10-Q 1 d10q.txt QUARTERLY REPORT FOR THE QUARTER ENDED 03/31/2001 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------- FORM 10-Q -------------------- (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 2001 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) For the transition period from to . Commission file number 0-27116 -------------------- PYRAMID BREWERIES INC. (Exact name of registrant as specified in its charter) Washington 91-1258355 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 91 So. Royal Brougham Way, Seattle, WA 98134 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (206) 682-8322 -------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . --- --- Common stock, par value of $.01 per share: 7,869,434 shares of Common Stock outstanding as of March 31, 2001 PYRAMID BREWERIES INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 TABLE OF CONTENTS
Page ---- PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Balance Sheets March 31, 2001 and December 31, 2000................................. 3 Statements of Operations Quarter Ended March 31, 2001 and 2000................................ 4 Statements of Cash Flows Quarter Ended March 31, 2001 and 2000................................ 5 Notes to Financial Statements.......................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................ 9 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K....................................... 11 SIGNATURE.............................................................. 12
2 PART I Item 1 -- FINANCIAL STATEMENTS PYRAMID BREWERIES INC. BALANCE SHEETS (Unaudited)
March 31, December 31, 2001 2000 --------------------------- CURRENT ASSETS: Cash and cash equivalents.................................. $ 5,582,622 $ 6,444,145 Accounts receivable, net................................... 1,433,782 1,664,466 Inventories................................................ 1,300,167 1,164,388 Prepaid expenses and other................................. 633,096 710,559 Deferred income taxes...................................... 332,635 332,635 --------------------------- Total current assets.................................... 9,282,302 10,316,193 --------------------------- Fixed assets, net............................................ 20,873,315 21,125,892 Deferred income taxes........................................ 148,674 148,674 Other assets................................................. 502,880 518,944 --------------------------- Total assets............................................ $30,807,171 $32,109,703 =========================== CURRENT LIABILITIES: Accounts payable........................................... $ 443,371 $ 739,284 Accrued expenses........................................... 1,269,728 1,297,370 Refundable deposits........................................ 490,029 534,295 Dividends payable.......................................... 346,255 314,530 --------------------------- Total current liabilities............................... 2,549,383 2,885,479 Deferred rent................................................ 1,341,079 1,247,639 --------------------------- Total liabilities....................................... 3,890,462 4,133,118 --------------------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, 10,000,000 shares authorized, none issued... - - Common stock, $.01 par value; 40,000,000 shares authorized, 7,869,434 and 7,863,251 shares issued and outstanding...... 78,694 78,632 Additional paid-in capital................................... 34,350,642 34,337,887 Retained deficit............................................. (7,512,627) (6,439,934) --------------------------- Total stockholders' equity.............................. 26,916,709 27,976,585 --------------------------- Total liabilities and stockholders' equity.............. $30,807,171 $32,109,703 ===========================
The accompanying notes are an integral part of these statements. 3 PYRAMID BREWERIES INC. STATEMENTS OF OPERATIONS (Unaudited) Quarter Ended March 31, 2001 2000 ----------- ----------- Gross sales........................................... $6,577,820 $6,522,932 Less excise taxes..................................... 277,806 355,445 ----------- ----------- Net sales............................................. 6,300,014 6,167,487 Cost of sales......................................... 4,957,557 4,708,733 ----------- ----------- Gross margin.......................................... 1,342,457 1,458,754 Selling, general and administrative expenses.......... 2,170,121 1,761,026 ----------- ----------- Operating loss........................................ (827,664) (302,272) Other income, net..................................... 101,226 92,421 ----------- ----------- Loss before income taxes.............................. (726,438) (209,851) Provision for income taxes............................ - - ----------- ----------- Net loss.............................................. $ (726,438) $ (209,851) =========== =========== Basic and diluted net loss per share.................. $ (0.09) $ (0.03) Weighted average shares outstanding................... 7,867,888 8,148,709 Beer barrels shipped................................ 22,300 23,500 Soda barrels shipped................................ 9,800 8,500 ----------- ----------- Total barrels shipped............................... 32,100 32,000 =========== =========== The accompanying notes are an integral part of these statements. 4 PYRAMID BREWERIES INC. STATEMENTS OF CASH FLOWS (Unaudited)
Quarter Ended March 31, 2001 2000 ----------- ----------- OPERATING ACTIVITIES: Net loss.................................................. $ (726,438) $ (209,851) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization........................... 587,391 634,193 Gain on sales of fixed assets........................... - (1,000) Deferred rent........................................... 93,440 55,917 Changes in operating assets and liabilities: Accounts receivable..................................... 230,684 (317,500) Inventories............................................. (135,779) (4,248) Prepaid expenses and other.............................. 8,371 14,158 Accounts payable and accrued expenses................... (323,555) (45,660) Refundable deposits..................................... (44,266) (65,144) ----------- ----------- Net cash (used in) provided by operating activities... (310,152) 60,865 INVESTING ACTIVITIES: Acquisitions of fixed assets.............................. (247,352) (276,086) Proceeds from sales of fixed assets....................... - 49,867 ----------- ----------- Net cash used in investing activities................. (247,352) (226,219) FINANCING ACTIVITIES: Proceeds from the sale of common stock.................... 10,511 10,232 Cash dividends paid....................................... (314,530) (329,735) Purchase and retirement of common stock................... - (486,674) ----------- ----------- Net cash used in financing activities................. (304,019) (806,177) ----------- ----------- Decrease in cash and cash equivalents....................... (861,523) (971,531) Cash and cash equivalents at beginning of period............ 6,444,145 6,303,540 ----------- ----------- Cash and cash equivalents at end of period.................. $5,582,622 $5,332,009 =========== ===========
The accompanying notes are an integral part of these statements. 5 PYRAMID BREWERIES INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION: Pyramid Breweries Inc. (the "Company"), a Washington corporation, is engaged in the brewing, marketing and selling of craft beers and premium sodas and in restaurant operations. The Company operates breweries in Seattle, Washington and Berkeley, California. The Company sells its beer through a network of selected independent distributors primarily in Washington, Oregon and California under the Pyramid and Thomas Kemper brands. Pyramid also manufactures a line of gourmet sodas under the Thomas Kemper Soda Company label. As of March 31, 2001, the Company's products were distributed in 32 states and Canada. The Company operates two restaurants adjacent to its breweries under the Pyramid Alehouse brand name. The accompanying condensed financial statements have been prepared by the Company, without audit, in accordance with accounting principles generally accepted in the United States for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. With the exception of the historical information contained herein, the matters described may contain forward-looking statements that involve risks and uncertainties, including those described under the caption entitled "Risk Factors and Forward- Looking Statements" in the Company's Annual Report on Form 10-K for the year ended December 31, 2000, filed with the Securities and Exchange Commission, and elsewhere in the Company's periodic reports. In the opinion of management, the accompanying unaudited financial statements contain all material adjustments, consisting only of those of a normal recurring nature, considered necessary for a fair presentation of the Company's financial position, results of operations and cash flows at the dates and for the periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year. 2. INVENTORIES: March 31, December 31, 2001 2000 ---------- ------------ Raw materials.................. $ 551,227 $ 481,601 Work in process................ 136,269 109,510 Finished goods................. 612,671 573,277 ---------- ---------- $1,300,167 $1,164,388 ========== ========== Raw materials primarily include ingredients, flavorings and packaging. Work in process includes beer held in fermentation prior to the filtration and packaging process. Finished goods primarily include product ready for shipment, as well as promotional merchandise held for sale. 3. FIXED ASSETS: March 31, December 31, 2001 2000 ----------- ------------ Brewery and retail equipment..... $14,316,922 $14,246,061 Furniture and fixtures........... 787,381 772,562 Leasehold improvements........... 13,649,060 13,563,615 Construction in progress......... 235,085 165,555 Assets held for sale............. 3,832 3,832 ----------- ----------- 28,992,280 28,751,625 Less: accumulated depreciation... (8,118,965) (7,625,733) ----------- ----------- $20,873,315 $21,125,892 =========== =========== 6 4. EARNINGS PER SHARE Basic and diluted net loss per share was computed by dividing net loss by the weighted average number of shares of common stock outstanding during the quarter. The effect of stock options has not been included in the calculation of diluted net loss per shares as the effect is antidilutive. Options to purchase approximately 350,000 and 425,000 shares of common stock were outstanding during the quarters ended March 31, 2001 and 2000, respectively, but were not included in the computation of diluted EPS because the exercise price of the options were greater than the average market price of the common shares. 5. STOCKHOLDERS' EQUITY
Common Stock Additional Total ------------------- Paid-In Retained Stockholders' Shares Amount Capital Deficit Equity --------------------------------------------------------------- Balance at December 31, 2000... 7,863,251 $78,632 $34,337,887 $(6,439,934) $27,976,585 Net loss..................... - - - (726,438) (726,438) Shares issued................ 6,183 62 10,449 - 10,511 Equity compensation.......... - - 2,306 - 2,306 Dividends declared........... - - - (346,255) (346,255) -------------------------------------------------------------- Balance at March 31, 2001...... 7,869,434 $78,694 $34,350,642 $(7,512,627) $26,916,709 ==============================================================
6. COMMITMENTS AND CONTINGENCIES: The Company is involved from time to time in claims, proceedings and litigation arising in the ordinary course of business. The Company does not believe that any such claim, proceeding or litigation, either alone or in the aggregate, will have a material adverse effect on the Company's financial position or results of operations. 7. CASH DIVIDEND: The Board of Directors announced on February 21, 2001, the declaration of a $0.044 per common share dividend payable on April 16, 2001 to shareholders of record on March 30, 2001. The Board of Directors also announced, on May 4, 2001, the declaration of a $0.044 per common share dividend payable on July 16, 2001 to shareholders of record on June 29, 2001. The cash dividends declared totaled approximately $346,000 for all common stock outstanding as of the dates of record. 8. SEGMENT INFORMATION: The Company adopted Statement of Financial Accounting Standards (SFAS) No. 131 "Disclosures about Segments of an Enterprise and Related Information," during 1998. Following the provisions of SFAS No. 131, the Company is reporting segment information in the same format as reviewed by the Company's management, which is organized around differences in products and services. Products and Services The Company's reportable segments include beverage operations and alehouses. Beverage operations include the production and sale of Pyramid Ales, Thomas Kemper beers and Thomas Kemper Soda Company products. The alehouse segment consists of two full-service alehouses, which market and sell the full line of the Company's beer and soda products as well as food and certain merchandise. Factors used to identify reportable segments The Company's reportable segments are strategic business units that offer distinct and different products and services. These segments are managed separately because each business requires different production, management and marketing strategies. Measurement of segment profit and segment assets 7 The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on profit or loss from operations before income taxes not including nonrecurring gains and losses. The Company records intersegment sales at cost. Segment profit and segment assets are as follows: Beverage Operations Alehouse Other Total ---------- -------- ------- ------- (Dollars in thousands) Quarter ended March 31, 2001 Revenues from external customers... $ 4,768 $1,810 $ - $ 6,578 Intersegment revenues.............. 54 (54) - - Interest income.................... - - 94 94 Depreciation and amortization...... 448 103 36 587 Operating (loss) income............ (306) 132 (552) (726) Capital expenditures............... 120 85 42 247 Total assets....................... 16,996 3,331 10,480 30,807 Quarter ended March 31, 2000 Revenues from external customers... $ 4,836 $1,687 $ - $ 6,523 Intersegment revenues.............. 59 (59) - - Interest income.................... - - 76 76 Depreciation and amortization...... 445 107 82 634 Operating income (loss)............ 320 43 (665) (302) Capital expenditures............... 63 174 39 276 Total assets....................... 18,167 3,537 10,935 32,639 Other Other consists of interest income, general and administrative expense, corporate office assets and other reconciling items that are not allocated to segments for internal management reporting purposes. Total assets include all assets except for fixed assets, which are presented by segment. 8 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain selected unaudited operating data, expressed as a percentage of net sales. SELECTED UNAUDITED OPERATING DATA
Quarter Ended March 31, ------------------------ % of % of 2001 Net Sales 2001 Net Sales ---------- --------- ---------- --------- Gross sales.................................... $6,577,820 $6,522,932 Less excise taxes.............................. 277,806 355,445 ---------- --------- ---------- --------- Net sales...................................... 6,300,014 100.0 6,167,487 100.0 Cost of sales.................................. 4,957,557 78.7 4,708,733 76.3 ---------- --------- ---------- --------- Gross margin................................... 1,342,457 21.3 1,458,754 23.7 Selling, general and administrative expenses... 2,170,121 34.4 1,761,026 28.6 ---------- --------- ---------- --------- Operating loss................................. (827,664) (13.1) (302,272) (4.9) Other income, net.............................. 101,226 1.6 92,421 1.5 ---------- --------- ---------- --------- Loss before income taxes....................... (726,438) (11.5) (209,851) (3.4) Benefit for income taxes....................... - - - - ---------- --------- ---------- --------- Net loss....................................... $ (726,438) (11.5) $ (209,851) (3.4) ========== ========= ========== ========= Basic and diluted net loss per share........... $ (0.09) $ (0.03) ========== ========== Weighted average shares outstanding............ 7,867,888 8,148,709 ========== ========== Operating data (in barrels): Beer barrels shipped......................... 22,300 23,500 Soda barrels shipped......................... 9,800 8,500 ---------- ---------- Total barrels shipped........................ 32,100 32,000 ========== ========== Annual production capacity................... 200,000 172,000 ========== ==========
QUARTER ENDED MARCH 31, 2001 COMPARED TO QUARTER ENDED MARCH 31, 2000 Gross Sales. Gross sales increased 0.8% to $6,578,000 in the first quarter ended March 31, 2001 from $6,523,000 in the same quarter of 2000. Wholesale beverage sales decreased 1.4% to $4,768,000 in the first quarter ended March 31, 2001 from $4,836,000 in the same quarter of 2000. Although total beverage barrel shipments remained flat compared to prior year, soda shipments increased 15.3% to 9,800 barrels in the current quarter from 8,500 barrels in the same quarter of the prior year. The soda shipment increases were offset by a 5.1% decrease in beer barrels shipped to 22,300 barrels from 23,500 barrels in the same quarter of the prior year. Alehouse sales increased 7.3%, to $1,810,000 in the first quarter ended March 31, 2001, from $1,687,000 in the same quarter of 2000 due to increased patronage at both alehouse restaurants. Excise Taxes. Excise taxes totaled 4.2% and 5.4% of gross sales for the quarters ended March 31, 2001 and 2000, respectively. The decrease in excise taxes as a percentage of gross sales was due mainly to a greater portion of soda and alehouse sales during the quarter ended March 31, 2001, which do not bear excise tax. Gross Margin. Gross margin as a percentage of net sales decreased to 21.3% in the first quarter ended March 31, 2001 from 23.7% in the same quarter of 2000. This decrease as a percentage of net sales was due mainly to increased energy costs of $110,000 and other brewery operating expenses. 9 Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 23.2% to $2,170,000 or 34.4% of net sales for the first quarter ended March 31, 2001 from $1,761,000 or 28.6% of net sales for the same quarter of 2000. This increase as a percentage of net sales was due mainly to increased marketing expense of $363,000 related to a brand awareness campaign which began in the fourth quarter of 2000 and was completed in the first quarter of 2001. Other Income, net. Other income, net was approximately $101,000 and 1.6% of net sales for the first quarter ended March 31, 2001 compared to $92,000 and 1.5% of net sales in the same quarter of 2000. Income Taxes. The Company recorded no income tax benefit for the quarters ended March 31, 2001 and 2000. As of December 31, 2000, the Company had deferred tax assets arising from deductible temporary differences, tax losses, and tax credits offset against certain deferred tax liabilities. A valuation allowance was recorded against the deferred tax asset for the benefits of tax losses which may not be realized. Realization of the deferred tax asset representing tax loss and credit carryforwards is dependent on the Company's ability to generate future U.S. taxable income. The Company will continue to evaluate the realizability of the deferred tax assets quarterly by assessing the need for and amount of a valuation allowance. Net Loss. The Company reported a net loss of $726,000 for the first quarter ended March 31, 2001 compared to a net loss of $210,000 in the same quarter of 2000. The increase in net loss was primarily due to the increase in marketing expenses, increased brewery operating costs, and increases in energy costs. LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities during the first quarter ended March 31, 2001 was approximately $310,000 compared to cash provided by operations in the amount of $61,000 for the same period of the prior year. This decrease was due primarily to the increase in net loss for the quarter. Net cash used in investing activities for the quarter ended March 31, 2001 was $247,000 compared to net cash used in investing activities of $226,000 for the same period of the prior year. The cash used in investing activities in 2001 included funds used to expand the Seattle alehouse and to upgrade refrigeration in the Berkeley brewery. At March 31, 2001, the Company had working capital of $6,733,000 compared to $7,431,000 at December 31, 2000. On December 15, 1999, the Company announced a stock buyback plan to repurchase up to $2,000,000 of the Company's common stock from time to time on the open market. Stock repurchases are at the discretion of management and depend, among other things, on the Company's results of operations, capital requirements and financial condition, and on such other factors as the Company's management may consider relevant. In addition, the Company is required to maintain a minimum tangible net worth and other covenants under its line of credit, which may restrict the Company's ability to repurchase shares. As of March 31, 2001, the Company has repurchased 445,998 shares at an average price of $1.94 per share. The Company has a $5,000,000 line of credit (the Line of Credit) for short- term operating needs. The Line of Credit revolves through April 30, 2001, during which time the payments are interest only. Subsequent to quarter-end, the line of credit was extended to July 31, 2001. At that date, any outstanding balance will be due in full. Borrowings under the Line of Credit will accrue interest, at the Company's option, at either the bank's prime rate or at LIBOR plus 150 basis points. As of March 31, 2001, the Company had not borrowed on the Line of Credit. Future capital requirements may vary depending on such factors as the cost of acquisition of businesses, brands and real estate costs in the markets selected for future expansion, whether such real estate is leased or purchased and the extent of improvements necessary. Capital expenditures in 2001 are expected to be comparable to the 2000 expenditures. Planned projects include the continued upgrading of brewery equipment and alehouse facilities in the Seattle and Berkeley locations. While there can be no assurance that current expectations will be realized and plans are subject to change upon further review, the Company believes that its cash reserves, together with cash from operations and borrowings under the Line of Credit, will be sufficient for the Company's working capital needs. The Company's future cash requirements and cash flow expectations are closely related to its expansion plans. The Company generally expects to meet future financing needs through cash on-hand, cash flow from operations and, to the extent required and available, additional bank borrowings. 10 RISK FACTORS AND FORWARD LOOKING STATEMENTS The Company does not provide forecasts of future financial performance. However this report does contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, which are subject to the "safe harbor" created by that section. There are numerous important factors that could cause results to differ materially from those anticipated by some of the statements made by the Company. Investors are cautioned that all forward-looking statements involve a high degree of risk and uncertainty. Additional information concerning those and other factors is contained in the Company's Securities and Exchange Commission filings including its Form 10-K for the year ended December 31, 2000. PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is involved from time to time in claims, proceedings and litigation arising in the ordinary course of business. Pyramid Breweries Inc. is named as a defendant in a putative class action lawsuit pending in the Superior Court of Washington for King County: Jerseys All American Sports Bar v. Alaska Distributors Co., et al., No. 00-2-20485-0SEA, filed on August 3, 2000. The lawsuit purports to allege claims on behalf of all purchasers of Pyramid Hefeweizen by the keg for retail sale during the period May 1, 1999 to the present. The lawsuit alleges violations of Washington's Consumer Protection Act and a civil conspiracy related to sales of the Bavarian Hefeweizen brand at a lower price than the Pyramid Hefeweizen brand. Plaintiffs seek injunctive relief and unspecified monetary damages. Pyramid intends to defend the lawsuit vigorously. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS The following exhibits are filed as part of this report. 3.1* Amended and Restated Articles of Incorporation 3.2* Amended and Restated Bylaws * Incorporated by reference to the exhibits filed as part of the Company's Registration Statement on Form S-1 (File No. 33-97834). (B) REPORTS ON FORM 8-K None filed during the quarter ended March 31, 2001. Items 2, 3, 4 and 5 of PART II are not applicable and have been omitted 11 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 May 11, 2001. PYRAMID BREWERIES INC. By: /s/ L. WAYNE DRURY ------------------------------------- L. Wayne Drury, Vice President and Chief Financial Officer By: /s/ R. MARTIN KELLY ------------------------------------- R. Martin Kelly, President and Chief Executive Officer DATE: May 11, 2001 12