BOSTON BEER CO INC

A. Organization and Basis of Presentation

The Boston Beer Company, Inc. and certain subsidiaries (the “Company”) are engaged in the business of selling alcohol beverages throughout the United States and in selected international markets, under the tradenames “The Boston Beer Company®”, “Twisted Tea Brewing Company®”, “Hard Seltzer Beverage Company”, “Angry Orchard® Cider Company”, “Dogfish Head® Craft Brewery”, “Dogfish Head Distilling Co.”, “Angel City® Brewing Company”, “Coney Island® Brewing Company”, "Green Rebel Brewing Co.", and "Sun Cruiser Beverage Co.".

The accompanying unaudited condensed consolidated balance sheet as of March 29, 2025, and the unaudited condensed consolidated statements of comprehensive operations, stockholders’ equity, and cash flows for the interim periods ended March 29, 2025 and March 30, 2024, respectively, have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnotes normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. All intercompany accounts and transactions have been eliminated. These condensed consolidated financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 28, 2024.

In the opinion of the Company’s management, the Company’s unaudited condensed consolidated balance sheet as of March 29, 2025 and the results of its condensed consolidated comprehensive operations, stockholders’ equity, and cash flows for the interim periods ended March 29, 2025 and March 30, 2024, 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. Recent Accounting Pronouncements

New accounting pronouncements are issued periodically by the FASB and are adopted by the Company as of the specified effective dates. Unless otherwise disclosed below, the Company believes that recently issued and adopted pronouncements will not have a material impact on the Company’s financial position, results of operations and cash flows or do not apply to the Company’s operations.

In December 2023, the FASB issued ASU 2023-09—Income Taxes(Topic 740): Improvements to Income Tax Disclosures. This ASU was issued to address investor requests for more transparency about income tax information through improvements to income tax disclosure primarily related to the rate reconciliation and income taxes paid information, and to improve the effectiveness of income tax disclosures. This ASU is effective for public entities for annual periods beginning after December 15, 2024. ASU 2023-09 will be effective for the Company for its fiscal year ending December 27, 2025. The Company is currently evaluating the impact the adoption of this ASU will have on its year-end consolidated financial statement disclosures.

In November 2024, the FASB issued ASU 2024-03—Income Statement - Reporting Comprehensive Income - Expenses Disaggregation Disclosures (SubTopic 220-40): Disaggregation of Income Statement Expenses. This ASU was issued to address investor requests for more detailed information about the types of expenses in commonly presented expense captions (such as cost of sales, SG&A, and research and development). This ASU is effective for public entities for annual periods beginning after December 15, 2026. Early adoption is permitted. ASU 2024-03 will be effective for the Company in the first quarter of its fiscal year ending December 15, 2027. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.

C. Revenue Recognition

During the thirteen weeks ended March 29, 2025 and March 30, 2024, approximately 94% of the Company’s revenue was from shipments of its products to domestic distributors. Shipments to international distributors, primarily located in Canada, made up approximately 5% of the Company's revenue for the thirteen weeks ended March 29, 2025 and March 30, 2024. Approximately 1% of the Company's revenue was from beer, cider, and merchandise sales at the Company’s retail locations during the thirteen weeks ended March 29, 2025 and March 28, 2024, respectively.

The Company recognizes revenue when obligations under the terms of a contract with its customer are satisfied; generally, this occurs with the transfer of control of its products. Revenue is measured as the amount of consideration expected to be received in exchange for transferring products. If the conditions for revenue recognition are not met, the Company defers the revenue until all conditions are met. As of March 29, 2025 and December 28, 2024, the Company has deferred$17.6 million and $11.3 million, respectively, in revenue related to product shipped prior to these dates. These amounts are included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets.

Customer promotional discount programs are entered into by the Company with distributors for certain periods of time. The reimbursements for discounts to distributors are recorded as reductions to net revenue and were $12.3 million and $10.3 million for the thirteen weeks ended March 29, 2025 and March 30, 2024, respectively. The agreed-upon discount rates are applied to certain distributors' sales to retailers, based on volume metrics, in order to determine the total discounted amount. The computation of the discount allowance requires that management make certain estimates and assumptions that affect the timing and amounts of revenue and liabilities recorded. Actual promotional discounts owed and paid have historically been in line with allowances recorded by the Company; however, the amounts could differ from the estimated allowance.

Customer programs and incentives are a common practice in the alcohol beverage industry. Amounts paid in connection with customer programs and incentives are recorded as reductions to net revenue or as advertising, promotional and selling expenses, based on the nature of the expenditure. Customer incentives and other payments made to distributors are primarily based upon performance of certain marketing and advertising activities. Depending on applicable state laws and regulations, these activities promoting the Company's products may include, but are not limited to point-of-sale and merchandise placement, samples, product displays, promotional programs at retail locations and meals, travel and entertainment. Amounts paid to customers in connection with these programs that were recorded as reductions to revenue or as advertising, promotional and selling expenses for the thirteen weeks ended March 29, 2025 and March 30, 2024 were $12.9 million and $9.4 million, respectively. For the thirteen weeks ended March 29, 2025 and March 30, 2024, the Company recorded certain of these costs in the total amounts of $8.8 million and $5.7 million, respectively, as reductions to net revenue. Costs recognized in net revenues include, but are not limited to, promotional discounts, sales incentives and certain other promotional activities. Costs recognized in advertising, promotional and selling expenses include point of sale materials, samples and media advertising expenditures in local markets. These costs are recorded as incurred, generally when invoices are received; however certain estimates are required at the period end. Estimates are based on historical and projected experience for each type of program or customer and have historically been in line with actual costs incurred.

D. Inventories

Inventories consist of raw materials, work in process and finished goods which are stated at the lower of cost, determined on the first-in, first-out basis, or net realizable value. Raw materials principally consist of hops, packaging, flavorings, fruit juices, and other brewing materials. The Company’s goal is to maintain on hand a supply of at least one year for essential hop varieties, in order to limit the risk of an unexpected reduction in supply. Inventories are generally classified as current assets. The Company classifies hops inventory in excess of two years of forecasted usage in other long-term assets. 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:

As of March 29, 2025 and December 28, 2024, the Company has recorded inventory obsolescence reserves of$14.1 million and $16.3 million, respectively.

E. Goodwill and Intangible Assets

Goodwill. No impairment of goodwill was recorded in any period.

Intangible assets. The Company’s intangible assets as of March 29, 2025 and December 28, 2024 were as follows:

Amortization expense in the thirteen weeks ended March 29, 2025 was approximately$0.4 million. The Company expects to record future amortization expense as follows:

F. Third-Party Production Payments

During the thirteen weeks ended March 29, 2025 and March 30, 2024, the Company brewed, fermented, distilled, and packaged approximately 85% and 83%, respectively, of its domestic volume at Company-owned breweries. In the normal course of its business, the Company has historically entered into various production arrangements with other beverage companies. Pursuant to these arrangements, the Company generally supplies raw materials and packaging to those companies and incurs conversion fees for labor at the time the liquid is produced and packaged.

The Company currently has brewing and packaging services agreements with subsidiaries of City Brewing Company, LLC (“City Brewing”). During the thirteen weeks ended March 29, 2025 and March 30, 2024, City Brewing supplied approximately 15% and 17%, respectively, of the Company’s domestic shipment volume. In accordance with the brewing and packaging services agreement, the Company has made payments to City Brewing which were principally used for capital improvements at City Brewing facilities. These payments are being expensed over the terms of the agreements. Currently, certain of these production services agreements expire on December 31, 2025 and others on December 31, 2028. The Company has thecontractual right to extend its agreements with City Brewing beyond the current termination dates on an annual basis through December 31, 2035. During the thirteen weeks ended March 29, 2025 and March 30, 2024, third-party production prepayment expense was $2.6 million and $4.2 million, respectively. The remaining net book value of these third-party production prepayments is $11.9 million as of March 29, 2025 of which $7.7 million is expected to be expensed to cost of goods sold during the remainder of 2025, with the balance expected to be expensed thereafter.

These City Brewing agreements include a minimum capacity availability commitment by City Brewing and the Company is obligated to meet annual minimum volume commitments and is subject to contractual shortfall fees, if these annual minimum volume commitments are not met.

In January of 2024, the Company and City Brewing entered into a Loan and Security agreement at which time payment of $20 million was made by the Company to City Brewing. Repayment of the note receivable plus an agreed investment return for a combined total of $22.4 million shall be repaid to the Company subject to annual repayment limits. As of March 29, 2025, the balance of the note receivable was $16.8 million and the final maturity date is December 31, 2028.

In December of 2024, the Company announced an amendment and restatement in its entirety of an existing production agreement with a third-party supplier, Rauch North America Inc ("Rauch"). This amendment adjusted the existing production agreement to better match the Company’s future capacity requirements and resulted in increased production flexibility and more favorable termination rights to the Company in exchange for a $26 million cash payment to Rauch which was paid on December 23, 2024. As a result of the payment, the Company recorded a pre-tax contract settlement expense of $26 million in the fourth quarter of 2024.

The amended and restated Rauch agreement includes quarterly minimum payments that total $4.1 million annually at zero volume and a termination fee of $5 million with 12 months written notice. The initial term of the agreement expires on December 31, 2031 with provisions to extend.

At current production volume projections, the Company believes that it will fall short of its future annual volume commitments under the City Brewing and Rauch agreements and will incur shortfall fees. The Company expenses the shortfall fees during the contractual period when such fees are incurred as a component of cost of goods sold. Duringthe thirteen weeks ended March 29, 2025 and March 30, 2024, the Company recorded $0.8 million and $1.0 million, respectively, in shortfall fees. At current volume projections, the Company anticipates that it will recognize approximately $36 million of shortfall fees in the future with $16 million forecasted to be expensed in the remainder of 2025 and $20 million expected to be expensed in future years thereafter, primarily in 2026.

As of March 29, 2025, if volume for the remaining term of the production arrangements was zero, the total contractual shortfall fees, with advance notice as specified in the related contractual agreements, would total approximately $38 million with $26 million due in the remainder of 2025 and $12 million due in future years thereafter.

The Company has regular discussions with its third-party production suppliers related to its future capacity needs and the terms of its contracts. Changes to volume estimates, future amendments or cancellations of existing contracts could accelerate or change total shortfall fees expected to be incurred.