15 September 2016 Americas/United States Equity Research Beer & Alcoholic Beverages

Rating Price (14-Sep-16,US$) Target price (US$) 52-week price range Market cap (US$ m) Enterprise value (US$ m)

UNDERPERFORM 165.17 156.00 258.43 - 146.42 2,052.10 1,973.20

*Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ¹Target price is for 12 months.

Laurent Grandet 212 538 7901 [email protected] Clay Crumbliss, CFA 212 538 1076 [email protected]

Boston Beer Co. Inc. (SAM) INITIATION

No Inflection in Sight for the Craft Pioneer; Initiating at Underperform We are initiating coverage of Boston Beer with an Underperform rating and a $156 target price. Our sales and EPS estimates are below the consensus, as we don't see a clear tipping point to reverse sales declines. More importantly, management has not yet been able to articulate a clear strategy to stem market shares losses and revitalize sales. We applaud the company for recognizing the severity of the problem and hiring a CMO, but we think the coming years will be a slow road and that expectations have not fully adjusted to that reality. ■ Losing Share in Craft Beer: Samuel Adams has been losing share (down 250bps to 8% since 2013) of the fast-growing craft segment at a rapid pace owing to a squeeze from the proliferation of new brands. In the short term, we think Millennials' appetite for new, local, and flavors of the day will continue to pressure the brand. ■ Cider and Hard Soda Innovations Not Making Up for the Beer Weakness Anymore: Since 2012, sales growth were driven almost entirely by Angry Orchard and Twisted Tea, but the recent drop of the cider category has exacerbated the declines leading to negative depletions in last 2 quarters. ■ Optionality Outside of Samuel Adams Brand: We believe the craft segment will eventually consolidate, and Boston Beer could emerge among the winners if it can successfully revitalize the brand to resonate with Millennials. Another positive outcome could come from Alchemy & Science, which is Boston Beer's brand incubator that provides a structure to nurture and develop new brands in parallel with the core business. Finally, we see Boston Beer as a potential takeout candidate but recognize that Jim Koch has been publicly opposed to selling to a larger beer company; therefore we envisage a scenario where the company is taken private in an LBO. ■ Valuation: We apply a 22x multiple to our discounted CY18 EPS estimate. This is at parity with U.S. Staples peers compared with the 33% historical average premium.

Quarterly EPS 2015A 2016E 2017E

Q1 1.01 0.54 0.88

Q2 2.18 2.06 2.07

Q3 Q4 2.86 1.21 2.58 1.21 2.56 1.28

Financial and valuation metrics Year EPS (CS adj.) (US$) Prev. EPS (US$) P/E (x) P/E rel. (%) Revenue (US$ m) EBITDA (US$ m) OCFPS (US$) P/OCF (x) EV/EBITDA (current) Net debt (US$ m) ROIC (%) Number of shares (m) Net debt (Next Qtr., US$ m) Net debt/tot eq (Next Qtr.,%)

12/15A 12/16E 12/17E 7.27 6.40 6.80 22.7 25.8 24.3 107.7 126.2 130.5 959.9 942.0 947.1 199.1 175.1 186.5 12.47 10.12 10.97 16.5 16.3 15.1 10.2 11.6 10.9 -94 -79 -154 26.98 21.60 21.76 12.42 IC (current, US$ m) -59.4 EV/IC (x) -13.3 Dividend (current, US$)

12/18E 7.28 22.7 133.6 980.3 206.0 12.14 13.6 9.8 -242 22.54 367.56 5.1 -

Source: Company data, Thomson Reuters, Credit Suisse estimates

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

15 September 2016

Boston Beer Co. Inc.

(SAM)

Price (14 Sep 2016): US$165.17; Rating: UNDERPERFORM; Target Price: US$156.00; Analyst: Laurent Grandet Income Statement Revenue (US$ m) EBITDA Depr. & amort. EBIT (US$) Net interest exp Associates Other adj. PBT (US$) Income taxes Profit after tax Minorities Preferred dividends Associates & other Net profit (US$) Other NPAT adjustments Reported net income Cash Flow EBIT Net interest Cash taxes paid Change in working capital Other cash & non-cash items Cash flow from operations CAPEX Free cashflow to the firm Aquisitions Divestments Other investment/(outflows) Cash flow from investments Net share issue(/repurchase) Dividends paid Issuance (retirement) of debt Other Cashflow from financing activities Effect of exchange rates Changes in Net Cash/Debt Net debt at start Change in net debt Net debt at end Balance Sheet (US$) Assets Cash & cash equivalents Account receivables Inventory Other current assets Total current assets Total fixed assets Intangible assets and goodwill Investment securities Other assets Total assets Liabilities Accounts payables Short-term debt Other short term liabilities Total current liabilities Long-term debt Other liabilities Total liabilities Shareholder equity Minority interests Total liabilities and equity Net debt

12/15A 959.9 199 (43) 156 0 (1) 155 (57) 98 0 98 0 98 12/15A 156 0 12 169 (74) 94 (0) 0 0 (74) (136) 0 (0) 59 (77) 18 (76) (18) (94) 12/15A

12/16E 942.0 175 (45) 130 0 (0) 130 (47) 83 0 83 0 83 12/16E 130 0 1 131 (57) 74 0 0 0 (56) (125) 0 (0) 36 (89) (15) (94) 15 (79) 12/16E

12/17E 947.1 187 (47) 139 (0) 0 139 (52) 88 0 88 0 88 12/17E 139 (0) 2 141 (66) 75 0 0 0 (66) 0 0 0 0 0 75 (79) (75) (154) 12/17E

12/18E 980.3 206 (57) 149 (0) 0 149 (55) 94 0 94 0 94 12/18E 149 (0) 8 157 (69) 88 0 0 0 (69) 0 0 0 (0) (0) 88 (154) (88) (242) 12/18E

94 39 56 34 224 410 4 8 645

79 35 54 33 202 422 4 7 634

154 39 54 34 282 441 4 7 733

242 38 57 35 372 453 4 7 835

43 0 68 111 0 73 184 461 645 (94)

37 0 67 104 0 67 172 462 634 (79)

41 0 67 109 0 67 176 557 733 (154)

40 0 70 110 0 67 177 658 835 (242)

Per share No. of shares (wtd avg) CS adj. EPS Prev. EPS (US$) Dividend (US$) Dividend payout ratio Free cash flow per share Earnings Sales growth (%) EBIT growth (%) Net profit growth (%) EPS growth (%) EBITDA margin (%) EBIT margin (%) Pretax margin (%) Net margin (%) Valuation EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) P/E (x) Price to book (x) Asset turnover Returns ROE stated-return on (%) ROIC (%) Interest burden (%) Tax rate (%) Financial leverage (%) Gearing Net debt/equity (%) Net Debt to EBITDA (x) Interest coverage ratio (X) Quarterly EPS 2015A 2016E 2017E

12/15A 14 7.27

12/16E 13 6.40

12/17E 13 6.80

12/18E 13 7.28

0.00 0.00 0.00 0.00 6.99 5.74 12/15A 12/16E 6.3 (1.9) 6.6 (16.7) 8.5 (16.1) 8.2 (12.1) 20.7 18.6 16.3 13.8 16.1 13.8 10.3 8.8 12/15A 12/16E 2.04 2.09 10.2 11.6 12.5 15.2 22.7 25.8 4.8 4.6 1.5 1.5 12/15A 12/16E 21.9 17.9 0.3 0.2 0.99 1.00 36.5 36.3 0.00 0.00 12/15A 12/16E (20.3) (17.1) Net Net (2788.8) Cash (4164.8) Cash Q1 Q2 1.01 2.18 0.54 2.06 0.88 2.07

0.00 0.00 5.82 12/17E 0.5 7.1 6.2 6.3 19.7 14.7 14.7 9.3 12/17E 2.00 10.9 13.6 24.3 3.8 1.3 12/17E 17.2 0.2 1.00 37.0 0.00 12/17E (27.6) Net 5912.2 Cash Q3 2.86 2.58 2.56

0.00 0.00 6.82 12/18E 3.5 7.0 7.0 7.0 21.0 15.2 15.2 9.6 12/18E 1.85 9.8 12.2 22.7 3.2 1.2 12/18E 15.4 0.2 1.00 37.0 0.00 12/18E (36.8) Net 6326.1 Cash Q4 1.21 1.21 1.28

Share price performance 250 200 150 O ct - 1 5

Jan - 1 6

SA M .N

Apr- 1 6

Ju l - 1 6

S& P 5 0 0 IN D EX

On 14-Sep-2016 the S&P 500 INDEX closed at 2125.77 Daily Sep16, 2015 - Sep14, 2016, 09/16/15 = US$223.04

Source: Company data, Thomson Reuters, Credit Suisse estimates

Boston Beer Co. Inc. (SAM)

2

15 September 2016

Key Charts Figure 1: Boston Beer SWOT Strengths

Weaknesses

• One of the leading US craft beer brand in fastest growing beer segment • Strong innovation capabilities including craft incubator Alchemy & Science (A&S) • Successful diversification outside of core into hard ciders, teas, and sodas

• Four quarters of declining depletions led by weak sales of core Samuel Adams brand • Decline of Angry Orchard and the overall cider category • Lacks a clear strategic direction or plan to reinvigorate growth

Opportunities

Threats

• Revitalize Samuel Adams to make it more relevant to Millennials • Flexible balance sheet to accommodate M&A • Expand organically outside of the US or build partnerships with international players

• Further proliferation of craft beer brands continuing to crowd the marketplace • Increased competitive pressure from larger players investing in successful craft brands • Loss of perceived "craft" status by Millennials

Source: Credit Suisse.

Figure 2: Samuel Adams Has Lost Significant Market Share Owing to the Proliferation of Craft Competitors

US Retail Sales Contribution

Samuel Adams Share of Craft Beer

1,000

15% 12%

12% 9%

8%

6% 3%

Retail Sales ($MM)

Retail Value Share (%)

Figure 3: Successful Non-Beer Innovations Have Compensated for Weakness in Beer Portfolio

800 600 400 200 0

0%

Dec 12

2012

Jun 16

Core

Innovation

2015

Source: Nielsen xAOC+C, Credit Suisse.

Source: Nielsen xAOC+C, Credit Suisse.

Figure 4: Sam Adams Brand Now Representing Only 41% of The mix

Figure 5: Bigger Problems Revealed In 2016 When Angry Orchard Started To Decline Dramatically

Retail Portfolio Split by Brand

Coney Island 5%

Twisted Tea 23%

Source: Nielsen xAOC+C, Credit Suisse.

Boston Beer Co. Inc. (SAM)

Angry Orchard 29%

Retail Sales Growth (%)

Other 2%

Retail Sales Growth Trend by Brand Sam Adams 41%

60% 40% 20% 0% (20%) (40%)

Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16

Sam Adams

Angry Orchard

Twisted Tea

Source: Credit Suisse.

3

15 September 2016

Initiating at Underperform; $156 We are initiating coverage of the Boston Beer Company or "Boston Beer" (SAM) with an Underperform rating. We think the shares will remain under pressure until management can articulate a clear strategy for revitalizing the Samuel Adams and Angry Orchard brands. Our $156 target price implies 6% downside assuming a 22x P/E on our discounted CY18 EPS estimate. We don't think the stock deserves a premium any longer given the deteriorating fundamentals relative to the peer set. In our view, the growth algorithm is at least temporarily impaired and, in addition, we see Samuel Adams more like a mainstream beer given its price point, growth profile, and national availability. Furthermore, more than 50% of the portfolio is not in the craft beer segment (cider and hard sodas/tea make up the majority). As a result, we don't think the stock deserves a premium craft valuation. That said, we think the shares could be volatile in response to any news or earnings releases given the amount of short interest in the name. We also highlight that Tybourne Capital now owns 10% of the outstanding shares, making it the largest shareholder.

Our Estimates We are introducing our FY16-18 EPS estimates of $6.40, $6.80, and $7.28, respectively. Our estimates for this year are at the bottom end of management's guidance range and below the consensus, consistent with our view that the situation will get worse before it could get better for Boston Beer. As a result, we are only modeling 6-7% EPS growth in 2017/18, which is also below the consensus.

Upside/Downside Scenarios Our upside and downside cases assume the following. ■ Upside: Our blue sky target price assumes that Angry Orchard recovers faster than expected, adding around $0.15 to our CY18 EPS estimate. ■ Downside: Our grey sky target price assumes that Angry Orchard continues to decline at the current pace, subtracting around $0.20 from our CY18 EPS estimate.

Figure 6: Our Downside and Upside Cases Range from $148 to $170 per Share, Respectively Scenarios

CS CY18E

($ per share)

EPS ($)

Value PE (x)

Eq V ($)

1

Comments

Bull Case

$7.43

23.5x

$170

Angry Orchard recovers faster than expected; stock gets higher multiple

Base Case

$7.28

22.0x

$156

Base case value using our earnings estimates

Bear Case

$7.08

21.5x

$148

Cider category continues to decline; multiple contracts

1. Discounted back 0.3 years from CY18 to represent the expected stock price using a NTM multiple, one-year from today

Source: Company data, Credit Suisse estimates. Note: Uses discounted calendar year earnings estimates that may not match estimates shown elsewhere in the document.

Boston Beer Co. Inc. (SAM)

4

15 September 2016

Out of the Box Figure 7: Our Out-of-the-Box Idea for Boston Beer Out of the Box Idea

OUT OF THE BOX

Boston Beer is taken private in an LBO transaction Remove burden of being a public company Allow management to focus on fixing the business Creates optionality to invest and revitalize brands Creative structuring to allow Koch to maintain interest

Source: Credit Suisse.

Boston Beer Co. Inc. (SAM)

5

15 September 2016

Our Investment Thesis ■ Declining share in fast growth craft segment. ■ Successful innovation compensates for weakness in beer portfolio. ■ Bigger problems revealed in 2016. ■ No clear inflection in 2017. ■ Competitive strategy seems to lack concrete direction. ■ Status quo or sell.

Declining Share in Fast Growth Craft Segment Craft Beer Is Growing and Taking Share Overall beer retail sales are growing low- to mid-single digits, led by the growth of craft brews. Today, craft makes up an estimated 14% of the overall retail beer market in the United States, compared with around 10% in 2012.

Figure 8: The Craft Beer Segment Has Grown at an Annual Rate of Nearly 12% over the Past Four Years, Significantly Outpacing the Overall Beer Category US Retail Growth of Domestic Beer vs Craft Beer

Retail Sales Growth (%)

25%

CAGR

15% 12% 5%

3%

(5%)

Total Beer

Craft

Source: Nielsen xAOC+C, Credit Suisse.

Of the 12% compound growth of craft, the top ten largest brands today only grew 8% over the same period, while the very long tail of smaller brands grew around 15%. We think this is indicative of the Millennial consumer's constant appetite and demand for something new. Millennials tend to be less brand loyal and are often willing to try new brands or new flavors if it appeals to their desire for local, innovative, exciting, premium, and small batch products.

Boston Beer Co. Inc. (SAM)

6

15 September 2016

Figure 9: Craft Top Ten Brands Are Losing Ground to a Long Tail of Smaller Brands Craft Retail Value Share of Total Beer 15%

Retail Value Share (%)

13% 11% + 335 bps

9% 7% 5% 3%

Craft Share of Total Beer

Top 10 Craft Brands Share of Total Beer

Source: Nielsen xAOC+C, Credit Suisse. Note: Top 10 brands by retail sales according to Nielsen are: Samuel Adams, Yuengling, Blue Moon, Sierra Nevada, New Belgium, Lagunitas, Shock Top, Shiner, Deschutes Brewery, Goose Island.

Consumers are buying more expensive brands and premiumizing their buying habits. Millennials have shown a strong willingness to spend more money on a product if they believe there is an added value. This could include any of the hundreds of buzz words that marketers are using to appeal to this finicky generation's purchasing habits.

Figure 10: Positive Relationship Between Premium Pricing and Growth; Craft Beers Sell at the Highest Prices and Are Growing the Fastest Relationship of Volume and Price by Segment 25%

Retail Volume Growth (%)

20% 15% 10% 5% 0% (5%) (10%) (15%) $10

$15

$20

$25

$30

$35

$40

Avg Retail Price per Case ($) Economy

Premium

Light

Import

Craft

Source: Nielsen xAOC+C, Credit Suisse. PREMIUM: Budweiser, Miller Genuine Draft, Yuengling; LIGHT: Bug Light, Coors Light, Miller Lite; IMPORT: Corona Extra, Modelo Especial, Heineken, Dos Equis, Stella Artois; ECONOMY: Natural Light, Busch Light, Keystone Light; CRAFT: Includes thirty-two brands that we consider "representative" of the craft beer space.

Proliferation of Craft Brands Has Created a Crowded Market Place We view the Samuel Adams brand as a victim of its own success in many ways. Sam Adams is well-recognized and respected in the United States as one of the early movers in the rise of craft beers. However, the number of craft options available to consumers has Boston Beer Co. Inc. (SAM)

7

15 September 2016

grown at a staggering pace and industry experts estimate there are now more than 4,000 independent craft brewers in the United States, with more opening every week. This dynamic has caused a natural squeeze for the brands that had the most commanding shares of the market. The three biggest craft brands in terms of dollar sales are Samuel Adams, Yuengling, and Blue Moon, which have collectively lost more than 700 bps of market share over the past four years or so. For Samuel Adams, we don't necessarily attribute this to anything the brand has done, but more a function of the biggest national craft brands being forced to make room for the others. Sierra Nevada and New Belgium, both independent brands, are the number four and five craft brands, respectively, and are great examples of national craft brands that have maintained share over the same period. Lagunitas (Heineken), currently number six, has gained around 250 bps of share.

Figure 11: The Samuel Adams Brand Is Losing Retail Share of the Craft Segment at an Alarming Rate, but This Is Consistent with Other Large Craft Competitors Top 3 Brands Retail Value Share of Craft Beer 12%

Retail Value Share (%)

11% 10% 9% 8% 7%

Samuel Adams

Yuengling

Blue Moon

Source: Nielsen xAOC+C, Credit Suisse.

Boston Beer Co. Inc. (SAM)

8

15 September 2016

Successful Innovation Compensates for Weaknesses in Beer Portfolio Figure 12: The innovation/Non-Core Portfolio Includes Rebel IPA, Angry Orchard, Twisted Tea, Coney Island, Nitro, and Truly Spiked and Sparkling

Source: Company website.

Angry Orchard and Twisted Tea Are the New Heroes of the Portfolio Boston Beer has grown retail sales around 25% per year since 2012, and the company's share of the craft beer and cider market combined has increased to more than 17% from 15%. This highlights the outstanding performance of Boston Beer's non-beer brands given the Sam Adams share losses in craft beer. Boston Beer introduced Angry Orchard in 2011 and it went national only a few months later in 2012. Since then it has grown to more than 1.4M hectoliters, which to put into perspective, is slightly larger than Sam Adams Boston Lager.

Figure 13: Angry Orchard Has Become the Category Leader in Only Three Short Years Following the National Launch Cider Category Competitive Landscape by Volume Sales 0.8M

Volume (HLs)

2.6M 20%

39%

5% 5% 6% 6% 7%

9% 7% 27%

51%

18% 2012 Angry Orchard

Woodchuck

2015 Stella Artois Cidre

Crispin

Strongbow

Smith & Forge

Others

Source: the IWSR, Credit Suisse.

Boston Beer Co. Inc. (SAM)

9

15 September 2016

Over the past few years, Angry Orchard and Twisted Tea together accounted for more than 75% of the incremental sales dollars. Sam Adams, on the other hand, only contributed 14% of the sales, and the brand even declined by 3% in 2015.

Figure 14: Retail Sales Growth over the Past Three Years Has Been Led by Angry Orchard and Twisted Tea, with Samuel Adams Contributing Only Marginally US Retail Sales Contribution Bridge from 2012 to 2015 900 $68

Retail Sales ($MM)

800

$25

$15

$846

Other Innovation

2015

$233

700 600 $54 500

$451

400 300 2012

Sam Adams

Angry Orchard

Twisted Tea Coney Island

Source: Source: Nielsen xAOC+C, Credit Suisse.

The most recent innovations have included Rebel IPA (2014) and Nitro (2015). Rebel is a West Coast style IPA that is brewed with five different type of hops. It's a higher alcohol percentage beer targeted at younger, more experimental drinkers in the popular American IPA sub-segment. Nitro is a nitrogen-infused beer with a widget in the can that creates a creamier style beer (mouth-feel could be compared with Guinness or Boddingtons). It is also targeted at younger drinkers looking for new drinking experiences. Rebel has been relatively successful in a short amount of time. By the end of 2015, it had achieved 235,000 hectoliters, or nearly 8% of Boston Beer's beer portfolio, according to the IWSR. We think this brand has a lot of potential in today's marketplace, including on-premise, and would expect it to continue growing at a double-digit pace. To further enhance its ability to innovate, the company established Alchemy and Science in 2011, a craft beer incubator led by Alan Newman, who founded Magic Hat. The objective is to support and grow local, smaller-scale brands. A&S currently has four brands, including Angel City Brewery (Los Angeles), The Traveler Beer Co. (Vermont), Coney Island Brewery (New York), and the Concrete Beach Brewery (Miami).

Boston Beer Co. Inc. (SAM)

10

15 September 2016

Figure 15: Alchemy and Science Projects

Source: Company website, Credit Suisse .

While all this innovation has performed very well, it only highlights that the growth of core Boston Lager and other Sam Adams brands is moderating or declining and the company is becoming heavily reliant on new products to sustain the algorithm The portfolio today looks drastically different than it did in 2012. Over the period, Sam Adams has grown by 4% per year and makes up just over 40% of the Boston Beer retail portfolio. This compares with nearly 70% in 2012. On the other hand, Angry Orchard has grown from 6% of the portfolio to nearly 30% today. Twisted Tea has been a consistent contributor with an annual growth of 17%.

Boston Beer Co. Inc. (SAM)

11

15 September 2016

Figure 16: Boston Beer Looked Very Different in 2012, with Nearly 70% Sales Coming from the Samuel Adams Brand; Today, Only Around 40% of Sales Are Samuel Adams, with the Remainder in Innovation LTM Retail Sales: $847M

2012 Retail Sales: $451M

Coney Island 5%

Twisted Tea 25%

Other 2%

Twisted Tea 23%

Angry Orchard 6% Angry Orchard 29%

Sam Adams 69%

Sam Adams 41%

Source: Nielsen xAOC+C, Credit Suisse. Note: "Innovation" includes Angry Orchard, Twisted Tea, Coney Island, Traveler, and other non-Samuel Adams brands.

Bigger Problems Revealed in 2016 The first half of the year revealed the true severity of the problem at Boston Beer. Depletions declined 5% in both the first and second quarter of the year, marking three straight quarters of volume declines. While Samuel Adams has clearly been struggling for a number of years, the problems were compounded when Angry Orchard went into decline late in 2015.

Figure 17: The Company's Reported Total Depletions Are Now in Decline After Two Years of Increasing at a Decreasing Rate Boston Beer Quarterly Depletions

Reported Depletion Growth (%)

35% 25% 15% 5% (5%) (15%)

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2010

2011

2012

2013

2014

2015

2016

Source: Company data, Credit Suisse.

Second quarter results beat consensus expectations, and the stock subsequently rose 15% the following trading day, largely a result of short covering owing to the buyside's

Boston Beer Co. Inc. (SAM)

12

15 September 2016

already very low expectations. We found the following things particularly concerning in the print. ■ Management reduced its sales and depletions guidance range to -4% to 0%. This was revised down from -4% to +2% as of 1Q and from up MSD originally. By our math, depletions would need to be up 5% in the back half to hit the mark of being flat for the year, which feels like a stretch. We think depletions are more likely to be down 2-3% in 2H with bigger declines in 3Q than 4Q owing to the more difficult comparable in 3Q. We are at the bottom of the company's depletion guidance. ■ Gross margins in the first half of the year were down 180 bps y/y. Management reduced the gross margin guidance range for the full-year to 50% to 52% (down from 51% to 53% as of 1Q and 52% to 54% originally). The mid-point of the gross margin guidance implies further 2H compression at the 130 bps level. This appears fair, so we are modeling full-year margins of nearly 51%. ■ Advertising, promo, and selling expenses were down $9M y/y in 1H. Management cut the advertising guidance range to down $5M to up $5M (from up $10M as of 1Q and up $10M to $20M originally). At a time when the company has at least one major brand that is struggling to maintain its positioning, especially among Millennial consumers (and potentially two with Angry Orchard), and a number of new product launches that require support (Nitro, Truly), it feels a bit shortsighted to pull that funding in order to drive the bottom line. In addition, the company announced that it plans to invest in new packaging and advertising for Samuel Adams in the second half, so it begs the question of where the money is coming from when the total ad budget will likely be down y/y. ■ The quarter was a beat on the bottom line, but management reduced the full-year EPS guidance range to $6.40 to $7.00 (from $6.50 to $7.30 as of 1Q and $7.60 to $8.00 originally).

Figure 18: Samuel Adams and Angry Orchard Are Now Declining; Twisted Tea Continues to Grow at Steady Double-Digit Pace Major Brand Retail Sales Growth since 2015 60%

Retail Sales Growth (%)

40% 20% 0% (20%) (40%)

Sam Adams

Angry Orchard

Twisted Tea

Source: Nielsen xAOC+C, Credit Suisse.

No Clear Inflection in 2017 Year-Ago Comparables Get Easier, but Growth Will Not Come Easy Overall, we don’t share the market's enthusiasm for renewed growth. Results for the coming couple of years seem heavily dependent on the incremental sales from the new Boston Beer Co. Inc. (SAM)

13

15 September 2016

Truly Spiked and Sparking launch along with growth from Rebel and Nitro or the revitalization of Angry Orchard. We think Truly and Nitro will help but not to the degree necessary to drive meaningful growth. On the other hand, we think Rebel has decent potential and expect it to continue to grow at a strong double-digit pace off what is now a significant sales base. (We estimate Rebel generated around $25M of sales in 2015.) In Figure 19, we lay out our sales estimates and expectations for 2016/17. We recognize that much of these are assumptions based on assumptions, but we think they provide a reasonable basis off which to judge the likelihood of sales trends reversing any time soon. In our base case, we assume that the remainder of 2016 will be particularly challenged, especially for the Samuel Adams and Angry Orchards brands. In 2017, we think it's reasonable to assume a stabilization of those brands, but not a recovery. In addition, Twisted Tea continues to perform well but is reaching a critical size where double-digit growth will not come easy. We also think the Coney Island brand should continue to grow low-double digits.

Figure 19: Our Expectations for Sales Growth in 2016-17 Broken Down by Brand; We Think Sam Adams and Angry Orchard Will Continue to Struggle, While Twisted Tea and Coney Island Have Room to Run ($US MM)

FY15

1QA

2QA

2016 3Q

4Q

FY16

1QA

2QA

2017 3Q

4Q

FY17

Total Sales Organic Growth Other

960 6%

189 (5%) 0%

245 (3%) 0%

281 (4%) 0%

227 (1%) 6%

942 (3%) 1%

192 1% 0%

250 2% 0%

289 3% 0%

217 2% (6%)

947 2% (1%)

Samuel Adams Growth Boston Lager Rebel Light Nitro Seasonal / other

305

59 (10%) 24 6 3 1 26

75 (9%) 27 8 3 4 33

89 (3%) 33 10 4 4 39

65 (1%) 25 5 2 3 29

288 (6%) 108 30 12 11 127

60 1% 23 7 2 4 23

74 (1%) 26 9 3 5 31

87 (2%) 33 10 3 5 36

62 (3%) 24 6 2 3 27

284 (1%) 107 32 11 17 117

Angry Orchard Growth

235

45 (10%)

53 (15%)

63 (12%)

46 (10%)

207 (12%)

42 (5%)

52 (2%)

64 2%

47 2%

206 (1%)

Twisted Tea Growth

198

48 15%

60 15%

68 12%

47 10%

224 13%

50 5%

65 8%

72 5%

49 3%

235 5%

Coney Island Growth

15

8 300%

7 250%

10 36%

10 20%

35 125%

9 10%

8 15%

11 15%

11 9%

39 12%

Other Growth

10

4 236%

5 146%

6 69%

5 36%

20 91%

5 7 25%

6 20%

8 33%

6 20%

32 60%

Total US Growth

768

163 2%

201 (0%)

236 0%

173 1%

773 1%

166 2%

206 2%

242 3%

175 1%

789 2%

International Growth

192

25 (36%)

44 (13%)

46 (22%)

53 24%

169 (12%)

26 1%

44 0%

47 2%

55 4%

172 2%

127 24 13 0 141

Source: Company data, Credit Suisse estimates.

New Categories Are Only a Crutch As we discussed previously, Boston Beer has also entered new categories, such as cider and hard sodas over the past few years. Angry Orchard and Twisted Tea have been the clear outperformers, but brands under Alchemy & Science such as Coney Island and Traveler have also performed well, although they are still quite small. How Truly Spiked and Sparkling will do still remains to be seen, especially with less marketing dollars to support it. We think that, while some of these ideas are accretive to growth in the short term, most are merely fads that will go as quickly as they came. That's not to say that alcohol Boston Beer Co. Inc. (SAM)

14

15 September 2016

companies should shy away from launching products into that momentum, but rather to say that we don't think they will be significant growth drivers for the company overall, and they won't have the legs required to fill the gap of declining beer sales.

Competitive Strategy Seems to Lack Concrete Direction The Path to Reinvention Could Be Long, Expensive, or Both Boston Beer recently announced that it hired Jonathan Potter for the newly created role of chief marketing officer. Mr. Potter comes from Moet Hennessy, where he was the CMO, and he has an extensive background in marketing, specifically in the alcohol industry, having also spent ten years at Diageo. We see this arrival as a big positive and possibly a cultural shift with Jim Koch accepting an outsider to help run the Sam Adams brand. He has a challenging task in front of him, and success will not be automatic or immediate. It will be slow going and will require a decent amount of investment without any guaranteed success. Millennials are seen as never accepting the status quo, which makes marketing to them a challenge. ■ Revamp Samuel Adams core brand to be appealing to a younger consumer base. This will be key to unlocking growth, as Samuel Adams is the craft brand that skewed among the least towards the 21-24 age group and the most towards 65+. ■ Make the Rebel line and the broader Sam Adams brand more relevant to Millennials to fit within their lifestyle; expanding to other styles of beers (beyond IPA). ■ Increase digital presence.

Figure 20: Samuel Adams Skews Less to the Youngest Drinkers of Selected Major Craft Brands 21-24 Samuel Adams

25-34

35-44

45-54

55-64

65+

6%

24%

25%

18%

17%

11%

Blue Moon

11%

28%

23%

16%

16%

6%

Lagunitas

14%

44%

19%

11%

9%

3%

New Belgium

6%

23%

36%

14%

15%

6%

Goose Island

8%

39%

16%

21%

12%

2%

Source: the IWSR.

Figure 21: Samuel Adams Spends a Lot of Money of Advertising, but It Is Heavily Targeted at Television; Millennials Consume Most Their Content Online ($ in 000s)

TV

Samuel Adams Boston Goose Island IPA

25,148 55

Print 24 1,678

Digital 92 179

Total 25,264 1,911

Source: the IWSR.

■ Better understand the problems of the cider category overall and the role Angry Orchard should play as the 50%+ market leader. This should be the primary focus given the brand's category leadership would make it an immediate beneficiary of a category rebound. Boston Beer Co. Inc. (SAM)

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15 September 2016

■ Keep squeezing the Twisted brand; this too will require continued investment, as there is a lot of competition, but the concept clearly has traction, and we think it still has a decent runway ahead.

Figure 22: The Overall Category for Twisted Tea Has Expanded Significantly Owing to New Entrants, and the Brand Has Taken Some Share Since 2010 Beer Alternatives Competitive Landscape by Volume Sales 28% 52% 5% 6% 9% 5%

12%

20%

18%

23%

22%

2010 Bud Light A-Ritas Smirnoff Red Ice Others

2015 Mike's Hard Lemonade Twisted Tea

Redd's Not Your Father's Root Beer

Source: the IWSR, Credit Suisse.

International Expansion Presents Large Opportunity but Would Also Require Time Taking the brand outside the United States could present a significant, albeit risky and expensive, channel for growth. We think there is potential there, but given the issues at home, we don't see it as a viable option in the near term. Trying to grow and distribute the brand internationally would require significant management attention and investment, which we think would be better spent fixing the domestic business first.

Status Quo or Sell Status Quo Won't Sustain the Business Volumes are declining and, with a ceiling on pricing, sales growth is unlikely to accelerate in the near future. As we discussed, the business is very dependent on innovation to drive growth as core Sam Adams sales find a baseline. What concerns us is that management does not seem to have a clear strategy to move the business forward given the current trends. We think the company is at a tipping point where it may need to decide if the status quo will continue to be acceptable or if more drastic options are warranted. Given the company's innovative spirit, we don’t put a high probability on the likelihood of it making an acquisition.

Potential Takeout Candidate Boston Beer strikes us as a good takeout target for a larger international company that wants to gain increased exposure to the U.S. (craft) beer market. We think one of the Japanese beer companies could potentially be interested in Boston Beer. Companies like Kirin or Asahi could gain quick access to the U.S. market and could also leverage their international presence to grow Sam Adams brands internationally. Boston Beer Co. Inc. (SAM)

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15 September 2016

We think Boston Beer could be taken out for somewhere between $2.6B and $3.0B, assuming a 14x-16x LTM EBITDA multiple. This implies a takeover premium of 30% to 45% and a 3x LTM sales multiple at the mid-point. This appears fair given recent comparable transactions in the space: ■ Asahi: 3.4x sales and 15.1x EBITDA for Peroni/Grolsch in February 2016. ■ Constellation: estimated 15-18x LTM sales and 30x EBITDA for Ballast Point in November 2015 (much different growth profile but still an interesting data point as a high-water mark). ■ Heineken: 5.5x sales and 18.8x EBITDA for Desnoes & Geddes in October 2015. ■ Kirin: 2.8x sales and 7.9x EBITDA for Myanmar Brewery in August 2015. ■ SABMiller: 5.4x sales and 14.2x EBITDA for Foster's in September 2011. In addition, we think the company could consider a sale to a financial buyer. For completeness, we have modeled the consequences of a leveraged buyout. While the base case is not overly compelling for a sponsor at a 17% IRR, we think it still makes sense. We have also been relatively conservative in our EBITDA expansion assumptions, so there is likely upside to the equity returns.

Figure 23: At 8x Leverage and a 35% Takeout Premium, or ~15x LTM EBITDA, We Figure a Sponsor Could Earn an IRR of 18% over Five Years, or 2.3x Cash on Cash Entry

Exit

($ in millions, except per share)

($ in millions, except per share)

Equity Purcahase Price Per Share Premium to Current

$2,876 $223 35%

Enterprise Value Multiple of LTM Standalone EBITDA Multiple of LTM Standalone Sales

$2,797 14.9x 3.0

Transaction Leverage

8.0x

EBITDA Exit Multiple Investment Horizon

14.9x 5 years

IRR Sponsor Equity Mezzanine Debt Preferred Equity

Cash on Cash

18% NA NA

2.3x NA NA

Source: Company data, Credit Suisse estimates.

Figure 24: Depending on Leverage and Takeout Assumptions, Our Sensitivity Suggests IRRs Would Range from 13% to 21% Internal Rate of Return Transaction Debt / EBITDA Takeout Premium

6.0x

7.0x

8.0x

9.0x

10.0x

25%

16%

18%

19%

21%

24%

35

16

17

18

20

21

45

15

16

17

18

20

55

14

15

16

17

19

65

14

15

16

17

18

Source: Company data, Credit Suisse estimates.

Boston Beer Co. Inc. (SAM)

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15 September 2016

Figure 25: We Think Our Financial Assumptions Are Reasonable with EBITDA Growing at a 9% CAGR over the Five-Year Horizon ($ in millions, except per share)

2017E

EBITDA Free Cash Flow Operating Margin After-tax ROIC Debt to Capital Net Debt / EBITDA Interest Coverage

$188 81 15.0% 3.3% 47.4% 6.6x NM

2018E $211 92 16.5% 4.0% 43.3% 5.5x 5.2x

2019E $234 105 18.0% 4.6% 41.2% 4.6x 6.1x

2020E $260 120 19.5% 5.6% 36.4% 3.7x 7.1x

2021E $287 135 21.0% 6.5% 32.7% 3.0x 8.3x

Source: Company data, Credit Suisse estimates.

Boston Beer Co. Inc. (SAM)

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15 September 2016

Valuation Our $156 target price implies 6% downside assuming a 22x P/E on our discounted CY18 EPS estimate. This is at parity with U.S. Staples peers compared with the 33% historical average premium over the past two years. We think this is merited given the deteriorating fundamentals relative to the peer set. We think the shares will remain under pressure until management can articulate a clear strategy for revitalizing the Samuel Adams and Angry Orchard brands. The stock has historically traded at a significant premium to peers given an outsized growth profile and the Samuel Adams brand's craft status. However, we no longer think the valuation premium is merited given the struggling fundamentals and our view that Samuel Adams compares more closely with a mainstream beer than a craft brand given its growth profile and price point. In the absence of any transformational corporate actions, we would expect the multiple to continue to converge with peers. Finally, given founder Jim Koch's public unwillingness to sell the company, we are not assuming any takeover premium in our valuation despite thinking a sale or go-private transaction would make sense.

Figure 26: Boston Beers Is Trading at Only an 10% Premium to Peers Compared with a 33% Historical Average Premium 140% 120%

Absolute Multiple (x)

35x

100% 80%

25x

60% 40%

15x

20% 0%

5x Sep 08

Sep 09

Sep 10

SAM P/E [Left]

Sep 11

Sep 12

Sep 13

SAM Prem / (Disc) to Peers [Right]

Sep 14

Sep 15

Premium / (Discount) to Peers (%)

45x

(20%) Sep 16

2-yr Rolling Avg [Right]

Source: Thomson Reuters, Credit Suisse.

Boston Beer Co. Inc. (SAM)

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15 September 2016

Risks to Our Thesis U.S. Cider Category Goes into Structural Decline We find it particularly impressive that within only a few short years Angry Orchard was launched, went national, and quickly grew to be the category leader with more than 50% volume share. However, after years of exceptional growth, the brand is now in decline. On the 2Q earnings call, management couldn’t attribute the declines to anything more than overall category weakness, and it said that the declines are not indicative of the category's long-term potential. However, as the category captain, it's up to Angry Orchard to invest in the category to win share of stomach in a highly competitive alcohol beverage market.

Loss of Shelf Space SAM is maintaining its absolute shelf space but losing it on a relative basis, as retailers are giving more and more shelf space to the faster-growing craft beer segment. It likely has some wiggle room though. Samuel Adams seasonal beers are declining at a rapid pace, so the company could replace some of the underperforming seasonal selections with more premium offerings such as Rebel IPA, Nitro, or another innovation. We have the same concerns for on-premise accounts. With a limited number of handles in restaurants and bars, operators will tend more toward newer, exciting craft brands. Management has admitted that OOH has been a challenge for it.

Governance Founder Jim Koch has expressed his unwillingness to sell his company in the past. As the largest controlling shareholder, he still maintains significant influence over decisions. We would like to see him take a more shareholder-friendly approach to corporate actions or at least signal publically that he is willing to consider any and all options if the status quo proves to not add value to the enterprise.

Boston Beer Co. Inc. (SAM)

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15 September 2016

Company Background Description Business Overview Incorporated in Massachusetts in 1995, the Boston Beer Company is an American craft brewer. It produces malt beverages and hard cider at company-owned breweries and under contract arrangements at other locations. In 2015, Boston Beer sold approx. 4.2 million barrels of beverage alcohol products. The company's flagship brand is Samuel Adams, which includes over 60 individual sub-brands. It is also known for Twisted Tea and Angry Orchard cider, and it produces over 40 beers through its subsidiary Alchemy & Science Brewing Collaborative LLC.

Geographic Breakdown The United States makes up for the majority of the company’s sales, followed by Canada, but it has international exposure in Europe, Israel, Australia, New Zealand, the Caribbean, the Pacific Rim, Mexico, and Latin America.

Figure 27: Sales Breakdown by Geography

Source: Company data, Credit Suisse estimates.

Selling and Marketing Boston Beer is a branded company that relies on advertising, promotional activities, and customer programs and incentives to market and sell its products. Boston Beer has a salesforce of approximately 420 people that is responsible for the company’s relations with distributors, retailers, and consumers. Its promotional activities include point-of-sale and merchandise placement, samples, product displays, and special discount programs in collaboration with retail locations and local distributors.

Boston Beer Co. Inc. (SAM)

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15 September 2016

Pricing Power Sam Adams is no longer the category leader given the increasing fragmentation of the craft space. Consumers are looking for options, and they are willing to pay for some sense of perceived value. Management is guiding to national price increases of 1-2% in FY16. Our benchmarking analysis indicates that pricing is reaching a ceiling compared with other, arguably more authentic craft brands.

Figure 28: Samuel Adams Beer Is Priced at Parity with Blue Moon and Has Similar Retail Sales and Distribution Sales ($ MM)

Retail Price ($ per case)

ACV %

Blue Moon Lagunitas Shiner Goose Island Ballast Point Dogfish Head

323 156 121 62 48 33

33 39 32 34 55 54

69 34 30 31 18 18

Samuel Adams

354

33

62

Source: Nielsen xAOC+C, Credit Suisse.

Figure 29: Pricing Does Not Appear to be Part of the Growth Strategy for the Samuel Adams Brand Samuel Adams Retail Elasticity 30%

y/y Change (%)

20% 10% 0% (10%) (20%)

Volume

Average Unit Price

Source: Nielsen xAOC+C, Credit Suisse.

Boston Beer Co. Inc. (SAM)

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15 September 2016

Governance Management ■ C. James Koch (65)—Chairman of the Board: Mr. C. James Koch is founder and chairman of the Board of Boston Beer Company Inc. Until January 2001, he also served as the company's chief executive officer. Prior to starting Boston Beer, he had worked as a consultant for an international consulting firm, with a focus on manufacturing. ■ Martin F. Roper (52)—Chief Executive Officer: Mr. Martin F. Roper has been chief executive officer at Boston Beer Company Inc. since January 2001. He joined Boston Beer as Vice president of manufacturing and business development in September 1994 and became the chief operating officer in April 1997. Mr. Roper holds a master’s degree in manufacturing from Cambridge University as well as an MBA from Harvard Business School. ■ Frank Smalla (50)—Chief Financial Officer: Mr. Frank H. Smalla is chief financial officer and treasurer of the company. He previously worked in various senior financial roles for Kraft Food Groups, Inc. of Northfield, Illinois from 1995 through 2015. ■ John C Geist—Chief Sales Officer: John C. Geist was appointed Boston Beer's chief sales officer in January 2016, after serving as the vice president of sales from 2007 to 2015 and national sales manager from 1998 to 2007. Mr. Geist joined the company in 1997 from a large alcohol beverage distributor, where he had been a sales manager. ■ Quincy Troupe (49)—Senior Vice President–Supply Chain: Mr. Quincy B. Troupe is senior vice president–supply chain of The Boston Beer Company, Inc. He previously worked as vice president for Campbell Soup Company, Inc. of Camden, New Jersey. Prior to that, Mr. Troupe worked in various senior operational roles with Mars, Inc. of McLean, Virginia from 1997 to 2010. ■ Matthew Murphy (46)—Chief Accounting Office: Mr. Matthew Murphy is chief accounting officer, controller of The Boston Beer Company, Inc. He has held the position of corporate controller of the company since he joined in September 2006. ■ Kathleen H. Wade—Vice President, Legal and Corporate Secretary: Kathleen H. Wade started at Boston Beer in 1999 as corporate legal director and corporate secretary. She became secretary of the company in 2010 and was appointed vice president, legal and corporate secretary in March 2012.

Executive Compensation Management is compensated based on a mix of metrics: ■ Depletion growth targets (60%). ■ EBITDA (25%). ■ Resource efficiency and cost savings (15%).

Boston Beer Co. Inc. (SAM)

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15 September 2016

HOLT® Analysis Figure 30: HOLT P/B vs. CFROI® Scatter Chart

Source: Company data, HOLT.

Figure 31: Growth vs. CFROI Bubble Chart

Source: Company data, HOLT.

The CFROI® chart at the top of Figure 32 is a reflection of our forecasts for sales, margins and asset turns. Our forecasts from 2016 to 2018 result in drop in returns averaging at c.13% from c.17% levels in 2015. This is led by decline in asset efficiencies, as the asset growth surpasses top line expectations.

Boston Beer Co. Inc. (SAM)

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15 September 2016

From a valuation perspective, we use a 20-year explicit forecast window for SAM. Over the long term we normalize nominal sales growth to c.4% in line with the industry. Given this assumption, the market is pricing in c.170bps improvement in EBITDA margins over the next 20 years to reach c20% by 2035. Beyond the explicit 20-year window for SAM, HOLT assumes the CFROI and discount rate fade to 6.0%, while the asset growth fades to 2.5%—incorporating the economic reality of competition and causing returns and growth to regress to the mean.

Figure 32: HOLT—Credit Suisse Analyst Scenario Data BOSTON BEER INC -CL A (SAM) Current Price: USD 168.50

Warranted Price: USD 168.94

Valuation date: 15-Sep-16

CFROI & Discount Rate (in %)

EBITDA Margin (in %)

25

25

20

20

15

15

10

10

5

5

0 2013

2015

2017

2019

2021

2023

2025

2027

2029

2031

2033

2035

Historical

Forecast based on Research projection

Long term projections

Discount Rate

0 2011

2013

2015

Historical

2017

2019

2021

2023

2025

2027

Forecast based on Research projection

2029

2031

2033

2035

Implied by current market price

Asset Turns (x)

Sales Growth (in %) 30

1.6

25

1.4 1.2

20

1.0

15

0.8

10

0.6

5

0.4

0

0.2 0.0

-5

2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035

2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 Historical

Forecast based on Research projection

Historical

Long term projections

Warranted upside/downside sensitivity to growth and margins USD

1.8%

2.8%

3.8%

4.8%

5.8%

17.8%

95.5

111.9

131.9

156.1

185.5

18.8%

109.6

128.1

150.4

177.3

209.9

19.8%

123.9

144.3

168.9

198.6

234.3

20.8%

138.2

160.6

187.5

219.8

258.7

21.8%

152.6

176.9

206.1

241.1

283.1

More than 10% downside

Within 10%

Forecast based on Research projection

Long term projections

Summary of CS Research projections and key operating drivers

Long term sales growth

Long term EBITDA margins

HOLT - Credit Suisse Analyst Scenario Data

2011

Dec 14A

Dec 15A

Dec 16E

Dec 17E

Sales Growth, %

22.2

6.3

-1.9

0.5

Dec 18E 3.5

EBITDA Mgn, %

20.3

20.8

18.6

19.7

21.0

Asset Turns, x

1.21

1.2

1.1

1.0

1.0

CFROI®, %

16.3

16.8

13.8

12.9

13.6

Disc Rate, %

3.0

3.0

2.6

2.6

2.6

Asset Grth, %

34.9

9.0

4.3

4.9

4.9

Value/Cost, x

7.1

4.3

3.9

3.7

3.4

Economic PE, x

43.6

25.4

28.6

28.3

24.9

Leverage, %

0.9

1.2

1.5

1.5

1.6

More than 10% upside

Source: Credit Suisse HOLT®

Source: Credit Suisse HOLT®. CFROI and HOLTare trademarks or registered trademarks of Credit Suisse Group AG or its affiliates in the United States and other countries.

Source: company data, credit suisse estimates.

Boston Beer Co. Inc. (SAM)

25

Boston Beer Co. Inc. (SAM)

Figure 33: Income Statement Income Statement ($US in millions, except per share)

FY12 A

FY13 A

FY14 A

1QA Mar 15

2QA Jun 15

2015 3QA Sep 15

4QA Dec 15

FY15 A

1QA Mar 16

2QA Jun 16

2016 3QE Sep 16

4QE Dec 16

FY16 E

FY17 E

FY18 E

629 48 7.7% 580 7.7% 265 315 54.3%

794 55 6.9% 739 27.4% 354 385 52.1%

966 63 6.6% 903 22.2% 438 465 51.5%

213 13 6.3% 200 8.5% 100 100 49.9%

269 17 6.1% 252 8.9% 116 136 54.0%

313 20 6.3% 293 8.7% 136 157 53.6%

230 15 6.4% 215 (1.2%) 106 109 50.6%

1,024 64 6.3% 960 6.3% 458 502 52.3%

202 13 6.5% 189 (5.4%) 97 92 48.5%

261 16 6.3% 245 (2.9%) 118 127 51.8%

301 20 6.5% 281 (4.0%) 136 145 51.5%

243 16 6.5% 227 5.5% 117 110 48.5%

1,007 65 6.4% 942 (1.9%) 469 473 50.3%

1,012 65 6.4% 947 0.5% 460 487 51.4%

1,048 68 6.4% 980 3.5% 475 505 51.5%

Advertising, Promo, and Selling General and Administrative Other Expenses / (Income) Total Operating Expenses SG&A Margin

169 50 0 220 37.9%

208 62 2 272 36.8%

251 66 2 318 35.3%

60 17 0 77 38.8%

71 18 0 89 35.4%

78 18 0 96 32.8%

64 19 0 82 38.3%

274 72 0 345 36.0%

59 21 0 80 42.5%

63 22 0 85 34.8%

73 20 0 93 33.0%

62 23 0 85 37.5%

258 85 0 343 36.4%

265 82 0 348 36.7%

274 83 0 358 36.5%

Normalized EBIT Operating Margin y-o-y growth %

96 16.5% (7.8%)

113 15.3% 18.3%

147 16.2% 29.6%

22 11.1% 65.3%

47 18.6% 15.6%

61 20.8% 0.4%

26 12.2% (17.8%)

156 16.3% 6.6%

11 6.0% (49.2%)

42 17.1% (10.7%)

52 18.5% (14.5%)

25 11.0% (5.2%)

130 13.8% (16.7%)

139 14.7% 7.1%

149 15.2% 7.0%

Normalized EBITDA EBITDA Margin y-o-y growth %

116 20.0% (5.4%)

139 18.8% 20.0%

182 20.1% 30.7%

32 16.3% 57.6%

57 22.6% 17.0%

72 24.6% 2.5%

38 17.5% (10.8%)

199 20.7% 9.6%

23 12.3% (28.3%)

54 22.2% (4.8%)

63 22.5% (12.1%)

34 15.1% (9.0%)

175 18.6% (12.0%)

187 19.7% 6.5%

206 21.0% 10.4%

Net Interest Expense Other Expenses / (Income) Pretax Income Income Taxes Tax Rate

(0) 0 96 36 37.7%

(0) 1 113 42 37.5%

(0) 1 146 55 37.7%

0 0 22 8 37.0%

(0) (0) 47 17 36.2%

0 1 60 22 36.0%

(0) 0 26 10 37.9%

(0) 1 155 57 36.5%

(0) 0 11 4 36.3%

(0) 0 42 15 36.0%

0 0 52 19 36.0%

0 0 25 9 37.4%

(0) 0 130 47 36.3%

0 0 139 52 37.0%

0 0 149 55 37.0%

59

70

91

14

30

39

16

98

7

27

33

16

83

88

94

$4.42 17.7%

$5.21 17.8%

$6.72 29.0%

$1.01 62.9%

$2.18 15.9%

$2.86 1.7%

$1.21 (14.0%)

$7.27 8.2%

$0.54 (46.7%)

$2.06 (5.5%)

$2.58 (9.7%)

$1.21 (0.2%)

$6.40 (12.1%)

$6.80 6.3%

$7.28 7.0%

13

14

13

14

14

14

13

14

13

13

13

13

13

13

13

11% (2%) 0% 0% (1%) 8%

24% 2% 0% 0% 1% 27% 26%

20% 2% 0% 0% 0% 22% 22%

6% 2% 0% 0% 0% 9% 9%

7% 2% 0% (0%) 0% 9% 9%

4% 4% 0% (0%) 0% 9% 9%

(3%) 1% 0% (0%) 0% (1%) (1%)

4% 3% 0% (0%) 0% 6% 6%

(6%) 1% 0% 0% 0% (5%) (5%)

(4%) 1% 0% 0% 0% (3%) (3%)

(4%) 0% 0% 0% 0% (4%) (4%)

(2%) 1% 0% 0% 6% 6% (1%)

(4%) 1% 0% 0% 1% (2%) (3%)

1% 1% 0% 0% (1%) 1% 2%

3% 1% 0% 0% 0% 4% 4%

2,746

3,416

4,104

889

1,125

1,284

958

4,256

834

1,080

1,233

944

4,090

4,126

4,229

211 97 115 35

216 104 113 33

220 107 113 36

224 112 112 25

224 103 121 42

228 106 122 47

225 111 114 27

226 108 118 37

226 117 110 13

227 109 117 39

228 111 118 42

241 124 117 26

230 115 116 32

230 112 118 34

232 112 119 35

Net Income to Common Adj Diluted EPS y-o-y growth % Diluted Shares Oustanding Sales Breakdown Volume Price / Mix Acquisitions / (Divestitures) Currency Extra week / other Net Sales Growth Organic Growth Volume Analytics Total Barrels Sold (000's) Dollars per Core Barrell Net Sales COGS Gross Profit Operating Earnings Source: Company data, Credit Suisse estimates.

26

15 September 2016

Revenue Excise Taxes % of Gross Sales Net Sales y-o-y growth % Costs of Goods Sold Gross Profit Gross Margin

Boston Beer Co. Inc. (SAM)

Figure 34: Balance Sheet Balance Sheet ($US in millions, except per share)

FY12 A

Figure 35: Cash Flow Statement FY13 A

FY14 A

FY15 A

FY16 E

FY17 E

FY18 E

Cash Accounts Receivable Inventories Other Current Assets Total Current Assets

74 31 44 12 162

50 42 56 16 164

76 37 51 43 207

94 39 56 34 224

79 35 54 33 202

154 39 54 34 282

242 38 57 35 372

Property, Plant & Equipment Goodwill Other Intangibles Other Assets Total Assets

190 3 0 5 359

267 4 0 10 444

382 4 0 12 605

410 4 0 8 645

422 4 0 7 634

441 4 0 7 733

453 4 0 7 835

Accounts Payable Short-term Debt Other Current Liabilities Total Current Liabilities

28 0 61 89

34 0 70 104

36 0 75 110

43 0 68 111

37 0 67 104

41 0 67 109

40 0 70 110

Long-Term Debt (incl Current) Deferred Tax Liability Other Liabilities Total Liabilities

1 20 4 114

1 32 5 142

1 51 8 169

0 56 17 184

0 57 9 172

0 57 9 176

0 57 9 177

Total Common Equity

245

302

436

461

462

557

658

Minority and Mez Interests Total Equity

0 245

0 302

0 436

0 461

0 462

0 557

0 658

Net Debt

(74)

(49)

(76)

(94)

(79)

(154)

(242)

Cash Flow Statement ($US in millions, except per share)

FY13 A

FY14 A

FY15 A

FY16 E

FY17 E

FY18 E

Net Income Depreciation Amortization Impairments Changes in Working Capital Changes in Other LT Accounts Stock-based Comp Expense Pension Contributions Other Cash Flow from Operations

59 20 0 0 (11) 25 7 0 (6) 95

70 26 0 2 (19) 7 7 0 7 100

91 35 0 2 11 (3) 7 0 (2) 141

98 43 0 0 (1) 30 7 0 (8) 169

83 45 0 0 (13) 13 7 0 (4) 131

88 47 0 0 (1) 0 7 0 0 141

94 57 0 0 (2) 0 7 0 0 157

Capital Expenditures Sale of Fixed Assets Acquisitions Other Net Investing Cash Flow

(66) 0 (2) 0 (67)

(101) 0 (3) 0 (103)

(152) 0 (0) 0 (152)

(74) 0 (0) 0 (74)

(57) 0 0 0 (56)

(66) 0 0 0 (66)

(69) 0 0 0 (69)

Cash Available for Financing Free Cash Flow per share

28 29 2.18

(3) (1) (0.05)

(11) (11) (0.78)

94 94 6.99

74 74 5.74

75 75 5.82

88 88 6.82

Change in ST Debt Issuance of LT Debt Repayment of LT Debt Common Dividends Paid Issuance of Options Treasury Stock Repurchases Issuance of New Equity Other Net Financing Cash Flow

0 1 0 0 6 (18) 0 9 (3)

0 0 (1) 0 3 (30) 0 6 (22)

0 0 (0) 0 27 (8) 0 18 37

0 0 (0) 0 42 (136) 0 17 (77)

0 0 (0) 0 30 (125) 0 6 (89)

0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0

0 25

0 (25)

0 27

0 18

0 (15)

0 75

0 88

Foreign Exchange Effects Net Change in Cash

Source: Company data, Credit Suisse estimates

FY12 A

Source: Company data, Credit Suisse estimates

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Companies Mentioned (Price as of 14-Sep-2016)

Anheuser-Busch InBev (ABI.BR, €108.95) Boston Beer Co. Inc. (SAM.N, $165.17, UNDERPERFORM, TP $156.0) Constellation Brands Inc. (STZ.N, $162.62) Heineken (HEIN.AS, €78.08) Kirin Holdings (2503.T, ¥1,672)

Disclosure Appendix Important Global Disclosures

I, Laurent Grandet, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products. Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is: Global Ratings Distribution

Rating

Versus universe (%)

Of which banking clients (%)

Outperform/Buy* 53% (50% banking clients) Neutral/Hold* 29% (24% banking clients) Underperform/Sell* 18% (44% banking clients) Restricted 0% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-andanalytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

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Target Price and Rating Valuation Methodology and Risks: (12 months) for Boston Beer Co. Inc. (SAM.N) Method: Our $156 target price for SAM assumes a 22x P/E multiple on our discounted CY18 EPS estimate. This is in-line with US Staples peers. The stock has historically traded at a premium but we no longer think this is merited given the weaker fundamentals. We assign an Underperform rating because we think the shares will face incremental pressure as the company's sales and earnings remain weak. Risk:

Risk factors that could impede achievement of our $156 target price and Underperform rating include 1) continued market share losses for the beer business, 2) further or sustained declines of the cider category, 3) consumer fatigue in the craft beer category, or 4) loss of shelf space to new category entrants.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names

The subject company (SAM.N) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (SAM.N) within the next 3 months. For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to the link: https://rave.credit-suisse.com/disclosures/view/report?i=246514&v=yn16psn5ta2dxkfhkf6phqb7 .

Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.creditsuisse.com/sites/disclaimers-ib/en/canada-research-policy.html. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. This research report is authored by: Credit Suisse Securities (USA) LLC............................................................................................................Laurent Grandet ; Clay Crumbliss, CFA

Important Credit Suisse HOLT Disclosures

With respect to the analysis in this report based on the Credit Suisse HOLT methodology, Credit Suisse certifies that (1) the views expressed in this report accurately reflect the Credit Suisse HOLT methodology and (2) no part of the Firm’s compensation was, is, or will be directly related to the specific views disclosed in this report. The Credit Suisse HOLT methodology does not assign ratings to a security. It is an analytical tool that involves use of a set of proprietary quantitative algorithms and warranted value calculations, collectively called the Credit Suisse HOLT valuation model, that are consistently applied to all the companies included in its database. Third-party data (including consensus earnings estimates) are systematically translated into a number of default algorithms available in the Credit Suisse HOLT valuation model. The source financial statement, pricing, and earnings data provided by outside data vendors are subject to quality control and may also be adjusted to more closely measure the underlying economics of firm performance. The adjustments provide consistency when analyzing a single company across time, or analyzing multiple companies across industries or national borders. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes the baseline valuation for a security, and a user then may adjust the default variables to produce alternative scenarios, any of which could occur. Additional information about the Credit Suisse HOLT methodology is available on request. The Credit Suisse HOLT methodology does not assign a price target to a security. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes a warranted price for a security, and as the third-party data are updated, the warranted price may also change. The default variable may also be adjusted to produce alternative warranted prices, any of which could occur. CFROI®, HOLT, HOLTfolio, ValueSearch, AggreGator, Signal Flag and “Powered by HOLT” are trademarks or service marks or registered trademarks or registered service marks of Credit Suisse or its affiliates in the United States and other countries. HOLT is a corporate performance and valuation advisory service of Credit Suisse. For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.creditsuisse.com/disclosures or call +1 (877) 291-2683.

Boston Beer Co. Inc. (SAM)

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