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Redhook Ale Brewery Inc. has a market cap of $93.1 million; its shares were traded at around $5.45 with a P/E ratio of 45.4 and P/S ratio of 0.8. HOOK is in the portfolios of Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations: Since its formation, the Company has focused its business activities on the brewing, marketing and selling of craft beers in the United States. The Company reported gross sales and net income of $39.6 million and $1.7 million, respectively, for the three months ended June 30, 2010, compared with gross sales and net income of $38.0 million and $1.7 million, respectively, for the corresponding period in 2009. The Company generated basic and fully-diluted earnings per share of $0.10 on 17.1 million shares for the second quarter of 2010 compared with $0.10 per share on 17.0 million shares for the corresponding period of 2009. The Company generated operating profit of $2.9 million during the quarter ended June 30, 2010 compared with $2.5 million during the quarter ended June 30, 2009, primarily due to an increase in revenues for the second quarter of 2010 due to an increase in shipments and a higher average sales price, an improved margin for the 2010 period and a reduction in merger-related expenses, partially offset by an increase in selling, general and administrative expenses for the quarter ended June 30, 2010. The Company’s sales volume (shipments) totaled 170,900 barrels in the second quarter of 2010 as compared with 162,400 barrels in the second quarter of 2009, an increase of 5.2%.
The Company reported gross sales and net income of $69.0 million and $1.9 million, respectively, for the first six months ended June 30, 2010, compared with gross sales and net income of $67.7 million and $664,000, respectively, for the corresponding period in 2009. The Company generated basic and fully-diluted earnings per share of $0.11 on 17.1 million shares for the first six months of 2010 compared with $0.04 per share on 17.0 million shares for the corresponding period of 2009. The Company generated operating profit of $3.5 million during the first six months ended June 30, 2010 compared with $1.9 million during the corresponding period of 2009, primarily due to an improved margin for the 2010 period and a reduction in merger-related expenses, partially offset by an increase in selling, general and administrative expenses for the 2010 period. The Company’s sales volume totaled 299,600 barrels in the first six months of 2010 as compared with 296,200 barrels in the corresponding period of 2009, an increase of 1.1%.
As of the effective date, the Company will acquire all outstanding shares of KBC common stock in exchange for aggregate consideration of approximately $13.9 million (the “Merger Consideration”), which will be comprised of approximately $6.0 million in cash and the balance in the form of 1,677,000 shares of the Company’s common stock. The Merger Consideration is subject to adjustment based on the working capital position of KBC as of the effective date. Shares equal in value to 10 percent of the Merger Consideration will be held in escrow in connection with indemnification provisions relating to claims that may be asserted in connection with breaches of representations and warranties made by KBC and its shareholders.
In connection with all sales through the A-B Distribution Agreement, as amended, the Company pays a Margin fee to A-B (“Margin”). The Margin does not apply to sales under the Company’s contract brewing arrangement or from its retail operations and dock sales. The A-B Distribution Agreement also requires the Company to pay an Additional Margin fee on shipments of Redhook-, Widmer Brothers-, and Kona-branded product that exceed shipments in the same territory during the same periods in fiscal 2003 (“Additional Margin”). As 2010 and 2009 shipments in the United States exceeded 2003 domestic shipments, the Company paid A-B the Additional Margin. For the three months ended June 30, 2010 and 2009, the Company recognized expense of $1.6 million and $1.7 million, respectively, related to the total of Margin and Additional Margin. These fees are reflected as a reduction of sales in the Company’s statements of operations.
As of June 30, 2010 and December 31, 2009, the net amount due from A-B under all Company agreements with A-B totaled $5.4 million and $1.8 million, respectively. In connection with the sale of beer pursuant to the A-B Distribution Agreement, the Company’s accounts receivable reflect significant balances due from A-B, and the refundable deposits and accrued expenses reflect significant balances due to A-B. Although the Company considers these balances to be due to or from A-B, the final destination of the Company’s products is an A-B wholesaler and payments by the wholesaler are settled through A-B. The Company obtains services from A-B under separate arrangements; balances due to A-B under these arrangements are reflected in accounts payable and accrued expenses. These amounts are also included in the net amount due to A-B presented above.
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