##### 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 June 30, 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
(State or other jurisdiction of 
incorporation or organization)
    
    91-1141254
(I.R.S. Employer
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 June 30, 2009
 TABLE OF CONTENTS
 PagePART I. Financial InformationITEM 1. Financial StatementsBalance Sheets as of June 30, 2009 and December 31, 2008
    
    
    3Statements of Operations for the
Three and Six Months Ended June 30, 2009 and 2008
    
    
    4Statements of Cash Flows for the
Six Months Ended June 30, 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
    
    
    38ITEM 4T. Controls and Procedures
    
    
    38PART II. Other InformationITEM 1. Legal Proceedings
    
    
    38ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    39ITEM 6. Exhibits
    
    
    39SIGNATURES
    
    
    39EX-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)June 30,
    
    
    December 31,2009
    
    
    2008(Dollars in thousands exceptper share amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    247
    
    
    $
    11Accounts receivable, net of allowance for doubtful accounts of $100
and $64 at June 30, 2009 and December 31, 2008, respectively
    
    
    12,996
    
    
    
    12,499Inventories, net
    
    
    10,769
    
    
    
    9,729Income tax receivable
    
    
    881
    
    
    
    724Deferred income tax asset, net
    
    
    909
    
    
    
    767Other current assets
    
    
    4,226
    
    
    
    3,951Total current assets
    
    
    30,028
    
    
    
    27,681Property, equipment and leasehold improvements, net
    
    
    100,161
    
    
    
    101,389Equity investments
    
    
    5,317
    
    
    
    5,189Intangible and other assets, net
    
    
    13,218
    
    
    
    13,546Total assets
    
    $
    148,724
    
    
    $
    147,805LIABILITIES AND COMMON STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    16,574
    
    
    $
    15,000Accrued salaries, wages, severance and payroll taxes
    
    
    3,305
    
    
    
    3,630Refundable deposits
    
    
    6,610
    
    
    
    6,191Other accrued expenses
    
    
    1,460
    
    
    
    2,393Current portion of long-term debt and capital lease obligations
    
    
    1,438
    
    
    
    1,394Total current liabilities
    
    
    29,387
    
    
    
    28,608Long-term debt and capital lease obligations, net of current portion
    
    
    30,570
    
    
    
    31,834Fair value of derivative financial instruments
    
    
    892
    
    
    
    1,252Deferred income tax liability, net
    
    
    7,335
    
    
    
    6,552Other liabilities
    
    
    305
    
    
    
    278Common stock, par value $0.005 per share, 50,000,000 shares authorized;
16,994,263 shares
at June 30, 2009 and 16,948,063 at December 31, 2008 issued and outstanding
    
    
    85
    
    
    
    85Additional paid-in capital
    
    
    122,521
    
    
    
    122,433Accumulated other comprehensive loss
    
    
    (491
    )
    
    
    (693
    )Retained deficit
    
    
    (41,880
    )
    
    
    (42,544
    )Total common stockholders equity
    
    
    80,235
    
    
    
    79,281Total liabilities and common stockholders equity
    
    $
    148,724
    
    
    $
    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
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands, except per share amounts)Sales
    
    $
    37,465
    
    
    $
    11,993
    
    
    $
    66,694
    
    
    $
    22,439Less excise taxes
    
    
    2,323
    
    
    
    1,215
    
    
    
    4,306
    
    
    
    2,288Net sales
    
    
    35,142
    
    
    
    10,778
    
    
    
    62,388
    
    
    
    20,151Cost of sales
    
    
    26,133
    
    
    
    10,022
    
    
    
    47,981
    
    
    
    19,017Gross profit
    
    
    9,009
    
    
    
    756
    
    
    
    14,407
    
    
    
    1,134Selling, general and administrative expenses
    
    
    6,398
    
    
    
    2,451
    
    
    
    12,306
    
    
    
    4,352Merger-related expenses
    
    
    113
    
    
    
    1,091
    
    
    
    225
    
    
    
    1,169Income from equity investment in Craft Brands
    
    
    
    
    
    
    637
    
    
    
    
    
    
    
    1,390Operating income (loss)
    
    
    2,498
    
    
    
    (2,149
    )
    
    
    1,876
    
    
    
    (2,997
    )Income from equity investments in Kona and FSB
    
    
    99
    
    
    
    
    
    
    
    128
    
    
    
    Interest expense
    
    
    (571
    )
    
    
    (3
    )
    
    
    (1,137
    )
    
    
    (5
    )Interest and other income, net
    
    
    79
    
    
    
    13
    
    
    
    170
    
    
    
    57Income (loss) before income taxes
    
    
    2,105
    
    
    
    (2,139
    )
    
    
    1,037
    
    
    
    (2,945
    )Income tax provision (benefit)
    
    
    366
    
    
    
    (755
    )
    
    
    373
    
    
    
    (1,017
    )Net income (loss)
    
    $
    1,739
    
    
    $
    (1,384
    )
    
    $
    664
    
    
    $
    (1,928
    )Basic and diluted earnings (loss) per share
    
    $
    0.10
    
    
    $
    (0.16
    )
    
    $
    0.04
    
    
    $
    (0.23
    )
 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
 Six Months EndedJune 30,2009
    
    
    2008(In thousands)Operating ActivitiesNet income (loss)
    
    $
    664
    
    
    $
    (1,928
    )Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation and amortization
    
    
    3,700
    
    
    
    1,439Income from equity investments less than (in excess of) cash distributions
    
    
    (128
    )
    
    
    76Deferred income taxes
    
    
    362
    
    
    
    (1,028
    )Reserve for obsolete inventory
    
    
    99
    
    
    
    67Loss on sale or disposal of property, equipment and leasehold improvements
    
    
    7
    
    
    
    20Stock compensation
    
    
    36
    
    
    
    20Other
    
    
    (10
    )
    
    
    (56
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (532
    )
    
    
    982Trade receivables from Craft Brands
    
    
    
    
    
    
    120Inventories
    
    
    (1,385
    )
    
    
    43Income tax receivable and other current assets
    
    
    (274
    )
    
    
    (693
    )Other assets
    
    
    40
    
    
    
    (72
    )Accounts payable and other accrued expenses
    
    
    641
    
    
    
    (638
    )Trade payable to Craft Brands
    
    
    
    
    
    
    114Accrued salaries, wages, severance and payroll taxes
    
    
    (92
    )
    
    
    1,137Refundable deposits
    
    
    (355
    )
    
    
    556Net cash provided by operating activities
    
    
    2,773
    
    
    
    159Investing ActivitiesExpenditures for property, equipment and leasehold improvements
    
    
    (1,431
    )
    
    
    (2,641
    )Proceeds from sale of property, equipment and leasehold improvments
    
    
    28
    
    
    
    244Net cash used in investing activities
    
    
    (1,403
    )
    
    
    (2,397
    )Financing ActivitiesPrincipal payments on debt and capital lease obligations
    
    
    (687
    )
    
    
    (8
    )Net repayments under revolving line of credit
    
    
    (500
    )
    
    
    Issuance of common stock
    
    
    53
    
    
    
    181Net cash provided by (used in) financing activities
    
    
    (1,134
    )
    
    
    173Increase (decrease) in cash and cash equivalents
    
    
    236
    
    
    
    (2,065
    )Cash and cash equivalents:Beginning of period
    
    
    11
    
    
    
    5,527End of period
    
    $
    247
    
    
    $
    3,462Supplemental DisclosuresCash paid for interest
    
    $
    1,194
    
    
    $
    5
 The
accompanying notes are an integral part of these financial statements.
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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
 1. Basis of Presentation
   Recent Accounting Pronouncements
 Disclosures about Derivative Instruments and Hedging
Activities  An Amendment of FASB Statement No. 133 Accounting for Derivative Instruments and Hedge Activities
 Interim Disclosures about Fair
Value of Financial Instruments,
 Subsequent Events
 The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles  a replacement of FASB Statement No. 162 The Hierarchy of Generally Accepted Accounting Principles
 6




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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
 FASB Accounting Standards Codification
 2. Merger Activities
 Merger with Widmer
     Merger-Related Costs
 Business
Combinations ( )
 Accounting for Costs Associated with Exit or Disposal Activities
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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
 Pro Forma Results of Operations
  Three Months
    
    Six MonthsEnded June 30,
    
    Ended June 30,2009
    
    2008
    
    2009
    
    2008Actual
    
    Pro Forma
    
    Actual
    
    Pro FormaResults
    
    Results
    
    Results
    
    Results(In thousands, except per share data)Net sales
    
    $
    35,142
    
    
    $
    32,231
    
    
    $
    62,388
    
    
    $
    58,043Income (loss) before income taxes
    
    $
    2,105
    
    
    $
    (2,897
    )
    
    $
    1,037
    
    
    $
    (4,578
    )Net income (loss)
    
    $
    1,739
    
    
    $
    (1,903
    )
    
    $
    664
    
    
    $
    (3,007
    )Basic and diluted earnings
(loss) per share
    
    $
    0.10
    
    
    $
    (0.11
    )
    
    $
    0.04
    
    
    $
    (0.18
    )
  Merger with Craft Brands
     8




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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
  Three Months
    
    
    Six MonthsEnded
June 30, 2008
    
    
    Ended June 30, 2008(Dollars in thousands)Net sales
    
    $
    21,393
    
    
    
    $
    38,463Gross profit
    
    $
    6,718
    
    
    
    $
    12,089Operating income
    
    $
    1,517
    
    
    
    $
    3,311Income before income taxes
    
    $
    1,517
    
    
    
    $
    3,310Net income
    
    $
    1,517
    
    
    
    $
    3,310Shipments (in barrels)
    
    
    97,200
    
    
    
    
    180,300
 3. Inventories
  June 30,
    
    
    December 31,2009
    
    
    2008(In thousands)Raw materials
    
    $
    3,780
    
    
    $
    4,258Work in process
    
    
    2,014
    
    
    
    1,921Finished goods
    
    
    2,480
    
    
    
    1,624Packaging materials, net
    
    
    1,176
    
    
    
    950Promotional merchandise, net
    
    
    1,249
    
    
    
    907Pub food, beverages and supplies
    
    
    70
    
    
    
    69$
    10,769
    
    
    $
    9,729
  4. Other Current Assets
  June 30,
    
    
    December 31,2009
    
    
    2008(In thousands)Deposits paid to keg lessor
    
    $
    3,972
    
    
    $
    3,182Prepaid property taxes
    
    
    
    
    
    
    177Prepaid insurance
    
    
    88
    
    
    
    201Other
    
    
    166
    
    
    
    391$
    4,226
    
    
    $
    3,951
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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
 5. Equity Investments
  June 30,
    
    
    December 31,2009
    
    
    2008(In thousands)Fulton Street Brewery, LLC (FSB)
    
    $
    4,183
    
    
    $
    4,103Kona Brewery LLC (Kona)
    
    
    1,134
    
    
    
    1,086$
    5,317
    
    
    $
    5,189
 FSB
  Kona
   6. Debt and Capital Lease Obligations
   10




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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
       Financial Covenants Required by Loan Agreement
as Revised by the Modification Agreement
 Ratio of
Funded Debt to EBITDA, as definedAs of September 30, 2009
    
    
    4.50 to 1From December 31, 2009 through September 30, 2010
    
    
    3.50 to 1From December 31, 2010 and thereafter
    
    
    3.00 to 1Fixed Charge Coverage RatioFor the trailing four-quarter period ending
September 30, 2009
and thereafter
    
    
    1.25 to 1
 th
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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
    7. Derivative Financial Instruments and Fair Value Measurement
 Interest Rate Swap Contracts
    12




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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
 Liability Derivatives at June 30, 2009Balance Sheet Location
    
    Fair Value(in thousands)Derivatives designated as hedging instruments under SFAS 133Interest rate swap contracts
    
    Non-current liabilities  derivative financial instruments
    
    $
    779Derivatives not designated as hedging instruments under SFAS 133Interest rate swap contracts
    
    Non-current liabilities  derivative financial instruments
    
    
    113Total derivatives
    
    
    
    
    
    $
    892
  Fair Value Measurements
  Fair Value Measurements
 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
    
    $
    
    
    
    $
    892
    
    
    $
    
    
    
    $
    892
 8. Common Stockholders Equity
  13




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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
  Stock Plans
    Stock Option Plan Activity
  Weighted AverageRemaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicOptions
    
    
    Price
    
    
    Life
    
    
    Value(In thousands)
    
    
    (Per share)
    
    
    (In years)
    
    
    (In thousands)Outstanding at December 31, 2008
    
    
    431
    
    
    $
    2.61
    
    
    
    2.4
    
    
    $
    Granted
    
    
    30
    
    
    
    1.25
    
    
    
    10.0
    
    
    
    Exercised
    
    
    (28
    )
    
    
    (1.87
    )
    
    
    (2.6
    )Canceled
    
    
    (29
    )
    
    
    (3.49
    )
    
    
    (1.1
    )Expired
    
    
    (110
    )
    
    
    (3.97
    )
    
    
    (0.4
    )Outstanding at June 30, 2009
    
    
    294
    
    
    $
    1.95
    
    
    
    3.5
    
    
    $
    53Exercisable at June 30, 2009
    
    
    264
    
    
    $
    2.03
    
    
    
    2.8
    
    
    $
    29
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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
   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
    
    
    176
    
    
    $
    1.76
    
    
    
    3.3
    
    
    
    146
    
    
    $
    1.85
    
    
    
    2.1$2.01 to $3.00
    
    
    102
    
    
    
    2.11
    
    
    
    3.4
    
    
    
    102
    
    
    
    2.11
    
    
    
    3.4$3.01 to $3.97
    
    
    16
    
    
    
    3.15
    
    
    
    5.9
    
    
    
    16
    
    
    
    3.15
    
    
    
    5.9$1.25 to $3.97
    
    
    294
    
    
    $
    1.95
    
    
    
    3.5
    
    
    
    264
    
    
    $
    2.03
    
    
    
    2.8
 9. Earnings (Loss) per Share
  Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands, except per share amounts)Numerator for basic and diluted earnings (loss) per share:Net income (loss)
    
    $
    1,739
    
    
    $
    (1,384
    )
    
    $
    664
    
    
    $
    (1,928
    )Denominator for basic earnings (loss) per share Weighted average common shares outstanding
    
    
    16,967
    
    
    
    8,391
    
    
    
    16,957
    
    
    
    8,374Dilutive effect of stock options on weighted average
common shares
    
    
    24
    
    
    
    
    
    
    
    5
    
    
    
    Denominator for diluted earnings (loss) per share
    
    
    16,991
    
    
    
    8,391
    
    
    
    16,962
    
    
    
    8,374Basic and diluted earnings (loss) per share
    
    $
    0.10
    
    
    $
    (0.16
    )
    
    $
    0.04
    
    
    $
    (0.23
    )
  15




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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
 10. Comprehensive Income (Loss)
  Three Months
    
    
    Six MonthsEnded June 30,
    
    

Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Net income (loss)
    
    $
    1,739
    
    
    $
    (1,384
    )
    
    $
    664
    
    
    $
    (1,928
    )Other comprehensive income:Unrealized gains on
derivative
financial
instruments, net of
tax
    
    
    181
    
    
    
    
    
    
    
    202
    
    
    
    Comprehensive income (loss)
    
    $
    1,920
    
    
    $
    (1,384
    )
    
    $
    866
    
    
    $
    (1,928
    )
 11. Income Taxes
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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. (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
(2008 Annual Report), 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 2008 Annual Report. 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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The Equity Method of Accounting for
Investments in Common Stock
 Widmer Hefeweizen
  18




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Shock Top Belgian White Blue Moon Belgian White. Hefeweizen
     19




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
    
    Brewhouse capacity, fermentation capacity, and packaging capacity;
    
    A normal production year;
    
    The product mix and product cycle times; and
    
    Brewing losses and packaging losses.
    Annual WorkingCapacity atJune 30, 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.   20




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Brand Trends
 Redhook Beers. ESB Redhook
IPA Long Hammer IPA Long Hammer IPA
 Slim Chance Light
Ale
 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




---



##### Table of Contents



Results of Operations
  Three Months
    
    Six MonthsEnded June 30,
    
    Ended June 30,2009
    
    2008
    
    2009
    
    2008Sales
    
    
    106.6
    %
    
    
    111.3
    %
    
    
    106.9
    %
    
    
    111.4
    %Less excise taxes
    
    
    6.6
    
    
    
    11.3
    
    
    
    6.9
    
    
    
    11.4Net sales
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost of sales
    
    
    74.4
    
    
    
    93.0
    
    
    
    76.9
    
    
    
    94.4Gross profit
    
    
    25.6
    
    
    
    7.0
    
    
    
    23.1
    
    
    
    5.6Selling, general and administrative expenses
    
    
    18.2
    
    
    
    22.7
    
    
    
    19.7
    
    
    
    21.6Merger-related expenses
    
    
    0.3
    
    
    
    10.1
    
    
    
    0.4
    
    
    
    5.8Income from equity investment in Craft Brands
    
    
    
    
    
    
    5.9
    
    
    
    
    
    
    
    6.9Operating income (loss)
    
    
    7.1
    
    
    
    (19.9
    )
    
    
    3.0
    
    
    
    (14.9
    )Income from equity investments in Kona & FSB
    
    
    0.3
    
    
    
    
    
    
    
    0.2
    
    
    
    Interest expense
    
    
    (1.6
    )
    
    
    
    
    
    
    (1.8
    )
    
    
    Interest and other income, net
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.3
    
    
    
    0.3Income (loss) before income taxes
    
    
    6.0
    
    
    
    (19.8
    )
    
    
    1.7
    
    
    
    (14.6
    )Income tax provision (benefit)
    
    
    1.1
    
    
    
    (7.0
    )
    
    
    0.6
    
    
    
    (5.0
    )Net income (loss)
    
    
    4.9
    %
    
    
    (12.8
    )%
    
    
    1.1
    %
    
    
    (9.6
    )%
 Non-GAAP Financial Measures
  22




---



##### Table of Contents



For the QuarterEndedJune 30, 2009(In thousands)Net income
    
    $
    1,739Interest expense
    
    
    571Income tax provision
    
    
    366Depreciation expense
    
    
    1,593Amortization expense
    
    
    288Merger-related expenses
    
    
    113Loss on sale or disposal of property,
equipment and leasehold improvements
    
    
    10Stock compensation
    
    
    36EBITDA per the modified loan agreement
    
    $
    4,716
 Three months ended June 30, 2009 compared with three months ended June 30, 2008
  Three Months Ended June 30,
    
    
    Increase
    
    
    %2009
    
    
    2008
    
    
    (Decrease)
    
    
    Change(Dollars in thousands)Sales
    
    $
    37,465
    
    
    $
    11,993
    
    
    $
    25,472
    
    
    
    212.4
    %Less excise taxes
    
    
    2,323
    
    
    
    1,215
    
    
    
    1,108
    
    
    
    91.2Net sales
    
    
    35,142
    
    
    
    10,778
    
    
    
    24,364
    
    
    
    226.1Cost of sales
    
    
    26,133
    
    
    
    10,022
    
    
    
    16,111
    
    
    
    160.8Gross profit
    
    
    9,009
    
    
    
    756
    
    
    
    8,253
    
    
    
    N/MSelling, general and administrative expenses
    
    
    6,398
    
    
    
    2,451
    
    
    
    3,947
    
    
    
    161.0Merger-related expenses
    
    
    113
    
    
    
    1,091
    
    
    
    (978
    )
    
    
    (89.6
    )Income from equity investment in Craft Brands
    
    
    
    
    
    
    637
    
    
    
    (637
    )
    
    
    (100.0
    )Operating income (loss)
    
    
    2,498
    
    
    
    (2,149
    )
    
    
    4,647
    
    
    
    N/MIncome from equity investments in Kona and FSB
    
    
    99
    
    
    
    
    
    
    
    99
    
    
    
    N/MInterest expense
    
    
    (571
    )
    
    
    (3
    )
    
    
    (568
    )
    
    
    N/MInterest and other income, net
    
    
    79
    
    
    
    13
    
    
    
    66
    
    
    
    N/MIncome (loss) before income taxes
    
    
    2,105
    
    
    
    (2,139
    )
    
    
    4,244
    
    
    
    N/MIncome tax provision (benefit)
    
    
    366
    
    
    
    (755
    )
    
    
    1,121
    
    
    
    N/MNet income (loss)
    
    $
    1,739
    
    
    $
    (1,384
    )
    
    $
    3,123
    
    
    
    N/M
 
 Note:  23




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##### Table of Contents



Three Months Ended June 30,
    
    
    Increase
    
    
    %2009
    
    
    2008
    
    
    (Decrease)
    
    
    Change(Dollars in thousands)Sales
Revenues by CategoryA-B
    
    $
    31,360
    
    
    $
    4,969
    
    
    $
    26,391
    
    
    
    531.1
    %Craft Brands
    
    
    
    
    
    
    3,518
    
    
    
    (3,518
    )
    
    
    (100.0
    )Contract brewing
    
    
    
    
    
    
    1,780
    
    
    
    (1,780
    )
    
    
    (100.0
    )Alternating proprietorship
    
    
    3,441
    
    
    
    
    
    
    
    3,441
    
    
    
    Pubs and other (1)
    
    
    2,664
    
    
    
    1,726
    
    
    
    938
    
    
    
    54.3Total Sales
    
    $
    37,465
    
    
    $
    11,993
    
    
    $
    25,472
    
    
    
    212.4
    %
 
 Note:(1)
    
    Other includes international, non-wholesalers and other Gross Sales .
 
    
    Total shipments increased 86,200 barrels or 113.1% from 76,200 barrels for the second
quarter of 2008 to 162,400 barrels for the second quarter of 2009. Shipments to A-B increased
132,000 barrels from shipments of 26,900 barrels in the second quarter of 2008 to 158,900
barrels in the second quarter 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 June 30, 2008. Shipments for the second quarter of
2009 were also impacted by the Companys concerted efforts to stock wholesalers and
distributors prior to the seasonal demand peak for sales to consumers and by the Companys
initiatives involving its new products, which were introduced early in 2009, but were fully
absorbed by the wholesaler and distributor network during the second quarter of 2009. The
Company expects that sales to retailers (STRs) may exceed shipments for the third quarter of
2009 as wholesalers and distributors reduce their inventories over the course of the third
quarter.
    
    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 wholesaler
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 $3.5 million and $1.8 million, respectively, for the second quarter of 2008.
These sales were made at either below wholesale price levels, via Craft Brands, or at
contractually determined sales prices.
    
    Revenues included alternating proprietorship fees of $3.4 million earned from Kona for
leasing the Oregon Brewery and sales of raw materials during the second quarter of 2009 (no
such activity occurred prior to the Merger.)
    
    Revenues from pub and other sales increased by $938,000 in the second quarter of 2009
primarily due to the sales generated by the pub in Portland, Oregon, which was acquired as a
result of the Merger.
 24




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##### Table of Contents



Shipments  Brand
 Three Months Ended June 30,2009  Shipments
    

2008  Shipments
    
    Increase
    
    %Draft
    
    Bottle
    
    Total
    
    Draft
    
    Bottle
    
    Total
    
    (Decrease)
    
    Change(In barrels)Redhook brand
    
    
    13,300
    
    
    
    33,800
    
    
    
    47,100
    
    
    
    16,800
    
    
    
    34,600
    
    
    
    51,400
    
    
    
    (4,300
    )
    
    
    (8.4
    )%Widmer brand (1)
    
    
    38,300
    
    
    
    40,900
    
    
    
    79,200
    
    
    
    12,500
    
    
    
    12,300
    
    
    
    24,800
    
    
    
    54,400
    
    
    
    219.4Kona brand
    
    
    11,300
    
    
    
    24,800
    
    
    
    36,100
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,100
    
    
    
    Total shipped
    
    
    62,900
    
    
    
    99,500
    
    
    
    162,400
    
    
    
    29,300
    
    
    
    46,900
    
    
    
    76,200
    
    
    
    86,200
    
    
    
    113.1
    %
 
 (1)
    
    Shipments of Widmer-branded product for the three months ended June 30, 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
  25




---



##### Table of Contents



Shipments  Customer
 Three Months Ended June 30,2009  Shipments
    

2008  Shipments
    
    Increase
    
    %Draft
    
    Bottle
    
    Total
    
    Draft
    
    Bottle
    
    Total
    
    (Decrease)
    
    Change(In barrels)A-B
    
    
    61,300
    
    
    
    97,600
    
    
    
    158,900
    
    
    
    11,500
    
    
    
    15,400
    
    
    
    26,900
    
    
    
    132,000
    
    
    
    490.7
    %Craft Brands
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,600
    
    
    
    21,100
    
    
    
    29,700
    
    
    
    (29,700
    )
    
    
    (100.0
    )Contract brewing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,000
    
    
    
    10,000
    
    
    
    18,000
    
    
    
    (18,000
    )
    
    
    (100.0
    )Pubs and other (1)
    
    
    1,600
    
    
    
    1,900
    
    
    
    3,500
    
    
    
    1,200
    
    
    
    400
    
    
    
    1,600
    
    
    
    1,900
    
    
    
    118.8Total shipped
    
    
    62,900
    
    
    
    99,500
    
    
    
    162,400
    
    
    
    29,300
    
    
    
    46,900
    
    
    
    76,200
    
    
    
    86,200
    
    
    
    113.1
    %
 
 Note:(1)
    
    International, non-wholesalers, pubs and other  Pricing and Fees
    26




---



##### Table of Contents



Excise Taxes
 Cost of Sales .
 Widmer Hefeweizen
    27




---



##### Table of Contents



Selling, General and Administrative Expenses
   Merger-Related Expenses Business Combinations
 28




---



##### Table of Contents



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 .
 29




---



##### Table of Contents



Six months ended June 30, 2009 compared with six months ended June 30, 2008
  Six Months Ended June 30,
    
    
    Increase
    
    
    %2009
    
    
    2008
    
    
    (Decrease)
    
    
    Change(Dollars in thousands)Sales
    
    $
    66,694
    
    
    $
    22,439
    
    
    $
    44,255
    
    
    
    197.2
    %Less excise taxes
    
    
    4,306
    
    
    
    2,288
    
    
    
    2,018
    
    
    
    88.2Net sales
    
    
    62,388
    
    
    
    20,151
    
    
    
    42,237
    
    
    
    209.6Cost of sales
    
    
    47,981
    
    
    
    19,017
    
    
    
    28,964
    
    
    
    152.3Gross profit
    
    
    14,407
    
    
    
    1,134
    
    
    
    13,273
    
    
    
    N/MSelling, general and administrative expenses
    
    
    12,306
    
    
    
    4,352
    
    
    
    7,954
    
    
    
    182.8Merger-related expenses
    
    
    225
    
    
    
    1,169
    
    
    
    (944
    )
    
    
    (80.8
    )Income from equity investment in Craft Brands
    
    
    
    
    
    
    1,390
    
    
    
    (1,390
    )
    
    
    (100.0
    )Operating income (loss)
    
    
    1,876
    
    
    
    (2,997
    )
    
    
    4,873
    
    
    
    N/MIncome from equity investments in Kona and FSB
    
    
    128
    
    
    
    
    
    
    
    128
    
    
    
    N/MInterest expense
    
    
    (1,137
    )
    
    
    (5
    )
    
    
    (1,132
    )
    
    
    N/MInterest and other income, net
    
    
    170
    
    
    
    57
    
    
    
    113
    
    
    
    198.2Income (loss) before income taxes
    
    
    1,037
    
    
    
    (2,945
    )
    
    
    3,982
    
    
    
    N/MIncome tax provision (benefit)
    
    
    373
    
    
    
    (1,017
    )
    
    
    1,390
    
    
    
    N/MNet income (loss)
    
    $
    664
    
    
    $
    (1,928
    )
    
    $
    2,592
    
    
    
    N/M
 
 Note:N/M  Not Meaningful  Six Months Ended June 30,
    
    
    Increase
    
    
    %2009
    
    
    2008
    
    
    (Decrease)
    
    
    Change(Dollars in thousands)Sales
Revenues by CategoryA-B
    
    $
    56,248
    
    
    $
    9,527
    
    
    $
    46,721
    
    
    
    490.4
    %Craft Brands
    
    
    
    
    
    
    6,914
    
    
    
    (6,914
    )
    
    
    (100.0
    )Contract brewing
    
    
    
    
    
    
    2,956
    
    
    
    (2,956
    )
    
    
    (100.0
    )Alternating proprietorship
    
    
    5,647
    
    
    
    
    
    
    
    5,647
    
    
    
    Pubs and other (1)
    
    
    4,799
    
    
    
    3,042
    
    
    
    1,757
    
    
    
    57.8Total Sales
    
    $
    66,694
    
    
    $
    22,439
    
    
    $
    44,255
    
    
    
    197.2
    %
 
 Note:(1)
    
    Other includes international, non-wholesalers and other Gross Sales .
 
    
    Total shipments increased 151,600 barrels or 104.8% from 144,600 barrels for the first six
months of 2008 to 296,200 barrels for the first six months of 2009. Shipments to A-B
increased 237,500 barrels from shipments of
 30




---



##### Table of Contents



52,700 barrels in the first six months of 2008 to
290,200 barrels in the first six 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 six months ended June 30, 2008. Shipments for the first six months of
2009 were also impacted by the Companys concerted efforts to stock wholesalers and
distributors prior to the seasonal demand peak for sales to consumers and by the Companys
initiatives involving its new products, which were introduced early in 2009, but were fully
absorbed by the wholesaler and distributor network during the second quarter of 2009. The
Company expects that STRs may exceed shipments for the third quarter of 2009 as wholesalers
and distributors reduce their inventories over the course of the third quarter.
 
    
    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 wholesaler
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 $6.9 million and $3.0 million, respectively, for the first six months of 2008.
These sales were made at either below wholesale price levels, via Craft Brands, or at
contractually determined sales prices.
    
    Revenues included alternating proprietorship fees of $5.6 million earned from Kona for
leasing the Oregon Brewery and sales of raw materials during the first six months of 2009 (no
such activity occurred prior to the Merger.)
    
    Revenues from pub and other sales increased by $1.8 million in the first six 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
 Six Months Ended June 30,2009  Shipments
    
    2008  Shipments
    
    Increase
    
    %Draft
    
    Bottle
    
    Total
    
    Draft
    
    Bottle
    
    Total
    
    (Decrease)
    
    Change(In barrels)Redhook brand
    
    
    25,900
    
    
    
    67,600
    
    
    
    93,500
    
    
    
    32,400
    
    
    
    68,700
    
    
    
    101,100
    
    
    
    (7,600
    )
    
    
    (7.5
    )%Widmer brand (1)
    
    
    73,300
    
    
    
    70,900
    
    
    
    144,200
    
    
    
    24,600
    
    
    
    18,900
    
    
    
    43,500
    
    
    
    100,700
    
    
    
    231.5Kona brand
    
    
    20,200
    
    
    
    38,300
    
    
    
    58,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,500
    
    
    
    Total shipped
    
    
    119,400
    
    
    
    176,800
    
    
    
    296,200
    
    
    
    57,000
    
    
    
    87,600
    
    
    
    144,600
    
    
    
    151,600
    
    
    
    104.8
    %
 
 (1)
    
    Shipments of Widmer-branded product for the six months ended June 30, 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
 31




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##### Table of Contents



Shipments  Customer
 Six Months Ended June 30,2009 - Shipments
    
    2008 - Shipments
    
    Increase
    
    %Draft
    
    Bottle
    
    Total
    
    Draft
    
    Bottle
    
    Total
    
    (Decrease)
    
    Change(In barrels)A-B
    
    
    116,500
    
    
    
    173,700
    
    
    
    290,200
    
    
    
    22,200
    
    
    
    30,500
    
    
    
    52,700
    
    
    
    237,500
    
    
    
    450.7
    %Craft Brands
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,300
    
    
    
    41,900
    
    
    
    58,200
    
    
    
    (58,200
    )
    
    
    (100.0
    )Contract brewing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,500
    
    
    
    14,500
    
    
    
    31,000
    
    
    
    (31,000
    )
    
    
    (100.0
    )Pubs and other (1)
    
    
    2,900
    
    
    
    3,100
    
    
    
    6,000
    
    
    
    2,000
    
    
    
    700
    
    
    
    2,700
    
    
    
    3,300
    
    
    
    122.2Total shipped
    
    
    119,400
    
    
    
    176,800
    
    
    
    296,200
    
    
    
    57,000
    
    
    
    87,600
    
    
    
    144,600
    
    
    
    151,600
    
    
    
    104.8
    %
 
 (1)
    
    International, non-wholesalers, pubs and other Pricing and Fees
  Excise Taxes
 Cost of Sales .
 32




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##### Table of Contents



Widmer Hefeweizen
    Selling, General and Administrative Expenses
   33




---



##### Table of Contents



Merger-Related Expenses
 Income from Equity Investment in Craft Brands .
 Income from Equity Investments in Kona and FSB .
 Interest Expense.
 Other Income, net
 Income Taxes .
 Liquidity and Capital Resources
     34




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##### Table of Contents



Financial Covenants Required by Loan Agreement
as Revised by the Modification Agreement
 Ratio of Funded Debt to EBITDA, as definedAs of September 30, 2009
    
    
    4.50 to 1From December 31, 2009 through September 30, 2010
    
    
    3.50 to 1From December 31, 2010 and thereafter
    
    
    3.00 to 1Fixed Charge Coverage RatioFor the trailing four-quarter period ending
September 30, 2009
and thereafter
    
    
    1.25 to 1
 th
  35




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##### Table of Contents



Trend
   Critical Accounting Policies and Estimates
   Income Taxes . Accounting for Income Taxes
  36




---



##### 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
 Interim Disclosures about Fair
Value of Financial Instruments,
 Subsequent Events
 The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles  a replacement of FASB Statement No. 162 The Hierarchy of Generally Accepted Accounting Principles FASB Accounting Standards Codification
 37




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##### Table of Contents



ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
   
 ITEM 4T. Controls and Procedures
 Disclosure Controls and Procedures
    Changes in Internal Control Over Financial Reporting
  
 PART II. Other Information
 
 ITEM 1. Legal Proceedings
  38




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##### Table of Contents



ITEM 4. Submissions of Matters to a Vote of Security Holders
  1.
    
    Election of seven directors to serve until the next annual meeting and until their respective
successors are elected and qualified:
 For
    
    WithheldTimothy P. Boyle
    
    
    16,172,815
    
    
    
    546,580Andrew R. Goeler
    
    
    16,021,300
    
    
    
    546,580Kevin R. Kelly
    
    
    15,605,060
    
    
    
    546,580David R. Lord
    
    
    15,608,052
    
    
    
    546,580John D. Rogers, Jr.
    
    
    15,604,943
    
    
    
    546,580Anthony J. Short
    
    
    16,020,835
    
    
    
    546,580Kurt R. Widmer
    
    
    16,163,331
    
    
    
    546,580
 2.
    
    Ratification of the appointment of Moss Adams, LLP as the Companys independent registered
public accounting firm for the fiscal year ending December 31, 2009:
 For
    
    Against
    
    Abstentions15,675,771
    
    559,274
    
    118,643
 
 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.August 12, 2009
    BY:

/s/
Joseph K. OBrienJoseph K. OBrienController and Chief
Accounting Officer 39