2017 FINANCIAL REVIEW

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2 2017 FINANCIAL REVIEW In addition to activity, strategy, goals, and challenges, survey respondents also provided financial information from 2014, 2015, and Select results are provided below: A/P invoices processed per week by A/P employee 78* 146* 131* A/P vendors by A/P employee 308* 709* 668* A/R invoices processed per week per A/R employee 103* 164* 92* A/R customers per A/R employee 82* 298* 261* Net beer revenue by barrel $362 $343 $353 Weighted average net beer revenue by barrel $272 $256 $236 Growth in beer volume (barrels sold) 16% 32% 33% Gross margin on net beer sales 42% 40% 40% Gross profit per barrel $169 $153 $168 Weighted average gross profit per barrel $106 $107 $97 Operating expenses as a percent of revenue 34% 37% 34% Selling expenses as a percent of revenue 18% 17% 13% Salaries and wages (non-taproom sales department) 6% N/A Taproom and retail as a percent of revenue Direct sales marketing as a percent of revenue G&A expenses as a percent of revenue 12% 17% 17% Debt service coverage ratio Debt to EBITDA Net beer sales per state Net beer sales per employee Number of distributors per state $2,117,000 $2,354,000 $2,900,000 $165,000 $168,000 $172, * 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 fifth annual financial benchmarking survey as a service to the craft brewing industry. Participants included over 30 client and non-client breweries, including many of the largest breweries in Colorado and California and many other top 100 brewing companies (ranked based on beer sales volume) in the U.S. Participating breweries reported more than 2.2 million barrels in production last year with an average of 80,000 barrels per brewery. This industry report provides highlights of the compiled survey data and also covers trends in the craft brewing industry. Industry Environment The craft brewing industry contributed $67.8 billion to the U.S. economy in 2016 and more than 456,000 jobs, including more than 128,000 jobs directly at breweries and brewpubs. Craft breweries are defined as small, independent, and traditional. Nationally, craft beer growth is slowing, but that does not mean consumers have lost their appetite for this beverage segment. Rather, it s a sign of industry maturation and normal market dynamics, according to the Brewer s Association. With 5,000 breweries nationwide, it is inevitable that some will not survive, but brewery openings still outpace closings. One aspect of brewery growth shows no signs of slowing: on-premise sales. On-premise beer production was up 62% in mid-2016 over the previous year, and many more new breweries are being planned. As of March 31, 2017, there were 7,700 active brewery licenses. In 2016, craft beer accounted for 12.3% of the overall beer market share in both a competitive and crowded marketplace with an average of two brewery openings per day, large brewer acquisitions of independent craft breweries, and the growth of small breweries. The industry is starting to see a divergence between what trends are truly national versus regional or local; therefore, it is important for producers to know their market and what resonates with their consumers. Overall, there has been a shift toward lighter-style craft brews in the U.S. with golden ales and saisons/farmhouse ales at the top of the list. (Brewer s Association, 2017 State of the Industry, brewersassociation.org/wp-content/uploads/2017/04/cbc17_state-of-the-industry.pdf) Current concerns in the craft brewing industry, such as the opinion that brewing great beer is no longer enough, are countered with optimism like consumer appreciation for trying something new, the enjoyability of the products, and a sense of local community from the craft brewery and taproom experience. In addition, premiumization in the craft brewing market the bridging of luxury and mass-market consumption by making the good better and the greater more accessible, giving consumers a taste of all things premium is not going away and can be considered one of the most significant retail trends from 2016 that has carried over into In an increasingly mature market, big beer keeps getting bigger, especially with the merger of AB InBev and SABMiller, and craft beer keeps getting craftier through increasingly narrow and niche focus and a commitment to quality and innovation. Abbreviated 2017 Survey Results The number of breweries surveyed with less than 20,000 barrels sold noticeably increased in 2017, growing from 5 in 2014 to 11 in Revenue-per-barrel average for our survey participants remains in the mid-$300 range for the fourth year in a row, with a 5. increase. This change, however, (and the significantly lower first-year result) may be more a factor of changing brewery participation in the survey. Variables such as the mix of limited release, higher-priced (e.g., barrel-aged) beers and draft account sales have a significant impact on this net-revenue-per-barrel metric.

4 $400 $300 $200 $100 $0 NET REVENUE PER BARREL $380 $353 $343 $362 $ The average profit margin for this year s survey respondents was 5.4% before income taxes and 4. after income taxes, compared to 4.2% and 2.7%, 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 NON-BREWING OPERATIONS? 30% 70% Yes No FESTIVAL INVOLVEMENT 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 non-craft-beer-brewing operations. These may include restaurants, non-alcoholic beverage products, wine, and spirits. Only 30% indicated that they maintained these kinds of related ventures, a slight decrease from the previous year, suggesting that the majority, and perhaps a growing segment, remain strategically focused on their original business models Due to the importance of festival activity for consumer exposure and 19 industry recognition, we again asked about participation. Continuing a 4 three-year trend, breweries seem to be focusing on hosting fewer events; however, there was a Participated Hosted slight increase in the number of breweries participating in festivals in Survey respondents hosted 4 festivals and participated in 55 festivals in 2017, compared with 5 and 52 festivals, respectively, in We see breweries continuing to evaluate those festivals they participate in for effective consumer exposure due to the number of options they have and to prevent spreading resources too thin. For those breweries that are distributing product, it is critical to manage their distribution network effectively. Similar to festival activity, we have seen a trend the past several years of fewer distribution partners and distribution to fewer states. (Again, some of these changes may be due to differing survey respondents each year.) Breweries reported distributing to 13 states and having 41 distribution partners in 2017, compared with 12 states and 39 distribution partners in Increased focus on key relationships and more deliberate and strategic geographic targeting is likely the cause of this lower and stabilizing trend from early years.

5 Another key factor is the number of acquisitions within the beer distribution industry, which has reduced the number of established distributors available. The survey also asked about percentage of sales in the top five states for distribution as a follow-up to the previous questions about distribution partners and states. On average, 73% of respondents sales occur in their home (primary) states. This is slightly higher than previous survey results of 69%-70%. The percentage of sales in respondents secondary states decreased from 8% in 2015 to 6% in It is important for craft breweries to be strong in their home market Trends in packaging of survey respondents products is another focus area of our survey. This year s respondents indicated that 44% of their product was distributed by keg, 28% was distributed in cans, and 24% was distributed in bottles. Cans have overtaken bottles as the packaging of choice in our survey group and this is representative of the larger DISTRIBUTION marketplace. This change can be attributed to many factors, including a closing perception gap around characteristics like quality (where bottles still lead but cans are catching 55 up), smaller brewers moving more forcefully into cans, and beer lovers who continue to want more diversity in packaging. 60% 40% 20% 0% 0 43% 2012 Cans Partners States This table represents average figures. 28% AVERAGE PERCENTAGE OF PRODUCT PACKAGING 3% 24% 12 oz. Bottles 3% 22 oz. Bottles 750 ml. Bottles ACCOUNTING METHOD 7% 47% Tax 44% Kegs GAAP (Audited) GAAP (Unaudited) Other/None Finally, the survey asked respondents what type of accounting is used for their financials. Representing the full spectrum of development stage and financial technicality, 7% of respondents use a tax method; 43% of respondents use GAAP (unaudited); the greatest segment, 47%, use GAAP (audited) financials; and another 3% use an alternative accounting method. Conclusion Overall, the 2017 EKS&H Craft Brewery Financial Benchmarking Survey shows slight differences from the previous year s survey results, including a decrease in the number of breweries surveyed with less than 20,000 barrels sold, an increase in the average profit margin for breweries, a decrease in the number of breweries with noncraft-beer-brewing operations, a slight increase in brewery festival participation, and a slight increase in the number of brewery distribution partners and states in which they distribute with a slight uptick in sales occurring within breweries home states. For a detailed summary of average financial metrics gathered in this year s survey, please see 2017 Financial Review.

6 Sources First Beverage Group, 2016, Brewer s Association, 2017, wp-content/uploads/2017/04/cbc17_state-of-the-industry.pdf Brewer s Association, Cans and Bottles: Craft Beer Packaging Trends, 2017, For more information about the 2017 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 us at or visit us online at