Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our Annual Report on Form 10-K for the year ended December 27, 2025 includes a discussion and analysis of our financial condition and results of operations for the years ended December 28, 2024 and December 30, 2023 in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
In this Form 10-K and in other documents incorporated herein, as well as in oral statements made by the Company, statements that are prefaced with the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “intend,” “designed,” and similar expressions, are intended to identify forward-looking statements regarding events, conditions, and financial trends that may affect the Company’s future plans of operations, business strategy, results of operations, and financial position. These statements are based on the Company’s current expectations and estimates as to prospective events and circumstances about which the Company can give no firm assurance. Further, any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement to reflect future events or circumstances. Forward-looking statements should not be relied upon as a prediction of actual future financial condition or results. These forward-looking statements, like any forward-looking statements, involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. Such risks and uncertainties include the factors set forth above and the other information set forth in this Form 10-K.
Introduction
The Boston Beer Company is engaged in the business of producing and selling alcohol beverages primarily in the domestic market and, to a lesser extent, in selected international markets. The Company’s revenues are primarily derived by selling its beverages to Distributors, who in turn sell the products to retailers and drinkers.
The Company competes primarily in the combined Beyond beer and Traditional beer market ("US Beer Market"). Beyond beer includes flavored malt beverages, hard seltzer, hard cider, spirits based ready to drink beverages (“spirits RTDs”) and other emerging beverages. Traditional beer generally includes mass domestics, imports, domestic specialties and craft beer.
Results of Operations
Year Ended December 27, 2025 (52 weeks) Compared to Year Ended December 28, 2024 (52 weeks)
Year Ended
(in thousands, except per barrel)
Dec. 27
Dec. 28
Amount
change
% change
Per barrel
change
Per barrel
% change
Barrels sold
Per barrel
% of net
revenue
Per barrel
% of net
revenue
Net revenue
Cost of goods
Gross profit
Advertising, promotional, and selling
expenses
General and administrative
expenses
Impairment of intangible assets
Impairment of brewery assets
Contract settlement costs
Total operating expenses
Operating income
Other income, net
Income before income tax provision
Income tax provision
Net income
Net revenue. Net revenue decreased by $47.9 million, or 2.4%, to $1,965.0 million for the year ended December 27, 2025, as compared to $2,012.9 million for the year ended December 28, 2024, primarily due to decreased sales volume impacts of $94.8 million, partially offset by increased pricing of $27.1 million, and favorable product mix of $19.1 million.
Volume. Total shipment volume of 7,140,000 barrels for the year ended December 27, 2025 decreased by 4.7% over 2024 levels of 7,493,000 barrels, primarily due to decreases in Twisted Tea, Truly Hard Seltzer and Samuel Adams brands that were only partially offset by growth in the Company’s Sun Cruiser, Angry Orchard and Dogfish Head brands.
Depletions of the Company’s products for the year ended December 27, 2025 decreased by approximately 4% compared to the prior year.
The Company believes distributor inventory as of December 27, 2025 was at appropriate levels and averaged approximately four weeks on hand which is within the Company’s target wholesaler inventory levels.
Net Revenue per barrel. The net revenue per barrel increased by 2.4% to $275.21 per barrel for the year ended December 27, 2025, as compared to $268.64 per barrel for the year ended December 28, 2024, primarily due to price increases and favorable product mix.
Cost of goods sold. Cost of goods sold was $141.79 per barrel for the fifty-two weeks ended December 27, 2025, as compared to $149.36 per barrel for the fifty-two weeks ended December 28, 2024. The 2025 decrease in cost of goods sold of $7.57 per barrel, or 5.1% was primarily due to contract renegotiations and recipe optimization savings of $37.4 million, or $5.24 per barrel, improved brewery efficiencies of $34.1 million, or $4.78 per barrel, decreases in inventory obsolescence of $10.3 million, or $1.44 per barrel and lower third-party production costs of $9.6 million, or $1.34 per barrel, partially offset by inflationary impacts, including tariffs, of $36.8 million, or $5.15 per barrel.
Inflationary impacts of $36.8 million consist primarily of increased raw material costs of $30.5 million, inclusive of $10.1 million impact from tariffs, and increased internal brewery costs of $6.3 million.
Gross profit. Gross profit was $133.41 per barrel for the year ended December 27, 2025, as compared to $119.27 per barrel for the year ended December 28, 2024. Gross margin was 48.5% for the year ended December 27, 2025, as compared to 44.4% for the year ended December 28, 2024. Gross margin primarily benefited from contract renegotiations and recipe optimization savings, improved brewery efficiencies, price increases and favorable product mix. These benefits were partially offset by increased inflationary and tariff costs.
The Company includes freight charges related to the movement of finished goods from manufacturing locations to Distributor locations in its advertising, promotional and selling expense line item. As such, the Company’s gross margins may not be comparable to other entities that classify costs related to distribution differently.
Advertising, promotional, and selling expenses. Advertising, promotional and selling expenses, increased $57.9 million, or 10.5%, to $610.0 million for the year ended December 27, 2025, as compared to $552.0 million for the year ended December 28, 2024. The increase was primarily driven by higher media spend of $27.0 million, increased local marketing of $10.7 million, higher production and other non‑media costs of $7.6 million, increased point‑of‑sale investments of $5.9 million, increased national promotions of $4.3 million, and higher salaries and benefits of $4.3 million. These increases were partially offset by a $3.0 million reduction in freight costs due to lower volumes.
Advertising, promotional and selling expenses were 31.0% of net revenue, or $85.43 per barrel, for the year ended December 27, 2025, as compared to 27.4% of net revenue, or $73.67 per barrel, for the year ended December 28, 2024. The Company will invest in advertising and promotional campaigns that it believes are effective, but there is no guarantee that such investment will generate sales growth.
The Company conducts certain advertising and promotional activities in its Distributors’ markets, and the Distributors make contributions to the Company for such efforts. These amounts are included in the Company’s statement of operations as reductions to advertising, promotional and selling expenses. Historically, contributions from Distributors for advertising and promotional activities have amounted to approximately 2% of net sales. The Company may adjust its promotional efforts in the Distributors’ markets, if changes occur in these promotional contribution arrangements, depending on the industry and market conditions.
General and administrative expenses. General and administrative expenses increased by $0.9 million, or 0.5%, to $190.8 million for the year ended December 27, 2025, as compared to $189.9 million for the comparable period in 2024. The increase was primarily due to higher salaries and benefits costs.
Impairment of intangible assets. In fiscal 2025, the Company recorded no impairment charges related to intangible assets. In fiscal 2024, the Company recorded a $42.6 million non‑cash impairment charge ($29.1 million net of tax) primarily related to the Dogfish Head brand, based on the Company’s annual impairment assessment performed as of September 1, 2024. Beginning in the fourth quarter of fiscal 2024, the Company commenced amortization of the remaining Dogfish Head intangible asset over an estimated useful life of 10 years.
Impairment of brewery assets. Impairment of brewery assets of $7.0 million decreased by $0.2 million from the prior fiscal year, due to lower write-offs of equipment at third party and Company-owned production facilities.
Contract settlement costs. The Company did not record any contract settlement costs in fiscal 2025. In fiscal 2024, the Company recorded contract settlement costs of $26 million due to an amendment and restatement in its entirety of an existing production agreement with a third-party supplier, Rauch. This amendment adjusted the existing production agreement to better match the Company’s future capacity requirements and results in increased production flexibility and more favorable termination rights to the Company.
Income tax provision. The Company’s effective tax rate for fiscal 2025 was 29.3% compared to 31.9% in fiscal 2024, primarily due to higher pre-tax net income and a lower negative impact of non-deductible expenses.
Liquidity and Capital Resources
The Company’s primary sources of liquidity are its existing cash balances, cash flows from operating activities and amounts available under its revolving credit facility. The Company’s material cash requirements include working capital needs, satisfaction of contractual commitments, and investment in the Company’s business through capital expenditures.
Cash and cash equivalents increased to $223.4 million as of December 27, 2025 from $211.8 million as of December 28, 2024, primarily reflecting net cash provided by operating activities, partially offset by repurchases of the Company's Class A common stock, and purchases of property, plant, and equipment.
Cash provided by operating activities consists of net income, adjusted for certain non-cash items, such as depreciation and amortization, impairment of intangible assets, stock-based compensation expense, other non-cash items included in operating results, and changes in operating assets and liabilities, such as accounts receivable, inventory, prepaid expenses and other current assets, accounts payable, and accrued expenses.
Cash provided by operating activities for the year ended December 27, 2025 was $270.2 million and consisted of net income of $108.5 million, non-cash items of $114.7 million, and an inflow of $47.0 million from a net decrease in operating assets and liabilities. The inventory decrease of $23.4 million is primarily due to lower volumes and improved supply chain performance. The accrued expenses and other current liabilities increase of $15.6 million is primarily due to increases in accrued contract manufacturing shortfall fees compared to the prior year. The third-party production prepayments decrease of $7.4 million is due to a full year amortization of these prepayments during 2025, decreasing the prepaid balance from $14.5 million as of December 28, 2024 to $7.1 million as of December 27, 2025.
Cash provided by operating activities for the year ended December 28, 2024 was $248.9 million and consisted of net income of $59.7 million, non-cash items of $150.3 million, and an inflow of $38.9 million from a net decrease in operating assets and liabilities. The third-party production prepayments decrease of $19.1 million is due to a full year amortization of these prepayments during 2024, decreasing the prepaid balance from $33.6 million as of December 30, 2023 to $14.5 million as of December 28, 2024. The accrued expenses and other current liabilities increase of $12.3 million is primarily due to increases in accrued supply chain costs and accrued marketing costs compared to the prior year. The inventory decrease of $6.9 million is primarily due decrease on hops inventory compared to the prior year to align with beer volumes.
The Company used $54.5 million in investing activities during the year ended December 27, 2025, as compared to $96.3 million during the year ended December 28, 2024. The decrease in investing activity cash outflows is due to a $20.0 million note receivable issued in 2024 and a $21.7 million decrease in capital investments. For both periods, capital investments were made mostly in the Company’s breweries to drive efficiencies and cost reductions.
Cash used in financing activities was $204.1 million during the year ended December 27, 2025, as compared to $239.3 million during the year ended December 28, 2024. The $35.2 million decrease in financing activity cash outflows in 2025 compared to 2024 is primarily due to lower repurchases of the Company's Class A common stock in the current year.
During fiscal year 2025, the Company repurchased and subsequently retired 896,521 shares of its Class A Common Stock for an aggregate purchase price of $199.2 million. As of December 27, 2025, the Company had repurchased a cumulative total of approximately 15.8 million shares of its Class A Common Stock for an aggregate purchase price of approximately $1.37 billion and had approximately $228.4 million remaining on the $1.6 billion stock repurchase expenditure limit set by the Board of Directors.
The Company expects that its cash balance as of December 27, 2025 of $223.4 million and future operating cash flows, along with its $150.0 million credit facility agreement, will be sufficient to fund future cash requirements. Refer to Note K of the Notes to the Consolidated Financial Statements within Part II, Item 8 of this Form 10-K for further details of the terms of the credit facility agreement. As of the date of this filing, the Company was not in violation of any of its covenants to the lender under the credit facility.
Critical Accounting Policies
The discussion and analysis of the Company’s financial condition and results of operations is based upon its consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the Company to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These items are monitored and analyzed by management for changes in facts and circumstances, and material changes in these estimates could occur in the future. The more judgmental estimates are summarized below. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that the Company believes to be reasonable under the circumstances. Actual results may differ from the Company’s estimates.
Provision for Excess or Expired Inventory
The provisions for excess or expired inventory are based on management’s estimates of forecasted usage of inventories on hand. Forecasting usage involves significant judgments regarding future demand for the Company’s various existing products and products under development as well as the potency and shelf-life of various raw material ingredients and finished goods. A significant change in the timing or level of demand for certain products as compared to forecasted amounts may result in recording additional provisions for excess or expired inventory in the future. Provision for excess or expired inventory included in cost of goods sold was $13.7 million, $21.9 million, and $19.3 million in fiscal years 2025, 2024, and 2023 respectively.
Valuation of Property, Plant, and Equipment
The carrying value of property, plant, and equipment, net of accumulated depreciation, at December 27, 2025 was $578.1 million. For purposes of determining whether there are any impairment losses on brewery assets, as further discussed below, management has historically examined the carrying value of the Company’s identifiable long-lived assets, including their useful lives, semi-annually, or more frequently when indicators of impairment are present. Evaluations of whether indicators of impairment exist involve judgments regarding the current and future business environment and the length of time the Company intends to use the asset. If an impairment loss is identified based on the fair value of the asset, as compared to the carrying value of the asset, such loss would be charged to expense in the period the impairment is identified. Furthermore, if the review of the carrying values of the long-lived assets indicates impairment of such assets, the Company may determine that shorter estimated useful lives are more appropriate. In that event, the Company will be required to accelerate depreciation in future periods, which will reduce earnings. Estimating the amount of impairment, if any, requires significant judgments including identification of potential impairments, market comparison to similar assets, estimated cash flows to be generated by the asset, discount rates, the remaining useful life of the asset, and the usefulness of the asset in consideration of future business plans. Impairment charges included in operating expenses related to brewery assets classified as property, plant, and equipment were $6.4 million, $7.2 million, and $5.0 million for fiscal years 2025, 2024, and 2023, respectively. Impairment charges related to brewery assets classified as operating right‑of‑use assets were $0.6 million, $0.0 million, and $0.4 million for fiscal years 2025, 2024, and 2023, respectively.
Factors generally considered important which could trigger an impairment review on the carrying value of long-lived assets include the following: (1) significant underperformance relative to historical or projected future operating results; (2) significant changes in the manner of use of acquired assets or the strategy for the Company’s overall business; (3) underutilization of assets; and (4) discontinuance of products by the Company or its customers.
Valuation of Goodwill and Indefinite Lived Intangible Assets
The Company records goodwill and identifiable intangible assets arising from business acquisitions. Intangible assets are classified as either indefinite‑lived or finite‑lived. Goodwill and indefinite‑lived intangible assets are not amortized but are assessed for impairment at least annually, or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable. Finite‑lived intangible assets are amortized over their estimated useful lives and evaluated for impairment when indicators are present.
The Company performs its annual goodwill impairment assessment in the third quarter of each fiscal year and evaluates goodwill on an interim basis if triggering events occur. The Company has one reporting unit.
In accordance with ASC 350, the Company may first perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value, or it may elect to perform a quantitative impairment test. When a quantitative test is performed, the estimated fair value of the reporting unit is compared to its carrying value, including goodwill.
Fair value is primarily estimated using an income approach based on discounted cash flow analysis, supplemented by a market approach that considers the Company’s market capitalization and enterprise value. These valuation techniques require significant management judgment, including assumptions related to projected revenues, future cash flows, operating margins, cost of capital, and long‑term growth rates. These assumptions are derived from historical performance, current operating plans, and management’s expectations regarding future economic and competitive conditions.
As of the annual impairment assessments conducted at the end of fiscal August 2025 and 2024, the estimated fair value of the reporting unit substantially exceeded its carrying value, and no goodwill impairment was recorded. Adverse changes in key assumptions or market conditions could result in future impairment charges that could have a material effect on the Company’s financial condition and results of operations.
The Company’s identifiable intangible assets consist primarily of a trademark and customer relationships acquired in connection with the Dogfish Head acquisition. Customer relationships are finite‑lived and are amortized over their estimated useful lives.
From the acquisition date through the annual impairment assessment conducted at the end of fiscal August 2024, the Dogfish Head trademark was classified as an indefinite‑lived intangible asset based on management’s determination that there were no legal, regulatory, contractual, competitive, or economic factors limiting its expected period of benefit. As an indefinite‑lived asset, the trademark was not amortized and was tested annually for impairment.
The Company’s impairment evaluation of the trademark follows ASC 350, under which management may first perform a qualitative assessment or proceed directly to a quantitative impairment test. When a quantitative test is performed, the carrying value of the trademark is compared to its estimated fair value. The fair value of the trademark is determined using an income approach based on the relief‑from‑royalty method.
Estimating the fair value of the trademark requires significant judgment and the use of assumptions related to projected future revenues, market‑based royalty rates, discount rates, and the after‑tax royalty savings attributable to ownership of the trademark. The Company uses third‑party valuation specialists to assist in this assessment. The assumptions applied are consistent with recent performance trends and the Company’s current strategic operating plans, which include reduced revenue expectations for Dogfish Head beer products. These assumptions are sensitive to changes in macroeconomic conditions, industry growth, and competitive dynamics.
Beginning in the fourth quarter of fiscal 2024, management reassessed the expected useful life of the Dogfish Head trademark and concluded that it no longer met the criteria for indefinite‑lived classification due to changes in qualitative factors affecting the expected period of economic benefit. As a result, the trademark was reclassified as a finite‑lived intangible asset.
Effective in the fourth quarter of fiscal 2024, the Company began amortizing the trademark’s remaining carrying value of $14.4 million over an estimated useful life of 10 years on a straight‑line basis. This change in estimated useful life was accounted for prospectively.
Revenue Recognition and Classification of Customer Programs and Incentives
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 December 27, 2025 and December 28, 2024, the Company had deferred revenue of $13.3 million and $11.3 million, respectively, related to product shipped prior to these dates for which the criteria to recognize revenue was not met as of these dates. These amounts are included in accrued expenses and other current liabilities in the accompanying consolidated balance sheets.
The Company is committed to maintaining the freshness of its products in the market. In certain circumstances and with the Company’s approval, the Company accepts and destroys or offers credits for stale beer that is returned or destroyed by Distributors. The Company generally credits approximately fifty percent of the distributor’s cost of beer that has passed its freshness expiration date when it is returned to the Company or destroyed. The Company reduces revenue and establishes an accrual based upon both historical returns, which is applied to an estimated lag time for receipt of product, and knowledge of specific return transactions. Estimating this reserve involves significant judgments and estimates, including comparability of historical return trends to future trends, lag time from date of sale to date of return, and product mix of returns. Stale beer expense is reflected in the accompanying financial statements as a reduction of revenue. Historically, the cost of actual stale beer returns has been in line with established reserves; however, the cost could differ materially from the reserves which would impact revenue. As of December 27, 2025, and December 28, 2024, the stale beer reserve was $4.9 million and $6.1 million, respectively. These amounts are included in accrued expenses and other current liabilities in the accompanying consolidated balance sheets.
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 the 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, discounts, 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 net revenue or as advertising, promotional and selling expenses totaled $123.1 million, $112.3 million and $106.4 million in fiscal years 2025, 2024, and 2023, respectively. 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.
Customer promotional discount programs are entered into with Distributors for certain periods of time. Amounts paid to Distributors in connection with these programs in fiscal years 2025, 2024, and 2023 were $65.2 million, $61.0 million and $62.6 million, respectively. The reimbursements for discounts to Distributors are recorded as reductions to net revenue. 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 allowances.
Customer incentives and other payments are made primarily to Distributors based upon the 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, discounts, 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 in fiscal years 2025, 2024, and 2023 were $57.9 million, $51.3 million and $43.8 million, respectively. In fiscal years 2025, 2024, and 2023, the Company recorded certain of these costs in the total amount of $38.4 million, $32.2 million and $31.4 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.
In connection with its preparation of financial statements and other financial reporting, management is required to make certain estimates and assumptions regarding the amount, timing and classification of expenditures resulting from these activities. Actual expenditures incurred could differ from management’s estimates and assumptions.
Stock-Based Compensation
The Company accounts for share-based awards in accordance with ASC Topic 718, Compensation – Stock Compensation (“ASC 718”), which generally requires recognition of share-based compensation costs in financial statements based on fair value. Compensation cost is recognized over the period during which an employee is required to provide services in exchange for the award (the requisite service period). The amount of compensation cost recognized in the consolidated statements of comprehensive income is based on the awards ultimately expected to vest, and therefore, reduced for estimated forfeitures. Stock-based compensation was $21.8 million, $19.0 million and $17.0 million in fiscal years 2025, 2024, and 2023, respectively.
As permitted by ASC 718, the Company elected to use a lattice model, such as the trinomial option-pricing model, to estimate the fair values of stock options. All option-pricing models require the input of subjective assumptions. These assumptions include the estimated volatility of the Company’s common stock price over the expected term, the expected dividend rate, the estimated post-vesting forfeiture rate, the risk-free interest rate and expected exercise behavior. See Note O for further discussion of the application of the option-pricing models.
In addition, an estimated pre-vesting forfeiture rate is applied in the recognition of the compensation charge. Periodically, the Company grants performance-based stock options. The Company only recognizes compensation expense with respect to these options if it is probable that the performance targets will be met. Consequently, at the end of each reporting period, the Company estimates whether it is probable that performance targets will be met. Changes in the subjective assumptions and estimates can materially affect the amount of stock-based compensation expense recognized in the consolidated statements of comprehensive income.
Business Environment
The alcoholic beverage industry is highly regulated at the federal, state and local levels. The TTB and the Justice Department’s Bureau of Alcohol, Tobacco, Firearms and Explosives enforce laws under the Federal Alcohol Administration Act. The TTB is responsible for administering and enforcing excise tax laws that directly affect the Company’s results of operations. State and regulatory authorities have the ability to suspend or revoke the Company’s licenses and permits or impose substantial fines for violations. The Company has established strict policies, procedures and guidelines in efforts to ensure compliance with all applicable state and federal laws. However, the loss or revocation of any existing license or permit could have a material adverse effect on the Company’s business, results of operations, cash flows and financial position.
The Beyond beer and Traditional beer categories within the United States are highly competitive due to large domestic and international brewers and the large number of craft brewers in this category who distribute similar products that have similar pricing and target drinkers. The Company believes that its pricing is appropriate given the quality and reputation of its brands, while realizing that economic pricing pressures may affect future pricing levels. Large domestic and international brewers are able to compete more aggressively than the Company, as they have substantially greater resources, marketing strength and distribution networks than the Company. The Company also increasingly competes with wine, spirits and other beverage companies, some of which have significantly greater resources than the Company. This competitive environment may affect the Company’s overall performance within the Beyond beer and Traditional beer categories. As the market continues to consolidate, the Company believes that companies that are well-positioned in terms of brand equity, marketing and distribution will have greater success than those who do not. With its over 300 Distributors nationwide and the Company’s sales force of over 550 people, as well as a commitment to maintaining its innovation capability, brand equity and quality, the Company believes it is well positioned to compete in the Beyond beer and Traditional beer categories.
Item 7A. Quantitative and Qualitat ive Disclosures About Market Risk
In the ordinary course of business, the Company is exposed to the impact of fluctuations in foreign exchange rates. The Company does not enter into derivatives or other market risk sensitive instruments for the purpose of speculation or for trading purposes. Market risk sensitive instruments include derivative financial instruments, other financial instruments and derivative commodity instruments, such as futures, forwards, swaps and options, that are exposed to rate or price changes.
The Company enters into hops purchase contracts, as described in Note M to the Consolidated Financial Statements within Part II, Item 8 of this Form 10-K, and makes purchases of other ingredients, equipment, and machinery and payments for commissions and marketing services to an international sales agent denominated in foreign currencies. The cost of these commitments changes as foreign exchange rates fluctuate. Currently, it is not the Company’s policy to hedge against foreign currency fluctuations.
The interest rate for borrowings under the Company’s credit facility is based on the applicable secured overnight financing rate ("SOFR") plus 1.1%, and therefore, subjects the Company to fluctuations in such rates. At December 27, 2025, the applicable SOFR was 3.76%. As of December 27, 2025, the Company had no amounts outstanding under its current line of credit.
Sensitivity Analysis
The Company applies a sensitivity analysis to reflect the impact of a 10% hypothetical adverse change in the foreign currency exchange rates. A potential adverse fluctuation in foreign currency exchange rates could negatively impact future cash flows by approximately $2.3 million as of December 27, 2025.
There are many economic factors that can affect volatility in foreign exchange rates. As such factors cannot be predicted, the actual impact on earnings due to an adverse change in the respective rates could vary substantially from the amounts calculated above.
