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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
----------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM _______________ TO______________.
COMMISSION FILE NUMBER 0-27116
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PYRAMID BREWERIES INC.
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1258355
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
91 SO. ROYAL BROUGHAM WAY,
SEATTLE, WA 98134
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 682-8322, ext. 246
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
Common Stock, par value of $.01 per share: 8,204,358 shares of Common Stock
outstanding as of September 30, 1997
Pages 1 of 15 sequentially numbered pages.
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<PAGE> 2
PYRAMID BREWERIES INC.
FORM 10-Q
FOR THE QUARTER AND NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Balance Sheets
-- September 30, 1997 and December 31, 1996.............. 3
Statements of Operations
-- Three Month and Nine Month periods ended
September 30, 1997 and 1996.............................. 4
Statements of Cash Flows
-- Nine Month periods ended September 30, 1997 and
1996..................................................... 5
Notes to Financial Statements............................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 8
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................... 12
SIGNATURE............................................................ 13
Exhibits............................................................. 14
</TABLE>
2
<PAGE> 3
PART I.
ITEM 1 FINANCIAL STATEMENTS
PYRAMID BREWERIES INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1997 1996
(UNAUDITED) (AUDITED)
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............. $ 1,352,272 $ 300,487
Investments ............................ 4,813,513 11,477,842
Accounts receivable .................... 1,384,556 1,284,426
Inventories ............................ 1,441,913 920,252
Income taxes receivable ................ 736,584 289,561
Prepaid expenses and other ............. 636,044 947,284
----------- ------------
Total current assets ................. 10,364,882 15,219,852
Fixed Assets, net ........................ 30,303,602 27,924,296
Other non-current assets ................. 1,249,861 346,421
----------- ------------
Total assets ....................... $41,918,345 $ 43,490,569
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ....................... $ 1,194,086 $ 3,527,256
Accrued expenses ....................... 1,301,896 623,845
Refundable deposits .................... 536,055 459,870
----------- ------------
Total current liabilities ............ 3,032,037 4,610,971
Deferred Rent ............................ 505,843 291,820
Deferred Income Taxes .................... 1,060,467 820,226
----------- ------------
Total liabilities .................. 4,598,347 5,723,017
----------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, 10,000,000 shares
authorized, none issued .............. -- --
Common stock, $.01 par value;
40,000,000 shares authorized,
8,204,358 and 8,204,656 shares
issued and outstanding ............... 82,044 82,047
Additional paid-in capital ............. 35,006,584 35,124,037
Unrealized loss on investments ......... -- (184,350)
Retained earnings ...................... 2,231,370 2,745,818
----------- ------------
Total stockholders' equity ......... 37,319,998 37,767,552
----------- ------------
Total liabilities and stockholders'
equity ........................... $ 41,918,345 $ 43,490,569
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
PYRAMID BREWERIES INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) (UNAUDITED)
--------------------------- -----------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Gross Sales........................... $ 8,466,411 $7,172,565 $ 23,113,912 $20,646,220
Less Excise Taxes..................... 577,164 510,150 1,595,059 1,624,219
----------- ---------- ------------ -----------
Net Sales............................. 7,889,247 6,662,415 21,518,853 19,022,001
Cost of Sales......................... 5,946,202 4,031,153 15,947,578 11,411,917
----------- ---------- ------------ -----------
Gross Margin...................... 1,943,045 2,631,262 5,571,275 7,610,084
Selling, General and Administrative
Expenses............................ 2,085,668 1,648,604 6,287,467 4,618,920
----------- ---------- ------------ -----------
Operating (Loss) Income............... (142,623) 982,658 (716,192) 2,991,164
Other (Expense) Income................ (121,226) 310,632 9,809 787,052
----------- ---------- ------------ -----------
(Loss) Income Before Income Taxes..... (263,849) 1,293,290 (706,383) 3,778,216
(Benefit) Provision for Income Taxes.. (43,253) 362,499 (191,935) 1,102,881
----------- ---------- ------------ -----------
Net (Loss) Income..................... $ (220,596) $ 930,791 $ (514,448) $ 2,675,335
=========== ========== ============ ===========
Net (Loss) Income Per Share........... $ (0.03) $ 0.11 $ (0.06) $ 0.32
=========== ========== ============ ===========
Weighted Average Common Shares
Outstanding......................... 8,206,147 8,200,000 8,206,221 8,200,000
=========== ========== ============ ===========
Beer Barrels Shipped.................. 34,300 35,700 95,800 101,800
=========== ========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements
4
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PYRAMID BREWERIES INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------
1997 1996
(UNAUDITED) (UNAUDITED)
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) income .................................... $ (514,448) $ 2,675,335
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization ..................... 2,220,034 860,704
Loss (gain) on sale of fixed assets ............... 67,761 (6,310)
Deferred income taxes ............................. 240,241 209,546
Deferred rent ..................................... 214,023 108,495
Amortization and realized loss
on investments .................................. 286,087 51,855
Changes in operating assets and liabilities:
Accounts receivable ............................... (100,129) 342,778
Inventories ....................................... (333,665) (330,721)
Prepaid expenses and other ........................ (523,812) (740,182)
Income taxes receivable ........................... (447,023) --
Accounts payable and accrued expenses ............. (26,710) 1,169,322
Refundable deposits ............................... 5,858 42,656
------------ ------------
Net cash provided by operating activities...... 1,088,217 4,383,478
INVESTING ACTIVITIES:
Acquisition of Thomas Kemper Soda Company ............ (575,802) --
Acquisitions of fixed assets ......................... (6,080,883) (11,787,024)
Proceeds from sales of fixed assets .................. 557,505 9,453
Purchases of investments ............................. (11,662,522) (25,423,804)
Sales and redemptions of investments ................. 18,225,114 27,030,442
------------ ------------
Net cash provided by (used in) investing
activities .................................. 463,412 (10,170,933)
FINANCING ACTIVITIES:
Proceeds from the sale of common stock ............... 20,693 --
Principal payments on Thomas Kemper Soda
long-term debt .................................... (186,240) --
Principal payments on Thomas Kemper Soda
capital leases .................................... (196,149) --
Repayments to related parties ........................ (138,148) (4,689,866)
------------ ------------
Net cash used in financing activities ......... (499,844) (4,689,866)
------------ ------------
Increase (decrease) in cash and cash equivalents ......... 1,051,785 (10,477,321)
Cash and cash equivalents at beginning of period ......... 300,487 12,503,850
------------ ------------
Cash and cash equivalents at end of period ............... $ 1,352,272 $ 2,026,529
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
5
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PYRAMID BREWERIES INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION:
Pyramid Breweries Inc. (the "Company"), a Washington corporation, was
incorporated in 1984 and is engaged in the brewing, marketing and selling of
craft beers and premium sodas, under the brand names: "Pyramid" and "Thomas
Kemper." The products are sold primarily in Washington, Oregon and Northern
California. The Company's craft beers were distributed in 36 states at September
30, 1997.
The accompanying condensed financial statements have been prepared by
the Company, without audit, in accordance with generally accepted accounting
principles for interim financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements and should be read in
conjunction with the audited financial statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996. In the opinion
of management, the accompanying unaudited financial statements contain all
material adjustments, consisting only of those of a normal recurring nature,
considered necessary for a fair presentation of the Company's financial
position, results of operations and cash flows at the dates and for the periods
presented. The operating results for the interim periods presented are not
necessarily indicative of the results expected for the full year.
Certain prior period balances have been reclassified to conform to the
current period presentation.
2. INVENTORIES:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Raw materials..... $ 783,635 $552,687
Finished goods.... 658,278 367,565
---------- --------
$1,441,913 $920,252
========== ========
</TABLE>
Raw materials primarily include ingredients, flavorings and packaging
materials, as well as beer held in fermentation prior to the filtration and
packaging process. Finished goods primarily include product ready for shipment,
as well as promotional merchandise held for sale.
3. FIXED ASSETS:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
Land...................... $ -- $ 26,000
Building.................. 9,243 274,384
Brewery equipment......... 18,413,438 10,274,601
Retail equipment.......... 1,054,610 493,888
Furniture and fixtures.... 639,957 451,214
Leasehold improvements ... 14,040,966 2,815,547
Construction in progress.. -- 16,085,925
----------- -----------
34,158,214 30,421,559
Less accumulated
depreciation............ (3,854,612) (2,497,263)
----------- -----------
$30,303,602 $27,924,296
=========== ===========
</TABLE>
6
<PAGE> 7
At September 30, 1997 and December 31, 1996, accounts payable included
approximately $56,000 and $2,356,000, respectively, for the acquisition of fixed
assets.
4. THOMAS KEMPER SODA COMPANY ACQUISITION:
On March 7, 1997, the Company acquired substantially all of the
operating assets and assumed certain liabilities of Thomas Kemper Soda Company
for approximately $1.7 million including certain transaction costs. The purchase
price was paid with approximately $576,000 in cash and the assumption of
approximately $1,124,000 of liabilities. In connection with the acquisition,
goodwill of approximately $803,000 has been recorded in other assets and is
being amortized over 10 years. During 1996, Thomas Kemper Soda Company had
annual sales of approximately $3.6 million.
5. COMMITMENTS AND CONTINGENCIES:
The Company is involved from time to time in claims, proceedings and
litigation arising in the ordinary course of business. The Company does not
believe that any such claim, proceeding or litigation, either alone or in the
aggregate, will have a material adverse effect on the Company's financial
position or results of operations.
6. SUBSEQUENT EVENT:
On October 29, 1997, management announced a restructuring of marketing
and brewery operations. The restructuring will include a refocus of marketing
resources on Western and Southwestern markets and the closure of the Kalama,
Washington plant. Although this marketing decision could result in a reduction
in sales volume in other markets, the Company expects to gain increased
operating efficiencies as it redistributes Kalama production between the Seattle
and Berkeley breweries. The closure of the Kalama plant will reduce total
brewing capacity to 172,000 barrels.
The Company expects to take a one-time charge against earnings of
approximately $1.6 million in the fourth quarter ending December 31, 1997 for
write-offs related to the disposal of fixed assets, severance payments and other
plant closure costs. The restructuring of marketing and brewery operations is
expected to reduce current fixed costs and SG&A expenses by approximately $1.0
million per year commencing in 1998.
7
<PAGE> 8
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
selected unaudited operating data, expressed as a percentage of net sales.
SELECTED UNAUDITED OPERATING DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------
% OF % OF
1997 NET SALES 1996 NET SALES
------------------------------------------------
<S> <C> <C> <C> <C>
Gross Sales $ 8,466,411 $ 7,172,565
Less Excise Taxes 577,164 510,150
----------- -----------
Net Sales 7,889,247 100.0% 6,662,415 100.0%
Cost of Sales 5,946,202 75.4% 4,031,153 60.5%
------------------------------------------------
Gross Margin 1,943,045 24.6% 2,631,262 39.5%
Selling, General and Administrative
Expenses 2,085,668 26.4% 1,648,604 24.8%
------------------------------------------------
Operating (Loss) Income (142,623) -1.8% 982,658 14.7%
Other (Expense) Income (121,226) -1.5% 310,632 4.7%
------------------------------------------------
(Loss) Income Before Income Taxes (263,849) -3.3% 1,293,290 19.4%
(Benefit) Provision for Income Taxes (43,253) -0.5% 362,499 5.4%
------------------------------------------------
Net (Loss) Income $ (220,596) -2.8% $ 930,791 14.0%
================================================
Net (Loss) Income Per Share $ (0.03) $ 0.11
=========== ===========
Weighted Average Common Shares Outstanding 8,206,147 8,200,000
========= =========
Beer Barrels Shipped 34,300 35,700
====== ======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------
% OF % OF
1997 NET SALES 1996 NET SALES
------------------------------------------------
<S> <C> <C> <C> <C>
Gross Sales $23,113,912 $20,646,220
Less Excise Taxes 1,595,059 1,624,219
----------- -----------
Net Sales 21,518,853 100.0% 19,022,001 100.0%
Cost of Sales 15,947,578 74.1% 11,411,917 60.0%
------------------------------------------------
Gross Margin 5,571,275 25.9% 7,610,084 40.0%
Selling, General and Administrative
Expenses 6,287,467 29.2% 4,618,920 24.3%
------------------------------------------------
Operating (Loss) Income (716,192) -3.3% 2,991,164 15.7%
Other Income, net 9,809 0.0% 787,052 4.2%
------------------------------------------------
(Loss) Income Before Income Taxes (706,383) -3.3% 3,778,216 19.9%
(Benefit) Provision for Income Taxes (191,935) -0.9% 1,102,881 5.8%
------------------------------------------------
Net (Loss) Income $ (514,448) -2.4% $ 2,675,335 14.1%
================================================
Net (Loss) Income Per Share $ (0.06) $ 0.32
=========== ===========
Weighted Average Common Shares Outstanding 8,206,221 8,200,000
========= =========
Beer Barrels Shipped 95,800 101,800
====== =======
</TABLE>
8
<PAGE> 9
QUARTER ENDED SEPTEMBER 30, 1997 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1996
Gross Sales. Gross sales increased by 18.1% to $8.5 million for the
third quarter ended September 30, 1997 from $7.2 million in the same quarter of
the prior year. The increase resulted primarily from sales of Thomas Kemper Soda
of $1.0 million, acquired in March of 1997 and an 54.5% increase in retail sales
from $1.1 million to $1.7 million, due to the opening of the Berkeley Alehouse
in February of 1997. Gross wholesale craft beer sales decreased 5.0% to $5.7
million for the third quarter of 1997 from $6.0 million in the same quarter of
the prior year due to a 3.9% volume decrease and an increase in the proportion
of draft beer sales. The product mix shifted to a higher percentage of draft
sales (35.1% for the quarter ended September 30, 1997 versus 31.3% for the same
quarter of the prior year) which resulted in lower sales dollars per barrel
sold.
Excise Taxes. Excise taxes decreased to 7.3% of net sales for the third
quarter ended September 30, 1997 from 7.7% of net sales in the same quarter of
the prior year. The decrease in excise taxes as a percentage of net sales was
due primarily to an underestimate of the small brewers federal excise tax credit
during the third quarter of the prior year.
Gross Margin. Gross margin decreased to $1.9 million for the third
quarter ended September 30, 1997 from $2.6 million in the same quarter of the
prior year. Gross margin as a percentage of net sales declined to 24.6% for the
third quarter ended September 30, 1997 from 39.5% for the same quarter of the
prior year. This decrease as a percentage of net sales was due to higher fixed
and semi-fixed costs, including increases in depreciation, increased package
design costs, increased freight costs incurred servicing more distant markets
and the lower gross margin associated with the increase in sales from retail
operations (primarily sales of beer, food and branded merchandise at the
Company's Alehouses). Changes in the cost of raw materials and packaging did
not, in the aggregate, have a significant impact on gross margin during either
period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $2.1 million, or 26.4% of net sales, for
the third quarter ended September 30, 1997 from $1.6 million, or 24.8% of net
sales, for the same quarter of the prior year. This increase was due primarily
to the planned increase in selling and promotional expenditures attributable to
the geographic expansion of beer sales territories. The Company's sales and
marketing staff increased from 28 to 41 employees and it distributed its craft
beers in 36 states as of September 30, 1997, up from 27 states at September 30,
1996. Management believes that sales and promotional expenses in its core
markets are necessary investments for the future of the Company.
Other (Expense) Income. The Company incurred other expense of $121,226
for the third quarter ended September 30, 1997 as compared to other income of
$310,632 reported for the third quarter of the prior year. The decrease in other
income was due primarily to a decrease in interest income earned, net of bond
premium amortization, from investing the net proceeds of the initial public
stock offering, which proceeds were primarily used to finance construction of
the Company's Berkeley Brewery and Alehouse and upgrades to the Seattle Brewery.
Net (Loss) Income. The Company reported a net loss for the quarter ended
September 30,1997 of $220,596 as compared to net income of $930,791 reported for
the third quarter of the prior year. The net loss was primarily the result of a
decrease in gross margin and an increase in selling, general and administrative
expenses.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
Gross Sales. Gross sales increased by 12.1% to $23.1 million for the
nine month period ended September 30, 1997 from $20.6 million in the same nine
month period of the prior year. Sales increased due to sales of Thomas Kemper
Soda of $2.2 million, acquired in March of 1997 and a 58.1% increase in retail
sales from $3.1 million to $4.9 million due to the opening of the Berkeley
Alehouse in February of 1997. Gross wholesale craft beer sales decreased 8.5% to
$16.1 million from $17.6 million in the same nine month period of the prior year
due to a 5.9% volume decrease and an increase in the proportion of draft beer
sales. The product mix shifted to a higher percentage of draft sales (36.9% as
of September 30, 1997 versus 31.8% as of September 30, 1996) which resulted in
lower sales dollars per barrel sold.
Excise Taxes. Excise taxes decreased to 7.4% of net sales for the nine
month period ended September 30, 1997 from 8.5% of net sales for the same nine
month period of the prior year. The decrease in excise taxes as a percentage of
net sales was due primarily to an underestimate of the small brewers federal
excise tax credit during the same period of the prior year.
9
<PAGE> 10
Gross Margin. Gross margin decreased to $5.6 million for the nine month
period ended September 30, 1997 from $7.6 million for the same nine month period
of the prior year. Gross margin as a percentage of net sales declined to 25.9%
for the nine month period ended September 30, 1997 from 40.0% for the same nine
month period of the prior year. This decrease as a percentage of net sales was
due to higher fixed and semi-fixed costs, including increases in depreciation,
increased package design costs, increased freight costs incurred servicing more
distant markets and the lower gross margin associated with the increase in sales
from retail operations (primarily sales of beer, food and branded merchandise at
the Company's Alehouses). Changes in the cost of raw materials and packaging did
not, in the aggregate, have a significant impact on gross margin during either
period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $6.3 million, or 29.2% of net sales, for
the nine month period ended September 30, 1997 from $4.6 million, or 24.3% of
net sales, from the same nine month period of the prior year. This increase was
due primarily to the planned increase in selling and promotional expenditures
attributable to the geographic expansion of beer sales.
Other Income. Other income decreased to $9,809 for the nine month period
ended September 30,1997 from $787,052 for the same nine month period of the
prior year. The decrease in other income was due primarily to a decrease in
interest income earned, net of bond premium amortization, from investing the net
proceeds of the initial public stock offering, which proceeds primarily were
used to finance construction of the Company's Berkeley Brewery and Alehouse,
upgrades to the Seattle Brewery and repayment of debt.
Net (Loss) Income. The net loss for the nine month period ended
September 30, 1997 was $514,448 as compared to net income of $2.7 million
reported for the same period of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the nine month period
ended September 30, 1997 was $1.1 million compared to a $4.4 million for the
same nine month period of the prior year. This decrease was due in part to the
net loss of $514,448 incurred for the nine month period ended September 30, 1997
versus the net income of $2.7 million for the same nine month period of the
prior year, increased levels of inventory and changes in other operating assets
and liabilities.
At September 30, 1997, the Company had working capital of $7.3 million
compared to $10.6 million at December 31, 1996.
Net cash provided by investing activities in the period ended September
30, 1997 was $463,412 compared to net cash used in investing activities of $10.2
million for the same period of the prior year. The cash provided by investing
activities was primarily the redemptions and sales of investments. The cash used
in investing activities in 1996 was primarily applied to the construction of the
Berkeley Brewery and Alehouse and expansion of the Seattle Brewery.
The Company has a $15.0 million line of credit (the "Line of Credit")
with Bank of America. The Line of Credit revolves through April 30, 1999, during
which time the required payments are interest only. Borrowings under the Line of
Credit accrue interest, at the Company's option, at either the bank's prime
rate, or at 30, 60, 90 day LIBOR plus 1.0%. The Line provides for acquisition
financing with term out provisions. The Line of Credit also includes provisions
that require the Company to maintain certain financial ratios and a minimum
tangible net worth. The Company has not borrowed funds under this Line of Credit
in 1997.
Future capital requirements will vary depending primarily on the extent
of improvements necessary for current operating facilities. Capital expenditures
through September 30, 1997 were approximately 4.7 million, which includes final
payments on the Berkeley Brewery and Alehouse, the purchase of the Thomas Kemper
Soda Company and the continued upgrading of brewery equipment and facilities in
the Company's existing breweries. While there can be no assurance that current
expectations will be realized and plans are subject to change, the Company
believes that the existing cash and investments together with cash from
operations and borrowings under the Line of Credit, will be sufficient for the
Company's working capital needs.
The Company's future cash requirements and cash flow expectations are
closely related to its growth. The Company generally expects to meet future
financing needs through cash flow from operations and, to the extent required
and available, additional bank borrowings, industrial development bonds and
offerings of debt or equity securities.
10
<PAGE> 11
SUBSEQUENT EVENT
On October 29, 1997, management announced a restructuring of the
Company's marketing and brewery operations. The restructuring will include a
refocus of marketing resources on Western and Southwestern markets and the
closure of the Kalama, Washington plant. Although this marketing decision could
result in a reduction in sales volume in other markets, the Company expects to
gain increased operating efficiencies as it redistributes Kalama production
between the Seattle and Berkeley breweries. The closure of the Kalama plant will
reduce total brewing capacity to 172,000 barrels.
The Company expects to take a one-time charge against earnings of
approximately $1.6 million in the fourth quarter ending December 31, 1997 for
write-offs related to the disposal of fixed assets, severance payments and other
plant closure costs. The restructuring of marketing and brewery operations is
expected to reduce current fixed costs and SG&A expenses by approximately $1.0
million per year commencing in 1998.
ADOPTION OF ACCOUNTING STANDARDS
In February 1997, the Financial Standards Board issued Statement No.
128, "Earnings Per Share," (EPS) which is required to be adopted by the Company
on December 31, 1997. At that time, the Company will be required to change the
method currently used to compute net income per share. Company's will now report
basic EPS and diluted EPS in place of primary and fully diluted EPS, which were
previously reported. The impact of Statement 128 is not expected to be material.
RISK FACTORS AND FORWARD LOOKING STATEMENTS
Certain statements contained herein are forward-looking statements that
involve a number of risks, uncertainties and factors that may cause actual
results to materially differ, including: lower than anticipated sales in new and
existing markets; increased seasonality of demand for craft beers; decreased
selling prices; increased competition; expenses and uncertainties associated
with construction and operation of new breweries and expansion of the
distribution network; increases in raw material and packaging costs; and other
risk factors as set forth in the Company's Annual Report dated December 31,
1996.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
PART II. -- OTHER INFORMATION
ITEM 1. NONE
ITEM 2. NONE
ITEM 3. NONE
ITEM 4. NONE
ITEM 5. NONE
11
<PAGE> 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
The following exhibits are filed as part of this report.
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K
None filed during the quarter ended SEPTEMBER 30, 1997.
12
<PAGE> 13
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Seattle,
State of Washington, on November 12, 1997.
PYRAMID BREWERIES INC.
By: /s/ Richard Denmark
-----------------------------------
Richard Denmark
Chief Financial Officer
(Principal Accounting Officer)
DATE: November 12, 1997
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,352,272
<SECURITIES> 4,813,513
<RECEIVABLES> 1,384,556
<ALLOWANCES> 10,000
<INVENTORY> 1,441,913
<CURRENT-ASSETS> 10,364,882
<PP&E> 34,158,214
<DEPRECIATION> 3,854,612
<TOTAL-ASSETS> 41,918,345
<CURRENT-LIABILITIES> 3,032,037
<BONDS> 0
0
0
<COMMON> 82,044
<OTHER-SE> 37,237,954
<TOTAL-LIABILITY-AND-EQUITY> 41,918,345
<SALES> 21,518,853
<TOTAL-REVENUES> 23,113,912
<CGS> 15,947,578
<TOTAL-COSTS> 22,235,045
<OTHER-EXPENSES> 9,809
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (706,383)
<INCOME-TAX> (191,935)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (514,448)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
