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These excerpts taken from the PMID 10-K filed Mar 25, 2008. Contingencies
During 2006, the federal Alcohol and Tobacco Tax and Trade
Bureau (“TTB”) concluded an audit of certain federal
excise tax returns and related operations of the Company. Among
other things, the TTB reviewed our contract brewing arrangement
with Portland Brewing. At the conclusion of the audit, the TTB
asserted that we, not Portland Brewing, had legal control of the
Portland brewery facility for purposes of the federal excise tax
laws and consequently had underpaid federal excise taxes on beer
produced at that facility during the period January 1, 2005
through May 31, 2006. At the conclusion of the audit, we
reached a settlement with the TTB that we would pay $700,000 to
resolve all issues arising from the audit. After the receipt of
all state and federal authorizations, we terminated contract
brewing and other commercial arrangements with Portland Brewing
in order to comply with the TTB’s interpretations of
federal excise tax laws. At the end of 2007, the remaining
settlement balance, payable in monthly installments of principal
and interest, was approximately $433,000.
A former distributor of ours, filed a suit alleging that we had
unreasonably withheld consent to the transfer of distribution
rights to another distributor. We contested this matter through
binding arbitration. In October 2007, the arbitrator issued a
final arbitration settlement of $400,000 in damages, plus
interest, attorney and arbitration fees totaling approximately
$186,000. Net of third-party reimbursements, the impact to us
was $321,000.
A former alehouse employee has commenced an action against us in
California state court (Taylor v. Pyramid Breweries
Inc., et al, Case No. 07AS02039, Sacramento California
Superior Court) alleging that he and other employees were denied
adequate opportunity to take meal and rest breaks as required by
California law. The suit was filed as a potential class action,
but no motion requesting certification of the case as a class
action has been filed. Discovery in the case has commenced. No
trial date has been set. Mediation is scheduled for April 2008.
If the Company were to agree to a settlement as a result of the
mediation, it would be on a classwide basis, requiring court
approval. At this time, it is not possible to estimate the
amount or range of potential loss with any degree of certainty.
In addition to the matters discussed above, we are involved from
time to time in claims, proceedings and litigation arising in
the ordinary course of business. We do not believe that any such
claims, proceedings or litigation, either alone or in the
aggregate, will have a material adverse effect on our financial
position or results of operations.
In December 1999, the Board of Directors authorized a stock
buyback plan to repurchase up to $2.0 million of our
outstanding common stock on the open market. Stock purchases are
at the discretion of management and depend, among other things,
on our results of operations, capital requirements and financial
condition, and on such other factors as our management may
consider relevant. At December 31, 2007 and 2006,
approximately $1.1 million of our outstanding common stock
was available from board authorizations to repurchase. We
repurchased approximately 4,000 shares in 2007 and no
shares in 2006 under the stock buyback plan.
Effective January 1, 2006, we adopted
SFAS No. 123(R), Share-Based Payment, using the
modified prospective transition method which requires the
application of the accounting standard as of January 1,
2006 for: (a) compensation cost for stock options granted
prior to, but not yet vested as of January 1, 2006, based
on the grant date fair value estimated in accordance with the
original provision of SFAS No. 123, Accounting for
Stock-Based Compensation, as amended by
SFAS No. 148, Accounting for Stock-Based
Compensation — Transition and Disclosure,
and (b) compensation cost for stock options granted
subsequent to January 1, 2006, based on the grant date fair
value under SFAS 123(R). SFAS 123(R) also requires us
to estimate future forfeitures in calculating the expense
relating to stock-based compensation as opposed to only
recognizing these forfeitures and the corresponding reduction in
expense as they occur.
Table of Contents
PYRAMID
BREWERIES INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Contingencies During 2006, the federal Alcohol and Tobacco Tax and Trade Bureau (“TTB”) concluded an audit of certain federal excise tax returns and related operations of the Company. Among other things, the TTB reviewed our contract brewing arrangement with Portland Brewing. At the conclusion of the audit, the TTB asserted that we, not Portland Brewing, had legal control of the Portland brewery facility for purposes of the federal excise tax laws and consequently had underpaid federal excise taxes on beer produced at that facility during the period January 1, 2005 through May 31, 2006. At the conclusion of the audit, we reached a settlement with the TTB that we would pay $700,000 to resolve all issues arising from the audit. After the receipt of all state and federal authorizations, we terminated contract brewing and other commercial arrangements with Portland Brewing in order to comply with the TTB’s interpretations of federal excise tax laws. At the end of 2007, the remaining settlement balance, payable in monthly installments of principal and interest, was approximately $433,000. A former distributor of ours, filed a suit alleging that we had unreasonably withheld consent to the transfer of distribution rights to another distributor. We contested this matter through binding arbitration. In October 2007, the arbitrator issued a final arbitration settlement of $400,000 in damages, plus interest, attorney and arbitration fees totaling approximately $186,000. Net of third-party reimbursements, the impact to us was $321,000. A former alehouse employee has commenced an action against us in California state court (Taylor v. Pyramid Breweries Inc., et al, Case No. 07AS02039, Sacramento California Superior Court) alleging that he and other employees were denied adequate opportunity to take meal and rest breaks as required by California law. The suit was filed as a potential class action, but no motion requesting certification of the case as a class action has been filed. Discovery in the case has commenced. No trial date has been set. Mediation is scheduled for April 2008. If the Company were to agree to a settlement as a result of the mediation, it would be on a classwide basis, requiring court approval. At this time, it is not possible to estimate the amount or range of potential loss with any degree of certainty. In addition to the matters discussed above, we are involved from time to time in claims, proceedings and litigation arising in the ordinary course of business. We do not believe that any such claims, proceedings or litigation, either alone or in the aggregate, will have a material adverse effect on our financial position or results of operations.
In December 1999, the Board of Directors authorized a stock buyback plan to repurchase up to $2.0 million of our outstanding common stock on the open market. Stock purchases are at the discretion of management and depend, among other things, on our results of operations, capital requirements and financial condition, and on such other factors as our management may consider relevant. At December 31, 2007 and 2006, approximately $1.1 million of our outstanding common stock was available from board authorizations to repurchase. We repurchased approximately 4,000 shares in 2007 and no shares in 2006 under the stock buyback plan.
Effective January 1, 2006, we adopted SFAS No. 123(R), Share-Based Payment, using the modified prospective transition method which requires the application of the accounting standard as of January 1, 2006 for: (a) compensation cost for stock options granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provision of SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure, and (b) compensation cost for stock options granted subsequent to January 1, 2006, based on the grant date fair value under SFAS 123(R). SFAS 123(R) also requires us to estimate future forfeitures in calculating the expense relating to stock-based compensation as opposed to only recognizing these forfeitures and the corresponding reduction in expense as they occur.
Table of ContentsPYRAMID BREWERIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) This excerpt taken from the PMID 10-K filed Mar 30, 2007. Contingencies
We concluded discussions with the TTB relating to the TTB’s
findings from its recently completed audit of the federal excise
tax returns and operations of the Company. Upon completion of
the audit the TTB had concluded that (a) notwithstanding
our contractual arrangements with Portland Brewing relating to
the production of beer at our Portland, Oregon brewery facility,
we — not Portland Brewing — were the legal
brewer at that facility and (b) that federal excise taxes
on beer production at the Portland facility from January 1,
2005 through May 31, 2006 had been underpaid. These
contractual arrangements were originally premised on the
understanding that they would result in Portland Brewing being
deemed the legal brewer at the Portland brewery facility, which
would have resulted in lower federal excise tax costs on beer
produced at that facility because Portland Brewing is a
“small brewer” that pays excise taxes at a lower rate
on the first 60,000 barrels it produces. After we were
notified of the TTB’s conclusions from the audit, we
engaged in discussions with the TTB regarding a compromise of
the TTB’s proposed assessment relating to our underpayment
of excise taxes and explored with the TTB whether our commercial
relationship with Portland Brewing could be modified so that in
the future we met the TTB’s requirements for a valid
contract brewing arrangement. As a result of our discussions
with the TTB, we reached a settlement with the TTB that we would
pay $700,000 to resolve all issues arising from the audit,
including the federal tax assessment for the period at issue,
which includes a credit for the excise taxes previously paid by
Portland Brewing for the period at issue due to Portland
Brewing’s waiver of its right to receive a refund of those
excise tax payments (the “Settlement”). Under the
terms of the Settlement, we were obligated to make an initial
payment of $50,000, with the balance payable in monthly
installments of principal and interest for a period of three
years, at an interest rate that is currently estimated to be
approximately 8%. We recognized the $700,000 Settlement as a
charge to earnings for the quarter ended September 30,
2006. We anticipate that our current operating cash flows and
other sources of liquidity will be sufficient to enable us to
satisfy the payment terms described above.
In addition, based on our discussions with the TTB, we concluded
that it was not practical to modify our relationship with
Portland Brewing to comply with the TTB’s interpretations
of federal excise tax laws so that Portland Brewing would be
respected as the legal brewer at the Portland brewery facility.
Consequently, we elected to terminate the Production Agreement
dated February 14, 2006 as amended July 31, 2006
between us and Portland Brewing (the “Production
Agreement”) by written notice to Portland Brewing dated
September 28, 2006. The termination of the Production
Agreement was effective on November 30, 2006. In addition
to the Production Agreement, certain related agreements between
us and Portland Brewing will terminate per their respective
terms when the Production Agreement terminates.
In June 2005, Sound Beverages, a former distributor of ours,
filed a suit in King County Superior Court against us. The suit
alleged that we had violated Washington’s Wholesale
Distributor/Supplier Equity Act, RCW 19.126, by unreasonably
withholding consent to the transfer of distribution rights to
Columbia Distribution. We contend that we were within our rights
to reasonably withhold consent, and are contesting this matter
including the $450,000 in damages claimed by Sound Beverages.
This matter is in the early stages of arbitration. Management
believes that the ultimate outcome to us will not have a
material adverse impact on our financial condition or results of
operations.
In addition to the matter discussed above, we are involved from
time to time in claims, proceedings and litigation arising in
the ordinary course of business. We do not believe that any such
claims, proceedings or litigation, either alone or in the
aggregate, will have a material adverse effect on our financial
position or results of operations.
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