SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



☒			QUARTERLY REPORTPURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Washington						91-1141254
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)



929 North Russell Street
Portland, Oregon						97227-1733
(Address of principal executive offices)						(Zip Code)

Registrant’s telephone number, including area code: (503) 331-7270



Securities Registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.005 par value	BREW	The NASDAQ Stock Market LLC

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer ☐
Accelerated filer ☒
Non-accelerated filer ☐
Smaller reporting company ☐☒
Emerging growth company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s common stock outstanding as of ~~November 7, 2019~~April 30, 2020 was ~~19,466,244.~~

CRAFT BREW ALLIANCE, INC.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CRAFT BREW ALLIANCE, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except par value)

The accompanying notes are an integral part of these financial statements.

CRAFT BREW ALLIANCE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

The accompanying notes are an integral part of these financial statements.

CRAFT BREW ALLIANCE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

The accompanying notes are an integral part of these financial statements.

CRAFT BREW ALLIANCE, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


	Common Stock					Additional Paid-In Capital		Accumulated Other Comprehensive Loss				Total Common Shareholders' Equity
	Shares	Par Value								Accumulated Deficit
Balance at December 31, 2018	19,383	$	97	$	144,013	$	(86)	$	(7,589)	$	136,435


Stock-based compensation	29	—		418		—		—		418

Unrealized loss on derivative financial instruments, net of tax of $16	—	—		—		(47)		—		(47)
Tax payments related to stock-based awards	—	—		(157)		—		—		(157)
Net loss	—	—		—		—		(7,364)		(7,364)
Balance at March 31, 2019	19,412	$	97	$	144,274	$	(133)	$	(14,953)	$	129,285

Common Stock Additional Paid-In Capital Accumulated
Other Comprehensive Loss Total
Common Shareholders' Equity
Shares Par Value Accumulated Deficit
Balance at December 31, 2017 19,310
$ 96
$ 142,196
$ (164 ) $ (11,337 ) $ 130,791
Adoption of accounting standard ASC 606 —
—
—
—
(394 ) (394 )
Stock-based compensation —
—
485
—
—
485
Unrealized gain on derivative financial instruments, net of tax of $29 —
—
—
83
—
83
Net income —
—
—
—
161
161
Balance at March 31, 2018 19,310
96
142,681
(81 ) (11,570 ) 131,126
Issuance of shares under stock plans, net of shares withheld for tax payments 23
—
206
—
—
206
Stock-based compensation 29
1
201
202
Unrealized gain on derivative financial instruments, net of tax of $15 —
—
—
46
—
46
Tax payments related to stock-based awards —
—
(84 ) —
—
(84 )
Net income —
—
—
—
4,452
4,452
Balance at June 30, 2018 19,362
97
143,004
(35 ) (7,118 ) 135,948
Issuance of shares under stock plans, net of shares withheld for tax payments 20
—
221
—
—
221
Stock-based compensation —
—
372
—
—
372
Unrealized gain on derivative financial instruments, net of tax of $13 —
—
—
38
—
38
Tax payments related to stock-based awards —
—
(8 ) —
—
(8 )
Net income —
—
—
—
61
61
Balance at September 30, 2018 19,382
$ 97
$ 143,589
$ 3
$ (7,057 ) $ 136,632

~~Index~~


	Common Stock					Additional Paid-In Capital		Accumulated Other Comprehensive Loss				Total Common Shareholders' Equity
	Shares	Par Value								Accumulated Deficit
Balance at December 31, 2019	19,496	$	97	$	145,923	$	(207)	$	(20,508)	$	125,305

Issuance of shares under stock plans, net of shares withheld for tax payments	9	1		92		—		—		93
Stock-based compensation, net of shares withheld for tax payments	40	—		447		—		—		447

Unrealized loss on derivative financial instruments, net of tax of $57	—	—		—		(167)		—		(167)
Tax payments related to stock-based awards	—	—		(270)		—		—		(270)
Net income	—	—		—		—		598		598
Balance at March 31, 2020	19,545	$	98	$	146,192	$	(374)	$	(19,910)	$	126,006

Common Stock Additional Paid-In Capital Accumulated
Other Comprehensive Loss Total
Common Shareholders' Equity
Shares Par Value Accumulated Deficit
Balance at December 31, 2018 19,383
$ 97
$ 144,013
$ (86 ) $ (7,589 ) $ 136,435
Stock-based compensation, net of shares withheld for tax payments 29
—
418
—
—
418
Unrealized loss on derivative financial instruments, net of tax of $16 —
—
—
(47 ) —
(47 )
Tax payments related to stock-based awards —
—
(157 ) —
—
(157 )
Net loss —
—
—
—
(7,364 ) (7,364 )
Balance at March 31, 2019 19,412
97
144,274
(133 ) (14,953 ) 129,285
Stock-based compensation, net of shares withheld for tax payments 53
—
835
—
—
835
Unrealized loss on derivative financial instruments, net of tax of $31 —
—
—
(89 ) —
(89 )
Tax payments related to stock-based awards —
—
(168 ) —
—
(168 )
Net income —
—
—
—
2,610
2,610
Balance at June 30, 2019 19,465
97
144,941
(222 ) (12,343 ) 132,473
Stock-based compensation, net of shares withheld for tax payments 1
—
335
—
—
336
Unrealized loss on derivative financial instruments, net of tax of $9 —
—
—
(25 ) —
(25 )
Net loss —
—
—
—
(1,224 ) (1,224 )
Balance at September 30, 2019 19,466
$ 97
$ 145,276
$ (247 ) $ (13,567 ) $ 131,559

The accompanying notes are an integral part of these financial statements.

CRAFT BREW ALLIANCE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these financial statements.

CRAFT BREW ALLIANCE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The accompanying consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 (“~~2018~~2019 Annual Report”). These consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements are unaudited but, in the opinion of management, reflect all material adjustments necessary to present fairly our consolidated financial position, results of operations and cash flows for the periods presented. 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.

Certain reclassifications have been made to the prior year's data to conform to the current year's presentation. None of the changes affect our previously reported consolidated Net sales, Gross profit, Operating income (loss), Net income (loss) or Basic and diluted net income (loss) per share.

Note 2. Recent Accounting Pronouncements

ASU ~~2018-15~~2019-12

In ~~August 2018,~~December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12 "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." ASU 2019-12 eliminates certain exceptions to the general approach to the income tax accounting model, and adds new guidance to reduce the complexity in accounting for income taxes. This guidance is effective for annual periods beginning after December 15, 2020, including interim periods within those annual periods. We are still evaluating the effect of the adoption of ASU 2019-12.

In August 2018, the FASB issued ASU 2018-15, "Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. ~~We are still evaluating the effect of the~~The adoption of ASU ~~2018-15.~~2018-15 on January 1, 2020 did not have a material effect on our financial position, results of operations or cash flows.

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement." ASU 2018-13 removes, modifies and adds certain disclosure requirements on fair value measurements. ASU 2018-13 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. ~~We are still evaluating the effect of the~~The adoption of ASU ~~2018-13.~~

In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." ASU 2017-12 refines and expands hedge accounting for both financial and commodity risks. Its provisions create more transparency around how economic results are presented, both2018-13 on the face of the financial statements and in the footnotes. It also makes certain targeted improvements to simplify the application of hedge accounting guidance. ASU 2017-12 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2018, on a prospective basis. WeJanuary 1, 2020 did not ~~adopt ASU 2017-12 as it was not applicable to~~have a material effect on our financial position, results of operations or cash flows.

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment." ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. An entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, if applicable. The loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. The same impairment test also applies to any reporting unit with a zero or negative carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU 2017-04 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2019, on a prospective basis. ~~Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017. We do not expect the~~The adoption of ASU 2017-04 toon January 1, 2020 did not have a material effect on our financial position, results of operations or cash flows.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326)." ASU 2016-13 addresses accounting for credit losses for assets that are not measured at fair value through net income on a recurring basis. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods, with early adoption permitted for fiscal years beginning after December 15, 2018. We do not expect the adoption of ASU 2016-13 to have a material effect on our financial position, results of operations or cash flows.

~~ASU 2016-02, ASU 2018-10 and ASU 2018-11~~

In February 2016, the FASB issued ASU 2016-02, "Leases." ASU 2016-02 increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requires disclosing key information about leasing arrangements. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods.

In July 2018, the FASB issued ASU 2018-10, "Codification Improvements to Topic 842, Leases." ASU 2018-10 provides narrow amendments that clarify how to apply certain aspects of the guidance in ASU 2016-02. ASU 2018-10 is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods.

In July 2018, the FASB issued ASU 2018-11, "Leases (Topic 842): Targeted Improvements." ASU 2018-11 provides an optional transition method, that allows entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. ASU 2018-11 is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods.

The new leases guidance affects all companies and organizations that lease assets, and requires them to record on their balance sheet right-of-use ("ROU") assets and lease liabilities for the rights and obligations created by those leases. Under ASC 842, a lease is an arrangement that conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The new guidance retains a distinction between finance leases and operating leases, while requiring companies to recognize both types of leases on their balance sheet. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the criteria for distinguishing between capital leases and operating leases in legacy U.S. GAAP - ASC 840. Lessor accounting remains substantially the same as ASC 840, but with some targeted improvements to align lessor accounting with the lessee accounting model and with the revised revenue recognition guidance under ASC 606. The new standard and amendments require new qualitative and quantitative disclosures for both lessees and lessors.

On January 1, 2019, we adopted ASC 842 and elected the optional transition method under which we initially applied the standard on that date without adjusting amounts for prior periods, which we continue to present in accordance with ASC 840, including related disclosures. We evaluated the potential cumulative effect of applying the new leases guidance and determined that such an adjustment would be immaterial. In connection with our adoption, we:

Our adoption did not change the classification of lease-related expenses in the Consolidated Statements of Operations, and we do not expect significant changes to our pattern of expense recognition. As a result, we expect our adoption will not materially affect our cash flows.

~~The adjustments to our Consolidated Balance Sheets upon adoption of ASC 842, effective January 1, 2019 were as follows (in thousands):~~

Balance at
December 31, 2018 Adjustments due to
ASC 842 Balance at
January 1, 2019
Assets
Accounts receivable $ 29,998
$ 300
$ 30,298
Other current assets 3,121
(216 ) 2,905
Property, equipment and leasehold improvements, net 113,189
(2,538 ) 110,651
Operating lease right-of-use assets —
19,726
19,726
Intangible and other assets, net 5,048
1,140
6,188

Liabilities
Other accrued expenses 3,618
269
3,887
Long-term lease liabilities —
18,143
18,143

Note 3. Cash and Cash Equivalents ~~and Restricted Cash~~

We maintain cash balances with financial institutions that may exceed federally insured limits. We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, we did ~~not~~0t have any cash equivalents.

As part of our cash management system, we use a controlled disbursement account to fund cash distribution checks presented for payment by the holder. Checks issued but not yet presented to banks may result in overdraft balances for accounting purposes. As of ~~September 30,~~March 31, 2020 and December 31, 2019, there were ~~no bank overdrafts. As of December 31, 2018 there were $0.6~~$1.2 million and $0.3 million, respectively, of bank overdrafts included in Accounts payable on our Consolidated Balance ~~Sheet.~~Sheets. Changes in bank overdrafts from period to period are reported in the Consolidated Statements of Cash Flows as a component of operating activities within Accounts payable and Other accrued expenses.

Cash and cash equivalents that are restricted as to withdrawal or use under terms of certain contractual agreements are recorded in Cash, cash equivalents and restricted cash on our Consolidated Balance Sheets. As of September 30, 2019 we no longer had any restricted cash. Restricted cash of $0.5 million at December 31, 2018 represents funds held in an escrow account from the sale of our Woodinville brewery related to a lien; the lien was resolved in our favor and the restriction was removed in the third quarter of 2019.

Inventories are stated at the lower of standard cost or net realizable value.

We regularly review our inventories for the presence of obsolete product attributed to age, seasonality and quality. If our review indicates a reduction in utility below the product’s carrying value, we reduce the product to a new cost basis. We record the cost of inventory for which we estimate we have more than a twelve-month supply as a component of Intangible and other assets, net on our Consolidated Balance Sheets.

Inventories consisted of the following (in thousands):

Work in process is beer held in fermentation tanks prior to the filtration and packaging process.

We lease office space, restaurant and production facilities, warehouse and storage space, land and equipment under operating leases that expire at various dates through the year ending December 31, 2064. Certain leases contain renewal options for varying periods and escalation clauses for adjusting rent to reflect changes in price indices or scheduled adjustments. We exercise judgment in determining the reasonably certain lease term based on the provisions of the underlying agreement, the economic value of leasehold improvements and other relevant factors. Certain leases require us to pay for insurance, taxes and maintenance applicable to the leased property. Under the terms of the land lease for our New Hampshire Brewery, we hold a first right of refusal to purchase the property should the lessor decide to sell the property.

We lease equipment under finance leases that expire at various dates through the year ending December 31, 2024. Ownership of the leased equipment transfers to us at the end of each lease term.

Leases with an initial term of 12 months or less are not recorded on the ~~balance sheet;~~Consolidated Balance Sheets; we recognize lease expense for these leases on a straight-line basis over the lease term.

If our leases do not provide an implicit rate, we develop an estimated incremental borrowing rate at the commencement date based on the estimated rate at which we would borrow, in the current economic environment, an amount equal to the lease payments over a similar term on a collateralized basis which is used to in determine the present value of lease payments. There were no new operating lease obligations recognized at adoption in comparison to our operating lease obligations disclosed as of December 31, 2018. Our accounting for finance (formerly capital) leases is substantially unchanged.

As described further in Note 2, we adopted ASC 842 as of January 1, 2019. Prior period amounts have not been adjusted and continue to be reported in accordance with our historic accounting under ASC 840.

Lease-related liabilities consisted of the following (in thousands):


	March 31, 2020			December 31, 2019
Operating lease liabilities:
Current lease liabilities included in Other accrued expenses	$	896		$	883
Long-term lease liabilities	23,806			24,037
Total operating lease liabilities	24,702			24,920
Financing lease liabilities:
Current portion included in Current portion of long-term debt and finance lease obligations	299			296
Long-term portion of lease liabilities included in Long-term debt and finance lease obligations, net of current portion	728			804
Total financing lease liabilities	1,027			1,100
Total lease liabilities	$	25,729		$	26,020
Weighted-average remaining lease term:
Operating leases	24 years			24 years
Finance leases	4 years			4 years
Weighted-average discount rate:
Operating leases	4.72		%	4.72		%
Finance leases	3.72		%	3.70		%

September 30,
2019 December 31,
2018
Operating lease liabilities:
Current lease liabilities included in Other accrued expenses $ 863
$ —
Long-term lease liabilities 24,269
—
Total operating lease liabilities 25,132
—
Financing lease liabilities:
Current portion included in Current portion of long-term debt and finance lease obligations 391
477
Long-term portion of lease liabilities included in Long-term debt and finance lease obligations, net of current portion 879
1,101
Total financing lease liabilities 1,270
1,578
Total lease liabilities $ 26,402
$ 1,578
Weighted-average remaining lease term:
Operating leases 25 years

Finance leases 4 years

Weighted-average discount rate:

Operating leases 4.72 %
Finance leases 3.56 %

As of ~~September 30, 2019,~~March 31, 2020, the maturities of our operating lease liabilities were as follows (in thousands):

Operating Leases
Remainder of 2019 $ 518
2020 2,002
2021 2,028
2022 2,091
2023 1,958
Thereafter 34,234
Total minimum lease payments 42,831
Less: present value adjustment (17,699 )
Operating lease liabilities $ 25,132

As of ~~September 30, 2019,~~March 31, 2020, the maturities of our finance lease liabilities were as follows (in thousands):


	Finance Leases
Remainder of 2020	$	250
2021	266
2022	199
2023	199
2024	199
Thereafter	—
Total minimum lease payments	1,113
Less: present value adjustment	(86)
Finance lease liabilities	$	1,027

Finance Leases
Remainder of 2019 $ 180
2020 333
2021 266
2022 199
2023 199
Thereafter 199
Total minimum lease payments 1,376
Less: present value adjustment (106 )
Finance lease liabilities $ 1,270

Index

Components of lease cost were as follows (in thousands):


	Three Months Ended March 31,
	2020		2019
Operating lease cost⁽¹⁾	$	936	$	874
Finance lease cost:
Amortization of right-of-use asset	34		42
Interest on lease liabilities	10		13
Sublease income	(72)		—
Total lease cost	$	908	$	929

Three Months Ended
September 30, 2019 Nine Months Ended
September 30, 2019
Operating lease cost⁽¹⁾
$ 904
$ 2,642
Finance lease cost:
Amortization of right-of-use asset 42
127
Interest on lease liabilities 15
37
Sublease income (69 ) (138 )
Total lease cost $ 892
$ 2,668

(1) Includes short-term, month-to-month lease and variable lease costs, which were immaterial.

~~Index~~

~~Total future minimum lease payments as of December 31, 2018 consisted of (in thousands):~~

Operating Lease Obligations Capital Lease Obligations
2019 $ 11,208
$ 529
2020 1,937
333
2021 1,863
266
2022 1,793
199
2023 1,465
199
Thereafter 25,446
199
$ 43,712
1,725
Amount representing interest (148 )
$ 1,577

~~Note 6. Acquisitions~~

On October 10, 2018, we purchased the intellectual property assets of Cisco Brewers ("Cisco") and we increased our ownership interest in Wynwood Brewing Co. ("Wynwood") from 24.5% to 100%. The purchase transaction of Cisco was accounted for as an asset acquisition. The increase in our ownership interest in Wynwood was accounted for under the acquisition method of accounting as a step acquisition. As required by this method, we remeasured our preexisting 24.5% equity interest to its acquisition-date fair value.

On November 29, 2018, we acquired substantially all the assets of Appalachian Mountain Brewery ("AMB"). The acquisition of AMB was accounted for under the acquisition method of accounting and all assets acquired and liabilities assumed were recorded at their respective acquisition-date fair values.

Given the close proximity of the closing dates of the acquisitions to the end of our fiscal year and the potential for working capital adjustments that may impact recognized amounts, the allocation of the purchase price to the underlying net assets was preliminary as of December 31, 2018. During 2019, we recorded immaterial adjustments to the allocation of the purchase price for the Cisco asset purchase and the AMB and Wynwood acquisitions.

The preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed are subject to revisions, which may result in adjustments to the preliminary values recorded as of December 31, 2018. We expect to finalize these amounts during the fourth quarter of 2019.

~~Index~~

Note 7.6. Related Party Transactions

As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, Anheuser-Busch, LLC ("A-B") owned approximately ~~31.2% and 31.3%, respectively,~~31.1% of our outstanding common stock.

Transactions with A-B, Ambev and Anheuser-Busch Worldwide Investments, LLC (“ABWI”)

In December 2015, we partnered with Ambev, the Brazilian subsidiary of Anheuser-Busch InBev SA, to distribute Kona beers into Brazil. In August 2016, we also entered into an International Distribution Agreement with ABWI, an affiliate of A-B, pursuant to which ABWI distributes our malt beverage products in jurisdictions outside the United States, subject to the terms and conditions of our prior agreement with our other international distributor, CraftCan Travel LLC, and certain other limitations.

Contract Brewing Arrangement with Anheuser-Busch Companies, LLC ("ABC")

On January 30, 2018, we entered into a Contract Brewing Agreement (the “Brewing Agreement”) with ABC, an affiliate of A-B, pursuant to which we brew, package, and palletize certain malt beverage products of A-B's craft breweries at our Portland, Oregon, and Portsmouth, New Hampshire, breweries as selected by ABC. Under the terms of the Brewing Agreement, ABC pays us a per barrel fee that varies based on the annual volume of the specified product brewed by us, plus (a) our actual incremental costs of brewing the product and (b) certain capital costs and costs of graphics and labeling that we incur in connection with the brewed products.

The Brewing Agreement ~~as extended, will expire~~expired on December 31, 2019, ~~unless~~but the ~~arrangement is extended at~~parties continue to operate under the ~~mutual agreement of the parties.~~same terms. The Brewing Agreement contains specified termination rights, including, among other things, the right of either party to terminate the Brewing Agreement if (i) the other party fails to perform any material obligation under the Brewing Agreement or any other agreement between the parties, subject to certain cure rights, or (ii) the Master Distributor Agreement is terminated.

Transactions with A-B, Ambev, ABWI and ABC consisted of the following (in thousands):


	Three Months Ended March 31,
	2020		2019
Gross sales to A-B and Ambev	$	36,704	$	39,609
International distribution fee earned from ABWI	812		812
Cumulative international distribution fee from ABWI, recorded in Deferred revenue	21,924		5,172
Contract brewing fee earned from ABC	203		538
Margin fee paid to A-B, classified as a reduction of Sales	488		541
Inventory management and other fees paid to A-B, classified in Cost of sales	92		90

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Gross sales to A-B and Ambev $ 38,740
$ 41,737
$ 129,779
$ 129,588
International distribution fee earned from ABWI 812
850
2,436
2,550
International distribution fee from ABWI, recorded in Deferred revenue, net 19,188
650
17,564
1,950
Contract brewing fee earned from ABC 139
821
781
1,679
Margin fee paid to A-B, classified as a reduction of Sales 574
601
1,839
1,806
Inventory management and other fees paid to A-B, classified in Cost of sales 98
97
295
287
Media and other reimbursement from A-B, classified as a reduction of Selling, general and administrative expenses —
192
—
192

Index

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


	March 31, 2020		December 31, 2019
Amounts due from A-B related to beer sales pursuant to the A-B distributor agreement	$	14,816	$	11,394

Refundable deposits due to A-B	(936)		(1,197)
Amounts due to A-B for services rendered	(6,359)		(5,976)
Net amount due from A-B and ABWI	$	7,521	$	4,221

September 30,
2019 December 31,
2018
Amounts due from A-B related to beer sales pursuant to the A-B distributor agreement $ 12,631
$ 17,946
Amounts due from ABWI and A-B related to international distribution fee and media reimbursement —
6,000
Refundable deposits due to A-B (3,712 ) (2,840 )
Amounts due to A-B for services rendered (6,725 ) (5,140 )
Net amount due from A-B and ABWI $ 2,194
$ 15,966

~~Index~~

~~Transactions with Wynwood Brewing Co. ("Wynwood")~~

As of September 30, 2019 and December 31, 2018, Wynwood was a wholly owned subsidiary. During the nine-month period ended September 30, 2018, we owned a 24.5% interest in Wynwood. The carrying value of our investment was $2.0 million as of September 30, 2018.

~~Transactions with Wynwood prior to its becoming a wholly owned subsidiary consisted of the following (in thousands):~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Master distributor fee earned $ —
$ 3
$ —
$ 22
Share of loss, classified as a component of Other income (expense), net —
22
—
44
Refund of investment, classified as a reduction in the carrying value of the equity method investment —
—
—
23

Related Party Operating Leases

We lease our headquarters office space, banquet space and storage facilities located in Portland, land and certain equipment from ~~two~~2 limited liability companies, both of whose members include our former Board Chair ~~who is also a significant shareholder,~~ and his ~~brother, who continues to be employed by us.~~brother. This lease is included in the ROU asset and lease liabilities recorded on our Consolidated Balance Sheets. Lease payments to these lessors were as follows (in thousands):


Three Months Ended March 31,
2020		2019
$	42	$	41

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
$ 41
$ 41
$ 123
$ 123

We hold lease and sublease obligations for certain office space and the land underlying the brewery and pub location in Kona, Hawaii, with a company whose owners have a charitable foundation that owns more than 5% of our common stock. The sublease contracts expire on various dates through 2020, with an extension at our option for ~~two five-year~~2 five-year periods. We exercised our option to extend these leases commencing in September 2020. These leases are included in the ROU asset and lease liabilities recorded on our Consolidated Balance Sheets. Lease payments to this lessor were as follows (in thousands):


Three Months Ended March 31,
2020		2019
$	172	$	168

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
$ 172
$ 145
$ 511
$ 435

~~Index~~

~~Note 8. Debt~~

~~Long-term debt consisted of the following (in thousands):~~

September 30, 2019 December 31, 2018
Term loan, due September 30, 2023 $ 8,494
$ 8,823
Line of credit, due September 30, 2023 19,828
37,092
Secured borrowing, due June 21, 2026 5,030
—
33,352
45,915
Less current portion, term loan and secured borrowing (1,107 ) (442 )
$ 32,245
$ 45,473

~~Credit Agreement~~

On October 10, 2018, we executed a First Amendment (the " First Amendment") to our Amended and Restated Credit Agreement with Bank of America, N.A. ("BofA") dated November 30, 2015 (the "Credit Agreement"). The Credit Agreement as amended by the First Amendment provides for a revolving line of credit (“Line of Credit”), including provisions for cash borrowings and up to $2.5 million notional amount of letters of credit, and a $10.8 million term loan (“Term Loan”). The primary changes effected by the First Amendment were to increase the maximum amount available under the Line of Credit from $40.0 million to $45.0 million and to extend the maturity date of the Line of Credit from November 30, 2020 to September 30, 2023, which is also the maturity date of the Term Loan. The maximum amount of the Line of Credit is subject to loan commitment reductions in the amount of $750,000 each quarter beginning March 31, 2020. The First Amendment also increased the limit on the total amount of investments that we may make in other craft brewers, other than the acquisition of all or substantially all of the assets or controlling ownership interests, from $5.0 million to $10.0 million. We may draw upon the Line of Credit for working capital and general corporate purposes.

As of September 30, 2019, we had $25.2 million in funds available to be drawn upon from our Line of Credit and $19.8 million of borrowings outstanding. At September 30, 2019, $8.5 million was outstanding under the Term Loan.

Under the Credit Agreement as in effect at September 30, 2019, interest accrues at an annual rate based on the London Inter-Bank Offered Rate (“LIBOR”) Daily Floating Rate plus a marginal rate. The marginal rate varies from 0.75% to 2.00% for the Line of Credit and Term Loan based on our funded debt ratio. At September 30, 2019, our marginal rate was 2.00%, resulting in an annual interest rate of 4.09%.

Accrued interest for the Term Loan is due and payable monthly. Principal payments on the Term Loan are due monthly in accordance with an agreed-upon schedule set forth in the Credit Agreement, with any unpaid principal balance and unpaid accrued interest due and payable on September 30, 2023.

The Credit Agreement authorizes acquisitions within the same line of business as long as we remain in compliance with the financial covenants of the Credit Agreement and there is at least $5.0 million of availability remaining on the Line of Credit following the acquisition.

Effective May 7, 2019, we executed a Second Amendment to the Credit Agreement with BofA (the “Second Amendment”). EBITDA, as defined in the Second Amendment, includes certain adjustments specified in the Second Amendment. Per the Second Amendment, beginning July 1, 2019, and in each fiscal quarter thereafter, the maximum Consolidated Leverage Ratio is 3.50 to 1.00, as A-B did not make a Qualifying Offer as defined in the International Distribution Agreement. Effective September 25, 2019, we executed a Third Amendment to the Credit Agreement with BofA that allows us to net Consolidated Funded Indebtedness with Qualified Cash and Cash Equivalents on hand in an amount not to exceed $10 million, to arrive at ~~Consolidated Net Funded Indebtedness~~.

The Credit Agreement as in effect at September 30, 2019 required us to satisfy the following financial covenants: (i) a Consolidated Leverage Ratio (defined as Consolidated Net Funded Indebtedness to Consolidated EBITDA) of up to 3.50 to 1.00 and (ii) a Fixed Charge Coverage Ratio of at least 1.20 to 1.00. Failure to maintain compliance with these covenants is an event of default and would give BofA the right to declare the entire outstanding loan balance immediately due and payable. At September 30, 2019, we were in compliance with all applicable contractual financial covenants of the Credit Agreement.

~~Index~~

~~Secured Borrowing~~

On June 20, 2019, we executed an agreement with BofA, pursuant to our Master Lease Agreement, for $5.2 million in cash in exchange for a secured interest in our previously installed can line at our Portland brewing facility. The maturity date of the secured borrowing is June 21, 2026. We used the funds to pay down our Line of Credit.

Note 9.7. Derivative Financial Instruments

Interest Rate Swap ~~Contracts~~Contract

Our risk management objectives are to ensure that business and financial exposures to risk that have been identified and measured are minimized using the most effective and efficient methods to reduce, transfer and, when possible, eliminate such exposures. Operating decisions contemplate associated risks and management strives to structure proposed transactions to avoid or reduce risk whenever possible.

We have assessed our vulnerability to certain business and financial risks, including interest rate risk associated with our variable-rate long-term debt. To mitigate this risk, effective January 23, 2014, we entered into an interest rate swap contract with BofA for 75% of the term loan ("Term Loan") balance, to hedge the variability of interest payments associated with our variable-rate borrowings under our Term Loan with BofA. The Term Loan contract and the interest rate swap terminate on September 30, 2023. The Term Loan contract had a total notional value of ~~$6.4~~$6.2 million as of ~~September 30, 2019.~~March 31, 2020. Through this swap agreement, we pay interest at a fixed rate of 2.86% and receive interest at a floating-rate of the one-month LIBOR, which was ~~2.04%~~0.92% at ~~September 30, 2019.~~March 31, 2020. It is likely that LIBOR will no longer be used as a reference rate by most, if not all, financial institutions before year-end 2021.

Since the interest rate swap hedges the variability of interest payments on variable rate debt with similar terms, it qualifies for cash flow hedge accounting treatment.

As of ~~September 30, 2019,~~March 31, 2020, an unrealized net loss of ~~$0.3~~$0.5 million was recorded in Accumulated other comprehensive ~~income (loss)~~loss as a result of ~~these hedges.~~this hedge. The effective portion of the gain or loss on the ~~derivatives~~derivative is reclassified into Interest expense in the same period during which we record Interest expense associated with the related debt. There was no0 hedge ineffectiveness during the first ~~nine~~three months of ~~2019~~2020 or ~~2018.~~2019.

Index

The fair value of our derivative ~~instruments~~instrument recorded as a component of Other liabilities on our Consolidated Balance Sheets was as follows (in thousands):

September 30,
2019 December 31,
2018
Fair value of interest rate swap liability $ (332 ) $ (116 )


	March 31, 2020		December 31, 2019
Fair value of interest rate swap liability	$	(502)	$	(278)

The effect of our interest rate swap ~~contracts~~contract that ~~were~~was accounted for as a derivative instrument on our Consolidated Statements of Operations was as follows (in thousands):

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
September 30,
2019 $ (34 ) Interest expense $ 10
2018 $ 52
Interest expense $ 13

Nine Months Ended
September 30,
2019 $ (216 ) Interest expense $ 22
2018 $ 225
Interest expense $ 52


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,
2020	$	(224)	Interest expense	$	19
2019	$	(62)	Interest expense	$	6

See also Note ~~10.~~8.

~~Index~~

Note ~~10.~~8. Fair Value Measurements

Factors used in determining the fair value of our financial assets and liabilities are summarized into three broad categories:

•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.

The factors or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following table summarizes liabilities measured at fair value on a recurring basis (in thousands):


Fair Value at March 31, 2020	Level 1		Level 2		Level 3		Total
Interest rate swap	$	—	$	(502)	$	—	$	(502)

Fair Value at December 31, 2019
Interest rate swap	$	—	$	(278)	$	—	$	(278)

Fair Value at September 30, 2019 Level 1 Level 2 Level 3 Total
Interest rate swap $ —
$ (332 ) $ —
$ (332 )

Fair Value at December 31, 2018

Interest rate swaps $ —
$ (116 ) $ —
$ (116 )

We did not have any assets measured at fair value on a recurring basis at ~~September 30, 2019~~March 31, 2020 or December 31, ~~2018.~~2019.

The fair value of our interest rate ~~swaps~~swap was based on quarterly statements from the issuing bank. There were no changes to our valuation techniques during the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020.

We believe the carrying amounts of Cash and cash equivalents, ~~and restricted cash,~~ Accounts receivable, Other current assets, Accounts payable, Accrued salaries, wages and payroll taxes, and Other accrued expenses are a reasonable approximation of the fair value of those financial instruments because of the nature of the underlying transactions and the short-term maturities involved.

We had fixed-rate debt outstanding as follows (in thousands):


	March 31, 2020		December 31, 2019
Fixed-rate debt on Consolidated Balance Sheets	$	5,738	$	5,973
Estimated fair value of fixed-rate debt	6,173		6,281

September 30,
2019 December 31,
2018
Fixed-rate debt on Consolidated Balance Sheets $ 6,300
$ 1,577
Estimated fair value of fixed-rate debt 6,576
1,591

Index

We calculate the estimated fair value of our fixed-rate debt using a discounted cash flow methodology. Using estimated current interest rates based on a similar risk profile and duration (Level 2), the fixed cash flows are discounted and summed to compute the fair value of the debt.

~~Index~~

Note ~~11.~~9. Revenue Recognition

The following table disaggregates our Sales by major source (in thousands):

Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019

Beer Related⁽¹⁾
Brewpubs Total
Beer Related⁽¹⁾
Brewpubs Total
Product sold through distributor agreements⁽²⁾
$ 42,667
$ —
$ 42,667
$ 139,700
$ —
$ 139,700
Alternating proprietorship and contract brewing fees⁽³⁾
381
—
381
1,581
—
1,581
International distribution fees 812
—
812
2,436
—
2,436
Brewpubs⁽⁴⁾
—
5,991
5,991
—
18,260
18,260
Other⁽⁵⁾
498
—
498
1,955
—
1,955
$ 44,358
$ 5,991
$ 50,349
$ 145,672
$ 18,260
$ 163,932


	Three Months Ended March 31, 2020
	Beer Related⁽¹⁾		Brewpubs		Total
Product sold through distributor agreements⁽²⁾	$	38,859	$	—	$	38,859
Contract brewing fees	335		—		335
International distribution fees	812		—		812
Brewpubs⁽³⁾	—		5,134		5,134
Other⁽⁴⁾	685		—		685
	$	40,691	$	5,134	$	45,825

	Three Months Ended March 31, 2019
	Beer Related⁽¹⁾		Brewpubs		Total
Product sold through distributor agreements⁽²⁾	$	41,128	$	—	$	41,128
Contract brewing fees	847		—		847
International distribution fees	812		—		812
Brewpubs⁽³⁾	—		6,203		6,203
Other⁽⁴⁾	778		—		778
	$	43,565	$	6,203	$	49,768

Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018

Beer Related⁽¹⁾
Brewpubs Total
Beer Related⁽¹⁾
Brewpubs Total
Product sold through distributor agreements⁽²⁾
$ 45,326
$ —
$ 45,326
$ 139,141
$ —
$ 139,141
Alternating proprietorship and contract brewing fees⁽³⁾
2,863
—
2,863
8,748
—
8,748
International distribution fees 850
—
850
2,550
—
2,550
Brewpubs⁽⁴⁾
—
6,166
6,166
—
18,278
18,278
Other⁽⁵⁾
434
—
434
2,260
—
2,260
$ 49,473
$ 6,166
$ 55,639
$ 152,699
$ 18,278
$ 170,977
(1)Beer Related sales include sales to A-B subsidiaries including Ambev, ABWI and ABC. Sales to wholesalers through the A-B distributor agreement in both the three-month period ended March 31, 2020 and 2019 represented 81.2% of our Sales.

(2)Product sold through distributor agreements included domestic and international sales of owned and non-owned brands pursuant to terms in our distributor agreements.

~~(1)~~

Beer Related sales include sales to A-B subsidiaries including Ambev, ABWI and ABC. Sales to wholesalers through the A-B distributor agreement in the three-month period ended September 30, 2019 and 2018 represented 77.7% and 76.9% of our Sales, respectively. Sales to wholesalers through the A-B distributor agreement in the nine-month period ended September 30, 2019 and 2018 represented 80.0% and 77.2% of our Sales, respectively.


~~(2)~~	~~Product sold through distributor agreements included domestic and international sales of owned and non-owned brands pursuant to terms in our distributor agreements.~~


~~(3)~~	~~Alternating proprietorship fees ceased in the fourth quarter of 2018.~~


~~(4)~~	~~Brewpub sales include sales of promotional merchandise and sales of beer directly to customers.~~


~~(5)~~	~~Other sales include sales of beer related merchandise, hops and spent grain.~~

(3)Brewpub sales include sales of promotional merchandise and sales of beer directly to customers.

(4)Other sales include sales of beer related merchandise, hops and spent grain.

Revenue is recognized when obligations under the terms of a contract with our customers are satisfied; generally this occurs when the product arrives at distribution centers or when the wholesaler takes possession. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods. We consider customer purchase orders, which in some cases are governed by a master agreement, to be the contracts with a customer. For each contract related to the production of beer, we consider the promise to transfer products, each of which is distinct, to be the identified performance obligation. The transaction price for each performance obligation is specifically identified within the contract with our customer and represents the fair standalone selling price. ~~Discounts are recognized as a reduction to Sales at the time we recognize the revenue. We generally do not grant return privileges, except in limited and specific circumstances.~~

As of September 30, 2019, we had receivables related to contracts with customers of $18.4 million, net of the allowance for doubtful accounts of $25,000. As of December 31, 2018, we had receivables related to contracts with customers of $30.0 million, net of the allowance for doubtful accounts of $25,000.

~~Index~~

As of September 30, 2019 and December 31, 2018, contract liabilities, which consisted of obligations associated with our gift card programs, were $0.2 million and $0.4 million, respectively, and were included in Other accrued expenses on the Consolidated Balance Sheets.

~~A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of accounting pursuant to ASC 606.~~ In contracts with multiple performance obligations, we identify each performance obligation and evaluate whether the performance obligation is distinct within the context of the contract at contract inception. Performance obligations that are not distinct at contract inception are combined. Discounts are recognized as a reduction to Sales at the time we recognize the revenue. We generally do not grant return privileges, except in limited and specific circumstances.

~~We entered into an International Distribution Agreement ("IDA")~~As of March 31, 2020, we had receivables related to contracts with A-B for the rights to serve as our exclusive distributor in international territories defined by the IDA for a 10-year period. The IDA represents a single international license to all territories defined in the IDA. Revenue is recognized on a straight-line basis over the 10-year termcustomers of $21.5 million, net of the ~~agreement. In accordance with ASC 606, we evaluate the factors used in our estimates~~allowance for doubtful accounts of ~~variable consideration to be received under contracts on a quarterly basis. We estimate variable consideration as the most likely amount to which we expect to be entitled. During the third quarter~~$25,000. As of December 31, 2019, we ~~received the final payment under the IDA which resulted in total consideration received~~had receivables related to contracts with customers of ~~$34.0 million. We consider the 10-year contractual term~~$17.5 million, net of the ~~IDA as the most likely term~~allowance for doubtful accounts of ~~the agreement~~$25,000.

As of March 31, 2020 and ~~will recognize the revenue from these payments over that period. We believe that the possibility~~December 31, 2019, contract liabilities, which consisted of a significant reversal of cumulative revenue recognized from this agreement under this conclusion is remote. Under the IDA, A-B has the right to issue purchase orders to distribute product in international territories defined by the IDA. Each purchase order placed under the IDA is a distinct performance obligation. The transaction price for each performance obligation is a sales-based royalty, which is recognized as revenue in accordance with the sales-based royalty exception. Accordingly, royalty revenue is recognized as the variabilityobligations associated with our gift card programs, were $0.2 million and $0.2 million, respectively, and were included in Other accrued expenses on the ~~royalty is resolved, which is upon A-B's subsequent sale of our product.~~Consolidated Balance Sheets.

Index

In cases where all conditions to a sale are not met at the time of sale, revenue recognition is deferred until all conditions are met. As of March 31, 2020 and December 31, ~~2018,~~2019, Deferred revenue on our Consolidated Balance Sheets included ~~$6.0~~$21.9 million and $22.7 million, respectively, related to ~~the IDA.~~our International Distribution Agreement ("IDA"). On August 23, 2019, ABC announced it would not make a Qualifying Offer and we received a one-time incentive payment in the amount of $20.0 million on that date as required by the terms of the IDA. For the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, we recognized ~~$2.4~~$0.8 million as Sales ~~resulting in Deferred revenue of $23.6 million at September 30, 2019. We~~and we expect to recognize an additional ~~$0.8~~$2.4 million of Deferred revenue as Sales in the remainder of ~~2019,~~2020, $3.2 million in ~~2020,~~2021, and ~~$19.5~~$16.3 million thereafter.

~~Index~~

Note ~~12.~~10. Segment Results and Concentrations

Our chief operating decision maker monitors Net sales and gross margins of our Beer Related operations and our Brewpubs operations. Beer Related operations include the brewing operations and related domestic and international beer and cider sales of our Kona, Widmer Brothers, Redhook, Omission, AMB, Cisco, and Wynwood beer brands and Square Mile cider brand. Brewpubs operations primarily include our brewpubs, some of which are located adjacent to our Beer Related operations. We do not track operating results beyond the gross margin level or our assets on a segment level.

Net sales, Gross profit and gross margin information by segment was as follows (dollars in thousands):


											Three Months Ended March 31,
2020										2020	Beer Related			Brewpubs			Total
Net sales										Net sales	$	38,767		$	5,134		$	43,901
Gross profit										Gross profit	$	14,982		$	201		$	15,183
Gross margin										Gross margin	38.6		%	3.9		%	34.6		%
	Three Months Ended September 30,
2019	Beer Related			Brewpubs			Total			2019
Net sales	$	41,170		$	5,991		$	47,161		Net sales	$	40,789		$	6,203		$	46,992
Gross profit	$	12,692		$	612		$	13,304		Gross profit	$	15,508		$	675		$	16,183
Gross margin	30.8		%	10.2		%	28.2		%	Gross margin	38.0		%	10.9		%	34.4		%

2018
Net sales	$	46,723		$	6,166		$	52,889
Gross profit	$	16,261		$	438		$	16,699
Gross margin	34.8		%	7.1		%	31.6		%

	Nine Months Ended September 30,
2019	Beer Related			Brewpubs			Total
Net sales	$	136,452		$	18,260		$	154,712
Gross profit	$	50,876		$	1,898		$	52,774
Gross margin	37.3		%	10.4		%	34.1		%

2018
Net sales	$	143,921		$	18,278		$	162,199
Gross profit	$	52,913		$	984		$	53,897
Gross margin	36.8		%	5.4		%	33.2		%

The segments use many of the same assets. For internal reporting purposes, we do not allocate assets by segment and, therefore, no asset by segment information is provided to our chief operating decision maker.

In preparing this financial information, certain expenses were allocated between the segments based on management estimates, while others were based on specific factors such as headcount. These factors can have a significant impact on the amount of Gross profit for each segment. While we believe we have applied a reasonable methodology, assignment of other reasonable cost allocations to each segment could result in materially different segment Gross profit.

Sales to wholesalers through the A-B distributor agreement represented the following percentage of our Sales:

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
77.7 % 76.9 % 80.0 % 77.2 %


Three Months Ended March 31,
2020		2019
81.2	%	81.2	%

Receivables from A-B and ABWI represented the following percentage of our Accounts receivable balance:


March 31, 2020		December 31, 2019
69.1	%	65.1	%

September 30,
2019 December 31,
2018
68.8 % 79.8 %

Index

Note ~~13.~~11. Significant Stock-Based Plan Activity and Stock-Based Compensation

Stock-Based Compensation

Stock-based compensation expense was recognized in our Consolidated Statements of Operations as follows (in thousands):


	Three Months Ended March 31,
	2020		2019
Cost of sales	$	(26)	$	48
Selling, general and administrative expense	473		370
Total stock-based compensation expense	$	447	$	418

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Cost of sales $ (3 ) $ 42
$ 79
$ 108
Selling, general and administrative expense 339
329
1,510
950
Total stock-based compensation expense $ 336
$ 371
$ 1,589
$ 1,058

At ~~September 30, 2019,~~March 31, 2020, we had total unrecognized stock-based compensation expense of ~~$1.8~~$1.1 million, which will be recognized over the weighted average remaining vesting period of ~~2.0~~1.7 years. In the first quarter of 2020, we reversed $39,000 in stock compensation expense from Cost of sales as a result of the termination of unvested awards.

Note ~~14.~~12. Earnings Per Share

The reconciliation between the number of shares used for the basic and diluted per share calculations, as well as other related information, is as follows (in thousands):


	Three Months Ended March 31,
	2020	2019
Weighted average common shares used for basic EPS	19,502	19,412
Dilutive effect of stock-based awards	182	—
Shares used for diluted EPS	19,684	19,412

Stock-based awards not included in diluted per share calculations as they would be antidilutive	—	42

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Weighted average common shares used for basic EPS 19,466
19,370
19,435
19,338
Dilutive effect of stock-based awards —
175
—
187
Shares used for diluted EPS 19,466
19,545
19,435
19,525

Stock-based awards not included in diluted per share calculations as they would be antidilutive 71
—
65
—

Note ~~15.~~13. Commitments and Contingencies

The disclosure of purchase commitments in these consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes for the year ended December 31, ~~2018.~~2019. The disclosures below relate to legal commitments with significant events occurring during the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020.

We are in the process of assessing the impact the COVID-19 pandemic will have on our future commitments and contingencies and we do not believe that the future commitments will be materially adversely impacted.

We are subject to various claims and pending or threatened lawsuits in the normal course of business. Although we do not anticipate that the resolution of legal proceedings arising in the normal course of business or the ~~proceeding~~proceedings described below will have a material adverse effect on our financial position, results of operations or cash flows, we cannot predict this with certainty.

On February 28, 2017 and March 6, 2017, respectively, ~~two~~2 lawsuits, Sara Cilloni and Simone Zimmer v. Craft Brew Alliance, Inc., and Theodore Broomfield v. Kona Brewing Co. LLC, Kona Brew Enterprises, LLP, Kona Brewery LLC, and Craft Brew Alliance, Inc., were filed in the United States District Court for the Northern Division of California. On April 7, 2017, the ~~two~~2 lawsuits were consolidated into a single complaint under the Broomfield case. The lawsuit alleges that the defendants misled customers regarding the state in which Kona Brewing Company beers are manufactured. On April 28, 2017, we filed a motion to dismiss the complaint, which was granted in part and denied in part on September 1, 2017. On September 26, 2018, the Court granted Plaintiffs’ motion for class certification, forming a class of persons within the state of California who purchased certain Kona Brewing Company products within the relevant statute of limitations period. Our motion for reconsideration was denied on October 16, 2018. On May 30, 2019, we announced our entry into a definitive settlement agreement, which received preliminary approval from the Court on June 14, 2019. The settlement claims period ended October 7, 2019, and the Court entered a Final Judgment on February 11, 2020. A notice of appeal of the final judgment was filed by an objector on March 3, 2020. We recorded a charge of $4.7 million on a pre-tax basis in the quarter ended March 31, 2019, based on our estimate of the probable costs of settling the litigation. The ~~settlement claims period ended October 7, 2019. The~~ total cost of settling the litigation is ~~not~~ expected to be ~~materially~~approximately $4.4 million.

In connection with the pending merger transaction with ABC, several lawsuits were filed on behalf of our shareholders. On January 3, 2020, a purported class action complaint brought on behalf of a putative class of our shareholders, captioned Kost et al. v. Craft Brew Alliance, Inc., et al., Case No. 20-2-00389-1 SEA, was filed in ~~excess~~the Superior Court of ~~$4.7 million.~~Washington, King County (the “Kost Action”). On January 14, 2020, a second purported class action complaint brought on behalf of a putative class of our shareholders, captioned Birkby v. Craft Brew Alliance, Inc., et al., Case No. 20CV02867, was filed in the Circuit Court of the State of Oregon for the County of Multnomah (the “Birkby Action”). The Birkby and Kost Actions assert state law claims for alleged breaches of fiduciary duty against our company and our directors. The Kost Action also brings claims against our Chief Executive Officer and ABC, and includes allegations of material misstatements and omissions in our definitive proxy statement filed with the SEC on January 21, 2020 (the “Proxy Statement”).

In addition, 4 complaints were filed in federal court asserting claims against our company and our directors under the federal securities laws and alleging material misstatements and omissions in the Proxy Statement: Sabatini et al. v. Craft Brew Alliance, Inc., et al., Case No. 1:20-cv-00138, filed in the United States District Court for the District of Delaware on January 29, 2020 on behalf of a putative class of our shareholders (the “Sabatini Action”), Halberstam v. Craft Brew Alliance, Inc., et al., Case No. 2:20-cv-01243, filed in the United States District Court for the Central District of California on February 7, 2020 on behalf of an individual shareholder (the “Halberstam Action”), Michael Roberts et al. v. Craft Brew Alliance, Inc., et al., Case No. 1:20-cv-00208, filed in the United States District Court for the District of Delaware on February 12, 2020 on behalf of a putative class of our shareholders (the “Michael Roberts Action”), and Dennis Roberts v. Craft Brew Alliance, Inc., et al., Case No. 1:20-cv-00337, filed in the United States District Court for the District of Colorado on February 10, 2020 on behalf of an individual shareholder (the “Dennis Roberts Action”). The Sabatini Action also asserts claims against ABC and a subsidiary of ABC.

On February 18, 2020, we announced the resolution of claims with the plaintiffs in the Kost, Sabatini, Halberstam, and Michael Roberts Actions, whereby we filed supplemental disclosures and plaintiffs in the Kost, Sabatini, Halberstam, and Michael Roberts Actions dismissed their individual claims with prejudice, and plaintiffs in the Kost, Sabatini, and Michael Roberts Actions dismissed their class claims without prejudice. The Birkby and Dennis Roberts Actions have not been resolved. We did not view the supplemental disclosures as material or required by applicable law, but determined to make the disclosures in order to avoid the expense and risks inherent in further litigation.

Note ~~16.~~14. Subsequent Events

~~On November 11, 2019, Craft Brew Alliance, Inc., a Washington corporation (the “Company”), Anheuser-Busch Companies, LLC, a Delaware limited liability company (“A-B”),~~We began seeing the impact of the global COVID-19 pandemic on our business in early March 2020, and ~~Barrel Subsidiary, Inc., a Washington corporation~~such impacts have continued into April. The primary impacts of the pandemic have been significantly reduced demand from the on-premise channel and ~~wholly owned subsidiary~~the closure of ~~A-B (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Agreement”), pursuant~~our brewpubs on-premise business. We expect COVID-19 related impacts to ~~which Merger Sub will be merged with and into the Company (the “Merger”), with the Company continuing~~continue as the ~~surviving entity~~situation remains dynamic and subject to rapid and possibly material changes. Additional impacts, including but not limited to, the ability to maintain compliance with our financial bank covenants as described in the ~~Merger as~~liquidity and capital resources in Part I, Item 2."Management's Discussion and Analysis of Financial Condition and Results of Operations," may arise of which we are not currently aware. The nature and extent of such impacts will depend on future developments, which are highly uncertain and cannot be predicted.

As a ~~direct subsidiary of A-B. A-B, which currently owns 31.2%~~result of the ~~outstanding shares~~unexpected shutdown of bars and restaurants due to COVID-19, we are actively working with our retail and wholesale partners to come to an agreement on how best to handle the kegs currently in the market that may go out of date before they can be used. We are not able to make a reasonable estimate of the ~~Company’s common stock, has agreed to acquire the remaining outstanding shares for $16.50 per share in cash (the “Merger Consideration”). The Agreement provides that,~~impact of this situation at the ~~Effective Time, each then outstanding option to purchase Shares (a “Company Option”), whether vested or unvested, shall, automatically and without any action on the part~~time of the holder thereof, fully vest (to the extent unvested) and shall be cancelled and converted into the right to receive (without interest) an amount in cash equal to the product of (i) the number of Shares subject to the Company Option immediately prior to the Effective Time multiplied by (ii) the excess, if any, of (A) the Merger Consideration over (B) the exercise price per Share of such Company Option. In addition, each then outstanding restricted stock unit award corresponding to Shares (a “Company RSU Award”) shall, automatically and without any required action on the part of the holder thereof, be cancelled and converted into the right to receive (without interest) an amount in cash equal to the product of (i) the number of Shares subject to such Company RSU Award (which number, for any performance-based Company RSU Awards, shall equal (x) for Company RSU Awards for the 2017-2019 performance cycle, thirty-three percent of the number of Shares that would be earned based on target performance and (y) for Company RSU Awards for the 2018-2020 and 2019-2021 performance cycles, one hundred percent of the number of Shares that would be earned on target performance), multiplied by (ii) the Merger Consideration. Completion of the transaction is contingent on the satisfaction of customary closing conditions, including approval by a majority of the outstanding shares held by shareholders not affiliated with A-B and certain regulatory approvals. The transaction is expected to close in 2020.our filing so no accrual has been recorded.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This quarterly report on Form 10-Q includes forward-looking statements. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will,” “may,” “plan” and similar expressions or their negatives identify forward-looking statements, which generally are not historical in nature. These statements are based upon assumptions and projections that we believe are reasonable, but are by their nature inherently uncertain. Many possible events or factors could affect our future financial results and performance, and could cause actual results or performance to differ materially from those expressed, including those risks and uncertainties described in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 (“~~2018~~2019 Annual Report”), the risk factor set forth in Part II, Item 1A below, and those described from time to time in our future reports filed with the Securities and Exchange Commission (the “SEC”). Certain forward-looking statements are subject to the anticipated occurrence and timing of the closing of the merger transaction pursuant to which Anheuser-Busch Companies, LLC, is expected to acquire Craft Brew Alliance, Inc. Caution should be taken not to place undue reliance on these forward-looking statements, which speak only as of the date of this quarterly report.

The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes thereto included herein, as well as the audited Consolidated Financial Statements and Notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our ~~2018~~2019 Annual Report. The discussion and analysis includes period-to-period comparisons of our financial results. Although period-to-period comparisons may be helpful in understanding our financial results, we believe that they should not be relied upon as an accurate indicator of future performance.

Craft Brew Alliance, Inc. ("CBA") is the ~~seventh~~eighth largest craft brewing company in the U.S. and a leader in brewing, branding, and bringing to market world-class American craft ~~beers. Publicly traded on NASDAQ under the ticker symbol BREW, CBA is headquartered in Portland, Oregon~~beers and ~~operates breweries and brewpubs across the U.S.~~beverages.

Our distinctive portfolio combines the power of Kona Brewing Co., one of the top craft beer brands in the world, with strong regional breweries and innovative lifestyle brands, ~~including~~ Appalachian Mountain Brewery, Cisco Brewers, Omission Brewing Co., Redhook Brewery, Square Mile Cider Co., Widmer Brothers Brewing, and Wynwood Brewing Co. We nurture the growth and development of our brands in today’s increasingly competitive beer market through our state-of-the-art brewing and distribution capability, integrated sales and marketing infrastructure, and strong focus on innovation, local community and sustainability.

CBA was formed in 2008 through the merger of Redhook Brewery and Widmer Brothers Brewing, the two largest craft brewing pioneers in the Northwest at the time. Following a successful strategic brewing and distribution partnership, Kona Brewing Co. joined CBA in 2010. As part of CBA, Kona has expanded its reach across all 50 U.S. states and approximately 30 countries, while remaining deeply rooted in its home of Hawaii.

As consumers increasingly seek more variety and more local offerings, Craft Brew Alliance has expanded its portfolio and home markets with strong regional craft beer brands in targeted markets. In 2015 and 2016, we formed strategic partnerships with Appalachian Mountain Brewery, based in Boone, North Carolina; Cisco Brewers, based in Nantucket, Massachusetts; and Wynwood Brewing Co., based in the heart of Miami’s vibrant multicultural arts district. Building on the success of these partnerships, we acquired all three brands in the fourth quarter of 2018, fundamentally transforming our footprint and paving the way to increase our investments in their growth and drive shareholder value. ~~In 2019, CBA launched The pH Experiment as a separate business unit focused on anticipating drinkers’ needs and quickly rolling out new offerings to quench their thirst.~~

We proudly brew and package our craft beers in three company-owned production breweries located in Portland, Oregon; Portsmouth, New Hampshire; and Kailua-Kona, Hawaii. In ~~2018,~~2019, we continued to leverage our contract brewing agreement with A-B Commercial Strategies, LLC (“ABCS”), an affiliate of Anheuser-Busch, LLC ~~(“A-B”~~("A-B"), through which we brew select CBA brands in A-B’s Fort Collins, Colorado brewery. Additionally, we own and operate five innovation breweries in Portland, Oregon; Seattle, Washington; Portsmouth, New Hampshire; Boone, North Carolina; and Miami, ~~Florida; they~~Florida, which are primarily used for small-batch production and limited-release beers offered primarily in our brewpubs and brands’ home markets.

We distribute our beers to retailers through wholesalers that are aligned with the A-B network. These sales are made pursuant to a Master Distributor Agreement (the “A-B Distributor Agreement”) with A-B, which extends through 2028. As a result of this distribution arrangement, we believe that, under alcohol beverage laws in a majority of states, these wholesalers would own the exclusive right to distribute our beers in their respective markets if the A-B Distributor Agreement expires or is terminated. As competition puts increasing pressure on craft brands outside of their home markets, we ~~are continuing~~invested in accelerating Kona’s growth through our ~~efforts to stabilize and strengthen Widmer Brothers and Redhook~~first-ever national marketing campaign in ~~the Pacific Northwest, while expanding~~2019, expanded distribution of our newly acquired brands Appalachian Mountain Brewery, Cisco Brewers, and Wynwood Brewing Co. across their respective home markets of North Carolina, New

England, and South ~~Miami.~~Miami, and continued our efforts to stabilize and strengthen Widmer Brothers and Redhook in the Pacific Northwest, which is a mature craft beer market.

Separate from our A-B wholesalers, we maintain an internal independent sales and marketing organization with resources across the key functions of brand management, field marketing, field sales, and national retail sales.

On November 11, 2019, we jointly announced with Anheuser-Busch Companies, LLC ("ABC") an agreement to expand our partnership, with ABC agreeing to purchase our remaining shares it does not currently own in a merger transaction for $16.50 per share, in cash. ABC was formed in 1979 as the holding company of A-B. The transaction represents an exciting next step in a long and successful partnership between the two companies that traces back over 25 years. The transaction remains subject to customary closing conditions, including certain regulatory approvals.

In early March 2020, we began seeing the impact of the COVID-19 pandemic on our business. The impact was primarily visible in significantly reduced demand from the on-premise channel and the closure of our brewpubs for on-premise business.

We operate in two segments: Beer Related operations and Brewpubs operations. Beer Related operations include the brewing, and domestic and international sales, of craft beers and ciders from our breweries. Brewpubs operations primarily include our five brewpubs, four of which are located adjacent to our Beer Related operations, as well as other merchandise sales, and sales of our beers directly to customers.

Following is a summary of our financial results:

Nine Months Ended September 30, Net sales Net income (loss) Number of
barrels sold
2019 $154.7 million $(6.0) million 585,400
2018 $162.2 million $4.7 million 587,400

Results of Operations

The following table sets forth, for the periods indicated, certain information from our Consolidated Statements of Operations expressed as a percentage of Net sales⁽¹⁾:

(1)Percentages may not add due to rounding.

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Sales 106.8 % 105.2 % 106.0 % 105.4 %
Less excise taxes (6.8 ) (5.2 ) (6.0 ) (5.4 )
Net sales 100.0
100.0
100.0
100.0
Cost of sales 71.8
68.4
65.9
66.8
Gross profit 28.2
31.6
34.1
33.2
Selling, general and administrative expenses 34.9
31.6
39.7
29.2
Operating income (loss) (6.7 ) —
(5.6 ) 4.1
Interest expense (1.3 ) (0.2 ) (0.9 ) (0.2 )
Other income (expense), net 0.1
—
—
—
Income (loss) before income taxes (8.0 ) (0.3 ) (6.5 ) 3.9
Income tax provision (benefit) (5.4 ) (0.4 ) (2.6 ) 1.0
Net income (loss) (2.6 )% 0.1 % (3.9 )% 2.9 %

Net sales, Gross profit and Gross margin information by segment was as follows (dollars in thousands):

Sales by category were as follows (dollars in thousands):

A-B and A-B related⁽¹⁾

Contract brewing and beer related⁽²⁾

A-B and A-B related⁽¹⁾

(1)A-B and A-B related includes domestic and international sales sold through A-B and Ambev, fees earned pursuant to the Brewing Agreement with Anheuser-Busch Companies, LLC ("ABC"), and the international distribution fees earned from ABWI.

(2)Beer related includes international sales and owned brands not sold through A-B or Ambev.

(3)Brewpubs sales include sales of promotional merchandise and sales of beer directly to customers.

Shipments by Category

Shipments by category were as follows (in barrels):

A-B and A-B related⁽²⁾

Contract brewing and beer related⁽³⁾

(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 distributed through A-B and Ambev, and shipments pursuant to the Brewing Agreement with ABC.

(3)Beer related includes international shipments and shipments of our owned brands not distributed through A-B or Ambev.

Three Months Ended September 30, 2019 Shipments 2018 Shipments Increase
(Decrease) %
Change
Change in
Depletions⁽¹⁾
A-B and A-B related⁽²⁾
159,200
170,000
(10,800 ) (6.4 )% 2 %
Contract brewing and beer related⁽³⁾
24,100
24,000
100
0.4 %
Brewpubs 2,100
1,800
300
16.7 %
Total 185,400
195,800
(10,400 ) (5.3 )%

Nine Months Ended September 30, 2019 Shipments 2018 Shipments Increase
(Decrease) %
Change
Change in
Depletions⁽¹⁾
A-B and A-B related⁽²⁾
515,300
514,800
500
0.1 % 0 %
Contract brewing and beer related⁽³⁾
64,200
67,000
(2,800 ) (4.2 )%
Brewpubs 5,900
5,600
300
5.4 %
Total 585,400
587,400
(2,000 ) (0.3 )%


~~(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 in 2018 and shipments pursuant to the Brewing Agreement with ABC.


~~(3)~~	~~Beer related includes international shipments of our beers, and shipments of our newly acquired brands, in each case not distributed through A-B or Ambev.~~

Index

The decrease in sales to A-B and A-B related in the three-month period ended ~~September 30, 2019~~March 31, 2020 compared to the same period of ~~2018~~2019 was primarily due to ~~decreases~~a decrease in shipment volume, ~~increases in promotional programming,~~ partially offset by increases in average unit pricing. International distribution fees earned were $0.8 million in the three-month period ended September 30, 2019 and $0.9 million in the same period of 2018. The decrease in sales to A-B and A-B related in the nine-month period ended September 30, 2019 compared to the same period of 2018 was primarily due to increased promotional programming, partially offset by increasesan increase in average unit pricing and ~~shipments. International distribution fees earned were $2.4 million~~a decrease in promotional pricing. The decrease in shipment volume was primarily attributed to the ~~nine-month period ended September 30, 2019~~sharp decline in draft sales in March 2020 as a result of the closure of most on-premise retail locations across the country. We expect the demand for draft beer to remain low for the second quarter of 2020 and, ~~$2.6 million in~~potentially, into the ~~same period~~second half of ~~2018.~~2020. As our shipments further trend towards packaged beer, we expect our average unit pricing to increase as the sales price for packaged beer is greater than draft.

The ~~decreases~~increase in Contract brewing and beer related sales in the ~~three and nine-month periods~~three-month period ended ~~September 30, 2019~~March 31, 2020 compared to the same ~~periods~~period of ~~2018 were~~2019 was primarily due to ~~no longer receiving alternating proprietorship fees as a result of the acquisitions of Appalachian Mountain Brewing, Cisco Brewers and Wynwood Brewing~~increases in ~~late 2018, as well as decreases in contract brewing~~international shipment volumes ~~partially offset by sales of our newly acquired~~and brands distributed outside the A-B distribution ~~network. International~~network, partially offset by a decrease in contract brewing shipment ~~volumes~~volumes.

Brewpubs sales decreased ~~slightly~~ in the ~~nine-month~~three-month period ended ~~September 30, 2019~~March 31, 2020 compared to the same period of ~~2018.~~

~~Brewpubs sales decreased slightly, or were relatively flat, in the three and nine-month periods ended September 30,~~ 2019, ~~compared to the same periods of 2018,~~ primarily due to ~~ceasing operations at our Portsmouth brewpub and leasing it to the founders of Cisco, which occurred at the beginning of April 2019, as well as~~ the closure of our brewpubs to on-premise business that began in mid-March due to the ~~Portland taproom, which occurred at~~COVID-19 pandemic and public health and government-mandated strict social distancing requirements. We expect our Brewpub sales to remain low for the ~~end~~second quarter of ~~January 2019, partially offset by~~2020 and, potentially, into the ~~inclusion~~second half of ~~the results of our newly acquired AMB and Wynwood brewpub operations, as well as increased sales at our Kona brewpub located on Hawaii's Big Island.~~2020.

Shipments by Brand

The following table sets forth a comparison of shipments by brand (in barrels):










Three Months Ended March 31,	2020 Shipments	2019 Shipments	Decrease	% Change		Change in Depletions
Kona	107,000	108,800	(1,800)	(1.7)	%	(5)	%
Widmer Brothers	16,000	21,600	(5,600)	(25.9)	%	(13)	%
Redhook	13,200	14,800	(1,600)	(10.8)	%	(9)	%
Omission	8,800	9,100	(300)	(3.3)	%	5	%
All other⁽¹⁾	9,400	10,100	(700)	(6.9)	%	(1)	%
Total⁽²⁾	154,400	164,400	(10,000)	(6.1)	%	(6)	%

Three Months Ended September 30, 2019 Shipments 2018 Shipments Increase
(Decrease) %
Change Change in
Depletions
Kona 119,400
120,100
(700 ) (0.6 )% 7 %
Widmer Brothers 21,300
24,600
(3,300 ) (13.4 )% (9 )%
Redhook 15,300
16,200
(900 ) (5.6 )% (10 )%
Omission 10,900
11,400
(500 ) (4.4 )% (8 )%
All other⁽¹⁾
16,400
14,500
1,900
13.1 % 5 %
Total⁽²⁾
183,300
186,800
(3,500 ) (1.9 )% 2 %

Nine Months Ended September 30, 2019 Shipments 2018 Shipments Increase
(Decrease) %
Change Change in
Depletions
Kona 384,900
360,100
24,800
6.9 % 6 %
Widmer Brothers 70,300
76,800
(6,500 ) (8.5 )% (12 )%
Redhook 47,100
55,200
(8,100 ) (14.7 )% (17 )%
Omission 31,100
34,500
(3,400 ) (9.9 )% (9 )%
All other⁽¹⁾
42,600
39,500
3,100
7.8 % 3 %
Total⁽²⁾
576,000
566,100
9,900
1.7 % 0 %

(1)All other includes the shipments and depletions from our Square Mile, AMB, Cisco Brewers, and Wynwood brand families, shipped by us pursuant to distribution agreements.


~~(1)~~	All other includes the shipments and depletions from our Square Mile brand family, as well as the previously non-owned AMB, Cisco Brewers, and Wynwood 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.~~

(2)Total shipments by brand include international shipments and exclude shipments produced under our contract brewing arrangements.

The slight decrease in our Kona brand shipments in the three-month period ended ~~September 30, 2019~~March 31, 2020 compared to the same period of ~~2018~~2019 was primarily led by the decrease in shipments of Longboard Lager and Hanalei Island IPA ~~and Longboard Lager~~ brands, partially offset by the release of our new Island Seltzer and increased shipments of Gold Cliff IPA and Big Wave Golden Ale brands. The increase in our Kona brand shipments in the nine-month period ended September 30, 2019 compared to the same period of 2018 was primarily led by continued demand for Big Wave Golden Ale and increased shipments of Gold Cliff IPA.

The ~~decreases~~decrease in our Widmer Brothers brand shipments in the ~~three and nine-month periods~~three-month period ended ~~September 30, 2019~~March 31, 2020 compared to the same ~~periods~~period of ~~2018 were~~2019 was primarily due to decreases in Hefeweizen brand shipments.

~~Index~~

Redhook brand shipments decreased in the ~~three and nine-month periods~~three-month period ended ~~September 30, 2019~~March 31, 2020 compared to the same ~~periods~~period of ~~2018,~~2019, primarily due to decreases in Longhammer IPA and ~~ESB~~Brewers Choice variety pack brand shipments, partially offset by ~~increases~~an increase in Big Ballard IPA shipments.

Omission brand shipments decreased in the ~~three and nine-month periods~~three-month period ended ~~September 30, 2019~~March 31, 2020 compared to the same ~~periods~~period of ~~2018,~~2019, primarily due to decreases in shipments of the Pale Ale, Lager and IPA brands, partially offset by shipments of our newly released ~~seltzer and increased shipments in the Ultimate Light brand.~~seltzer.

The ~~increases~~decrease in All other shipments in the ~~three and nine-month periods~~three-month period ended ~~September 30, 2019~~March 31, 2020 compared to the same ~~periods~~period of ~~2018 were~~2019 was primarily due to ~~increases~~decreases in ~~shipments of our newly acquired Wynwood~~AMB and ~~AMB brands,~~Cisco brand shipments, partially offset by ~~a decrease~~an increase in ~~shipments of Cisco Brewers brands in the nine-month period.~~Wynwood brand shipments.

Index

Shipments by Package

The following table sets forth a comparison of our shipments by package, excluding shipments produced under our contract brewing arrangements (in barrels):









	Three Months Ended March 31,
	2020				2019
	Shipments	% of Total		Shipments	% of Total
Draft	28,200	18.3	%	37,500	22.8	%
Packaged	126,200	81.7	%	126,900	77.2	%
Total	154,400	100.0	%	164,400	100.0	%

Three Months Ended September 30,
2019 2018
Shipments % of Total Shipments % of Total
Draft 41,400
22.6 % 43,500
23.3 %
Packaged 141,900
77.4 % 143,300
76.7 %
Total 183,300
100.0 % 186,800
100.0 %

Nine Months Ended September 30,
2019 2018
Shipments % of Total Shipments % of Total
Draft 130,000
22.6 % 132,500
23.4 %
Packaged 446,000
77.4 % 433,600
76.6 %
Total 576,000
100.0 % 566,100
100.0 %

The ~~shifts~~shift in package mix from draft to packaged in the ~~three and nine-month periods~~three-month period ended ~~September 30, 2019~~March 31, 2020 compared to the same ~~periods~~period of ~~2018 were~~2019 was primarily due to widespread closures in the ~~continued competition for~~ on-premise ~~draft sales, as well as~~channel that were caused by the ~~continued success~~COVID-19 pandemic and government-mandated strict social distancing requirements. We expect this trend to continue throughout the second quarter of ~~our Kona brand family, which is more heavily weighted to packaged sales.~~2020 and, possibly, into the second half of 2020.

Cost of Sales

Cost of sales includes purchased raw and component materials, direct labor, overhead and shipping costs.

Information regarding Cost of sales was as follows (dollars in thousands):








	Three Months Ended March 31,						Dollar
	2020		2019		Change		% Change
Beer Related	$	23,785	$	25,281	$	(1,496)	(5.9)	%
Brewpubs	4,933		5,528		(595)		(10.8)	%
Total	$	28,718	$	30,809	$	(2,091)	(6.8)	%

Three Months Ended September 30, Dollar
2019 2018 Change % Change
Beer Related $ 28,478
$ 30,462
$ (1,984 ) (6.5 )%
Brewpubs 5,379
5,728
(349 ) (6.1 )%
Total $ 33,857
$ 36,190
$ (2,333 ) (6.4 )%

Nine Months Ended September 30, Dollar
2019 2018 Change % Change
Beer Related $ 85,576
$ 91,008
$ (5,432 ) (6.0 )%
Brewpubs 16,362
17,294
(932 ) (5.4 )%
Total $ 101,938
$ 108,302
$ (6,364 ) (5.9 )%

The ~~decreases~~decrease in Beer Related Cost of sales in the ~~three and nine-month periods~~three-month period ended ~~September 30, 2019~~March 31, 2020 compared to the same ~~periods~~period of ~~2018 were~~2019 was primarily due to ~~decreases~~the decrease in ~~Beer Related Cost of sales on a per barrel basis. The decreases~~shipment volume, partially offset by an increase in our Beer Related Cost of sales on a per barrel ~~basis were primarily due~~basis. As our shipments further trend toward packaged beer, we expect our average unit costs to ~~cost savings related to no longer having alternating proprietorship material costs as a result of the acquisitions of the AMB, Cisco and Wynwood brands, as well~~increase as the ~~lower~~ cost ~~of having a portion~~to produce packaged beer is greater than draft.

~~Index~~

of our beer produced by A-B in its Fort Collins, Colorado brewery. These decreases were partially offset by increases in brewery costs on a per barrel basis due to higher fixed overhead related to our newly acquired breweries in Boone, North Carolina and Miami, Florida.

The ~~decreases~~decrease in Brewpubs Cost of sales in the ~~three and nine-month periods~~three-month period ended ~~September 30, 2019~~March 31, 2020 compared to the same ~~periods~~period of ~~2018 were~~2019 was primarily due to ceasing operations and leasing of our Portsmouth brewpub to the founders of Cisco, which occurred during April 2019, and the closure of the Portland taproom, ~~partially offset by~~which occurred in February 2019. A decrease in Brewpubs Cost of sales is anticipated for the ~~costs related~~second quarter of 2020 and, potentially, into the second half of 2020 due to ~~operating our newly acquired AMB and Wynwood brewpub operations.~~the impact of the COVID-19 pandemic.

Capacity Utilization

Capacity utilization is calculated by dividing total shipments by approximate working capacity and was as follows:


	Three Months Ended March 31,
	2020		2019
Capacity Utilization	43	%	47	%

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Capacity Utilization 54 % 59 % 55 % 59 %

Our capacity utilization declined in the ~~three and nine-month periods~~three-month period ended ~~September 30, 2019~~March 31, 2020 compared to the same ~~periods~~period of ~~2018~~2019 due to a larger percentage of our beer being brewed by ABCS as part of our contract brewing relationship and evolving brewery footprint. We also experienced a decrease in our capacity utilization as a result of the decrease in demand for draft beer.

Index

Gross Profit

Information regarding Gross profit was as follows (dollars in thousands):








	Three Months Ended March 31,						Dollar
	2020		2019		Change		% Change
Beer Related	$	14,982	$	15,508	$	(526)	(3.4)	%
Brewpubs	201		675		(474)		(70.2)	%
Total	$	15,183	$	16,183	$	(1,000)	(6.2)	%

Three Months Ended September 30, Dollar
2019 2018 Change % Change
Beer Related $ 12,692
$ 16,261
$ (3,569 ) (21.9 )%
Brewpubs 612
438
174
39.7 %
Total $ 13,304
$ 16,699
$ (3,395 ) (20.3 )%

Nine Months Ended September 30, Dollar
2019 2018 Change % Change
Beer Related $ 50,876
$ 52,913
$ (2,037 ) (3.8 )%
Brewpubs 1,898
984
914
92.9 %
Total $ 52,774
$ 53,897
$ (1,123 ) (2.1 )%

Gross profit as a percentage of Net sales, or gross margin, was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
	2019		2018		2019		2018			2020		2019
Beer Related	30.8	%	34.8	%	37.3	%	36.8	%	Beer Related	38.6	%	38.0	%
Brewpubs	10.2	%	7.1	%	10.4	%	5.4	%	Brewpubs	3.9	%	10.9	%
Overall	28.2	%	31.6	%	34.1	%	33.2	%	Overall	34.6	%	34.4	%

The ~~decreases~~decrease in Beer Related Gross profit in the ~~three and nine-month periods ended September 30, 2019, and in gross margin in the~~ three-month period ended ~~September 30, 2019 in each case~~March 31, 2020, compared to the same period of 2018 were primarily due to decreases in shipment volume and increases in brewery costs due to higher fixed overhead related to our newly acquired breweries in Boone, North Carolina and Miami, Florida, partially offset by cost savings related to no longer having alternating proprietorship material costs, and the lower costs related to having a portion of our beer produced by A-B in Fort Collins. The increase in Beer Related gross margin in the nine-month period ended September 30, 2019 ~~compared to the same period of 2018~~ was primarily due to ~~cost savings related to no longer having alternating proprietorship material costs, and the lower costs related to having a portion of our beer produced by A-B in Fort Collins, partially offset by~~ a decrease in shipment ~~volume.~~volumes and an increase in average unit costs on a per barrel basis, partially offset by an increase in average unit pricing and a decrease in promotional pricing.

The ~~increases~~decrease in Brewpubs Gross profit and gross margin in the ~~three and nine-month periods~~three-month period ended ~~September 30, 2019~~March 31, 2020 compared to the same ~~periods~~period of ~~2018 were~~2019 was primarily due to the ~~net results~~closure of our ~~newly acquired AMB and Wynwood brewpub operations,~~brewpubs to on-premise business beginning in mid-March due to the COVID-19 pandemic, partially offset by ~~declines in~~cost savings associated with the ceasing of operations and leasing of our Portsmouth brewpub ~~which is being leased~~ to the founders of Cisco ~~beginning in April 2019.~~and the closure of the Portland taproom.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A”) include compensation and related expenses for our sales and marketing activities, management, legal and other professional and administrative support functions.

Information regarding SG&A was as follows (dollars in thousands):







	Three Months Ended March 31,								Dollar
	2020			2019			Change		% Change
Selling, general and administrative expenses	$	14,461		$	25,565		$	(11,104)	(43.4)	%
As a % of Net sales	32.9		%	54.4		%

Three Months Ended
September 30, Dollar
2019 2018 Change % Change
Selling, general and administrative expenses $ 16,465
$ 16,712
$ (247 ) (1.5 )%
As a % of Net sales 34.9 % 31.6 %

Nine Months Ended
September 30, Dollar
2019 2018 Change % Change
Selling, general and administrative expenses $ 61,411
$ 47,317
$ 14,094
29.8 %
As a % of Net sales 39.7 % 29.2 %

The decrease in SG&A ~~was relatively constant~~ for the three-month period ended ~~September 30, 2019~~March 31, 2020 compared to the same period of ~~2018.~~

~~The increase in SG&A for the nine-month period ended September 30,~~ 2019 ~~compared to the same period of 2018~~ was primarily due to ~~an increase~~a decrease in creative and media spend related to ~~our~~the non-recurring Kona marketing campaign ~~including our first national campaign during the NCAA's basketball tournament, March Madness,~~ of ~~$6.9~~$4.6 million in 2019, and a ~~$4.7 million~~non-recurring charge ~~based on our current estimate~~related to the settlement of ~~the probable costs of settling~~ the litigation related to the Kona class action lawsuit in 2019 of $4.7 million, as well as ~~increases~~a decrease in employee related ~~costs. See Note 15~~costs, and a one-time legal settlement benefit of ~~Notes~~$1.0 million related to ~~Consolidated Financial Statements included~~our former Woodinville property received in ~~Part 1, Item 1 of this report.~~March 2020.

Information regarding Interest expense was as follows (dollars in thousands):

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Average debt outstanding $44,629 $10,665 $45,743 $13,056
Average interest rate 5.43 % 3.52 % 4.10 % 3.02 %

The ~~increases~~decrease in Interest expense in the ~~three and nine-month periods~~three-month period ended ~~September 30, 2019~~March 31, 2020 compared to the same ~~periods~~period of ~~2018 were~~2019 was primarily due to ~~increases~~a decrease in our average debt outstanding. ~~The increases in our average debt outstanding were due to borrowing on our line of credit to facilitate the acquisitions that were completed in the three-month period ended December 31, 2018.~~

Income Tax ~~Provision (Benefit)~~Benefit

Our effective income tax rate was ~~40.3% benefit~~36.8% for the first ~~nine~~three months of ~~2019~~2020 and ~~25.5% expense~~24.0% in the first ~~nine~~three months of ~~2018.~~2019. The effective income tax rates reflect the impact of non-deductible expenses (primarily meals and entertainment expenses), state and local taxes and tax credits. AIn the first three months of 2020 we recognized a one-time tax ~~credit study was completed and~~benefit of $365 related to the ~~benefit was recognized~~net operating loss carryback provisions in the ~~third quarter of 2019. The study resulted in a benefit of approximately 14%,~~Coronavirus Aid, Relief, and Economic Security Act (CARES Act) which ~~is reflected within the 40.3% effective income tax rate.~~was signed into law on March 27, 2020.

Liquidity and Capital Resources

We have required capital primarily for the construction and development of our production breweries, to support our brewery footprint evolution, and to fund our working capital needs. Historically, we have financed our capital requirements through cash flows from operations, bank borrowings and the sale of common and preferred stock. We anticipate meeting our obligations for the twelve months beginning ~~October~~April 1, ~~2019~~2020 primarily from cash on hand, cash flows generated from operations and borrowing under our line of credit as the need arises. Capital resources available to us at ~~September 30, 2019~~April 1, 2020 included ~~$11.8~~$0.1 million of Cash and cash equivalents and ~~$25.2~~$9.9 million available under our revolving credit facility.

At ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, we had ~~$14.0~~$13.9 million and ~~$13.7~~$1.6 million of working capital, respectively, and our debt as a percentage of total capitalization (total debt and common shareholders’ equity) was ~~20.8%~~27.7% and ~~25.8%~~21.5%, respectively.

A summary of our cash flow information was as follows (in thousands):


	Three Months Ended March 31,
	2020		2019
Net cash provided by (used in) operating activities	$	(7,218)	$	3,452
Net cash used in investing activities	(6,969)		(5,157)
Net cash provided by financing activities	13,813		2,175
Increase (decrease) in Cash and cash equivalents	$	(374)	$	470

Nine Months Ended
September 30,
2019 2018
Net cash provided by operating activities $ 34,474
$ 16,664
Net cash provided by (used in) investing activities (10,697 ) 17,297
Net cash used in financing activities (13,195 ) (22,384 )
Increase in Cash, cash equivalents and restricted cash $ 10,582
$ 11,577

Cash ~~provided by~~used in operating activities of ~~$34.5~~$7.2 million in the first ~~nine~~three months of ~~2019~~2020 resulted from our Net ~~loss~~income of ~~$6.0~~$0.6 million ~~offset by~~and net non-cash expenses of ~~$6.8~~$3.0 million ~~and~~being offset by changes in our operating assets and liabilities as discussed in more detail below.

Accounts receivable, net, ~~decreased $11.6~~increased $4.0 million to ~~$18.4~~$21.5 million at ~~September 30, 2019~~March 31, 2020 compared to ~~$30.0~~$17.5 million at December 31, ~~2018.~~2019. This ~~decrease~~increase was primarily due to ~~a decrease~~the timing of ~~$11.3~~shipments and an increase of $3.4 million in our receivable from A-B and ABWI, which totaled ~~$12.6~~$14.8 million at September 30, 2019. Amounts due from ABWI related to the international distribution fee decreased by $6.0 million and our receivable from A-B decreased $5.3 million due to the timing of receipts and decreased shipments.March 31, 2020. Historically, we have not had collection problems related to our accounts receivable.

Inventories increased ~~$4.3~~$3.9 million to ~~$21.5~~$23.0 million at ~~September 30, 2019~~March 31, 2020 compared to ~~$17.2~~$19.1 million at December 31, ~~2018.~~2019. The increase was primarily due to an increase in ~~raw materials as we purchased hops under raw material contracts and an increase in~~ finished goods and packaging materials as a result of the timing of shipments in the fourth quarter of ~~2018~~2019 and ~~third~~first quarter of ~~2019,~~2020, seasonality and ~~seasonality.~~the forecasted demand for our beer.

Accounts payable increased ~~$1.9~~$3.8 million to ~~$19.5~~$19.6 million at ~~September 30, 2019~~March 31, 2020 compared to ~~$17.6~~$15.8 million at December 31, ~~2018,~~2019, primarily due to timing of payments for raw and component materials, marketing and capital expenditures.

Deferred revenue increased $17.6 million to $23.6 million at September 30, 2019 compared to $6.0 million at December 31, 2018, primarily due to the receipt of a $20.0 million one-time incentive payment from ABC as required by the terms of the International Distribution Agreement.

Capital expenditures of ~~$10.5~~$7.1 million in the first ~~nine~~three months of ~~2019~~2020 were primarily directed to beer production capacity and efficiency improvements. As of ~~September 30, 2019,~~March 31, 2020, we had an additional ~~$0.9~~$0.6 million of expenditures recorded in Accounts payable on our Consolidated Balance Sheets, compared to ~~$3.1~~$1.6 million at December 31, ~~2018. Beginning in 2015 through expected completion in early 2020, we are investing approximately $20~~2019. We anticipate capital expenditures will not exceed a total of $10.0 million in ~~a new Kona brewery. We anticipate total capital expenditures of approximately $13.0 million to $17.0 million in 2019~~2020, primarily for our new Kona brewery and ~~the addition of a new can line in our Portland brewery to address consumer demand.~~enterprise resource planning software.

On October 10, 2018, we executed a First Amendment (the ~~" First~~"First Amendment") to our Amended and Restated Credit Agreement with Bank of America, N.A. ("BofA") dated November 30, 2015 (as amended, the "Credit Agreement"). The Credit Agreement as amended by the First Amendment provides for a revolving line of credit (“Line of Credit”), including provisions for cash borrowings and up to $2.5 million notional amount of letters of credit, and a $10.8 million term loan (“Term Loan”). The primary changes effected by the First Amendment were to increase the maximum amount available under the Line of Credit from $40.0 million to $45.0 million and to extend the maturity date of the Line of Credit from November 30, 2020 to September 30, 2023, which is also the maturity date of the Term Loan. The maximum amount of the Line of Credit is subject to loan commitment reductions in the amount of $750,000 each quarter beginning March 31, 2020. The First Amendment also increased the limit on the total amount of investments that we may make in other craft brewers, other than the acquisition of all or substantially all of the assets or controlling ownership interests, from $5.0 million to $10.0 million. We may draw upon the Line of Credit for working capital and general corporate purposes.

As of ~~September 30, 2019,~~March 31, 2020, we had ~~$25.2~~$10.7 million in funds available to be drawn upon from our Line of Credit and ~~$19.8~~$34.3 million of borrowings outstanding. At ~~September 30, 2019, $8.5~~March 31, 2020, $8.3 million was outstanding under the Term Loan.

Under the Credit Agreement as in effect at ~~September 30, 2019,~~March 31, 2020, interest accrues at an annual rate based on the London Inter-Bank Offered Rate (“LIBOR”) Daily Floating Rate plus a marginal rate. The marginal rate varies from 0.75% to 2.00% for the Line of Credit and Term Loan based on our funded debt ratio. At ~~September 30, 2019,~~March 31, 2020, our marginal rate was 2.00%, resulting in an annual interest rate of ~~4.09%~~2.83%. It is likely that LIBOR will no longer be used as a reference rate by most, if not all, financial institutions before year-end 2021.

~~Effective May 7,~~As amended in 2019, ~~we executed a Second Amendment to~~ the Credit Agreement with BofA (the “Second Amendment”). EBITDA, as defined in the Second Amendment, includes certain adjustments specified in the Second Amendment. Per the Second Amendment, beginning July 1, 2019, and in each fiscal quarter thereafter, the maximum Consolidated Leverage Ratio is 3.50 to 1.00, as A-B did not make a Qualifying Offer as defined in the International Distribution Agreement. Effective September 25, 2019, we executed a Third Amendment to the Credit Agreement with BofA that allows us to net Consolidated Funded Indebtedness with Qualified Cash and Cash Equivalents on hand in an amount not to exceed $10 million, to arrive at ~~Consolidated Net Funded Indebtedness~~.

~~The Credit Agreement as in effect at September 30, 2019 required~~requires us to satisfy the following financial covenants: (i) on or after the earliest to occur of July 1, 2020 or the termination of the A-B Merger, a Consolidated Leverage Ratio ~~(defined as Consolidated Net Funded Indebtedness to Consolidated EBITDA)~~ of ~~up to~~ 3.50 to ~~1.00 and~~1.00; (ii) on or after the earliest to occur of July 1, 2020 or the termination of the A-B Merger, a Fixed Charge Coverage Ratio of ~~at least~~ 1.20 to ~~1.00.~~1.00; and (iii) on a trailing four-quarter basis at each of March 31, 2020 and June 30, 2020, a minimum Consolidated EBITDA of $3.0 million. Failure to maintain compliance with these covenants is an event of default and would give BofA the right to declare the entire outstanding loan balance immediately due and payable. At ~~September 30, 2019,~~March 31, 2020, we were in compliance with all applicable contractual financial covenants of the Credit Agreement.

On June 20, 2019 we executed an agreement with BofA, pursuant to our Master Lease Agreement, for $5.2 million in cash in exchange for a secured interest in our previously installed can line at our Portland brewing facility. The maturity date of the secured borrowing is June 21, 2026. We used the funds to pay down our Line of Credit. At March 31, 2020, $4.7 million was outstanding at an interest rate of 4.54%.

~~See also Note 8 of Notes to Consolidated Financial Statements included in Part 1, Item 1 of this report.~~

Critical Accounting Policies and Estimates

Our financial statements are based upon the selection and application of significant accounting policies that require management to make significant estimates and assumptions. Judgments and uncertainties affecting the application of these policies may result in materially different amounts being reported under different conditions or using different assumptions. Our estimates are based upon historical experience, market trends and financial forecasts and projections, and upon various other assumptions that management believes to be reasonable under the circumstances at various points in time. Actual results may differ, potentially significantly, from these estimates.

Our critical accounting policies, as described in our ~~2018~~2019 Annual Report on Form 10-K, relate to goodwill, indefinite-lived intangible assets, long-lived assets, refundable deposits on kegs, revenue recognition, deferred taxes and ~~deferred taxes. Other than as described in Notes 2 and 5 of Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q regarding accounting for leases, there~~leases. There have been no changes to our critical accounting policies since December 31, ~~2018.~~2019.

Our sales generally reflect a degree of seasonality, with the first and fourth quarters historically exhibiting low sales levels compared to the second and third quarters. Accordingly, our results for any particular quarter are not likely to be indicative of the results to be achieved for the full year.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

Recent Accounting Pronouncements

See ~~Notes~~Note 2 ~~and 5~~ of Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our reported market risks and risk management policies since the filing of our ~~2018~~2019 Annual Report on Form 10-K, which was filed with the SEC on March ~~6, 2019.~~11, 2020.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and our Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) under the Securities Exchange Act of 1934 (“Exchange Act”) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.While reasonable assurance is a high level of assurance, it does not mean absolute assurance. Disclosure controls and internal control over financial reporting cannot prevent or detect all errors, misstatements or fraud. In addition, the design of a control system must recognize that there are resource constraints, and the benefits associated with controls must be proportionate to their costs.

Changes in Internal Control Over Financial Reporting

As a result of the COVID-19 pandemic, certain employees began working remotely in March 2020, but these changes to the working environment did not have a material effect on our internal control over financial reporting. During the ~~third~~first quarter of ~~2019,~~2020, there were no changes in our internal control over financial reporting identified in connection with the above evaluation required by Exchange Act Rule 13a-15 or 15d-15 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

See Note 1513 of Notes to Consolidated Financial Statements included in Part 1, Item 1 of this report.

Item 1A. Risk Factors

There have been no changes in our reported risk factors since the filing of our ~~2018~~2019 Annual Report on Form 10-K, which was filed with the SEC on March ~~6, 2019.~~11, 2020, with the exception of the addition of the following risk factor:

The Global COVID-19 Pandemic Has Disrupted Our Business and Our Financial Condition; and Our Operating Results Have Been, and Are Expected To Continue to be, Adversely Affected by the Outbreak and Its Effects.

Our operations and business have been, and may continue to be, materially and adversely affected by the COVID-19 pandemic and related weakening of economic conditions and declines in consumer demand. National, state and local governments have responded to the COVID-19 pandemic in a variety of ways, including by declaring states of emergency, restricting people from gathering in groups, or interacting within a certain physical distance (i.e., social distancing), and in certain cases, ordering businesses to close or limit operations and requiring people to stay at home. Although we have been permitted to continue to operate our breweries, there are no assurances that we will be permitted to operate these facilities under future government order or other restriction, or that our contract brewing partner will similarly be permitted to continue to operate. In particular, any limitations on, or closures of, our Oregon, New Hampshire or Hawaii breweries, or ABCS, our contract brewing partner, in Colorado, could have a material adverse impact on our ability to manufacture products and service customers, and could have a material adverse impact on our business, financial condition and results of operations.

During the first quarter of 2020, the principal effects of the global COVID-19 pandemic included significant reductions in demand for draft from the on-premise channel due to, the closure of our brewpubs to on-premise business. We expect to continue to be impacted as the situation remains dynamic and subject to rapid and possibly material changes. Continued or additional disruptions to our business and potential associated effects on our financial condition and results of operations include, but are not limited to:

•reduced demand for our products due to adverse and uncertain economic conditions such as increased unemployment, a prolonged downturn in economic growth and other financial hardships, or a decline in consumer confidence;

•unpredictable consumer behaviors and reduced demand for our products, due to on-premise closures, government quarantines and other restrictions on social gatherings;

•inability to manufacture and ship our products in quantities necessary to meet consumer demand and achieve planned shipment and depletion targets due to disruptions at our owned breweries and our contract brewing partner's brewery caused by:

◦our inability to maintain a sufficient workforce at our owned breweries due to the health-related effects of COVID-19 and similar staffing issues at our contract brewing partner's brewery;

◦disruptions at our owned breweries and our contract brewing partner's brewery caused by an inability to maintain a sufficient quantity of essential supplies, such as raw and packaging materials, and personal protective equipment, or to maintain logistics and other manufacturing and supply chain capabilities necessary for the manufacture and distribution of our products;

◦failure of third parties on which we rely, including our inventory suppliers, our contract brewing partner, distributors, and logistics and transportation providers, to continue to meet their obligations to us, which may be caused by their own financial or operational difficulties;

•potential incremental costs associated with mitigating the effects of the pandemic on our operations, including increased labor, freight and logistics costs and other expenses; and

•significant changes in the conditions in markets in which we produce, sell or distribute our products, including prolonged or additional quarantines, government and regulatory actions and closures or other restrictions that limit or close our operating and manufacturing facilities, restrict the ability of our employees to perform necessary business functions, restrict or prevent consumer access to our products, or otherwise prevent our third parties from sufficiently staffing operations, including operations necessary for the production, distribution, sale and support of our products.

These impacts could place limitations on our ability to operate effectively and could have a material adverse effect on our operations, financial condition and operating results. We have implemented policies and procedures at our owned breweries to address potential risks, including mandating work from home for all non-production employees, making face masks available, reorganizing workspaces to increase social distancing between and among shifts, and increasing hours of cleaning per day. As the situation continues to evolve and more information and guidance become available, we may adjust our current policies and procedures, so as to address the rapidly changing variables related to the pandemic. Additional impacts may arise of which we are not currently aware. The nature and extent of such impacts will depend on future developments, which are highly uncertain and cannot be predicted.

The following exhibits are filed herewith and this list is intended to constitute the exhibit index:



~~10.1~~31.1		~~Third Amendment to Amended and Restated Credit Agreement dated September 25, 2019 between Craft Brew Alliance, Inc. and Bank of America, N.A.~~
~~31.1~~	Certification of Chief Executive Officer of Craft Brew Alliance, Inc. pursuant to Exchange Act Rule 13a-14(a)
31.2		Certification of Chief Financial Officer of Craft Brew Alliance, Inc. pursuant to Exchange Act Rule 13a-14(a)
32.1*		Certification pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350
99.1*		Press Release dated ~~November 12, 2019~~May 6, 2020
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

* Furnished herewith

Pursuant to the requirements 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.


	September 30, 2019			December 31, 2018				March 31, 2020		December 31, 2019
Assets							Assets
Current assets:							Current assets:
Cash, cash equivalents and restricted cash	$	11,782		$	1,200
Cash and cash equivalents							Cash and cash equivalents	$	95	$	469
Accounts receivable, net	18,357			29,998			Accounts receivable, net	21,453		17,492
Inventory, net	21,500			17,216			Inventory, net	23,004		19,142

Other current assets	4,025			3,121			Other current assets	5,337		3,953
Total current assets	55,664			51,535			Total current assets	49,889		41,056
Property, equipment and leasehold improvements, net	110,924			113,189			Property, equipment and leasehold improvements, net	116,030		113,337
Operating lease right-of-use assets	23,841			—			Operating lease right-of-use assets	23,184		23,513
Goodwill	21,935			21,986			Goodwill	21,935		21,935
Trademarks	44,211			44,289			Trademarks	44,240		44,240
Intangible and other assets, net	5,473			5,048			Intangible and other assets, net	5,316		5,304
Total assets	$	262,048		$	236,047		Total assets	$	260,594	$	249,385
Liabilities and Shareholders' Equity							Liabilities and Shareholders' Equity
Current liabilities:							Current liabilities:
Accounts payable	$	19,475		$	17,552		Accounts payable	$	19,590	$	15,804
Accrued salaries, wages and payroll taxes	5,881			5,635			Accrued salaries, wages and payroll taxes	3,784		5,675
Refundable deposits	3,467			4,123			Refundable deposits	2,738		3,640
Deferred revenue	3,251			6,015			Deferred revenue	3,248		3,251
Other accrued expenses	8,142			3,618			Other accrued expenses	5,196		9,623
Current portion of long-term debt and finance lease obligations	1,498			919			Current portion of long-term debt and finance lease obligations	1,430		1,415
Total current liabilities	41,714			37,862			Total current liabilities	35,986		39,408
Deferred revenue, non-current	20,300			—			Deferred revenue, non-current	18,676		19,488
Long-term debt and finance lease obligations, net of current portion	33,124			46,573			Long-term debt and finance lease obligations, net of current portion	46,895		32,920
Fair value of derivative financial instruments	332			116			Fair value of derivative financial instruments	502		278
Deferred income tax liability, net	9,562			12,381			Deferred income tax liability, net	7,740		6,966
Long-term operating lease liabilities	24,269			—			Long-term operating lease liabilities	23,806		24,037
Other liabilities	1,188			2,680			Other liabilities	983		983
Total liabilities	130,489			99,612			Total liabilities	134,588		124,080
Commitments and contingencies (Note 15)
Commitments and contingencies (Note 13)							Commitments and contingencies (Note 13)
Common shareholders' equity:							Common shareholders' equity:
Common stock, $0.005 par value. Authorized 50,000,000 shares; issued and outstanding 19,466,244 and 19,382,641	97			97
Common stock, $0.005 par value. Authorized 50,000,000 shares; issued and outstanding 19,545,308 and 19,495,907							Common stock, $0.005 par value. Authorized 50,000,000 shares; issued and outstanding 19,545,308 and 19,495,907	98		97
Additional paid-in capital	145,276			144,013			Additional paid-in capital	146,192		145,923
Accumulated other comprehensive loss	(247		)	(86		)	Accumulated other comprehensive loss	(374)		(207)
Accumulated deficit	(13,567		)	(7,589		)	Accumulated deficit	(19,910)		(20,508)
Total common shareholders' equity	131,559			136,435			Total common shareholders' equity	126,006		125,305
Total liabilities and common shareholders' equity	$	262,048		$	236,047		Total liabilities and common shareholders' equity	$	260,594	$	249,385


	Nine Months Ended September 30,							Three Months Ended March 31,
	2019			2018				2020		2019
Cash flows from operating activities:							Cash flows from operating activities:
Net income (loss)	$	(5,978	)	$	4,674		Net income (loss)	$	598	$	(7,364)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:							Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	7,993			7,985			Depreciation and amortization	2,535		2,726
Gain on sale or disposal of Property, equipment and leasehold improvements	(8		)	(549		)
(Gain) loss on sale or disposal of Property, equipment and leasehold improvements							(Gain) loss on sale or disposal of Property, equipment and leasehold improvements	(87)		8
Deferred income taxes	(2,764		)	(673		)	Deferred income taxes	831		(2,341)
Stock-based compensation	1,589			1,058			Stock-based compensation	447		418

Lease expense	171			—			Lease expense	111		54
Other	(189		)	206			Other	(862)		66
Changes in operating assets and liabilities:							Changes in operating assets and liabilities:
Accounts receivable, net	11,975			(676		)	Accounts receivable, net	(3,957)		2,466
Inventories	(3,851		)	(2,905		)	Inventories	(3,183)		(2,531)
Other current assets	(1,120		)	2,360			Other current assets	(1,384)		(2,406)
Accounts payable and other accrued expenses	8,986			4,922			Accounts payable and other accrued expenses	368		12,493
Deferred revenue	17,537			1,950			Deferred revenue	(815)		(812)
Accrued salaries, wages and payroll taxes	247			(1,128		)	Accrued salaries, wages and payroll taxes	(1,891)		745
Refundable deposits	(114		)	(560		)	Refundable deposits	71		(70)
Net cash provided by operating activities	34,474			16,664
Net cash provided by (used in) operating activities							Net cash provided by (used in) operating activities	(7,218)		3,452

Cash flows from investing activities:							Cash flows from investing activities:
Expenditures for Property, equipment and leasehold improvements	(10,478		)	(6,216		)	Expenditures for Property, equipment and leasehold improvements	(7,066)		(5,173)
Proceeds from sale of Property, equipment and leasehold improvements	55			22,998			Proceeds from sale of Property, equipment and leasehold improvements	97		16
Restricted cash from sale of Property, equipment and leasehold improvements	—			515
Business combinations and asset acquisitions	(274		)	—
Net cash provided by (used in) investing activities	(10,697		)	17,297

Net cash used in investing activities							Net cash used in investing activities	(6,969)		(5,157)

Cash flows from financing activities:							Cash flows from financing activities:
Proceeds from issuance of long-term debt	5,192			—

Principal payments on debt and finance lease obligations	(798		)	(520		)	Principal payments on debt and finance lease obligations	(348)		(277)
Net repayments under revolving line of credit	(17,264		)	(22,199		)

Net borrowings under revolving line of credit							Net borrowings under revolving line of credit	14,339		2,609
Proceeds from issuances of common stock	—			427			Proceeds from issuances of common stock	92		—
Tax payments related to stock-based awards	(325		)	(92		)	Tax payments related to stock-based awards	(270)		(157)
Net cash used in financing activities	(13,195		)	(22,384		)
Increase in Cash, cash equivalents and restricted cash	10,582			11,577

Cash, cash equivalents and restricted cash:
Net cash provided by financing activities							Net cash provided by financing activities	13,813		2,175
Increase (decrease) in Cash and cash equivalents							Increase (decrease) in Cash and cash equivalents	(374)		470

Cash and cash equivalents							Cash and cash equivalents
Beginning of period	1,200			579			Beginning of period	469		1,200
End of period	$	11,782		$	12,156		End of period	$	95	$	1,670
Supplemental disclosure of cash flow information:							Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,414		$	396		Cash paid for interest	$	273	$	335
Cash paid for income taxes, net	559			450
Cash received for income taxes, net							Cash received for income taxes, net	61		—
Cash paid for amounts included in measurement of lease liabilities	2,369			—			Cash paid for amounts included in measurement of lease liabilities	752		742
Supplemental disclosure of non-cash information:							Supplemental disclosure of non-cash information:
Right-of-use assets obtained in exchange for operating lease obligations	$	24,898		$	—		Right-of-use assets obtained in exchange for operating lease obligations	$	—	$	19,726
Right-of-use assets obtained in exchange for finance lease obligations	2,538			—			Right-of-use assets obtained in exchange for finance lease obligations	—		2,538

Purchases of Property, equipment and leasehold improvements included in Accounts payable at end of period	937			205			Purchases of Property, equipment and leasehold improvements included in Accounts payable at end of period	573		1,384


	September 30, 2019		December 31, 2018			March 31, 2020		December 31, 2019
Raw materials	$	8,741	$	7,146	Raw materials	$	7,645	$	8,435
Work in process	3,370		3,219		Work in process	3,873		2,862
Finished goods	5,740		4,319		Finished goods	6,591		4,651
Packaging materials	2,486		891		Packaging materials	3,481		1,981
Promotional merchandise	600		1,139		Promotional merchandise	817		661
Brewpub food, beverages and supplies	563		502		Brewpub food, beverages and supplies	597		552
	$	21,500	$	17,216		$	23,004	$	19,142



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



PART I - FINANCIAL INFORMATION			Page

Item 1.	Financial Statements

	Consolidated Balance Sheets (unaudited) – ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019	21

	Consolidated Statements of Operations (unaudited) - Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	32

	Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss (unaudited) – Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	43

	Consolidated Statements of Shareholders' Equity (unaudited) - Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	54

	Consolidated Statements of Cash Flows (unaudited) - ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	75

	Notes to Consolidated Financial Statements (unaudited)	86

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2416

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3524

Item 4.	Controls and Procedures	3524

PART II ‑ OTHER INFORMATION

Item 1.	Legal Proceedings	3624

Item 1A.	Risk Factors	3624



Item 6.	Exhibits	3626

Signature			3726


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
	2019			2018			2019			2018				2020		2019
Sales	$	50,349		$	55,639		$	163,932		$	170,977		Sales	$	45,825	$	49,768
Less excise taxes	3,188			2,750			9,220			8,778			Less excise taxes	1,924		2,776
Net sales	47,161			52,889			154,712			162,199			Net sales	43,901		46,992
Cost of sales	33,857			36,190			101,938			108,302			Cost of sales	28,718		30,809
Gross profit	13,304			16,699			52,774			53,897			Gross profit	15,183		16,183
Selling, general and administrative expenses	16,465			16,712			61,411			47,317			Selling, general and administrative expenses	14,461		25,565
Operating income (loss)	(3,161		)	(13		)	(8,637		)	6,580			Operating income (loss)	722		(9,382)
Interest expense	(616		)	(107		)	(1,428		)	(348		)	Interest expense	(267)		(308)
Other income (expense), net	24			(13		)	57			42
Other expense, net													Other expense, net	(18)		—
Income (loss) before income taxes	(3,753		)	(133		)	(10,008		)	6,274			Income (loss) before income taxes	437		(9,690)
Income tax provision (benefit)	(2,529		)	(194		)	(4,030		)	1,600
Income tax benefit													Income tax benefit	(161)		(2,326)
Net income (loss)	$	(1,224	)	$	61		$	(5,978	)	$	4,674		Net income (loss)	$	598	$	(7,364)
Basic and diluted net income (loss) per share	$	(0.06	)	$	—		$	(0.31	)	$	0.24		Basic and diluted net income (loss) per share	$	0.03	$	(0.38)
Shares used in basic per share calculations	19,466			19,370			19,435			19,338			Shares used in basic per share calculations	19,502		19,412
Shares used in diluted per share calculations	19,466			19,545			19,435			19,525			Shares used in diluted per share calculations	19,684		19,412



	Balance at December 31, 2018		Adjustments due to ASC 842			Balance at January 1, 2019
Assets
Accounts receivable	$	29,998	$	300		$	30,298
Other current assets	3,121		(216		)	2,905
Property, equipment and leasehold improvements, net	113,189		(2,538		)	110,651
Operating lease right-of-use assets	—		19,726			19,726
Intangible and other assets, net	5,048		1,140			6,188

Liabilities
Other accrued expenses	3,618		269			3,887
Long-term lease liabilities	—		18,143			18,143


	Operating Leases
Remainder of 2020	$	1,508
2021	2,036
2022	2,091
2023	1,958
2024	1,933
Thereafter	32,302
Total minimum lease payments	41,828
Less: present value adjustment	(17,126)
Operating lease liabilities	$	24,702



	Operating Leases
Remainder of 2019	$	518
2020	2,002
2021	2,028
2022	2,091
2023	1,958
Thereafter	34,234
Total minimum lease payments	42,831
Less: present value adjustment	(17,699		)
Operating lease liabilities	$	25,132



	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Operating lease cost⁽¹⁾	$	904		$	2,642
Finance lease cost:
Amortization of right-of-use asset	42			127
Interest on lease liabilities	15			37
Sublease income	(69		)	(138		)
Total lease cost	$	892		$	2,668



	Operating Lease Obligations		Capital Lease Obligations
2019	$	11,208	$	529
2020	1,937		333
2021	1,863		266
2022	1,793		199
2023	1,465		199
Thereafter	25,446		199
	$	43,712	1,725
Amount representing interest			(148		)
			$	1,577



	September 30, 2019			December 31, 2018
Term loan, due September 30, 2023	$	8,494		$	8,823
Line of credit, due September 30, 2023	19,828			37,092
Secured borrowing, due June 21, 2026	5,030			—
	33,352			45,915
Less current portion, term loan and secured borrowing	(1,107		)	(442		)
	$	32,245		$	45,473



Fair Value at September 30, 2019	Level 1		Level 2			Level 3		Total
Interest rate swap	$	—	$	(332	)	$	—	$	(332	)

Fair Value at December 31, 2018
Interest rate swaps	$	—	$	(116	)	$	—	$	(116	)



	Three Months Ended September 30, 2019						Nine Months Ended September 30, 2019
	Beer Related⁽¹⁾		Brewpubs		Total		Beer Related⁽¹⁾		Brewpubs		Total
Product sold through distributor agreements⁽²⁾	$	42,667	$	—	$	42,667	$	139,700	$	—	$	139,700
Alternating proprietorship and contract brewing fees⁽³⁾	381		—		381		1,581		—		1,581
International distribution fees	812		—		812		2,436		—		2,436
Brewpubs⁽⁴⁾	—		5,991		5,991		—		18,260		18,260
Other⁽⁵⁾	498		—		498		1,955		—		1,955
	$	44,358	$	5,991	$	50,349	$	145,672	$	18,260	$	163,932



	Three Months Ended September 30, 2018						Nine Months Ended September 30, 2018
	Beer Related⁽¹⁾		Brewpubs		Total		Beer Related⁽¹⁾		Brewpubs		Total
Product sold through distributor agreements⁽²⁾	$	45,326	$	—	$	45,326	$	139,141	$	—	$	139,141
Alternating proprietorship and contract brewing fees⁽³⁾	2,863		—		2,863		8,748		—		8,748
International distribution fees	850		—		850		2,550		—		2,550
Brewpubs⁽⁴⁾	—		6,166		6,166		—		18,278		18,278
Other⁽⁵⁾	434		—		434		2,260		—		2,260
	$	49,473	$	6,166	$	55,639	$	152,699	$	18,278	$	170,977


~~(2)~~	~~Beer related includes international sales of our beers, and brands, not sold through A-B or Ambev, as well as fees earned through alternating proprietorship agreements during 2018.~~


~~(3)~~	~~Brewpubs sales include sales of promotional merchandise and sales of beer directly to customers.~~



Three Months Ended September 30,	2019 Shipments	2018 Shipments	Increase (Decrease)		% Change		Change in Depletions⁽¹⁾
A-B and A-B related⁽²⁾	159,200	170,000	(10,800	)	(6.4	)%	2	%
Contract brewing and beer related⁽³⁾	24,100	24,000	100		0.4	%
Brewpubs	2,100	1,800	300		16.7	%
Total	185,400	195,800	(10,400	)	(5.3	)%

Nine Months Ended September 30,	2019 Shipments	2018 Shipments	Increase (Decrease)		% Change		Change in Depletions⁽¹⁾
A-B and A-B related⁽²⁾	515,300	514,800	500		0.1	%	0	%
Contract brewing and beer related⁽³⁾	64,200	67,000	(2,800	)	(4.2	)%
Brewpubs	5,900	5,600	300		5.4	%
Total	585,400	587,400	(2,000	)	(0.3	)%