##### 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, 2010
 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
    
    Smaller Reporting Company þ(Do not check if a smaller reporting company)
 o þ




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##### 



CRAFT BREWERS ALLIANCE, INC.
FORM 10-Q
For the Quarterly Period Ended March 31, 2010
 TABLE OF CONTENTS
 PagePART I. Financial InformationITEM 1. Financial StatementsBalance Sheets as of March 31, 2010 and December 31, 2009
    
    
    3Statements of Operations for the 
Three Months Ended March 31, 2010 and 2009
    
    
    4Statements of Cash Flows for the 
Three Months Ended March 31, 2010 and 2009
    
    
    5Notes to Financial Statements
    
    
    6ITEM 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    11ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    20ITEM 4T. Controls and Procedures
    
    
    21PART II. Other InformationITEM 1. Legal Proceedings
    
    
    21ITEM 6. Exhibits
    
    
    21SIGNATURES
    
    
    22EX-31.1EX-31.2EX-32.1
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##### Table of Contents



PART I.
 
 ITEM 1. Financial Statements
 CRAFT BREWERS ALLIANCE, INC.
 
 BALANCE SHEETS
 (Unaudited)March 31,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands exceptper share amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    753
    
    
    $
    11Accounts receivable, net of allowance for doubtful accounts of $50
at March 31, 2010 
and December 31, 2009
    
    
    11,473
    
    
    
    11,122Inventories
    
    
    10,173
    
    
    
    9,487Deferred income tax asset, net
    
    
    843
    
    
    
    970Other current assets
    
    
    3,531
    
    
    
    3,941Total current assets
    
    
    26,773
    
    
    
    25,531Property, equipment and leasehold improvements, net
    
    
    96,364
    
    
    
    97,339Equity investments
    
    
    5,787
    
    
    
    5,702Intangible and other assets, net
    
    
    12,889
    
    
    
    13,013Total assets
    
    $
    141,813
    
    
    $
    141,585LIABILITIES AND COMMON STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    15,825
    
    
    $
    14,672Accrued salaries, wages, severance and payroll taxes
    
    
    4,055
    
    
    
    4,432Refundable deposits
    
    
    6,175
    
    
    
    6,288Other accrued expenses
    
    
    1,623
    
    
    
    1,185Current portion of long-term debt and capital lease obligations
    
    
    1,504
    
    
    
    1,481Total current liabilities
    
    
    29,182
    
    
    
    28,058Long-term debt and capital lease obligations, net of current portion
    
    
    23,581
    
    
    
    24,685Fair value of derivative financial instruments
    
    
    890
    
    
    
    842Deferred income tax liability, net
    
    
    6,994
    
    
    
    7,015Other liabilities
    
    
    366
    
    
    
    353Commitments and ContingenciesCommon stockholders equity:Common stock, par value $0.005 per share, 50,000,000 shares authorized; 17,074,063 shares
at March 31, 2010 and December 31, 2009 issued and outstanding
    
    
    85
    
    
    
    85Additional paid-in capital
    
    
    122,684
    
    
    
    122,682Accumulated other comprehensive loss
    
    
    (521
    )
    
    
    (478
    )Retained deficit
    
    
    (41,448
    )
    
    
    (41,657
    )Total common stockholders equity
    
    
    80,800
    
    
    
    80,632Total liabilities and common stockholders equity
    
    $
    141,813
    
    
    $
    141,585
 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 March 31,2010
    
    
    2009(In thousands, except per shareamounts)Sales
    
    $
    29,323
    
    
    $
    29,721Less excise taxes
    
    
    1,871
    
    
    
    1,983Net sales
    
    
    27,452
    
    
    
    27,738Cost of sales
    
    
    20,605
    
    
    
    22,481Gross profit
    
    
    6,847
    
    
    
    5,257Selling, general and administrative expenses
    
    
    6,205
    
    
    
    5,767Merger-related expenses
    
    
    
    
    
    
    112Operating income (loss)
    
    
    642
    
    
    
    (622
    )Income from equity investments
    
    
    85
    
    
    
    29Interest expense
    
    
    (399
    )
    
    
    (566
    )Interest and other income, net
    
    
    53
    
    
    
    91Income (loss) before income taxes
    
    
    381
    
    
    
    (1,068
    )Income tax provision
    
    
    172
    
    
    
    7Net income (loss)
    
    $
    209
    
    
    $
    (1,075
    )Basic and diluted earnings (loss) per share
    
    $
    0.01
    
    
    $
    (0.06
    )
 The accompanying notes are an integral part of these financial statements.
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CRAFT BREWERS ALLIANCE, INC.
 
 STATEMENTS OF CASH FLOWS
 Three Months Ended March 31,2010
    
    
    2009(In thousands)Operating ActivitiesNet income (loss)
    
    $
    209
    
    
    $
    (1,075
    )Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation and amortization
    
    
    1,837
    
    
    
    1,819Income from equity investments
    
    
    (85
    )
    
    
    (29
    )Deferred income taxes
    
    
    131
    
    
    
    Provision for inventory obsolescence
    
    
    47
    
    
    
    122Loss (gain) on sale or disposal of property, equipment and leasehold improvements
    
    
    29
    
    
    
    (3
    )Other
    
    
    (22
    )
    
    
    14Changes in operating assets and liabilities:Accounts receivable
    
    
    (351
    )
    
    
    (673
    )Inventories
    
    
    (879
    )
    
    
    (1,447
    )Income tax receivable and other current assets
    
    
    364
    
    
    
    (362
    )Other assets
    
    
    38
    
    
    
    (61
    )Accounts payable and other accrued expenses
    
    
    1,639
    
    
    
    2,534Accrued salaries, wages, severance and payroll taxes
    
    
    (377
    )
    
    
    86Refundable deposits
    
    
    (84
    )
    
    
    103Net cash provided by operating activities
    
    
    2,496
    
    
    
    1,028Investing ActivitiesExpenditures for property, equipment and leasehold improvements
    
    
    (733
    )
    
    
    (715
    )Proceeds from sale of property, equipment and leasehold improvements
    
    
    44
    
    
    
    28Net cash used in investing activities
    
    
    (689
    )
    
    
    (687
    )Financing ActivitiesPrincipal payments on debt and capital lease obligations
    
    
    (365
    )
    
    
    (341
    )Net repayments under revolving line of credit
    
    
    (700
    )
    
    
    Net cash used in financing activities
    
    
    (1,065
    )
    
    
    (341
    )Increase in cash and cash equivalents
    
    
    742
    
    
    
    Cash and cash equivalents:Beginning of period
    
    
    11
    
    
    
    11End of period
    
    $
    753
    
    
    $
    11Supplemental DisclosuresCash paid for interest
    
    $
    427
    
    
    $
    608Cash paid for income taxes
    
    $
    91
    
    
    $
    7
 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
 Consolidation 
Overall.
 2. Inventories
  March 31,
    
    
    December 31,2010
    
    
    2009(In thousands)Raw materials
    
    $
    3,934
    
    
    $
    3,660Work in process
    
    
    2,240
    
    
    
    2,023Finished goods
    
    
    2,400
    
    
    
    1,647Packaging materials
    
    
    438
    
    
    
    892Promotional merchandise
    
    
    1,081
    
    
    
    1,184Pub food, beverages and supplies
    
    
    80
    
    
    
    81$
    10,173
    
    
    $
    9,487
  3. Equity Investments
  March 31,
    
    
    December 31,2010
    
    
    2009(In thousands)Fulton Street Brewery, LLC (FSB)
    
    $
    4,590
    
    
    $
    4,544Kona Brewery LLC (Kona)
    
    
    1,197
    
    
    
    1,158$
    5,787
    
    
    $
    5,702
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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
 FSB
  Kona
   4. Derivative Financial Instruments and Fair Value Measurement
 Interest Rate Swap Contracts
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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
 Liability Derivatives at March 31, 2010Balance Sheet Location
    
    Fair Value(in thousands)Derivatives designated as hedging instruments under
ASC 815Interest rate swap contracts
    
    Non-current liabilities  derivative financial
instruments
    
    $
    836Derivatives not designated as hedging instruments under
ASC 815Interest rate swap contracts
    
    Non-current liabilities  derivative financial
instruments
    
    
    54Total derivatives
    
    
    
    $
    890
  Fair Value Measurements
  Fair Value Measurements and
Disclosures
 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
    
    $
    
    
    
    $
    890
    
    
    $
    
    
    
    $
    890
 5. Common Stockholders Equity
 Stock Plans
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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
     6. Earnings (Loss) per Share
  Three Months EndedMarch 31,2010
    
    
    2009(In thousands, exceptper share amounts)Numerator for basic and diluted earnings (loss) per share:Net income (loss)
    
    $
    209
    
    
    $
    (1,075
    )Denominator for basic earnings (loss) per share:Weighted average common shares outstanding
    
    
    17,074
    
    
    
    16,948Dilutive effect of stock options on weighted
average
common shares
    
    
    27
    
    
    
    Denominator for diluted earnings (loss) per share
    
    
    17,101
    
    
    
    16,948Basic and diluted earnings (loss) per share
    
    $
    0.01
    
    
    $
    (0.06
    )
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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
 7. Comprehensive Income (Loss)
  Three MonthsEnded March 31,2010
    
    
    2009(in thousands)Net income (loss)
    
    $
    209
    
    
    $
    (1,075
    )Other comprehensive income (loss):Unrealized gains (losses)
on derivative financial
instruments, net of tax
    
    
    (43
    )
    
    
    21Comprehensive income (loss)
    
    $
    166
    
    
    $
    (1,054
    )
 8. 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, 2009 (2009 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 2009 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.
 Overview
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Investments.
   Results of Operations
  Three Months EndedMarch 31,2010
    
    
    2009Sales
    
    
    106.8
    %
    
    
    107.1
    %Less excise taxes
    
    
    6.8
    
    
    
    7.1Net sales
    
    
    100.0
    
    
    
    100.0Cost of sales
    
    
    75.1
    
    
    
    81.0Gross profit
    
    
    24.9
    
    
    
    19.0Selling, general and administrative expenses
    
    
    22.6
    
    
    
    20.8Merger-related expenses
    
    
    
    
    
    
    0.4Operating income (loss)
    
    
    2.3
    
    
    
    (2.2
    )Income from equity investments
    
    
    0.3
    
    
    
    0.1Interest expense
    
    
    (1.4
    )
    
    
    (2.1
    )Interest and other income, net
    
    
    0.2
    
    
    
    0.3Income (loss) before income taxes
    
    
    1.4
    
    
    
    (3.9
    )Income tax provision
    
    
    0.6
    
    
    
    Net income (loss)
    
    
    0.8
    %
    
    
    (3.9
    )%
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Non-GAAP Financial Measures
  For the Trailing FourQuarters EndedMarch 31, 2010(In thousands)Net income
    
    $
    2,171Interest expense
    
    
    1,972Income tax provision
    
    
    351Depreciation expense
    
    
    6,412Amortization expense
    
    
    919Merger-related expenses
    
    
    113Other non-cash charges
    
    
    108EBITDA per the  loan agreement
    
    $
    12,046
 Three months ended March 31, 2010 compared with three months ended March 31, 2009
  Three Months EndedMarch 31,
    
    
    Increase /
    
    
    %2010
    
    
    2009
    
    
    (Decrease)
    
    
    Change(Dollars in thousands)Sales
    
    $
    29,323
    
    
    $
    29,721
    
    
    $
    (398
    )
    
    
    (1.3
    )%Less excise taxes
    
    
    1,871
    
    
    
    1,983
    
    
    
    (112
    )
    
    
    (5.6
    )Net sales
    
    
    27,452
    
    
    
    27,738
    
    
    
    (286
    )
    
    
    (1.0
    )Cost of sales
    
    
    20,605
    
    
    
    22,481
    
    
    
    (1,876
    )
    
    
    (8.3
    )Gross profit
    
    
    6,847
    
    
    
    5,257
    
    
    
    1,590
    
    
    
    30.2Selling, general and administrative expenses
    
    
    6,205
    
    
    
    5,767
    
    
    
    438
    
    
    
    7.6Merger-related expenses
    
    
    
    
    
    
    112
    
    
    
    (112
    )
    
    
    (100.0
    )Operating income (loss)
    
    
    642
    
    
    
    (622
    )
    
    
    1,264
    
    
    
    N/MIncome from equity investments
    
    
    85
    
    
    
    29
    
    
    
    56
    
    
    
    193.1Interest expense
    
    
    (399
    )
    
    
    (566
    )
    
    
    167
    
    
    
    (29.5
    )Interest and other income, net
    
    
    53
    
    
    
    91
    
    
    
    (38
    )
    
    
    (41.8
    )Income (loss) before income taxes
    
    
    381
    
    
    
    (1,068
    )
    
    
    1,449
    
    
    
    N/MIncome tax provision
    
    
    172
    
    
    
    7
    
    
    
    165
    
    
    
    N/MNet income (loss)
    
    $
    209
    
    
    $
    (1,075
    )
    
    $
    1,284
    
    
    
    N/M
 13




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Three Months EndedMarch 31,
    
    
    Increase /
    
    
    %2010
    
    
    2009
    
    
    (Decrease)
    
    
    Change(Dollars in thousands)Sales Revenues by CategoryA-B and A-B related (1)
    
    $
    24,100
    
    
    $
    24,955
    
    
    $
    (855
    )
    
    
    (3.4
    )%Contract brewing
    
    
    415
    
    
    
    
    
    
    
    415
    
    
    
    Alternating proprietorship
    
    
    2,261
    
    
    
    2,206
    
    
    
    55
    
    
    
    2.5Pubs and other (2)
    
    
    2,547
    
    
    
    2,560
    
    
    
    (13
    )
    
    
    (0.5
    )Total Sales
    
    $
    29,323
    
    
    $
    29,721
    
    
    $
    (398
    )
    
    
    (1.3
    )%
 
 Note 1 A-B related revenues include fees earned on wholesaler or distributor sales made via a non-wholesalerNote 2 Other revenues include international sales, sales of promotional merchandise and other Gross Sales .
  
    
    The Company experienced a net price increase for both the Companys draft
and bottled products. This increase resulted due to a combination of issues, including increased prices at the wholesaler levels, a greater percentage of higher priced brands sold and a lower level of discounting during the 2010 first quarter as compared with the corresponding period a year ago.
    
    The Company generated revenues of $415,000 under the contract brewing arrangement during the first quarter of 2010. The Company did not have a contract brewing arrangement during the first quarter of 2009.
    
    Alternating proprietorship fees increased $55,000 from $2.2 million for the first quarter
of 2009 to $2.3 million for the first quarter of 2010. These fees are earned from Kona for
leasing the Oregon Brewery and sales of raw materials during the corresponding periods.
 Shipments
 Customer
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Three Months Ended March 31,2010 Shipments
    
    
    2009 Shipments
    
    
    Increase /
    
    
    %Draft
    
    
    Bottle
    
    
    Total
    
    
    Draft
    
    
    Bottle
    
    
    Total
    
    
    (Decrease)
    
    
    Change(In barrels)A-B
    
    
    49,900
    
    
    
    72,400
    
    
    
    122,300
    
    
    
    55,200
    
    
    
    76,100
    
    
    
    131,300
    
    
    
    (9,000
    )
    
    
    (6.9
    )%Contract brewing
    
    
    4,800
    
    
    
    
    
    
    
    4,800
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,800
    
    
    
    Pubs and other (1)
    
    
    1,300
    
    
    
    300
    
    
    
    1,600
    
    
    
    1,300
    
    
    
    1,200
    
    
    
    2,500
    
    
    
    (900
    )
    
    
    (36.0
    )Total shipped
    
    
    56,000
    
    
    
    72,700
    
    
    
    128,700
    
    
    
    56,500
    
    
    
    77,300
    
    
    
    133,800
    
    
    
    (5,100
    )
    
    
    (3.8
    )%
 
 Note 1- Other includes international, pubs and other Pricing and Fees
   Shipments  Brand
 15




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Three Months Ended March 31,2010 Shipments
    
    
    2009 Shipments
    
    
    Increase /
    
    
    %Draft
    
    
    Bottle
    
    
    Total
    
    
    Draft
    
    
    Bottle
    
    
    Total
    
    
    (Decrease)
    
    
    Change(In barrels)Widmer Brothers
    
    
    30,600
    
    
    
    30,600
    
    
    
    61,200
    
    
    
    35,000
    
    
    
    30,000
    
    
    
    65,000
    
    
    
    (3,800
    )
    
    
    (5.8)
    %Redhook
    
    
    11,000
    
    
    
    27,000
    
    
    
    38,000
    
    
    
    12,600
    
    
    
    33,800
    
    
    
    46,400
    
    
    
    (8,400
    )
    
    
    (18.1
    )Kona
    
    
    9,600
    
    
    
    15,100
    
    
    
    24,700
    
    
    
    8,900
    
    
    
    13,500
    
    
    
    22,400
    
    
    
    2,300
    
    
    
    10.3Total shipped(1)
    
    
    51,200
    
    
    
    72,700
    
    
    
    123,900
    
    
    
    56,500
    
    
    
    77,300
    
    
    
    133,800
    
    
    
    (9,900
    )
    
    
    (7.4
    )%
 
 Note 1 Total shipments by brand exclude private label shipments produced under the Companys contract brewing arrangements.  Excise Taxes
 Cost
of Sales .
  16




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Selling, General and Administrative Expenses
  Merger-Related Expenses
 17




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Income from Equity Investments in Kona and FSB .
 Interest Expense.
 Other Income, net
 Income Taxes .
 Liquidity and Capital Resources
     18




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Financial Covenants Required by the Loan Agreement
or the Modification Agreement
 Ratio of Funded Debt to EBITDA, as definedFrom June 30, 2010 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
  19




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Critical Accounting Policies and Estimates
   Income Taxes . Income Taxes.
    Recent Accounting Pronouncements
  
 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
  20




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Derivatives and Hedging.
  
 ITEM 4T. Controls and Procedures
 Disclosure Controls and Procedures
    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
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##### Table of Contents



SIGNATURES
  CRAFT BREWERS ALLIANCE, INC.May 14, 2010
    
    BY:
    
    /s/ Joseph K. OBrien

    Joseph K. OBrien
   Controller and Chief Accounting Officer
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