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☒
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QUARTERLY REPORT
PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Washington
|
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91-1141254
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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Large Accelerated Filer ☐
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Accelerated Filer ☒
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Non-accelerated Filer ☐ (Do not check if a smaller reporting company)
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Smaller Reporting Company ☐
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Emerging Growth Company ☐
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PART I - FINANCIAL INFORMATION
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Page
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Item 1.
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Financial Statements
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Item 2.
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Item 3.
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Item 4.
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PART II ‑ OTHER INFORMATION
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Item 1.
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||
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Item 1A.
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Item 5.
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Item 6.
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March 31,
2017 |
|
December 31,
2016 |
||||
Assets
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
145
|
|
|
$
|
442
|
|
Accounts receivable, net
|
22,430
|
|
|
24,008
|
|
||
Inventory, net
|
21,030
|
|
|
19,091
|
|
||
Other current assets
|
3,513
|
|
|
2,495
|
|
||
Total current assets
|
47,118
|
|
|
46,036
|
|
||
Property, equipment and leasehold improvements, net
|
120,477
|
|
|
121,970
|
|
||
Goodwill
|
12,917
|
|
|
12,917
|
|
||
Intangible and other assets, net
|
19,392
|
|
|
19,482
|
|
||
Total assets
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$
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199,904
|
|
|
$
|
200,405
|
|
Liabilities and Shareholders' Equity
|
|
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|
||
Current liabilities:
|
|
|
|
|
|
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Accounts payable
|
$
|
17,921
|
|
|
$
|
16,076
|
|
Accrued salaries, wages and payroll taxes
|
5,955
|
|
|
4,967
|
|
||
Refundable deposits
|
6,502
|
|
|
6,486
|
|
||
Other accrued expenses
|
4,424
|
|
|
4,108
|
|
||
Current portion of long-term debt and capital lease obligations
|
1,502
|
|
|
1,317
|
|
||
Total current liabilities
|
36,304
|
|
|
32,954
|
|
||
Long-term debt and capital lease obligations, net of current portion
|
26,572
|
|
|
27,946
|
|
||
Fair value of derivative financial instruments
|
341
|
|
|
424
|
|
||
Deferred income tax liability, net
|
17,005
|
|
|
18,181
|
|
||
Other liabilities
|
1,400
|
|
|
1,239
|
|
||
Total liabilities
|
81,622
|
|
|
80,744
|
|
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Commitments and contingencies (Note 11)
|
|
|
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|
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Common shareholders' equity:
|
|
|
|
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|
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Common stock, $0.005 par value. Authorized 50,000,000 shares; issued and outstanding 19,261,245 and 19,261,245
|
96
|
|
|
96
|
|
||
Additional paid-in capital
|
141,044
|
|
|
140,687
|
|
||
Accumulated other comprehensive loss
|
(211
|
)
|
|
(262
|
)
|
||
Accumulated deficit
|
(22,647
|
)
|
|
(20,860
|
)
|
||
Total common shareholders' equity
|
118,282
|
|
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119,661
|
|
||
Total liabilities and common shareholders' equity
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$
|
199,904
|
|
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$
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200,405
|
|
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Three Months Ended
March 31, |
||||||
|
2017
|
|
2016
|
||||
Sales
|
$
|
46,766
|
|
|
$
|
41,793
|
|
Less excise taxes
|
2,464
|
|
|
2,571
|
|
||
Net sales
|
44,302
|
|
|
39,222
|
|
||
Cost of sales
|
31,633
|
|
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30,505
|
|
||
Gross profit
|
12,669
|
|
|
8,717
|
|
||
Selling, general and administrative expenses
|
15,469
|
|
|
13,924
|
|
||
Operating loss
|
(2,800
|
)
|
|
(5,207
|
)
|
||
Interest expense
|
(181
|
)
|
|
(147
|
)
|
||
Other income, net
|
3
|
|
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6
|
|
||
Loss before income taxes
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(2,978
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)
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(5,348
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)
|
||
Income tax benefit
|
(1,191
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)
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(2,139
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)
|
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Net loss
|
$
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(1,787
|
)
|
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$
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(3,209
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)
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Basic and diluted net loss per share
|
$
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(0.09
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)
|
|
$
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(0.17
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)
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Shares used in basic and diluted per share calculations
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19,261
|
|
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19,179
|
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Three Months Ended
March 31, |
||||||
|
2017
|
|
2016
|
||||
Net loss
|
$
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(1,787
|
)
|
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$
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(3,209
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)
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Unrealized gain (loss) on derivative hedge transactions, net of tax
|
51
|
|
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(206
|
)
|
||
Comprehensive loss
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$
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(1,736
|
)
|
|
$
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(3,415
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)
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Three Months Ended March 31,
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||||||
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2017
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|
2016
|
||||
Cash flows from operating activities:
|
|
|
|
||||
Net loss
|
$
|
(1,787
|
)
|
|
$
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(3,209
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)
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Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
|
|
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Depreciation and amortization
|
2,895
|
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2,615
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||
Loss on sale or disposal of Property, equipment and leasehold improvements
|
3
|
|
|
2
|
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Deferred income taxes
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(1,207
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)
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|
(2,155
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)
|
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Stock-based compensation
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357
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20
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Other
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172
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552
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Changes in operating assets and liabilities:
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Accounts receivable, net
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1,578
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1,663
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Inventories
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(1,926
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)
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(2,188
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)
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Other current assets
|
(1,018
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)
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(178
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)
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Accounts payable and other accrued expenses
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2,946
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|
1,732
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Accrued salaries, wages and payroll taxes
|
988
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(221
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)
|
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Refundable deposits
|
36
|
|
|
(328
|
)
|
||
Net cash provided by (used in) operating activities
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3,037
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(1,695
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)
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|
||||
Cash flows from investing activities:
|
|
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|
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|
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Expenditures for Property, equipment and leasehold improvements
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(1,965
|
)
|
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(5,651
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)
|
||
Net cash used in investing activities
|
(1,965
|
)
|
|
(5,651
|
)
|
||
|
|
|
|
||||
Cash flows from financing activities:
|
|
|
|
|
|
||
Principal payments on debt and capital lease obligations
|
(131
|
)
|
|
(225
|
)
|
||
Net borrowings (repayments) under revolving line of credit
|
(1,238
|
)
|
|
7,770
|
|
||
Net cash provided by (used in) financing activities
|
(1,369
|
)
|
|
7,545
|
|
||
Increase (decrease) in Cash and cash equivalents
|
(297
|
)
|
|
199
|
|
||
|
|
|
|
||||
Cash and cash equivalents:
|
|
|
|
|
|
||
Beginning of period
|
442
|
|
|
911
|
|
||
End of period
|
$
|
145
|
|
|
$
|
1,110
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
||
Cash paid for interest
|
$
|
178
|
|
|
$
|
132
|
|
Cash paid for income taxes, net
|
—
|
|
|
62
|
|
||
Supplemental disclosure of non-cash information:
|
|
|
|
|
|
||
Purchases of Property, equipment and leasehold improvements with capital leases
|
$
|
180
|
|
|
$
|
473
|
|
Purchases of Property, equipment and leasehold improvements included in Accounts payable at end of period
|
104
|
|
|
1,495
|
|
|
March 31,
2017 |
|
December 31,
2016 |
||||
Raw materials
|
$
|
6,731
|
|
|
$
|
6,947
|
|
Work in process
|
2,714
|
|
|
2,996
|
|
||
Finished goods
|
9,273
|
|
|
6,601
|
|
||
Packaging materials
|
606
|
|
|
567
|
|
||
Promotional merchandise
|
1,104
|
|
|
1,353
|
|
||
Brewpub food, beverages and supplies
|
602
|
|
|
627
|
|
||
|
$
|
21,030
|
|
|
$
|
19,091
|
|
|
Three Months Ended
March 31, |
||||||
|
2017
|
|
2016
|
||||
Gross sales to A-B and Ambev
|
$
|
32,641
|
|
|
$
|
32,256
|
|
International distribution fee earned from ABWI
|
850
|
|
|
—
|
|
||
Margin fee paid to A-B, classified as a reduction of Sales
|
488
|
|
|
358
|
|
||
Inventory management and other fees paid to A-B, classified in Cost of sales
|
91
|
|
|
87
|
|
|
March 31,
2017 |
|
December 31,
2016 |
||||
Amounts due from A-B related to beer sales pursuant to the A-B distributor agreement
|
$
|
10,913
|
|
|
$
|
12,246
|
|
Amounts due from ABWI and A-B related to international distribution fee and media reimbursement
|
1,250
|
|
|
3,750
|
|
||
Refundable deposits due to A-B
|
(2,182
|
)
|
|
(2,162
|
)
|
||
Amounts due to A-B for services rendered
|
(1,554
|
)
|
|
(1,782
|
)
|
||
Net amount due from A-B
|
$
|
8,427
|
|
|
$
|
12,052
|
|
Three Months Ended
March 31, |
||||||
2017
|
|
2016
|
||||
$
|
30
|
|
|
$
|
30
|
|
Three Months Ended
March 31, |
||||||
2017
|
|
2016
|
||||
$
|
143
|
|
|
$
|
129
|
|
Derivatives in Cash Flow Hedging Relationships
|
|
Amount of Gain (Loss)
Recognized in Accumulated OCI (Effective Portion)
|
|
Location of Loss Reclassified
from Accumulated OCI into
Income (Effective Portion)
|
|
Amount of Loss Reclassified from Accumulated OCI into
Income (Effective Portion)
|
||||
Three Months Ended March 31,
|
|
|
|
|
|
|
||||
2017
|
|
$
|
83
|
|
|
Interest expense
|
|
$
|
53
|
|
2016
|
|
$
|
(333
|
)
|
|
Interest expense
|
|
$
|
63
|
|
•
|
Level 1 – quoted prices in active markets for identical securities as of the reporting date;
|
•
|
Level 2 – other significant directly or indirectly observable inputs, including quoted prices for similar securities, interest rates, prepayment speeds and credit risk; and
|
•
|
Level 3 – significant inputs that are generally less observable than objective sources, including our own assumptions in determining fair value.
|
Fair Value at March 31, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
||||||||
Interest rate swaps
|
|
$
|
—
|
|
|
$
|
(341
|
)
|
|
$
|
—
|
|
|
$
|
(341
|
)
|
|
|
|
|
|
|
|
|
|
||||||||
Fair Value at December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swaps
|
|
$
|
—
|
|
|
$
|
(424
|
)
|
|
$
|
—
|
|
|
$
|
(424
|
)
|
|
March 31,
2017 |
|
December 31,
2016 |
||||
Fixed-rate debt on balance sheet
|
$
|
906
|
|
|
$
|
935
|
|
Estimated fair value of fixed-rate debt
|
$
|
923
|
|
|
$
|
993
|
|
Three Months Ended March 31,
|
||||
2017
|
|
2016
|
||
70.6
|
%
|
|
76.3
|
%
|
March 31,
2017 |
|
December 31,
2016 |
||
54.2
|
%
|
|
66.6
|
%
|
|
Three Months Ended
March 31, |
||||||
|
2017
|
|
2016
|
||||
Cost of sales
|
$
|
19
|
|
|
$
|
14
|
|
Selling, general and administrative expense
|
338
|
|
|
6
|
|
||
Total stock-based compensation expense
|
$
|
357
|
|
|
$
|
20
|
|
|
Three Months Ended
March 31, |
||||
|
2017
|
|
2016
|
||
Stock-based awards not included in diluted per share calculations as they would be antidilutive
|
132
|
|
|
253
|
|
Three Months Ended March 31,
|
|
Net sales
|
|
Net loss
|
|
Number of
barrels sold |
2017
|
|
$44.3 million
|
|
$(1.8) million
|
|
152,800
|
2016
|
|
$39.2 million
|
|
$(3.2) million
|
|
149,600
|
|
Three Months Ended
March 31, |
||||
|
2017
|
|
2016
|
||
Sales
|
105.6
|
%
|
|
106.6
|
%
|
Less excise taxes
|
(5.6
|
)
|
|
(6.6
|
)
|
Net sales
|
100.0
|
|
|
100.0
|
|
Cost of sales
|
71.4
|
|
|
77.8
|
|
Gross profit
|
28.6
|
|
|
22.2
|
|
Selling, general and administrative expenses
|
34.9
|
|
|
35.5
|
|
Operating loss
|
(6.3
|
)
|
|
(13.3
|
)
|
Interest expense
|
(0.4
|
)
|
|
(0.4
|
)
|
Other income, net
|
—
|
|
|
—
|
|
Loss before income taxes
|
(6.7
|
)
|
|
(13.6
|
)
|
Income tax benefit
|
(2.7
|
)
|
|
(5.5
|
)
|
Net loss
|
(4.0
|
)%
|
|
(8.2
|
)%
|
(1)
|
Percentages may not add due to rounding.
|
2017
|
|
Beer
Related |
|
Brewpubs
|
|
Total
|
||||||
Net sales
|
|
$
|
37,851
|
|
|
$
|
6,451
|
|
|
$
|
44,302
|
|
Gross profit
|
|
$
|
12,270
|
|
|
$
|
399
|
|
|
$
|
12,669
|
|
Gross margin
|
|
32.4
|
%
|
|
6.2
|
%
|
|
28.6
|
%
|
|||
|
|
|
|
|
|
|
||||||
2016
|
|
|
|
|
|
|
|
|
|
|||
Net sales
|
|
$
|
32,479
|
|
|
$
|
6,743
|
|
|
$
|
39,222
|
|
Gross profit
|
|
$
|
7,854
|
|
|
$
|
863
|
|
|
$
|
8,717
|
|
Gross margin
|
|
24.2
|
%
|
|
12.8
|
%
|
|
22.2
|
%
|
|
|
Three Months Ended March 31,
|
|
Dollar
|
|
|
|||||||||
Sales by Category
|
|
2017
|
|
2016
|
|
Change
|
|
% Change
|
|||||||
A-B and A-B related
(1)
|
|
$
|
33,003
|
|
|
$
|
31,898
|
|
|
$
|
1,105
|
|
|
3.5
|
%
|
Contract brewing and beer related
(2)
|
|
7,312
|
|
|
3,152
|
|
|
4,160
|
|
|
132.0
|
%
|
|||
Excise taxes
|
|
(2,464
|
)
|
|
(2,571
|
)
|
|
107
|
|
|
(4.2
|
)%
|
|||
Net beer related sales
|
|
37,851
|
|
|
32,479
|
|
|
5,372
|
|
|
16.5
|
%
|
|||
Brewpubs
(3)
|
|
6,451
|
|
|
6,743
|
|
|
(292
|
)
|
|
(4.3
|
)%
|
|||
Net sales
|
|
$
|
44,302
|
|
|
$
|
39,222
|
|
|
$
|
5,080
|
|
|
13.0
|
%
|
(1)
|
A-B and A-B related includes domestic and international sales of our owned brands sold through A-B and Ambev, as well as non-owned brands sold pursuant to master distribution agreements, and the international distribution fees earned from ABWI.
|
(2)
|
Beer related includes international sales of our beers, and non-owned brands, not sold through A-B or Ambev, as well as fees earned through an alternating proprietorship agreement.
|
(3)
|
Brewpubs sales include sales of promotional merchandise and sales of beer directly to customers.
|
Three Months Ended March 31,
|
|
2017 Shipments
|
|
2016 Shipments
|
|
Increase
(Decrease) |
|
%
Change |
|
Change in
Depletions (1) |
|||||
A-B and A-B related
(2)
|
|
133,400
|
|
|
135,100
|
|
|
(1,700
|
)
|
|
(1.3
|
)%
|
|
0
|
%
|
Contract brewing and beer related
(3)
|
|
17,400
|
|
|
12,400
|
|
|
5,000
|
|
|
40.3
|
%
|
|
|
|
Brewpubs
|
|
2,000
|
|
|
2,100
|
|
|
(100
|
)
|
|
(4.8
|
)%
|
|
|
|
Total
|
|
152,800
|
|
|
149,600
|
|
|
3,200
|
|
|
2.1
|
%
|
|
|
|
(1)
|
Change in depletions reflects the year-over-year change in barrel volume sales of beer by wholesalers to retailers.
|
(2)
|
A-B and A-B related includes domestic and international shipments of our owned brands distributed through A-B and Ambev, as well as non-owned brands distributed pursuant to master distribution agreements.
|
(3)
|
Beer related includes international shipments of our beers, and non-owned brands, not distributed through A-B or Ambev.
|
Three Months Ended March 31,
|
|
2017 Shipments
|
|
2016 Shipments
|
|
Increase
(Decrease) |
|
%
Change |
|
Change in
Depletions |
|||||
Kona
|
|
82,100
|
|
|
70,600
|
|
|
11,500
|
|
|
16.3
|
%
|
|
14
|
%
|
Widmer Brothers
|
|
27,800
|
|
|
33,400
|
|
|
(5,600
|
)
|
|
(16.8
|
)%
|
|
(24
|
)%
|
Redhook
|
|
20,700
|
|
|
26,200
|
|
|
(5,500
|
)
|
|
(21.0
|
)%
|
|
(15
|
)%
|
Omission
|
|
9,200
|
|
|
8,700
|
|
|
500
|
|
|
5.7
|
%
|
|
(10
|
)%
|
All other
(1)
|
|
8,400
|
|
|
3,500
|
|
|
4,900
|
|
|
140.0
|
%
|
|
50
|
%
|
Total
(2)
|
|
148,200
|
|
|
142,400
|
|
|
5,800
|
|
|
4.1
|
%
|
|
0
|
%
|
(1)
|
All other includes the shipments and depletions from our Square Mile and Resignation brand families, as well as the non-owned Cisco Brewers and Appalachian Mountain Brewing brand families, shipped by us pursuant to distribution agreements.
|
(2)
|
Total shipments by brand include international shipments and exclude shipments produced under our contract brewing arrangements.
|
|
|
2017
|
|
2016
|
||||||||
Three Months Ended March 31,
|
|
Shipments
|
|
% of Total
|
|
Shipments
|
|
% of Total
|
||||
Draft
|
|
36,000
|
|
|
24.3
|
%
|
|
37,500
|
|
|
26.3
|
%
|
Packaged
|
|
112,200
|
|
|
75.7
|
%
|
|
104,900
|
|
|
73.7
|
%
|
Total
|
|
148,200
|
|
|
100.0
|
%
|
|
142,400
|
|
|
100.0
|
%
|
|
Three Months Ended March 31,
|
|
Dollar
|
|
|
|||||||||
|
2017
|
|
2016
|
|
Change
|
|
% Change
|
|||||||
Beer Related
|
$
|
25,581
|
|
|
$
|
24,625
|
|
|
$
|
956
|
|
|
3.9
|
%
|
Brewpubs
|
6,052
|
|
|
5,880
|
|
|
172
|
|
|
2.9
|
%
|
|||
Total
|
$
|
31,633
|
|
|
$
|
30,505
|
|
|
$
|
1,128
|
|
|
3.7
|
%
|
|
Three Months Ended March 31,
|
||||
|
2017
|
|
2016
|
||
Capacity Utilization
|
54
|
%
|
|
52
|
%
|
|
Three Months Ended March 31,
|
|
Dollar
|
|
|
|||||||||
|
2017
|
|
2016
|
|
Change
|
|
% Change
|
|||||||
Beer Related
|
$
|
12,270
|
|
|
$
|
7,854
|
|
|
$
|
4,416
|
|
|
56.2
|
%
|
Brewpubs
|
399
|
|
|
863
|
|
|
(464
|
)
|
|
(53.8
|
)%
|
|||
Total
|
$
|
12,669
|
|
|
$
|
8,717
|
|
|
$
|
3,952
|
|
|
45.3
|
%
|
Three Months Ended
March 31, |
|
Dollar
|
|
|
|||||||||
2017
|
|
2016
|
|
Change
|
|
% Change
|
|||||||
$
|
181
|
|
|
$
|
147
|
|
|
$
|
34
|
|
|
23.1
|
%
|
|
Three Months Ended
March 31, |
||||
|
2017
|
|
2016
|
||
Average debt outstanding
|
$27,308
|
|
$22,931
|
||
Average interest rate
|
1.88
|
%
|
|
1.46
|
%
|
|
Three Months Ended
March 31, |
||||||
|
2017
|
|
2016
|
||||
Net cash provided by (used in) operating activities
|
$
|
3,037
|
|
|
$
|
(1,695
|
)
|
Net cash used in investing activities
|
(1,965
|
)
|
|
(5,651
|
)
|
||
Net cash provided by (used in) financing activities
|
(1,369
|
)
|
|
7,545
|
|
||
Increase (decrease) in Cash and cash equivalents
|
$
|
(297
|
)
|
|
$
|
199
|
|
•
|
federal NOLs of
$2.4 million
, or
$0.8 million
tax effected;
|
•
|
state NOLs of
$0.1 million
, tax-effected;
|
•
|
federal alternative minimum tax (“AMT”) credit carry forwards of
$0.3 million
; and
|
•
|
federal insurance contributions act ("FICA") credit carry forwards of
$0.2 million
, tax-effected.
|
•
|
revising the design of existing controls, and designing and implementing additional key controls related to identifying and accounting for non-routine transactions, which include protocols for engaging third-party accounting experts, where necessary;
|
•
|
establishing protocols to ensure key controls operate on a timely basis to prevent and detect misstatement; and
|
•
|
providing additional GAAP technical accounting and internal control related training to both accounting and non-accounting departments.
|
|
CRAFT BREW ALLIANCE, INC.
|
|
|
|
|
|
|
May 3, 2017
|
By:
|
/s/ Edwin A.Smith
|
|
|
|
Edwin A. Smith
|
|
|
|
Corporate Controller and
Principal Accounting Officer
|
|
Performance Goal
|
% of Award Earned
|
Net Sales CAGR
|
50%
|
EBITDA Margin
|
50%
|
|
1.
|
I have reviewed this quarterly report on Form 10−Q of Craft Brew Alliance, Inc. (the “Registrant”);
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
|
4.
|
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a−15(e) and 15d−15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a−15(f) and 15d−15(f)) for the Registrant and we have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
|
5.
|
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
|
Date:
|
May 3, 2017
|
|
|
|
|
By:
|
/s/ Andrew J. Thomas
|
|
|
Andrew J. Thomas
|
|
|
Chief Executive Officer
|
|
|
|
1.
|
I have reviewed this quarterly report on Form 10−Q of Craft Brew Alliance, Inc. (the “Registrant”);
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
|
4.
|
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a−15(e) and 15d−15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a−15(f) and 15d−15(f)) for the Registrant and we have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
|
5.
|
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
|
Date:
|
May 3, 2017
|
|
|
|
|
By:
|
/s/ Joseph K. Vanderstelt
|
|
|
Joseph K. Vanderstelt
|
|
|
Chief Financial Officer
|
|
|
|
1.
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
|
Date:
|
May 3, 2017
|
|
|
|
|
BY:
|
/s/ Andrew J. Thomas
|
|
|
Andrew J. Thomas
|
|
|
Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
|
|
|
|
BY:
|
/s/ Joseph K. Vanderstelt
|
|
|
Joseph K. Vanderstelt
|
|
|
Chief Financial Officer
|
|
|
(Principal Financial Officer)
|
|
|
•
|
Depletions for Kona were 14% in the first quarter, while overall CBA depletions were flat for the first quarter of 2017, compared to the first quarter in 2016.
|
•
|
CBA’s shipments increased 2.1% over the same period last year, amidst the successful completion of our wholesaler inventory objectives as described above.
|
•
|
Net sales increased 13.0% to $44.3 million in the first quarter, compared to the first quarter in 2016.
|
◦
|
The increase is primarily attributed to shipment growth for Kona and our partner brands, $1.7 million in Pabst contract brewing shortfall fees, $0.9 million in AB international distribution fees, our alternating proprietorship business, and an increase in average unit pricing. Our net sales increase also reflects the improvement over the first quarter in 2016, during which shipments were impacted by the temporary closure of our Portland brewery.
|
◦
|
Partially offsetting the first quarter increases were decreases in Widmer Brothers and Redhook shipment volume, as well as shipment volume decreases associated with our ongoing efforts to reduce inventory levels at our wholesaler partners.
|
•
|
Gross profit increased by 45.3%, to $12.7 million, and gross margin increased by 640 basis points to 28.6% compared to the first quarter in 2016.
|
•
|
Selling, general and administrative expense (“SG&A”) for the first quarter was $15.5 million, an 11% increase over the first quarter of 2016.
|
◦
|
The increase primarily reflects continued investment in our brands and emerging business.
|
•
|
Diluted net loss per share was $0.09 for the first quarter, an improvement of $0.08 over the first quarter diluted net loss per share of $0.17 in 2016.
|
•
|
Total CBA depletion change of flat to growth of 6%.
|
•
|
Shipments ranging between a decrease of 1% and increase of 4%, which reflects our success in achieving our 2017 wholesaler inventory reduction goals in the first quarter.
|
•
|
Average price increases of 1% to 2%.
|
•
|
Total gross margin rate of 30.5% to 32.5%.
|
◦
|
Gross margin on our owned business, which includes beer related and pubs, is expected to be higher on a rate basis despite the dilutive influence of alternating proprietorship volume.
|
◦
|
Over the course of 2017, CBA management will assess the 2017 gross margin range against the previously disclosed target of 35%, which was projected without the AB agreements and with the completed sale of our Woodinville brewery.
|
•
|
SG&A ranging from $61 million to $63 million including increase in marketing spend and SG&A cost optimization, as we leverage investments made in prior years and seek to improve efficiencies.
|
•
|
Capital expenditures of approximately $16 million to $20 million, reflecting continued work on previously disclosed projects including the new Kona brewery and Redhook brewpub in Seattle.
|
Contact:
Jenny McLean
Director of Communications
Craft Brew Alliance, Inc.
(503) 331-7248
jenny.mclean@craftbrew.com
|
|
Three Months Ended
March 31, |
||||||
|
2017
|
|
2016
|
||||
Sales
|
$
|
46,766
|
|
|
$
|
41,793
|
|
Less excise taxes
|
2,464
|
|
|
2,571
|
|
||
Net sales
|
44,302
|
|
|
39,222
|
|
||
Cost of sales
|
31,633
|
|
|
30,505
|
|
||
Gross profit
|
12,669
|
|
|
8,717
|
|
||
As percentage of net sales
|
28.6
|
%
|
|
22.2
|
%
|
||
Selling, general and administrative expenses
|
15,469
|
|
|
13,924
|
|
||
Operating loss
|
(2,800
|
)
|
|
(5,207
|
)
|
||
Interest expense
|
(181
|
)
|
|
(147
|
)
|
||
Other income, net
|
3
|
|
|
6
|
|
||
Loss before income taxes
|
(2,978
|
)
|
|
(5,348
|
)
|
||
Income tax benefit
|
(1,191
|
)
|
|
(2,139
|
)
|
||
Net loss
|
$
|
(1,787
|
)
|
|
$
|
(3,209
|
)
|
|
|
|
|
|
|
||
Basic and diluted net loss per share
|
$
|
(0.09
|
)
|
|
$
|
(0.17
|
)
|
Shares used in basic and diluted per share calculations
|
19,261
|
|
|
19,179
|
|
||
Total shipments (in barrels):
|
|
|
|
|
|
||
Core Brands
|
148,200
|
|
|
142,400
|
|
||
Contract Brewing
|
4,600
|
|
|
7,200
|
|
||
Total shipments
|
152,800
|
|
|
149,600
|
|
||
Change in depletions
(1)
|
0
|
%
|
|
(3
|
)%
|
(1)
|
Change in depletions reflects the period-over-period change in barrel volume sales of beer by wholesalers to retailers.
|
|
March 31,
|
||||||
|
2017
|
|
2016
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
145
|
|
|
$
|
1,110
|
|
Accounts receivable, net
|
22,430
|
|
|
17,263
|
|
||
Inventory, net
|
21,030
|
|
|
20,033
|
|
||
Other current assets
|
3,513
|
|
|
2,618
|
|
||
Total current assets
|
47,118
|
|
|
41,024
|
|
||
Property, equipment and leasehold improvements, net
|
120,477
|
|
|
120,689
|
|
||
Goodwill
|
12,917
|
|
|
12,917
|
|
||
Intangible and other assets, net
|
19,392
|
|
|
18,008
|
|
||
Total assets
|
$
|
199,904
|
|
|
$
|
192,638
|
|
Current liabilities:
|
|
|
|
|
|
||
Accounts payable
|
$
|
17,921
|
|
|
$
|
19,452
|
|
Accrued salaries, wages and payroll taxes
|
5,955
|
|
|
5,247
|
|
||
Refundable deposits
|
6,502
|
|
|
6,340
|
|
||
Other accrued expenses
|
4,424
|
|
|
1,550
|
|
||
Current portion of long-term debt and capital lease obligations
|
1,502
|
|
|
602
|
|
||
Total current liabilities
|
36,304
|
|
|
33,191
|
|
||
Long-term debt and capital lease obligations, net of current portion
|
26,572
|
|
|
26,913
|
|
||
Other long-term liabilities
|
18,746
|
|
|
17,191
|
|
||
Total common shareholders' equity
|
118,282
|
|
|
115,343
|
|
||
Total liabilities and common shareholders' equity
|
$
|
199,904
|
|
|
$
|
192,638
|
|
|
Three Months Ended March 31,
|
||||||
|
2017
|
|
2016
|
||||
Cash flows from operating activities:
|
|
|
|
||||
Net loss
|
$
|
(1,787
|
)
|
|
$
|
(3,209
|
)
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
|
|
|
|
|
|
||
Depreciation and amortization
|
2,895
|
|
|
2,615
|
|
||
Loss on sale or disposal of Property, equipment and leasehold improvements
|
3
|
|
|
2
|
|
||
Deferred income taxes
|
(1,207
|
)
|
|
(2,155
|
)
|
||
Other, including stock-based compensation
|
529
|
|
|
572
|
|
||
Changes in operating assets and liabilities:
|
|
|
|
|
|
||
Accounts receivable, net
|
1,578
|
|
|
1,663
|
|
||
Inventories
|
(1,926
|
)
|
|
(2,188
|
)
|
||
Other current assets
|
(1,018
|
)
|
|
(178
|
)
|
||
Accounts payable and other accrued expenses
|
2,946
|
|
|
1,732
|
|
||
Accrued salaries, wages and payroll taxes
|
988
|
|
|
(221
|
)
|
||
Refundable deposits
|
36
|
|
|
(328
|
)
|
||
Net cash provided by (used in) operating activities
|
3,037
|
|
|
(1,695
|
)
|
||
Cash flows from investing activities:
|
|
|
|
|
|
||
Expenditures for Property, equipment and leasehold improvements
|
(1,965
|
)
|
|
(5,651
|
)
|
||
Net cash used in investing activities
|
(1,965
|
)
|
|
(5,651
|
)
|
||
Cash flows from financing activities:
|
|
|
|
|
|
||
Principal payments on debt and capital lease obligations
|
(131
|
)
|
|
(225
|
)
|
||
Net borrowings (repayments) under revolving line of credit
|
(1,238
|
)
|
|
7,770
|
|
||
Net cash provided by (used in) financing activities
|
(1,369
|
)
|
|
7,545
|
|
||
Increase (decrease) in Cash and cash equivalents
|
(297
|
)
|
|
199
|
|
||
Cash and cash equivalents, beginning of period
|
442
|
|
|
911
|
|
||
Cash and cash equivalents, end of period
|
$
|
145
|
|
|
$
|
1,110
|
|
|
Twelve Months Ended
|
|
|
|
|
|||||||||
|
March 31,
|
|
|
|||||||||||
|
2017
|
|
2016
|
|
Change
|
|
% Change
|
|||||||
Net sales
|
$
|
207,587
|
|
|
$
|
201,681
|
|
|
$
|
5,906
|
|
|
2.9
|
%
|
Gross profit
|
$
|
63,551
|
|
|
$
|
59,751
|
|
|
$
|
3,800
|
|
|
6.4
|
%
|
As percentage of net sales
|
30.6
|
%
|
|
29.6
|
%
|
|
100
|
|
bps
|
|
|
|||
Selling, general and administrative expenses
|
60,769
|
|
|
58,903
|
|
|
1,866
|
|
|
3.2
|
%
|
|||
Operating income
|
$
|
2,782
|
|
|
$
|
848
|
|
|
$
|
1,934
|
|
|
228.1
|
%
|
|
|
|
|
|
|
|
|
|||||||
Net income
|
$
|
1,102
|
|
|
$
|
172
|
|
|
$
|
930
|
|
|
540.7
|
%
|
|
|
|
|
|
|
|
|
|||||||
Basic and diluted net income per share
|
$
|
0.06
|
|
|
$
|
0.01
|
|
|
$
|
0.05
|
|
|
500.0
|
%
|
Total shipments (in barrels):
|
|
|
|
|
|
|
|
|
|
|
|
|||
Core Brands
|
754,700
|
|
|
771,500
|
|
|
(16,800
|
)
|
|
(2.2
|
)%
|
|||
Contract Brewing
|
24,100
|
|
|
34,800
|
|
|
(10,700
|
)
|
|
(30.7
|
)%
|
|||
Total shipments
|
778,800
|
|
|
806,300
|
|
|
(27,500
|
)
|
|
(3.4
|
)%
|
|||
Change in depletions
(1)
|
0
|
%
|
|
(1
|
)%
|
|
|
|
|
|
|
(1)
|
Change in depletions reflects the period-over-period change in barrel volume sales of beer by wholesalers to retailers.
|
|
Three Months Ended
March 31, |
||||||
|
2017
|
|
2016
|
||||
Net loss
|
$
|
(1,787
|
)
|
|
$
|
(3,209
|
)
|
Interest expense
|
181
|
|
|
147
|
|
||
Income tax benefit
|
(1,191
|
)
|
|
(2,139
|
)
|
||
Depreciation expense
|
2,830
|
|
|
2,571
|
|
||
Amortization expense
|
65
|
|
|
44
|
|
||
Stock-based compensation
|
357
|
|
|
20
|
|
||
Loss on disposal of assets
|
3
|
|
|
2
|
|
||
Adjusted EBITDA
|
$
|
458
|
|
|
$
|
(2,564
|
)
|