<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
COMMISSION FILE NUMBER 0-26542
---------------------------
REDHOOK ALE BREWERY, INCORPORATED
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1141254
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3400 PHINNEY AVENUE NORTH, SEATTLE, WASHINGTON 98103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 548-8000
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 $.005 per share: 7,685,286 shares outstanding
as of June 30, 1996.
Page 1 of 13 sequentially numbered pages
<PAGE> 2
REDHOOK ALE BREWERY, INCORPORATED
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
June 30, 1996 and December 31, 1995 ..................... 3
Statements of Income
Three Months Ended June 30, 1996 and 1995
and Six Months Ended June 30, 1996 and 1995 ............. 4
Statement of Cash Flows
Six Months Ended June 30, 1996 and 1995 ................. 5
Notes to Financial Statements ................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ..................................... 7
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .............................. 13
</TABLE>
2
<PAGE> 3
PART I.
ITEM 1. FINANCIAL STATEMENTS
REDHOOK ALE BREWERY, INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents .............................................. $ 7,831,289 $24,676,600
Accounts Receivable .................................................... 2,589,330 2,027,454
Inventories ............................................................ 1,227,943 1,152,265
Prepaid Expenses and Other ............................................. 847,568 635,202
----------- -----------
Total Current Assets ................................................. 12,496,130 28,491,521
Fixed Assets, Net ...................................................... 76,255,264 57,799,694
Other Assets ........................................................... 440,918 347,221
----------- -----------
Total Assets ....................................................... $89,192,312 $86,638,436
=========== ===========
</TABLE>
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current Liabilities:
Accounts Payable ....................................................... $ 4,830,049 $ 4,828,902
Accrued Salaries, Wages, and Payroll Taxes ............................. 1,010,012 695,645
Refundable Deposits .................................................... 777,612 972,957
Other Accrued Expenses ................................................. 175,866 312,948
Current Portion of Long-Term Debt ...................................... 128,191 121,659
----------- -----------
Total Current Liabilities ............................................ 6,921,730 6,932,111
----------- -----------
Long-Term Debt, Net of Current Portion ................................... 1,758,002 1,825,339
----------- -----------
Deferred Income Taxes .................................................... 2,953,402 2,389,588
----------- -----------
Other Liabilities ........................................................ 44,266 35,348
----------- -----------
Convertible Redeemable Preferred Stock ................................... 15,899,655 15,877,455
----------- -----------
Common Stockholders' Equity:
Common Stock, Par Value $0.005 per Share, Authorized, 20,000,000
Shares; Issued and Outstanding, 7,685,286 Shares in 1996 and
7,683,596 Shares in 1995 ............................................. 38,427 38,417
Additional Paid-In Capital ............................................. 56,650,243 56,642,663
Retained Earnings ...................................................... 4,926,587 2,897,515
----------- -----------
Total Common Stockholders' Equity .................................. 61,615,257 59,578,595
----------- -----------
Total Liabilities, Redeemable Preferred Stock and
Common Stockholders' Equity .................................... $89,192,312 $86,638,436
=========== ===========
</TABLE>
See Accompanying Notes
3
<PAGE> 4
REDHOOK ALE BREWERY, INCORPORATED
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales ........................................ $10,302,381 $6,676,633 $18,857,226 $12,283,869
Less Excise Taxes ............................ 992,077 594,214 1,825,816 1,111,043
----------- ---------- ----------- -----------
Net Sales .................................... 9,310,304 6,082,419 17,031,410 11,172,826
Cost of Sales ................................ 5,797,721 3,878,008 10,852,782 7,353,846
----------- ---------- ----------- -----------
Gross Profit ................................. 3,512,583 2,204,411 6,178,628 3,818,980
Selling, General and Administrative Expenses . 1,862,108 1,081,187 3,394,274 1,974,381
----------- ---------- ----------- -----------
Operating Income ............................. 1,650,475 1,123,224 2,784,354 1,844,599
Other Income, Net ............................ 188,490 12,573 445,996 24,093
----------- ---------- ----------- -----------
Income before Income Taxes ................... 1,838,965 1,135,797 3,230,350 1,868,692
Provision for Income Taxes ................... 671,223 408,887 1,179,078 672,729
----------- ---------- ----------- -----------
Net Income ................................... $1,167,742 $ 726,910 $2,051,272 $1,195,963
========== ========== ========== ==========
Net Income per Share ......................... $0.13 $0.12 $0.22 $0.19
========== ========== ========== ==========
Average Number of Common and
Equivalent Shares Outstanding .............. 9,158,239 6,188,855 9,159,485 6,188,855
========== ========== ========== ==========
</TABLE>
See Accompanying Notes
4
<PAGE> 5
REDHOOK ALE BREWERY, INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income ..................................... $ 2,051,272 $ 1,195,963
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization ................ 858,275 582,347
Deferred Income Tax Provision ................ 563,814 318,691
Other ........................................ (80,388) (63,211)
Net Change in Operating Assets and
Liabilities ................................. (838,405) (1,351,018)
------------ ------------
Net Cash Provided by Operating Activities ...... 2,554,568 682,772
------------ ------------
INVESTING ACTIVITIES
Expenditures for Fixed Assets .................. (19,339,488) (7,922,241)
Other .......................................... (13,461) (29,117)
------------ ------------
Net Cash Used in Investing Activities .......... (19,352,949) (7,951,358)
------------ ------------
FINANCING ACTIVITIES
Proceeds from Debt ............................. 11,500,000 8,599,249
Repayments on Debt ............................ (11,560,805) (1,428,880)
Other .......................................... 13,875 10,806
------------ ------------
Net Cash Provided (Used) by Financing
Activities .................................... (46,930) 7,181,175
------------ ------------
Decrease in Cash and Cash Equivalents .......... (16,845,311) (87,411)
Cash and Cash Equivalents:
Beginning of Period .......................... 24,676,600 472,487
------------ ------------
End of Period ................................ $ 7,831,289 $ 385,076
============ ============
</TABLE>
See Accompanying Notes
5
<PAGE> 6
REDHOOK ALE BREWERY, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying financial statements and related notes should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K. The accompanying financial statements
include the accounts of Redhook Ale Brewery, Incorporated (the "Company")
and have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. These financial statements are
unaudited, condensed and do not contain all of the information required by
generally accepted accounting principles to be included in a full set of
financial statements. In the opinion of management, all material adjustments
necessary to present fairly the financial position, results of operations
and cash flows of the Company, for the periods presented, have been made.
All such adjustments are of a normal, recurring nature. The results of
operations for such interim periods are not necessarily indicative of the
results of operations for the full year.
2. EARNINGS PER SHARE
Earnings per share is based on the weighted average number of common and
common equivalent shares outstanding during the respective periods. The
calculation of average common equivalent shares outstanding includes the
effect of all outstanding convertible redeemable preferred stock and
outstanding stock options. Because all of the Company's outstanding
preferred shares are common equivalent shares, for purposes of calculating
earnings per share, the accretion related to the preferred stock carrying
value is not deducted from net income in the calculation of earnings per
share. The calculation uses the treasury stock method in determining the
resulting incremental average equivalent shares outstanding.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---------- ------------
<S> <C> <C>
Finished goods ................. $ 896,869 $ 786,580
Raw materials .................. 104,999 121,651
Promotional items .............. 169,187 222,160
Bottling materials ............. 56,888 21,874
========== ==========
$1,227,943 $1,152,265
========== ==========
</TABLE>
Finished goods include beer held in fermentation prior to the filtration and
packaging process.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's financial statements and notes thereto included herein.
OVERVIEW
Since its formation, the Company has focused its business activities on the
brewing, marketing and selling of craft beers. For the six months ended June 30,
1996, the Company had gross sales of $18,857,000, an increase of 54% over the
first six months of 1995. The Company believes that period-to-period comparisons
of its financial results should not be relied upon as an accurate indicator of
future performance. The Company's sales consist predominantly of sales of beer
to third-party distributors. In addition, the Company derives other revenues
from the sale of beer, food, apparel and other retail items in its brewery pubs.
The Company is required to pay federal excise taxes on sales of its beer. The
excise tax burden on beer sales increases from $7 to $18 per barrel on annual
production over 60,000 barrels and thus, as the Company increases its sales
volume, federal excise taxes will increase as a percentage of sales.
The following discussion contains forward-looking statements that involve
risks and uncertainties. Actual future results and trends may differ materially
depending on a variety of factors, including, but not limited to, pricing and
availability of raw materials and packaging, successful execution of internal
performance and expansion plans, impact of competition, distributor changes,
availability of financing, legal proceedings, and other risks detailed in the
Company's Securities and Exchange Commission filings, including the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
Under normal circumstances, the Company generally operates its brewing
facilities five days per week, two shifts per day. As the Company has grown,
demand for the Company's products has at times exceeded its production capacity
at normal operating levels. For example, in the second half of 1993 and the
first three quarters of 1994, sales growth was constrained due to the limited
capacity of the Fremont Brewery, and the Company could not significantly
increase shipments until production began at the Woodinville Brewery in late
1994. In addition to the level of consumer demand and the availability of
production capacity, the Company's sales are also affected by other factors such
as the opening of new distribution territories, new product introductions and
competitive considerations. Sales in the beer industry generally reflect a
degree of seasonality, with the second half of the year typically demonstrating
stronger sales in connection with summer activities and fall and early winter
holidays. The Company has historically operated with little or no backlog, and
its ability to predict sales for an upcoming quarter is limited.
To meet the increasing demand for its products, the Company has
periodically increased its annual production capacity, from approximately 3,000
barrels at its first brewery in the Ballard neighborhood of Seattle in 1982 to
approximately 245,000 barrels as of June 30, 1996, at the two Seattle-area
breweries. Production capacity of each facility is added in phases until the
facility reaches its maximum designed production capacity. The timing of each
phase is affected by the availability of capital, construction constraints and
the Company's plans for an orderly entry into selected new markets. The
Woodinville Brewery had an initial production capacity of approximately 60,000
barrels per year when production commenced in September 1994. Following
completion of the installation of additional brewing and bottling equipment in
July 1995, its annual production capacity increased from approximately 100,000
barrels to approximately 170,000 barrels. The Woodinville Brewery has a maximum
designed production capacity of approximately 250,000 barrels per year, which is
expected to be reached in the third quarter of 1996 upon completing the
installation of outdoor fermentation tanks. The Portsmouth, New Hampshire
brewery, currently under construction and scheduled to begin production by early
in the fourth quarter of 1996, is designed to have an initial production
capacity of approximately 100,000 barrels per year and a maximum designed
production capacity of approximately 250,000 barrels per year, which is expected
to be phased in through late 1997.
7
<PAGE> 8
The Company's capacity utilization has a significant impact on gross
profits. When facilities are operating at their maximum designed production
capacity, profitability is favorably affected by spreading fixed and
semivariable operating costs, such as depreciation and production salaries, over
a larger sales base. Most capital costs associated with building a new brewery
and fixed and semivariable costs related to operating a new brewery are incurred
prior to, or upon commencement of, production at a facility. Because the initial
production level is substantially below the facility's maximum designed
production capacity, gross margins are negatively impacted. This impact is
reduced as the facility's actual production increases. In addition, as the
Company's total production capacity increases, the impact of each additional
facility on gross margin will be reduced.
In addition to capacity utilization, the Company expects other factors to
influence profit margins, including higher costs associated with the opening of
new distribution territories, such as increased shipping, marketing and sales
personnel costs; fees related to the distribution agreement with Anheuser-Busch,
Inc.; changes in packaging and other material costs; and changes in product
sales mix. The incremental cost of shipping beer from the Company's existing
production facilities will continue to increase as the volume of beer supplied
to more distant markets increases. The Company believes that commencing
production at the Portsmouth Brewery will reduce shipping expenses to eastern
U.S. markets.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the Company's Statements of Income expressed as a percentage of net sales.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------- -----------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales........................................... 110.7% 109.8% 110.7% 109.9%
Less Excise Taxes............................... 10.7 9.8 10.7 9.9
-------- -------- -------- --------
Net Sales ...................................... 100.00 100.0 100.0 100.0
Cost of Sales................................... 62.3 63.7 63.7 65.8
-------- -------- -------- --------
Gross Profit ................................... 37.7 36.3 36.3 34.2
Selling, General, and Administrative Expenses .. 20.0 17.8 19.9 17.7
-------- -------- -------- --------
Operating Income ............................... 17.7 18.5 16.4 16.5
Other Income ................................... 2.0 0.2 2.6 0.2
-------- -------- -------- --------
Income before Income Taxes ..................... 19.7 18.7 19.0 16.7
Provision for Income Taxes ..................... 7.2 6.7 7.0 6.0
======== ======== ======== ========
Net Income...................................... 12.5% 12.0% 12.0% 10.7%
======== ======== ======== ========
</TABLE>
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
Sales. Sales increased by 54.3% to $10,302,000 in the second quarter of 1996
from $6,677,000 in the comparable 1995 period, primarily due to expansion into
new markets and growth in existing markets. As of June 30, 1996, the Company was
selling beer in 44 states compared to 20 states at June 30, 1995. The sales
increase reflects a 59.8% increase in sales volume to 59,300 barrels in the
second quarter of 1996 from 37,100 barrels in the comparable 1995 period, and
relatively stable sales prices. The sales increase includes the effect of a
decrease in the Company's other sales to $803,000 in the second quarter of 1996,
compared to $855,000 in the second quarter of 1995.
Excise Taxes. Excise taxes increased to $992,000, or 10.7% of net sales in
the second quarter of 1996, from $594,000, or 9.8% of net sales in the
comparable quarter of 1995, reflecting increased sales volumes and the increased
excise tax rate applicable to annual production in excess of 60,000 barrels.
<PAGE> 9
Cost of Sales. Cost of sales increased to $5,798,000 in the second quarter
of 1996 from $3,878,000 in 1995, primarily due to the increase in sales volume.
Cost of sales, as a percentage of net sales, decreased to 62.3% in 1996 compared
to 63.7% in 1995, primarily due to increased capacity utilization and the
resulting effect of spreading fixed and semivariable operating costs over a
larger production base, substantially offset by higher freight costs. The
utilization rate of the operating breweries' maximum designed capacity was 73%
and 46% in the quarters ended June 30, 1996 and 1995, respectively. Shipping
expense significantly increased in the second quarter of 1996 compared to the
second quarter of 1995, reflecting increased shipments of beer to new, more
distant markets. The Company expects that cost of goods sold, as a percentage of
sales, will be negatively impacted once the Portsmouth Brewery begins production
and the Company's capacity utilization rate declines. That negative impact will
be partially offset by lower freight costs on shipments to eastern markets.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $1,862,000 in the second quarter of 1996
from $1,081,000 in 1995. The increase is primarily related to the Company's
expansion into new markets. These expenses increased as a percentage of net
sales to 20.0% in the second quarter of 1996 from 17.8% in 1995, primarily
attributable to additional sales personnel in the new markets and related
expenses.
Other Income, Net. Other income, net, increased to $188,000 in the second
quarter of 1996 compared to $13,000 in the 1995 period. The increase is due
primarily to the income earned on the short-term investment of cash from the
August 1995 sale of common stock.
Income Taxes. The Company's effective income tax rate increased to 36.5% in
1996 from 36.0% in 1995. That increase is the result of the Company's expansion
into new states and the corresponding increase in state income taxes.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Sales. Sales increased by 53.5% to $18,857,000 in the first six months of
1996 from $12,284,000 in the comparable 1995 period, primarily due to expansion
into new markets and growth in existing markets. The sales increase reflects a
58.2% increase in sales volume to 109,000 barrels in the first six months of
1996 from 68,900 barrels in the comparable 1995 period, and relatively stable
sales prices. The sales increase includes the effect of a decrease in the
Company's other sales to $1,393,000 in the first six months of 1996, from
$1,438,000 in the comparable period of 1995.
Excise Taxes. Excise taxes increased to $1,826,000, or 10.7% of net sales in
the first six months of 1996, from $1,111,000, or 9.9% of net sales in the
comparable period of 1995, reflecting increased sales volumes and the increased
excise tax rate applicable to annual production in excess of 60,000 barrels.
Cost of Sales. Cost of sales increased to $10,853,000 in the first six
months of 1996 from $7,354,000 in 1995, primarily due to the increase in sales
volume. Cost of sales, as a percentage of net sales, decreased to 63.7% in 1996
compared to 65.8% in 1995, primarily due to increased capacity utilization and
the resulting effect of spreading fixed and semivariable operating costs over a
larger production base, substantially offset by higher freight costs. The
utilization rate of the breweries' maximum designed capacity was 67% and 42% in
the first six months ended June 30, 1996 and 1995, respectively. Shipping
expense significantly increased in the first six months of 1996 compared to
first six months of 1995, reflecting increased shipments of beer to new, more
distant markets. The Company expects that cost of goods sold, as a percentage
of sales, will be negatively inpacted once the Portsmouth Brewery begins
production and the Company's capacity utilization rate declines. That negative
impact will be partially offset by lower freight costs on shipments to eastern
markets.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $3,394,000 in the first six months of 1996
from $1,974,000 in 1995. The increase is primarily related to the Company's
expansion into new markets. These expenses increased as a percentage of net
sales to 19.9% in the first six months of 1996 from 17.7% in 1995, primarily
attributable to additional sales personnel in the new markets and related
expenses.
9
<PAGE> 10
Other Income, Net. Other income, net, increased to $446,000 in the first six
months of 1996 compared to $24,000 in the 1995 period. The increase is due
primarily to the income earned on the short-term investment of cash from the
August 1995 sale of common stock.
Income Taxes. The Company's effective income tax rate increased to 36.5% in
1996 from 36.0% in 1995. That increase is the result of the Company's expansion
into new states and the corresponding increase in state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $7,831,000 and $24,677,000 of cash and cash equivalents at
June 30, 1996 and December 31, 1995, respectively. At June 30, 1996, the Company
had working capital of $5,574,000. The Company's long-term debt as a percentage
of total capitalization (long-term debt, preferred stock and common
stockholders' equity) was 2.4% and 2.5% as of June 30, 1996 and December 31,
1995, respectively.
Capital expenditures for the first six months of 1996 totaled $19,339,000.
The capital expenditures relate primarily to additional fermentation equipment,
including outdoor tanks, for the Woodinville Brewery and costs associated with
the construction of the new brewery in Portsmouth, New Hampshire. The
construction of the Portsmouth Brewery began in late May 1995 and that facility
is expected to commence operations by early in the fourth quarter of 1996. The
initial production capacity at the Portsmouth brewery will be 100,000 barrels on
an annual basis, with maximum designed production capacity of 250,000 barrels
per year to be phased in through late 1997. The total cost of the Portsmouth
Brewery will be approximately $30 million. In April 1996, the Company began
construction of a keg racking and cold storage facility at the Woodinville
Brewery. This facility is expected to cost approximately $6 million and will be
used to supplement the supply of Redhook draft beer in western states. Capital
expenditures for 1996 are expected to total between $25 million and $30 million.
The Company has $10 million available under a secured bank facility (the
"Secured Facility"). In addition, the Company has $10 million available under an
unsecured revolving credit facility with the same bank. The revolving period for
both facilities expires on June 5, 1997, and, until then, any required payments
will be interest-only. On June 5, 1997, the unsecured facility terminates and
the Secured Facility can be converted to a five-year term loan with a 20-year
amortization schedule. The Company intends to extend the term of its unsecured
line to June 1998. Interest accrues at a variable rate based on the Inter Bank
Offered Rate ("IBOR") plus 1.00% to 2.50%, depending on the Company's
debt-to-tangible net worth ratio. The Company can fix the rate by selecting IBOR
for one- to twelve-month periods as a base. As of June 30, 1996, there were no
borrowings outstanding under these bank facilities and the Company's one-month
IBOR-based borrowing rate was approximately 6.50%.
The Company believes that the cash and cash equivalents on hand and the net
cash flow provided by operations will be sufficient to meet its short-term
liquidity requirements. In addition, the Company believes that available cash
and operating cash flow will be sufficient to meet substantially all of its
financing requirements related to the completion of the final phases of the
Woodinville Brewery and construction of the Portsmouth Brewery. The Company
expects to meet any additional future financing needs through operating cash
flow and, to the extent required and available, additional bank borrowings and
offerings of debt, convertible securities or equity securities.
The Company has certain commitments, contingencies and uncertainties
relating to its normal operations. Management believes that no such commitments,
uncertainties or contingent liabilities, including any environmental
uncertainties, will have a material adverse effect on the Company's financial
position or results of operations.
10
<PAGE> 11
NEW ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, Accounting for Stock-Based Compensation ("Statement No. 123"). This
pronouncement establishes the accounting and reporting standards for stock-based
employee compensation plans, including: stock purchase plans, stock options and
stock appreciation rights. This new standard defines a fair value-based method
of accounting for these equity instruments. This method measures compensation
cost based on the value of the award and recognizes that cost over the service
period. Companies may elect to adopt this standard or to continue accounting for
these types of equity instruments under current guidance, APB Opinion No. 25,
Accounting for Stock Issued to Employees ("Opinion No. 25"). Companies that
elect to continue using the rules of Opinion No. 25 must make pro forma
disclosures of net income and earnings per share as if Statement No. 123 had
been applied. The new disclosures are required for fiscal years beginning after
December 15, 1995. The Company has elected to continue accounting in accordance
with Opinion No. 25 and will include the pro forma disclosures required by
Statement No. 123 in the footnotes to its financial statements for the year
ending December 31, 1996. The pro forma footnote disclosures will have no effect
on the Company's Balance Sheet or Statement of Income.
11
<PAGE> 12
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 August 8, 1996.
REDHOOK ALE BREWERY, INCORPORATED
BY: /s/ Bradley A. Berg
-------------------
Bradley A. Berg
Executive Vice President and
Chief Financial Officer
BY: /s/ David H. Kirske
--------------------
David H. Kirske
Controller and Treasurer
(Principal Accounting Officer)
DATE: August 8, 1996
12
<PAGE> 13
PART II. - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on May 21, 1996. The
following matters were voted upon by the shareholders with the results as
follows:
(1) The following persons were nominated by the Board of Directors and
each was elected to serve as a director until the next Annual Meeting
of Shareholders or until his earlier retirement, resignation or
removal: Paul S. Shipman, Gordon A. Bowker, John T. Carleton, Frank H.
Clement, Jerry D. Jones, William H. McNulty, Bruce M. Sandison, Walter
F. Walker and Dennis P. Weston.
The number of votes cast for or withheld for each director
nominee was as follows:
<TABLE>
<CAPTION>
Nominee For Withheld
<S> <C> <C> <C>
Paul S. Shipman 6,550,718 17,225
Gordon A. Bowker 6,550,835 17,108
John T. Carleton 6,550,208 17,735
Frank H. Clement 6,549,730 18,213
Jerry D. Jones 6,550,185 17,758
William H. McNulty 6,549,383 18,560
Bruce M. Sandison 6,549,483 18,460
Walter F. Walker 6,549,818 18,125
Dennis P. Weston 6,550,368 17,575
</TABLE>
(2) The shareholders voted 6,309,040 shares in the affirmative, 79,310
shares in the negative, 38,141 shares abstained and 141,452 broker
non-votes to amend the existing Redhook Ale Brewery, Incorporated 1992
Stock Incentive Plan (the "1992 Plan"), as amended, to increase the
number of shares of Common Stock issuable under the 1992 Plan from
770,000 shares to 1,270,000 shares and to limit the number of shares
subject to options that may be granted to any person in any one
calendar year.
(3) The shareholders voted 6,028,387 shares in the affirmative, 294,664
shares in the negative, 103,440 shares abstained and 141,452 broker
non- votes to amend the existing Redhook Ale Brewery, Incorporated
Amended and Restated Directors Stock Option Plan (the "Directors Plan")
to increase the number of shares of Common Stock issuable under the
Directors Plan from 70,000 shares to 170,000 shares and to increase the
maximum number of shares subject to options that may be granted under
the Directors Plan to any one director in any one calendar year from
2,000 shares to 4,000 shares.
(4) The shareholders voted 6,533,218 shares in the affirmative, 8,408
shares in the negative and 26,317 shares abstained to ratify the
appointment of Ernst & Young LLP, as independent auditors for the
Company's year ending December 31, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
The following exhibits are filed as part of this report.
10.30 Amendment No. 1 dated as of June 26, 1996, to Master
Distribution Agreement between Registrant and
Anheuser-Busch, Incorporated, dated October 18, 1994
10.31 Amendment dated as of February 27, 1996, to Registrant's
1992 Stock Incentive Plan, as amended
10.32 Amendment dated as of February 27, 1996, to Amended and
Restated Registrant's Directors Stock
Option Plan
10.33 Amendment dated as of July 25, 1996, to Registrant's 1992
Stock Incentive Plan, as amended
11.1 Computation of Earnings Per Share
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K
None filed during the quarter ended June 30, 1996.
ITEMS 1, 2, 3 AND 5 OF PART II ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
<PAGE> 1
EXHIBIT 10.30
[ANHEUSER-BUSCH, INC. LETTERHEAD]
June 26, 1996
Paul S. Shipman
President and Chief Executive Officer
Redhook Ale Brewery, Incorporated
3400 Phinney Avenue North
Seattle, Washington 98103
Re: MASTER DISTRIBUTOR AGREEMENT DATED OCTOBER 18, 1994
("DISTRIBUTION AGREEMENT")
Dear Paul:
As you know, Anheuser-Busch, Incorporated ("ABI") and Redhook Ale
Brewery, Incorporated ("Redhook") have agreed to amend the Distribution
Agreement as it applies to the sale of malt beverage products in the State of
Washington.
We have agreed that notwithstanding the provisions of the Distribution
Agreement, Redhook shall distribute Products in the State of Washington
pursuant to certain agreements to be entered into among ABI, Redhook and
certain wholesalers of the malt beverage products of ABI ("Wholesalers"). For
purposes of the Distribution Agreement, all Wholesalers shall be deemed to be
Alliance Wholesalers, and the rights and obligations of each of ABI and Redhook
with respect to the Alliance Wholesalers and their sale of Products shall be
governed by the terms of the Distribution Agreement, as modified hereby.
ABI and Redhook agree that the sale of the Products to the Wholesalers
shall be governed by the following provisions.
Redhook shall sell Products directly to the Wholesalers and ABI shall
never have title to any Products sold to the Wholesalers. Redhook shall
determine the price to be paid for the Products by the Wholesalers, and ABI
shall have no liability with respect to any Additional Price Component.
Title to and risk of loss of the Products shall remain with Redhook
until delivery of the Products to the Wholesalers. Redhook shall deliver the
Products to each Wholesaler F.O.B., source brewery, or to such other location
as may be agreed upon between such Wholesaler to Redhook. ABI shall have no
responsibility for the return of any cooperage from any Wholesaler to Redhook.
<PAGE> 2
Mr. Paul Shipman
June 26, 1996
Page 2
At the option of Redhook, Redhook may require ABI, upon reasonable
advance notice, to designate to Redhook the Products to be shipped to each
Wholesaler by brand, package and quantity and to remit to Redhook the price
charged by Redhook to the Wholesalers. ABI shall remit to Redhook payments
received by ABI from the Wholesalers with respect to the Products within two
business days of receipt by ABI of such payments. In the event ABI provides
such services to Redhook, ABI shall receive payment of Invoicing Costs, and
shall be entitled to deduct Invoicing Costs from payments otherwise to be
remitted to Redhook. In any event, Redhook shall pay to ABI the Margin with
respect to all sales of Products to the Wholesalers.
Redhook shall have the same responsibility for assuring compliance of
the Products sold to the Wholesalers, and their production, sale, packaging and
delivery, with the requirements of the Federal Food, Drug and Cosmetic Act, as
amended, and any other governmental law, regulation and order as otherwise
provided in the Distribution Agreement with respect to Products sold to ABI.
Redhook shall have the same indemnity obligations with respect to Products sold
to Wholesalers as otherwise provided in the Distribution Agreement with respect
to Products sold to ABI.
This letter agreement shall be governed by and construed under the laws
of Missouri, and all terms used herein shall have the meanings assigned to them
in the Distribution Agreement, unless otherwise indicated.
Please indicate your acceptance of the terms of this letter agreement
by executing this letter in the indicated location and returning a copy to me.
Very truly yours,
/s/ BRUCE M. SANDISON
---------------------
Bruce M. Sandison
Vice President-Wholesaler System Development
Agreed to this 26th day of June, 1996
Redhook Ale Brewery, Incorporated
By: /s/ PAUL SHIPMAN
-----------------------------
President
<PAGE> 1
EXHIBIT 10.31
AMENDMENT TO
REDHOOK ALE BREWERY, INCORPORATED
1992 STOCK INCENTIVE PLAN
THIS AMENDMENT is adopted as of February 27, 1996, by REDHOOK ALE
BREWERY, INCORPORATED, a Washington corporation (the "Company").
RECITALS
A. The Redhook Ale Brewery, Incorporated 1992 Stock Incentive Plan (the
"1992 Plan") was adopted by the Board of Directors of the Company on October 20,
1992, and approved by the shareholders of the Company on March 31, 1993
(capitalized terms used but not defined in this Amendment will have the meanings
given those terms in the 1992 Plan).
B. On October 11, 1994, the Board of Directors of the Company approved an
amendment to Section 4.1 of the 1992 Plan increasing from 390,000 to 570,000 the
number of shares of Common Stock with respect to which Awards could be granted
under the 1992 Plan, and this amendment was approved by the shareholders of the
Company on November 10, 1994.
C. On May 24, 1995, the Board of Directors of the Company approved an
amendment to Section 4.1 of the 1992 Plan increasing from 570,000 to 770,000 the
number of shares of Common Stock with respect to which Awards could be granted
under the 1992 Plan, and this amendment was approved by the shareholders of the
Company on June 14, 1995.
D. The Company desires to further amend the 1992 Plan in certain
respects.
NOW, THEREFORE, the 1992 Plan as previously amended is hereby further
amended as follows:
1. Section 4.1 of the 1992 Plan is amended by substituting "one million
two hundred seventy thousand (1,270,000)" in place of "seven hundred seventy
thousand (770,000)."
2. Section 6.1 of the 1992 Plan is amended by adding the following
sentence at the end of the paragraph:
The number of shares subject to any Option or Options granted to any
person in one calendar year shall not exceed one hundred fifty thousand
(150,000).
3. Except as amended hereby, the 1992 Plan as previously amended shall
remain in full force and effect.
IN WITNESS WHEREOF, this Amendment has been executed as of the date and
year first above written.
REDHOOK ALE BREWERY, INCORPORATED
By /s/ Bradley A. Berg
-----------------------------------------
Bradley A. Berg, Executive Vice President
and Chief Financial Officer
EXHIBIT A
<PAGE> 1
EXHIBIT 10.32
AMENDMENT
TO
REDHOOK ALE BREWERY, INCORPORATED
DIRECTORS STOCK OPTION PLAN
THIS AMENDMENT is adopted as of February 27, 1996, by REDHOOK ALE
BREWERY, INCORPORATED, a Washington corporation (the "Company").
RECITALS
A. The Redhook Ale Brewery, Incorporated Directors Stock Option Plan (the
"Directors Plan") was adopted by the Board of Directors of the Company on
February 26, 1993, and approved by the shareholders of the Company on March 31,
1993 (capitalized terms used but not defined in this Amendment will have the
meanings given those terms in the Directors Plan).
B. On May 24, 1995, the Board of Directors of the Company amended and
restated the Directors Plan, and the Amended and Restated Directors Stock
Option Plan was approved by the shareholders of the Company on June 14, 1995.
C. The Company desires to further amend the Directors Plan in order to
further increase the number of shares of Common Stock with respect to which
Awards can be granted under the Directors Plan and increase the number of shares
of Common Stock with respect to the annual Award granted to each individual
director.
NOW, THEREFORE, the Directors Plan as previously amended is hereby
further amended as follows:
1. Section 4.1 of the Directors Plan is amended by substituting "four
thousand (4,000)" in place of "two thousand (2,000)."
2. Section 5 of the Directors Plan is amended by substituting "one
hundred seventy thousand (170,000)" in place of "seventy thousand (70,000)."
3. Except as amended hereby, the Directors Plan as previously amended
shall remain in full force and effect.
IN WITNESS WHEREOF, this Amendment has been executed as of the date and
year first above written.
REDHOOK ALE BREWERY, INCORPORATED
By /s/ Bradley A. Berg
-----------------------------------------
Bradley A. Berg, Executive Vice President
and Chief Financial Officer
<PAGE> 1
EXHIBIT 10.33
AMENDMENT TO
REDHOOK ALE BREWERY, INCORPORATED
1992 STOCK INCENTIVE PLAN
THIS AMENDMENT is adopted as of July 25, 1996, by REDHOOK ALE BREWERY,
INCORPORATED, a Washington corporation (the "Company").
RECITALS
A. The Redhook Ale Brewery, Incorporated 1992 Stock Incentive Plan (the
"1992 Plan") was adopted by the Board of Directors of the Company on October 20,
1992, and approved by the shareholders of the Company on March 31, 1993
(capitalized terms used but not defined in this Amendment will have the meanings
given those terms in the 1992 Plan).
B. On October 11, 1994, the Board of Directors of the Company approved an
amendment to Section 4.1 of the 1992 Plan increasing from 390,000 to 570,000 the
number of shares of Common Stock with respect to which Awards could be granted
under the 1992 Plan, and this amendment was approved by the shareholders of the
Company on November 10, 1994.
C. On May 24, 1995, the Board of Directors of the Company approved an
amendment to Section 4.1 of the 1992 Plan increasing from 570,000 to 770,000 the
number of shares of Common Stock with respect to which Awards could be granted
under the 1992 Plan, and this amendment was approved by the shareholders of the
Company on June 14, 1995.
D. On February 27, 1996, the Board of Directors of the Company approved
(a) an amendment to Section 4.1 of the 1992 Plan increasing from 770,000 to
1,270,000 the number of shares of Common Stock with respect to which Awards
could be granted under the 1992 Plan, and (b) an amendment to Section 6.1 of the
1992 Plan limiting the number of shares subject to any Option or Options granted
to any person in one calendar year, and these amendments were approved by the
shareholders of the Company on May 21, 1996.
E. The Company desires to further amend the 1992 Plan in certain
respects.
NOW, THEREFORE, the 1992 Plan as previously amended is hereby further
amended as follows:
1. Section 2.1 of the Plan is amended to add the following definition
immediately following the definition of "Exchange Act":
"Executive Officer" means any employee of the Company who is an "officer"
within the meaning of Rule 16a-1(f) of the Exchange Act, as amended from
time to time, or any successor rule or rules thereto.
2. Section 6.3 of the Plan is amended to read in its entirety as follows:
6.3 ANNUAL LIMITATION ON GRANTS OF INCENTIVE STOCK OPTIONS. The aggregate
Fair Market Value of the shares of Common Stock with respect to which,
during any calendar year, one or more Incentive Stock Options under this
Plan (and/or one or more options under any other plan maintained by the
Company or any of its Affiliates for the granting of options intended to
qualify under Section 422 of the Code) become exercisable for the first
time by a Holder shall not exceed $100,000 (said value to be determined
as of the respective dates on which the options are
<PAGE> 2
granted to the Holder). If (a) a Holder holds one or more Incentive Stock
Options under this Plan (and/or one or more options under any other plan
maintained by the Company or any of its Affiliates for the granting of
options intended to qualify under Section 422 of the Code), and (b) the
aggregate Fair Market Value of the shares of Common Stock with respect to
which, during any calendar year, such options become exercisable for the
first time exceeds $100,000 (said value to be determined as provided
above), then such option or options are intended to qualify under Section
422 of the Code with respect to the maximum number of such shares as can,
in light of the foregoing limitation, be so qualified, with the shares so
qualified to be the shares subject to the option or options earliest
granted to the Holder. If an Option that would otherwise qualify as an
Incentive Stock Option becomes exercisable for the first time in any
calendar year for shares of Common Stock that would cause such aggregate
Fair Market Value to exceed $100,000, then the portion of the Option in
respect of such shares shall be deemed to be a Nonqualified Stock Option.
3. Article VI of the Plan is amended to add the following at the end
thereof:
6.8 GRANTS OF OPTIONS BY CHIEF EXECUTIVE OFFICER. Notwithstanding the
foregoing provisions of this Article VI, the person serving as Chief
Executive Office of the Company shall be authorized to designate from
time to time those eligible employees to be granted Options, the time
when the Options shall be granted to the eligible employees, the number
of shares subject to such Options, whether the Options are to be
Incentive Stock Options or Nonqualified Stock Options, the purchase price
of the shares of Common Stock subject to the Options, and such other
terms and conditions of the Options as the Chief Executive Officer
determines; PROVIDED, HOWEVER, that (a) the authority of the Chief
Executive Officer under this Section 6.8 shall not exceed that of the
Committee under the foregoing provisions of this Article VI; (b) the
Chief Executive Officer shall have no authority under this Section 6.8 to
grant any Option to any person who is an Executive Officer at the time of
the grant; (c) the purchase price of the shares of Common Stock subject
to an Option granted under this Section 6.8 shall not be less than the
Fair Market Value of the Common Stock as of the date the Option is
granted; and (d) the Chief Executive Officer shall provide a report to
the Committee of all persons to whom options have been granted under this
Section 6.8 and the material terms and conditions of such Options.
4. Except as amended hereby, the 1992 Plan as previously amended shall
remain in full force and effect.
IN WITNESS WHEREOF, this Amendment has been executed as of the date and
year first above written.
REDHOOK ALE BREWERY, INCORPORATED
By /s/ Bradley A. Berg
-----------------------------------------
Bradley A. Berg, Executive Vice President
and Chief Financial Officer
<PAGE> 1
EXHIBIT 11.1
REDHOOK ALE BREWERY, INCORPORATED
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- --------------------------
1996 1995 1996 1995
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Primary and fully-diluted earnings per common share:
Weighted average common shares outstanding........... 7,641,364 3,529,838 7,639,768 3,529,838
Weighted average common stock equivalents outstanding
Series A convertible redeemable preferred stock.... - 1,242,857 - 1,242,857
Series B convertible redeemable preferred stock.... 1,289,872 1,289,872 1,289,872 1,289,872
Stock options, net ................................ 227,003 86,468 229,845 86,468
Net effect of issuance of common stock and Series B
preferred stock and the granting of stock options during
the 12-month period prior to the offering at less than the
offering price, calculated using the treasury stock method
at the offering price, and treated as outstanding . - 39,820 - 39,820
--------- --------- --------- ---------
Average number of common
and equivalent shares outstanding ................. 9,158,239 6,188,855 9,159,485 6,188,855
========== ======== ========== ==========
Net income ............................................ $1,167,742 $726,910 $2,051,272 $1,195,963
========== ======== ========== ==========
Earnings per share..................................... $0.13 $0.12 $0.22 $0.19
========== ======== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 7,831,289
<SECURITIES> 0
<RECEIVABLES> 2,599,330
<ALLOWANCES> 10,000
<INVENTORY> 1,227,943
<CURRENT-ASSETS> 12,496,130
<PP&E> 81,049,559
<DEPRECIATION> 4,794,295
<TOTAL-ASSETS> 89,192,312
<CURRENT-LIABILITIES> 6,921,730
<BONDS> 1,758,002
15,899,655
0
<COMMON> 38,427
<OTHER-SE> 61,576,830
<TOTAL-LIABILITY-AND-EQUITY> 89,192,312
<SALES> 17,031,410
<TOTAL-REVENUES> 18,857,226
<CGS> 10,852,782
<TOTAL-COSTS> 16,072,872
<OTHER-EXPENSES> (445,996)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,230,350
<INCOME-TAX> 1,179,078
<INCOME-CONTINUING> 2,051,272
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,051,272
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
