##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For The Quarterly Period Ended March 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 0-26542
 CRAFT BREWERS ALLIANCE, INC.
  Washington
    
    91-1141254(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 929 North Russell Street
Portland, Oregon 97227
 (503) 331-7270
 þ o
 o o
  Large accelerated filer
o
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company
þ
 o þ




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##### 



CRAFT BREWERS ALLIANCE, INC.
FORM 10-Q
For the Quarterly Period Ended March 31, 2009
 TABLE OF CONTENTS
 PagePART I. Financial InformationITEM 1. Financial StatementsBalance Sheets as of March 31, 2009 and December 31, 2008
    
    
    3Statements of Operations for theThree Months Ended March 31, 2009 and 2008
    
    
    4Statements of Cash Flows for theThree Months Ended March 31, 2009 and 2008
    
    
    5Notes to Financial Statements
    
    
    6ITEM 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    17ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    32ITEM 4T. Controls and Procedures
    
    
    32PART II. Other InformationITEM 1. Legal Proceedings
    
    
    33ITEM 6. Exhibits
    
    
    33SIGNATURES
    
    
    33EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



PART I.
 
 ITEM 1. Financial Statements
 CRAFT BREWERS ALLIANCE, INC.
 
 BALANCE SHEETS
 (Unaudited)March 31,
    
    
    December 31,2009
    
    
    2008(Dollars in thousands exceptper share amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    11
    
    
    $
    11Accounts receivable, net of allowance for doubtful accounts of $100
and $64 at March 31, 2009 and December 31, 2008, respectively
    
    
    13,137
    
    
    
    12,499Inventories, net
    
    
    10,952
    
    
    
    9,729Income tax receivable
    
    
    722
    
    
    
    724Deferred income tax asset, net
    
    
    776
    
    
    
    767Other
    
    
    4,314
    
    
    
    3,951Total current assets
    
    
    29,912
    
    
    
    27,681Property, equipment and leasehold improvements, net
    
    
    100,784
    
    
    
    101,389Equity investments
    
    
    5,218
    
    
    
    5,189Intangible and other assets, net
    
    
    13,462
    
    
    
    13,546Total assets
    
    $
    149,376
    
    
    $
    147,805LIABILITIES AND COMMON STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    17,194
    
    
    $
    15,000Accrued salaries, wages, severance and payroll taxes
    
    
    3,483
    
    
    
    3,630Refundable deposits
    
    
    6,804
    
    
    
    6,191Other accrued expenses
    
    
    2,732
    
    
    
    2,393Current portion of long-term debt and capital lease obligations
    
    
    1,419
    
    
    
    1,394Total current liabilities
    
    
    31,632
    
    
    
    28,608Long-term debt and capital lease obligations, net of current portion
    
    
    31,452
    
    
    
    31,834Fair value of derivative financial instruments
    
    
    1,199
    
    
    
    1,252Deferred income tax liability, net
    
    
    6,574
    
    
    
    6,552Other liabilities
    
    
    292
    
    
    
    278Common stock, par value $0.005 per share, 50,000,000 shares authorized;
16,948,063
shares at March 31, 2009 and December 31, 2008 issued and outstanding
    
    
    85
    
    
    
    85Additional paid-in capital
    
    
    122,433
    
    
    
    122,433Accumulated other comprehensive income
    
    
    (672
    )
    
    
    (693
    )Retained deficit
    
    
    (43,619
    )
    
    
    (42,544
    )Total common stockholders equity
    
    
    78,227
    
    
    
    79,281Total liabilities and common stockholders equity
    
    $
    149,376
    
    
    $
    147,805
 The accompanying notes are an integral part of these financial statements.
 3




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##### Table of Contents



CRAFT BREWERS ALLIANCE, INC.
 
 STATEMENTS OF OPERATIONS
  Three Months Ended March 31,2009
    
    
    2008(In thousands, except per shareamounts)Sales
    
    $
    29,229
    
    
    $
    10,446Less excise taxes
    
    
    1,983
    
    
    
    1,073Net sales
    
    
    27,246
    
    
    
    9,373Cost of sales
    
    
    21,848
    
    
    
    8,995Gross profit
    
    
    5,398
    
    
    
    378Selling, general and administrative expenses
    
    
    5,908
    
    
    
    1,901Merger-related expenses
    
    
    112
    
    
    
    78Income from equity investment in Craft Brands
    
    
    
    
    
    
    753Operating loss
    
    
    (622
    )
    
    
    (848
    )Income from equity investments in Kona and
FSB
    
    
    29
    
    
    
    Interest expense
    
    
    (566
    )
    
    
    (2
    )Interest and other income, net
    
    
    91
    
    
    
    44Loss before income taxes
    
    
    (1,068
    )
    
    
    (806
    )Income tax provision (benefit)
    
    
    7
    
    
    
    (262
    )Net loss
    
    $
    (1,075
    )
    
    $
    (544
    )Basic and diluted loss per share
    
    $
    (0.06
    )
    
    $
    (0.07
    )
 The accompanying notes are an integral part of these financial statements.
 4




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##### Table of Contents



CRAFT BREWERS ALLIANCE, INC.
 
 STATEMENTS OF CASH FLOWS
  Three Months EndedMarch 31,2009
    
    
    2008(In thousands)Operating ActivitiesNet loss
    
    $
    (1,075
    )
    
    $
    (544
    )Adjustments to reconcile net loss to net cash provided by
 operating activities:Depreciation and amortization
    
    
    1,819
    
    
    
    703Income from equity investments in excess of cash distributions
    
    
    (29
    )
    
    
    (234
    )Deferred income taxes
    
    
    
    
    
    
    (267
    )Reserve for obsolete inventory
    
    
    122
    
    
    
    12Gain on disposition of property, equipment and leasehold improvements
    
    
    (3
    )
    
    
    Other
    
    
    14
    
    
    
    22Changes in operating assets and liabilities:Accounts receivable
    
    
    (673
    )
    
    
    1,031Trade receivables from Craft Brands
    
    
    
    
    
    
    206Inventories
    
    
    (1,447
    )
    
    
    (135
    )Income taxes receivable and other current assets
    
    
    (362
    )
    
    
    (89
    )Other assets
    
    
    (61
    )
    
    
    (46
    )Accounts payable and other accrued expenses
    
    
    2,534
    
    
    
    233Trade payable to Craft Brands
    
    
    
    
    
    
    472Accrued salaries, wages, severance and payroll taxes
    
    
    86
    
    
    
    (255
    )Refundable deposits
    
    
    103
    
    
    
    558Net cash provided by operating activities
    
    
    1,028
    
    
    
    1,667Investing ActivitiesExpenditures for fixed assets
    
    
    (715
    )
    
    
    (1,131
    )Proceeds from disposition of fixed assets
    
    
    28
    
    
    
    33Net cash used in investing activities
    
    
    (687
    )
    
    
    (1,098
    )Financing ActivitiesPrincipal payments on debt and capital lease obligations
    
    
    (341
    )
    
    
    (4
    )Issuance of common stock
    
    
    
    
    
    
    20Net cash provided by (used in) financing activities
    
    
    (341
    )
    
    
    16Increase in cash and cash equivalents
    
    
    
    
    
    
    585Cash and cash equivalents:Beginning of period
    
    
    11
    
    
    
    5,527End of period
    
    $
    11
    
    
    $
    6,112Supplemental DisclosuresCash paid for interest
    
    $
    608
    
    
    $
    2
 The accompanying notes are an integral part of these financial statements.
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CRAFT
BRANDS ALLIANCE, INC.
 
 NOTES TO FINANCIAL STATEMENTS
 1. Basis of Presentation
   2. Merger Activities
 Merger with Widmer
     Merger-Related Costs
  6




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CRAFT BRANDS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
 Business Combinations ( )
 Accounting for Costs Associated with Exit or Disposal Activities
 Pro Forma Results of Operations
  Three Months Ended March 31,2009
    
    2008Actual
    
    Pro FormaResults
    
    Results(In thousands,except per share data)Net sales
    
    $
    27,246
    
    
    $
    25,812Loss before income taxes
    
    $
    (1,068
    )
    
    $
    (1,681
    )Net loss
    
    $
    (1,075
    )
    
    $
    (1,104
    )Basic and diluted loss per share
    
    $
    (0.06
    )
    
    $
    (0.07
    )
  Merger with Craft Brands
  7




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CRAFT BRANDS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
     Three MonthsEndedMarch 31, 2008(Dollars in thousands)Net sales
    
    $
    17,070Gross profit
    
    $
    5,371Operating income
    
    $
    1,794Income before income taxes
    
    $
    1,794Net income
    
    $
    1,794Shipments (in barrels)
    
    
    83,100
 3. Inventories
  March 31,
    
    
    December 31,2009
    
    
    2008(In thousands)Raw materials
    
    $
    4,305
    
    
    $
    4,258Work in process
    
    
    2,005
    
    
    
    1,921Finished goods
    
    
    2,185
    
    
    
    1,624Packaging materials, net
    
    
    1,226
    
    
    
    950Promotional merchandise, net
    
    
    1,165
    
    
    
    907Pub food, beverages and supplies
    
    
    66
    
    
    
    69$
    10,952
    
    
    $
    9,729
  8




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CRAFT BRANDS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
 4. Other Current Assets
  March 31,
    
    
    December 31,2009
    
    
    2008(In thousands)Deposits paid to keg lessor
    
    $
    3,548
    
    
    $
    3,182Prepaid property taxes
    
    
    88
    
    
    
    177Prepaid insurance
    
    
    235
    
    
    
    201Other
    
    
    443
    
    
    
    391$
    4,314
    
    
    $
    3,951
 5. Equity Investments
  March 31,
    
    
    December 31,2009
    
    
    2008(In thousands)Fulton Street Brewery, LLC (FSB)
    
    $
    4,141
    
    
    $
    4,103Kona Brewery LLC (Kona)
    
    
    1,077
    
    
    
    1,086$
    5,218
    
    
    $
    5,189
 FSB
  Kona
   9




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##### Table of Contents



CRAFT BRANDS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
 6. Debt and Capital Lease Obligations
      Financial Covenants Required by Modification Agreement
 Minimum EBITDA, as defined (in thousands) (1)For the quarter ending June 30, 2009
    
    $
    2,300Asset Coverage RatioFor the quarter ending March 31, 2009
and thereafter
    
    
    1.50 to 1Capital Expenditures (in thousands) (1)To spend or incur obligations less than the following:For the quarter ending June 30, 2009 (2)
    
    $
    550
 
 Notes:(1)
- Covenant does not apply beginning with the quarter ending September 30, 2009(2)

- Provides for carryover spending of any amount not used in the prior quarter 10




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CRAFT BRANDS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
   th
   7. Derivative Financial Instruments
 Interest Rate Swap Contracts
 Disclosures about Derivative Instruments and
Hedging Activities  An Amendment of FASB Statement No. 133 Accounting for Derivative Instruments and Hedge Activities
 11




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CRAFT BRANDS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
     Liability Derivatives at March 31, 2009Balance Sheet Location
    
    Fair Value(In thousands)Derivatives designated as hedging instruments under SFAS 133Interest rate swap contracts
    
    Non-current liabilities - derivative financial instruments
    
    $
    1,067Derivatives not designated as hedging instruments under SFAS 133Interest rate swap contracts
    
    Non-current liabilities - derivative financial instruments
    
    $
    132Total derivatives
    
    
    
    
    
    $
    1,199
  Fair Value Measurements
 Fair Value Measurements
 12




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CRAFT BRANDS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
 Level 1:
    
    Observable inputs (unadjusted) in active markets for identical assets and
liabilities;Level 2:
    
    Inputs other than quoted prices included within Level 1 that are either directly or
indirectly observable for the asset or liability, including quoted prices for similar assets
or liabilities in active markets, quoted prices for identical or similar assets or
liabilities in inactive markets and inputs other than quoted prices that are observable for
the asset or liability;Level 3:
    
    Unobservable inputs for the asset or liability, including situations where there is
little, if any, market activity or data for the asset or liability.
  Fair Value Hierarchy AssessmentLevel 1
    
    Level 2
    
    Level 3
    
    Total(In thousands)Derivative financial
instruments  interest
rate swap contracts
    
    $
    
    
    
    $
    1,199
    
    
    $
    
    
    
    $
    1,199
 8. Common Stockholders Equity
  Stock Plans
    13




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##### Table of Contents



CRAFT BRANDS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
 Stock Option Plan Activity
  Weighted AverageRemainingExercise
    
    
    ContractualOptions
    
    
    Price
    
    
    Life(In thousands)
    
    
    (Per share)
    
    
    (In years)Outstanding at December 31, 2008
    
    
    431
    
    
    $
    2.61
    
    
    
    2.4Granted
    
    
    30
    
    
    
    1.25
    
    
    
    10.0Exercised
    
    
    Canceled
    
    
    (20
    )Outstanding at March 31, 2009
    
    
    441
    
    
    $
    2.46
    
    
    
    2.7Exercisable at March 31, 2009
    
    
    411
    
    
    $
    2.55
    
    
    
    2.2
   Outstanding
    
    
    ExercisableWeighted Average
    
    
    
    
    
    
    Weighted AverageRemaining
    
    
    
    
    
    
    
    
    
    
    RemainingExercise
    
    
    Contractual
    
    
    
    
    
    
    Exercise
    
    
    ContractualRange of Exercise Prices
    
    
    Options
    
    
    Price
    
    
    Life
    
    
    Options
    
    
    Price
    
    
    Life(In thousands)
    
    
    (Per share)
    
    
    (In years)
    
    
    (In thousands)
    
    
    (Per share)
    
    
    (In years)$
    1.25
    
    
    to
    
    $
    2.00
    
    
    
    208
    
    
    $
    1.77
    
    
    
    3.4
    
    
    
    178
    
    
    $
    1.86
    
    
    
    2.3$
    2.01
    
    
    to
    
    $
    3.00
    
    
    
    105
    
    
    
    2.11
    
    
    
    3.6
    
    
    
    105
    
    
    
    2.11
    
    
    
    3.6$
    3.01
    
    
    to
    
    $
    3.97
    
    
    
    128
    
    
    
    3.87
    
    
    
    0.9
    
    
    
    128
    
    
    
    3.87
    
    
    
    0.9$
    1.25
    
    
    to
    
    $
    3.97
    
    
    
    441
    
    
    $
    2.46
    
    
    
    2.7
    
    
    
    411
    
    
    $
    2.55
    
    
    
    2.2
 14




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##### Table of Contents



CRAFT BRANDS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
 9. Earnings (Loss) per Share
  Three Months EndedMarch 31,2009
    
    
    2008(In thousands, except per shareamounts)Numerator for basic and diluted loss per share:Net loss
    
    $
    (1,075
    )
    
    $
    (544
    )Denominator for basic and diluted loss per share:Weighted average common shares outstanding
    
    
    16,948
    
    
    
    8,356Basic and diluted loss per share
    
    $
    (0.06
    )
    
    $
    (0.07
    )
  10. Comprehensive Loss
  Three Months EndedMarch 31,2009
    
    
    2008(In thousands)Net loss
    
    $
    (1,075
    )
    
    $
    (544
    )Other comprehensive loss:Unrealized gains  on derivative financial instruments, net of tax
    
    
    21
    
    
    
    Comprehensive loss
    
    $
    (1,054
    )
    
    $
    (544
    )
 15




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CRAFT BRANDS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
 11. Income Taxes
  March 31,
    
    
    December 31,2009
    
    
    2008(In thousands)Deferred tax liabilities:Property, equipment and leasehold improvements
    
    $
    11,052
    
    
    $
    10,815Intangible assets
    
    
    4,745
    
    
    
    4,789Equity investments
    
    
    1,132
    
    
    
    1,133Other
    
    
    231
    
    
    
    269Total deferred tax liabilities
    
    
    17,160
    
    
    
    17,006Deferred tax assets:Net operating losses and alternative minimum tax credit carryforwards
    
    
    10,900
    
    
    
    10,372Accrued salaries and severance
    
    
    797
    
    
    
    834Other
    
    
    1,001
    
    
    
    1,015Valuation allowance
    
    
    (1,336
    )
    
    
    (1,000
    )Total deferred tax assets
    
    
    11,362
    
    
    
    11,221Net deferred tax liability
    
    $
    5,798
    
    
    $
    5,785As Presented on the Balance Sheet:Long-term deferred income tax liability, net
    
    $
    6,574
    
    
    $
    6,552Current deferred income tax asset, net
    
    
    776
    
    
    
    767Net deferred tax liability
    
    $
    5,798
    
    
    $
    5,785
   16




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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 This quarterly report on Form 10-Q includes forward-looking statements. Generally, the words
believe, expect, intend, estimate, anticipate, project, will, may, plan and
similar expressions or their negatives identify forward-looking statements, which generally are not
historical in nature. These statements are based upon assumptions and projections that Craft
Brewers Alliance, Inc. (formerly Redhook Ale Brewery, Incorporated) (the Company) believes are
reasonable, but are by their nature inherently uncertain. Many possible events or factors could
affect the Companys future financial results and performance, and could cause actual results or
performance to differ materially from those expressed, including those risks and uncertainties
described in Part I, Item 1A. Risk Factors in the Companys Annual Report on Form 10-K for the
year ended December 31, 2008, and those described from time to time in the Companys future reports
filed with the Securities and Exchange Commission. Caution should be taken not to place undue
reliance on these forward-looking statements, which speak only as of the date of this quarterly
report.
 The following discussion and analysis should be read in conjunction with the Financial
Statements and Notes thereto of the Company included herein, as well as the audited Financial
Statements and Notes and Managements Discussion and Analysis of Financial Condition and Results of
Operations contained in the Companys Annual Report on Form 10-K for the fiscal year ended December
31, 2008. The discussion and analysis includes period-to-period comparisons of the Companys
financial results. Although period-to-period comparisons may be helpful in understanding the
Companys financial results, the Company believes that they should not be relied upon as an
accurate indicator of future performance. In addition, as discussed in more detail below, the
comparability of periods is significantly affected by the July 1, 2008 merger of Widmer Brothers
Brewing Company with and into the Company.
 Merger with Widmer Brothers Brewing Company
   Overview
  17




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##### Table of Contents



The Equity Method of Accounting for
Investments in Common Stock
 Widmer Hefeweizen
   18




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##### Table of Contents



Shock Top Belgian White Blue Moon Belgian White. Hefeweizen
    
    
    Brewhouse capacity, fermentation capacity, and packaging capacity;
    
    A normal production year;
    
    The product mix and product cycle times; and
    
    Brewing losses and packaging losses.
  19




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Annual WorkingCapacity atMarch 31, 2009(In barrels)Oregon Brewery (1)
    
    
    377,000Washington Brewery
    
    
    230,000New Hampshire Brewery
    
    
    190,000797,000
 
 Note 1
    
    Excludes the annual working capacity for the Rose Quarter Brewery, which is less than 1,000 barrels.   Brand Trends
 Redhook Beers. ESB Redhook
IPA Long Hammer IPA Long Hammer IPA
 Slim Chance Light
Ale
 20




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##### Table of Contents



Widmer Brothers Beers Widmer Hefeweizen Shock Top Belgian White Blue Moon Belgian
White Widmer Hefeweizen
 Drop Top Amber Ale Drifter Pale Ale Widmer Hefeweizen Widmer Hefeweizen
 Widmer Hefeweizen
 Kona Brewing Beers.
 Longboard
Island Lager
   21




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##### Table of Contents



Results of Operations
  Three Months EndedMarch 31,2009
    
    2008Sales
    
    
    107.3
    %
    
    
    111.5
    %Less excise taxes
    
    
    7.3
    
    
    
    11.5Net sales
    
    
    100.0
    
    
    
    100.0Cost of sales
    
    
    80.2
    
    
    
    96.0Gross profit
    
    
    19.8
    
    
    
    4.0Selling, general and administrative expenses
    
    
    21.7
    
    
    
    20.3Merger-related expenses
    
    
    0.4
    
    
    
    0.8Income from equity investment in Craft Brands
    
    
    
    
    
    
    8.0Operating loss
    
    
    (2.3
    )
    
    
    (9.1
    )Income from equity investments in Kona & FSB
    
    
    0.1
    
    
    
    Interest expense
    
    
    (2.0
    )
    
    
    Interest and other income, net
    
    
    0.3
    
    
    
    0.5Loss before income taxes
    
    
    (3.9
    )
    
    
    (8.6
    )Income tax benefit
    
    
    
    
    
    
    (2.8
    )Net loss
    
    
    (3.9)
    %
    
    
    (5.8)
    %
 Non-GAAP Financial Measures
  For the QuarterEndedMarch 31, 2009(In thousands)Net loss
    
    $
    (1,075
    )Interest expense
    
    
    566Income tax provision
    
    
    7Depreciation expense
    
    
    1,571Amortization expense
    
    
    248Merger-related expenses
    
    
    112Gain on sale or disposal of assets
    
    
    (3
    )EBITDA per the modified loan agreement
    
    $
    1,426
 22




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Three
months ended March 31, 2009 compared with three months ended March 31, 2008
  Three Months Ended March 31,
    
    
    Increase
    
    
    %2009
    
    
    2008
    
    
    (Decrease)
    
    
    Change(Dollars in thousands)Sales
    
    $
    29,229
    
    
    $
    10,446
    
    
    $
    18,783
    
    
    
    179.8
    %Less excise taxes
    
    
    1,983
    
    
    
    1,073
    
    
    
    910
    
    
    
    84.8Net sales
    
    
    27,246
    
    
    
    9,373
    
    
    
    17,873
    
    
    
    190.7Cost of sales
    
    
    21,848
    
    
    
    8,995
    
    
    
    12,853
    
    
    
    142.9Gross profit
    
    
    5,398
    
    
    
    378
    
    
    
    5,020
    
    
    
    N/MSelling, general and administrative expenses
    
    
    5,908
    
    
    
    1,901
    
    
    
    4,007
    
    
    
    210.8Merger-related expenses
    
    
    112
    
    
    
    78
    
    
    
    34
    
    
    
    43.6Income from equity investment in Craft Brands
    
    
    
    
    
    
    753
    
    
    
    (753
    )
    
    
    (100.0
    )Operating loss
    
    
    (622
    )
    
    
    (848
    )
    
    
    226
    
    
    
    26.7Income from equity investments in Kona and FSB
    
    
    29
    
    
    
    
    
    
    
    29
    
    
    
    Interest expense
    
    
    (566
    )
    
    
    (2
    )
    
    
    (564
    )
    
    
    N/MInterest and other income, net
    
    
    91
    
    
    
    44
    
    
    
    47
    
    
    
    106.8Loss before income taxes
    
    
    (1,068
    )
    
    
    (806
    )
    
    
    (262
    )
    
    
    32.5Income tax provision (benefit)
    
    
    7
    
    
    
    (262
    )
    
    
    269
    
    
    
    (102.7
    )Net loss
    
    $
    (1,075
    )
    
    $
    (544
    )
    
    $
    (531
    )
    
    
    97.6
    %
 
 Note:N/M
    
    Not Meaningful  Three Months Ended March 31,
    
    
    Increase
    
    
    %Sales Revenues by Category
    
    2009
    
    
    2008
    
    
    (Decrease)
    
    
    Change(Dollars in thousands)A-B
    
    $
    24,888
    
    
    $
    4,558
    
    
    $
    20,330
    
    
    
    446.0
    %Craft Brands
    
    
    
    
    
    
    3,396
    
    
    
    (3,396
    )
    
    
    (100.0
    )Contract brewing
    
    
    
    
    
    
    1,176
    
    
    
    (1,176
    )
    
    
    (100.0
    )Alternating proprietorship
    
    
    2,205
    
    
    
    
    
    
    
    2,205
    
    
    
    Pubs and other (1)
    
    
    2,136
    
    
    
    1,316
    
    
    
    820
    
    
    
    62.3Total Sales
    
    $
    29,229
    
    
    $
    10,446
    
    
    $
    18,783
    
    
    
    179.8
    %
 
 Note:(1) - Other includes international, non-wholesalers and other 23




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##### Table of Contents



Gross Sales .
 
    
    Total shipments increased 65,400 barrels or 95.6% from 68,400 barrels for the first three
months of 2008 to 133,800 barrels for the first three months of 2009. Shipments to A-B
increased 105,500 barrels from shipments of 25,800 barrels in the first three months of 2008
to 131,300 barrels in the first three months of 2009. This increase in shipments is primarily
due to shipments of Widmer-branded products inclusive of all shipment activities and
Kona-branded products pursuant to a distribution agreement with
Kona. The Company did not sell Kona-branded products during  the three months ended March 31,
2008. The increase in revenues was also due to shipments in the West being made
via A-B at wholesale pricing levels  after the Merger
rather than through Craft Brands at below wholesale pricing levels as they were prior to the Merger. Additionally, both draft
and bottled products experienced a pricing increase at the wholesale level from a year ago;
    
    Pursuant to the Merger, the Company terminated several sales and contract agreements,
including the distribution agreement with Craft Brands and the contract brewing agreement with
Widmer that led to the elimination of the associated  sales revenues
for these activities, which totaled $3.4 million and $1.2 million, respectively, for the first three months of 2008. These sales were
made at either below wholesale price levels, via Craft Brands, or at contractually determined
sales prices;
    
    The inclusion of alternating proprietorship fees of $2.2 million earned from Kona for
leasing the Oregon Brewery and sales of raw materials during the first three months of 2009
(no such activity occurred prior to the Merger); and
    
    An increase of $820,000 in pub and other sales in the first three months of 2009 primarily
due to the sales generated by the pub in Portland, Oregon, which was acquired as a result of
the Merger.
 Shipments  Brand
 Three Months Ended March 31,2009 Shipments
    
    
    2008 Shipments
    
    
    Increase
    
    
    %Draft
    
    
    Bottle
    
    
    Total
    
    
    Draft
    
    
    Bottle
    
    
    Total
    
    
    (Decrease)
    
    
    Change(In barrels)Redhook brand
    
    
    12,600
    
    
    
    33,800
    
    
    
    46,400
    
    
    
    15,700
    
    
    
    34,100
    
    
    
    49,800
    
    
    
    (3,400
    )
    
    
    (6.8
    )%Widmer brand (1)
    
    
    35,000
    
    
    
    30,000
    
    
    
    65,000
    
    
    
    12,100
    
    
    
    6,500
    
    
    
    18,600
    
    
    
    46,400
    
    
    
    249.5Kona brand
    
    
    8,900
    
    
    
    13,500
    
    
    
    22,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,400
    
    
    
    Total shipped
    
    
    56,500
    
    
    
    77,300
    
    
    
    133,800
    
    
    
    27,800
    
    
    
    40,600
    
    
    
    68,400
    
    
    
    65,400
    
    
    
    95.6
    %
 
 (1)
    
    Shipments of Widmer-branded product for the first three months of 2008 are only those products
brewed and
shipped by the Company and do not include Widmer-branded products shipped by Widmer or Craft
Brands. The Companys
shipments were made pursuant to a licensing agreement and contract brewing arrangements with
Widmer, all of which were
terminated in connection with the Merger. Widmer
Hefeweizen Widmer
Hefeweizen
 24




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##### Table of Contents



Shipments  Customer
 Three Months Ended March 31,2009 Shipments
    
    
    2008 Shipments
    
    
    Increase
    
    
    %Draft
    
    
    Bottle
    
    
    Total
    
    
    Draft
    
    
    Bottle
    
    
    Total
    
    
    (Decrease)
    
    
    Change(In barrels)A-B
    
    
    55,200
    
    
    
    76,100
    
    
    
    131,300
    
    
    
    10,700
    
    
    
    15,100
    
    
    
    25,800
    
    
    
    105,500
    
    
    
    408.9
    %Craft Brands
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,800
    
    
    
    20,700
    
    
    
    28,500
    
    
    
    (28,500
    )
    
    
    (100.0
    )Contract brewing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,500
    
    
    
    4,500
    
    
    
    13,000
    
    
    
    (13,000
    )
    
    
    (100.0
    )Pubs and other (1)
    
    
    1,300
    
    
    
    1,200
    
    
    
    2,500
    
    
    
    800
    
    
    
    300
    
    
    
    1,100
    
    
    
    1,400
    
    
    
    127.3Total shipped
    
    
    56,500
    
    
    
    77,300
    
    
    
    133,800
    
    
    
    27,800
    
    
    
    40,600
    
    
    
    68,400
    
    
    
    65,400
    
    
    
    95.6
    %
 
 Note:(1)
    
    International, non-wholesalers, pubs and other  Pricing and Fees
  25




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Excise Taxes
 Cost of Sales .
 Widmer Hefeweizen
  26




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##### Table of Contents



Selling, General and Administrative Expenses
   27




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##### Table of Contents



Merger-Related Expenses Business Combinations
 Accounting for Costs
Associated with Exit or Disposal Activities
 Income from Equity Investment in Craft Brands .
 Income from Equity Investments in Kona and FSB .
 Interest Expense.
 Other Income, net
 Income Taxes .
  28




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Liquidity and Capital Resources
       29




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##### Table of Contents



Financial Covenants Required by Modification Agreement
 Minimum EBITDA, as defined (in thousands) (1)For the quarter ending June 30, 2009
    
    $
    2,300Asset Coverage RatioFor the quarter ending March 31, 2009
and thereafter
    
    
    1.50 to 1Capital Expenditures (in thousands) (1)To spend or incur obligations less than the following:For the quarter ending June 30, 2009 (2)
    
    $
    550
 
 (1) - Covenant does not apply beginning with the quarter ending September 30, 2009(2) - Provides for carryover spending of any amount not used in the prior quarter th
   Trend
  30




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Critical Accounting Policies and Estimates
   Income Taxes . Accounting for Income Taxes
   31




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##### Table of Contents



Recent Accounting Pronouncements
 Disclosures about Derivative Instruments and
Hedging Activities  An Amendment of FASB Statement No. 133 Accounting for Derivative Instruments and Hedge Activities
 
 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
   
 ITEM 4T. Controls and Procedures
 Disclosure Controls and Procedures
    32




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##### Table of Contents



Changes in Internal Control Over Financial Reporting
  
 PART II. Other Information
 
 ITEM 1. Legal Proceedings
  
 ITEM 6. Exhibits
  31.1
    
    Certification of Chief Executive Officer of Craft Brewers Alliance, Inc.
pursuant to Exchange Act Rule 13a-14(a)31.2
    
    Certification of Chief Financial Officer of Craft Brewers Alliance, Inc.
pursuant to Exchange Act Rule 13a-14(a)32.1
    
    Certification pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350
 
 SIGNATURES
  CRAFT BREWERS ALLIANCE, INC.May 15, 2009
    BY:

    /s/   Joseph K. OBrienJoseph K. OBrienController and Chief Accounting Officer 33