<PAGE>
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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
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
[_] 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 0-27116
________________
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
________________
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: 7,844,633 shares of common stock
outstanding as of September 30, 2000
Pages 1 of 15 sequentially numbered pages.
<PAGE>
PYRAMID BREWERIES INC.
FORM 10-Q
FOR THE QUARTERLY AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
---
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets
September 30, 2000 and December 31, 1999.................................. 3
Statements of Operations
Three Month and Nine Month Periods Ended September 30, 2000 and 1999...... 4
Statements of Cash Flows
Nine Month Periods Ended September 30, 2000 and 1999...................... 5
Notes to Financial Statements............................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................. 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................................... 12
Item 6. Exhibits and Reports on Form 8-K............................................ 12
SIGNATURE................................................................... 13
EXHIBIT INDEX............................................................... 14
Exhibit 27.................................................................. 15
</TABLE>
2
<PAGE>
Item 1 -- FINANCIAL STATEMENTS
PYRAMID BREWERIES INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,406,198 $ 6,303,540
Accounts receivable, net 1,251,475 1,102,155
Inventories 1,520,009 1,445,957
Prepaid expenses and other 571,810 398,697
Deferred income taxes 510,636 556,831
-------------------------------
Total current assets 11,260,128 9,807,180
-------------------------------
Fixed assets, net 21,465,814 22,739,439
Deferred income taxes - 377,961
Other assets 539,008 785,020
-------------------------------
Total assets $ 33,264,950 $ 33,709,600
===============================
CURRENT LIABILITIES:
Accounts payable $ 938,106 $ 547,956
Accrued expenses 1,493,218 1,492,648
Refundable deposits 489,803 465,184
Dividends payable 313,785 329,735
-------------------------------
Total current liabilities 3,234,912 2,835,523
Deferred rent 1,176,731 1,022,677
Deferred tax liabilities 29,327 -
-------------------------------
Total liabilities 4,440,970 3,858,200
-------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, 10,000,000 shares authorized,
none issued - -
Common stock, $.01 par value; 40,000,000 shares authorized,
7,844,633 and 8,193,580 shares issued and outstanding 78,446 81,936
Additional paid-in capital 34,305,521 34,982,946
Retained deficit (5,559,987) (5,213,482)
-------------------------------
Total stockholders' equity 28,823,980 29,851,400
-------------------------------
Total liabilities and stockholders' equity $ 33,264,950 $ 33,709,600
===============================
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
PYRAMID BREWERIES INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
2000 1999 2000 1999
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Gross sales $ 8,148,329 $ 7,811,037 $ 23,096,158 $ 21,777,002
Less excise taxes 445,845 471,873 1,307,588 1,318,734
-------------- -------------- ------------- -------------
Net sales 7,702,484 7,339,164 21,788,570 20,458,268
Cost of sales 5,524,671 5,522,541 16,051,704 15,515,872
-------------- -------------- ------------- -------------
Gross margin 2,177,813 1,816,623 5,736,866 4,942,396
Selling, general and administrative expenses 1,971,939 1,948,205 5,609,698 5,655,712
-------------- -------------- ------------- -------------
Operating income (loss) 205,874 (131,582) 127,168 (713,316)
Other income, net 159,308 189,175 471,160 390,346
-------------- -------------- ------------- -------------
Income (loss) before income taxes 365,182 57,593 598,328 (322,970)
Provision for income taxes - - - -
-------------- -------------- ------------- -------------
Net income (loss) $ 365,182 $ 57,593 $ 598,328 $ (322,970)
============== ============== ============= =============
Basic net income (loss) per share $ 0.05 $ 0.01 $ 0.08 $ (0.04)
Weighted average basic shares outstanding 7,830,072 8,239,402 7,967,765 8,230,642
Diluted net income (loss) per share $ 0.05 $ 0.01 $ 0.07 $ (0.04)
Weighted average diluted shares outstanding 7,884,702 8,239,402 7,981,275 8,230,642
Beer barrels shipped 28,200 28,300 81,700 81,400
Soda barrels shipped 10,800 8,600 30,300 22,200
-------------- -------------- ------------- -------------
Total barrels shipped 39,000 36,900 112,000 103,600
============== ============== ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
PYRAMID BREWERIES INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
OPERATING ACTIVITIES: 2000 1999
------------ ------------
<S> <C> <C>
Net income (loss) $ 598,328 $ (322,970)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 1,904,260 2,086,138
Loss on sales of fixed assets 58,725 22,497
Deferred income taxes, net 453,483 -
Deferred rent 154,054 185,475
Restructuring charge - (69,238)
Changes in operating assets and liabilities:
Accounts receivable (149,320) (353,069)
Inventories (74,052) (313,321)
Prepaid expenses and other (320,081) (88,605)
Accounts payable and accrued expenses 390,720 563,126
Refundable deposits 24,619 58,873
------------ ------------
Net cash provided by operating activities 3,040,736 1,768,906
INVESTING ACTIVITIES:
Acquisitions of fixed assets (625,213) (688,929)
Proceeds from sales of fixed assets 143,013 36,748
Proceeds from long-term receivable 185,820 -
------------ ------------
Net cash used in investing activities (296,380) (652,181)
FINANCING ACTIVITIES:
Proceeds from the sale of common stock 92,645 33,988
Cash dividends paid (960,783) -
Repurchase and retirement of common stock (773,560) -
------------ ------------
Net cash (used in) provided by financing activities (1,641,698) 33,988
------------ ------------
Increase in cash and cash equivalents 1,102,658 1,150,713
Cash and cash equivalents at beginning of period 6,303,540 5,245,134
------------ ------------
Cash and cash equivalents at end of period $ 7,406,198 $ 6,395,847
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
PYRAMID BREWERIES INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION:
Pyramid Breweries Inc. (the "Company"), a Washington corporation, is engaged
in the brewing, marketing and selling of craft beers and premium sodas and in
restaurant operations. The Company operates breweries in Seattle, Washington
and Berkeley, California. The Company sells its beer through a network of
selected independent distributors primarily in Washington, Oregon and California
under the Pyramid and Thomas Kemper brands. Pyramid also manufactures a line of
gourmet sodas under the Thomas Kemper Soda Company label. As of September 30,
2000, the Company's products were distributed in 32 states and Canada. The
Company operates two restaurants adjacent to its breweries under the Pyramid
Alehouse brand name.
The accompanying condensed financial statements have been prepared by the
Company, without audit, in accordance with accounting principles generally
accepted in the United States for interim financial information and pursuant to
the rules and regulations of the Securities and Exchange Commission. With the
exception of the historical information contained herein, the matters described
may contain forward-looking statements that involve risks and uncertainties,
including those described under the caption entitled "Risk Factors and Forward-
Looking Statements" in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999, filed with the Securities and Exchange Commission, and
elsewhere in the Company's periodic reports. 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.
2. INVENTORIES:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Raw materials............. $ 530,991 $ 483,042
Work in process........... 138,303 133,547
Finished goods............ 850,715 829,368
------------- ------------
$ 1,520,009 $ 1,445,957
============= ============
</TABLE>
Raw materials primarily include ingredients, flavorings and packaging. Work
in process includes 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,
2000 1999
------------- ------------
<S> <C> <C>
Brewery and retail equipment....... $ 14,206,366 $ 13,969,210
Furniture and fixtures............. 745,244 825,048
Leasehold improvements............. 13,465,454 13,357,641
Construction in progress........... 238,379 56,494
Assets held for sale............... 3,832 152,560
------------- ------------
28,659,275 28,360,953
Less: accumulated depreciation..... (7,193,461) (5,621,514)
------------- ------------
$ 21,465,814 $ 22,739,439
============= ============
</TABLE>
6
<PAGE>
4. EARNINGS PER SHARE
Basic earnings per share was computed by dividing net income available to
common shareholders by weighted average shares outstanding. Options not included
in the earnings per share calculation were 555,000 and 975,000 for the quarter
and nine months ended September 30, 2000, respectively, and 825,500 for the
quarter and nine months ended September 30, 1999. Dilutive earnings per share
was calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Earnings:
Net income (loss).................................... $ 365,182 $ 57,593 $ 598,328 $ (322,970)
Shares:
Weighted average basic shares outstanding............ 7,830,072 8,239,402 7,967,765 8,230,642
Stock option dilution................................ 54,630 - 13,510 -
----------- ----------- ----------- -----------
Weighted average diluted shares outstanding.......... 7,884,702 8,239,402 7,981,275 8,230,642
----------- ----------- ----------- -----------
Diluted earnings per share.......................... $ 0.05 $ 0.01 $ 0.07 $ (0.04)
=========== =========== =========== ===========
</TABLE>
5. STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Total
----------------------- Paid-In Retained Stockholders'
Shares Amount Capital Deficit Equity
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999........... 8,193,580 $ 81,936 $ 34,982,946 $ (5,213,482) $ 29,851,400
Net income........................... - - - 598,328 598,328
Shares issued........................ 47,251 472 92,173 - 92,645
Dividends declared................... - - - (944,833) (944,833)
Stock repurchase..................... (396,198) (3,962) (769,598) - (773,560)
--------- -------- ------------- ------------- -------------
Balance at September 30, 2000.......... 7,844,633 $ 78,446 $ 34,305,521 $ (5,559,987) $ 28,823,980
========= ======== ============= ============= =============
</TABLE>
6. 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.
7. CASH DIVIDEND:
The Board of Directors announced on August 11, 2000, the declaration of a
$0.04 per common share dividend payable on October 13, 2000 to shareholders of
record on September 29, 2000. The cash dividends declared totaled approximately
$314,000 for all common stock outstanding as of the date of record.
8. SEGMENT INFORMATION:
The Company adopted Statement of Financial Accounting Standards No. 131
(SFAS 131) "Disclosures about Segments of an Enterprise and Related
Information," during 1998. Following the provisions of SFAS 131, the Company is
reporting segment information in the same format as reviewed by the Company's
management, which is organized around differences in products and services.
Products and Services
7
<PAGE>
The Company's reportable segments include beverage operations and alehouses.
Beverage operations include the production and sale of Pyramid Ales, Thomas
Kemper beers and Thomas Kemper Soda Company products. The alehouse segment
consists of two full-service alehouses, which market and sell the full line of
the Company's beer and soda products as well as food and certain merchandise.
Factors used to identify reportable segments
The Company's reportable segments are strategic business units that offer
different products and services. These segments are managed separately because
each business requires different management and marketing strategies.
Measurement of segment profit and segment assets
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on profit or loss from operations before income taxes not
including nonrecurring gains and losses. The Company records intersegment sales
at cost.
Segment profit and segment assets are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
Beverage
Quarter ended September 30, 2000 Operations Alehouse Other Total
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues from external customers.............. $ 5,919 $ 2,229 $ - $ 8,148
Intersegment revenues......................... 77 (77) - -
Interest income............................... - - 118 118
Depreciation and amortization................. 498 106 37 641
Operating income (loss)....................... 395 374 (563) 206
Capital expenditures.......................... 171 40 18 229
Total assets.................................. 18,671 3,524 11,070 33,265
Quarter ended September 30, 1999
Revenues from external customers.............. $ 5,623 $ 2,188 $ - $ 7,811
Intersegment revenues......................... 70 (70) - -
Interest income............................... - - 89 89
Depreciation and amortization................. 566 105 35 706
Operating income (loss)....................... 237 277 (645) (131)
Capital expenditures.......................... 93 63 21 177
Total assets.................................. 22,402 3,519 11,960 37,881
Nine months ended September 30, 2000
Revenues from external customers.............. $ 17,102 $ 5,994 $ - $ 23,096
Intersegment revenues......................... 207 (207) - -
Interest income............................... - - 298 298
Depreciation and amortization................. 1,438 311 155 1,904
Operating income (loss)....................... 1,355 592 (1,820) 127
Capital expenditures.......................... 275 268 82 625
Total assets.................................. 18,671 3,524 11,070 33,265
Nine months ended September 30, 1999
Revenues from external customers.............. $ 16,173 $ 5,604 $ - $ 21,777
Intersegment revenues......................... 237 (237) - -
Interest income............................... - - 240 240
Depreciation and amortization................. 1,668 312 106 2,086
Operating income (loss)....................... 659 532 (1,904) (713)
Capital expenditures.......................... 270 276 143 689
Total assets.................................. 22,402 3,519 11,960 37,881
</TABLE>
8
<PAGE>
Other
Other consists of interest income, general and administrative expenses,
corporate office assets and other reconciling items that are not allocated to
segments for internal management reporting purposes. Total assets include all
assets except for fixed assets, which are presented by segment.
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>
Quarter Ended September 30,
---------------------------
% of % of
2000 Net Sales 1999 Net Sales
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Gross sales $ 8,148,329 $ 7,811,037
Less excise taxes 445,845 471,873
------------ ----------- ------------ -----------
Net sales 7,702,484 100.0 7,339,164 100.0
Cost of sales 5,524,671 71.7 5,522,541 75.2
------------ ----------- ------------ -----------
Gross margin 2,177,813 28.3 1,816,623 24.8
Selling, general and administrative expenses 1,971,939 25.6 1,948,205 26.6
------------ ----------- ------------ -----------
Operating income (loss) 205,874 2.7 (131,582) (1.8)
Other income, net 159,308 2.0 189,175 2.6
------------ ----------- ------------ -----------
Income before income taxes 365,182 4.7 57,593 0.8
Provision for income taxes - - - -
------------ ----------- ------------ -----------
Net income $ 365,182 4.7 $ 57,593 0.8
============ =========== ============ ===========
Basic net income per share $ 0.05 $ 0.01
============ ============
Weighted average basic shares outstanding 7,830,072 8,239,402
============ ============
Diluted net income per share $ 0.05 $ 0.01
============ ============
Weighted average diluted shares outstanding 7,884,702 8,239,402
============ ============
Operating data (in barrels):
Beer barrels shipped 28,200 28,300
Soda barrels shipped 10,800 8,600
------------ ------------
Total barrels shipped 39,000 36,900
============ ============
Annual production capacity at period end 172,000 172,000
============ ============
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
% of % of
2000 Net Sales 1999 Net Sales
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Gross sales $ 23,096,158 $ 21,777,002
Less excise taxes 1,307,588 1,318,734
------------ ----------- ------------ -----------
Net sales 21,788,570 100.0 20,458,268 100.0
Cost of sales 16,051,704 73.7 15,515,872 75.8
------------ ----------- ------------ -----------
Gross margin 5,736,866 26.3 4,942,396 24.2
Selling, general and administrative expenses 5,609,698 25.7 5,655,712 27.6
------------ ----------- ------------ -----------
Operating income (loss) 127,168 0.6 (713,316) (3.4)
Other income, net 471,160 2.1 390,346 1.9
------------ ----------- ------------ -----------
Income (loss) before income taxes 598,328 2.7 (322,970) (1.5)
Provision for income taxes - - - -
------------ ----------- ------------ -----------
Net income (loss) $ 598,328 2.7 $ (322,970) (1.5)
============ =========== ============ ===========
Basic net income (loss) per share $ 0.08 $ (0.04)
============ ============
Weighted average basic shares outstanding 7,967,765 8,230,642
============ ============
Diluted net income (loss) per share $ 0.07 $ (0.04)
============ ============
Weighted average diluted shares outstanding 7,981,275 8,230,642
============ ============
Operating data (in barrels):
Beer barrels shipped 81,700 81,400
Soda barrels shipped 30,300 22,200
------------ ------------
Total barrels shipped 112,000 103,600
============ ============
Annual production capacity at period end 172,000 172,000
============ ============
</TABLE>
QUARTER ENDED SEPTEMBER 30, 2000 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1999
Gross Sales. Gross sales increased 4.3% to $8,148,000 for the third quarter
ended September 30, 2000 from $7,811,000 in the same quarter of the prior year.
This increase in gross sales was mainly the result of increased wholesale soda
and alehouse sales, while craft beer sales remained flat. Wholesale beverage
sales increased 5.3% to $5,919,000 in the third quarter of 2000 from $5,623,000
in the same quarter of 1999. This increase was primarily due to a 25.6% increase
in Thomas Kemper Soda barrels shipped to 10,800 barrels from 8,600 barrels in
the same quarter of the prior year. Alehouse sales increased 1.9% to $2,229,000
from $2,188,000 for quarters ended September 30, 2000 and 1999, respectively.
Total wholesale beer shipments were down slightly to 28,200 barrels for the
third quarter of 2000 from 28,300 barrels the same quarter of the prior year. Of
total beer shipments, Pyramid beer increased 7.1% to 26,200 barrels while Thomas
Kemper beer shipments decreased 44.8% to 2,000 barrels for the third quarter of
2000 compared to the same quarter of the prior year. The beer product mix
shifted to a lower percentage of draft sales to 38.6% for the quarter ended
September 30, 2000 from 40.8% for the same quarter of the prior year.
Excise Taxes. Excise taxes decreased to 5.5% of gross sales for the third
quarter ended September 30, 2000 from 6.0% of gross sales in the same quarter of
the prior year. The decrease in excise taxes as a percentage of gross sales was
due mainly to a greater portion of soda and alehouse sales during the quarter
ended September 30, 2000, which do not bear excise tax.
Gross Margin. Gross margin increased 19.9% to $2,178,000 for the third
quarter ended September 30, 2000 from $1,817,000 in the same quarter of the
prior year. Gross margin as a percentage of net sales increased to 28.3% for the
third quarter ended September 30, 2000 from 24.8% for the same quarter of the
prior year. This increase as a percentage of net sales was due primarily to a
greater proportion of beverage production at the more efficient Berkeley brewery
and increased efficiencies in both alehouses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased slightly to $1,972,000 from $1,948,000 for the
quarters ended September 30, 2000 and 1999, respectively. Selling, general and
administrative expenses as a percent of net sales decreased to 25.6% from 26.6%
for the same quarter of the prior year.
Other Income, net. Other income decreased 15.9% to $159,000 for the third
quarter ended September 30, 2000 from $189,000 for the third quarter of the
prior year due to losses on sales of assets during the current year.
Income Taxes. The Company recorded no income tax benefit or provision for
the quarters ended September 30, 2000 and 1999. The Company anticipates it will
utilize net operating loss carryforwards which had been offset by a valuation
allowance.
10
<PAGE>
Net Income. The Company reported a $307,000 increase in net income for the
quarter ended September 30, 2000 to $365,000 as compared to net income of
$58,000 reported for the third quarter of the prior year. The increase in net
income was due mainly to increased sales and improved margins for the third
quarter ended September 30, 2000.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
Gross Sales. Gross sales increased 6.1% to $23,096,000 for the nine month
period ended September 30, 2000 from $21,777,000 in the same nine month period
of the prior year. This increase in gross sales was mainly the result of
increased wholesale soda and alehouse sales. Wholesale beverage sales increased
5.7% to $17,102,000 in the nine month period ended September 30, 2000 from
$16,173,000 in the same period of 1999. This increase was due to a 36.5%
increase in Thomas Kemper Soda barrels shipped to 30,300 barrels from 22,200
barrels in the same nine month period of the prior year. Alehouse sales
increased 7.0% to $5,994,000 from $5,604,000 for nine months ended September 30,
2000 and 1999, respectively, due to increased sales prices and patronage at both
alehouse restaurants. Wholesale beer shipments increased slightly to 81,700
barrels for the first nine months of 2000 from 81,400 the same period of the
prior year. Of wholesale beer shipments, Pyramid beer increased 6.2% to 75,500
barrels while Thomas Kemper beer shipments decreased 35.5% to 6,200 barrels for
the first nine months of 2000 compared to the same period of the prior year. The
beer product mix shifted to a slightly higher percentage of draft sales to 40.1%
for the nine months ended September 30, 2000 versus 39.6% for the same period of
the prior year.
Excise Taxes. Excise taxes decreased slightly to 5.7% of gross sales for
the nine month period ended September 30, 2000 from 6.1% of gross sales for the
same nine month period of the prior year. The decrease in excise taxes as a
percentage of gross sales was due mainly to a greater portion of soda and
alehouse sales during the nine month period ended September 30, 2000, which do
not bear excise tax.
Gross Margin. Gross margin increased 16.1% to $5,737,000 for the nine month
period ended September 30, 2000 from $4,942,000 for the same period of the prior
year. Gross margin as a percentage of net sales improved to 26.3% for the nine
month period ended September 30, 2000 from 24.2% for the same period of the
prior year. This increase as a percentage of net sales was due primarily to a
greater proportion of beverage production at the more efficient Berkeley brewery
and increased efficiencies in both alehouses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased slightly to $5,610,000 for the nine month
period ended September 30, 2000 from $5,656,000 for the same period of the prior
year. Selling, general and administrative expenses as a percent of net sales
also decreased to 25.7% from 27.6% for the same period of the prior year. This
decrease resulted from non-recurring refunds of excise taxes of approximately
$150,000 recorded in general and administrative expenses, partially offset by
increased marketing expense.
Other Income, net. Other income increased to $471,000 for the nine month
period ended September 30, 2000 from $390,000 for the same nine month period of
the prior year. The increase was due primarily to increased parking and interest
income.
Income Taxes. The Company recorded no income tax provision for the nine
month period ended September 30, 2000 as the Company anticipates it will utilize
net operating loss carryforwards which had been offset by a valuation allowance.
The Company recorded no income tax benefit for the nine months ended September
30, 1999 as a valuation allowance was established to offset further accumulation
of deferred tax assets.
Net Income. The net income for the nine month period ended September 30,
2000 increased $921,000 to $598,000, compared to net loss of $323,000 reported
for the same period of the prior year. The increase in net income was due mainly
to increased sales, improved margins and increased other income.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities during the nine month period
ended September 30, 2000 was $3,041,000 compared to $1,769,000 for the same
period of the prior year. This increase was due primarily to the increase in net
income for the current period. Net cash used in investing activities for the
nine months ended September 30, 2000 was $296,000 compared to net cash used in
investing activities of $652,000 for the same period of the prior year. The cash
used in investing activities in 2000 included funds used to expand the Seattle
alehouse kitchen, expand the Berkeley alehouse, install production equipment in
the Berkeley brewery and to purchase kegs. These expenditures were partially
offset by proceeds from the sale of old production equipment and collection of a
long-term note receivable. At September 30, 2000, the Company had working
capital of $8,025,000 compared to $6,972,000 at December 31, 1999.
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On December 15, 1999, the Company announced a stock buyback plan to
repurchase up to $2,000,000 of the Company's common stock from time to time on
the open market. Stock repurchases are at the discretion of management and
depend, among other things, on the Company's results of operations, capital
requirements and financial condition, and on such other factors as the Company's
management may consider relevant. In addition, the Company is required to
maintain a minimum tangible net worth and other covenants under its line of
credit, which may restrict the Company's ability to repurchase shares. As of
September 30, 2000, the Company has repurchased 445,998 shares at an average
cost per share of $1.93.
The Company has a $5,000,000 line of credit (the Line of Credit) for short-
term operating needs. The Line of Credit revolves through April 30, 2001, during
which time the payments are interest only. At that date, any outstanding balance
will be due in full. Borrowings under the Line of Credit will accrue interest,
at the Company's option, at either the bank's prime rate or at LIBOR plus 150
basis points. A portion of the line of credit may be used to finance
acquisitions. Amounts used to finance acquisitions may be converted to a four-
year fully amortizing term loan, with an additional option to fix the rate of
interest at the bank's prime rate plus 50 basis points. As of September 30,
2000, the Company had not borrowed on the Line of Credit.
Future capital requirements may vary depending on such factors as the cost
of acquisition of businesses, brands and real estate costs in the markets
selected for future expansion, whether such real estate is leased or purchased
and the extent of improvements necessary. Capital expenditures in 2000 are
expected to be less than 1999 expenditures. Planned projects include the
continued upgrading of brewery equipment and alehouse facilities in the Seattle
and Berkeley locations. While there can be no assurance that current
expectations will be realized and plans are subject to change upon further
review, the Company believes that its cash reserves, together with cash from
operations and borrowings under the Line of Credit, will be sufficient for the
Company's working capital needs during 2000.
The Company's future cash requirements and cash flow expectations are
closely related to its expansion plans. The Company generally expects to meet
future financing needs through cash on-hand, cash flow from operations and, to
the extent required and available, additional bank borrowings.
RISK FACTORS AND FORWARD LOOKING STATEMENTS
Pyramid Breweries Inc. does not provide forecasts of future financial
performance. However this report does contain forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, which are
subject to the "safe harbor" created by that section. There are numerous
important factors that could cause results to differ materially from those
anticipated by some of the statements made by the Company. Investors are
cautioned that all forward-looking statements involve a high degree of risk and
uncertainty. Additional information concerning those and other factors is
contained in the Company's Securities and Exchange Commission filings including
its Form 10-K for the year ended December 31, 1999.
PART II. -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Pyramid Breweries Inc. is named as a defendant in a purported class action
lawsuit pending in the Superior Court of Washington for King County: Jerseys All
American Sports Bar v. Alaska Distributors Co., et al., No. 00-2-20485-0SEA,
filed on August 3, 2000. The lawsuit purports to allege claims on behalf of all
purchasers of Pyramid Hefeweizen by the keg for retail sale during the period
May 1, 1999 to the present. The lawsuit alleges violations of Washington's
Consumer Protection Act and a civil conspiracy related to sales of the Bavarian
Hefeweizen brand at a lower price than the Pyramid Hefeweizen brand. Plaintiffs
seek injunctive relief and unspecified monetary damages. Pyramid intends to
defend the lawsuit vigorously.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
The following exhibits are filed as part of this report.
3.1* Amended and Restated Articles of Incorporation
3.2* Amended and Restated Bylaws
27 Financial Data Schedule
*Incorporated by reference to the exhibits filed as part of the Company's
Registration Statement on Form S-1 (File No. 33-97834).
(B) REPORTS ON FORM 8-K
None filed during the quarter ended September 30, 2000.
ITEMS 2, 3, 4 AND 5 OF PART II ARE NOT APPLICABLE AND HAVE BEEN OMITTED
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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 10, 2000.
PYRAMID BREWERIES INC.
By: /s/ L. WAYNE DRURY
------------------------------
L. Wayne Drury, Vice President
and Chief Financial Officer
By: /s/ R. MARTIN KELLY
------------------------------
R. Martin Kelly, President
and Chief Executive Officer
DATE: November 10, 2000
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EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
------- -----------------------
27 Financial Data Schedule
14
