USA: Pyramid Breweries Inc. reports improved sales growth for Q2 and H1 2005

Pyramid Breweries Inc. announced on August 4 its results for the second quarter of 2005. The Company reported a 25.2% overall growth in net sales, resulting from both the acquisition of certain Portland Brewing Company assets in July, 2004 and strong beer sales growth in its key West Coast markets. Net income increased 15.9% to $168,000 and EBITDA improved 26.4% to $1,024,000.

Sales for the quarter ended June 30, 2005 were $13.0 million, an increase of $2.62 million over the same quarter of the prior year. Beverage segment net revenues increased 29.6%, or $2.0 million, versus the same period in 2004, driven by a 32.4% increase in shipments to 63,800 barrels. Of the total shipments, beer shipments increased 45.2% to 50,100 barrels while soda remained flat at 13,700 barrels. The primary drivers of the beer sales increase were the strong growth of Pyramid branded products, the addition of the MacTarnahan family of brands acquired as part of the Company's July 31, 2004 acquisition of certain Portland Brewing assets and increased contract beer production. All sales regions increased shipment volumes over the second quarter of 2004, with the states of Washington, Oregon and California all recording double digit growth. Alehouse segment sales increased 16.6%, or $588,000, over prior year to $4.1 million for the quarter, driven by $523,000 in sales at the new Portland Taproom, which was acquired as part of the Portland Brewing asset acquisition, and a $65,000 increase in same store sales.

Gross margin dollars for the quarter ended June 30, 2005 increased 16.4%, or $422,000, to $3.0 million as a result of the 29.6% increase in Beverage segment sales. Beverage segment gross margin dollars increased $518,000 to $2,701,000 while the gross margin percentages decreased to 30.4% from 31.8% for the three month period ended June 30, 2005. The decrease in beverage margins as a percentage of sales is the result of continuing costs related to consolidating production operations from Seattle into the Portland brewery and also higher freight and fuel surcharge costs which increased $298,000, or 43.5% per barrel, over the same three month period in 2004. Alehouse gross margins increased slightly to $294,000 compared to $280,000 in 2004.

Selling, general, and administrative expenses for the second quarter increased $313,000 over the same period in 2004. The Company's selling and marketing expenses increased $388,000, or 24.6%, compared to the second quarter of 2004. Planned increases in marketing expenses are related to package redesign work scheduled to be released in the third quarter and other marketing activities. The Company is also launching a major branding campaign aimed at beer drinkers in the Western U.S.A. The new "Refreshingly Unfiltered," (tm) brand positioning is designed to better communicate Pyramid's unique-tasting, leading-selling line of unfiltered Weizen (Wheat) beers. The highlight of the new marketing centers on the launch of new, innovative product styles and new packaging graphics. Additionally, the Company increased its sales force this year in order to raise its selling efforts related to growing the Pyramid brand family as well as brands acquired from Portland Brewing Company. These higher selling and marketing expenses were incurred to help drive increased sales in the quarter and in future periods. General and administrative costs declined $35,000, or 4.2%, compared to the same period in 2004.

Net income for the second quarter of 2005 was $168,000, compared to a net income of $145,000 during the same quarter of the prior year. The slight improvement in net income can be attributed to the increase in sales partially off-set by the continuing facility consolidation costs, increasing freight costs and the additional sales and marketing activities. EBITDA for the quarter increased $214,000 to $1,024,000, a 26.4% improvement over the second quarter of 2004.

"Generally, the overall direction of the business is becoming more favorable. Our investment in sales and marketing resources in the Beverage Division, earlier in the year is propelling volume and revenue growth. We are seeing continuing growth in consumption and sales to retailers. Same store draft sales are increasing and we are seeing favorable results emerge from increasing market penetration in existing and new markets," said John Lennon, CEO. Lennon further stated "Strong company performance in June, which featured the best financial performance by the company in two years, capped a solid result for the second quarter of 2005. The company began to realize results from added investment in sales and marketing resources and improved cost efficiencies stemming from consolidation of our Seattle-based brewing production to our Portland facility."

For the first half of the year, Pyramid's net sales increased 25.4%, to $22,920,000. Total shipments for the beverage division increased 45.5%, to 110,600 barrels. Shipments of Pyramid beer increased 8.0% to 64,000 barrels while shipments of Thomas Kemper Soda increased 7.2% to 23,400 barrels for the six month period ended June 30, 2005. Sales for the alehouse division were up 13.9%, due to the addition of the Portland Taproom which contributed $983,000 during the first six months of the year. Gross margin for the first six months increased $540,000 to $4,500,000 due to the higher beverage volumes and the consolidation of production operations to the more efficient brewing facility in Portland

Selling, general and administrative expenses for the first six months of 2005 increased to $5,389,000, compared to $4,903,000 incurred during the first six months of 2004. The $486,000 additional expense was attributed to increased sales and marketing costs of $922,000 offset by a decrease in administrative expenses of $436,000. General and administrative expenses for the first six months 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 six months of 2005.

Net loss for the six-month period ended June 30, 2005 increased to $963,000 compared to a net loss of $851,000 for the same period of the prior year. EBITDA for the first half of the year improved to $717,000 compared to $469,000 in the prior year.

As announced on February 11, 2005, the Company has taken on initiatives to improve operating results. The first initiative is driving 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 second quarter of 2005, the Company has seen significant growth in these brands. The second initiative is focused on eliminating all unnecessary costs across the business, and seeking constant improvement in operating efficiencies. The centerpiece of this initiative is the consolidation of Seattle brewing operations into Portland. The Company has shifted a significant portion its Seattle-based brewing and soda production to the Portland facility, and ceased its efforts to obtain a long term contract brewing arrangement a third party for the Seattle facility. These changes will enable the Company to pursue other opportunities and cost savings measures related to the Seattle facility. The termination of third party contract brewing arrangements at the Seattle facility is not expected to have a material impact on the Company financial performance. Additionally, the Company has made efficiency improvements in Portland through more complete facility utilization, operational updates and 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. For more information, visit www.PyramidBrew.com.

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