(Boston, MA) – The Boston Beer Company filed its annual Schedule 14A with the Securities and Exchange Commission on Thursday. Financial folks call it the Proxy Statement, a public company’s notice of an upcoming shareholders meeting that lays out executive compensation, distribution of shares and a lot of other things.
Still a website relatively in its infancy, BeerPulse had not looked at the document closely prior to today until CNBC Reporter, Tom Rotunno, tweeted that Co-Founder and Chairman, Jim Koch, owned 34.8% of the company. Quite an incredible number for a company with $1.32 billion in market cap…
If you multiply that market cap by the percentage that Koch owns, you get $460 million. [Note: there are some technicalities but the common stock that Koch owns, for the most part, either carries a fair market value equal to the stock price (Class A) or is convertible to Class A (Class B).]
Truly astounding when you consider all the “small” rhetoric that we see in conversations about craft, a segment of which Boston Beer makes up approximately 22% in itself (~2.5 million barrels out of ~11.5 million barrels per the Brewers Association).
On March 19th, Boston Beer filed a Form 144 on Koch’s behalf which revealed that he intended to sell 50,000 shares at $100 apiece. And over the past few weeks, Boston Beer has filed a number of Form 4’s showing that Koch has sold over 40,000 shares during that time. It is hard to say, at least at this very moment, whether the Form 4 sales are related to the Form 144 intent to sell but, no matter what way you slice it, Koch is taking home at least $5 million in just a matter of weeks from these transactions. To be clear, the sales of shares are indicative of nothing, considering $5 million is a tiny fraction of the $460 million.
The stock price didn’t move at all over that period and, if anything, has actually picked up a bit. It reached an all-time high of $112.88 on December 27th and sank nearly 10% to $94.52 over the week following the company’s latest earnings release in February, one that BeerPulse outlined as softer than expected at the time. The price closed at $102.71 at the end of trading on Thursday.
A number of financial institutions follow Koch in terms of ownership of the company, led by Neuberger Berman Group LLC with 14%. The ownership from these financial institutions comprise well over 25% of Boston Beer. The company still qualifies as craft, however, because the Brewers Association’s ownership percentage threshold of 25% (establishing “independence”) only disqualifies a brewery if the owner of the equity is an alcoholic beverage company.
So, if a craft brewery owner wants to cash in his or her chips, they could hypothetically sell more than 25% of their ownership to Exxon Mobil or Monsanto (or any other non-alc beverage company wanting to diversify its portfolio of holdings) and still remain a craft brewery. And perhaps not face the public malaise that Goose Island did for selling to AB InBev…because they’d still be “craft.”
As for executive compensation, Koch earned $754,163 in 2011. He and the other four people on the company’s executive team earned a combined sum of nearly $10 million in executive compensation, an all-time record for Boston Beer. To put that in perspective, here are some craft brewery revenue figures off of the Inc 5000 list: Surly Brewing – $4.7 million, Narragansett – $4.1 million, Shorts – $3.3 million, Shmaltz – $2.3 million.
Finally, let’s touch on Koch’s performance bonuses. Koch’s performance bonus can be up to his base salary, $382,500 in 2011, based on the percentage of goals that he meets. Koch met 40% of his performance goals so he made 40% of his base salary. What is interesting is that there are two criteria points that are directly related to craft as a whole:
1) Weighted combined depletions and pricing growth* of at least 2% above craft shipments as reported by the Brewers Association, depletions volume greater than 33.7 million case equivalents and EPS greater than $3.95
Koch was awarded 0% out of 30% (or nearly $115k) for this goal because the category outperformed Boston Beer in shipments (and pricing) growth.
2) Investment of time and resources in craft industry initiatives which support the category and the Company
Koch was awarded 10% out of 20% here (in other words, he partially met this goal) which is truly fascinating…for Boston Beer’s Board to determine that Koch didn’t invest enough of his time to the craft beer industry. And for that determination to be public in this way.
Again, these figures are peripheral at best when taking Koch’s net worth into account…
The next Boston Beer quarterly earnings release announcement is scheduled for May.