Pyramid Breweries Inc.

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International Guild of Hospitality & Restaurant Managers

Pyramid Breweries Inc. Business Summary

NASD : PMID

Pyramid Breweries Inc. is a brewer of fresh, full-flavored specialty beers, generally known as craft beers. The Company produces and markets over 20 ales and lagers under the Pyramid and Thomas Kemper brands. In 1997, Pyramid added a line of hand-crafted sodas, including root beer and other premium flavors, to its business when it acquired the Thomas Kemper Soda Company. The Company also operates restaurants adjacent to its two breweries. The Company's beverage operations contributed 73% of net sales in 2000, with beer comprising 56% and soda 17%. Restaurant operations contributed 27% of net sales in 2000.

The Company's breweries produce full-flavored beers in small batches using traditional brewing methods. Pyramid also produces old-fashioned, full-flavored, hand-crafted sodas. The Company's two breweries, one in Seattle, Washington (Seattle Brewery), and one in Berkeley, California (Berkeley Brewery), had an estimated total annual beer production capacity of 200, 000 barrels as of the end of 2000. The Seattle Brewery opened in March 1995 with an initial estimated annual beer capacity of 92,000 barrels. During 2000, 10 fermenting vessels were moved from Seattle to the Berkeley Brewery, which reduced the Seattle Brewery annual beer production capacity to 50,000 barrels. The Berkeley Brewery was completed in February 1997 with an initial estimated annual beer production capacity of 80,000 barrels, and was expanded during 2000 to a total beer capacity of 150,000 barrels.

The Company's Pyramid and Thomas Kemper beer brands compete primarily in the craft beer category, and secondarily in the larger specialty category (which includes craft beers, imports and super premium beers). Under the Pyramid brand, Pyramid Hefeweizen, Pyramid Apricot Ale and Pyramid Snowcap are the Company's best-selling ales. Under the Thomas Kemper brand, the Company brews authentic German styles in addition to styles popularized in other European countries. Thomas Kemper Weizenberry is currently the Company's best-selling beer within the Thomas Kemper brand.

Craft beers generally sell for retail prices ranging from $4.99 to $7.49 per six-pack. Retail prices are set independently by distributors and retailers. Pyramid's retail prices are usually at the high end of this range. Increased consumer demand for high-quality, full-flavored beers allows for a price premium relative to mass-produced domestic beers. This price premium results in higher profit margins, which can motivate distributors and retailers to offer and promote craft beers. The Company's craft beers are sold primarily in Washington, Oregon and California, accounting for approximately 85% of the Company's 2000 beer sales.

Pyramid participates in the craft soda category with a line of old-fashioned, hand-crafted sodas sold under the Thomas Kemper Soda Company label. Thomas Kemper Soda's premium soft drinks include root beer, cream soda, orange cream soda and black cherry soda. During March 2001, the Company introduced two new flavors, grape and ginger ale, to the Thomas Kemper Soda portfolio. Pyramid distributes its soda products in supermarkets, independent food stores, convenience stores and restaurants. Craft sodas typically sell for $3.99 to $5.49 per six-pack, with prices being set independently by distributors and retailers. The prices for craft sodas are substantially higher than the mass-produced brands, due to their flavor profile, unique and upscale packaging and flavors, and strong consumer demand.

The Company operates restaurants adjacent to its Seattle and Berkeley breweries. The restaurants are operated under the Pyramid Alehouse name. In 2000, the restaurants contributed sales of $7.7 million, including approximately $2.3 million in the Company's beers and sodas and more than $140,000 in branded clothing and other merchandise. The restaurants have a total of over 700 seats, plus outdoor eating areas, and are both situated in highly visible, high-traffic locations. The Alehouses had approximately 500,000 guest visits during 2000.

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