<PAGE> 1
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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 SEPTEMBER 30, 1997
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 98103-8624
(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: 7,686,686 shares outstanding
as of September 30, 1997.
Page 1 of 13 sequentially numbered pages
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<PAGE> 2
REDHOOK ALE BREWERY, INCORPORATED
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial
Statements
Balance Sheets
September 30, 1997 and December 31, 1996...................... 3
Statements of Operations
Three Months Ended September 30, 1997 and 1996
and Nine Months Ended September 30, 1997 and 1996............. 4
Condensed Statements of Cash Flows
Nine Months 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 ............................................ 7
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.......................................... 12
</TABLE>
2
<PAGE> 3
PART I. Financial Information
ITEM 1. Financial Statements
REDHOOK ALE BREWERY, INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents ...................................... $ 1,756,843 $ 1,162,352
Accounts Receivable ............................................ 1,290,084 2,051,591
Inventories .................................................... 2,774,428 2,229,376
Income Taxes Receivable ........................................ 729,071 427,075
Other .......................................................... 546,040 1,725,942
----------- -----------
Total Current Assets ......................................... 7,096,466 7,596,336
Fixed Assets, Net ................................................ 89,220,722 86,357,559
Other Assets ..................................................... 1,151,402 1,170,144
----------- -----------
Total Assets ............................................... $97,468,590 $95,124,039
=========== ===========
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable ............................................... $ 2,355,115 $ 4,075,699
Accrued Salaries, Wages, and Payroll Taxes ..................... 1,277,761 1,220,212
Refundable Deposits ............................................ 1,141,725 950,926
Other Accrued Expenses ......................................... 356,902 367,025
Current Portion of Long-Term Debt .............................. 589,420 132,554
----------- -----------
Total Current Liabilities .................................... 5,720,923 6,746,416
----------- -----------
Long-Term Debt, Net of Current Portion ........................... 10,022,868 6,190,764
----------- -----------
Deferred Income Taxes ............................................ 3,853,731 3,582,692
----------- -----------
Other Liabilities ................................................ 42,874 52,461
----------- -----------
Convertible Redeemable Preferred Stock ........................... 15,955,155 15,921,855
----------- -----------
Common Stockholders' Equity:
Common Stock, Par Value $0.005 per Share, Authorized, 50,000,000
Shares; Issued and Outstanding, 7,686,686 Shares in 1997 and
7,685,486 Shares in 1996 ..................................... 38,434 38,428
Additional Paid-In Capital ..................................... 56,652,973 56,652,764
Retained Earnings .............................................. 5,181,632 5,938,659
----------- -----------
Total Common Stockholders' Equity .......................... 61,873,039 62,629,851
----------- -----------
Total Liabilities, Preferred Stock and
Common Stockholders' Equity ............................ $97,468,590 $95,124,039
=========== ===========
</TABLE>
See Accompanying Notes
3
<PAGE> 4
REDHOOK ALE BREWERY, INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- --------------------------
1997 1996 1997 1996
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales ......................................... $9,718,785 $10,393,830 $28,563,068 $29,251,056
Less Excise Taxes ............................. 879,858 963,032 2,728,798 2,788,848
---------- ----------- ----------- -----------
Net Sales ..................................... 8,838,927 9,430,798 25,834,270 26,462,208
Cost of Sales ................................. 6,546,247 6,045,247 19,272,627 16,898,029
---------- ----------- ----------- -----------
Gross Profit .................................. 2,292,680 3,385,551 6,561,643 9,564,179
Selling, General and Administrative Expenses .. 2,450,924 2,117,104 7,390,086 5,511,378
---------- ----------- ----------- -----------
Operating Income (Loss) ...................... (158,244) 1,268,447 (828,443) 4,052,801
Interest Expense .............................. 187,058 - 192,840 -
Other Income -- Net ........................... 35,142 128,672 72,687 574,668
---------- ----------- ----------- -----------
Income (Loss) before Income Taxes ............. (310,160) 1,397,119 (948,596) 4,627,469
Provision (Benefit) for Income Taxes .......... (44,392) 509,948 (265,806) 1,689,026
---------- ----------- ----------- -----------
Net Income (Loss) ............................. $ (265,768) $ 887,171 $ (682,790) $ 2,938,443
========== =========== =========== ===========
Net Income (Loss) per Share ................... $ (0.03) $ 0.10 $ (0.09) $ 0.32
========== =========== =========== ===========
Weighted Average Common and Common
Equivalent Shares Outstanding ............... 7,686,686 9,141,758 7,686,244 9,146,227
========== =========== =========== ===========
</TABLE>
See Accompanying Notes
4
<PAGE> 5
REDHOOK ALE BREWERY, INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) ............................................................. $(682,790) $2,938,443
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided by Operating Activities:
Depreciation and Amortization ............................................. 2,502,187 1,347,780
Deferred Income Tax Provision ............................................. 271,039 767,038
Net Change in Operating Assets and Liabilities ............................ 204,046 (463,135)
---------- ----------
Net Cash Provided by Operating Activities ..................................... 2,294,482 4,590,126
---------- ----------
INVESTING ACTIVITIES
Expenditures for Fixed Assets ................................................. (5,906,439) (27,437,847)
Other ......................................................................... (41,800) (66,914)
---------- ----------
Net Cash Used in Investing Activities ......................................... (5,948,239) (27,504,761)
---------- ----------
FINANCING ACTIVITIES
Proceeds from Debt ............................................................ 5,350,000 17,000,000
Repayments on Debt ............................................................ (1,061,030) (17,091,811)
Other ......................................................................... (40,722) 16,397
---------- ----------
Net Cash Provided by (Used in) Financing Activities ........................... 4,248,248 (75,414)
---------- ----------
Increase (Decrease) in Cash and Cash Equivalents .............................. 594,491 (22,990,049)
Cash and Cash Equivalents:
Beginning of Year ........................................................... 1,162,352 24,676,600
---------- ----------
End of Period ............................................................... $1,756,843 $1,686,551
========== ==========
</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 and 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 were 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 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
for the three- and nine-month periods ended September 30, 1996. The convertible
preferred stock and outstanding stock options have been excluded from the
calculation for the quarter and nine-month period ended September 30, 1997
because their effect is antidilutive. The calculation uses the treasury stock
method in determining the resulting incremental common equivalent shares
outstanding.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Finished goods........................................... $1,776,688 $1,264,480
Raw materials............................................ 419,139 282,603
Promotional merchandise.................................. 370,182 511,089
Packaging materials...................................... 208,419 171,204
----------- -----------
$2,774,428 $2,229,376
=========== ===========
</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 nine months ended
September 30, 1997, the Company had gross sales of $28,563,000 compared to
$29,251,000 in the comparable period of 1996. 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 and Anheuser-Busch,
Inc. ("A-B") through the Distribution Alliance. 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, if sales volumes
increase, federal excise taxes would increase as a percentage of sales.
The Company's sales growth slowed significantly in late 1996 and sales
volumes have declined 2.9% in the nine-month period ended September 30, 1997,
compared to the comparable 1996 period. In addition to the level of consumer
demand in existing markets, the Company's sales are also affected by other
factors such as the opening of new distribution territories, new product
introductions and competitive considerations, including the increasing number of
craft brewers and promotional pricing. Sales in the craft beer industry
generally reflect a degree of seasonality, with the first quarter historically
being the slowest and 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 future periods is limited.
Under normal circumstances, the Company generally operates its brewing
facilities up to five days per week, two shifts per day. The Company has
increased its companywide annual production capacity from approximately 3,000
barrels at its first brewery in the Ballard neighborhood of Seattle in 1982 to
approximately 425,000 barrels as of September 30, 1997. 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 sales growth in new and existing markets.
The Portsmouth, New Hampshire brewery began commercial production during October
1996. The Portsmouth Brewery's current production capacity is approximately
100,000 barrels per year and its maximum designed production capacity is
approximately 250,000 barrels per year. Additional capital expenditures and
production personnel will be required to bring the Portsmouth Brewery to its
maximum designed capacity.
Upon the opening of the Portsmouth Brewery, the Company's maximum designed
production capacity increased from 325,000 barrels per year to 575,000 barrels
per year, resulting in a significant decline in the company-wide capacity
utilization rate. The Company's capacity utilization has a significant impact on
its gross profit. When facilities are operating at their maximum designed
production capacities, 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 when actual production increases.
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 A-B; changes in
packaging and other material costs; and changes in product sales mix. The
incremental cost of shipping beer from the Company's breweries will increase as
the volume of beer supplied to more distant markets increases. The commencement
of production at the Portsmouth Brewery has reduced shipping expenses to eastern
U.S. markets.
7
<PAGE> 8
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Certain Considerations: Issues and Uncertainties."
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items from
the Company's Statements of Operations expressed as a percentage of net sales.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -----------------
1997 1996 1997 1996
-------- ------ ------- -------
<S> <C> <C> <C> <C>
Sales 110.0 % 110.2% 110.6% 110.5%
Less Excise Taxes 10.0 10.2 10.6 10.5
-------- ------ ------- -------
Net Sales 100.0 100.0 100.0 100.0
Cost of Sales 74.1 64.1 74.6 63.9
-------- ------ ------- -------
Gross Profit 25.9 35.9 25.4 36.1
Selling, General and Administrative Expenses 27.7 22.4 28.6 20.8
-------- ------ ------- -------
Operating Income (Loss) (1.8) 13.5 (3.2) 15.3
Interest Income (Expense)-- Net (1.7) 1.3 (0.4) 2.2
-------- ------ ------- -------
Income (Loss) Before Income Taxes (3.5) 14.8 (3.6) 17.5
Provision (Benefit) for Income Taxes (0.5) 5.4 (1.0) 6.4
-------- ------ ------ -------
Net Income (Loss) (3.0)% 9.4% (2.6)% 11.1%
======== ====== ======= =======
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
Sales. Total sales decreased by 6.5% to $9,719,000 in the third quarter of
1997 from $10,394,000 in the comparable 1996 period, primarily due to a 6.3%
decline in total sales volumes to 54,000 barrels from 57,600 barrels. At
September 30, 1997 and 1996, the Company was selling beer in 47 states. The
total third quarter sales volume decline included a decrease in West Coast
sales. Sales in Washington state, the Company's largest market, declined 3.7% in
the third quarter of 1997 compared to the third quarter of 1996. The competitive
landscape has been affected by the increase in the number of craft beer
companies and the number of different products they offer. The Company's other
sales totaled $1,120,000 for the third quarter of 1997, compared to $1,166,000
for the same period in 1996.
Excise Taxes. Excise taxes decreased to $880,000, or 10.0% of net sales in
the third quarter of 1997, from $963,000, or 10.2% of net sales in the
comparable quarter of 1996, reflecting decreased sales volumes.
Cost of Sales. Cost of sales increased to $6,546,000 in the third quarter of
1997 from $6,045,000 in the comparable quarter of 1996, primarily due to the
impact of the depreciation and other operating costs related to the new brewery
in Portsmouth, New Hampshire, partially offset by the effects of decreases in
sales volume, freight expense and packaging costs. Cost of sales, as a
percentage of net sales, increased to 74.1% in the third quarter of 1997
compared to 64.1% in the comparable period of 1996, primarily due to an increase
in the fixed and semivariable costs associated with operating the new brewery,
partially offset by freight savings on shipments to eastern markets and a
decrease in packaging costs. The companywide utilization rate of maximum
designed capacity was 38% and 71% in the three months ended September 30, 1997
and 1996, respectively. The companywide utilization rate decreased in the 1997
period due primarily to the increase in capacity associated with the
commissioning of the Portsmouth Brewery during the fourth quarter of 1996.
8
<PAGE> 9
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $2,451,000 in the third quarter of 1997
from $2,117,000 in the comparable quarter of 1996. The increase is primarily
related to the Company's expansion of distribution. These expenses increased as
a percentage of net sales to 27.7% in 1997 from 22.4% in 1996, primarily
attributable to additional sales personnel and related expenses in new markets,
and increased promotional and marketing expenses in the Company's existing
markets that are increasingly competitive.
Interest Expense. Interest expense totaled $187,000 in the third quarter of
1997. In the comparable quarter of 1996, all interest incurred was capitalized
as part of brewery construction costs. Substantially all
construction-in-progress was placed in service as of July 1, 1997.
Other Income -- Net. Other income -- net decreased to $35,000 in the third
quarter of 1997 compared to $129,000 in the comparable quarter of 1996. The
decrease is due primarily to a decline in income from short-term investments as
available funds were invested in the Portsmouth and Woodinville breweries.
Income Taxes. The Company's effective income tax rate decreased to a 14.3%
benefit in the third quarter of 1997 from a 36.5% expense in the third quarter
of 1996. The decrease is primarily the result of lower pre-tax results relative
to other components of the tax provision calculation, such as the exclusion of a
portion of meals and entertainment expenses from tax return deductions.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
Sales. Total sales decreased 2.4% to $28,563,000 for the first nine months of
1997 compared to $29,251,000 for the comparable 1996 period, as a 2.9% decrease
in total sales volumes was partially offset by an increase in other sales.
Although total sales volumes for the nine months ended September 30, 1997
decreased to 161,800 barrels from 166,600 barrels in the comparable 1996 period,
West Coast sales decreased for the same period, including a 4.7% decline in
Washington state, the Company's largest market. The competitive landscape has
been affected by the increase in the number of craft beer companies and the
number of different products they offer. The Company's other sales totaled
$2,631,000 in the first nine months of 1997, compared to $2,559,000 for the same
period in 1996.
Excise Taxes. Excise taxes were substantially unchanged at $2,729,000, or
10.6% of net sales in the first nine months of 1997, compared to $2,789,000, or
10.5% of net sales in the comparable period of 1996.
Cost of Sales. Cost of sales increased to $19,273,000 in the first nine
months of 1997 from $16,898,000 in the comparable period of 1996, primarily due
to the impact of the depreciation and other operating costs related to the new
brewery in Portsmouth, New Hampshire, partially offset by the effects of
decreases in sales volume, freight expense and packaging costs. Cost of sales,
as a percentage of net sales, increased to 74.6% in the first nine months of
1997 compared to 63.9% in the comparable 1996 period, primarily due to an
increase in fixed and semivariable costs associated with operating the new
brewery, partially offset by freight savings on shipments to eastern markets and
a decrease in packaging costs. The companywide utilization rate of maximum
designed capacity was 38% and 68% in the nine months ended September 30, 1997
and 1996, respectively. The companywide utilization rate decreased in the 1997
period due primarily to the increase in capacity associated with the
commissioning of the Portsmouth Brewery.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $7,390,000 in the first nine months of 1997
from $5,511,000 in the comparable 1996 period. The increase is primarily related
to the Company's expansion of distribution. These expenses increased as a
percentage of net sales to 28.6% in 1997 from 20.8% in 1996, primarily
attributable to additional sales personnel and related expenses in new markets,
and increased promotional and marketing expenses in the Company's existing
markets that are increasingly competitive.
9
<PAGE> 10
Interest Expense. Interest expense totaled $193,000 in the first nine months
of 1997. There was no interest expense in the comparable period of 1996 as all
interest incurred was capitalized as part of brewery construction costs.
Substantially all construction-in-progress was placed in service as of July 1,
1997.
Other Income -- Net. Other income -- net decreased to $73,000 in first nine
months of 1997 compared to $575,000 in the comparable 1996 period. The decrease
is due primarily to a decline in income from short-term investments as available
funds were invested in the Portsmouth and Woodinville breweries.
Income Taxes. The Company's effective income tax rate decreased to a 28.0%
benefit in first nine months of 1997 from a 36.5% expense in the comparable 1996
period. The decrease is primarily the result of lower pre-tax results relative
to other components of the tax provision calculation, such as the exclusion of a
portion of meals and entertainment expenses from tax return deductions.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $1,757,000 and $1,162,000 of cash and cash equivalents at
September 30, 1997 and December 31, 1996, respectively. At September 30, 1997,
the Company had working capital of $1,376,000 and its long-term debt as a
percentage of total capitalization (long-term debt, preferred stock and common
stockholders' equity) was 12.0% and 7.5% as of September 30, 1997, and December
31, 1996, respectively. Cash provided by operating activities totaled $2,294,000
and $4,590,000 for the nine months ended September 30, 1997 and 1996,
respectively.
On June 5, 1997, the Company elected to convert the $9 million outstanding
balance of its secured bank facility (the "Secured Facility") to a five-year
term loan with a 20-year amortization schedule. As of September 30, 1997, there
was $8.9 million outstanding on the Secured Facility and the Company's one-month
IBOR-based borrowing rate was approximately 6.9%. In addition, the Company has a
$10 million unsecured revolving credit facility with the same bank through June
5, 1999, and as of September 30, 1997, there were no borrowings outstanding on
this facility. Interest accrues at a variable rate based on the Inter Bank
Offered Rate ("IBOR"), plus 1.25% to 2.75% for the Secured Facility, and plus
1.00% to 2.50% on the unsecured facility, 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.
The Company has required capital principally for the construction and
development of its technologically advanced production facilities. To date, the
Company has financed its capital requirements through cash flow from operations,
bank borrowings and the sale of common and preferred stock.
Capital expenditures for the nine months ended September 30, 1997 totaled
$5.9 million, including $1.8 million that was accrued at December 31, 1996. The
capital expenditures related primarily to the kegging and cold storage facility
at the Woodinville Brewery that was placed in service July 1, 1997. Capital
expenditures for 1997 are expected to total approximately $6 million, including
the amount accrued at December 31, 1996.
The Company expects to meet its future financing needs, including working
capital and capital expenditure requirements, through cash on hand, operating
cash flow and, to the extent required and available, bank borrowings and
offerings of debt or equity securities.
The Company has certain commitments, contingencies and uncertainties relating
to its normal operations. Management believes that any such commitments,
contingencies or uncertainties, including any environmental uncertainties, will
not have a material adverse effect on the Company's financial position or
results of operations.
10
<PAGE> 11
CERTAIN CONSIDERATIONS: ISSUES AND UNCERTAINTIES
The Company does not provide forecasts of future financial performance or
sales volumes, but this Quarterly Report does contain certain other types of
forward-looking statements that involve risks and uncertainties. The Company
may, in discussions of its future plans, objectives and expected performance in
periodic reports filed by the Company with the Securities and Exchange
Commission (or documents incorporated by reference therein) and in written and
oral presentations made by the Company, include forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, or
Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements are based on assumptions that the Company believes
are reasonable, but are by their nature inherently uncertain. In all cases,
there can be no assurance that such assumptions will prove correct or that
projected events will occur. Actual results could differ materially from those
projected depending on a variety of factors, including, but not limited to, the
issues discussed below, the successful execution of expansion and other plans
and the availability of financing. While Company management is optimistic about
the Company's long-term prospects, the following issues and uncertainties, among
others, should be considered in evaluating its growth outlook and any
forward-looking statements.
Effect of Competition on Future Growth. The domestic market in which the
Company's craft beers are sold is highly competitive due to the proliferation of
small craft brewers, including contract brewers, the increase in the number of
products offered by such brewers and the introduction of fuller-flavored
products by major national brewers. The Company's revenue growth rate began to
slow in late 1996 and sales have declined in 1997, due primarily to slower than
expected sales in its highly competitive West Coast markets. If negative sales
trends were to continue, the Company's future sales could be materially
adversely affected. The Company has historically operated with little or no
backlog and, therefore, its ability to predict sales for future periods is
limited.
Sales Prices. Future prices the Company charges for its products may decrease
from historical levels, depending on competitive factors in the Company's
various markets. The Company has participated in price promotions with its
wholesalers and their retail customers in most of its markets. The number of
markets in which the Company participates in price promotions and the frequency
of such promotions is expected to increase in the future.
Variability of Gross Margin and Cost of Sales. The Company anticipates that
its future gross margins will fluctuate and may decline as a result of many
factors, including disproportionate depreciation and other fixed and
semivariable operating costs, during periods when the Company's breweries are
producing below maximum designed production capacity. The Company's high level
of fixed and semivariable operating costs causes gross margin to be very
sensitive to relatively small increases or decreases in sales volume. In
addition, other factors that could affect cost of sales include changes in:
shipping costs, availability and prices of raw materials and packaging
materials, mix between draft and bottled product sales, and Federal or state
excise taxes. Also, as sales volumes through the Company's Distribution Alliance
with Anheuser-Busch, Incorporated ("A-B") increase, the alliance fee, and other
staging and administrative costs, will increase.
Advertising and Promotional Costs. While the Company has historically done
very limited advertising, market and competitive considerations could make a
significant increase in such spending appropriate. In addition, market and
competitive considerations could require a significant increase in other
promotional costs associated with developing existing and new markets.
Relationship with A-B. Most of the Company's future sales are expected to be
through the Distribution Alliance with A-B. If the Distribution Alliance were to
be terminated, or if the relationship between A-B and the Company were to
deteriorate, the Company's sales growth and profitability could be materially
adversely affected. While the Company believes that the benefits of the
Distribution Alliance, in particular access to distributors and distribution
efficiencies, offset costs associated with the Alliance, there can be no
assurance that these costs will not have a negative impact on the Company's
profit margins in the future.
11
<PAGE> 12
Dependence on Third-Party Distributors. The Company relies heavily on
third-party distributors for the sale of its products to retailers. The
Company's most significant non-Alliance wholesaler, K&L Distributors, Inc., an
A-B affiliated wholesaler in the Seattle area, accounts for approximately 17% of
the Company's 1997 sales. Substantially all of the remaining sales volumes are
through the Distribution Alliance to A-B affiliated distributors, most of whom
are independent wholesalers. The loss of K&L or the termination of the
Distribution Alliance could have a material adverse impact on the Company's
sales and profitability.
Customer Acceptance, Consumer Trends and Public Attitudes. If consumers were
unwilling to accept the Company's products or if the recent trends toward
drinking craft beers were to change, it could adversely impact the Company's
sales and profitability. The alcoholic beverage industry has become the subject
of considerable societal and political attention in recent years due to
increasing public concern over alcohol-related social problems, including drunk
driving, underage drinking and health consequences from the misuse of alcohol.
If beer consumption in general were to come into disfavor among domestic
consumers, or if the domestic beer industry were subjected to significant
additional governmental regulation, the Company's sales and profitability could
be adversely affected.
NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share ("SFAS 128"), which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
interim and annual periods. Under the new requirements for calculating "basic"
(primary) earnings per share, the dilutive effect of common stock equivalents
such as outstanding convertible preferred stock and stock options will be
excluded from the calculation. The impact of SFAS 128 on previously reported
earnings per share for the three and nine months ended September 30, 1996 will
be to increase earnings per share approximately $0.02 and $0.06 per share for
the respective periods. There will be no effect on the net loss per share for
the three and nine months ended September 30, 1997, because the effect of common
stock equivalents is antidilutive and, therefore, is excluded from the current
calculation. The impact of Statement 128 on the calculation of "diluted" (fully
diluted) earnings per share for these quarters is not expected to be material.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following exhibits are filed as part of this report.
10.35 Second Amendment to Amended and Restated Credit Agreement between
U.S. Bank of Washington, National Association and Registrant,
dated September 15, 1997.
10.36 Consent, Waiver and Amendment, dated September 19, 1997, to
Master Distributor Agreement between Registrant and
Anheuser-Busch, Incorporated, dated October 18, 1994.
11.1 Computation of Earnings (Loss) Per Share
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None were filed during the quarter ended September 30, 1997.
ITEMS 1, 2, 3, 4 AND 5 OF PART II ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
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 7, 1997.
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: November 7, 1997
13
<PAGE> 14
EXHIBIT INDEX
(a) EXHIBITS
The following exhibits are filed as part of this report.
10.35 Second Amendment to Amended and Restated Credit Agreement
between U.S. Bank of Washington, National Association and
Registrant, dated September 15, 1997.
10.36 Consent, Waiver and Amendment, dated September 19, 1997,
to Master Distributor Agreement between Registrant and
Anheuser-Busch, Incorporated, dated October 18, 1994.
11.1 Computation of Earnings (Loss) Per Share
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.35
SECOND AMENDMENT
TO AMENDED AND RESTATED CREDIT AGREEMENT
This second amendment to Amended and Restated Credit Agreement
("Amendment") is made and entered into as of September 15, 1997, by and
between REDHOOK ALE BREWERY, INCORPORATED, a Washington corporation
("Borrower"), and U.S. BANK NATIONAL ASSOCIATION ("U.S. Bank").
RECITALS:
A. On or about June 5, 1995, U.S. Bank and Borrower entered into
that certain Amended and Restated Credit Agreement (together with all
amendments, supplements, exhibits, and modifications thereto, the "Credit
Agreement"), whereby U.S. Bank agreed to make loans and advances of credit to
Borrower on the terms and conditions set forth therein.
B. On or about July 25, 1996, U.S. Bank and Borrower entered into
a First Amendment to the Credit Agreement ("First Amendment").
C. In accordance with an August 8, 1997, Amendment to Commitment
Letter Dated May 22, 1995, U.S. Bank and Borrower have agreed to extend the
Commitment Period (as that term is defined in the Credit Agreement) to June 5,
1999. The purpose of this Amendment is to set forth the terms and conditions of
U.S. Bank's and Borrower's agreement to extend the Commitment Period.
NOW, THEREFORE, in consideration of the mutual covenants and
conditions set forth herein, the parties agree as follows:
ARTICLE I. DEFINITIONS
As used herein, capitalized terms shall have the meanings given
to them in the Credit Agreement, except as otherwise defined or as to the
context otherwise requires.
ARTICLE II. AMENDMENT
The Credit Agreement, as well as all of the other Loan Documents,
are hereby amended as set forth herein.
-1-
<PAGE> 2
Except as specifically provided for herein, all of the terms and conditions of
the Credit Agreement and each of the other Loan Documents shall remain in full
force and effect throughout the terms of the Loans, as well as any extensions or
renewals thereof.
ARTICLE III. EXTENSION OF REVOLVING
LOAN COMMITMENT PERIOD
3.1 Commitment Period. Subject to and upon the terms and
conditions set forth in the Credit Agreement and herein, and in reliance upon
the representations, warranties, and covenants of Borrower contained in the
Credit Agreement or herein or made pursuant to the Credit Agreement or hereto,
Section 2.1 of the Credit Agreement is hereby amended to reflect that the
Commitment Period is extended from June 5, 1998 to June 5, 1999.
3.2 Use of Proceeds. Section 2.2 of the Credit Agreement is
hereby amended to provide that proceeds of the Revolving Loan shall be used by
the Borrower for general corporate purposes, including financing of Capital
Expenditures in accordance with the terms of the Credit Agreement; provided
that, and subject to the other limitations set forth in Articles VII and VIII of
the Credit Agreement, usage of the Revolving Loan for an acquisition of all or
substantially all of the assets of a brewery or an investment in the capital
stock of a brewery is limited to $10,000,000.00 per occurrence and
$10,000,000.00 in the aggregate, without U.S. Bank's prior written consent.
3.3 Repayment. Section 2.5(b) of the Credit Agreement is hereby
amended to reflect that Borrower shall pay all outstanding principal, accrued
interest, and other charges with respect to the Revolving Loan on or before June
5, 1999.
3.4 Renewal Note. Concurrently with the extension of this
Amendment, Borrower shall execute and deliver to U.S. Bank a renewal promissory
note in the form attached hereto as Exhibit A, in substitution for, but not in
payment of, the Renewal Revolving Note dated July 25, 1996. The promissory note
to be executed by Borrower in substitution for, but not in payment of, the
existing Renewal Revolving Note shall, upon execution of this Amendment, be a
"Revolving Note" for all purposes of the Credit Agreement and the other Loan
Documents. The Renewal Revolving Note dated July 25, 1996, shall be marked
"renewed" and shall be retained by U.S. Bank until the Revolving Loan has been
paid in full and U.S. Bank's
-2-
<PAGE> 3
commitment to make advances under the Revolving Loan has terminated.
3.5 Tangible Net Worth. Section 7.15(b) of the Credit Agreement
is hereby amended to change the dollar amount to $70,000,000.00 from
$35,000,000.00.
3.6 Cash Flow. The term "Cash Flow" in Section 1.1 is now
defined as follows: "Cash Flow" means, for any period, Net Income for
such period, plus depreciation and amortization for such period, plus
Interest Expense for such period, plus increases in deferred tax
accounts for such period, less increases in noncurrent assets not funded
with new equity or new long-term Consolidated Indebtedness for such
period or not funded with Borrower's own cash that was available at the
beginning of such period, and less dividends and distributions paid to
Borrower's shareholders during such period other than the extraordinary
dividend declared and paid by Borrower in December 1994.
ARTICLE IV. CONDITIONS PRECEDENT
U.S. Bank shall have no obligation to extend the Commitment
Period unless the following conditions have been fulfilled to the satisfaction
of U.S. Bank:
(a) U.S. Bank shall have received this Amendment and the renewal
promissory note in the form attached hereto as Exhibit A, duly executed and
delivered by Borrower.
(b) U.S. Bank shall have received a nonrefundable fee in the
amount of $18,750 for the extension of the Revolving Loan's Commitment Period.
(c) There shall not then exist any Default or Event of Default
hereunder as of the date hereof.
(d) All representations and warranties of Borrower contained
herein or made in writing in connection herewith shall be true and correct as of
the date hereof.
(e) There shall have been no material adverse change in the
financial condition of Borrower subsequent to June 30, 1997.
-3-
<PAGE> 4
ARTICLE V. GENERAL PROVISIONS
5.1 Representations and Warranties. Borrower hereby represents
and warrants to U.S. Bank that as of the date of this Amendment, there exists no
Default or Event of Default. All representations and warranties of Borrower
contained in the Credit Agreement and the other Loan Documents, or otherwise
made in writing in connection therewith, are true and correct as of the date of
this Amendment. Borrower acknowledges and agrees that all of Borrower's
Indebtedness to U.S. Bank is payable without offset, defense, or counterclaim.
5.2 Guaranties. The parties hereby acknowledge and agree that all
guaranties now existing and hereafter obtained by U.S. Bank shall remain in full
force and effect, are valid and enforceable in accordance with their terms, and
are not subject to offset, defense, or counterclaim.
5.3 Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall constitute an original agreement, but all of
which together shall constitute one and the same agreement.
5.4 Statutory Notice. ORAL AGREEMENTS AND ORAL COMMITMENTS TO
LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE
NOT ENFORCEABLE UNDER WASHINGTON LAW.
IN WITNESS WHEREOF, U.S. Bank and Borrower have caused this
Amendment to be duly executed by their respective duly authorized signatories as
of the date first above written.
REDHOOK ALE BREWERY,
INCORPORATED
[SIG]
By:______________________________________
Bradley A. Berg,
Executive Vice President
and Chief Financial Officer
U.S. BANK NATIONAL ASSOCIATION
[SIG]
By:______________________________________
Thomas G. Gunder, Vice President
-4-
<PAGE> 5
By execution of this Amendment, the undersigned Guarantor
approves of the changes to the Credit Agreement set forth herein, agrees to be
bound by Section 5.2 herein, reaffirms its Guaranty, and acknowledges and agrees
that its obligations under its Guaranty is not subject to any defense, offset,
or counterclaim.
REDHOOK OF NEW HAMPSHIRE, INC.
[SIG]
By:______________________________________
Bradley A. Berg,
Executive Vice President
-5-
<PAGE> 6
EXHIBIT A
to Second Amendment to
Amended and Restated Credit Agreement
RENEWAL REVOLVING NOTE
$10,000,000 _______________, 1997
For value received, the undersigned, REDHOOK ALE BREWERY, INCORPORATED,
a Washington corporation ("Borrower"), promises to pay to the order of
U.S. BANK NATIONAL ASSOCIATION ("U.S. Bank"), at its principal place of
business, 1420 Fifth Avenue, Seattle, Washington 98101, or such other place or
places as the holder hereof may designate in writing, the principal sum of Ten
Million Dollars ($10,000,000) or so much thereof as advanced by U.S. Bank in
lawful immediately available money of the United States of America, in
accordance with the terms and conditions of that certain amended and restated
credit agreement dated as of June 6, 1995, by and between Borrower and U.S.
Bank (together with all supplements, exhibits, modifications, and amendments
thereto, including the first amendment to amended and restated credit agreement
of even date herewith, the "Credit Agreement"). Borrower also promises to pay
interest on the unpaid principal balance hereof, commencing as of the date
hereof, in like money in accordance with the terms and conditions and at the
rate or rates provided for in the Credit Agreement. All principal, interest,
and other charges are due and payable in full on June 5, 1999.
Borrower and all endorsers, sureties, and guarantors hereof jointly and
severally waive presentment for payment, demand, notice of nonpayment, notice of
protest, and protest of this Note, and all other notices in connection with the
delivery, acceptance, performance, default, dishonor, or enforcement of the
payment of this Note except such notices as are specifically required by this
Note or by the Credit Agreement, and they agree that the liability of each of
them shall be unconditional without regard to the liability of any other party
and shall not be in any manner affected by any indulgence, extension of time,
renewal, waiver, or modification granted or consented to by U.S. Bank. Borrower
and all endorsers, sureties, and guarantors hereof (1) consent to any and all
extensions of time, renewals, waivers, or modifications that may be granted by
U.S. Bank
- 1 -
<PAGE> 7
with respect to the payment or other provisions of this Note and the Credit
Agreement; (2) consent to the release of any property now or hereafter
securing this Note with or without substitution; and (3) agree that additional
makers, endorsers, guarantors, or sureties may become parties hereto without
notice to them and without affecting their liability hereunder.
This Note is the Revolving Note referred to in the Credit Agreement and as
such is entitled to all of the benefits and obligations specified in the Credit
Agreement, including but not limited to any conditions to making advances
hereunder. Terms defined in the Credit Agreement are used herein with the same
meanings. Reference is made to the Credit Agreement for provisions for the
repayment of this Note and the acceleration of the maturity hereof.
REDHOOK ALE BREWERY,
INCORPORATED
BY:
----------------------------
Bradley A. Berg,
Executive Vice President
and Chief Financial
Officer
- 2 -
<PAGE> 1
CONSENT, WAIVER AND AMENDMENT
This Consent, Waiver and Amendment is executed between Redhook Ale
Brewery, Incorporated ("Redhook") and Anheuser-Busch, Incorporated ("A-B") as
of September 19, 1997. In consideration of the covenants hereinafter set forth
and intending to be legally bound hereby, Redhook and A-B agree as follows:
1. A-B proposed to acquire, or to cause one of its affiliates to
acquire, shares of Series B Preferred Stock of Widmer Brothers Brewing Company
("Widmer") and to distribute the beverage products of Widmer in Mexico, Canada,
the fifty states of the United States of America, the District of Columbia,
Puerto Rico and certain of the Caribbean Islands (the "Transaction"). Redhook
hereby consents to the Transaction and waives any default arising under the
Redhook Distribution Agreement as a result thereof. Redhook agrees that the
Transaction, the ownership by A-B or any affiliate of A-B of shares of Series B
Preferred Stock of Widmer, the conversion of the Series B Preferred Stock into
the common stock of Widmer or the acquisition or ownership of A-B or any
affiliate of A-B or any other equity security issued by Widmer and the
Distribution by A-B or any affiliate of A-B of any beverage products of Widmer
shall not be a violation of A-B's obligations under the Redhook Distribution
Agreement) payable pursuant to the Redhook Distribution Agreement.
2. Section 10.07 of the Redhook Distribution Agreement is hereby
amended to read as follows:
10.07 (a) Except as provided in Section 10.07(b), if Redhook's
management desires to investigate the production, sale, distribution or
licensing the production of any Product in any country outside the Territory,
Redhook shall first confer with A-B and provide A-B with all information at
Redhook's disposal which A-B reasonably requests in relation to distribution in
such country. Redhook shall give A-B an exclusive period of at least ninety
(90) days to make a proposal to Redhook's board of directors whereunder A-B
would serve as a master distributor in such country, before Redhook or its
management enters into an detailed negotiations with any other Person regarding
sale or distribution of the Products in such country. Notwithstanding the
foregoing, Redhook reserves the right in its sole discretion to choose any
Person to distribute Products in such country, except that Redhook shall not be
permitted to choose an A-B Competitor (as defined in Section 7.05 above), the
majority of whose alcohol beverage sales are made in the Territory, for such
purpose.
(b) Redhook agrees that it shall not sell any Product in
Japan using any distributor other than Itochu International, Inc., or its
affiliates, without providing A-B an exclusive period of at least ninety (90)
days to make a proposal to Redhook's board of directors whereunder A-B would
serve as master distributor in Japan, before Redhook or its management enters
into any detailed negotiations with any other Person regarding such sale or
distribution of the Products in Japan. Notwithstanding the foregoing, Redhook
reserves the right in its sole discretion to choose any Person to distribute
Products in Japan, except that Redhook shall not be permitted to choose an A-B
Competitor (as defined in Section 7.05 above), the majority of whose alcohol
beverage sales are made in the Territory, for such purpose.
(c) Redhook shall not export any malt beverage products in
any fiscal year, unless, after giving effect to such export, Redhook's capacity
to produce malt beverage products in such fiscal year exceeds by at least one
hundred thousand Barrels the anticipated sales of Redhook malt beverage
products in the United States in such fiscal year. For this purpose,
anticipated sales will be determined by the business plan approved by the board
of directors of Redhook for such fiscal year and Redhook's capacity to produce
malt beverage products will be determined under the assumption that Redhook
will operate its production facilities in the ordinary course of business and
giving effect to any capital
<PAGE> 2
improvements that such business plan contemplates will be made in such fiscal
year. Redhook shall not incur sales and marketing expenses in any fiscal year
related to or arising out of sales of malt beverage products outside of the
United States in excess of five percent of Redhook's aggregate sales and
marketing expenses for such fiscal year.
3. Effective on the later of October 1, 1997 or the effective date of
this Section 3 of the Consent, Waiver and Amendment, Section 10.18 of the
Redhook Distribution Agreement shall be amended to read as follows:
10.18 During the Term of this Agreement, A-B shall for the benefit of
Redhook maintain in its employ a corporate inventory management employee (the
"Inventory Manager"), a substantial portion of the responsibilities of whom
shall be to coordinate and administer logistics of Product distribution to
Alliance Wholesalers. Within fifteen (15) days of the end of each calendar
quarter during the Term, Redhook shall pay to A-B an Inventory Management Fee
of 93.8% of the base salary and bonuses paid to such Inventory Manager during
such calendar quarter (such number being the product of 140% and .67); provided,
however, that the salary and bonuses paid to such Inventory Manager shall be
commensurate with the salary and bonuses paid to A-B employees with similar
experience, training, skill level and performance. The percentage specified in
this Section reflects the assumption that on an annual basis the Inventory
Manager will generally devote a percentage of her working day to the
distribution of Product that is twice the percentage of her working day that
she devotes to the distribution of the products of Widmer Brothers Brewing
Company ("Widmer") (for purposes of this Section 10.18 time spent by other
employees of A-B on these matters shall be deemed to be time spent by her).
Annually, A-B and Redhook shall review the time spent by the Inventory Manager
with respect to the Product relative to the time spent by the Inventory Manager
with respect to the distribution of the products of Widmer, and annually A-B
and Redhook shall adjust the percentage specified in this paragraph so that it
is the product of 140% and a fraction, the numerator of which is the
percentage of the working day of the Inventory Manager related to the
distribution of the Product and the denominator of which is the sum of the
percentage of the working day of the Inventory Manager related to the
distribution of Product and the percentage of the working day of the Inventory
Manager related to the distribution of the products of Widmer, in each case
determined for the preceding year.
4. In the event that Redhook desires to purchase materials from any
vendor from which A-B purchases materials, at the request of Redhook, A-B shall
use commercially reasonably best efforts to induce such vendor to sell such
materials to Redhook at the prices and at the other terms that would be
applicable to A-B's purchase of such materials (and, if A-B does not purchase
the materials designated by Redhook for its own purposes, at the prices and at
the other terms that would be applicable to A-B's purchase of such materials in
the quantities required by Redhook), or, if that is not possible, at the lowest
price and on as favorable terms as may be obtained by A-B on behalf of Redhook
through the exercise of commercially reasonable best efforts. A-B's obligation
to undertake such efforts shall be conditioned upon an agreement between A-B
and Redhook as to Redhook's reimbursement of A-B for any costs incurred by A-B
(including imputed overhead costs) in connection therewith; upon A-B's
obtaining assurances satisfactory to it that its efforts shall not result in a
violation of any of its confidentiality or other obligations to its vendors;
and upon A-B's obtaining assurances satisfactory to it that A-B will not incur
any liabilities as a result of such efforts. The obligations of A-B under this
Section 4 shall terminate upon the termination of the Redhook Distribution
Agreement. The provisions of this paragraph shall not obligate A-B (a) to
terminate or reduce its purchase of materials from any vendor or threaten any
such termination or reduction or (b) to increase the price paid by it for the
purchase of materials or otherwise to accept less favorable terms in connection
with its purchase of materials.
5. Redhook and A-B have previously agreed to fix Redhook's liability
for the reimbursement of A-B for payments made by A-B on the behalf of Redhook
for price promotions relating to products of Redhook in 1995 and 1996 in an
agreed upon amount. Redhook shall pay such
<PAGE> 3
amount to A-B on or prior to October 23, 1997. Upon such payment, Redhook's
liability to A-B for reimbursement for such price promotion shall be discharged.
6. The term "Redhook Distribution Agreement" shall mean the Master
Distributor Agreement dated October 18, 1994 between Redhook and A-B, as
amended to the date hereof.
7. Except as provided in the next sentence, the terms of this Consent,
Waiver and Amendment shall become effective and binding upon each party hereto
upon the execution and delivery hereof. Section 1,3 and 4 hereof shall become
effective and binding upon each party hereto upon the consummation of the
Transaction.
8. All provisions of the Redhook Distribution Agreement not amended
hereby shall remain in full force and effect. The obligations of the parties
under Section 10.18 of the Redhook Distribution Agreement arising prior to the
effective date of the amendment thereto described herein shall survive such
amendment and remain in full force and effect.
9. This Consent, Waiver and Amendment shall inure to the benefit of and
be binding upon the successors and assigns of each of the parties hereto. A-B
may, at its option, assign its rights hereunder to any other direct or indirect
subsidiary of Anheuser-Busch Companies, Inc., provided that A-B remains liable
for its obligations hereunder.
10. This Consent, Waiver and Amendment shall be governed by the laws of
the State of Missouri, without regard to the provisions thereof relating to
conflicts of laws.
11. This Consent, Waiver and Amendment may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
12. Any amendment or waiver of any provision of this Consent, Waiver and
Amendment shall not be effective unless the same shall be in writing and signed
by Redhook and A-B and shall specifically refer to this Consent, Waiver and
Amendment.
IN WITNESS WHEREOF, Redhook and A-B have executed this Consent, Waiver
and Amendment by their respective officers thereunto duly authorized.
REDHOOK ALE BREWERY, INCORPORATED
By /s/ Bradley A. Berg
-------------------------------------------------
Title: Executive Vice President & CFO
ANHEUSER-BUSCH, INCORPORATED
By /s/ Bruce M. Sandison
-------------------------------------------------
Title: Vice President-Wholesaler System Development
<PAGE> 1
REDHOOK ALE BREWERY, INCORPORATED
COMPUTATION OF EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Primary and fully-diluted earnings per common share:
Weighted average common shares outstanding...... 7,686,686 7,685,312 7,686,244 7,684,855
Weighted average common equivalent shares outstanding:
Series B convertible redeemable preferred stock..... - 1,289,872 - 1,289,872
Stock options, net ........................... - 166,574 - 171,500
--------- --------- --------- ---------
Average number of common and
common equivalent shares outstanding ......... 7,686,686 9,141,758 7,686,244 9,146,227
========= ========= ========= =========
Net Income (Loss) ................................ $(265,768) $887,171 $(682,790) $2,938,443
========= ========= ========= =========
Net Income (Loss) per Share ...................... $(0.03) $0.10 $(0.09) $0.32
========= ========= ========= =========
</TABLE>
<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> 1,756,843
<SECURITIES> 0
<RECEIVABLES> 1,300,084
<ALLOWANCES> 10,000
<INVENTORY> 2,774,428
<CURRENT-ASSETS> 7,096,466
<PP&E> 97,649,904
<DEPRECIATION> 8,429,182
<TOTAL-ASSETS> 97,468,590
<CURRENT-LIABILITIES> 5,720,923
<BONDS> 10,022,868
15,955,155
0
<COMMON> 38,434
<OTHER-SE> 61,834,605
<TOTAL-LIABILITY-AND-EQUITY> 97,468,590
<SALES> 25,834,270<F1>
<TOTAL-REVENUES> 25,834,270<F1>
<CGS> 19,272,627
<TOTAL-COSTS> 26,662,713
<OTHER-EXPENSES> (72,687)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 192,840
<INCOME-PRETAX> (948,596)
<INCOME-TAX> (265,806)
<INCOME-CONTINUING> (682,790)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (682,790)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
<FN>
<F1>Sales and Total Revenues are net of federal and state excise taxes.
</FN>
</TABLE>
