Pyramid Breweries Inc. Reports First Quarter 2008 Financial Results

SEATTLE--(Business Wire)--
Pyramid Breweries Inc. (Pyramid) (NASDAQ:PMID), today announced
results for the quarter ended March 31, 2008. Pyramid reported net
loss of $2.1 million, or negative $0.22 per share for the quarter,
compared to net income of $1.3 million, or $0.14 per diluted share in
the first quarter a year ago. Gross sales for the quarter were $11.7
million, a 7% increase from gross sales for the first quarter of 2007,
primarily attributable to pricing increases and increased Pyramid
brand volume. In the quarter ended March 31, 2008, the Company
recorded a one-time charge of $1.1 million, or negative $0.12 per
share, relating to a mediation settlement which increased general and
administrative expenses in the first quarter of 2008. In the first
quarter of 2007, the Company recorded a gain of $2.4 million, or $0.26
per diluted share, net of transaction costs and adjustments of
$224,000 as the result of the sale of the Thomas Kemper Soda brand.
Excluding the impact of the mediation settlement, net loss on a pro
forma basis for the quarter was a loss of $935,000 compared to a loss
of $1.2 million excluding the one-time gain from the sale of Thomas
Kemper Soda in the first quarter of 2007.

Key Factors for the First Quarter:

-- Our beer shipments, led by our core Pyramid brand family, were
up 4% in the first quarter as compared to the same period last
year.

-- Alehouse revenue was up 6% in the first quarter 2008 as
compared to the same period last year.

-- On April 1, 2008, the Company entered into a Memorandum of
Understanding, as a result of mediation, with a former
alehouse employee who alleged that he and other employees in
the California alehouses were denied adequate opportunity to
take meal and rest breaks as required by California law. The
parties stipulated to class certification for purposes of
settlement only. The settlement is subject to final
documentation and court approval, and provides for a
settlement payment of not more than $1.3 million, including
specified fees and costs. For the quarter ended March 31,
2008, the Company recognized approximately $1.1 million as a
charge to earnings as a result of this settlement, which
represents the Company's current estimate of the amount that
is probable to be paid pursuant to the settlement.

"We are starting to make progress and improve our operating
performance which is notable given the backdrop of huge cost increases
we are facing, and on a pro forma basis we improved our financial
performance while lapping a pretty good quarter last year," said CEO,
Scott Barnum. "The cost reduction and business planning initiatives we
have made are beginning to pay off. We've had a successful
installation of our new bottling line filler in Berkeley, which should
generate significant efficiencies. Importantly, we've also stabilized
our beer volume trends in our core home market of Washington, and are
positioned for growth there in the ensuing quarters due in part to our
marketing sponsorship with the Seattle Mariners MLB baseball team," he
added.

Financial Highlights - First Quarter 2008 Compared to First
Quarter 2007:

Beverage Division:

-- Although total beverage shipments for the quarter remained
unchanged at 53,500 barrels, beer shipments were up 4%, to
45,000 barrels and were comprised primarily of the following:

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-- Pyramid brand family shipments were up 3% primarily driven
by our flagship Hefeweizen and winter seasonal, Snow Cap.

-- MacTarnahan's brand shipments were up 5%.
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-- Gross revenue increased 7% to $8.4 million primarily
attributable to the pricing increases and increased Pyramid
brand volume. Offsetting the increase was a decrease in
contract manufactured shipments of 1,700 barrels to 8,500
barrels for the quarter.

-- Gross margin dollars increased 16% to $2.7 million primarily
as a result of pricing increases and a shift in our beer
product mix to some of our higher margined brands.

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-- Gross margin as a percentage of net sales for the current
quarter increased to 36% from 33% in the prior year.
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Alehouse Division:

-- Gross revenue increased 6% to $3.4 million, primarily due to
an increase in sales at our Berkeley and Walnut Creek alehouse
locations.

-- Operating loss increased to $176,000 from a loss of $75,000 a
year ago. The decrease is primarily due to executive
transition costs in the first quarter of 2008. The Sacramento,
Portland and Seattle alehouses contributed to the operating
loss, due to significant food cost increases, offset by
operating income in the Berkeley location.

Business Outlook

The measures outlined in our Fourth Quarter 2007 earnings release
to streamline our cost structure in 2008 have been substantially
completed. These measures included:

-- A significant pricing increase on beer across all
brands/packages for the retail market and on food/beer in our
Alehouses,

-- A major expense reduction initiative projected to reduce our
2008 expenses that included targeted staff reductions
affecting 10% of our salaried workforce,

-- A delay in our Eastern expansion to be even more focused on
our core Western markets,

-- Investment in a new bottling line filler in our Berkeley
brewery, which will generate significant efficiencies, and

-- Securing critical raw materials availability and pricing over
the next several years.

As a result of our major expense reduction initiative, the Company
completed targeted staff reductions that were concentrated on aligning
our sales headcount with a strategic refocus to our core Western
markets, as well as lowering the overall cost structure in supporting
departments. The expense reductions will allow the Company to provide
both the necessary support to our core products and markets while
affording an opportunity for improvement in profitability.

On April 28, 2008, the Company entered into a non-binding Letter
of Intent (the "Letter of Intent") with Magic Hat Brewing Company &
Performing Arts Center, Inc. ("Magic Hat"). The Letter of Intent
contemplates a transaction in which Magic Hat will acquire Pyramid
through an agreed all-cash tender offer and subsequent merger, at
$2.75 per outstanding Pyramid share of common stock on a fully-diluted
basis, net to each shareholder in cash. The proposed transaction is
subject to the negotiation and execution of a definitive merger
agreement, which will provide for a first-step tender offer (the
"Offer") by an acquisition entity wholly owned by Magic Hat.
Consummation of the Offer will be conditioned upon the acquisition of
at least 66 2/3% of the outstanding common shares of Pyramid.
Following completion of the Offer, Magic Hat's acquisition entity will
be merged with and into Pyramid (the "Merger"). In the Merger, each
outstanding share of Pyramid stock not tendered in the Offer (other
than shares owned by shareholders who properly demand appraisal rights
under Washington law) will be cancelled and converted into the right
to receive $2.75.

"While we are yet to feel the full effects of the macro economy,
which is getting tougher, I am pleased that we are headed in the right
direction and we have planned for the business challenges that are
ahead," Barnum added. "Our proposed merger with Magic Hat should be a
positive for the Company and our brands long-term and put the business
on a more secure footing for the future," he said.

About Pyramid Breweries Inc.

Pyramid Breweries Inc. is a leading brewer of specialty,
full-flavored beers produced mainly under the Pyramid and
MacTarnahan's brand names. Pyramid's family of unfiltered wheat beers
continue to be honored by beer drinkers and judges, earning the most
craft beer medals in the last decade at the prestigious Great American
Beer Festival ("GABF"). Pyramid beers have received a total of 34
medals at the GABF. The brewery has also received a total of 11 medals
in international competition at the World Beer Cup.

Pyramid owns two alehouse restaurants adjacent to its full
production breweries under the Pyramid Alehouse and MacTarnahan's
Taproom brand names in Berkeley, California and Portland, Oregon,
respectively, and three alehouse restaurants in Walnut Creek and
Sacramento, California and Seattle, Washington. For more information,
visit www.PyramidBrew.com.

Forward-Looking Statements

This release contains forward-looking statements that involve a
number of risks and uncertainties, the outcome of which could
materially and/or adversely affect actual future results.

Some important factors that could cause our actual results or
outcomes to differ materially from those discussed in forward-looking
statements include:

-- increased competition from craft and imported beer producers
as well as from national brewers with greater financial
resources and more extensive distribution networks than ours

-- reductions in distribution options through our independent
distributors

-- increased competition from national restaurant chains with
greater financial resources and greater economies of scale

-- inability of Pyramid to achieve anticipated cost reductions

-- changes in and compliance with governmental policies and
regulations with respect to our products, including the
adoption by the TTB of more restrictive application of the
excise tax rules

-- competitive pressures that cause decreases in the selling
prices of our products

-- declines in our operating margins due to the impact of
increasing fuel costs and other factors

-- acquisitions that may adversely affect our financial
condition, and

-- the failure by us or third-party brewers with whom we contract
to perform under our agreements.

More information regarding factors which could impact future
results are set forth in our SEC Filings, including our Annual Report
on Form 10-K for the year ended December 31, 2007. Forward-looking
statements are only made as of the date hereof. We do not undertake
any obligation to update any such statements or to publicly announce
the results of any revisions to any such statements to reflect future
events or developments, except as may be required by law.

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Pyramid Breweries Inc.
Condensed Consolidated Statements of Operations
(unaudited)
(In thousands, except per share amounts)

Three months
ended March 31,
-----------------
2008 2007
-------- --------
Gross sales $11,715 $10,980
Less excise taxes 794 791
-------- --------
Net sales 10,921 10,189
Cost of sales 8,377 7,923
-------- --------
Gross margin 2,544 2,266
Selling, general and administrative expenses (4,471) (3,399)
Gain on sale of net assets - 2,436
-------- --------
Operating (loss) income (1,927) 1,303
Other expense, net (129) (30)
-------- --------
(Loss) income before income taxes (2,056) 1,273
Provision for income taxes (2) (3)
-------- --------
Net (loss) income $(2,058) $ 1,270
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Basic and diluted net (loss) earnings per share $ (0.22) $ 0.14
Weighted average basic shares outstanding 9,155 8,961
Weighted average diluted shares outstanding 9,155 9,197

Operating data (in barrels):
Beer shipped 45,000 43,300
Contract manufactured shipped 8,500 10,200
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Total shipped 53,500 53,500
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Pyramid Breweries Inc.
Reconciliation for Non-GAAP Financial Measures
(unaudited)
(In thousands)

Three months
ended March 31,
-----------------
2008 2007
-------- --------
Net (loss) income as reported $(2,058) $ 1,270
Mediation settlement 1,123 -
Gain on sale of net assets - (2,436)
-------- --------
Pro forma net loss $ (935) $(1,166)
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Pyramid Breweries Inc.
Selected Balance Sheet Data
(In thousands)

March 31, December 31,
2008 2007
----------- ------------
ASSETS (unaudited)
Current Assets:
Cash and cash equivalents $ 411 $ 201
Other current assets 6,277 6,329
Fixed assets, net 27,067 25,996
Other non-current assets 1,200 1,350
----------- ------------
Total assets $ 34,955 $ 33,876
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 10,120 $ 8,471
Long-term debt 9,049 7,456
Non-current liabilities 590 679

Total stockholders' equity 15,196 17,270

----------- ------------
Total liabilities and stockholders' equity $ 34,955 $ 33,876
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Pyramid Breweries Inc.
Chief Financial Officer & Vice President of Finance
Michael O'Brien, 206-682-8322

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