Pyramid Breweries Inc. Reports Fourth Quarter and YTD Results, Continued Sales Growth, Plans to Reduce Operating Costs, and Change in Dividend Policy

Business Wire, Feb 12, 2005

SEATTLE -- Pyramid Breweries Inc. (Nasdaq:PMID), today announced results for the fourth quarter and full year of 2004; a new plan to reduce costs, and a change in dividend policy.

Pyramid reported strong sales growth with net revenue increasing 27.1% to $10,558,000 from the fourth quarter in 2003. However, rising costs of operations increased the net loss for the quarter to $1,458,000 compared to $962,000 in the same period last year. EBITDA (earnings before interest, taxes, depreciation, amortization and stock compensation expense) for the quarter decreased $387,000 to a negative $618,000. The increased loss for the quarter resulted from rising costs of goods in the beverage division related to the underutilized capacity of the Company's recently acquired Portland, Oregon operations, increased freight and distribution costs driven by high fuel surcharges, continued costs related to the integration of Portland Brewing Company operations and planned increases in selling and marketing expenses.

"We are encouraged by the improving revenue growth driven by increasing sales volumes of our flagship Pyramid Hefeweizen brand alongside the added sales volume related to the acquisition of the assets of the Portland Brewing Company," commented John Lennon, Chief Executive Officer. "However the acquisition also lead to a sharp increase in operating costs in the quarter pending the rationalization of production capacity which was announced on January 27, 2005. The increased costs came at the same time as the Company experienced a higher than anticipated decline in sales of the lead MacTarnahan's brand acquired in the acquisition of Portland Brewing Company assets on July 31, 2004, and this decline in sales also contributed to the erosion of our operating margins."

In order to improve operating results, Lennon said that the Company will concentrate on three primary activities in the coming year -- 1) driving sales and revenue growth by focusing efforts on developing its core Pyramid, MacTarnahan's and Thomas Kemper brands; 2) eliminating all unnecessary costs from across the business, and 3) seeking constant improvement in operating efficiencies. "To that end," according to Lennon, "we have already announced that we will begin shifting a significant portion our Seattle-based brewing and soda production to our Portland facility. This will allow the company to lower its operating costs, while enabling the Seattle facility to pursue a significant malt beverage production contract from a leading international producer of malt beverages." Combined, these moves are expected to enable the company to utilize an increasing amount of available brewing capacity.

Lennon further stated "As a management team, we are now focusing on controlling our operating and selling costs. In order to improve the financial performance of the Company, we have initiated a cost reduction program with a goal of reducing annual operating expenses by at least $2 million. This initiative includes the consolidation of branded brewing operations from the Company's Seattle brewery to its Portland facility; expansion of contract production for other beverage suppliers at the Seattle plant; streamlining administrative functions; and eliminating redundancies throughout the newly combined organization. The majority of the cost reduction program initiatives are expected to be implemented during the first half of 2005."

For the fourth quarter of 2004 total beer shipments increased 43.8%, to 40,817 barrels including the addition of the Portland Brewing Company barrelage acquired through the Company's acquisition of Portland Brewing Company assets on July 31, 2004. The additional barrelage added to the Pyramid family includes the MacTarnahan's, Saxer, Nor'Wester, and the licensed Buffalo Bills products acquired from Portland Brewing Company. Shipments of Thomas Kemper Soda totaled 7,610 barrels, down 18.4% from a year ago due primarily to the loss of a distribution contract with a national restaurant chain. Total beverage shipments amounted to 48,427 barrels in the quarter, increasing 28.4% from the prior year period. Total beverage shipments increased in all but one of the Company's major sales regions over the same period in 2003. The Company's lead beverage brand family, Pyramid, increased 14.0% for the quarter ended December 31, 2004.

Alehouse division sales increased 14.4%, or $457,000, from the prior year quarter to $3,635,000. The sales increase resulted primarily from the addition of the MacTarnahan's Taproom (acquired in the Portland Brewing transaction), increased same store sales (Seattle, Berkeley, and Walnut Creek alehouses), and offset by a sales decline at the Sacramento Alehouse. The Sacramento alehouse sales have dropped following the strong post-opening levels achieved during the third quarter of 2003.

Gross margin dollars for the quarter increased 33.0%, or $376,000, to $1,515,000 resulting from an increase in both beverage and alehouse division sales. The increase in margin is a result of the addition of the Portland Brewing Company barrelage acquired on July 31, 2004 and improvements in the same store activities of the Alehouse Division. The incremental gross margin associated with the barrelage acquired from Portland Brewing Company was approximately $260,000. Gross margins as a percentage of net sales increased to 14.3% for the quarter from 13.7% for the same period in 2003.