Boston Beer Essay

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Executive Summary Business and Industry Analysis Competitive Advantages Five Forces Model Industry Competitive Analysis Accounting Analysis Key Accounting Policies Degree of Accounting Flexibility Evaluation of Accounting Strategy Accounting Quality of Disclosure Red Flags Quantitative Analysis Ratio Analysis Liquidity Profitability Capital Structure Forecasting Balance Sheet Income Statement Statement of Cash Flows Forecast Summary Valuation Analysis Method of Comparables Valuation Tools Discounted Free Cash Flow Residual Income Long Run Residual Abnormal Earnings Growth (AEG) Conclusion of Valuation Work Cited Appendix 4.

7 8 9 15 17 17 20 22 23 23 25 29 29 31 34 37 37 38 39 40 41 41 44 45 46 47 48 49 50 52 3 Boston Beer Co. By Valuation Proclamation Heath Stanley, Jordan Gristy, Preston Madden, Jason Boney Investment Recommendation: Buy, Undervalued Stock Ticker and Exchange Current Price (4-1-05) 52 week price range Revenue (2004) Market Capitalization Shares Outstanding 3-month Avg. Daily Volume Percent Institutional Ownership Book Value Per Share ROE ROA Est. 5yr EPS Growth Rate Cost of Capital Est. Beta Estimated 5-year -0. 201 3-year 0. 098 2-year 0. 434 Published Beta 0. 35 Kd WACC SAM-NYSE $22. 14 $18.

52 $27. 95 $239,680,000 $313,130,000 14,300,000 40,450 25% $5. 52 15. 95% 11. 64% 2% Ke 5. 29% 5. 29% 3. 67% 5. 24 R2 . 012 . 003 . 031 Debt Risk Altman Z-Score EPS Forecast FYE (12/31) EPS 4-28-05 3. 49-Company considered safe 2004(A) $0. 86 2005(E) $0. 69 2006(E) $0. 71 2007(E) $0. 72 Valuation Ratio Comparison Forward P/E Forward P. E. G. Trailing P/E M/B Valuation Predictions Actual Share Price (7 April 2005) P/E Forward PEG Forward M/B Ford Epic Valuation Intrinsic Valuations Free Cash Flows Residual Income Abnormal Earnings Growth Long-Run Residual Income Perpetuity SAM Comp. s Avg.

25. 7 16 2. 5 1. 55 23. 8 20 3. 82 6. 715 $22. 14 $13. 76 $17. 75 $12. 62 $12. 01 3. 61% 4. 79% $41. 25 $15. 78 $38. 51 $42. 92 4 Executive Summary Recommendation- Buy, Undervalued After reviewing Boston Beers financial statements and data we believe the company to be undervalued. Using four forecasting models we found that three prices put Boston Beers value at around $40. 00 which is well above the price of $22. 14 on the date of April 1, 2005.

Due to the recent growth in the better beer market and the low amount of debt the company has, we see a positive future for the company and believe that over time it may be able to grow and become a dominant player in the beer industry. Yet, as a whole, the beer market in general has been declining over the past few years which causes some alarm (though we do realize that declines come and go many times in this industry).

Therefore, we believe if managed right the company may be able to grow substantially in their better beer market or at least maintain the hold of loyal customers that is has acquired over the years. Industry Demand Drivers Boston Beers demand in the past has come from drinkers who prefer higher quality beer with higher quality ingredients.

As the better beer market continues to grow within the alcoholic beverage industry, Boston Beer will be able to attain a larger presence than what it once enjoyed. We believe that heavy advertising and the continued pursuit of better ingredients will allow new drinkers to emerge who enjoy the kind of quality that Boston Beer has to offer. It is understood that the beer market fluctuates over time, but it has not seen quite a growth within itself as it has with the better beers. Within the last few years the growth has maintained a stable average of approximately 3% within the alcoholic beverage industry and sees no looking back.

As long as Boston Beer maintains its status as a premium beer there should be no reason that it can not take advantage of this stable growth. 5 Light Beer Introduction and Expansion- Boston Beer has just unveiled their newest product of Samuel Adams Light to the better beer market. In 2004, the light Samuel Adams out sold the original for the first time in the companys history. We believe that this will be the key to Boston Beers success to maintain its hold in the better beer industry and bring in new demand for Boston Beer.

Financial Stability Boston Beers financials are impressive as compared to the big names in the beer industry. One of the more impressive areas is the lack of debt and the ability to leverage the company to new heights. In 2000, Boston Beer had no actual long term debt on the books and since has brought on very little. This is mainly due to the strategy of contracting to other brewers to maintain low risk for the well being of the company. The profitability, capital structure, and liquidity for Boston Beer all appear to be stronger than the averages in the alcoholic industry which shows the strong stability of the firm.

Boston Beers Altman Z-score is at 3. 49 which is considered safe and good investment grade quality. In conclusion, Boston Beer has many choices on where to take the company in the 21st Century. With overall high quality in its financial structure, Boston Beer has the ability to one day grow and become a dominant force within the beer industry as a whole. Valuation Models such as the free cash flow, long-run residual income, and abnormal earnings growth showed Boston Beer to be undervalued, but the residual income showed them as slightly overvalued.

By examining these forecasting models we believe that each one has some degree of truth, but based on three of the four models and financial quality in the firm we believe Boston Beer is undervalued. 6 Risks Lack of growth overseas and the recent spike in imported better beers shows many risks that Boston Beer is facing. We see Boston Beer being able to maintain its loyal customers but it is a tough market to gain any new loyal customers. Also, the mega brewers are beginning new strategies to break into the better beer market. With the mega brewers entering there might be less opportunity for Boston Beer to maintain its growth in the market.

Industry Analysis The Boston Beer Company is in an interesting situation to define its market status. It is known as the largest microbrewery in the United States as well as being able to compete with the mega brewers on a product differentiation competition. They compete in the domestic better beer industry that is defined by increased price and superior tastes. This has created a loyal customer base that has launched the company to be able to compete nationally with companies such as Anheuser-Busch, Heineken, Constellation Brands, and Adolph Coors.

Boston Beer Companys customer loyalty can be seen in the decrease in sales in The Samuel Adams Boston Lager and an increase in Sam Adams Light during the rollout in 2002, therefore cannibalizing sales. Their real major competitors in the better beer industry are Heineken and Corona, but being foreign firms reduces accounting reliability and information sources. Therefore we have identified Molson Coors and Anheuser-Busch as major competitors. This better beer market comprises of 15% of the total domestic beer industry consumption.

The following chart from finance. compares Boston Beer Company to the leaders in the alcoholic beverage industry. SAM Rank 3 / 18 2 / 18 12 / 18 Statistic Market Capitalization P/E Ratio (ttm) PEG Ratio (ttm, 5 yr expected) Revenue Growth (Qtrly YoY) Industry Leader SAM DEO 42. 06B 337. 70M 11 / 18 25. 85 2. 31 KNBWY 30. 84 KNBWY 2. 91 CEDC 39. 09% -1. 46% 7 EPS Growth (Qtrly YoY) Long-Term Growth Rate (5 yr) Return on Equity (ttm) Long-Term Debt/Equity (mrq) Dividend Yield (annual) CEDC LQU AED AED DEO 37. 95% -25. 00% 9 / 18 20. 0% 4. 059 4. 45% 12. 0% 0 N/A 4 / 18 5 / 18 N/A N/A 89. 75% 19. 95%.

Last year 26 beverages were produced under the company and Boston Beer was the sixth largest producer in the nation. Boston Beer Company is mostly known for the Samuel Adams line and newly introduced Sam Adams Light in 2002. They also brew specialty, seasonal, and extreme beers. This allows a new taste for the Sam Adams loyalists year round that increases their product differentiation among competitors. In addition to these products they also make Hardcore Crisp Hard Cider and three differentiations of Twisted Teas. Competitive Advantages The main factor to Boston Beer Companys success is its product differentiation.

The brewery relies on a unique product taste with a loyal customer base. Consumers appreciate Samuel Adams distinct brand image and what they consider to be a superior taste at a price that is not too outrageous compared to cost advantage firms such as the mega brewers (i. e. Coors, Anheuser-Busch). Boston Beer Company also delivers variety to its customers in several fashions, including seasonal beers, hard iced teas, and hard ciders. This investment in research and development offers consumers varieties in the alcoholic beverage market.

Their final competitive advantage is the established distribution channel with bases in Cincinnati and Boston. This distribution system allows delivery for fresh beer, in a timely manner, to a national audience. Boston Beer Company can sustain these competitive advantages due to their distinct role in the market. It is difficult to copy their product in a costly manner without sacrificing quality. This allows the brewer to hold onto their market niche. Also, Boston Beer Company consistently offers new choices to consumers in the alcoholic 8 beverage industry that attracts new customers with new tastes.

Finally, Boston Beer Company is the only microbrew to distribute nationally, in addition to their well developed distribution channels. Five Forces Model Rivalry Among Existing Firms Boston Beer is in one of the highest competitive fields within the realms of the alcoholic beverage market. Unlike Anheuser Busch or Coors who compete nation wide with volume, advertising, and standard tastes for the public, Boston Beer is part of a much more competitive field of specialty brewers or what is known as the Better Beer category of the beer industry.

Better Beers are determined by higher price, quality, image and taste, as compared with regular domestic beers. They are much smaller in size as well as distribution but are able to hold on to a small but vital part of the industry. Though they are at the top of what is considered Better Beers firms based in the U. S. , they still come third when imports are considered. Companies such as Heineken and Corona have taken hold of the Better Beer share leaving Boston Beer in third as far as sales and volume.

Degree of differentiation: Alcoholic Beverages as a Whole- The Better Beer category of the beer industry, which includes craft or specialty beers and most imports, mainly focuses on product differentiation. Boston Beers main strategy to keep itself in the market for alcoholic beverages is by differentiation of tastes to the customer. By offering distinct tastes of many kinds, Boston Beer holds a small but strong share in the overall market (*2%) of beverages that are sold. Specialty Brewers (Better Beer)- Founder-chairman C.

James Koch, a sixthgeneration brewmaster who crafted an old-family blend of hops into Sam Adams, has created one of the best-selling specialty labels ever in the U. S. The numbers for Boston Beer have been impressive (net sales up 2. 6% to $161. 4 million, operating income up 49% to $15. 2 million) and could be interpreted as leading to another 9 profitable year that has landed Boston Beer in Forbes 200 Best Small Companies. The wide variety of product choices based on taste has allowed Boston Beer to target many different markets, including the specialty market.

This has allowed Boston Beer to maintain the highest percentage share in that market than any other U. S. firm in their market. Because of a steep learning curve in the industry for beer, Boston Beer cannot count on size nor volume, but only on their differentiation from the larger firms, and their ability to maintain and grow their niche in the market. Threat of New Entrants: Specialty Threats- One of Boston Beers biggest threats is that of new specialty brewers entering the marketplace.

Nationally, Boston Beer is one of the most well known specialty beers firms, but it faces regional threats much higher than those faced nationally. This is mainly due to local businesses brewing beverages that aim towards local tastes with lower costs to the consumer. Although the learning curve is steep for breweries, low barriers to entry based on price make it even more difficult for Boston Beer to maintain its status due to the wide variety of tastes and prices that are offered across the country and around the world.

Relationships and Distribution Channels- The company sells its products to a network of approximately 440 wholesale distributors, who then sell to a variety of retailers such as pubs, restaurants, grocery chains, package stores, stadiums and other retail outlets. The good news is that Boston Beer has and will be able to maintain existing relationships with their distributors due to their prestige standing in their industry. Newer and smaller firms will have a difficult time obtaining the same kind of relationships based on the marketability of their products.

High taxation on alcoholic beverages and strict laws that prohibit the sale to companies without license make it even harder for new companies to gain portions of the market share. Legal Barriers- Boston Beer is also able to maintain its market share because of high legal barriers that the state and federal government sets for companies to begin 10 constructing breweries. As mentioned above, high taxation is another legal barrier that must be overcome by new firms to the market.

The Environmental Protection Agency (EPA) also sets strict guidelines enforcing a clean and healthy environment for the workers and for the land that the brewery is built on. Threats of Substitutes In the industry of alcoholic beverages, there is always a threat of substitute products. One of the biggest threats originates from wine and spirits. During 2003, the total beer industry in the United States experienced a decline in volume of less than 0. 5% as compared to the prior year of 2002.

This decline has been attributed to certain negative economic factors, but mainly to the increase in market share of wines and spirits. Although total light beers grew, they grew at a lower rate than in previous years. Also the substitution among types and brands of beers has been a huge threat regionally as well as internationally. Boston Beer must compete with smaller regional brewers with very low cost entry barriers, and international brewers in the Better Beer market with tremendous volume capabilities.

Boston Beer has attempted to neutralize this threat by developing their own substitutes (shown in Figure 1A) such as Hardcore and Twisted Tea malts to battle the substitutes that infiltrate the market. Yet, Boston Beers main strength in marketing is the loyalty that comes from being in business for a long period of time. Boston Beer customers have not based their purchases on the lowness of the price but on the quality and distinctiveness of the taste and the image that it portrays. This loyalty has decreased the threat of substitutes as well as the buyers willingness to switch. Below is a list of all Boston Beer products.

11 Samuel Adams Boston Lager® Sam Adams Light® Samuel Adams® Pale Ale Samuel Adams® Boston Ale Samuel Adams Cherry Wheat® Samuel Adams® Weiss Bier Samuel Adams® Vienna Style Samuel Adams® Cream Stout Samuel Adams® Triple Bock Seasonals: Samuel Adams® Spring Ale Samuel Adams® Double Bock Samuel Adams® Summer Ale Samuel Adams® Octoberfest Samuel Adams® Winter Lager Samuel Adams UtopiasTM HardCore® Crisp Hard Cider Twisted Tea® Hard Iced Tea Twisted Tea® Raspberry Twisted Tea® Half & Half Power of the Customer Boston Beer has maintained a solid niche for many years that bases their purchases on taste, image, and quality.

Boston Beer competes on these prime factors and not on price as the three large beer firms do. Yet, if Boston Beer took advantage of the niche they have there are many substitute products regionally, nationally, and especially internationally that may take away their main customer base. Therefore, the power of the customer is relatively high because of the increasing competition in the Better Beer market. Power of the Suppliers Since the amount of breweries in the country is so large in number, there are just as many suppliers.

This leads to many different substitutions that Boston Beer can deal with that allow them to find the better buy for the better beer. This obviously leads to the power of the supplier being very low. 12 Five Forces Summary The alcoholic beverage market consists of many different types of companies that deal in different sectors of the market. Each one has different strategies to gain their share of the market domestically and internationally. While some companies base their marketing on volume and price, Boston Beer bases theirs on product differentiation.

Through different tastes and substitutes, they have created the largest Better Beer firm in the United States and created a strong niche in the public based on loyalty. By being in one of the most competitive areas of the alcoholic beverage industry, Boston Beer must continue to reinforce their loyalty and to create new innovative products to help them grow in the 21st century. 13 Five Forces Table Rivalry Among Existing Firms -Heavy competition in industry -More firms in specialty market -Regional threats and international threats extremely high.

Threat of Substitutes -Wines and Spirits main Threat of New Entrants -Legal entry barrier is high -Regional entry much lower than national distribution -Have solid distribution channels -Imports are an extreme threat substitute over past two years -Many specialty beers enter market constantly -Loyalty, taste, and image are advantages -Largest niche in Better Beer market High Relatively Low High Power of Buyers -Boston Beer has strong niche not based on price -Able to maintain slightly higher prices based on loyalty -If taken advantage of though could loose major portion of the market.

-Many substitutes keeps Boston Beer competitive Power of Suppliers -Many different suppliers allowing stiff competition -Large amounts of substitutes that go into making the product, therefore increasing price competition Relatively High Low 14 Industry Competitive Analysis Strengths-The Company believes that their current strategy of consolidating brewery ownership with contract brewing, which helps utilize the excess capacity of other breweries, provides the Company with lots of flexibility as well as quality and cost advantages over its competitors.

They carefully select breweries with the capability of utilizing traditional brewing methods and first rate quality control capabilities throughout brewing, fermentation, finishing, and packaging. Furthermore, by brewing in multiple locations, the Company reduces its distribution costs and is better able to deliver fresher beer to its customers than other craft brewers with broad distribution from a single brewery. Success at the Boston Beer Company is in large part due to the Samuel Adams brand of beers which was first brewed by the Chairman of the Company Jim Koch back two decades ago.

Currently there are nine different permanent styles and six seasonal flavors of the Samuel Adams beer on the market. While the Samuel Adams brands may get all the attention, HardCore Crisp Hard Cider and three varieties of Twisted Iced Tea have recently emerged on the scene with improving annual sales since their release. Malt beverages only bring in less than ten percent in overall annual sales, yet the Boston Beer Company optimistically sees this as a growing opportunity to expand in the future.

Weaknesses- Boston Beer Company feels its present strategy to price above the three mega titans for beer production is fairly justified due to its high quality brewed beer. For the most part the highly competitive beer market in the United States is consumed in large quantities with high sensitivity to price. Unfortunately, a large percentage of beer sales rely on the younger more price conscience age drinkers. The Company sells its products mainly in the United States, but also has markets in Canada, Europe, the Caribbean, and the Pacific Rim.

In 2003, the Companys major distributor accounted for approximately 5 percent of the Companys net sales, and 15 the Companys second largest distributor accounted for approximately 3 percent of the Companys net sales. There was no other distributor accounting for as much as 3 percent of the Companys net sales. In some states, the terms of the Companys contracts with its distributors may be affected by laws that restrict the enforcement of some contract terms such as in California. Opportunities- The idea to continue to grow in the already overcrowded market of specialty brewers is critical to the success of this company.

There are currently over thirteen hundred micro-brewers in the United States with The Boston Beer Company ranked number one in overall sales and sixth in the overall domestic market. Currently the Heineken and Corona brands rank ahead of Samuel Adams in this category in the world market. In the near future the company is leaning towards owning more breweries and cutting back on the contract brewers. Currently the different cost associated with contract brewing involves raw materials, excise taxes and deposits for pallets and kegs and specialized equipment required for beer production.

Brewery ownership would involve significant capital investment which could easily exceed $50 million for the combination of purchase, expansion and improvement, or for original construction. Threats- In recent years, all brewers have had to contend with a stagnant beer market and per-capita consumption that is on the decline. The reasoning behind this ongoing trend are attributed to underlying factors such as the low carbohydrate diet crave that has taken off in recent years, the unstable economy, and an increase in market share of wines and spirits.

In the past ten years, domestic light beers, which are beers with fewer calories than the brewers traditional beers, have experienced significant growth within the category, and now have a higher market share than traditional beers. The Boston Beer Company is a fairly new competitor in the beer market today. The three major brewers (Anheuser-Busch, Inc. , SAB Miller PLC, and Coors Brewing Company) comprise over 90% of all United States domestic beer production, excluding imports.

In addition, these mega-brewers have also entered the better beer category by either developing their own beers, acquiring, in whole or part, existing craft brewers or by importing and distributing foreign brewers brands. 16 Accounting Analysis Key Accounting Policies Boston Beers financial conditions are based on their financial statements, which are prepared in accordance with FASB. Preparing these statements requires management to make significant estimates and judgment decisions considering the accuracy of their assets, liabilities, revenues and expenses.

These policies allow the firm to accurately follow the competitive advantages mentioned earlier, and operate as the largest microbrewer in the nation. The firm is required to use some different policies because of their unique position, but for the most part has the accounting strategy in place to compete with the industry powerhouses. ¢ Revenue Recognition: Boston Beer practices accrual accounting and recognizes revenue when an invoice is presented to the customer and the product is received. Many of the firms sales are through contracts so future sales can be easily recognized.

Additionally, the company records an allowance for estimated returns, in compliance with SFAS No. 48. ¢ Principal of Consolidation: Boston Beers consolidated financial statements include the accounts of the company and its wholly-owned subsidiaries. All inter company transactions have been eliminated in consolidation. ¢ Cash: Cash and cash-equivalents include cash-on-hand, as well as highly liquid tax-exempt and taxable money market instruments. ¢ Short Term Investments: Short term investments are accounted for in accordance with Statement of Financial Accounting Standards (SFAS), No.

115, classifying investments on their nature and intent of use. 17 ¢ Intangible assets and Goodwill: In accordance with SFAS No. 142, Goodwill and other Intangibles, which the company adopted December 30, 2001, no amortization related to Goodwill was recorded in fiscal 2002 or 2003. The company tests for impairment the fourth quarter of every year, and a cost benefit analysis of contract versus in-house brewing is conducted. ¢ Inventories: Inventories, which consist mainly of hops, bottles and packaging, are stated at the lower of cost, FIFO basis, or market.

The companys policy for inventory and purchase commitments is to recognize a loss by establishing a reserve to cover forecasted needs, which is material to ensure the freshest ingredients. Work in process and finished goods inventory tend to be low because of sales contracts to sell products that are not even produced yet and efficient operating procedures. ¢ Property, Plant & Equipment: Property, Plant and Equipment are stated at cost. Expenditures for maintenance and repairs are expensed as incurred. Major renewals extending the life of property are capitalized.

Depreciation is computed using the straight-line method based on the useful lives of the individual assets. All of the property, plant and equipment owned by the company are capitalized. ¢ Long-lived Assets: From time to time, the company enters into production agreements with other companies. Through these agreements payments are made, which are classified as assets and amortized over the life of the related agreement. These capitalizations have been deemed cheaper to operate with instead of operating leases because of cost benefit analysis mentioned by the 10-K, but no official numbers were released.

¢ Income Taxes: The company provides for deferred taxes using an asset and liability approach that requires the recognition of deferred assets and liabilities for the expected future tax consequences of events that have been 18 recognized in their financial statements. The tax rate for Boston Beer has been decreasing due to some short term investments that are tax deferred as well. There is a large allotment for these taxes because of large implementations on the alcohol industry by the government, such as extensive permits and taxes.

¢ Stock: Boston Beer issued both Class A and B common stock which is common stock and preferred stock. Both classes are eligible to receive dividends, yet to this date none have been paid and none are planning on being paid in the foreseeable future. Additionally, under terms of an existing credit agreement, Boston Beer is prohibited from paying dividends. ¢ Advertising and Promotional Costs: Shipping costs are included in advertising and promotional costs, which are all charged to expense during the period in which they incurred.

Advertising expenses are recognized when the ad is completed ¢ Stock-based Compensation: Boston Beer accounts for stock-based compensation using the intrinsic-valuation method prescribed in the Accounting Principals Board Opinion No. 25. Boston Beers key accounting practices should not all be weighed equally. Inventory and revenue recognition should have more emphasis placed on them, because these are very important to operations. Much of Boston Beers revenue is in accounts receivable because a lot of their sales are through contracts, which is a competitive advantage for the firm.

Another competitive advantage in the accounting procedures is Boston Beers ability to efficiently use operating leases with contract brewers to create and distribute products cheaper than producing by the company. 19 Degree of Potential Accounting Flexibility The companys financial statements agree that there is potential for a large degree of flexibility in Boston Beers accounting policies, as with all alcoholic industry firms. The main flexibility arrangements are concerning inventory. Managers must predict the amount of hops consumed in operation, work in process and how much will be consumed in future production.

Accounting for grains, and oats is different than a traditional inventory in that there are different qualities received, and cannot be counted in units like a typical production company does. The product mixes continually change according to the quality of the supplies received, therefore changing the amount of inventory consumed for each barrel of beer. Inventory also changes because of the return of stale supplies, and how many hops they will receive due to purchase contract obligations. Boston Beer must also estimate a reserve for bad supplies received or supplies that turn stale while in inventory.

The firm simply reimburses the contract brewing firm for stale supplies which has been an average of $1. 75 million over the past two years. This estimate is made at the beginning of the year and inaccurate approximations could lead to changes in income, cost of goods sold, and inventory. The companys financial statements do a fair job in justifying all estimates because estimated numbers have only varied slightly over the past several years. Further estimates include defined benefit payments to employees for pension plans.

These approximations grow slightly over the next few years indicating that they have appropriated sufficient amounts for future payments. They have pension plans for both non-union employees and union employees. Boston Beer Co. had its own 401k plan that it introduced to most all non-union employees in 1993. All fulltime non-union employees that are 21 years of age or older, are allowed to participate in this 401k plan. After the sixth month of employment the company matches the employees contribution dollar for dollar up to $1000. Also for non-union workers is a health care plan that the company contributes to. 20.

For union workers the company offers a defined contribution plan to eligible employees under the terms of the collective bargaining agreement. Under this defined contribution plan, employees can contribute up to 60% of their annual salary. Under the plan though, the company does not make any matching contributions but does incur immaterial administration costs. Another plan for union employees is the defined benefit plan. Eligible participants for this defined benefit plan according to the collective bargaining agreement, include employees that have at least twelve consecutive months and at least 750 hours of employment with the company.

In the previous three years, 2002-2004, Boston Beer Co. has $100,000 to this plan. The projected benefit obligation of these plans are $847,000 for 2004, $707,000 for 2003, and $559,000 for 2002. These projected numbers were calculated by accounting for the maintenance costs of the plan. Goodwill was estimated in 2001 according to GAAP standards and is evaluated in the fourth quarter of every year to see if necessary adjustments from impairments are needed.

No adjustments have been needed since 2001 and there seems to be no need for changed to goodwill in the future do to steady asset numbers and no current need for more assets. All of the estimates seem to be appropriate even when compared to industry leaders. Boston Beers numbers of course are much lower than competitors but this is due sheer size differentiations as well as differing operating procedures because most firms produce their own beer instead of contracting it out.

Summary of Flexibility Although there is potential for large flexibility in approximations of inventory and pension plans, the numbers they allocate in the companys financial statements do not seem too outlandish or vary greatly from years before, implying that they do not abuse their flexibility. 21 Evaluation of Accounting Strategy Boston Beers accounting strategy is well defined in that they have very few significant changes to policies and following industry norms. The company follows the alcoholic beverage industry in allowance for large taxes, inventory estimations, and accounting for union employee.

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