Related Party Transactions

9 Months Ended

Sep. 30, 2011

Related Party Transactions [Abstract]

Related Party Transactions

Note 5.         Related Party Transactions

Note Payable

In connection with the KBC Merger as discussed in Note 4 above, we assumed an obligation for a promissory note payable (“Related Party Note”) to a counterparty that was a significant Kona shareholder and remains a shareholder of Craft Brewers Alliance, Inc. The Related Party Note is secured by the equipment comprising a photovoltaic cell generation system (“photovoltaic system”) installed at our brewery located in Kailua-Kona, Hawaii. The balance of the related party note payable as of September 30, 2011 and December 31, 2010 was $561,000 and $1.4 million, respectively.

Modifications to A-B Agreements

In connection with the sale of our interest in FSB, we modified two agreements with A-B originally executed in 2004: the Master Distributor Agreement (as amended and restated, the “A-B Distributor Agreement”), which was amended primarily to lower our margin fees (“Margin Fees”) to be paid to A-B; and the Exchange and Recapitalization Agreement (as amended and restated, the “Exchange Agreement”).

The modifications to the A-B Distributor Agreement reduced the Margin Fees to be paid to A-B for all draft or bottled beer sold through A-B or the associated A-B distribution network, except for beer sold in qualifying territories, as defined, from May 1, 2011 (the “Commencement Date”) until December 31, 2018, to $0.25 per case equivalent from $0.74 per case equivalent. Beer sold through A-B or the associated A-B distribution network in qualifying territories, as defined, will be exempt from Margin Fees until September 30, 2013, and thereafter will be assessed Margin Fees at the $0.25 per case equivalent through December 31, 2018. The exemption from Margin Fees for beer sold in the qualifying territories is subject to certain conditions, including incurring sales and marketing expenses in the qualifying territories at or above specified amounts. In the event the A-B Distributor Agreement is renewed beyond December 31, 2018, the A-B Distributor Agreement sets Margin Fees to be paid to A-B for the period beginning January 1, 2019 and ending December 31, 2028, at $0.75 per case equivalent. The A-B Distributor Agreement no longer provides for the incremental fees that were previously paid to A-B for shipments above the volume of shipments during 2003.

Additional terms of the A-B Distributor Agreement allow us, in the event we purchase additional beer brands, to distribute those brands outside of the A-B Distributor Agreement while still utilizing the distribution network.

We estimate that, had the modification to the A-B Distributor Agreement been in place throughout 2010, the increase in 2010 sales resulting from the reduced distribution fees would have been approximately $3.3 million. The amount of increase in sales realized for future periods may differ from this estimate due to the level, timing and geographic distribution of our shipments to A-B.

Other Transactions with A-B

Other transactions with A-B consisted of the following (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Gross sales to A-B	$	35,072	$	32,525	$	102,019	$	91,838
Margin fee paid to A-B, classified as a reduction of Sales		496		1,605		2,398		4,584
Royalties and other fees paid to A-B, classified in Cost of sales		105		145		379		471
Amounts received from A-B for lost keg fees and forfeited deposits, included as a reduction of Property, equipment and leasehold improvements, net		120		83		240		226

Amounts due to or from A-B were as follows (in thousands):

	September 30, 2011			December 31 2010
Amounts due from A-B related to beer sales pursuant to the A-B Distributor Agreement	$	7,348		$	6,920
Refundable deposits due to A-B		(1,163	)		(828	)
Amounts due to A-B for services rendered		(2,614	)		(2,185	)
Net amount due from A-B	$	3,571		$	3,907

See also Note 4.