USA: Pyramid Breweries Inc. reports Q1 2005 results with 25.6% sales growth

Seattle: Pyramid Breweries Inc. announced on May 6 results for the first quarter of 2005. The Company reported a 25.6% overall growth in sales, resulting both from the acquisition of certain Portland Brewing Company assets in July, 2004 and by strong sales growth in both beer and soda products in its key West Coast markets. Operating costs remained high due to underutilization of brewing capacity and freight surcharges, but the Company had made significant progress in consolidating brewing operations by the end of the quarter.

"The improving growth in our flagship Pyramid Brand Family, which we saw beginning in the fourth quarter of 2004, continued to gain momentum during the first quarter of 2005. Despite a weak, yet highly competitive brewing industry environment, we are seeing strong growth in all markets with our award winning Pyramid-branded beers," quoted John Lennon, CEO.

Lennon further stated, "During the first quarter of 2005, the Company began to consolidate its brewing operations by shifting the brewing of branded products from Seattle to the Portland brewing facility. We incurred one time costs during the quarter in connection with this initiative. In addition, we have added sales resources in the Southwest in order to build new distribution and augment sales velocity. We have also invested in marketing programs, which will be implemented later in the year. Overall, we are encouraged by the improving trends in sales and operations during the quarter and we anticipate deriving favorable benefits from these activities during the balance of 2005, including improved sales results and a tighter cost structure."

Sales for the first quarter ended March 31, 2005 were $9.9 million, an increase of $2.0 million over the same quarter of the prior year. Beverage segment net revenues increased 34.9%, or $1.7 million, versus the same period in 2004, driven by a 34.8% increase in shipments to 46,700 barrels. Of the total shipments, beer shipments increased 39.6% to 37,000 barrels while soda increased 19.2% to 9,700 barrels.

The primary drivers of the beer sales growth were the addition of the MacTarnahan family of brands acquired as part of the Company's July 31, 2004 acquisition of certain Portland Brewing assets, strong growth of Pyramid Hefeweizen, the Company's most popular product, and increased contract beer production. All sales regions increased shipment volumes over the first quarter of 2004, with the states of Washington, Oregon and California all recording double-digit growth.

Alehouse segment sales increased 10.7%, or $325,000, over prior year to $3.4 million for the quarter driven by $460,000 in sales at the new Portland Taproom, which was acquired in as part of the Portland Brewing asset acquisition, and offset by declining sales of $137,000 in the Sacramento Alehouse. Alehouse sales in the Company's Seattle, Berkeley and Walnut Creek locations remained relatively flat year over year for the first quarter of 2005.

Gross margin dollars for the quarter ended March 31, 2005 increased 8.4%, or $117,000, to $1.5 million primarily as a result of the 34.9% increase in Beverage segment sales. Beverage segment cost of goods sold as a percentage of sales increased from 73.3% in 2004 to 76.1% in 2005 while beverage segment gross margin dollars increased $268,000 to $1,564,000.

Beverage segment gross margin percentages decreased to 23.9% from 26.7% for the three month period ended March 31, 2005. The decrease in beverage margins as a percentage of sales is the result of one time costs expensed to cost of sales which were related to consolidating production operations from Seattle into the Portland brewery acquired as part of the Portland Brewing acquisition and also higher freight and fuel surcharge costs which increased $170,000, or 27.2% per barrel, over the same three month period in 2004. Alehouse gross margins declined to a loss of $60,000 compared to an $11,000 loss in 2004. The increase in the alehouse segment loss is the result of a focus on alehouse repairs and maintenance during the three month period ended March 31, 2005 in preparation for the higher volume spring and summer seasons, as well as additional promotional activities. Alehouse repair and maintenance costs and promotional activities increased $30,000 and $36,000, respectively, over the same period in 2004.

Selling, general and administrative expenses for the first quarter increased $173,000 over the same period in 2004. The Company's selling and marketing expenses increased $535,000, or 43.1%, compared to the first quarter of 2004, primarily as a result of additional marketing expense associated with the MacTarnahan family of brands acquired in July 2004, and to a lesser extent as a result of increased selling efforts related to the acquired brands and growing the Pyramid brand family. These higher selling and marketing expenses were incurred to help drive increased sales in the quarter and in future periods. General and administrative expenses for the first quarter of 2004 included costs related to the change of the Company's CEO in the first quarter of 2004. The Company incurred no similar costs during the first quarter of 2005. Consequently, the increase in selling and marketing costs for the first quarter of 2005 was offset partially by a $323,000 reduction in general and administrative expenses for the period.

Net loss for the first quarter of 2005 was $1,131,000, compared to a net loss of $996,000 during the same quarter of the prior year. The increased loss can be attributed to additional costs incurred in the alehouse operations, a continuing increase in freight costs and fuel surcharges and one time costs related to the consolidation of brewing operations from the Seattle facility into the Portland facility. EBITDA for the quarter increased $34,000 to a negative $307,000, a 9.9% improvement over the first quarter of 2004.

As announced on February 11th, 2005, the Company has taken on two primary initiatives in order to improve operating results. The first initiative is driving sales and revenue growth by focusing efforts on developing its core Pyramid, MacTarnahan and Thomas Kemper brands. As a result of this initiative, the Company continues to aggressively market these brands. Through the first quarter of 2005, the Company has seen significant growth in these brands. The second initiative is focused on eliminating all unnecessary costs from across the business, and seeking constant improvement in operating efficiencies. The centerpiece of this initiative is the consolidation of brewing operations. The Company has already begun shifting a significant portion its Seattle-based brewing and soda production to the Portland facility, enabling the Seattle facility to pursue other opportunities or cost savings measures. Additionally, the Company has made efficiency improvements in Portland through more complete facility utilization, operational updates, equipment improvements, as well as reconfiguration of the facility. Overall, the Company believes that these initiatives will result in improved future operating results.

EBITDA represents a non-GAAP (Generally Accepted Accounting Principles) financial measure, but it is a widely accepted indicator of a company's ability to service indebtedness and is frequently used to evaluate a company's performance. Pyramid defines EBITDA as earnings before interest, taxes, depreciation, amortization and stock compensation expense. This calculation may differ from other similarly titled measures used by other companies. Management believes that this information is useful to investors, given the capital intensive nature of the business. However, it is not a substitute for liquidity or operating measures calculated in accordance with GAAP. A table reconciling this measure to the appropriate GAAP measure is included in the Selected Unaudited Cash Flow Data table included in this release.

Pyramid Breweries Inc. is a leading brewer of specialty, full-flavored beers and sodas, now produced mainly under the Pyramid, MacTarnahan's and Thomas Kemper brand names. The Pyramid Family now includes five breweries, located in Seattle, Washington, Portland, Oregon and Berkeley, Walnut Creek and Sacramento, California, as well as five adjoining restaurants.

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