##### 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, 2008
 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 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 929 North Russell Street
Portland, Oregon 97227
 (503) 331-7270
 th
 þ 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 June 30, 2008
 TABLE OF CONTENTS
 PagePART I. Financial InformationITEM 1. Financial StatementsBalance Sheets as of June 30, 2008 and December 31, 2007
    
    3Statements of Operations for the 

Three and Six Months Ended June 30, 2008 and 2007
    
    4Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007
    
    5Notes to Financial Statements
    
    6ITEM 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    16ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
    
    43ITEM 4T. Controls and Procedures
    
    43PART II. Other InformationITEM 1. Legal Proceedings
    
    44ITEM 1A. Risk Factors
    
    44ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    44ITEM 3. Defaults Upon Senior Securities
    
    44ITEM 4. Submission of Matters to a Vote of Security Holders
    
    44ITEM 5. Other Information
    
    45ITEM 6. Exhibits
    
    45EXHIBIT 10.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 31.3EXHIBIT 32.1EXHIBIT 32.2EXHIBIT 32.3
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PART I.
 
 ITEM 1. Financial Statements
 CRAFT BREWERS ALLIANCE, INC.
 
 BALANCE SHEETS
 June 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    3,462,413
    
    
    $
    5,526,843Accounts receivable, net of allowance for doubtful accounts of
$13,450 and $95,243 in 2008 and 2007, respectively
    
    
    2,992,024
    
    
    
    3,892,737Trade receivable from Craft Brands
    
    
    550,966
    
    
    
    670,469Inventories, net
    
    
    2,817,802
    
    
    
    2,927,518Deferred income tax asset, net
    
    
    1,226,090
    
    
    
    944,361Other
    
    
    1,735,703
    
    
    
    1,043,034Total current assets
    
    
    12,784,998
    
    
    
    15,004,962Fixed assets, net
    
    
    56,444,136
    
    
    
    55,862,297Investment in Craft Brands
    
    
    339,323
    
    
    
    415,592Other assets
    
    
    178,111
    
    
    
    107,489Total assets
    
    $
    69,746,568
    
    
    $
    71,390,340LIABILITIES AND COMMON STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,448,248
    
    
    $
    3,148,613Trade payable to Craft Brands
    
    
    530,128
    
    
    
    416,116Accrued salaries, wages, severance and payroll taxes
    
    
    2,661,204
    
    
    
    1,524,240Refundable deposits
    
    
    3,699,205
    
    
    
    3,500,200Other accrued expenses
    
    
    748,171
    
    
    
    686,261Current portion of capital lease obligations
    
    
    15,942
    
    
    
    15,498Total current liabilities
    
    
    10,102,898
    
    
    
    9,290,928Capital lease obligations, net of current portion
    
    
    23,035
    
    
    
    31,118Deferred income tax liability, net
    
    
    1,016,665
    
    
    
    1,762,428Other liabilities
    
    
    252,300
    
    
    
    226,123Common stockholders equity:Common stock, par value $0.005 per share, authorized, 50,000,000
shares; issued and outstanding, 8,431,049 shares in 2008 and
8,354,239 shares in 2007
    
    
    42,155
    
    
    
    41,771Additional paid-in capital
    
    
    69,503,608
    
    
    
    69,303,848Retained earnings (deficit)
    
    
    (11,194,093
    )
    
    
    (9,265,876
    )Total common stockholders equity
    
    
    58,351,670
    
    
    
    60,079,743Total liabilities and common stockholders equity
    
    $
    69,746,568
    
    
    $
    71,390,340
 The accompanying notes are an integral part of these financial statements.
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##### Table of Contents



CRAFT BREWERS ALLIANCE, INC.
 
 STATEMENTS OF OPERATIONS
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Sales
    
    $
    11,992,350
    
    
    $
    13,469,578
    
    
    $
    22,438,616
    
    
    $
    23,026,510Less excise taxes
    
    
    1,214,716
    
    
    
    1,566,974
    
    
    
    2,288,153
    
    
    
    2,580,944Net sales
    
    
    10,777,634
    
    
    
    11,902,604
    
    
    
    20,150,463
    
    
    
    20,445,566Cost of sales
    
    
    10,021,282
    
    
    
    9,847,481
    
    
    
    19,016,408
    
    
    
    17,653,563Gross profit
    
    
    756,352
    
    
    
    2,055,123
    
    
    
    1,134,055
    
    
    
    2,792,003Selling, general and administrative expenses
    
    
    2,451,055
    
    
    
    2,033,666
    
    
    
    4,352,361
    
    
    
    4,010,238Merger-related expenses
    
    
    1,090,805
    
    
    
    110,041
    
    
    
    1,168,655
    
    
    
    169,931Income from equity investment in Craft Brands
    
    
    636,965
    
    
    
    969,888
    
    
    
    1,390,404
    
    
    
    1,648,126Operating income (loss)
    
    
    (2,148,543
    )
    
    
    881,304
    
    
    
    (2,996,557
    )
    
    
    259,960Interest expense
    
    
    3,144
    
    
    
    82,031
    
    
    
    5,204
    
    
    
    165,218Other income, net
    
    
    12,847
    
    
    
    169,332
    
    
    
    57,093
    
    
    
    284,407Income (loss) before income taxes
    
    
    (2,138,840
    )
    
    
    968,605
    
    
    
    (2,944,668
    )
    
    
    379,149Income tax provision (benefit)
    
    
    (755,028
    )
    
    
    435,881
    
    
    
    (1,016,451
    )
    
    
    170,625Net income (loss)
    
    $
    (1,383,812
    )
    
    $
    532,724
    
    
    $
    (1,928,217
    )
    
    $
    208,524Basic income (loss) per share
    
    $
    (0.16
    )
    
    $
    0.06
    
    
    $
    (0.23
    )
    
    $
    0.03Diluted income (loss) per share
    
    $
    (0.16
    )
    
    $
    0.06
    
    
    $
    (0.23
    )
    
    $
    0.02
 The accompanying notes are an integral part of these financial statements.
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CRAFT BREWERS ALLIANCE, INC.
 
 STATEMENTS OF CASH FLOWS
  Six Months Ended June 30,2008
    
    
    2007Operating ActivitiesNet income (loss)
    
    $
    (1,928,217
    )
    
    $
    208,524Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Loss (gain) on disposition of fixed assets
    
    
    20,002
    
    
    
    (2,757
    )Depreciation and amortization
    
    
    1,439,211
    
    
    
    1,421,121Income from equity investment in Craft Brands
less than (in excess of) cash distributions
    
    
    76,269
    
    
    
    (610,857
    )Stock-based compensation
    
    
    19,608
    
    
    
    169,400Deferred income taxes
    
    
    (1,027,492
    )
    
    
    135,496Changes in operating assets and liabilities
    
    
    1,560,096
    
    
    
    (964,261
    )Net cash provided by operating activities
    
    
    159,477
    
    
    
    356,666Investing ActivitiesExpenditures for fixed assets
    
    
    (2,640,734
    )
    
    
    (895,544
    )Proceeds from disposition of fixed assets
    
    
    243,930
    
    
    
    244,427Net cash used in investing activities
    
    
    (2,396,804
    )
    
    
    (651,117
    )Financing ActivitiesPrincipal payments on debt and capital lease obligations
    
    
    (7,639
    )
    
    
    (232,220
    )Issuance of common stock
    
    
    180,536
    
    
    
    113,303Net cash provided by (used in) financing activities
    
    
    172,897
    
    
    
    (118,917
    )Decrease in cash and cash equivalents
    
    
    (2,064,430
    )
    
    
    (413,368
    )Cash and cash equivalents:Beginning of period
    
    
    5,526,843
    
    
    
    9,435,073End of period
    
    $
    3,462,413
    
    
    $
    9,021,705
 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
   2. Inventories
  June 30,
    
    
    December 31,2008
    
    
    2007Work in process
    
    $
    1,007,483
    
    
    $
    922,157Raw materials
    
    
    634,682
    
    
    
    537,695Finished goods, net
    
    
    472,030
    
    
    
    510,461Packaging materials
    
    
    469,334
    
    
    
    487,210Promotional merchandise, net
    
    
    234,273
    
    
    
    469,995$
    2,817,802
    
    
    $
    2,927,518
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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
 3. Other Current Assets
  June 30,
    
    
    December 31,2008
    
    
    2007Deposits paid to keg lessor
    
    $
    818,010
    
    
    $
    655,800Merger-related costs (see Note 8)
    
    
    688,368
    
    
    
    153,711Prepaid insurance
    
    
    50,294
    
    
    
    201,175Other
    
    
    179,031
    
    
    
    32,348$
    1,735,703
    
    
    $
    1,043,034
 4. Craft Brands Alliance LLC
    
    
    The Operating Agreement required the Company to make certain capital contributions to
support the operations of Craft Brands. Contemporaneous with the execution of the Operating
Agreement, the Company made a 2004 sales and marketing capital contribution to Craft Brands
in the amount of $250,000. The agreement designated that this sales and marketing capital
contribution be used by Craft Brands for expenses related to the marketing, advertising and
promotion of the Companys products. Although the Company and Widmer amended the Operating
Agreement in February 2007 and in February 2008 to require an additional sales and marketing
contribution in 2009, the July 1, 2008 merger of Craft Brands into the Company eliminated
any obligation by the Company or Widmer under these amendments.
    
    The Operating Agreement obligated the Company and Widmer to make other additional
capital contributions only upon the request and consent of the Craft Brands board of
directors. No additional capital contributions were requested or made in connection with
this obligation.
    
    The Operating Agreement required the Company and Widmer to make loans to Craft
Brands to assist Craft Brands in conducting its operations and meeting its obligations. To
the extent that cash flow from operations and borrowings from financial institutions was not
sufficient for Craft Brands to meet its obligations, the Company and Widmer were obligated
to lend to Craft Brands the funds the president of Craft Brands deemed necessary to meet such
obligations. As of June 30, 2008 and December 31, 2007, there were no loan obligations due
to the Company.
    
    The Operating Agreement addressed the allocation of profits and losses of Craft
Brands. After giving effect to the allocation of the sales and marketing capital
contribution, if any, and after giving effect to income attributable to the shipments of the
Kona brand, which was shared differently between the Company
and Widmer through 2006, the remaining profits and losses of Craft Brands were allocated
between the Company and Widmer based on the cash flow percentages of 42% and 58%,
respectively. Net cash flow, if any, was generally distributed monthly to the Company and
Widmer based upon these cash flow percentages. No
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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
  Consolidation of
Variable Interest Entities  an Interpretation of ARB No. 51 The Equity Method of Accounting for Investments in Common Stock
     Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Sales to Craft Brands
    
    $
    3,517,672
    
    
    $
    3,704,055
    
    
    $
    6,913,596
    
    
    $
    6,968,573Shipments to Craft Brands (in barrels)
    
    
    29,700
    
    
    
    32,600
    
    
    
    58,200
    
    
    
    61,300As a percentage of total Company shipments
    
    
    39
    %
    
    
    34
    %
    
    
    40
    %
    
    
    38
    %
  8




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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
 5. Common Stockholders Equity
 Issuance of Common Stock
    Stock Plans
     9




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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
  Accounting for Stock-Based Compensation
 Share-Based Payment Accounting for
Stock Issued to Employees Accounting for Stock-Based
Compensation
  Share-Based Payment
 Stock-Based Compensation Expense
   10




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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
  Stock Option Plan Activity
  Weighted
    
    WeightedAverage
    
    AverageShares
    
    Exercise
    
    RemainingSubject to
    
    Price per
    
    Contractual
    
    Aggregate IntrinsicOptions
    
    Share
    
    Life (Yrs)
    
    ValueOutstanding at January 1, 2008
    
    
    689,140
    
    
    $
    2.57
    
    
    
    3.33
    
    
    $
    2,809,485Granted
    
    
    Exercised
    
    
    (72,250
    )Canceled
    
    
    (30,600
    )Outstanding at June 30, 2008
    
    
    586,290
    
    
    $
    2.42
    
    
    
    2.98
    
    
    $
    1,284,261Exercisable at June 30, 2008
    
    
    586,290
    
    
    $
    2.42
    
    
    
    2.98
    
    
    $
    1,284,261
   Average
    
    WeightedNumber
    
    Remaining
    
    AverageOutstanding &
    
    Contractual Life
    
    ExerciseRange of Exercise Prices
    
    Exercisable
    
    (Yrs)
    
    Price$1.485 to $1.865
    
    
    305,540
    
    
    
    3.07
    
    
    $
    1.859$1.866 to $2.019
    
    
    106,634
    
    
    
    4.16
    
    
    $
    2.019$2.020 to $3.969
    
    
    174,116
    
    
    
    2.08
    
    
    $
    3.648$1.485 to $3.969
    
    
    586,290
    
    
    
    2.98
    
    
    $
    2.420
 6. Earnings (Loss) per Share
 Earnings per Share
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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Numerator for basic and diluted
net income (loss) per share  net income (loss)
    
    $
    (1,383,812
    )
    
    $
    532,724
    
    
    $
    (1,928,217
    )
    
    $
    208,524Denominator for basic net income (loss) per share 
weighted average common shares outstanding
    
    
    8,391,246
    
    
    
    8,325,438
    
    
    
    8,373,594
    
    
    
    8,310,440Dilutive effect of stock options on
weighted average common shares
    
    
    
    
    
    
    441,863
    
    
    
    
    
    
    
    437,252Denominator for diluted net income (loss) per share
    
    
    8,391,246
    
    
    
    8,767,301
    
    
    
    8,373,594
    
    
    
    8,747,692Basic net income (loss) per share
    
    $
    (0.16
    )
    
    $
    0.06
    
    
    $
    (0.23
    )
    
    $
    0.03Diluted net income (loss) per share
    
    $
    (0.16
    )
    
    $
    0.06
    
    
    $
    (0.23
    )
    
    $
    0.02
 7. Income Taxes
 Accounting
for Income Taxes
 Accounting for Uncertainty in Income
Taxes-an interpretation of FASB Statement No. 109 Accounting for Contingencies
  12




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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
 Accounting for Income Taxes
  8. Subsequent Event  Merger with Widmer Brothers Brewing Company
     Business Combinations
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Merger-related expenses
reflected in statements of operations
    
    $
    1,090,805
    
    
    $
    110,041
    
    
    $
    1,168,655
    
    
    $
    169,931Merger-related costs
reflected in balance sheets
    
    
    410,490
    
    
    
    
    
    
    
    534,657
    
    
    
    Total legal, consulting, meeting
and severance costs
    
    $
    1,501,295
    
    
    $
    110,041
    
    
    $
    1,703,312
    
    
    $
    169,931
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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
  Accounting for the Acquisition of Widmer
  Fair value of Common Stock issued
    
    $
    52,678,000Interest-bearing debt assumed
    
    
    30,082,000Total purchase price
    
    $
    82,760,000
   At July 1, 2008Current assets
    
    $
    21,841,000Property, equipment and leasehold improvements
    
    
    49,758,000Equity investments
    
    
    6,600,000Trade name and trademarks
    
    
    16,100,000Intangible assets  recipes, distributor agreements, and non-compete agreements
    
    
    2,000,000Favorable contracts
    
    
    3,470,000Total assets acquired
    
    
    99,769,000Current liabilities
    
    
    19,676,000Deferred income tax liability, net and other noncurrent liabilities
    
    
    12,374,000Total liabilities assumed
    
    
    32,050,000Goodwill
acquired (Total assets acquired less total liabilities assumed)
    
    
    15,041,000Elimination of valuation allowance for deferred tax assets
    
    
    (1,059,000
    )Incremental direct merger costs incurred by the Company
    
    
    688,000Total goodwill reported
    
    $
    14,670,000
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CRAFT BREWERS ALLIANCE, INC.
NOTES TO FINANCIAL STATEMENTS
  Trade name and trademarks
    
    IndefiniteRecipes
    
    IndefiniteDistributor agreements
    
    15 yearsNon-compete agreements
    
    3 years
 Goodwill and Other Intangible Assets Accounting
for the Impairment or Disposal of Long-Lived Assets
 15




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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 and similar expressions
or their negatives identify forward-looking statements, which generally are not historical in
nature. These statements are based upon assumptions and projections that Craft Brewers Alliance,
Inc. (formerly Redhook Ale Brewery, Incorporated) ( the Company) believes are reasonable, but are
by their nature inherently uncertain. Many possible events or factors could affect the Companys
future financial results and performance, and could cause actual results or performance to differ
materially from those expressed, including those risks and uncertainties described in Part I, Item
1A. Risk Factors in the Companys Annual Report on Form 10-K , as amended, for the year ended
December 31, 2007, and those described from time to time in the Companys future reports filed with
the Securities and Exchange Commission. Caution should be taken not to place undue reliance on
these forward-looking statements, which speak only as of the date of this quarterly report.
 The following discussion and analysis should be read in conjunction with the Financial
Statements and Notes thereto of the Company included herein, as well as the audited Financial
Statements and Notes and Managements Discussion and Analysis of Financial Condition and Results of
Operations contained in the Companys Annual Report on Form 10-K , as amended, for the fiscal year
ended December 31, 2007. 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.
 Merger with Widmer Brothers Brewing Company
   Overview
    16




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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.
  17




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As of July 1, 2008AnnualMaximumAnnual Working
    
    DesignedCapacity
    
    Capacity(in barrels)Washington Brewery
    
    
    230,000
    
    
    
    230,000New Hampshire Brewery
    
    
    146,700
    
    
    
    231,000Oregon Brewery (former Widmer brewery)
    
    
    377,000
    
    
    
    491,000753,700
    
    
    
    952,000In order to accommodate volume growth in the markets served by the New Hampshire Brewery, the
Company has expanded fermentation capacity several times during the last several years. In May
2007, the Company completed process control automation upgrades to the brewery and added one 70,000
pound grain silo. In June 2007, the Company completed the installation of four additional
400-barrel fermenters. Installation cost for this expansion totaled $1.3 million and added
approximately 21,700 barrels of capacity to the New Hampshire Brewery, bringing the brewerys
annual working capacity to approximately 146,700 barrels. The Companys 2008 capital projects
include another expansion of brewing and fermentation capacity at the New Hampshire Brewery. The
project includes a $3.3 million addition of eight 400-barrel fermenters, four bright tanks, and
improvements to the refrigeration, and a $1.8 million upgrade to the water treatment system. The
expansion is expected to increase working capacity by 43,300 barrels. The Company estimates that
the expansion will be completed during the third quarter of 2008. Further expansion of fermentation
capacity at the New Hampshire Brewery, which was originally slated for 2008, has been delayed until
2009 or later. Following the 2008 expansion, management estimates that the working capacity and
maximum designed capacity will be:As of September 1, 2008AnnualMaximumAnnual Working
    
    DesignedCapacity
    
    Capacity(in barrels)Washington Brewery
    
    
    230,000
    
    
    
    230,000New Hampshire Brewery
    
    
    190,000
    
    
    
    231,000Oregon Brewery (former Widmer brewery)
    
    
    377,000
    
    
    
    491,000797,000
    
    
    
    952,000
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Results of Operations
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Sales
    
    
    111.3
    %
    
    
    113.2
    %
    
    
    111.4
    %
    
    
    112.6
    %Less excise taxes
    
    
    11.3
    
    
    
    13.2
    
    
    
    11.4
    
    
    
    12.6Net sales
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost of sales
    
    
    93.0
    
    
    
    82.7
    
    
    
    94.4
    
    
    
    86.3Gross profit
    
    
    7.0
    
    
    
    17.3
    
    
    
    5.6
    
    
    
    13.7Selling, general and administrative expenses
    
    
    22.7
    
    
    
    17.1
    
    
    
    21.6
    
    
    
    19.6Merger-related expenses
    
    
    10.1
    
    
    
    0.9
    
    
    
    5.8
    
    
    
    0.8Income from equity investment in Craft Brands
    
    
    5.9
    
    
    
    8.1
    
    
    
    6.9
    
    
    
    8.0Operating income (loss)
    
    
    (19.9
    )
    
    
    7.4
    
    
    
    (14.9
    )
    
    
    1.3Interest expense
    
    
    
    
    
    
    0.7
    
    
    
    
    
    
    
    0.8Other income, net
    
    
    0.1
    
    
    
    1.4
    
    
    
    0.3
    
    
    
    1.4Income (loss) before income taxes
    
    
    (19.8
    )
    
    
    8.1
    
    
    
    (14.6
    )
    
    
    1.9Income tax provision (benefit)
    
    
    (7.0
    )
    
    
    3.6
    
    
    
    (5.0
    )
    
    
    0.9Net income (loss)
    
    
    (12.8
    )%
    
    
    4.5
    %
    
    
    (9.6
    )%
    
    
    1.0
    %
 19




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##### Table of Contents



Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007
  Three Months Ended June 30,
    
    
    Increase /2008
    
    
    2007
    
    
    (Decrease)
    
    
    % ChangeSales
    
    $
    11,992,350
    
    
    $
    13,469,578
    
    
    $
    (1,477,228
    )
    
    
    11.0
    %Less excise taxes
    
    
    1,214,716
    
    
    
    1,566,974
    
    
    
    (352,258
    )
    
    
    22.5Net sales
    
    
    10,777,634
    
    
    
    11,902,604
    
    
    
    (1,124,970
    )
    
    
    9.5Cost of sales
    
    
    10,021,282
    
    
    
    9,847,481
    
    
    
    173,801
    
    
    
    1.8Gross profit
    
    
    756,352
    
    
    
    2,055,123
    
    
    
    (1,298,771
    )
    
    
    63.2Selling, general and administrative expenses
    
    
    2,451,055
    
    
    
    2,033,666
    
    
    
    417,389
    
    
    
    20.5Merger-related expenses
    
    
    1,090,805
    
    
    
    110,041
    
    
    
    980,764
    
    
    
    891.3Income from equity investment in Craft Brands
    
    
    636,965
    
    
    
    969,888
    
    
    
    (332,923
    )
    
    
    34.3Operating income (loss)
    
    
    (2,148,543
    )
    
    
    881,304
    
    
    
    (3,029,847
    )
    
    
    343.8Interest expense
    
    
    3,144
    
    
    
    82,031
    
    
    
    (78,887
    )
    
    
    96.2Other income, net
    
    
    12,847
    
    
    
    169,332
    
    
    
    (156,485
    )
    
    
    92.4Income (loss) before income taxes
    
    
    (2,138,840
    )
    
    
    968,605
    
    
    
    (3,107,445
    )
    
    
    320.8Income tax provision (benefit)
    
    
    (755,028
    )
    
    
    435,881
    
    
    
    (1,190,909
    )
    
    
    273.2Net income (loss)
    
    $
    (1,383,812
    )
    
    $
    532,724
    
    
    $
    (1,916,536
    )
    
    
    359.8
    %
  Sales for the Three Months EndedJune 30,
    
    
    Increase /2008
    
    
    2007
    
    
    (Decrease)
    
    
    % ChangeA-B
    
    $
    4,968,437
    
    
    $
    5,362,901
    
    
    $
    (394,464
    )
    
    
    (7.4
    )%Craft Brands
    
    
    3,517,672
    
    
    
    3,704,055
    
    
    
    (186,383
    )
    
    
    (5.0
    )Contract brewing
    
    
    1,780,245
    
    
    
    2,740,726
    
    
    
    (960,481
    )
    
    
    (35.0
    )Pubs and other (1)
    
    
    1,725,996
    
    
    
    1,661,896
    
    
    
    64,100
    
    
    
    3.9Total shipped
    
    $
    11,992,350
    
    
    $
    13,469,578
    
    
    $
    (1,477,228
    )
    
    
    (11.0
    )%
 
 (1)
    
    Other includes international, non-wholesalers and other Sales .
 
    
    A decrease in shipments in the midwest and eastern U.S., partially offset by an
increase in pricing, resulted in a $394,000 decrease in second quarter 2008 sales;
    
    A decrease in shipments in the western U.S. (not including beer brewed on a
contract basis), partially offset by an increase in pricing, resulted in a $186,000
decrease in sales in the second quarter of 2008;
    
    A decrease in shipments of beer brewed on a contract basis, slightly offset by an
increase in pricing of these shipments, contributed to a $960,000 decrease in sales
in the second quarter of 2008; and
    
    An increase of $64,000 in pub and other sales in the second quarter of 2008
modestly offset the total sales decrease.
 20




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##### Table of Contents



Shipments
 Three Months Ended June 30,2008
    
    2007Draft
    
    Bottle
    
    Total
    
    Draft
    
    Bottle
    
    Total
    
    Increase /
    
    %Shipments
    
    Shipments
    
    Shipments
    
    Shipments
    
    Shipments
    
    Shipments
    
    (Decrease)
    
    ChangeA-B
    
    
    11,500
    
    
    
    15,400
    
    
    
    26,900
    
    
    
    12,900
    
    
    
    17,500
    
    
    
    30,400
    
    
    
    (3,500
    )
    
    
    (11.5
    )%Craft Brands
    
    
    8,600
    
    
    
    21,100
    
    
    
    29,700
    
    
    
    9,900
    
    
    
    22,700
    
    
    
    32,600
    
    
    
    (2,900
    )
    
    
    (8.9
    )Contract brewing
    
    
    8,000
    
    
    
    10,000
    
    
    
    18,000
    
    
    
    19,200
    
    
    
    12,100
    
    
    
    31,300
    
    
    
    (13,300
    )
    
    
    (42.5
    )Other (1)
    
    
    1,200
    
    
    
    400
    
    
    
    1,600
    
    
    
    1,100
    
    
    
    400
    
    
    
    1,500
    
    
    
    100
    
    
    
    6.7Total shipped
    
    
    29,300
    
    
    
    46,900
    
    
    
    76,200
    
    
    
    43,100
    
    
    
    52,700
    
    
    
    95,800
    
    
    
    (19,600
    )
    
    
    (20.5
    )%
 
 (1)
    
    International, non-wholesalers, pubs and other   Widmer
Hefeweizen Widmer Hefeweizen Widmer Hefeweizen Widmer Hefeweizen Widmer
Hefeweizen
 21




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##### Table of Contents



Widmer Hefeweizen Redhook Hefe-weizen Widmer Hefeweizen
 Widmer Hefeweizen
      Redhook IPA Long Hammer IPA
 22




---



##### Table of Contents



Long Hammer IPA
 Redhook ESB Long Hammer IPA Redhook ESB Widmer
Hefeweizen Widmer Hefeweizen Long Hammer IPA Long Hammer IPA
 Pricing and Fees
    23




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##### Table of Contents



Retail Operations and Other Sales
 Excise Taxes
 Cost of Sales .
    24




---



##### Table of Contents



Widmer Hefeweizen
  Gross profit .
   Merger-related expenses
  25




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##### Table of Contents



Accounting for Costs Associated with
Exit or Disposal Activities
 Business Combinations Business Combinations
 Three Months Ended June 30,2008
    
    
    2007Merger-related expenses
reflected in statements of operations
    
    $
    1,090,805
    
    
    $
    110,041Merger-related costs
reflected in balance sheets
    
    
    410,490
    
    
    
    Total legal, consulting, meeting
and severance costs
    
    $
    1,501,295
    
    
    $
    110,041
  Selling, General and Administrative Expenses
    26




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##### Table of Contents



Income from Equity Investment in Craft Brands .
 Interest Expense .
 Other Income, net
 Income Taxes .
 Accounting for Income Taxes
 27




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##### Table of Contents



Craft Brands Alliance LLC
 The Equity Method of Accounting for Investments in Common Stock Exhibits and Financial Statement
Schedules
 Sales .
 Cost of Sales .
 Selling, General and Administrative Expenses
 Net Income
 28




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##### Table of Contents



Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007
  Six Months Ended June 30,Increase /2008
    
    
    2007
    
    
    (Decrease)
    
    
    % ChangeSales
    
    $
    22,438,616
    
    
    $
    23,026,510
    
    
    $
    (587,894
    )
    
    
    2.6
    %Less excise taxes
    
    
    2,288,153
    
    
    
    2,580,944
    
    
    
    (292,791
    )
    
    
    11.3Net sales
    
    
    20,150,463
    
    
    
    20,445,566
    
    
    
    (295,103
    )
    
    
    1.4Cost of sales
    
    
    19,016,408
    
    
    
    17,653,563
    
    
    
    1,362,845
    
    
    
    7.7Gross profit
    
    
    1,134,055
    
    
    
    2,792,003
    
    
    
    (1,657,948
    )
    
    
    59.4Selling, general and
administrative expenses
    
    
    4,352,361
    
    
    
    4,010,238
    
    
    
    342,123
    
    
    
    8.5Merger-related expenses
    
    
    1,168,655
    
    
    
    169,931
    
    
    
    998,724
    
    
    
    587.7Income from equity investment in
Craft Brands
    
    
    1,390,404
    
    
    
    1,648,126
    
    
    
    (257,722
    )
    
    
    15.6Operating income (loss)
    
    
    (2,996,557
    )
    
    
    259,960
    
    
    
    (3,256,517
    )
    
    
    1,252.7Interest expense
    
    
    5,204
    
    
    
    165,218
    
    
    
    (160,014
    )
    
    
    96.9Other income, net
    
    
    57,093
    
    
    
    284,407
    
    
    
    (227,314
    )
    
    
    79.9Income (loss) before income taxes
    
    
    (2,944,668
    )
    
    
    379,149
    
    
    
    (3,323,817
    )
    
    
    876.7Income tax provision (benefit)
    
    
    (1,016,451
    )
    
    
    170,625
    
    
    
    (1,187,076
    )
    
    
    695.7Net income (loss)
    
    $
    (1,928,217
    )
    
    $
    208,524
    
    
    $
    (2,136,741
    )
    
    
    1,024.7
    %
  Sales for the Six Months Ended June 30,Increase /2008
    
    
    2007
    
    
    (Decrease)
    
    
    % ChangeA-B
    
    $
    9,527,006
    
    
    $
    9,563,146
    
    
    $
    (36,140
    )
    
    
    (0.4
    )%Craft Brands
    
    
    6,913,596
    
    
    
    6,968,573
    
    
    
    (54,977
    )
    
    
    (0.8
    )Contract brewing
    
    
    2,956,468
    
    
    
    3,714,529
    
    
    
    (758,061
    )
    
    
    (20.4
    )Pubs and other (1)
    
    
    3,041,546
    
    
    
    2,780,262
    
    
    
    261,284
    
    
    
    9.4Total shipped
    
    $
    22,438,616
    
    
    $
    23,026,510
    
    
    $
    (587,894
    )
    
    
    (2.6
    )%
 
 (1)
    
    Other includes international, non-wholesalers and other Sales .
 
    
    A decrease in shipments in the midwest and eastern U.S., largely offset by an
increase in pricing, resulted in a $36,000 decrease in first six months 2008 sales;
    
    A decrease in shipments in the western U.S. (not including beer brewed on a
contract basis), largely offset by an increase in pricing, resulted in a $55,000
decrease in sales in the first six months of 2008;
    
    A decrease in shipments of beer brewed on a contract basis, slightly offset by an
increase in pricing of these shipments, contributed to a $758,000 decrease in sales
in the first six months of 2008; and
    
    An increase of $261,000 in pub and other sales in the first six months of 2008
modestly offset the total sales decrease.
 29




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##### Table of Contents



Shipments
 Six Months Ended June 30,2008
    
    
    2007Draft
    
    
    Bottle
    
    
    Total
    
    
    Draft
    
    
    Bottle
    
    
    Total
    
    
    Increase /
    
    
    %Shipments
    
    
    Shipments
    
    
    Shipments
    
    
    Shipments
    
    
    Shipments
    
    
    Shipments
    
    
    (Decrease)
    
    
    ChangeA-B
    
    
    22,200
    
    
    
    30,500
    
    
    
    52,700
    
    
    
    23,800
    
    
    
    31,100
    
    
    
    54,900
    
    
    
    (2,200
    )
    
    
    (4.0
    )%Craft Brands
    
    
    16,300
    
    
    
    41,900
    
    
    
    58,200
    
    
    
    18,500
    
    
    
    42,800
    
    
    
    61,300
    
    
    
    (3,100
    )
    
    
    (5.1
    )Contract brewing
    
    
    16,500
    
    
    
    14,500
    
    
    
    31,000
    
    
    
    27,800
    
    
    
    14,700
    
    
    
    42,500
    
    
    
    (11,500
    )
    
    
    (27.1
    )Other (1)
    
    
    2,000
    
    
    
    700
    
    
    
    2,700
    
    
    
    1,800
    
    
    
    600
    
    
    
    2,400
    
    
    
    300
    
    
    
    12.5Total shipped
    
    
    57,000
    
    
    
    87,600
    
    
    
    144,600
    
    
    
    71,900
    
    
    
    89,200
    
    
    
    161,100
    
    
    
    (16,500
    )
    
    
    (10.2
    )%
 
 (1)
    
    International, non-wholesalers, pubs and other   Widmer
Hefeweizen Widmer Hefeweizen Widmer
Hefeweizen
 30




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##### Table of Contents



Widmer Hefeweizen
    Pricing and Fees
     Retail Operations and Other Sales
 31




---



##### Table of Contents



Excise Taxes
 Cost of Sales .
   Widmer Hefeweizen
  Gross profit .
 Merger-related expenses
 Business Combinations
 32




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##### Table of Contents



Six Months Ended June 30,2008
    
    
    2007Merger-related expenses
reflected in statements of operations
    
    $
    1,168,655
    
    
    $
    169,931Merger-related costs
reflected in balance sheets
    
    
    534,657
    
    
    
    Total legal, consulting, meeting
and severance costs
    
    $
    1,703,312
    
    
    $
    169,931
  Selling, General and Administrative Expenses
  Income from Equity Investment in Craft Brands .
 33




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##### Table of Contents



Interest Expense .
 Other Income, net
 Income Taxes .
 Accounting for Income Taxes
 34




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##### Table of Contents



Craft Brands Alliance LLC
 The Equity Method of Accounting for Investments in Common Stock Exhibits and Financial Statement
Schedules
 Sales .
 Cost of Sales .
 Selling, General and Administrative Expenses
 Net Income
 35




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##### Table of Contents



Outlook
  For the Month EndedJuly 31,Increase /
    
    
    %2008
    
    
    2007
    
    
    (Decrease)
    
    
    ChangeRedhook brand
    
    
    17,300
    
    
    
    16,300
    
    
    
    1,000
    
    
    
    6.1
    %Widmer brand (1)
    
    
    25,500
    
    
    
    24,700
    
    
    
    800
    
    
    
    3.2Kona brand
    
    
    10,100
    
    
    
    6,400
    
    
    
    3,700
    
    
    
    57.8Total shipped
    
    
    52,900
    
    
    
    47,400
    
    
    
    5,500
    
    
    
    11.6
    %
 
 (1)
    
    July 2007 includes approximately 10,750 barrels of Widmer branded products brewed
and shipped by Redhook under a contract brewing arrangement with Widmer and Widmer
Hefeweizenbrewed and shipped by Redhook in the midwest and eastern U.S. under a
licensing arrangement with Widmer.  Liquidity and Capital Resources
       36




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##### Table of Contents



37




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##### Table of Contents



Ratio Required by Loan Agreement
 Funded Debt to Bank-Defined EBITDAFrom July 1, 2008 through September 30, 2008
    
    
    4.75 to 1From December 31, 2008 through September 30, 2009
    
    
    4.0 to 1From December 31, 2009 through September 30, 2010
    
    
    3.5 to 1From December 31, 2010, and thereafter
    
    
    3.0 to 1Fixed Charge Coverage RatioFor the quarter ending September 30, 2008
    
    
    1.15 to 1For the quarter ending December 31, 2008 and thereafter
    
    
    1.25 to 1
    Trend
 Business
Combinations
 
    
    The Company and Widmer both incurred significant capital expenditures during the
first six months of 2008. The Company incurred approximately $2.6 million on capital
projects, including the expansion of the New Hampshire Brewery, and Widmer completed
the expansion of its Oregon Brewery and invested in other projects. These capital
expenditures totaled approximately $11.7 million on a combined proforma basis, while
long-term debt increased approximately $7.2 million on a combined proforma basis.
    
    The Company and Widmer incurred approximately $2.9 million in merger,
organizational, and severance costs in connection with the Merger.
  38




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##### Table of Contents



Critical Accounting Policies and Estimates
  Income Taxes . Accounting for Income Taxes
 Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement No. 109 Accounting for Contingencies
  Accounting for Income Taxes
  Long-Lived Assets . Accounting for the Impairment or Disposal of Long-Lived Assets
 39




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##### Table of Contents



Investment in Craft Brands Alliance LLC . Consolidation of
Variable Interest Entities  an Interpretation of ARB No. 51 The Equity
Method of Accounting for Investments in Common Stock.
 Refundable Deposits on Kegs
  Revenue Recognition .
 40




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##### Table of Contents



Recent Accounting Pronouncements
 The Fair Value Option for Financial Assets and
Financial LiabilitiesIncluding an Amendment of FASB Statement No. 115
 Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51.
 Business Combinations. Business Combinations
 Disclosures about Derivative Instruments and
Hedging Activities  An Amendment of FASB Statement No. 133 (SFAS 133)
 41




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##### Table of Contents



The Hierarchy of Generally Accepted Accounting
Principles The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles
 Accounting for Collaborative Arrangements
 Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating Securities
 Determination of the
Useful Life of Intangible Assets Goodwill and Other Intangible Assets Business Combinations
 Accounting for Convertible Debt Instruments
That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
 42




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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
   43




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##### Table of Contents



PART II. Other Information
 
 ITEM 1. Legal Proceedings
  
 ITEM 1A. Risk Factors
 Risk
Factors
 We do not know what impact, if any, the combination of Anheuser-Busch and InBev will have on
the Companys business.
 
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 ITEM 3. Defaults Upon Senior Securities
  
 ITEM 4. Submission of Matters to a Vote of Security Holders
  (1)
    
    The following seven directors were duly elected to serve until the 2009 Annual Meeting of
Shareholders or until his earlier retirement, resignation or removal:
 Director
    
    Votes For
    
    Votes WithheldFrank H. Clement
    
    
    7,560,776
    
    
    
    255,461John W. Glick
    
    
    7,422,469
    
    
    
    255,461David R. Lord
    
    
    7,422,862
    
    
    
    255,461Michael Loughran
    
    
    7,560,599
    
    
    
    255,461John D. Rogers, Jr.
    
    
    7,420,976
    
    
    
    255,461Paul S. Shipman
    
    
    7,462,824
    
    
    
    255,461Anthony J. Short
    
    
    7,422,079
    
    
    
    255,461
 44




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##### Table of Contents



(2)
    
    The issuance of Common Stock pursuant to the Agreement and Plan of Merger dated as of November
13, 2007, as amended, by and between the Company and Widmer was approved as follows:
 Votes For
    
    
    6,239,145Votes Against
    
    
    108,320Abstain
    
    
    21,292Broker Non-Votes
    
    
    1,448,243
 (3)
    
    The ratification of the appointment of Moss Adams LLP as independent auditors for the
Companys fiscal year ending December 31, 2008 was approved as follows:
 Votes For
    
    
    7,748,542Votes Against
    
    
    23,877Abstain
    
    
    44,581
  
 ITEM 5. Other Information
  
 ITEM 6. Exhibits
  10.1
    
    Summary Sheet of Director Compensation and Executive Cash Compensation31.1
    
    Certification of Co-Chief Executive Officer of Craft Brewers
Alliance, Inc. pursuant to Exchange Act Rule 13a-14(a)31.2
    
    Certification of Co-Chief Executive Officer of Craft Brewers
Alliance, Inc. pursuant to Exchange Act Rule 13a-14(a)31.3
    
    Certification of Chief Financial Officer of Craft Brewers Alliance,
Inc. pursuant to Exchange Act Rule 13a-14(a)32.1
    
    Certification of Co-Chief Executive Officer of Craft Brewers
Alliance, Inc. pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C.
Section 135032.2
    
    Certification of Co-Chief Executive Officer of Craft Brewers
Alliance, Inc. pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C.
Section 135032.3
    
    Certification of Chief Financial Officer of Craft Brewers Alliance,
Inc. pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. Section
1350
 45




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##### Table of Contents



SIGNATURES
  CRAFT BREWERS ALLIANCE, INC.August 14, 2008
    
    
    
    BY:
    
    /s/ Jay T. CaldwellJay T. CaldwellChief Financial Officerand Treasurer
 46