
0.1%
0.1%
0.1%
0.1%
0.1%
0.1%
0.0%
0.0%
1.47
1.39
1.40
1.41
1.40
1.40
1.38
1.37
1.36
0.08
0.10
0.11
0.12
0.12
0.12
0.13
0.13
0.13
52.1%
51.5%
52.3%
52.0%
52.0%
52.0%
52.0%
52.0%
52.0%
9.5%
10.0%
10.3%
9.1%
9.6%
9.9%
9.9%
10.2%
10.2%
17.5%
17.3%
15.7%
13.5%
14.4%
14.2%
13.5%
13.3%
12.5%
25.7%
24.6%
21.9%
19.0%
20.2%
19.9%
18.8%
18.3%
17.1%
158.01
4.55%
4.75%
4.95%
5.15%
5.35%
5.55%
5.75%
0.57
$ 295.23
$ 280.37
$ 266.94
$ 254.75
$ 243.62
$ 233.43
$ 224.07
0.67
$ 243.71
$ 231.82
$ 221.04
$ 211.22
$ 202.24
$ 194.01
$ 186.42
Beta
0.77
0.87
$ 207.57 $ 181.30
$ 197.67 $ 172.80
$ 188.68 $ 165.07
$ 180.47 $ 158.01
$ 172.96 $ 151.54
$ 166.06 $ 145.58
$ 159.69 $ 140.08
0.97
$ 160.25
$ 152.85
$ 146.11
$ 139.95
$ 134.29
$ 129.09
$ 124.28
1.07
$ 143.92
$ 137.35
$ 131.37
$ 125.90
$ 120.87
$ 116.24
$ 111.96
1.17
$ 130.65
$ 124.76
$ 119.38
$ 114.46
$ 109.94
$ 105.77
$ 101.92
158.01
2.14%
2.29%
2.44%
2.59%
2.74%
2.89%
3.04%
0.57
$ 310.85
$ 289.58
$ 271.04
$ 254.75
$ 240.31
$ 227.43
$ 215.87
0.67
$ 248.28
$ 234.55
$ 222.27
$ 211.22
$ 201.22
$ 192.14
$ 183.85
Beta
0.77
0.87
$ 206.77 $ 177.73
$ 197.18 $ 170.62
$ 188.45 $ 164.07
$ 180.47 $ 158.01
$ 173.15 $ 152.38
$ 166.40 $ 147.15
$ 160.17 $ 142.27
0.97
$ 155.13
$ 149.71
$ 144.66
$ 139.95
$ 135.54
$ 131.40
$ 127.51
1.07
$ 138.00
$ 133.71
$ 129.68
$ 125.90
$ 122.33
$ 118.97
$ 115.79
1.17
$ 124.33
$ 120.85
$ 117.57
$ 114.46
$ 111.52
$ 108.73
$ 106.08
Share Price
Market Risk Premium
Share Price
Risk Free Rate
Share Price
CV Growth of NOPLAT
158.01
2.73%
2.83%
2.93%
3.03%
3.13%
3.23%
3.33%
Share Price
$ 161.80
$ 164.17
$ 166.65
$ 169.26
$ 172.00
$ 174.89
$ 177.94
$ 156.51
$ 158.77
$ 161.15
$ 163.64
$ 166.25
$ 169.01
$ 171.92
$ 151.23
$ 153.38
$ 155.64
$ 158.01
$ 160.50
$ 163.13
$ 165.90
46.50%
$ 158.17
$ 158.33
$ 158.49
$ 158.64
$ 158.80
$ 158.95
$ 159.10
2016 COGS as a Percent of Sales
47.00%
47.50%
48.00%
48.50%
$ 157.96 $ 157.75 $ 157.54 $ 157.32
$ 158.12 $ 157.91 $ 157.70 $ 157.48
$ 158.28 $ 158.06 $ 157.85 $ 157.64
$ 158.43 $ 158.22 $ 158.01 $ 157.80
$ 158.59 $ 158.38 $ 158.16 $ 157.95
$ 158.74 $ 158.53 $ 158.32 $ 158.11
$ 158.89 $ 158.68 $ 158.47 $ 158.26
Share Price
2017 Advertising, Promotional and Selling Expenses as a Percentage of Sales
27.50%
28.00%
28.50%
29.00%
29.50%
30.00%
$ 167.09
$ 169.56
$ 172.16
$ 174.89
$ 177.76
$ 180.77
$ 183.96
CV ROIC
158.01
17.40%
17.50%
17.60%
17.70%
17.80%
17.90%
18.00%
$ 145.94
$ 147.98
$ 150.13
$ 152.38
$ 154.75
$ 157.25
$ 159.88
$ 140.65
$ 142.59
$ 144.62
$ 146.76
$ 149.00
$ 151.36
$ 153.86
30.50%
$ 135.36
$ 137.19
$ 139.11
$ 141.13
$ 143.25
$ 145.48
$ 147.84
158.01
36.90%
37.40%
Marginal Tax 37.90%
38.40%
Rate
38.90%
39.40%
39.90%
WACC
7.02%
6.72%
6.82%
6.92%
$ 170.85
$ 170.81
$ 170.77
$ 170.73
$ 170.69
$ 170.64
$ 170.60
$ 166.39
$ 166.35
$ 166.30
$ 166.26
$ 166.22
$ 166.18
$ 166.14
$ 162.15
$ 162.11
$ 162.07
$ 162.03
$ 161.99
$ 161.95
$ 161.91
$ 158.13
$ 158.09
$ 158.05
$ 158.01
$ 157.97
$ 157.93
$ 157.89
49.00%
$ 157.11
$ 157.27
$ 157.43
$ 157.59
$ 157.74
$ 157.89
$ 158.05
49.50%
$ 156.90
$ 157.06
$ 157.22
$ 157.38
$ 157.53
$ 157.68
$ 157.83
7.12%
7.22%
7.32%
$ 154.30
$ 154.26
$ 154.22
$ 154.18
$ 154.15
$ 154.11
$ 154.07
$ 150.66
$ 150.62
$ 150.58
$ 150.54
$ 150.51
$ 150.47
$ 150.43
$ 147.18
$ 147.15
$ 147.11
$ 147.07
$ 147.04
$ 147.00
$ 146.97
VALUATION OF OPTIONS GRANTED IN ESOP
Ticker Symbol
Current Stock Price
Risk Free Rate
Current Dividend Yield
Annualized St. Dev. of Stock Returns
Range of
Outstanding Options
Range 1
Total
Number
of Shares
1,127,162
1,127,162
SAM
$156.08
2.59%
0.00%
34.20%
Average
Average
B‐S
Value
Exercise Remaining
Option
of Options
Price
Life (yrs)
Price
Granted
$ 63.99
3.43 $ 99.06 $ 111,658,544
$ 63.99
3.43 $ 99.06 $ 111,658,544
Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding
Number of Options Outstanding (shares): Average Time to Maturity (years):
Expected Annual Number of Options Exercised:
Current Average Strike Price:
Cost of Equity:
Current Stock Price:
1,127,162
3.43
328,619
$ 63.99
7.06%
$156.08
2016E
2017E
2018E
2019E
2020E
2021E (CV)
Increase in Shares Outstanding:
Average Strike Price:
Increase in Common Stock Account:
328,619
328,619
328,619
328,619
328,619
328,619
$ 63.99 $ 63.99 $ 63.99 $ 63.99 $ 63.99 $ 63.99
21,028,308 21,028,308 21,028,308 21,028,308 21,028,308 21,028,308
Change in Treasury Stock
Expected Price of Repurchased Shares:
Number of Shares Repurchased:
120,700,000
75,000,000
75,000,000
75,000,000
75,000,000
75,000,000
$ 156.08 $ 167.10 $ 178.90 $ 191.53 $ 205.05 $ 219.53
790,851 448,834 419,235 391,588 365,765 341,644
Shares Outstanding (beginning of the year)
Plus: Shares Issued Through ESOP
Less: Shares Repurchased in Treasury
Shares Outstanding (end of the year)
12,832,661
12,370,429
12,250,213
12,159,597
12,096,627
12,059,481
328,619
328,619
328,619
328,619
328,619
328,619
790,851 448,834 419,235 391,588 365,765 341,644
12,370,429
12,250,213
12,159,597
12,096,627
12,059,481
12,046,455
Present Value of Operating Lease Obligations (2015)
Operating
Leases
2,664
2,809
2,809
2,478
2,478
4,286
17,523
2,695
14,828
Fiscal Years Ending Dec. 26
2016
2017
2018
2019
2020
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Capitalization of Operating Leases
Pre‐Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Lease
Commitment
2,664
2,809
2,809
2,478
2,478
2,478
Present Value of Operating Lease Obligations (2014)
Operating
Leases
2,263
1,601
1,601
507
507
780
7,259
819
6,440
Fiscal Years Ending Dec. 26
2015
2016
2017
2018
2019
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Capitalization of Operating Leases
4.62%
1.7
PV Lease
Payment
2,546
2,567
2,453
2,068
1,977
3,217
14,828
Pre‐Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Lease
Commitment
2,263
1,601
1,601
507
507
507
Present Value of Operating Lease Obligations (2013)
Operating
Leases
2,726
1,989
1,989
771
771
1,154
9,399
1,110
8,289
Fiscal Years Ending 2014
2015
2016
2017
2018
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Capitalization of Operating Leases
4.62%
1.5
PV Lease
Payment
2,163
1,463
1,398
423
405
588
6,440
Pre‐Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Lease
Commitment
2,726
1,989
1,989
771
771
771
4.62%
1.5
PV Lease
Payment
2,606
1,817
1,737
644
615
871
8,289
Present Value of Operating Lease Obligations (2012)
Operating
Leases
1,874
1,800
1,800
1,177
1,177
1,518
9,345
1,265
8,080
Fiscal Years Ending 2013
2014
2015
2016
2017
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Capitalization of Operating Leases
Pre‐Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Lease
Commitment
1,874
1,800
1,800
1,177
1,177
1,177
Present Value of Operating Lease Obligations (2011)
Operating
Leases
1,122
1,121
1,121
920
920
67
5,269
642
4,627
Fiscal Years Ending 2012
2013
2014
2015
2016
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Capitalization of Operating Leases
4.62%
1.3
PV Lease
Payment
1,791
1,644
1,572
983
939
1,150
8,080
Pre‐Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Lease
Commitment
1,122
1,121
1,121
920
920
67
Present Value of Operating Lease Obligations (2010)
Operating
Leases
955
1,017
1,017
932
932
902
5,754
815
4,939
Fiscal Years Ending 2011
2012
2013
2014
2015
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Capitalization of Operating Leases
4.62%
1.0
PV Lease
Payment
1,072
1,024
979
768
734
51
4,627
Pre‐Tax Cost of Debt
Number Years Implied by Year 6 Payment
Year
1
2
3
4
5
6 & beyond
PV of Minimum Payments
Lease
Commitment
955
1,017
1,017
932
932
902
4.62%
1.0
PV Lease
Payment
913
929
888
778
743
688
4,939