2016 FINANCIAL REVIEW

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2 2016 FINANCIAL REVIEW In addition to activity, strategy, goals, and challenges, survey respondents also provided financial information from 2014 and Select results are provided below: A/P invoices processed per week by A/P employee 146* 131* A/P vendors by A/P employee 709* 668* A/R invoices processed per week per A/R employee 164* 92* A/R customers per A/R employee 298* 261* Net beer revenue by barrel $343 $380 Weighted average net beer revenue by barrel $256 $236 Growth in beer volume (barrels sold) 32% 33% Gross margin on net beer sales Gross profit per barrel $153 $168 Weighted average gross profit per barrel $107 $97 Operating expenses as a percent of revenue 37% 34% Selling expenses as a percent of revenue 17% 13% Salaries and wages (non-taproom sales department) 5% N/A Taproom and retail as a percent of revenue 5% 5% Direct sales marketing as a percent of revenue 1% 1% G&A expenses as a percent of revenue 17% 17% Debt service coverage ratio Debt to EBITDA $2,354,000 $2,900,000 $168,000 $172, Net beer sales per state Net beer sales per employee Number of distributors per state * Employee-based ratios (A/R and A/P) represent a subset of survey participants.

3 EKS&H CRAFT BREWERY FINANCIAL BENCHMARKING SURVEY EKS&H, a nationally recognized professional services firm providing audit, tax, technology, and business consulting services, has completed this fourth annual financial benchmarking survey as a service to the craft brewing industry. Participants include over 30 client and non-client breweries, including many top 50 and top 100 brewing companies (ranked based on beer sales volume) in the U.S. Participating breweries reported more than 2.3 million barrels in production last year with an average of 74,000 barrels per brewery. This industry report provides highlights of the compiled survey data and answers questions successful craft brewers need to know. Industry Environment Consumer tastes and preferences, per capita disposable income, and expenditures on alcohol drive craft brewing sales. No longer a niche beer alternative, craft brewing has shown the fastest growth in alcoholic beverage markets in the U.S. Consumers are drawn to the independence, innovation, focus on quality, and local nature of many companies in this industry. However, profitability can depend on fickle style and flavor favorability, effective management of labor and raw ingredient costs, and effective sales and distribution processes. Smaller breweries compete by offering specialized products to local or regional markets, while larger breweries benefit from economies of scale in production and distribution flexibility. While many have speculated an industry plateau due to market saturation, demand has grown the craft beer s share of the overall beer market to a record 12.2% in 2015 (Brewers Association, National Beer Sales & Production Data). Merger and acquisition activity remains high with notable transactions involving both strategic corporate buyers, including AB InBev, Constellation Brands, and Heineken, as well as private equity and other investment groups. The merger of SABMiller and InBev, the two largest players in the overall beer market, will have important ramifications for craft brewers of all sizes. $400 $300 $200 $100 $0 Abbreviated 2016 Survey Results Revenue per barrel average for our survey participants remains in the mid-$300 range for the third year in a row, with a slight 3% drop. This change, however, (and the significantly lower first-year result) may be more a factor of changing NET REVENUE PER BARREL brewery participation in the survey. $380 $353 $342 The number of surveyed breweries $269 with less than 20,000 barrels sold has ranged from 5 in 2014 to 16 in Variables such as the mix of limited release, higher-priced (e.g., barrelaged) beers, and draft account sales have a significant impact on this metric.

4 The average profit margin for this year s survey respondents was 4.2% before income taxes and 2.7% after income taxes compared to 10.1% and 8.8%, respectively, in our last survey. Newer and smaller breweries facing higher investment in facilities, equipment, and personnel can have a dramatic impact on this measure. As breweries grow into a more regular cost structure, profitability often increases. In addition to benchmarking financial data, the EKS&H Craft Brewery Financial Benchmarking Survey collects information on a wide range of strategic and performance questions related to operations, sales, employment, and distribution. Given the comparative nature of this project, one of the first questions asked is whether respondents have DO YOU HAVE NON-BREWING OPERATIONS? non-craft beer brewing operations. These may include restaurants, non-alcoholic beverage products, wine, and spirits. Only indicated that they maintained these kinds of 60% related ventures, suggesting that the majority remain strategically focused on their original business models. Cans Yes No WHAT PERCENTAGE OF YOUR VOLUME (IN BARRELS) IS MADE UP OF THE FOLLOWING? 60% 20% 0% 21% 33% 12 oz. Bottles 4% 22 oz. Bottles 1% 750 ml. Bottles 39% Kegs HOW MANY FESTIVALS DID YOU HOST? HOW MANY FESTIVALS DID YOU PARTICIPATE IN? The survey also asks participants about the packaging of their products. This year s respondents indicated that almost of their product was distributed by keg, over 20% was distributed in cans, and almost was distributed in bottles. We continue to expect a growing number of breweries moving toward canning a larger percentage of their product for distribution. Due to the importance of festival activity for consumer exposure and industry recognition, we again asked about participation. Continuing a three-year trend, breweries seem to be focusing on hosting and attending fewer events. The expense and increased competition may be two reasons for this shift Hosted Participated

5 For those breweries that are distributing product, it is critical to manage the distribution network effectively. Similar to festival participation, we have seen a slow drop off in both the number of distribution partners and the number of states in which respondents distribute. Increased focus on key relationships and more deliberate and strategic geographic HOW MANY DISTRIBUTION PARTNERS DO YOU HAVE? HOW MANY STATES DO YOU DISTRIBUTE TO? partners are generally smaller than larger breweries Related to the previous question, Partners 2015 States 2016 the survey also asks about percentage of sales in the top five This table represents average figures. states for distribution. On average, WHAT PERCENTAGE OF YOUR SALES ARE IN YOUR TOP FIVE STATES? 80% with beer sales below 20,000 barrels distribution footprint and number of trend. The increase of participants also brings this figure down as their targeting is likely the cause of this 70% of respondents sales occur in their home (primary) states. This represents a similar level as 70% in The percentage of sales 60% in respondents secondary state increased from 7% in 2014 to 8% in % 8% 4% 3% 3% State 3 State 4 State 5 0% Home State State 2 Finally, because we are accountants and consultants, the survey asks respondents what type of accounting is used for their WHAT METHOD OF ACCOUNTING IS USED IN YOUR FINANCIALS? financials. Representing the full spectrum of development stage and financial technicality, about 9% 10% 28% 53% Tax 10% of respondents use a tax method; almost 30% of respondents GAAP (Unaudited) use GAAP (audited); and the GAAP (Audited) greatest segment, 53%, have GAAP Other/None (unaudited) financials. For a detailed summary of average financial metrics gathered in this year s survey, please see 2016 Financial Review.

6 For more information about the 2016 EKS&H Craft Brewery Financial Benchmarking Survey, including the opportunity to participate, as well as any of the industry-experienced audit, tax, technology, or business consulting services we offer, please contact Mike Madden at or