Equity Investments

6 Months Ended

Jun. 30, 2011

Equity Investments

Equity Investments

3. Equity Method Investments

Fulton Street Brewery, LLC (“FSB”)

On May 2, 2011 (the “Closing Date”), the Company, Anheuser-Busch, Incorporated (“A-B”), and Goose Holdings, Inc. (“GHI”) completed the transaction contemplated by the equity purchase agreement (the “Purchase Agreement”) dated as of February 18, 2011, pursuant to which the Company and GHI (collectively, the “Sellers”) sold all of the equity in FSB to A-B. The aggregate consideration paid by A-B was approximately $38.9 million (“Purchase Consideration”), net of transaction fees paid by A-B on the Sellers' behalf, and was determined by arm's length negotiations among the parties. The Company became a party to the Purchase Agreement pursuant to the Joinder to Equity Purchase Agreement (the “Joinder Agreement”) dated May 2, 2011, by and among A­-B, GHI and the Company. A copy of the Joinder Agreement was filed as exhibit 2.1 to the Company's Form 8-K filed with the SEC on May 4, 2011.

The Company's share of the Purchase Consideration in exchange for its 42 percent interest in FSB was $16.3 million, net of the Company's share of transaction fees paid by A-B on the Sellers' behalf, and consisted of $15.1 million received in cash and $1.3 million placed in escrow.  The escrow balance is to satisfy valid claims, if any, that may be asserted by A-B in connection with breaches of representations and warranties made by the Sellers in the Purchase Agreement. The escrow balance will be released to the Company in three payments ratably, every six months, beginning six months following the Closing Date, subject to indemnification claims, as applicable. The Company also received reimbursement from A-B for legal and professional fees the Company separately incurred in evaluation of the transaction.  In the second quarter of 2011, the Company recorded a gain of approximately $10.4 million associated with the sale of its equity interest in FSB.

The Company recognized $691,000 in 2011 for its share of FSB's earnings through the Closing Date, of which $335,000 was recognized in the second quarter of 2011.  For the three and six month periods ended June 30, 2010, the Company's share of FSB's net income totaled $332,000 and $378,000, respectively.  The book value of the Company's equity investment in FSB was $5.9 million as of the Closing Date and $5.2 million at December 31, 2010.

The consolidated statements of income for the six month periods ended June 30 include the results of FSB for the six month periods ended May 31. Due to the timing of receipt of FSB's financial statements, the Company accounted for its share of net earnings of FSB on a one-month lag. If the Company had instead recorded the equity in FSB's earnings for the six months ended June 30, the Company would have recorded a decrease of $248,000 and an increase of $50,000 to its consolidated statements of income for the six months ended June 30, 2011 and 2010, respectively.  There is no lag impact related to the month of June 2011 as the sale of FSB was effective May 2, 2011 and all earnings were captured as of that date.

At June 30, 2011, the Company had net outstanding receivables due from FSB of $381,000.  At December 31, 2010, the Company had recorded a payable to FSB of $3.3 million, primarily for amounts owing for purchases of Goose Island-branded product.

Kona Brewery, LLC (“Kona”)

For the three and six month periods ended June 30, 2010, the Company's share of Kona's net income was $6,000 and $45,000, respectively.  As a result of the closing of the KBC Merger on October 1, 2010, Kona became a wholly owned subsidiary of the Company.  As such, the operations of KBC are included in our consolidated financial statements for the three and six month periods ended June 30, 2011. See Note 9, Merger with KBC for a discussion of the KBC Merger.