##### 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 September 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 September 30, 2009
 TABLE OF CONTENTS
 PagePART I.
    
    Financial InformationITEM 1.
    
    Financial StatementsBalance Sheets as of September 30, 2009 and December 31, 2008
    
    
    3Statements of Operations for the
Three and Nine Months Ended September 30, 2009 and 2008
    
    
    4Statements of Cash Flows for the
Nine Months Ended September 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
    
    
    36ITEM 4T.
    
    Controls and Procedures
    
    
    36PART II.
    
    Other InformationITEM 1.
    
    Legal Proceedings
    
    
    37ITEM 6.
    
    Exhibits
    
    
    37SIGNATURES
    
    
    37EX-31.1EX-31.2EX-32.1
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PART I.
 
 ITEM 1. Financial Statements
 CRAFT
BREWERS ALLIANCE, INC.
 
 BALANCE SHEETS
 (Unaudited)September 30,
    
    
    December 31,2009
    
    
    2008(Dollars in thousands exceptper share amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    723
    
    
    $
    11Accounts receivable, net of allowance for doubtful accounts of $100 and
$64 at September 30, 2009 and December 31, 2008, respectively
    
    
    9,937
    
    
    
    12,499Inventories, net
    
    
    10,203
    
    
    
    9,729Income tax receivable
    
    
    62
    
    
    
    724Deferred income tax asset, net
    
    
    931
    
    
    
    767Other current assets
    
    
    3,808
    
    
    
    3,951Total current assets
    
    
    25,664
    
    
    
    27,681Property, equipment and leasehold improvements, net
    
    
    98,891
    
    
    
    101,389Equity investments
    
    
    5,513
    
    
    
    5,189Intangible and other assets, net
    
    
    13,187
    
    
    
    13,546Total assets
    
    $
    143,255
    
    
    $
    147,805LIABILITIES AND COMMON STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    12,532
    
    
    $
    15,000Accrued salaries, wages, severance and payroll taxes
    
    
    3,994
    
    
    
    3,630Refundable deposits
    
    
    6,575
    
    
    
    6,191Other accrued expenses
    
    
    1,248
    
    
    
    2,393Current portion of long-term debt and capital lease obligations
    
    
    1,460
    
    
    
    1,394Total current liabilities
    
    
    25,809
    
    
    
    28,608Long-term debt and capital lease obligations, net of current portion
    
    
    28,182
    
    
    
    31,834Fair value of derivative financial instruments
    
    
    949
    
    
    
    1,252Deferred income tax liability, net
    
    
    7,529
    
    
    
    6,552Other liabilities
    
    
    340
    
    
    
    278Common
Stockholders Equity:Common stock, par value $0.005 per share, 50,000,000 shares
authorized; 17,074,063 shares
at September 30, 2009 and 16,948,063 at December 31, 2008 issued
and outstanding
    
    
    85
    
    
    
    85Additional paid-in capital
    
    
    122,680
    
    
    
    122,433Accumulated other comprehensive loss
    
    
    (533
    )
    
    
    (693
    )Retained deficit
    
    
    (41,786
    )
    
    
    (42,544
    )Total common stockholders equity
    
    
    80,446
    
    
    
    79,281Total liabilities and common stockholders equity
    
    $
    143,255
    
    
    $
    147,805
 The accompanying notes are an integral part of these financial statements.
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CRAFT
BREWERS ALLIANCE, INC.
 
 STATEMENTS OF OPERATIONS
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands, except per share amounts)Sales
    
    $
    33,899
    
    
    $
    33,498
    
    
    $
    100,593
    
    
    $
    55,937Less excise taxes
    
    
    2,216
    
    
    
    2,031
    
    
    
    6,522
    
    
    
    4,319Net sales
    
    
    31,683
    
    
    
    31,467
    
    
    
    94,071
    
    
    
    51,618Cost of sales
    
    
    24,373
    
    
    
    24,846
    
    
    
    72,354
    
    
    
    43,863Gross profit
    
    
    7,310
    
    
    
    6,621
    
    
    
    21,717
    
    
    
    7,755Selling, general and administrative expenses
    
    
    6,722
    
    
    
    7,632
    
    
    
    19,028
    
    
    
    11,984Merger-related expenses
    
    
    
    
    
    
    474
    
    
    
    225
    
    
    
    1,643Income from equity investment in Craft Brands
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,390Operating income (loss)
    
    
    588
    
    
    
    (1,485
    )
    
    
    2,464
    
    
    
    (4,482
    )Income from equity investments in Kona and FSB
    
    
    196
    
    
    
    1
    
    
    
    324
    
    
    
    1Interest expense
    
    
    (531
    )
    
    
    (447
    )
    
    
    (1,668
    )
    
    
    (452
    )Interest and other income, net
    
    
    88
    
    
    
    41
    
    
    
    258
    
    
    
    98Income (loss) before income taxes
    
    
    341
    
    
    
    (1,890
    )
    
    
    1,378
    
    
    
    (4,835
    )Income tax provision (benefit)
    
    
    247
    
    
    
    (641
    )
    
    
    620
    
    
    
    (1,658
    )Net income (loss)
    
    $
    94
    
    
    $
    (1,249
    )
    
    $
    758
    
    
    $
    (3,177
    )Basic and diluted earnings (loss) per share
    
    $
    0.01
    
    
    $
    (0.07
    )
    
    $
    0.04
    
    
    $
    (0.28
    )
 The accompanying notes are an integral part of these financial statements.
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CRAFT
BREWERS ALLIANCE, INC.
 
 STATEMENTS OF CASH FLOWS
 Nine Months EndedSeptember 30,2009
    
    
    2008(In thousands)Operating ActivitiesNet income (loss)
    
    $
    758
    
    
    $
    (3,177
    )Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:Depreciation and amortization
    
    
    5,528
    
    
    
    3,462Income from equity investments less than (in excess of) cash distributions
    
    
    (324
    )
    
    
    75Deferred income taxes
    
    
    601
    
    
    
    (1,878
    )Reserve for obsolete inventory
    
    
    (8
    )
    
    
    140Loss on sale or disposal of property, equipment and leasehold improvements
    
    
    
    
    
    
    24Stock compensation
    
    
    40
    
    
    
    20Other
    
    
    (34
    )
    
    
    (27
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    2,527
    
    
    
    2,557Trade receivables from Craft Brands
    
    
    
    
    
    
    119Inventories
    
    
    (849
    )
    
    
    (525
    )Income tax receivable and other current assets
    
    
    931
    
    
    
    (3,182
    )Other assets
    
    
    (15
    )
    
    
    33Accounts payable and other accrued expenses
    
    
    (3,613
    )
    
    
    100Trade payable to Craft Brands
    
    
    
    
    
    
    60Accrued salaries, wages, severance and payroll taxes
    
    
    597
    
    
    
    (63
    )Refundable deposits and other liabilities
    
    
    (293
    )
    
    
    170Net cash provided by (used in) operating activities
    
    
    5,846
    
    
    
    (2,092
    )Investing ActivitiesExpenditures for property, equipment and leasehold improvements
    
    
    (1,867
    )
    
    
    (5,546
    )Proceeds from sale of property, equipment and leasehold improvments
    
    
    61
    
    
    
    382Cash acquired in acquisition of Widmer Brothers Brewing Company, net
    
    
    
    
    
    
    2,336Net cash used in investing activities
    
    
    (1,806
    )
    
    
    (2,828
    )Financing ActivitiesPrincipal payments on debt and capital lease obligations
    
    
    (1,036
    )
    
    
    (304
    )Net repayments under revolving line of credit
    
    
    (2,500
    )
    
    
    (500
    )Issuance of common stock
    
    
    208
    
    
    
    475Amounts paid for debt issue costs
    
    
    
    
    
    
    (25
    )Net cash used in financing activities
    
    
    (3,328
    )
    
    
    (354
    )Increase (decrease) in cash and cash equivalents
    
    
    712
    
    
    
    (5,274
    )Cash and cash equivalents:Beginning of period
    
    
    11
    
    
    
    5,527End of period
    
    $
    723
    
    
    $
    253Supplemental DisclosuresCash paid for interest
    
    $
    1,761
    
    
    $
    417Cash paid (received) for income taxes
    
    $
    (771
    )
    
    $
    13Non-cash TransactionNet assets of Widmer Brothers Brewing Company acquired in exchange
for issuance of common stock and assumption of debt (see Note 2)
    
    $
    
    
    
    $
    82,346
 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 Derivatives and Hedging
 Interim Disclosures about Fair Value of Financial
Instruments, Financial Instruments.
 Subsequent Events Subsequent Events.
 The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles  a replacement of FASB Statement No.
162, Generally Accepted Accounting Principles.
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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
  2. Merger Activities
 Merger with Widmer
     Merger-Related Costs
 Business
Combinations Business Combinations
 Exit or Disposal Cost Obligations Accounting for Costs Associated with Exit or Disposal Activities).
 Pro Forma Results of Operations
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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
 Nine Months Ended September 30,2009
    
    2008Actual
    
    Pro FormaResults
    
    Results(In thousands, exceptper share data)Net sales
    
    $
    94,071
    
    
    $
    89,510Income (loss) before income taxes
    
    $
    1,378
    
    
    $
    (5,898
    )Net income (loss)
    
    $
    758
    
    
    $
    (3,875
    )Basic and diluted earnings
(loss) per share
    
    $
    0.04
    
    
    $
    (0.23
    )
  Merger with Craft Brands
     2008 period throughtermination ofCraft Brands(Dollars in thousands)Net sales
    
    $
    38,463Gross profit
    
    $
    12,089Operating income
    
    $
    3,311Income before income taxes
    
    $
    3,310Net income
    
    $
    3,310Shipments (in barrels)
    
    
    180,300
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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
  3. Inventories
  September 30,
    
    
    December 31,2009
    
    
    2008(In thousands)Raw materials
    
    $
    3,662
    
    
    $
    4,258Work in process
    
    
    1,971
    
    
    
    1,921Finished goods
    
    
    2,125
    
    
    
    1,624Packaging materials, net
    
    
    1,258
    
    
    
    950Promotional merchandise, net
    
    
    1,117
    
    
    
    907Pub food, beverages and supplies
    
    
    70
    
    
    
    69$
    10,203
    
    
    $
    9,729
  4. Other Current Assets
  September 30,
    
    
    December 31,2009
    
    
    2008(In thousands)Deposits paid to keg lessor
    
    $
    3,514
    
    
    $
    3,182Prepaid property taxes
    
    
    
    
    
    
    177Prepaid insurance
    
    
    100
    
    
    
    201Other
    
    
    194
    
    
    
    391$
    3,808
    
    
    $
    3,951
 5. Equity Investments
  September 30,
    
    
    December 31,2009
    
    
    2008(In thousands)Fulton Street Brewery, LLC (FSB)
    
    $
    4,315
    
    
    $
    4,103Kona Brewery LLC (Kona)
    
    
    1,198
    
    
    
    1,086$
    5,513
    
    
    $
    5,189
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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
 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 definedFrom December 31, 2009 through
September 30, 2010
    
    
    3.50 to 1From December 31, 2010 and thereafter
    
    
    3.00 to 1Fixed Charge Coverage Ratio
    
    
    1.25 to 1Asset Coverage Ratio
    
    
    1.50 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
    Liability Derivatives at September 30, 2009Balance Sheet Location
    
    Fair Value(in thousands)Derivatives designated as hedging instruments under ASC 815Interest rate swap contracts
    
    Non-current liabilities  derivative financial instruments
    
    $
    856Derivatives not designated as hedging instruments under ASC 815Interest rate swap contracts
    
    Non-current liabilities  derivative financial instruments
    
    
    93Total derivatives
    
    
    
    $
    949
  12




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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
 Fair Value Measurements
  Fair Value Measurements and
Disclosures 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
    
    $
    
    $
    949
    
    
    $
    
    $
    949
 8. Common Stockholders Equity
   Stock Plans
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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
   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
    
    
    (108
    )
    
    
    (1.92
    )
    
    
    (2.3
    )Canceled
    
    
    (106
    )
    
    
    (2.31
    )
    
    
    (2.2
    )Expired
    
    
    (110
    )
    
    
    (3.97
    )
    
    
    (0.4
    )Outstanding at September 30, 2009
    
    
    137
    
    
    $
    2.00
    
    
    
    4.6
    
    
    $
    238Exercisable at September 30, 2009
    
    
    107
    
    
    $
    2.21
    
    
    
    3.3
    
    
    $
    164
  Compensation 
Stock Compensation Share-based Payments
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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
  Outstanding
    
    
    ExercisableWeighted Average
    
    
    
    
    
    
    Weighted AverageRemaining
    
    
    
    
    
    
    
    
    
    
    RemainingRange of Exercise Prices
    
    Options
    
    
    Exercise Price
    
    
    Contractual Life
    
    
    Options
    
    
    Exercise Price
    
    
    Contractual Life(In thousands)
    
    
    (Per share)
    
    
    (In years)
    
    
    (In thousands)
    
    
    (Per share)
    
    
    (In years)$1.25 to $2.00
    
    
    51
    
    
    $
    1.47
    
    
    
    6.1
    
    
    
    21
    
    
    $
    1.79
    
    
    
    1.6$2.01 to $3.00
    
    
    70
    
    
    
    2.13
    
    
    
    3.3
    
    
    
    70
    
    
    
    2.13
    
    
    
    3.3$3.01 to $3.15
    
    
    16
    
    
    
    3.15
    
    
    
    5.6
    
    
    
    16
    
    
    
    3.15
    
    
    
    5.6$1.25 to $3.15
    
    
    137
    
    
    $
    2.00
    
    
    
    4.6
    
    
    
    107
    
    
    $
    2.21
    
    
    
    3.3
 9.

    Earnings (Loss) per Share  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands, except per share amounts)Numerator for basic and diluted earnings (loss) per share:Net income (loss)
    
    $
    94
    
    
    $
    (1,249
    )
    
    $
    758
    
    
    $
    (3,177
    )Denominator for basic earnings (loss) per share - Weighted average common shares outstanding
    
    
    17,026
    
    
    
    16,852
    
    
    
    16,981
    
    
    
    11,220Dilutive effect of stock options on weighted
average
common shares
    
    
    76
    
    
    
    
    
    
    
    33
    
    
    
    Denominator for diluted earnings (loss) per share
    
    
    17,102
    
    
    
    16,852
    
    
    
    17,014
    
    
    
    11,220Basic and diluted earnings (loss) per share
    
    $
    0.01
    
    
    $
    (0.07
    )
    
    $
    0.04
    
    
    $
    (0.28
    )
  10. Comprehensive Income (Loss)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Net income (loss)
    
    $
    94
    
    
    $
    (1,249
    )
    
    $
    758
    
    
    $
    (3,177
    )Other comprehensive income (loss):Unrealized gains (losses) on derivative financial
instruments, net of tax
    
    
    (42
    )
    
    
    (261
    )
    
    
    160
    
    
    
    (261
    )Comprehensive income (loss)
    
    $
    52
    
    
    $
    (1,510
    )
    
    $
    918
    
    
    $
    (3,438
    )
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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
 11. Income Taxes
    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. (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 certain periods is significantly affected by
the July 1, 2008 merger of Widmer Brothers Brewing Company with and into the Company.
 Overview
    17




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




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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 atSeptember 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.   Brand Trends
 Redhook Beers. Redhook
IPA Long Hammer IPA Long Hammer IPA Long Hammer IPA Long Hammer
 20




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Slim Chance Light
Ale Slim Chance Light Ales
 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
 Kona Brewing Beers.
 Longboard
Island Lager
   21




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Results of Operations
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Sales
    
    
    107.0
    %
    
    
    106.5
    %
    
    
    106.9
    %
    
    
    108.4
    %Less excise taxes
    
    
    7.0
    
    
    
    6.5
    
    
    
    6.9
    
    
    
    8.4Net sales
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost of sales
    
    
    76.9
    
    
    
    79.0
    
    
    
    76.9
    
    
    
    85.0Gross profit
    
    
    23.1
    
    
    
    21.0
    
    
    
    23.1
    
    
    
    15.0Selling, general and administrative expenses
    
    
    21.2
    
    
    
    24.2
    
    
    
    20.2
    
    
    
    23.2Merger-related expenses
    
    
    
    
    
    
    1.5
    
    
    
    0.3
    
    
    
    3.2Income from equity investment in Craft Brands
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.7Operating income (loss)
    
    
    1.9
    
    
    
    (4.7
    )
    
    
    2.6
    
    
    
    (8.7
    )Income from equity investments in Kona & FSB
    
    
    0.6
    
    
    
    
    
    
    
    0.4
    
    
    
    Interest expense
    
    
    (1.7
    )
    
    
    (1.4
    )
    
    
    (1.8
    )
    
    
    (0.9
    )Interest and other income, net
    
    
    0.3
    
    
    
    0.1
    
    
    
    0.3
    
    
    
    0.2Income (loss) before income taxes
    
    
    1.1
    
    
    
    (6.0
    )
    
    
    1.5
    
    
    
    (9.4
    )Income tax provision (benefit)
    
    
    0.8
    
    
    
    (2.0
    )
    
    
    0.7
    
    
    
    (3.2
    )Net income (loss)
    
    
    0.3
    %
    
    
    (4.0
    )%
    
    
    0.8
    %
    
    
    (6.2
    )%
 Non-GAAP Financial Measures
  For the Trailing FourQuarters EndedSeptember 30, 2009(In thousands)Net loss
    
    $
    (29,343
    )Interest expense
    
    
    2,209Income tax benefit
    
    
    (2,099
    )Depreciation expense
    
    
    6,414Amortization expense
    
    
    1,126Loss on impairment of assets
    
    
    30,589Merger-related expenses
    
    
    365Restructuring costs, as defined
    
    
    1,044Other non-cash charges
    
    
    58EBITDA per the modified loan agreement
    
    $
    10,363
 22




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##### Table of Contents



Three months ended September 30, 2009 compared with three months ended September 30, 2008
  Three Months EndedSeptember 30,2009
    
    
    2008
    
    
    Increase (Decrease)
    
    
    % Change(Dollars in thousands)Sales
    
    $
    33,899
    
    
    $
    33,498
    
    
    $
    401
    
    
    
    1.2
    %Less excise taxes
    
    
    2,216
    
    
    
    2,031
    
    
    
    185
    
    
    
    9.1Net sales
    
    
    31,683
    
    
    
    31,467
    
    
    
    216
    
    
    
    0.7Cost of sales
    
    
    24,373
    
    
    
    24,846
    
    
    
    (473
    )
    
    
    (1.9
    )Gross profit
    
    
    7,310
    
    
    
    6,621
    
    
    
    689
    
    
    
    10.4Selling, general and administrative expenses
    
    
    6,722
    
    
    
    7,632
    
    
    
    (910
    )
    
    
    (11.9
    )Merger-related expenses
    
    
    
    
    
    
    474
    
    
    
    (474
    )
    
    
    (100.0
    )Operating income (loss)
    
    
    588
    
    
    
    (1,485
    )
    
    
    2,073
    
    
    
    N/MIncome from equity investments in Kona and FSB
    
    
    196
    
    
    
    1
    
    
    
    195
    
    
    
    N/MInterest expense
    
    
    (531
    )
    
    
    (447
    )
    
    
    (84
    )
    
    
    18.8Interest and other income, net
    
    
    88
    
    
    
    41
    
    
    
    47
    
    
    
    114.6Income (loss) before income taxes
    
    
    341
    
    
    
    (1,890
    )
    
    
    2,231
    
    
    
    N/MIncome tax provision (benefit)
    
    
    247
    
    
    
    (641
    )
    
    
    888
    
    
    
    N/MNet income (loss)
    
    $
    94
    
    
    $
    (1,249
    )
    
    $
    1,343
    
    
    
    N/M
 
 Note:N/M  Not Meaningful  Three Months EndedSeptember 30,2009
    
    
    2008
    
    
    Increase (Decrease)
    
    
    % Change(Dollars in thousands)Sales Revenues by CategoryA-B
    
    $
    28,032
    
    
    $
    27,247
    
    
    $
    785
    
    
    
    2.9
    %Contract brewing
    
    
    102
    
    
    
    
    
    
    
    102
    
    
    
    Alternating proprietorship
    
    
    2,782
    
    
    
    3,363
    
    
    
    (581
    )
    
    
    (17.3
    )Pubs and other (1)
    
    
    2,983
    
    
    
    2,888
    
    
    
    95
    
    
    
    3.3Total Sales
    
    $
    33,899
    
    
    $
    33,498
    
    
    $
    401
    
    
    
    1.2
    %
 
 Note 1- Other includes international, non-wholesalers and other Gross Sales .
 
    
    Total shipments increased 1,700 barrels or 1.2% from 147,800 barrels for the third quarter
of 2008 to 149,500 barrels for the third quarter of 2009. Shipments to A-B increased 300
barrels from shipments of 144,200 barrels in the third quarter of 2008 to 144,500 barrels in
the third quarter of 2009. Shipments for the third quarter of 2009 were impacted by the
Companys tactical efforts to stock wholesalers and distributors near the end of the second
quarter prior to the seasonal demand peak for sales to consumers. As a result, wholesaler and
distributor inventories of the Companys products were at relatively high levels at the end of
the second quarter, and have decreased steadily for much of the third quarter of 2009. The
rate of increase in sales to retailers (STRs) for the
 23




---



##### Table of Contents



third quarter of 2009 increased at a 3.0% rate from the prior quarter a year ago, reflecting
increased consumer demand for the Companys products being met through wholesaler and
distributor inventories.
    
    Bottled products experienced a pricing increase at the wholesale level while the package mix shifted towards a higher
percentage of bottled products to total shipments from
a year ago.
    
    Alternating proprietorship fees decreased $581,000 from $3.4 million for the third quarter
of 2008 to $2.8 million for the third quarter of 2009. These fees are earned from Kona for
leasing the Oregon Brewery and sales of raw materials during the corresponding periods. The
decrease in fees was partially due to some of the Kona-branded production shifting to the New
Hampshire Brewery, with this activity being initiated in the fourth quarter of 2008.
Alternating proprietorship fees are not earned for Kona-branded products brewed at the New
Hampshire Brewery under the terms of the agreement between the Company and Kona.
 Shipments  Customer
 Three Months Ended September 30,2009
 Shipments
    
    
    2008  Shipments
    
    
    IncreaseDraft
    
    
    Bottle
    
    
    Total
    
    
    Draft
    
    
    Bottle
    
    
    Total
    
    
    (Decrease)
    
    
    % Change(In barrels)A-B
    
    
    58,900
    
    
    
    85,600
    
    
    
    144,500
    
    
    
    64,800
    
    
    
    79,400
    
    
    
    144,200
    
    
    
    300
    
    
    
    0.2
    %Contract brewing
    
    
    800
    
    
    
    
    
    
    
    800
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    800
    
    
    
    Pubs and other (1)
    
    
    2,600
    
    
    
    1,600
    
    
    
    4,200
    
    
    
    2,700
    
    
    
    900
    
    
    
    3,600
    
    
    
    600
    
    
    
    16.7Total shipped
    
    
    62,300
    
    
    
    87,200
    
    
    
    149,500
    
    
    
    67,500
    
    
    
    80,300
    
    
    
    147,800
    
    
    
    1,700
    
    
    
    1.2
    %
 
 Note 1- Other includes international, non-wholesalers, pubs and other Pricing and Fees
   24




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##### Table of Contents



Shipments  Brand
 Three Months Ended September 30,2009  Shipments
    
    
    2008  Shipments
    
    
    IncreaseDraft
    
    
    Bottle
    
    
    Total
    
    
    Draft
    
    
    Bottle
    
    
    Total
    
    
    (Decrease)
    
    
    % Change(In barrels)Redhook brand
    
    
    12,700
    
    
    
    31,500
    
    
    
    44,200
    
    
    
    15,800
    
    
    
    34,600
    
    
    
    50,400
    
    
    
    (6,200
    )
    
    
    (12.3
    )%Widmer brand
    
    
    37,500
    
    
    
    36,800
    
    
    
    74,300
    
    
    
    40,600
    
    
    
    29,400
    
    
    
    70,000
    
    
    
    4,300
    
    
    
    6.1Kona brand
    
    
    11,300
    
    
    
    18,900
    
    
    
    30,200
    
    
    
    11,100
    
    
    
    16,300
    
    
    
    27,400
    
    
    
    2,800
    
    
    
    10.2Total shipped (1)
    
    
    61,500
    
    
    
    87,200
    
    
    
    148,700
    
    
    
    67,500
    
    
    
    80,300
    
    
    
    147,800
    
    
    
    900
    
    
    
    0.6
    %
 
 Note 1- Total shipments by brand exclude private label shipments produced under the Companys
contract brewing arrangements.  Excise Taxes
 Cost of Sales .
  25




---



##### Table of Contents



Selling, General and Administrative Expenses
  26




---



##### Table of Contents



Merger-Related Expenses Business Combinations Business Combinations
 Exit or
Disposal Cost Obligations Accounting for Costs
Associated with Exit or Disposal Activities)
 Income from Equity Investments in Kona and FSB .
 Interest Expense.
 Other Income, net
 Income Taxes .
 Nine
months ended September 30, 2009 compared with nine months ended
September 30, 2008
 27




---



##### Table of Contents



Nine Months EndedSeptember 30,
    
    
    Increase
    
    
    %2009
    
    
    2008
    
    
    (Decrease)
    
    
    Change(Dollars in thousands)Sales
    
    $
    100,593
    
    
    $
    55,937
    
    
    $
    44,656
    
    
    
    79.8
    %Less excise taxes
    
    
    6,522
    
    
    
    4,319
    
    
    
    2,203
    
    
    
    51.0Net sales
    
    
    94,071
    
    
    
    51,618
    
    
    
    42,453
    
    
    
    82.2Cost of sales
    
    
    72,354
    
    
    
    43,863
    
    
    
    28,491
    
    
    
    65.0Gross profit
    
    
    21,717
    
    
    
    7,755
    
    
    
    13,962
    
    
    
    180.0Selling, general and administrative expenses
    
    
    19,028
    
    
    
    11,984
    
    
    
    7,044
    
    
    
    58.8Merger-related expenses
    
    
    225
    
    
    
    1,643
    
    
    
    (1,418
    )
    
    
    (86.3
    )Income from equity investment in Craft Brands
    
    
    
    
    
    
    1,390
    
    
    
    (1,390
    )
    
    
    (100.0
    )Operating income (loss)
    
    
    2,464
    
    
    
    (4,482
    )
    
    
    6,946
    
    
    
    N/MIncome from equity investments in Kona and FSB
    
    
    324
    
    
    
    1
    
    
    
    323
    
    
    
    N/MInterest expense
    
    
    (1,668
    )
    
    
    (452
    )
    
    
    (1,216
    )
    
    
    269.0Interest and other income, net
    
    
    258
    
    
    
    98
    
    
    
    160
    
    
    
    163.3Income (loss) before income taxes
    
    
    1,378
    
    
    
    (4,835
    )
    
    
    6,213
    
    
    
    N/MIncome tax provision (benefit)
    
    
    620
    
    
    
    (1,658
    )
    
    
    2,278
    
    
    
    N/MNet income (loss)
    
    $
    758
    
    
    $
    (3,177
    )
    
    $
    3,935
    
    
    
    N/M
 
 Note:N/M  Not Meaningful   Nine Months EndedSeptember 30,
    
    
    Increase
    
    
    %2009
    
    
    2008
    
    
    (Decrease)
    
    
    Change(Dollars in thousands)Sales Revenues by CategoryA-B
    
    $
    84,280
    
    
    $
    36,774
    
    
    $
    47,506
    
    
    
    129.2
    %Craft Brands
    
    
    
    
    
    
    6,914
    
    
    
    (6,914
    )
    
    
    (100.0
    )Contract brewing
    
    
    102
    
    
    
    2,956
    
    
    
    (2,854
    )
    
    
    (96.5
    )Alternating proprietorship
    
    
    8,429
    
    
    
    3,363
    
    
    
    5,066
    
    
    
    150.6Pubs and other (1)
    
    
    7,782
    
    
    
    5,930
    
    
    
    1,852
    
    
    
    31.2Total Sales
    
    $
    100,593
    
    
    $
    55,937
    
    
    $
    44,656
    
    
    
    79.8
    %
 
 Note 1- Other includes international, non-wholesalers and other Gross Sales .
 
    
    Total shipments increased 153,300 barrels or 52.4% from 292,400 barrels for the first nine
months of 2008 to 445,700 barrels for the first nine months of 2009. Shipments to A-B
increased 237,800 barrels from shipments of
 28




---



##### Table of Contents




    
    The increase in revenues was also due to shipments in the West being made via A-B at
wholesale pricing levels for the entire period in 2009 while for the six months of the 2008
period prior to the Merger a significant portion of these sales were made through Craft Brands
at below wholesaler pricing levels. Draft and bottled products experienced
a pricing increase at the wholesale level and the package mix shifted towards a higher percentage of bottled products to total shipments
for the  first nine months of 2009 compared with the corresponding period in 2008.
    
    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 the
2008 period. These sales were made at either below wholesale price levels, via Craft Brands,
or at contractually determined sales prices. The decrease in contract revenues was partially
offset by revenues earned during the third quarter of 2009 under the Companys contract
brewing arrangement with a third party.
    
    Revenues included an increase of alternating proprietorship fees of $5.1 million earned
from Kona for leasing the Oregon Brewery and sales of raw materials during all of the first
nine months of 2009 while such leasing activity occurred only in the third quarter of 2008 as
no such activity occurred prior to the Merger.
    
    Revenues from pub and other sales increased by $1.9 million in the first nine months of
2009 primarily due to the sales generated by the pub in Portland, Oregon, for the full period
in 2009 as compared with the 2008 period, which were only for the third quarter of 2008 as a
result of the Merger.
 Shipments  Customer
 Nine Months Ended September 30,2009  Shipments
    
    
    2008  Shipments
    
    
    Increase
    
    
    %Draft
    
    
    Bottle
    
    
    Total
    
    
    Draft
    
    
    Bottle
    
    
    Total
    
    
    (Decrease)
    
    
    Change(In barrels)A-B
    
    
    175,400
    
    
    
    259,300
    
    
    
    434,700
    
    
    
    87,000
    
    
    
    109,900
    
    
    
    196,900
    
    
    
    237,800
    
    
    
    120.8
    %Craft Brands
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,300
    
    
    
    41,800
    
    
    
    58,100
    
    
    
    (58,100
    )
    
    
    (100.0
    )Contract brewing
    
    
    800
    
    
    
    
    
    
    
    800
    
    
    
    16,500
    
    
    
    14,500
    
    
    
    31,000
    
    
    
    (30,200
    )
    
    
    (97.4
    )Pubs and other (1)
    
    
    5,500
    
    
    
    4,700
    
    
    
    10,200
    
    
    
    4,700
    
    
    
    1,700
    
    
    
    6,400
    
    
    
    3,800
    
    
    
    59.4Total shipped
    
    
    181,700
    
    
    
    264,000
    
    
    
    445,700
    
    
    
    124,500
    
    
    
    167,900
    
    
    
    292,400
    
    
    
    153,300
    
    
    
    52.4
    %
 
 Note 1- Other includes international, non-wholesalers, pubs and other  Pricing and Fees
 29




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Shipments  Brand
 Nine Months Ended September 30,2009  Shipments
    
    
    2008  Shipments
    
    
    Increase
    
    
    %Draft
    
    
    Bottle
    
    
    Total
    
    
    Draft
    
    
    Bottle
    
    
    Total
    
    
    (Decrease)
    
    
    Change(In barrels)Redhook brand
    
    
    38,600
    
    
    
    99,100
    
    
    
    137,700
    
    
    
    48,200
    
    
    
    103,300
    
    
    
    151,500
    
    
    
    (13,800
    )
    
    
    (9.1
    )%Widmer brand (1)
    
    
    110,800
    
    
    
    107,700
    
    
    
    218,500
    
    
    
    65,200
    
    
    
    48,300
    
    
    
    113,500
    
    
    
    105,000
    
    
    
    92.5Kona brand
    
    
    31,500
    
    
    
    57,200
    
    
    
    88,700
    
    
    
    11,100
    
    
    
    16,300
    
    
    
    27,400
    
    
    
    61,300
    
    
    
    223.7Total shipped (2)
    
    
    180,900
    
    
    
    264,000
    
    
    
    444,900
    
    
    
    124,500
    
    
    
    167,900
    
    
    
    292,400
    
    
    
    152,500
    
    
    
    52.2
    %
 
 Notes:1
    
    Shipments of Widmer-branded product for the first six 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.2
    
    Total shipments by brand exclude private label shipments produced under the Companys contract brewing arrangement. Widmer
Hefeweizen Widmer Hefeweizen
  Excise Taxes
 30




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##### Table of Contents



Cost of Sales .
 Widmer Hefeweizen
    Selling, General and Administrative Expenses
 31




---



##### 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 .
 32




---



##### Table of Contents



Liquidity and Capital Resources
       33




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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 definedFrom December 31, 2009 through September 30, 2010
    
    
    3.50 to 1From December 31, 2010 and thereafter
    
    
    3.00 to 1Fixed Charge Coverage Ratio
    
    
    1.25 to 1Asset Coverage Ratio
    
    
    1.50 to 1
 th
  Trend
   Critical Accounting Policies and Estimates
   34




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##### Table of Contents



Income Taxes . Income Taxes Accounting for Income Taxes)
    Recent Accounting Pronouncements
  35




---



##### Table of Contents



ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
 Derivatives and Hedging.
  
 ITEM 4T. Controls and Procedures
 Disclosure Controls and Procedures
    36




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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.November 13, 2009
    BY:
    /s/ Joseph K. OBrienJoseph K. OBrienController and Chief Accounting Officer 37