Craft Brew Alliance Inc
Annual Report 2015

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D. C. 20549FORM 10-K_____________________________ ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended: December 31, 2015OR☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934Commission File Number: 0-26542CRAFT BREW ALLIANCE, INC.(Exact name of registrant as specified in its charter)Washington 91-1141254(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)929 North Russell Street Portland, Oregon 97227-1733(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code: (503) 331-7270Securities Registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon Stock, $0.005 par value The NASDAQ Stock Market LLCSecurities registered pursuant to Section 12(g) of the Act: None ________________Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes ☐ No☒ Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.Yes ☐ No ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and postedpursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post suchfiles). Yes ☒ No ☐ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant'sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K. ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “acceleratedfiler,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ (Do not check if a smaller reporting company) Smaller reporting company ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ The aggregate market value of the common equity held by non-affiliates of the registrant as of the last day of the registrant’s most recently completed second quarter on June 30, 2015(based upon the closing price of the registrant’s common stock, as reported by the NASDAQ Stock Market, of $11.06 per share) was $123,580,547. The number of shares outstanding of the registrant’s common stock as of February 16, 2016 was 19,179,006 shares.Documents Incorporated by ReferencePortions of the registrant’s definitive Proxy Statement for the 2016 Annual Shareholders’ Meeting are incorporated by reference into Part III. CRAFT BREW ALLIANCE, INC.2015 FORM 10-K ANNUAL REPORTTABLE OF CONTENTS Page PART I Item 1.Business2 Item 1A.Risk Factors11 Item 1B.Unresolved Staff Comments17 Item 2.Properties17 Item 3.Legal Proceedings18 Item 4.Mine Safety Disclosures18 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities19 Item 6.Selected Financial Data21 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations22 Item 7A.Quantitative and Qualitative Disclosures About Market Risk33 Item 8.Financial Statements and Supplementary Data34 Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure60 Item 9A.Controls and Procedures60 Item 9B.Other Information62 PART III Item 10.Directors, Executive Officers and Corporate Governance62 Item 11.Executive Compensation62 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters62 Item 13.Certain Relationships and Related Transactions, and Director Independence63 Item 14.Principal Accountant Fees and Services63 PART IV Item 15.Exhibits and Financial Statement Schedules63 Signatures 641IndexINFORMATION REGARDING FORWARD-LOOKING STATEMENTSThis annual report on Form 10-K includes forward-looking statements. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,”“project,” “will,” ”may,” “plan” and similar expressions or their negatives identify forward-looking statements, which generally are not historical innature. These statements are based upon assumptions and projections that we believe are reasonable, but are by their nature inherently uncertain. Manypossible events or factors could affect our future financial results and performance, and could cause actual results or performance to differ materially fromthose expressed, including those risks and uncertainties described in “Item 1A. - Risk Factors” and those described from time to time in our future reportsfiled with the Securities and Exchange Commission. Caution should be taken not to place undue reliance on these forward-looking statements, which speakonly as of the date of this annual report. THIRD-PARTY INFORMATIONIn this report, we rely on and refer to information regarding industry data obtained from market research, publicly available information, industrypublications, U.S. government sources or other third parties. Although we believe that the third-party sources of information we use are materiallycomplete, accurate and reliable, there is no assurance of the accuracy, completeness or reliability of third-party information.PART IItem 1. BusinessOverviewCraft Brew Alliance, Inc. ("CBA") is the fifth largest craft brewing company in the U.S. and a leader in brewing, branding, and bringing to market some of theworld’s best-loved American craft beers.Craft Brew Alliance was formed in 2008 through the merger of Redhook Brewery and Widmer Brothers Brewing, the two largest craft brewing pioneers in theNorthwest at the time. Since then, the Alliance has continued to grow, welcoming Kona Brewing Co. in 2008, and expanding with innovative categoryleaders and strategic partners. Today, we are home to three of the earliest trail blazers in craft beer: Redhook Ale Brewery, Washington’s largest craft brewery,founded in 1981; Widmer Brothers Brewing, Oregon’s largest craft brewery, founded in 1984; and Kona Brewing Company, Hawaii’s oldest and largest craftbrewery, founded in 1994. As part of Craft Brew Alliance, these craft brewing legends have expanded their reach across the U.S. and approximately 30international markets, while remaining deeply rooted to their local communities.In addition to growing and nurturing distinctive brands steeped in local heritage, Craft Brew Alliance is committed to developing innovative new categoryleaders, such as Omission Beer, which is the #1 beer in the gluten-free beer segment, Square Mile Cider, the #1 local hard cider in the Pacific Northwest, andResignation Brewery’s line of KCCO beers in partnership with theChive.com, which represents the first-ever virtual brewery conceived by an online mediaplatform.As the craft beer market continues to grow and consumers increasingly demand local offerings, Craft Brew Alliance has expanded its portfolio of brands andmaximized its brewing footprint through strategic partnerships with emerging craft beer brands in targeted markets. In 2015, we announced strategicpartnerships with Appalachian Mountain Brewery, based in Boone, North Carolina; and Cisco Brewers, based in Nantucket, Massachusetts. Through thisstrategic partnership model, we gain local relevance in select beer geographies, while the partner breweries gain access to our world-class leadership andnational infrastructure to grow their brands.Publicly traded on NASDAQ under the ticker symbol BREW, Craft Brew Alliance is headquartered in Portland, Oregon and operates five breweries and fivepub restaurants across the U.S. For more information about CBA and its brands, see “Available Information” on page 11.We proudly brew our craft beers in four company-owned breweries located in Portland, Oregon; the Seattle suburb of Woodinville, Washington; Portsmouth,New Hampshire; and Kailua-Kona, Hawaii; and one brewery in Memphis, Tennessee owned by our brewing partner. Additionally, we own and operate twosmall innovation breweries, primarily used for small batch production and innovative brews, in Portland, Oregon and Portsmouth, New Hampshire.We distribute our beers to retailers through wholesalers that are aligned with the Anheuser-Busch, LLC (“A-B”) network. These sales are made pursuant to aMaster Distributor Agreement (the “A-B Distributor Agreement”) with A-B. As a result of this distribution arrangement, we believe that, under alcoholbeverage laws in a majority of states, these wholesalers would own the2Indexexclusive right to distribute our beers in their respective markets if the A-B Distributor Agreement expires or is terminated. Kona, Redhook and WidmerBrothers beers are distributed in all 50 states. Omission Beer continues to expand into new markets in the U.S. and internationally, while Square Mile Cider iscurrently available in 12 states in the West. Separate from our A-B wholesalers, we maintain an internal independent sales and marketing organization withresources across the key functions of brand management, field marketing, field sales, and national retail sales.We operate in two segments: Beer Related operations and Pubs operations. Beer Related operations include the brewing, and domestic and internationalsales, of craft beers and ciders from our breweries. Pubs operations primarily include our five pubs, four of which are located adjacent to our Beer Relatedoperations, as well as other merchandise sales, and sales of our beers directly to customers.Industry BackgroundWe are one of the top five brewers in the craft brewing segment of the U.S. brewing industry. The domestic beer market includes ales and lagers produced bylarge domestic brewers, international brewers and craft brewers. Shipments of craft beer in the U.S. are estimated by industry sources to have increased byapproximately 13% in 2015 over 2014 and by 17% in 2014 over 2013. While the overall domestic market experienced a modest decrease in shipments of0.3% in 2015, the craft beer segment continued its strong growth and captured market share from the rest of the domestic market. Craft beer shipments in2015 and 2014 were approximately 12.8% and 11.3%, respectively, of total beer shipped in the U.S. Approximately 26.4 million barrels and 23.3 millionbarrels, respectively, were shipped in the U.S. by the craft beer segment during 2015 and 2014, while total beer sold in the U.S., including imported beer, was206.0 million barrels and 206.7 million barrels, respectively. Compared with the other segments of the U.S. brewing industry, craft brewing is a relativenewcomer. Twenty years ago, Redhook and Widmer Brothers Brewery were two of the approximately 200 craft breweries in operation. By the end of 2015,the number of craft breweries in operation had grown to more than 4,100. Industry sources estimate that craft beer produced by regional and national craftbrewers, similar to us, accounts for approximately two-thirds of total craft beer sales, with one-third of the production brewed by smaller craft breweries.Our comprehensive portfolio and national scale provide a competitive advantage in today’s market environment, which includes craft brewers, domesticspecialty beers, and imports. The company’s distinctive brand portfolio is positioned to address significant changes in consumer trends, including increaseddemand for innovative flavors and styles, a growing interest in sustainability, and the increasing importance of local relevance. As an example, KonaBrewing is one of the most distinctive craft brewers, with a broad portfolio of beers that reflect a uniquely Hawaiian flavor profile, a recognized track recordin sustainable business practices, and deep ties to its local community as Hawaii’s oldest and largest craft brewery.Business StrategyAt Craft Brew Alliance, we believe that we have an advantaged strategy that differentiates us in the rapidly evolving craft beer segment.The central elements of our business strategy include: •An innovative complementary portfolio of beers and ciders that reflects changing consumer trends in craft beer and is designed to satisfy a wide rangeof variety-seeking consumers’ experiences and preferences. The breadth of our product offerings also provides consumers with the opportunity tomatch specific consumer occasions with a product in our brand families.•Distinct, authentic craft beer brands with rich stories that are rooted in their local communities such as Widmer Brothers, Redhook Brewery, and KonaBrewing Company, as well as bold new trailblazers such as Omission Beer and Square Mile Cider Company, and emerging craft players such asAppalachian Mountain Brewery and Cisco Brewers.•A national brewing footprint that allows us to get our beers to market faster, fresher and more efficiently. We have significant flexibility to fullyleverage the specific strengths of our distinct breweries and operations. Additionally, we guarantee the quality and consistency of all of our productsthrough fine-tuned processes that ensure everything, from brewing to quality-assurance to warehousing and distribution, meets our high standards. Webelieve that maximizing production under our direct supervision and through accomplished and expert partners is critical to our success. Further, webelieve that our ability to engage in ongoing product innovation and to control product quality provides critical competitive advantages. Each of ourbreweries is modern, has flexible production capabilities, and is designed to produce beer in smaller batches relative to the national domestic brewers,thereby allowing us to brew a wide variety of brand offerings. We believe that our investment in brewing and logistics technologies enables us tominimize brewery operating costs and consistently produce innovative beer styles.3Index•Nationwide sales activation through robust partnerships with leading retailers such as Buffalo Wild Wings, Safeway, and Costco. We leverage ournational sales and marketing capabilities and complementary brand families to create a unique identity in the distribution channel and with theconsumer. Our sales force calls on all retail channels nationally, including grocery, drug and convenience stores, something most other craft brewersare not able to do.•National seamless distribution through the Anheuser-Busch wholesaler network alliance. This distribution footprint provides efficiencies in logisticsand product delivery, state reporting and licensing, billing and collections. We have realized these efficiencies while maintaining full autonomy overthe production, sale and marketing of our products as an independent craft beer company.•A diverse leadership team with extensive experience in the beer and beverage industries. The team has a proven ability to manage brand lifecycles,from development to turnaround, in both large and growth-company settings.Brand OverviewOur portfolio includes our owned brands, the Kona Brewing Company, Widmer Brothers Brewing, Redhook Brewery, Omission Beer and Square Mile CiderCompany brand families, along with partner brands Appalachian Mountain Brewery, Cisco Brewers and Resignation Brewery.We produce a variety of specialty craft beers and ciders using traditional brewing methods complemented by American innovation and invention. We brewour beers using high-quality hops, malted barley, wheat, rye and other natural traditional and nontraditional ingredients. To craft our ciders, we use threeapple varieties from the Pacific Northwest and then use a lager beer yeast to make a unique and easy-to-drink hard cider.Below is an overview of our five owned brands:Kona Brewing CompanyKona Brewing Company was started in the spring of 1994 in Kailua-Kona, Hawaii by father and son team Cameron Healy and Spoon Khalsa, who had adream to create fresh, local island brews made with spirit, passion and quality. It is a Hawaii-born and Hawaii-based craft brewery that prides itself on brewingthe freshest beer of exceptional quality, closest to market. This helps to minimize its carbon footprint by reducing shipping of raw materials, finished beer andwasteful packaging materials. The brewery is headquartered where it began, in Kailua-Kona on Hawaii’s Big Island.Widmer Brothers BrewingWidmer Brothers Brewing founders Kurt and Rob Widmer helped create the Pacific Northwest craft beer movement in 1984 when, in their 20s, they beganbrewing unique interpretations of traditional German beer styles. In 1986, Widmer Brothers Brewing introduced the original American-style Hefeweizen,which elevated the brewery to national acclaim and has long been Oregon’s favorite craft beer. The brewery’s iconic Hefe will celebrate its 30th anniversary in2016. For more than three decades, Widmer Brothers has continued to push the boundaries of craft beer, developing a variety of beers with an unapologetic,uncompromising commitment to innovation. Based in Portland, Oregon, the brewery currently brews a variety of beers including Hefeweizen, Upheaval IPA,Steel Bridge Porter, Drop Top Amber Ale, and a full seasonal lineup. Additionally, the brewery continues to make a series of limited edition, small-batchbeers available in Oregon and at the Widmer Brothers pub in North Portland.Redhook BreweryRedhook was born out of the energy and spirit of the early 1980s in the heart of Seattle. While the term didn’t exist at the time, Redhook became one ofAmerica’s first craft breweries with its focus on creating “better beers.” From a modest start in a former transmission shop in the Seattle neighborhood ofBallard to a Fremont trolley barn that housed The Trolleyman brewpub, to its current breweries in Woodinville, Washington, and Portsmouth, NewHampshire, Redhook has become one of America’s most recognized craft breweries. Redhook will open a 10-barrel brewpub in the Capitol Hill neighborhoodof Seattle in the fall of 2016. While Redhook has “grown up” over the past 30 years, one thing has never changed - Redhook is still brewing great beers like ESB, Long Hammer IPA,Audible Pale Ale and a variety of seasonal beers. Most importantly, Redhook has fun doing it. Redhook beers are available on draft and in bottles and cansaround the country.Omission BeerOmission Brewery is the first craft beer brand in the United States focused exclusively on brewing great-tasting craft beers with traditional ingredients-including malted barley-that are crafted to remove gluten. Brewed in Portland, Oregon, gluten levels in every batch of Omission beer are tested atindependent labs using the R5Competitive Eliza test to ensure that gluten levels are less than 20 parts per million. Test results for every batch of Omissionbeer are available to consumers at: www.omissiontests.com Omission produces three craft beers specially crafted to remove gluten: Omission Lager, OmissionPale Ale and Omission IPA.4IndexSquare Mile Cider CompanyLaunched in 2013, Square Mile Cider is the hard cider for the modern day pioneers celebrating the spirit of the Pacific Northwest. We set out to reinvigoratean enduringly classic American beverage with a blend of hand-selected apples combined with unique Northwest ingredients. Square Mile Cider produces twovarieties of hard cider, The Original and Spur & Vine, our hopped version.New Brands and PackagingOur recent brand and packaging announcements include:Kona BrewingFounded in 1994, Kona celebrated its 21st anniversary in 2015, with a Hawaii-inspired beer series dedicated to giving back to its home. Kona’s MakanaSeries, available exclusively in Hawaii, featured four beers, each inspired by the four elements, with proceeds from each beer benefiting a local Hawaiian non-profit. 2015 represented the sixth consecutive year of double-digit growth for the Hawaiian brewery on the mainland, as Kona continued to expandLongboard Lager and Big Wave Golden Ale into new markets, increasing our U.S. distribution to all 50 states. We also added new countries to our ever-growing line-up, bringing us to nearly 30 countries.Widmer Brothers BrewingIn May 2015, Widmer Brothers launched the first seasonal variation of its flagship beer Hefeweizen nationwide. Hefe Shandy, which is brewed with a newhop varietal, Lemon Drop, pays homage to the ritual of adding lemon to the rim of the glass, which dates back to Hefe’s creation in 1986. The result is abright and refreshing wheat beer with heightened citrus aroma and flavor. At 4.2% ABV, Hefe Shandy was crafted with summertime in mind. As part of thebrewery’s commitment to support its flagship at home, Widmer Brothers also announced the largest co-branded launch between a craft brewery and a MajorLeague Soccer team with the launch of Widmer Brothers Hefeweizen as “The Official Craft Beer of the Portland Timbers” during the 2015 MLS season. Thebrand launch received notable attention as the Timbers went on to earn the MLS Cup Title, the first major sports championship for Portland in more than fourdecades. Additionally, Widmer Brothers launched a year-round offering, Replay, a session IPA, in Oregon and SW Washington, and brought back its popular100 Days of Hefe summer event series in Portland. Also in 2015, the brewery partnered with Audi to give one lucky Hefe fan a new car.Redhook BreweryIn 2015, Redhook paid homage to its roots as the first craft brewery in Seattle with an integrated marketing campaign proclaiming Redhook as “thegranddaddy of craft.” Radio ads, billboards and digital content reminded beer lovers of Redhook’s important role in Seattle’s brewing history. In April,Redhook released its iconic ESB, first launched in 1984, with a throwback design on its bottles, as well as new 16 oz cans in the Northwest. Redhook alsocontinued to build on its partnerships, kicking off a distinctive collaboration with Hardee’s and Carl’s Jr. to create the Redhook Beer-Battered Cod FishSandwich, available nationwide. The brewery also continued its partnership with the University of Washington and its beloved football and basketball teams.Omission BeerIn 2015, Omission Beer maintained its position as the market leader in the gluten-free beer category. Omission IPA continued to expand into new marketsacross the country, following in the footsteps of Omission Lager and Pale Ale. With a continued focus on the healthy and active lifestyle consumer, OmissionBeer became the official beer sponsor of Wanderlust, a health driven event series, and partnered with lifestyle influencers to create branded informationalcontent to support those looking to reduce or remove gluten from their diets.Square Mile Cider CompanyIn 2015, Square Mile Cider Company continued to expand distribution in select Western states, becoming the number one locally produced cider in theNorthwest. The brand, which finds its inspiration from the pioneering spirit of the original Oregon pioneers, continues to offer two varieties: The Original, aclassic American hard cider; and Spur & Vine, a hopped version of the classic American hard cider, with the addition of Galaxy hops.Resignation BreweryIn 2015, Resignation Brewery expanded distribution of its KCCO Gold Lager, leveraging nationwide meetups of theCHIVE.com to introduce the beer in anoffline setting. A clean and crisp lager with notes of honey and biscuit, KCCO Gold Lager proves pilsner-style lagers can be full-flavored. ResignationBrewery has continued to focus on, and support, Texas, where the Chive.com headquarters reside, with the launch of a Texas-only beer, KCCO White Wheat.Brewed with both lemon and orange zest yielding a unique citrus flavor, KCCO White Wheat creates a perfectly balanced mix of white wheat with sweethoney malt.5IndexBrewing OperationsBrewing FacilitiesWe use highly automated brewing equipment at our four owned production breweries and also operate two smaller, manual brewpub-style brewing systems.As of December 31, 2015, our total owned production capacity was 1,075,000 barrels. Our breweries consist of the following:•Oregon Brewery. Our Oregon Brewery is our largest capacity production brewery, consisting of a 230-barrel brewing system with an annualcapacity of 630,000 barrels. Construction is currently underway to increase the annual capacity to 750,000 barrels.•Washington Brewery. Our Washington Brewery utilizes a 100-barrel brewing system and has an annual capacity of 220,000 barrels.•New Hampshire Brewery. Our New Hampshire Brewery utilizes a 100-barrel brewing system and has an annual capacity of 215,000 barrels. It usesan anaerobic waste-water treatment facility that completes the process cycle.•Hawaiian Brewery. Our Hawaiian Brewery utilizes a 25-barrel brewing system and has an annual capacity of 10,000 barrels. The Hawaiian Breweryutilizes a 229-kilowatt photovoltaic solar energy generating system to supply approximately 50 percent of its energy requirements throughrenewable energy. In 2016, we will break ground on a new 100,000 barrel brewery near our existing brewery and pub in Kona, which is expected tobe fully operational by early 2018.•Innovation Breweries. Our Portland, Oregon innovation brewery maintains a 10-barrel pilot brewing system and is located in the Rose Quartersports and entertainment district. In 2016, our Portland innovation brewery will move from the Rose Quarter to our Oregon Brewery location. OurNew Hampshire innovation brewery maintains a 3-barrel pilot brewing system and is located on the same site as our New Hampshire productionbrewery.In June 2014, we initiated full-scale brewing with our brewing partner in Memphis, Tennessee. This partnership provides us scalable capacity, and weanticipate producing up to 100,000 barrels at this location annually.PackagingWe package our craft beers in cans, bottles and kegs. All of our production breweries, with the exception of the Hawaiian Brewery, have fully automatedbottling and keg lines. The bottle fillers at all of the breweries utilize a carbon dioxide environment during bottling, ensuring that minimal oxygen isdissolved in the beer and extending the beer’s shelf life. We offer an assortment of packages to highlight the unique characteristics of each of our beers and toprovide greater opportunities for customers to drink our beers in more locations and at more events and occasions, matching the active lifestyles andpreferences of our consumers.Quality ControlWe monitor production and quality control at all of our breweries, with central coordination at the Oregon Brewery. All of the breweries have an on-sitelaboratory where microbiologists and lab technicians supervise on-site yeast propagation, monitor product quality, test products, measure color andbitterness, and test for oxidation and unwanted bacteria. We also regularly utilize outside laboratories for independent product analysis. In addition, everybatch of beer that we produce goes through an internal taste panel to ensure that it meets our taste and profile standards.Ingredients and Raw MaterialsWe currently purchase a significant portion of our malted barley from two suppliers and our premium-quality select hops, mostly grown in the PacificNorthwest, from competitive sources. We also periodically purchase small lots of hops from international sources, such as New Zealand and Western Europe,which we use to achieve a special hop character in certain beers. In order to ensure the supply of the hop varieties used in our products, we enter into supplycontracts for our hop requirements. We believe that comparable quality malted barley and hops are available from alternate sources at competitive prices,although there can be no assurance that pricing would be consistent with our current arrangements. We currently cultivate our own yeast supply for certainstrains and maintain a separate, secure supply in‑house. We have access to multiple competitive sources for packaging materials, such as labels, six‑packcarriers, crowns, cans and shipping cases.Contract BrewingIn order to profitably use excess capacity, we enter into contract brewing arrangements under which we produce beer in volumes and per specifications asdesignated by the arrangements.During 2015, we shipped 36,800 barrels under contract brewing arrangements compared to 39,700 barrels in 2014 and 30,300 in 2013.6IndexPubs OperationsWe own and operate five brew-pub restaurants and retail stores that support consumer awareness and research and development. Our five brew-pub restaurantsallow us to interact directly with over 1.5 million consumers annually in our home markets, which creates a sense of brand loyalty. Our brewers arecontinually experimenting with new and different varieties of hops and malts in all styles of beer, and our brew pubs allow us to bring those beers to marketin test-size batches in order to evaluate their strengths prior to releasing them on a wider basis.DistributionWith limited exceptions, all brewers in the United States are required to sell their beers to independent wholesalers, who then sell the beers to retailers. We arethe only independent craft brewer in the U.S. to have established a wholly-aligned distribution network through our partnership with A-B. This partnershipprovides us national distribution, which results in both an effective distribution presence in each market and administrative efficiencies. Our beers areavailable for sale directly to consumers in draft, cans and bottles at restaurants, bars and liquor stores, as well as in cans and bottles at supermarkets,warehouse clubs, convenience stores and drug stores. We sell beer directly to consumers at our brew pubs and breweries.Our products are distributed in all 50 states, pursuant to a master distributor agreement with A-B that allows us access to A-B’s national distribution network.For additional information regarding our relationship with A-B, see “Relationship with Anheuser-Busch, LLC” below. Management believes that ourcompetitors in the craft beer segment generally negotiate distribution relationships separately with wholesalers in each locality and, as a result, typicallydistribute through a variety of wholesalers representing differing national beer brands with uncoordinated territorial boundaries.In 2015 and 2014, we sold approximately 753,400 barrels and 766,600 barrels, respectively, to the wholesalers in A-B’s distribution network through the A-BDistributor Agreement, accounting for 91.4% and 92.3%, respectively, of our shipment volume for the corresponding periods.Sales and MarketingIn addition to leveraging our owned brew pubs and retail locations, we promote our products through a national sales and marketing network that includes,but is not limited to, i) creating and executing a range of advertising programs; ii) training and educating wholesalers and retailers about our products; andiii) promoting our name, product offerings, brands, and experimental beers at local festivals, venues and pubs.We advertise and promote our products through an assortment of media, including television, radio, billboard, print and social media, including Facebook,Twitter and Instagram, in key markets and by participating in cooperative programs with our wholesalers whereby our spending is matched by the distributor.We believe that the financial commitment by the distributor helps align the distributor’s interests with ours, and the distributor’s knowledge of the localmarket results in an advertising and promotion program that is targeted in a manner that will best promote our products.Our breweries also play a significant role in increasing consumer awareness of our products and enhancing our image as a craft brewer. Thousands of visitorsper year take tours at our breweries and all of our production breweries have a retail restaurant or pub where our products are served. In addition, several of thebreweries have meeting rooms that the public can rent for business meetings, parties and holiday events, and that we use to entertain and educate wholesalers,retailers and the media about our products. At our pubs, we sell various items of apparel and other merchandise bearing our trademarks, which creates furtherawareness of our beers and reinforces our brand image. To further promote retail canned and bottled product sales, and in response to local competitiveconditions, we regularly recommend that wholesalers offer discounts to retailers in most of our markets.Relationship with Anheuser-Busch, LLCExchange AgreementUnder the Amended and Restated Exchange and Recapitalization Agreement (the “Exchange Agreement”) with A-B, we granted A-B certain contractualrights. The Exchange Agreement was entered into as part of a recapitalization in which we redeemed preferred shares held by A-B in exchange for cash andour common stock currently held by A-B. A-B owns 31.6% of our outstanding shares of common stock at December 31, 2015.The Exchange Agreement entitles A-B to designate two members of our board of directors. A-B also generally has the right to have a designee on eachcommittee of the board of directors, except where prohibited by law or stock exchange requirements, or with respect to a committee formed to evaluatetransactions or proposed transactions between A-B and us. The Exchange Agreement7Indexcontains limitations on our ability to take certain actions without A-B’s prior consent, including, but not limited to, our ability to issue equity securities oracquire or sell assets or stock, amend our Articles of Incorporation or Bylaws, grant board representation rights, enter into certain transactions with affiliates,distribute our products in the United States other than through A-B or as provided in the A-B Distributor Agreement, or voluntarily terminate our listing onthe Nasdaq Stock Market.Distributor AgreementThe A-B Distributor Agreement provides for the distribution of Kona, Widmer Brothers, Redhook, Omission and Square Mile in all states, territories andpossessions of the United States, including the District of Columbia and, except with respect to Kona beers, all U.S. military, diplomatic, and governmentalinstallations in a U.S. territory or possession. Under the A-B Distributor Agreement, we granted A-B the right of first refusal to distribute our products,including any internally developed new products but excluding new products that we acquire. We are responsible for marketing our products to A-B’swholesalers, as well as to retailers and consumers.The A-B Distributor Agreement has a term that expires on December 31, 2018, subject to automatic renewal for an additional ten-year period unless A-Bprovides written notice of non-renewal to us on or prior to June 30, 2018. The A-B Distributor Agreement is also subject to immediate termination, by eitherparty, upon the occurrence of standard events of default as defined in the agreement.Additionally, the A-B Distributor Agreement may be terminated by A-B, with six months’ prior written notice to us, upon the occurrence of any of thefollowing events:•we engage in incompatible conduct that damages the reputation or image of A‑B or the brewing industry;•any A-B competitor or affiliate thereof acquires 10% or more of our outstanding equity securities, and that entity designates one or more persons to ourboard of directors;•our current chief executive officer ceases to function in that role or is terminated, and a satisfactory successor, in A‑B’s opinion, is not appointedwithin six months;•we are merged or consolidated into or with any other entity or any other entity merges or consolidates into or with us without A-B’s prior approval; or•A-B, its subsidiaries, affiliates, or parent, incur any obligation or expense as a result of a claim asserted against them by or in our name, or by ouraffiliates or shareholders, and we do not reimburse and indemnify A-B and its corporate affiliates on demand for the entire amount of the obligation orexpense.FeesWe pay fees to A-B in connection with the sale of our products, including margin fees, invoicing, staging and cooperage handling fees, and inventorymanager fees.See Note 17 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information.Relationship with Rainier Brewing CompanyOn January 8, 2016, we entered into brewing agreements with Pabst Northwest Brewing Company, dba Rainier Brewing Company ("Rainier"), a subsidiary ofPabst Brewing Company, under which Rainier will begin brewing selected Rainier brands at our brewery in Woodinville, Washington, in the spring of 2016under an alternating proprietorship or services agreement. We will continue to operate the Woodinville brewery and the adjacent Redhook Forecaster's Pubunder the agreements, which expire on December 31, 2018.In conjunction with the brewing agreements, we granted Rainier an option to purchase the Woodinville brewery and adjacent pub, as well as related assets(together, the "Property"), at any time prior to termination of the brewing agreement. The purchase price of the Property will be $25.0 million if Rainierexercises the option during the first year of the agreement, $26.0 million if exercise occurs during the second year of the agreement, and $28.0 million ifRainier exercises the option during the third year of the agreement and on or before the close of business on December 31, 2018. Under the option agreement,Rainier has the right to conduct an additional diligence review of environmental and title issues relating to the Property, and to terminate both the breweryagreements and the option agreement if it is not satisfied with its diligence investigation of those matters at the end of the review period, which is expected toexpire by April 17, 2016. If Rainier does not exercise its option to purchase the Property, it may be required to pay us a termination fee.8IndexSeasonalityOur sales generally reflect a degree of seasonality, with the first and fourth quarters historically exhibiting low sales levels compared to the second and thirdquarters. Accordingly, our results for any particular quarter are not likely to be indicative of the results to be achieved for the full year.CompetitionWe compete in the craft brewing market as well as in the much larger alcoholic beverage market, which encompasses domestic and imported beers, flavoredalcohol beverages, spirits, wine and ciders.In 2015, the craft brewing industry witnessed unprecedented change and competition, characterized by three trends: 1) the growing number and popularity ofsmall, local craft breweries that captured market share from established craft breweries, 2) increased acquisition and investment activity between craft brewers,large domestic and foreign brewers, and private equity firms, and 3) continued competitive pressure from international brewers, including Crown, whichtargets both domestic and craft beer drinkers. In 2015, according to industry sources, A‑B and MillerCoors accounted for more than 70% of total beer shippedin the U.S., excluding imports. In addition, A-B and MillerCoors have invested in existing smaller craft breweries and created separate craft-focused divisionsin an effort to capitalize on the growing craft beer segment.Competition varies by regional market. Depending on the local market preferences and distribution, we have encountered strong competition frommicrobreweries, regional specialty brewers and several national craft brewers that include MillerCoors’ Tenth and Blake Beer Company division (“Tenth andBlake”), and A-B’s High End division. A-B’s High End division includes Goose Island, Blue Point Brewing, 10 Barrel Brewing Company, Elysian, GoldenRoad, Shock Top and others. Because of the large number of participants and offerings in this segment, along with the accelerating consumer preference forlocal offerings, the competition for packaged product placements and especially draft beer placements has intensified. Although certain of these competitorsdistribute their products nationally and may have greater financial and other resources than we have, we believe that we possess certain competitiveadvantages, including our broad array of brand offerings within our five owned brand families and two partner brand families, the scale of our productionbreweries, and a strategically distributed network of sales and marketing resources.We also compete against imported brands, such as Heineken, Stella Artois, Corona Extra and Guinness, which typically have significantly greater financialresources than we have. Although imported beers currently account for a greater share of the U.S. beer market than craft beers, we believe that craft brewerspossess certain competitive advantages over some importers, including lower transportation costs, no importation costs, proximity to and familiarity withlocal consumers, a higher degree of product freshness, eligibility for lower federal excise taxes and absence of exposure to currency fluctuations.In response to the growth of the craft beer segment, the major domestic national brewers have introduced fuller-flavored beers, including well-fundedsignificant product launches in the wheat category, to compete with craft brewers. More recently, these major domestic brewers have invested in purchasingsmall craft breweries. The major national brewers, including Tenth and Blake through MillerCoors, and A-B High End brands through A-B, have significantlygreater financial resources than we do and have access to a greater array of advertising and marketing tools to create product awareness of these offerings.Although increased participation by the major national brewers increases competition for market share and can heighten price sensitivity within the craft beersegment, we believe that their participation tends to increase advertising, distribution and consumer education and awareness of craft beers, and thus mayultimately contribute to further growth of this industry segment.In the past several years, several major distilled spirits producers and national brewers have introduced flavored alcohol beverages. Products such as the BudLight Rita family, Smirnoff Ice, the hard soda category, and Mike’s Hard Lemonade have captured sizable market share in the higher-priced end of the maltbeverage industry. We believe sales of these products, along with strong growth in the imported and craft beer segments of the malt beverage industry,contributed to an increase in the overall U.S. alcohol market. These products are particularly popular in certain regions and markets in which we sell ourproducts.Competition for consumers of craft beers has also come from wine and spirits. Growth in this segment appears to be attributable to competitive pricing,television advertising, increased merchandising and increased consumer interest in wine and spirits. Recently, the wine industry has been aided, on a limitedbasis, by its ability to sell outside of the three-tier system, allowing sales to be made directly to the consumer. While the craft beer segment competes withwine and spirits, it also benefits from many of the same advantages enjoyed by wine and spirit producers. These include consumers who allow themselvesaffordable luxuries in the form of high quality alcoholic beverages.9IndexA significant portion of our sales continues to be in the Pacific Northwest and in California, which we believe are among the most competitive craft beermarkets in the United States, both in terms of number of participants and consumer awareness. We believe that these areas offer significant competition forour products, not only from other craft brewers but also from the growing wine market and from flavored alcohol beverages. Our recent marketing efforts havebeen focused on promoting the authenticity of our pioneering brands, the appeal of our newer brands and better segmenting our marketing strategies tocommunicate the attributes of our portfolio to our target consumers. We believe that our broad array of beers and brands enables us to offer an assortment offlavors and experiences that appeal to more people.Segment and Enterprise-Wide InformationSee Note 11 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for the required segment andenterprise-wide information.RegulationOur business is highly regulated at federal, state and local levels. Various permits, licenses and approvals necessary for our brewery and pub operations andthe sale of alcoholic beverages are required from a number of agencies, including the U.S. Treasury Department, the Alcohol and Tobacco Tax and TradeBureau (“TTB”), the U.S. Department of Agriculture, the U.S. Food and Drug Administration, state alcohol regulatory agencies, and state and local health,sanitation, safety, fire and environmental agencies. In addition, the beer industry is subject to substantial federal and state excise taxes.The Food and Drug Administration (“FDA”) issued a proposed rule in November 2015 on the use of “gluten-free” labeling for fermented and hydrolyzedfoods and beverages that may affect our ability to market our Omission Beer. See Item 1A. Risk Factors for additional information. We operate our breweries under federal licensing requirements imposed by the TTB. The TTB requires the filing of a “Brewer’s Notice” upon theestablishment of a commercial brewery and the filing of an amended Brewer’s Notice any time there is a material change in the brewing or warehousinglocations, brewing or packaging equipment, brewery ownership, or officers or directors. Our operations are subject to audit and inspection by the TTB at anytime.Management believes that we currently have all of the licenses, permits and approvals required for our current operations. Existing permits or licenses couldbe revoked if we fail to comply with the terms of such permits or licenses and additional permits or licenses may be required in the future for our currentoperations or as a result of expanding our operations.The U.S. federal government currently levies an excise tax of $18 per barrel on beer sold for consumption in the United States; however, brewers, such as us,that produce less than two million barrels annually are taxed at $7 per barrel on the first 60,000 barrels shipped, with shipments above this amount taxed atthe normal rate. Certain states also levy excise taxes on alcoholic beverages. Excise taxes may be increased in the future by the federal government or anystate government or both. In the past, increases in excise taxes on alcoholic beverages have been considered in connection with various governmentalbudget-balancing or funding proposals.Federal and State Environmental RegulationOur brewing operations are subject to environmental regulations and local permitting requirements and agreements regarding, among other things, airemissions, water discharges and the handling and disposal of hazardous wastes. While we have no reason to believe the operation of our breweries violate anysuch regulation or requirement, if such a violation were to occur, or if environmental regulations were to become more stringent in the future, we could beadversely affected. Dram Shop LawsThe serving of alcoholic beverages to a person known to be intoxicated may, under certain circumstances, result in the server being held liable to third partiesfor injuries caused by the intoxicated customer. Our restaurants and pubs have addressed this issue by maintaining reasonable hours of operation androutinely performing training for personnel.10IndexTrademarksWe have obtained U.S. trademark registrations for our numerous products, including our proprietary bottle designs. Trademark registrations generally includespecific product names, marks and label designs. The Kona Brewing, Widmer Brothers, Redhook, and Omission marks and certain other marks are alsoregistered in various foreign countries. We regard our Kona Brewing, Widmer Brothers, Redhook, Omission, Square Mile and other trademarks as havingsubstantial value and as being an important factor in the marketing of our products. We are not aware of any infringing uses that could materially affect ourcurrent business or any prior claim to the trademarks that would prevent us from using such trademarks in our business. Our policy is to pursue registration ofour trademarks in our markets whenever possible and to oppose vigorously any infringement of our trademarks.EmployeesAt December 31, 2015, we employed approximately 820 people, including 395 employees in the pubs and retail stores, 210 employees in production, 150employees in sales and marketing and 65 employees in corporate and administration. Included in the totals above are 224 part-time employees and 6seasonal or temporary employees. None of our employees are represented by a union or employed under a collective bargaining agreement. We believe ourrelations with our employees to be good. Available InformationOur Internet address is www.craftbrew.com. There we make available, free of charge, our annual report on Form 10‑K, quarterly reports on Form 10-Q, currentreports on Form 8-K, proxy statements and any amendments to those reports, as soon as reasonably practicable after we electronically file such material withthe Securities and Exchange Commission (“SEC”). Our SEC reports can be accessed through the investor relations section of our website. The informationfound on our website is not part of this or any other report we file with or furnish to the SEC.Item 1A. Risk Factors If we are unable to gauge trends and react to changing consumer preferences in a timely and cost-effective manner, our sales and market share maydecrease and our gross margin may be adversely affected.The costs and management attention involved in maintaining an innovative brand portfolio have been, and are expected to continue to be, significant. If wehave not gauged consumer preferences correctly, or are unable to maintain consistently high quality beers as we develop new brands, our overall brand imagemay be damaged. If this were to occur, our future sales, results of operations and cash flows would be adversely affected. Also, increased costs associated withdeveloping new products may have a negative effect on our gross margin.Increased competition could adversely affect sales and results of operations.We compete in the highly competitive craft beer market, as well as in the much larger specialty beer category, which includes the imported beer segment andfuller-flavored beers offered by major national brewers. We also face increasing competition from producers of wine, spirits and flavored alcohol beveragesoffered by the larger spirit producers and national brewers. Increased competition could adversely affect our future sales and results of operations. See"Competition" in Part I, Item 1 of this Annual Report on Form 10-K.Our information systems may experience an interruption or breach in security.We rely on computer information systems to conduct our business. We have policies and procedures in place to protect against and reduce the occurrence offailures, interruptions, or breaches of security of these systems. However, there can be no assurances that these policies and procedures will eliminate theoccurrence of failures, interruptions or breaches of security or that they will adequately restore our systems or minimize any such events. The occurrence of afailure, interruption or breach of security of our computer information systems could result in loss of intellectual property, delays in our production, loss ofcritical information, or other events, any of which could harm our future sales or operating results.We manage and store various proprietary information and sensitive or confidential data relating to our business, including sensitive and personallyidentifiable information. Breaches of our security measures or the accidental loss, inadvertent disclosure or unapproved dissemination of proprietaryinformation or sensitive or confidential data about us, our employees, or our customers, including the potential loss or disclosure of such information or dataas a result of hacking, fraud, trickery or other forms of deception, could expose us, our customers or the individuals affected to a risk of loss or misuse of thisinformation. Any such breach, loss, or disclosure could result in litigation and potential liability for us, damage our brand image and reputation, or otherwiseharm our business. In addition, our current data protection measures might not protect us against increasingly sophisticated and aggressive threats and thecost and operational consequences of implementing further data protection measures could be significant.11IndexOur business is sensitive to reductions in discretionary consumer spending.Consumer demand for luxury or perceived luxury goods, including craft beer, can be sensitive to downturns in the economy and the corresponding impact ondiscretionary spending. Changes in discretionary consumer spending or consumer preferences brought about by factors such as perceived or actual generaleconomic conditions, job losses and unemployment or underemployment, perceived or actual declines in disposable consumer income and wealth, andchanges in consumer confidence in the economy, could significantly reduce customer demand for craft beer in general, and the products we offer specifically.Furthermore, our consumers may choose to replace our products with the fuller-flavored national brands or other more affordable, although lower quality,alternatives available in the market. Any such decline in consumption of our products would likely have a significant negative impact on our operatingresults.Changes in consumer preferences or public attitudes about alcohol could decrease demand for our products.If consumers were unwilling to accept our products or if general consumer trends caused a decrease in the demand for beer, including craft beer, it wouldadversely impact our sales and results of operations. There is no assurance that the craft brewing segment will continue to experience growth in futureperiods. If the markets for wine, spirits or flavored alcohol beverages continue to grow, this could draw consumers away from the beer industry in general andour products specifically and have an adverse effect on our sales and results of operations. Further, the alcoholic beverage industry has become the subject ofconsiderable societal and political attention in recent years due to increasing public concern over alcohol-related social problems, including drunk driving,underage drinking and health consequences from the misuse of alcohol. As an outgrowth of these concerns, the possibility exists that advertising by beerproducers could be restricted, that additional cautionary labeling or packaging requirements may be imposed or that there may be renewed efforts to impose,at either the federal or state level, increased excise or other taxes on beer sold in the United States. If beer in general were to fall out of favor among domesticconsumers, or if the domestic beer industry were subjected to significant additional governmental regulation, it would likely have a significant adverseimpact on our financial condition, operating results and cash flows.The Food and Drug Administration (“FDA”) issued a proposed rule in November 2015 on the use of “gluten-free” labeling for fermented and hydrolyzedfoods and beverages that may affect our ability to market our Omission Beer.CBA launched Omission beer in May 2012 as the first brand of craft beer to be brewed in the United States using conventional beer ingredients (includingmalted barley, a gluten-containing grain) and “crafted to remove gluten.” Omission beers are brewed similarly to other craft beers except that, at the point offermentation, a brewing enzyme called Brewers Clarex™ is added which breaks apart the gluten protein chains. Samples from each batch are tested internallyusing the R5 Competitive ELISA method for gluten content before packaging. The beers are then packaged into bottles in a closed packaging environmentto eliminate any chance of cross contamination. Packaged samples are also sent to an independent third party lab for testing before the lot is released from thebrewery. We post all test results on our website for consumers to view before they decide to purchase the beer.Omission beers are subject to regulation by the Department of Treasury’s Alcohol and Tobacco Tax and Trade Bureau (“TTB”), but as a result of overlappingjurisdictions of the FDA and TTB, the role each agency plays in the regulation of fermented alcohol beverages, and the commitments the two agencies havemade to work together to establish consistent gluten labeling policies for comparable alcohol beverage products, the above referenced FDA notice ofproposed rulemaking has far-reaching implications for fermented alcohol beverages, like Omission Beer, that are subject to regulation by both the FDA andTTB. In accordance with the TTB’s premarket approval requirements, the TTB previously approved Omission labeling, including its gluten-related claims, asper their policy concerning gluten content statements in the labeling and advertising of malt beverages.If the FDA's proposed rule becomes final as written, the TTB’s policy may be superseded, which would have a significant impact on our ability to market andsell our Omission beers as “crafted to remove gluten” and negatively impact our operating results. CBA remains fully engaged in the FDA rulemaking processand is planning to submit regulatory, legal and scientific comments to the docket in April 2016.Product safety and quality concerns may have a material adverse effect on our business.Our success depends in large part on our ability to maintain consumer confidence in the safety and quality of our products. We have rigorous product safetyand quality standards which we expect our breweries and our brewing partner to meet. However, we cannot assure you that, despite our strong commitment toproduct safety and quality, we will always meet these standards. If we, or our brewing partner, fail to comply with applicable product safety and qualitystandards and our products on the market are, or become, contaminated or adulterated, we may be required to conduct costly product recalls and may becomesubject to product liability claims and negative publicity, which could cause our reputation and business to suffer.12IndexWe have a continuing relationship with Anheuser-Busch, LLC and the current distribution network that would be difficult to replace.Substantially all of our products are sold and distributed through A-B’s distribution network. If the A-B Distributor Agreement were terminated, we would befaced with a number of operational tasks, including establishing and maintaining direct contracts with the existing wholesaler network or negotiatingagreements with replacement wholesalers on an individual basis, and enhancing our credit evaluation, billing and accounts receivable processes. Such anundertaking would require significant effort and substantial time to complete, during which the distribution of our products could be impaired.We are dependent on our wholesalers for the sale of our products.Although substantially all of our products are sold and distributed through A-B, we continue to rely heavily on wholesalers, many of which are independent,for the sale of our products to retailers. Independent wholesalers make their own business decisions that may not align with our interests and there is noassurance that the sales efforts of distributors will be effective in generating sales of our products.Any disruption in the ability of the wholesalers, A-B, or us to distribute products efficiently due to any significant operational problems, such as wide-spreadlabor union strikes or the loss of a major wholesaler as a customer, could hinder our ability to get our products to retailers and could have a material adverseimpact on our sales, results of operations and cash flows. A-B has been purchasing distributors in states where it is legally permissible, which could impactour distribution if the A-B relationship were to end. 35% of our shipments during 2015 were through A-B owned distributors.Our agreements with A-B may limit our ability to engage in certain activities and investments.The Exchange Agreement requires us to obtain A-B's consent prior to undertaking certain activities and investments. For example, we must obtain A-B'sconsent before acquiring another brewer if the purchase price exceeds $30 million or to purchase a non-brewing entity if the purchase price exceeds $2million. If A-B opposes strategic or financial investments proposed by our management, A-B may decline to give its consent to activities or investments thatour management believes are in the best interest of our shareholders.A-B has an influential voice in decisions of the board of directors and shareholders.A-B owns 31.6% of our outstanding common stock, making A-B our largest shareholder. In addition, under the Exchange Agreement, A-B may designate twonominees to the Board. These directors also participate on our audit, compensation, and nominating and governance committees as non-voting observers,and one of these directors participates on our strategic planning committee as a voting member. As a result, A-B has an influential voice in deliberations ofthe Board and shareholders.Expansion projects at our Portland and Kona breweries may be subject to various risks, including cost overruns, construction delays, and inability to fullyutilize additional production capacity, which may adversely affect our financial condition and results of operations.During 2015, we announced plans to expand our annual brewing capacity at our Portland brewery to 750,000 barrels at a total estimated cost of $10 million. We have also begun construction on a new, state-of-the-art brewing facility in Kailua-Kona, Hawaii, with an annual production capacity of 100,000 barrels ata total estimated cost of approximately $20 million. As with all projects of this magnitude, there is the potential risk of significant cost overruns, whichcould require us to increase our borrowing under our revolving credit facility or to find additional financing. We may also experience unforeseenconstruction delays, which could result in our inability to bring one or both of these facilities into production as scheduled, adversely affecting our results ofoperations and financial condition. In addition, if we do not achieve sufficient growth in product sales to absorb the increased production capacity followingcompletion of these projects, we will be unable to realize our goals for gross margin improvement, which would have a negative impact on our results ofoperations and return on investment.13IndexOperating breweries at production levels substantially below their current designed capacities could negatively impact our financial results.As of December 31, 2015, the annual working capacity of our breweries was approximately 1,075,000 barrels. Due to many factors, including seasonality andproduction schedules of various draft products and bottled products and packages, actual production capacity will rarely, if ever, approach full workingcapacity. We believe that capacity utilization of the breweries will fluctuate throughout the year, and even though we expect that capacity of our brewerieswill be efficiently utilized during periods when our sales are strongest, there likely will be periods when the capacity utilization will be lower. If weexperience contraction in our sales volumes, the resulting excess capacity and unabsorbed overhead will have an adverse effect on our gross margins,operating cash flows and overall financial performance. We periodically evaluate whether we expect to recover the costs of our production breweries over thecourse of their useful lives. If facts and circumstances indicate that the carrying value of these long-lived assets may be impaired, an evaluation ofrecoverability will be performed by comparing the carrying value of the assets to projected future undiscounted cash flows along with other quantitative andqualitative analyses. If we determine that the carrying value of such assets does not appear to be recoverable, we will recognize an impairment loss by acharge against current operations, which could have a material adverse effect on our results of operations.Our sales are concentrated in the Pacific Northwest, California and Hawaii.Our sales in 2015 were concentrated in Washington, Oregon, California and Hawaii and, consequently, our future sales may be adversely affected by changesin economic and business conditions within these states. We also believe the Pacific Northwest and California are among the most competitive craft beermarkets in the United States, both in terms of number of market participants and consumer awareness. The Pacific Northwest and California offer significantcompetition to our products, not only from other craft brewers, but also from the major domestic brewers, wine producers and flavored alcohol beverages.We are dependent upon the continued service of our senior management and other key personnel.Our future success is dependent on the continued service of our senior management and other key employees, particularly Andrew Thomas, our ChiefExecutive Officer. The loss of the services of our senior management and other key employees could have a material adverse effect on our operations.Additionally, the loss of Andrew Thomas as our Chief Executive Officer, and the failure to find a replacement satisfactory to A-B, would be a terminationevent under the A-B Distributor Agreement.We also may be unable to retain existing management, sales, marketing, operational and other support personnel critical to our success, which could result inharm to significant customer relationships, loss of key information, expertise or know-how, and unanticipated recruiting and training costs.Our gross margin may fluctuate.Future gross margin may fluctuate and even decline as a result of many factors, including: product pricing levels; sales mix between draft and packagedproduct sales and within the various bottled product packages; level of fixed and semi-variable operating costs; level of production at our breweries inrelation to current production capacity; availability and prices of raw materials, production inputs such as energy and packaging materials; rates charged forfreight; and federal and state excise taxes. The high percentage of fixed and semi-variable operating costs causes our gross margin to be particularly sensitiveto relatively small changes in sales volume.Higher health care costs may have an adverse effect on our operating results.We are self-insured with respect to health care expenses for our employees. During 2015 and 2014, we experienced higher than average medical expenseclaims, which increased our Selling, general and administrative expenses. If this trend continues, our operating results may be negatively affected.A failure in any of our supply chain processes could harm our ability to effectively operate our business.Our results are highly dependent on our ability to accurately forecast and execute throughout the entire supply chain, including sales forecasting, rawmaterial ordering, brewing and distribution. The combination of our recent growth and increased brand complexity has increased the operating complexity ofour business. We cannot guarantee that we will effectively manage such complexity without experiencing planning failures, operating inefficiencies, or otherissues that could have an adverse effect on our business.We engage in electronic communications between third parties, including A-B and our wholesalers, as part of our supply chain processes. Any interruptionsor errors in our electronic interfaces may negatively affect our operating activities.14IndexUnavailability of production at our brewing partner may adversely affect our capacity and disrupt our ability to satisfy demand for our products.During 2014, we entered into a contract brewing relationship with our brewing partner in Memphis, Tennessee, and anticipate producing up to 100,000barrels of our beer at that facility annually. If production at that facility should be disrupted due to unforeseen circumstances, our ability to produce and shipsufficient quantities of our beer to meet demand in certain key geographic markets, particularly Texas and the southeastern United States, could besignificantly impaired, resulting in decreased sales revenue and a negative impact on our wholesaler relationships in those markets.An increase in excise taxes could adversely affect our financial condition and results of operations.The U.S. federal government currently levies an excise tax of $18 per barrel on beer sold for consumption in the United States; however, brewers, such as us,that produce less than two million barrels annually, are taxed at $7 per barrel on the first 60,000 barrels shipped, with the remainder of the shipments taxed atthe normal rate. The individual states in which we operate also impose excise taxes on beer and other alcohol beverages in varying amounts. Federal and statelegislators routinely consider various proposals to impose additional excise taxes on the production of alcoholic beverages, including beer. Any suchincreases in excise taxes, if enacted, would adversely affect our financial condition, results of operations, and cash flows.We are subject to governmental regulations affecting our breweries and pubs.Our business is highly regulated by federal, state, and local laws and regulations. These laws and regulations govern all aspects of the production anddistribution of beer, including permitting, licensing, trade practices, labeling, advertising and marketing, distributor relationships and various other matters.A variety of federal, state and local governmental authorities also levy various taxes, license fees and other similar charges and may require bonds to ensurecompliance with applicable laws and regulations. Noncompliance with such laws and regulations may cause the Alcohol and Tobacco Tax and Trade Bureauor any particular state or jurisdiction to revoke its license or permit, restricting our ability to conduct business, or result in the imposition of significant finesor penalties. One or more regulatory authorities could determine that we have not complied with applicable licensing or permitting regulations or have notmaintained the approvals necessary for us to conduct business within our jurisdiction. If licenses, permits or approvals necessary for our brewery or puboperations were unavailable or unduly delayed, or if any permits or licenses that we hold were to be revoked, or additional permits or licenses were requiredin the future, including as a result of expanding our operations, our ability to conduct business may be disrupted, which would have a material adverse effecton our financial condition, results of operations and cash flows.The craft beer business is seasonal in nature, and we are likely to experience fluctuations in results of operations.Sales of craft beer products are somewhat seasonal, with the first and fourth quarters historically being lower and the rest of the year generating stronger sales.Our sales volume may also be affected by weather conditions and selling days within a particular period. Therefore, the results for any given quarter willlikely not be indicative of the results that may be achieved for the full fiscal year. If an adverse event such as a regional economic downturn or poor weatherconditions should occur during the second and third quarters, the adverse impact to our revenues would likely be greater as a result of the seasonality of ourbusiness.We may be unable to access public or private debt markets to fund our operations and contractual commitments at competitive rates, on commerciallyreasonable terms, or in sufficient amounts, if at all.We depend, in part, on our revolving line of credit with Bank of America, N.A. ("BofA"), to fund our operations and commitments for capital expenditures.Our capital expenditures in 2016 are expected to range from $19 million to $23 million. A number of factors could cause us to incur increased borrowingcosts and to have greater difficulty accessing public and private markets for debt. These factors include general economic conditions, disruptions or declinesin the global capital markets, our financial performance or outlook, and credit. An adverse change in any or all of these factors may materially adverselyaffect our ability to fund our operations and contractual or financing commitments.If our business does not perform as expected, including if we generate less revenue than anticipated from our operations or encounter significant unexpectedcosts, we may fail to comply with the financial covenants under our credit facilities. If we do not comply with our financial covenants and we do not obtain awaiver or amendment, BofA may elect to cause all amounts owed to become immediately due and payable. Any default may require us to seek additionalcapital or modifications to our credit facilities, which may not be available or which may be costly. Any of these risks and uncertainties could have a materialadverse effect on our business, financial position, results of operations, and cash flows.Failure to realize expected benefits from capital investments in our breweries and information technology may impact our operating results and cashflows.Over the past several years, we have made, and expect to continue to make, significant investments in improvements aimed at increasing the efficiency,capabilities and capacity of our breweries, improving our ordering and logistics systems, and enhancing the customer experience at our restaurant facilities. Failure to realize the anticipated benefits and generate adequate returns on such capital improvement projects may have a material adverse effect on ourresults of operations and cash flows.15IndexWe have entered into strategic relationships with certain regional brewers that increase the complexity and execution risks of our operations.We have entered into strategic relationships with certain regional brewers, including Appalachian Mountain Brewery in North Carolina and Cisco Brewers inMassachusetts. These new relationships have added to the complexity of our operations, including brewing, packaging, marketing and selling their brands,with increased demands on our management team. There can be no assurance that we will be able to take full advantage of these strategic opportunitieswithout experiencing unexpected costs, operating challenges or control deficiencies. Our option agreement with Pabst Northwest Brewing Company may not culminate in the sale of our Woodinville brewing facility, in which event we mayneed to determine an alternative long-term use for this facility.On January 8, 2016, we entered into an Option and Agreement of Purchase and Sale with Pabst Northwest Brewing Company, dba Rainier Brewing Company("Rainier"), a subsidiary of Pabst Brewing Company. Under the terms of the option agreement, Rainier was granted an option to acquire our Woodinvillebrewery and adjacent pub facility, and certain related assets, at any time during the next three years. The purchase price will be $25.0 million if Rainierexercises the option during the first year of the agreement, $26.0 million if exercise occurs during the second year, and $28.0 million if exercises occursduring the third year. If Rainier does not ultimately exercise its option to purchase the Woodinville facility, it may be required to pay us a termination fee.There can be no assurance that Rainier will exercise its option or, if it fails to exercise the option, that it will be required to pay us a termination fee. Theoption agreement contains certain representations and warranties and certain covenants to be performed by us which, if breached prior to expiration of theoption agreement, could give Rainier a right of termination without payment of a fee. If Rainier does not exercise the option, we will retain ownership andoperation of the Woodinville brewery, which could have an adverse effect on our results of operations if our planned alternative uses for the facility’sbrewing capacity do not materialize. See “Relationship with Rainier Brewing Company” included in Part I, Item 1 of this Form 10-K for additionalinformation.Acquisitions subject us to various risks, including risks relating to selection and pricing of acquisition targets, integration of acquired companies into ourbusiness and assumption of unanticipated liabilities.We have completed two acquisitions since 2008 and may pursue additional acquisitions or joint venture or investment opportunities. We cannot assure,however, that we will be able to identify or take advantage of such opportunities. If we do pursue such transactions, we may not realize the anticipatedbenefits. Acquisitions involve many risks, including risks relating to the assumption of unforeseen liabilities of an acquired business, adverse accountingcharges resulting from the acquisition, and difficulties in integrating acquired companies into our business, both from a cultural perspective, as well as withrespect to technological integration. Our inability to successfully integrate acquired businesses or manage joint ventures may lead to increased costs, failureto generate expected returns, or even a total loss of amounts invested, any of which could have a material adverse effect on our financial condition and resultsof operations.Changes in state laws regarding distribution arrangements may adversely impact our operations. States in which we have a significant sales presence may enact legislation that significantly alters the competitive environment for the beer distributionindustry. Any change in the competitive environment in those states could have an adverse effect on our future sales and results of operations and mayimpact the financial stability of wholesalers on which we rely.We may experience a shortage of kegs necessary to distribute draft beer.We distribute our draft beer in kegs that are owned by us. During periods when we experience stronger sales, we may need to rely on kegs leased from A-B toaddress the additional demand. If shipments of draft beer increase, we may experience a shortage of available kegs to fill sales orders. If we cannot meet ourkeg requirements through either lease or purchase, we may be required to delay some draft shipments. Such delays could have an adverse impact on sales andrelationships with wholesalers and A-B.Reduced involvement by the founders of Widmer Brothers Brewing Company in promoting that brand family may adversely affect sales.The founders of Widmer Brothers Brewing Company, Kurt R. Widmer (“Kurt”) and Robert P. Widmer (“Rob”), are integrated in our current Widmer Brothersbrand family messaging and we rely on the positive public perception of their images, as founders. The role of Kurt, as founder, and Rob, as founder and vicepresident of corporate quality assurance and industry relations, are promoted as part of our Widmer Brothers brand communication and have appeal to somedrinkers. Kurt retired as our chairman of the board and director at the end of 2015 and will have an evolving role in promoting the Widmer Brothers brandgoing forward. Reduced involvement of Kurt and Rob may have a negative effect on sales of Widmer Brothers beers.16IndexWe are dependent on certain suppliers for key raw materials, packaging materials and production inputs.Although we seek to maintain back-up and alternative suppliers for all key raw materials and production inputs, we are reliant on certain third parties for keyraw materials, packaging materials and utilities. Any disruption in the willingness or ability of these third parties to supply these critical components couldhinder our ability to continue production of our products, which could have a material adverse impact on our financial condition, results of operations andcash flows.Any change in, or violation of, federal and state environmental regulations could adversely affect our operations.Our brewing operations are subject to environmental regulations and local permitting requirements and agreements regarding, among other things, airemissions, water discharges and the handling and disposal of hazardous wastes. While we have no reason to believe the operation of our breweries violatesany such regulation or requirement, if such a violation were to occur, or if environmental regulations were to become more stringent in the future, we could beadversely affected.A small number of shareholders hold a significant ownership percentage of our common stock and uncertainty over their continuing ownership planscould cause the market price of our common stock to decline.As noted above, A‑B has a significant ownership stake in us. In addition, Kurt Widmer and Rob Widmer together beneficially own approximately 2.2 millionshares, or 11.6%, of our common stock. Collectively, these two groups own 43.2% of our equity. All of these shares are available for sale in the public market,subject to volume, manner of sale and other requirements under the Securities Act of 1933. Such sales in the public market, or the perception that such salesmay occur, could cause the market price of our common stock to decline.We do not intend to pay and are limited in our ability to declare or pay dividends; accordingly, shareholders must rely on stock appreciation for any returnon their investment in us.We do not anticipate paying cash dividends. Further, under our loan agreement with BofA, we are not permitted to declare or pay a dividend unless we meetcertain financial covenants. As a result, only appreciation of the price of our common stock will provide a return to shareholders. Investors seeking cashdividends should not invest in our common stock.The fair value of our intangible assets, including goodwill, may become impaired.As a result of the acquisition of Kona Brewing Company, we have recognized a significant increase in our total intangible assets, including goodwill. As ofDecember 31, 2015, we had $29.3 million in an assortment of intangible assets, on a net basis, which represented nearly 15.4% of our total assets. If anycircumstances were to occur, such as economic recession or other factors causing a reduction in consumer demand, or for any other reason we were toexperience a significant decrease in sales growth, which had a negative impact on our estimated cash flows associated with these assets, our analyses of theseassets may conclude that a decrease in the fair value of these assets occurred. In that event, we would be required to recognize a potentially significant loss onimpairment of these assets. Any such impairment loss would be charged against current operations in the period of change.Item 1B. Unresolved Staff CommentsNone.Item 2. PropertiesWe own and operate four highly-automated, small-batch production breweries: the Oregon Brewery, the Washington Brewery, the New Hampshire Brewery,and the Hawaiian Brewery, as well as two small, innovation brewing systems in Portland, Oregon and Portsmouth, New Hampshire. We lease the sites uponwhich the Hawaiian Brewery and Pubs, the New Hampshire Breweries and Pub, the Portland Innovation Brewery, and Oregon Pub are located, in addition toour office space and warehouse locations in Portland, Oregon for our corporate, administrative and sales functions. In 2014, we entered into a lease for spacein Southern California for our national sales office. In 2015, we entered into a long-term land lease for the location of our new Kona brewery, which expires in2064, and in 2016 we entered into a lease for our new Redhook pub in Seattle, which expires in 2026. Certain of these leases are with related parties. Theseoperating leases expire at various times between 2016 and 2064. See Notes 16 and 17 of Notes to Consolidated Financial Statements included in Part II, Item8 of this report for further discussion regarding these arrangements.17IndexCertain information regarding our production breweries is as follows (capacity in thousands of barrels):Production Breweries SquareFootage CurrentAnnualCapacity MaximumAnnualCapacityOregon Brewery 185,000 630 650Washington Brewery 128,000 220 280New Hampshire Brewery 125,000 215 280Hawaiian Brewery 11,000 10 10 1,075 1,220The total annual capacity of all our breweries was approximately 1,075,000 barrels as of December 31, 2015 and 2014. Combined, our breweries have thepotential to reach 1,220,000 barrels in annual capacity when fully optimized based on the currently available space and current product mix. Construction iscurrently underway to increase the annual capacity of the Oregon brewery to 750,000 barrels and, in 2016, we will break ground on a new 100,000 barrelbrewery near our existing brewery and pub in Kona, which is expected to be fully operational by early 2018.In June 2014, we initiated full-scale brewing with our brewing partner in Memphis, Tennessee. This partnership provides us scalable capacity and weanticipate producing up to 100,000 barrels at this location in 2016.Substantially all of our personal property and fixtures, as well as the real properties associated with the Oregon Brewery, secure our loan agreement withBofA. See Note 8 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report.Item 3. Legal ProceedingsWe are involved, from time to time, in claims, proceedings and litigation arising in the normal course of business. We believe that, to the extent that anypending or threatened litigation involving us or our properties exists, such litigation is not likely to have a material adverse effect on our financial conditionor results of operations.Item 4. Mine Safety DisclosuresNot applicable.18IndexPART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock trades on the NASDAQ Stock Market (“NASDAQ”) under the trading symbol BREW. The table below sets forth, for the fiscal quartersindicated, the reported high and low closing sale prices of our common stock, as reported on NASDAQ: 2014 High LowQuarter 1 $17.77 $13.99Quarter 2 15.60 10.14Quarter 3 14.40 8.40Quarter 4 17.47 13.002015 High LowQuarter 1 $13.65 $10.89Quarter 2 14.17 10.15Quarter 3 11.17 7.11Quarter 4 9.72 6.83We had 703 common shareholders of record as of February 16, 2016. We have not declared or paid any dividends during our existence. Under the terms of our loan agreement with BofA, we are permitted to declare or paydividends without BofA’s consent, subject to limitations. We anticipate that, for the foreseeable future, all earnings will be retained for the operation andexpansion of our business and that we will not pay cash dividends. The payment of dividends, if any, in the future, will be at the discretion of our Board ofDirectors and will depend upon, among other things, future earnings, capital and operating requirements, restrictions in future financing agreements, ourgeneral financial condition, and general business conditions.Equity Compensation PlansInformation regarding securities authorized for issuance under equity compensation plans is included in Part III, Item 12 of this Form 10-K. Recent Sales of Unregistered SecuritiesNone.Issuer Purchases of Equity SecuritiesWe did not repurchase any of our common stock during the fourth quarter of 2015.19IndexStock Performance GraphThe following line-graph presentation compares cumulative five-year shareholder returns on an indexed basis, assuming a $100 initial investment andreinvestment of dividends, of (a) Craft Brew Alliance, Inc., (b) a broad-based equity market index and (c) an industry-specific index. The broad-based marketindex used is the NASDAQ Composite Index and the industry-specific index used is the S&P 500 Beverages Index.Total Return to Shareholders(includes reinvestment dividends)COMPARISON OF CUMULATIVE FIVE YEAR TOTAL RETURN BasePeriod Indexed ReturnsYear EndedCompany/Index 12/31/2010 12/31/2011 12/31/2012 12/31/2013 12/31/2014 12/31/2015Craft Brew Alliance, Inc. $100.00 $81.46 $87.69 $222.19 $180.51 $113.26NASDAQ Composite 100.00 98.20 113.82 157.44 178.53 188.75S&P 500 Beverages Index 100.00 104.55 109.93 131.30 147.74 160.9920IndexItem 6. Selected Financial DataThe selected consolidated financial data below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition andResults of Operations” and the consolidated financial statements and notes thereto included elsewhere in this Form 10-K.In thousands,except per share amounts Year Ended December 31,Statement of Operations Data 2015 2014 2013 2012 2011Net sales $204,168 $200,022 $179,180 $169,287 $149,197Cost of sales 141,972 141,312 128,919 119,261 104,011Gross profit 62,196 58,710 50,261 50,026 45,186Selling, general and administrative expenses 57,932 53,000 46,461 44,890 39,742Operating income 4,264 5,710 3,800 5,136 5,444Gain on sale of equity interest in Fulton Street Brewery, LLC — — — — 10,432Income before provision for income taxes 3,718 5,099 3,263 4,477 15,692Provision for income taxes 1,500 2,022 1,304 1,951 6,041Net income 2,218 3,077 1,959 2,526 9,651Basic and diluted net income per share $0.12 $0.16 $0.10 $0.13 $0.51Shares used in basic per share calculations 19,152 19,038 18,923 18,862 18,834Shares used in diluted per share calculations 19,175 19,126 19,042 18,934 18,931 December 31, 2015 2014 2013 2012 2011Balance Sheet Data Cash and cash equivalents $911 $981 $2,726 $5,013 $795Working capital 10,838 8,050 5,782 5,207 2,327Total assets 190,334 178,601 170,286 165,664 158,908Current portion of long-term debt and capital leases 507 1,157 710 642 596Long-term debt and capital leases, net of current portion 18,991 13,720 11,050 12,440 13,188Other long-term obligations 20,962 19,738 18,303 17,903 16,261Shareholders’ equity 118,738 115,417 111,232 108,195 104,50921IndexItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations OverviewCraft Brew Alliance, Inc. ("CBA") is the fifth largest craft brewing company in the U.S. and a leader in brewing, branding, and bringing to market some of theworld’s best-loved American craft beers.Craft Brew Alliance was formed in 2008 through the merger of Redhook Brewery and Widmer Brothers Brewing, the two largest craft brewing pioneers in theNorthwest at the time. Since then, the Alliance has continued to grow, welcoming Kona Brewing Co. in 2008, and expanding with innovative categoryleaders and strategic partners. Today, we are home to three of the earliest trail blazers in craft beer: Redhook Ale Brewery, Washington’s largest craft brewery,founded in 1981; Widmer Brothers Brewing, Oregon’s largest craft brewery, founded in 1984; and Kona Brewing Company, Hawaii’s oldest and largest craftbrewery, founded in 1994. As part of Craft Brew Alliance, these craft brewing legends have expanded their reach across the U.S. and approximately 30international markets, while remaining deeply rooted to their local communities.In addition to growing and nurturing distinctive brands steeped in local heritage, Craft Brew Alliance is committed to developing innovative new categoryleaders, such as Omission Beer, which is the #1 beer in the gluten-free beer segment, Square Mile Cider, the #1 local hard cider in the Pacific Northwest, andResignation Brewery’s line of KCCO beers in partnership with theChive.com, which represents the first-ever virtual brewery conceived by an online mediaplatform.As the craft beer market continues to grow and consumers increasingly demand local offerings, Craft Brew Alliance has expanded its portfolio of brands andmaximized its brewing footprint through strategic partnerships with emerging craft beer brands in targeted markets. In 2015, we announced strategicpartnerships with Appalachian Mountain Brewery, based in Boone, North Carolina; and Cisco Brewers, based in Nantucket, Massachusetts. Through thisstrategic partnership model, we gain local relevance in select beer geographies, while the partner breweries gain access to our world-class leadership andnational infrastructure to grow their brands.Publicly traded on NASDAQ under the ticker symbol BREW, Craft Brew Alliance is headquartered in Portland, Oregon and operates five breweries and fivepub restaurants across the U.S. For more information about CBA and its brands, see “Available Information” on page 11.We proudly brew our craft beers in four company-owned breweries located in Portland, Oregon; the Seattle suburb of Woodinville, Washington; Portsmouth,New Hampshire; and Kailua-Kona, Hawaii; and one brewery in Memphis, Tennessee owned by our brewing partner. Additionally, we own and operate twosmall innovation breweries, primarily used for small batch production and innovative brews, in Portland, Oregon and Portsmouth, New Hampshire.We distribute our beers to retailers through wholesalers that are aligned with the Anheuser-Busch, LLC (“A-B”) network. These sales are made pursuant to aMaster Distributor Agreement (the “A-B Distributor Agreement”) with A-B. As a result of this distribution arrangement, we believe that, under alcoholbeverage laws in a majority of states, these wholesalers would own the exclusive right to distribute our beers in their respective markets if the A-B DistributorAgreement expires or is terminated. Kona, Redhook and Widmer Brothers beers are distributed in all 50 states. Omission Beer continues to expand into newmarkets in the U.S. and internationally, while Square Mile Cider is currently available in 12 states in the West. Separate from our A-B wholesalers, wemaintain an internal independent sales and marketing organization with resources across the key functions of brand management, field marketing, field sales,and national retail sales.We operate in two segments: Beer Related operations and Pubs operations. Beer Related operations include the brewing, and domestic and internationalsales, of craft beers and ciders from our breweries. Pubs operations primarily include our five pubs, four of which are located adjacent to our Beer Relatedoperations, as well as other merchandise sales, and sales of our beers directly to customers.Following is a summary of our financial results: Net sales Net income Number ofBarrels Sold2015 $204.2 million $2.2 million 824,4002014 $200.0 million $3.1 million 830,2002013 $179.2 million $2.0 million 756,60022IndexResults of OperationsThe following table sets forth, for the periods indicated, certain information from our Consolidated Statements of Income expressed as a percentage of Netsales(1): Year Ended December 31, 2015 2014 2013Sales 107.1 % 107.3 % 107.4 %Less excise tax 7.1 7.3 7.4Net sales 100.0 100.0 100.0Cost of sales 69.5 70.6 71.9Gross profit 30.5 29.4 28.1Selling, general and administrative expenses 28.4 26.5 25.9Operating income 2.1 2.9 2.1Interest expense (0.3) (0.2) (0.3)Other income (expense), net — (0.1) —Income before income taxes 1.8 2.5 1.8Income tax provision 0.7 1.0 0.7Net income 1.1 % 1.5 % 1.1 %(1)Percentages may not sum due to rounding.Segment InformationNet sales, Gross profit and gross margin information by segment was as follows (dollars in thousands): Year Ended December 31,2015 Beer Related Pubsand Other TotalNet sales $176,343 $27,825 $204,168Gross profit $58,610 $3,586 $62,196Gross margin 33.2% 12.9% 30.5%2014 Net sales $173,687 $26,335 $200,022Gross profit $55,174 $3,536 $58,710Gross margin 31.8% 13.4% 29.4%2013 Net sales $154,830 $24,350 $179,180Gross profit $47,055 $3,206 $50,261Gross margin 30.4% 13.2% 28.1%23IndexNet Sales by CategoryThe following tables set forth a comparison of Net sales by category (dollars in thousands): Year Ended December 31, DollarChange % ChangeSales by Category 2015 2014 A-B and A-B related $177,380 $176,161 $1,219 0.7 %Contract brewing and beer related(1) 13,376 12,113 1,263 10.4 %Excise taxes (14,413) (14,587) 174 (1.2)%Net beer related sales 176,343 173,687 2,656 1.5 %Pubs(2) 27,825 26,335 1,490 5.7 %Net sales $204,168 $200,022 $4,146 2.1 % Year Ended December 31, DollarChange % ChangeSales by Category 2014 2013 A-B and A-B related $176,161 $159,001 $17,160 10.8%Contract brewing and beer related(1) 12,113 9,082 3,031 33.4%Excise taxes (14,587) (13,253) (1,334) 10.1%Net beer related sales 173,687 154,830 18,857 12.2%Pubs(2) 26,335 24,350 1,985 8.2%Net sales $200,022 $179,180 $20,842 11.6%(1)Beer related includes international beer sales.(2)Pubs sales include sales of promotional merchandise and sales of beer directly to customers.Shipments by CategoryShipments by category were as follows (in barrels):Year Ended December 31, 2015 Shipments 2014 Shipments Increase(Decrease) %Change Change inDepletions(1)A-B and A-B related 753,400 766,600 (13,200) (1.7)% 0%Contract brewing and beer related(2) 60,600 52,700 7,900 15.0 % Pubs 10,400 10,900 (500) (4.6)% Total 824,400 830,200 (5,800) (0.7)% Year Ended December 31, 2014 Shipments 2013 Shipments Increase(Decrease) %Change Change inDepletions(1)A-B and A-B related 766,600 708,100 58,500 8.3 % 7%Contract brewing and beer related(2) 52,700 37,100 15,600 42.0 % Pubs 10,900 11,400 (500) (4.4)% Total 830,200 756,600 73,600 9.7 % (1)Change in depletions reflects the year-over-year change in barrel volume sales of beer by wholesalers to retailers.(2)Beer related includes international beer sales.The increase in sales to A-B and A-B related in 2015 compared to 2014 was primarily due to a shift in package mix from draft to packaged, which has ahigher selling price per barrel than draft, and price increases. These increases were partially offset by a decrease in shipments primarily due to reductions inour wholesaler inventory levels in the first quarter of 2015. During the same period of 2014, wholesalers were building inventory levels in response to lowlevels at the end of 2013.The increase in sales to A-B and A-B related in 2014 compared to 2013 was primarily due to the increase in shipments, a shift in package mix from draft topackaged, which has a higher selling price per barrel than draft, and price increases.24IndexThe average revenue per barrel on shipments of beer through the A-B distribution network increased by 2.4% in 2015 compared to 2014, and 1.8% in 2014compared to 2013, primarily due to pricing increases and shifts in brand, package and geographic mix. Price changes implemented by us have generallyfollowed craft beer market pricing trends. During 2015, 2014 and 2013, we sold 91.4%, 92.3% and 93.6%, respectively, of our beer through A‑B at wholesalepricing levels.The increase in contract brewing and beer related sales in 2015 compared to 2014 was primarily due to an increase in international shipments of our beers,which sell at a higher rate per barrel than contract brewing sales, as we expanded into additional countries, as well as increased pricing on our contractbrewing sales. The increase in contract brewing and beer related sales was partially offset by a decline in our contract brewing shipment volume.The increase in contract brewing and beer related sales in 2014 compared to 2013 was primarily due to an increase in international shipments of our beers,which sell at a higher rate per barrel than contract brewing sales, as we expanded into additional countries. Contract brewing also saw an increase inshipments as we began brewing for a new contract brewing customer in 2014.Excise taxes vary directly with the volume of beer shipped.Pubs sales increased in 2015 compared to 2014, primarily as a result of higher guest counts at both of our pubs in Hawaii. The Hawaii pubs also have higherrevenue per guest than the Redhook and Widmer Brothers pubs, which additionally experienced lower guest counts at the Portland and Woodinvillelocations. The increase in pub sales was partially offset by the closure of the Redhook Pub in Portsmouth, New Hampshire for seven days due to inclementweather, closure of our Kona Pub on the island of Oahu for three weeks for a full remodel in the first quarter of 2015, and a decrease in beer shipment volumethrough our Pubs.Pubs sales increased in 2014 compared to 2013, primarily as a result of our Kona Pubs in Hawaii experiencing increased sales, and our Redhook Pub inWoodinville being open the full year in 2014 compared to the twelve-week closure for a full remodel of that location during 2013, as well an increase inaverage pricing. The increase in Pubs sales was partially offset by a decrease in beer shipment volume through our Pubs.The overall decrease in volume in 2015 compared to 2014 reflected the decrease in our Widmer Brothers and Redhook Brewery brands as we continue toreposition them in the marketplace, partially offset by the strong growth in our Kona Brewing and Omission Beer brands.The overall increase in volume in 2014 compared to 2013 reflected the continued strength of the Kona Brewing, Omission Beer and Redhook Brewerybrands, partially offset by a decrease in the Widmer Brothers brand as we continued repositioning it in the marketplace.Shipments by BrandThe following table sets forth a comparison of shipments by brand (in barrels):Year Ended December 31, 2015 Shipments 2014 Shipments Increase(Decrease) %Change Change inDepletionsKona 352,100 300,600 51,500 17.1 % 16 %Widmer Brothers(1) 198,100 217,000 (18,900) (8.7)% (8)%Redhook 185,900 223,100 (37,200) (16.7)% (15)%Omission 51,500 49,800 1,700 3.4 % 10 %Total(2) 787,600 790,500 (2,900) (0.4)% 0 %Year Ended December 31, 2014 Shipments 2013 Shipments Increase(Decrease) %Change Change inDepletionsKona 300,600 256,800 43,800 17.1 % 13 %Widmer Brothers(1) 217,000 225,300 (8,300) (3.7)% (6)%Redhook 223,100 216,900 6,200 2.9 % 3 %Omission 49,800 27,300 22,500 82.4 % 78 %Total(2) 790,500 726,300 64,200 8.8 % 7 %(1)Widmer Brothers includes the shipments and depletions from our Square Mile brand family.(2)Total shipments by brand include international shipments and exclude shipments produced under our contract brewing arrangements.25IndexThe increase in our Kona brand shipments in 2015 compared to 2014 was primarily due to increases in shipments of Big Wave Golden Ale and variety packs,and the reintroduction of Pipeline Porter during the third quarter of 2015, partially offset by a decrease in Koko Brown.The increase in our Kona brand shipments in 2014 compared to 2013 was primarily due to the release of Castaway IPA on the mainland and continued salesgrowth of our Big Wave Golden Ale and Longboard Lager.The decrease in our Widmer Brothers brand shipments in 2015 compared to 2014 was primarily due to decreases in Hefeweizen draft, Upheaval IPA andAlchemy Ale, partially offset by the summer seasonal which switched to Hefe Shandy from Citra Blonde, as Widmer Brothers focuses on its home markets.Hefeweizen packaged beer has stabilized and benefited from the introduction of the new Hefeweizen packaging in collaboration with the Portland Timbers.The decrease in our Widmer Brothers brand shipments in 2014 compared to 2013 was primarily due to a decrease in Hefeweizen draft, partially offset by theintroduction of Upheaval IPA, which replaced our Rotator IPA series.The decrease in our Redhook brand shipments in 2015 compared to 2014 was primarily due to decreases in our KCCO series, a craft beer brand developed inpartnership with theChive, a photo entertainment website, Audible Ale and Longhammer IPA, as Redhook focuses on its home market.The increase in our Redhook brand shipments in 2014 compared to 2013 was primarily the result of increased sales of KCCO Black Lager, as well as furtherpenetration into existing markets, particularly by our Long Hammer IPA, partially offset by declines in sales of ESB and Audible Ale.The increase in our Omission brand shipments in 2015 compared to 2014 were primarily due to the continued success of, and demand for, the IPA and Lagerstyles of our beer that is crafted to remove gluten. The increase in our Omission brand shipments in 2014 compared to 2013 was primarily due to thecontinued success of, and demand for, the IPA, Lager and Pale Ale styles.Shipments by PackageThe following table sets forth a comparison of our shipments by package, excluding contract brewing shipments produced under our contract brewingarrangements (in barrels):Year Ended December31, 2015 2014 2013 Shipments % of Total Shipments % of Total Shipments % of TotalDraft 180,700 22.9% 198,500 25.1% 205,500 28.3%Packaged 606,900 77.1% 592,000 74.9% 520,800 71.7%Total 787,600 100.0% 790,500 100.0% 726,300 100.0%The shift in mix from draft to packaged in 2015 compared to 2014 was primarily the result of our Kona brand family becoming a larger share of our overallshipments by brand family, which is more heavily weighted to packaged sales, and the growth of Omission, which is only available in packaged.The shift in mix from draft to packaged in 2014 compared to 2013 was primarily the result of the increases in volumes on our Kona, Omission and Redhookpackaged beers and lower volumes on our Widmer Brothers draft beer. Increased competition across the industry, as a result of both the entry of large, multi-national brewers into the craft beer segment and the significant increase in small, local breweries nationally, is making on-premise draft sales morechallenging.Cost of SalesCost of sales includes purchased raw materials, direct labor, overhead and shipping costs.Information regarding Cost of sales was as follows (dollars in thousands): Year Ended December 31, Dollar 2015 2014 Change % ChangeBeer Related $117,733 $118,513 $(780) (0.7)%Pubs 24,239 22,799 1,440 6.3 %Total $141,972 $141,312 $660 0.5 %26Index Year Ended December 31, Dollar 2014 2013 Change % ChangeBeer Related $118,513 $107,775 $10,738 10.0%Pubs 22,799 21,144 1,655 7.8%Total $141,312 $128,919 $12,393 9.6%The decrease in Beer Related Cost of sales in 2015 compared to 2014 was primarily due to more favorable distribution costs per barrel, decreases in our costof component materials, and the decrease in shipments discussed above. The decrease in Cost of sales was partially offset by an increase in brewery costs perbarrel at our owned breweries and the mix shift from draft to packaged beers, as the cost per barrel of packaged beer is higher than draft.The increase in Beer Related Cost of sales in 2014 compared to 2013 was primarily due to the increases in shipments discussed above, as well as the mix shiftfrom draft to packaged product as the per barrel equivalent cost of packaged product is higher than draft. These increases were partially offset by increasedefficiencies, primarily through better capacity utilization of our breweries.Also contributing to the increase in Beer Related Cost of sales in 2014 compared to 2013 were various one-time costs incurred as a result of initiatingbrewing operations in Memphis, Tennessee. We experienced incremental startup costs for initial shipments out of the Memphis brewery as a result oflaunching during the 2014 peak selling season. The impact of decreased production and higher shipment costs represented approximately $0.7 million, or$420,000 after tax, reflected in Beer Related Cost of sales.Pubs Cost of sales increased in 2015 compared to 2014 primarily due to increases in Sales and employee-related costs. The increase is also due to additionallabor costs relating to training and overhead following the closure of our Kona Pub on the island of Oahu for three weeks for a full remodel in the first quarterof 2015.Pubs Cost of sales increased in 2014 compared to 2013 primarily due to increases in Sales and cost increases across various categories, including labor,merchandise and administrative costs.Capacity UtilizationCapacity utilization is calculated by dividing total shipments by approximate working capacity and was as follows: Year Ended December 31, 2015 2014 2013Capacity utilization 71% 75% 70%In June 2014, we initiated full-scale brewing with our brewing partner in Memphis, Tennessee. This partnership provides us scalable capacity and weanticipate producing up to 100,000 barrels at this location in 2016.Gross ProfitInformation regarding Gross profit was as follows (dollars in thousands): Year Ended December 31, Dollar 2015 2014 Change % ChangeBeer Related $58,610 $55,174 $3,436 6.2%Pubs 3,586 3,536 50 1.4%Total $62,196 $58,710 $3,486 5.9% Year Ended December 31, Dollar 2014 2013 Change % ChangeBeer Related $55,174 $47,055 $8,119 17.3%Pubs 3,536 3,206 330 10.3%Total $58,710 $50,261 $8,449 16.8%27IndexGross profit as a percentage of Net sales, or gross margin rate, was as follows: Year Ended December 31, 2015 2014 2013Beer Related 33.2% 31.8% 30.4%Pubs 12.9% 13.4% 13.2%Total 30.5% 29.4% 28.1%The increase in the Beer Related Gross profit in 2015 compared to 2014 was primarily due to favorable pricing increases, lower distribution costs per barreland decreases in our component materials costs, partially offset by the increase in brewery costs per barrel and decline in shipment volume.The increase in the Beer Related gross margin rate in 2015 compared to 2014 was primarily due to increases in pricing, improved distribution costs per barreland the decrease in component materials costs, partially offset by higher brewery costs per barrel, as well as the effect of changes in product mix. The decreasein the Pubs gross margin rate in 2015 over 2014 was primarily due to the closures of two of our pubs, as discussed above.The increase in the Beer Related Gross profit in 2014 compared to 2013 was due to the increase in shipment volume, as well as increased pricing, improvedoperating efficiencies of our breweries and optimization of our supply chain, partially offset by the additional costs incurred related to initiating brewing inMemphis, Tennessee, as discussed above.The increase in the Beer Related gross margin rate in 2014 compared to 2013 was primarily due to the improved operating efficiencies of our breweries, asdiscussed above, optimization of our supply chain, and increases in pricing, partially offset by the effect of changes in product mix and additional costsincurred related to initiating brewing in Memphis, Tennessee. The increase in the Pubs gross margin rate in 2014 over 2013 was primarily due to the 2013temporary closure of our Woodinville, Washington Pub for remodeling as discussed above.Selling, General and Administrative ExpensesSelling, general and administrative expenses (“SG&A”) include compensation and related expenses for our sales and marketing activities, management, legaland other professional and administrative support functions.Information regarding SG&A was as follows (dollars in thousands): Year Ended December 31, DollarChange % Change 2015 2014 $57,932 $53,000 $4,932 9.3%As a % of Net sales 28.4% 26.5% Year Ended December 31, DollarChange % Change 2014 2013 $53,000 $46,461 $6,539 14.1%As a % of Net sales 26.5% 25.9% The increase in SG&A in 2015 compared to 2014, both in dollars and as a percentage of Net sales, was primarily due to planned increases in sales andmarketing spending, as well as an increase in employee-related costs.The increase in SG&A in 2014 compared to 2013, both in dollars and as a percentage of Net sales, was primarily due to the planned increases in SG&Aspending, primarily for Kona television advertising in select markets, as well as an increase in employee related benefit costs in 2014 compared to 2013.28IndexInterest ExpenseInformation regarding Interest expense was as follows (dollars in thousands): Year Ended December 31, DollarChange % Change 2015 2014 Interest expense $572 $431 $141 32.7 % Year Ended December 31, DollarChange % Change 2014 2013 Interest expense $431 $464 $(33) (7.1)% Year Ended December 31, 2015 2014 2013Average debt outstanding $18,530 $12,311 $12,615Average interest rate 1.96% 1.83% 2.92%The increase in Interest expense in 2015 compared to 2014 was primarily due to the increase in our average debt outstanding. Our average debt outstandingincreased as we have borrowed on our line of credit facility to support our expansion and growth plans, and to fund our working capital needs.The decrease in Interest expense in 2014 compared to 2013 was due to lower average outstanding borrowings, as well as lower average interest rates.Income Tax ProvisionOur effective income tax rate was 40.3%, 39.7% and 40.0% in 2015, 2014 and 2013, respectively. The effective income tax rates reflect the impact of non-deductible expenses (primarily meals and entertainment expenses), state and local taxes, tax credits, and income excluded from taxation under the domesticproduction activities exclusion.Liquidity and Capital ResourcesWe have required capital primarily for the construction and development of our production breweries, to support our expansion and growth plans, and tofund our working capital needs. Historically, we have financed our capital requirements through cash flows from operations, bank borrowings and the sale ofcommon and preferred stock. We anticipate meeting our obligations for the twelve months beginning January 1, 2016 primarily from cash flows generatedfrom operations and borrowing under our line of credit facility as the need arises. Capital resources available to us at December 31, 2015 included $0.9million of Cash and cash equivalents and $31.2 million available under our line of credit facility.We had $10.8 million of working capital and our debt as a percentage of total capitalization (total debt and common shareholders’ equity) was 14.1% atDecember 31, 2015.A summary of our cash flow information was as follows (dollars in thousands): Year Ended December 31, 2015 2014 2013Net cash provided by operating activities $11,562 $9,911 $8,457Net cash used in investing activities (16,174) (15,529) (9,894)Net cash provided by (used in) financing activities 4,542 3,873 (850)Decrease in cash and cash equivalents $(70) $(1,745) $(2,287)Cash provided by operating activities of $11.6 million in 2015 resulted from our Net income of $2.2 million, net non-cash expenses of $11.8 million, andchanges in our operating assets and liabilities as discussed in more detail below.Accounts receivable, net, increased $7.2 million to $18.9 million at December 31, 2015 compared to $11.7 million at December 31, 2014. This increase wasprimarily due a $4.7 million increase in our receivable from A-B to a total of $12.6 million at December 31, 2015, due to the timing of shipments.Historically, we have not had collection problems related to our accounts receivable.29IndexInventories decreased $0.7 million to $18.3 million at December 31, 2015 compared to $19.0 million at December 31, 2014, primarily due to the timing ofshipments at the end of 2015.Other current assets decreased $2.0 million to $2.4 million at December 31, 2015 compared to $4.4 million at December 31, 2014, primarily due to a decreasein the deposit for kegs leased from a third-party, which was partially offset by increases in prepaid advertising.Accounts payable increased $4.1 million to $17.1 million at December 31, 2015 compared to $13.0 million at December 31, 2014, primarily due to thetiming of payments for capital projects, and brewing and production activities. The portion of our payable to A-B that is included in our Accounts payabletotaled $1.6 million at December 31, 2015, which is consistent with the balance at December 31, 2014.As of December 31, 2015 we had the following net operating loss carryforwards (“NOLs”) and federal credit carry forwards available to offset payment offuture income taxes:•state NOLs of $30,000, tax-effected; and•federal alternative minimum tax (“AMT”) credit carry forwards of $343,000.We anticipate that we will utilize the remaining NOLs and federal credit carry forwards in the near future and, accordingly, once utilized, we will be requiredto satisfy all of our income tax obligations with cash.Capital expenditures of $15.7 million in 2015 were primarily directed to beer production capacity and efficiency improvements and Pubs remodeling. As ofDecember 31, 2015, we had an additional $1.3 million of expenditures recorded in Accounts payable on our Consolidated Balance Sheets, compared to $0.6million at December 31, 2014. Beginning in 2015, we are investing approximately $10 million in our Oregon Brewery to expand capacity to 750,000 barrelsper year, with expected completion in the first half of 2017. Also beginning in 2015 through expected completion in early 2018, we will be investingapproximately $20 million in a new Hawaiian Brewery to expand capacity to 100,000 barrels per year. We anticipate capital expenditures of approximately$19 million to $23 million in 2016 primarily for capacity and efficiency improvements, quality initiatives and restaurant and retail, including spending forthe expansion projects.Loan AgreementWe have a loan agreement (as amended, the “Loan Agreement”) with Bank of America, N.A., which consists of a $40 million revolving line of credit (“Line ofCredit”), including provisions for cash borrowings and up to $2.5 million notional amount of letters of credit, and a $10.0 million term loan (“Term Loan”).We may draw upon the Line of Credit for working capital and general corporate purposes until expiration on November 30, 2020. The maturity date of theTerm Loan is September 30, 2023. At December 31, 2015, we had $8.8 million of borrowings outstanding under the Line of Credit and $10.0 millionoutstanding under the Term Loan.Under the Loan Agreement, interest accrues at an annual rate based on the London Inter-Bank Offered Rate (“LIBOR”) Daily Floating Rate plus a marginalrate. The marginal rate varies from 0.75% to 1.75% for the Line of Credit and Term Loan based on our funded debt ratio. At December 31, 2015, our marginalrate was 0.75% resulting in an annual interest rate of 1.11%.In connection with an amendment to the Loan Agreement on November 15, 2013, we paid down the Term Loan by $0.6 million in order to bring theoutstanding principal balance to $10.8 million to achieve an 80% loan to value ratio on certain property securing the Loan Agreement. Accrued interest forthe Term Loan is due and payable monthly. Principal payments on the Term Loan are due monthly in accordance with an agreed-upon schedule set forth inthe Loan Agreement, with any unpaid principal balance and unpaid accrued interest due and payable on September 30, 2023.The Loan Agreement authorizes acquisitions within the same line of business as long as we remain in compliance with the financial covenants of the LoanAgreement and there is at least $5.0 million of availability remaining on the Line of Credit following the acquisition.30IndexContractual Commitments and Obligations The following is a summary of our contractual commitments and obligations as of December 31, 2015 (in thousands): Payments Due By PeriodContractual Obligations Total 2016 2017 and 2018 2019 and 2020 2021 andbeyondTerm loan $10,044 $391 $830 $901 $7,922Interest on term loan(1) 740 111 209 189 231Line of credit 8,777 — — 8,777 —Interest on line of credit(1) 479 98 195 186 —Operating leases 39,863 5,983 7,841 3,432 22,607Capital leases 734 134 266 266 68Purchase commitments 37,555 25,679 8,724 3,152 —Sponsorship obligations 2,352 1,299 1,053 — —Interest rate swap(2) 1,754 284 542 499 429 $102,298 $33,979 $19,660 $17,402 $31,257(1)The variable interest rate on our term loan and line of credit was 1.11% at December 31, 2015.(2)The fixed rate on our interest rate swaps are 2.86% and 1.28%. We pay that fixed rate less the Benchmark Rate, which was 0.36% at December 31,2015.See Notes 8 and 16 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for additional information.InflationWe believe that the impact of inflation was minimal on our business in 2015, 2014 and 2013.Critical Accounting Policies and EstimatesOur financial statements are based upon the selection and application of significant accounting policies that require management to make significantestimates and assumptions. Judgments and uncertainties affecting the application of these policies may result in materially different amounts being reportedunder different conditions or using different assumptions. Our estimates are based upon historical experience, market trends and financial forecasts andprojections, and upon various other assumptions that management believes to be reasonable under the circumstances at various points in time. Actual resultsmay differ, potentially significantly, from these estimates.Goodwill and Other Indefinite-Lived Intangible AssetsWe test goodwill and other indefinite-lived intangible assets for impairment on an annual basis, or as indicators of impairment are present. We have an optionto first assess certain qualitative factors for indications of impairment in order to determine whether it is necessary to perform the quantitative, two-stepimpairment test. If we choose not to first perform the qualitative test, or we determine that it is more likely than not that the fair value of the reporting unit isless than the carrying amount, we perform the quantitative two-step impairment test.Our goodwill and other indefinite-lived intangible assets impairment loss calculations contain uncertainties because they require management to makeassumptions in the qualitative assessment of relevant events and circumstances and to estimate the fair value of our reporting units and indefinite-livedintangible assets, including estimating future cash flows. These calculations contain uncertainties because they require management to make assumptionsand apply judgment to estimate economic factors and the profitability of future business operations and, if necessary, the fair value of a reporting unit’s assetsand liabilities. Further, our ability to realize the future cash flows used in our fair value calculations is affected by changes in such factors as economicconditions, our operating performance, our industry and our business strategies.We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to test for impairmentlosses on goodwill. Based on the results of our annual impairment test for goodwill and other indefinite-lived intangible assets, no impairment was recorded.We believe, based on our assessment discussed above, that our goodwill and other indefinite-lived intangible assets are not at risk of impairment. However, ifactual results are not consistent with our estimates31Indexor assumptions or there are significant changes in any of these estimates, projections or assumptions, the fair value of these assets in future measurementperiods could be materially affected resulting in an impairment that could materially affect our results of operations.Refundable Deposits on KegsWe distribute our draft beer in kegs that are owned by us and are reflected as a component of Property, equipment and leasehold improvements in ourConsolidated Balance Sheets at cost and are depreciated over the estimated useful life of the keg. When draft beer is shipped to the wholesaler, we collect arefundable deposit, reflected as a current liability in our Consolidated Balance Sheets. Upon return of the keg to us, the deposit is refunded to the wholesaler.When a wholesaler cannot account for some of our kegs for which it is responsible, it pays us a fixed fee and forfeits its deposit for each keg determined to belost. We have experienced some loss of kegs and anticipate that some loss will occur in future periods due to the significant volume of kegs handled by eachwholesaler and retailer, the similarities between kegs owned by most brewers, and the relatively low deposit collected on each keg when compared with themarket value of the keg. We believe that this is an industry-wide issue and our loss experience is typical of the industry. In order to estimate forfeited depositsattributable to lost kegs, we periodically use internal records, A-B records, other third-party records, and historical information to estimate the physical countof kegs held by wholesalers and A-B.These estimates affect the amount recorded as brewery equipment and refundable deposits as of the date of the consolidated financial statements. The actualliability for refundable deposits could differ from estimates.Revenue RecognitionWe recognize revenue from product sales, net of excise taxes, discounts and certain fees we must pay in connection with sales to a member of the A-Bwholesale distributor network, when the products are delivered to the member. A member of the A-B wholesale distributor network may be a branch of A‑B oran independent wholesale distributor.We recognize revenue on contract brewing sales when the product is shipped to our contract brewing customer.We recognize revenue on retail sales at the time of sale and we recognize revenue from events at the time of the event.Deferred TaxesDeferred tax assets arise from the tax benefit of amounts expensed for financial reporting purposes but not yet deducted for tax purposes and from unutilizedtax credits and net operating loss carry forwards. We evaluate our deferred tax assets on a regular basis to determine if a valuation allowance is required. Tothe extent it is determined the recoverability of the deferred tax assets is not more likely than not, we will record a valuation allowance against deferred taxassets. If we are unable to generate adequate taxable income in future periods or our assessment that it is more likely than not that certain deferred tax assetswill be realized is otherwise not accurate, we may incur charges in future periods to record a valuation allowance on our gross deferred tax assets.Off-Balance Sheet ArrangementsWe do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition,changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.Recent Accounting PronouncementsSee Note 3 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K.32IndexItem 7A. Quantitative and Qualitative Disclosures about Market RiskInterest Rate RiskWe have assessed our vulnerability to certain market risks, including interest rate risk associated with financial instruments included in Cash and cashequivalents and Long-term debt. To mitigate this risk, on January 23, 2014, we entered into an $8.0 million notional amount interest rate swap agreement,which expires September 29, 2023, to hedge the variability of interest payments associated with our variable-rate borrowings on our term loan. On November25, 2015, we entered into a $9.1 million notional amount interest rate swap agreement effective January 4, 2016, which expires January 1, 2019, to hedge thevariability of interest payments associated with our variable-rate borrowings on our line of credit. The notional amount fluctuates based on a predefinedschedule based on our anticipated borrowings. Since the interest rate swaps hedge the variability of interest payments on variable rate debt with similar terms,they qualify for cash flow hedge accounting treatment. These interest rate swaps hedge 75% of our total term loan and line of credit outstanding, reducing ouroverall interest rate risk. As of December 31, 2015, we had unhedged variable-rate debt outstanding of $2.5 million on our term loan and $8.8 million on ourline of credit as the interest rate swap agreement was not effective until January 4, 2016. A 10% increase or decrease in the interest rate on our variable-ratedebt would not have a material effect on our financial position, results of operations or cash flows.Due to the nature of our highly liquid Cash and cash equivalents, an increase or decrease in interest rates would not materially affect the fair value of our cashor the related interest income.33Index Item 8. Financial Statements and Supplementary Data Unaudited quarterly financial data for each of the eight quarters in the two-year period ended December 31, 2015 is as follows:2015 (In thousands, except per share data) 1st Quarter 2nd Quarter 3rd Quarter 4th QuarterNet sales $41,709 $58,531 $54,689 $49,239Cost of sales 30,547 39,841 37,830 33,754Gross profit 11,162 18,690 16,859 15,485Selling, general and administrative expenses 12,953 16,263 15,497 13,219Operating income (loss) (1,791) 2,427 1,362 2,266Interest expense and Other expense, net (115) (143) (141) (147)Income (loss) before income taxes (1,906) 2,284 1,221 2,119Income tax provision (benefit) (743) 894 489 860Net income (loss) $(1,163) $1,390 $732 $1,259Basic and diluted net income (loss) per share(1) $(0.06) $0.07 $0.04 $0.07Shares used in basic per share calculation 19,115 19,145 19,171 19,174Shares used in diluted per share calculation 19,115 19,177 19,180 19,1862014 (In thousands, except per share data) 1st Quarter 2nd Quarter 3rd Quarter 4th QuarterNet sales $43,826 $56,686 $52,073 $47,437Cost of sales 31,986 38,112 37,428 33,786Gross profit 11,840 18,574 14,645 13,651Selling, general and administrative expenses 12,062 15,208 13,554 12,176Operating income (loss) (222) 3,366 1,091 1,475Interest expense and Other expense, net (107) (96) (165) (243)Income (loss) before income taxes (329) 3,270 926 1,232Income tax provision (benefit) (128) 1,275 361 514Net income (loss) $(201) $1,995 $565 $718Basic and diluted net income (loss) per share(1) $(0.01) $0.10 $0.03 $0.04Shares used in basic per share calculation 18,976 19,029 19,052 19,093Shares used in diluted per share calculation 18,976 19,087 19,103 19,167(1)Basic and diluted net income (loss) per share may not sum to the full year as presented on the Consolidated Statements of Operations due to rounding.34IndexREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and ShareholdersCraft Brew Alliance, Inc.We have audited the accompanying consolidated balance sheets of Craft Brew Alliance, Inc. (the “Company”) as of December 31, 2015 and 2014, and therelated consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period endedDecember 31, 2015. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinionon these consolidated financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includesassessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statementpresentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Craft BrewAlliance, Inc. as of December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the periodended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Craft Brew Alliance, Inc.’sinternal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued bythe Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 2, 2016 expressed an unqualified opinion thereon./s/ Moss Adams LLPPortland, OregonMarch 2, 201635IndexCRAFT BREW ALLIANCE, INC.CONSOLIDATED BALANCE SHEETS(Dollars in thousands, except per share amounts) December 31, 2015 2014Assets Current assets: Cash and cash equivalents$911 $981Accounts receivable, net18,926 11,741Inventory, net18,300 18,971Deferred income tax asset, net1,905 1,670Other current assets2,439 4,413Total current assets42,481 37,776Property, equipment and leasehold improvements, net116,867 110,350Goodwill12,917 12,917Intangible and other assets, net18,069 17,558Total assets$190,334 $178,601Liabilities and Shareholders' Equity Current liabilities: Accounts payable$17,100 $12,987Accrued salaries, wages and payroll taxes5,468 5,114Refundable deposits6,559 8,152Other accrued expenses2,009 2,316Current portion of long-term debt and capital lease obligations507 1,157Total current liabilities31,643 29,726Long-term debt and capital lease obligations, net of current portion18,991 13,720Fair value of derivative financial instruments569 503Deferred income tax liability, net19,669 18,570Other liabilities724 665Total liabilities71,596 63,184Commitments and contingencies Common shareholders' equity: Common stock, $0.005 par value. Authorized 50,000,000 shares; issued and outstanding 19,179,006 and19,115,39696 96Additional paid-in capital139,534 138,391Accumulated other comprehensive loss(352) (312)Accumulated deficit(20,540) (22,758)Total common shareholders' equity118,738 115,417Total liabilities and common shareholders' equity$190,334 $178,601 The accompanying notes are an integral part of these financial statements.36IndexCRAFT BREW ALLIANCE, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share amounts) Year Ended December 31, 2015 2014 2013Sales$218,581 $214,609 $192,433Less excise taxes14,413 14,587 13,253Net sales204,168 200,022 179,180Cost of sales141,972 141,312 128,919Gross profit62,196 58,710 50,261Selling, general and administrative expenses57,932 53,000 46,461Operating income4,264 5,710 3,800Interest expense(572) (431) (464)Other income (expense), net26 (180) (73)Income before income taxes3,718 5,099 3,263Income tax expense1,500 2,022 1,304Net income$2,218 $3,077 $1,959Basic and diluted net income per share$0.12 $0.16 $0.10Shares used in basic per share calculations19,152 19,038 18,923Shares used in diluted per share calculations19,175 19,126 19,042 The accompanying notes are an integral part of these financial statements.37IndexCRAFT BREW ALLIANCE, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(In thousands) Year Ended December 31, 2015 2014 2013Net income $2,218 $3,077 $1,959Unrealized gain (loss) on derivative hedge transactions, net of tax (40) (312) 135Comprehensive income $2,178 $2,765 $2,094 The accompanying notes are an integral part of these financial statements.38IndexCRAFT BREW ALLIANCE, INC.CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY(In thousands) Common Stock Additional AccumulatedOther TotalCommon Shares Par Value Paid-InCapital ComprehensiveLoss AccumulatedDeficit Shareholders'EquityBalance at December 31, 2012 18,874 $94 $136,030 $(135) $(27,794) $108,195Issuance of shares under stock plans 75 1 243 — — 244Stock-based compensation 23 — 549 — — 549Tax benefit related to stock options — — 150 — — 150Unrealized gains on derivative financialinstruments, net of tax provision of $84 — — — 135 — 135Net income — — — — 1,959 1,959Balance at December 31, 2013 18,972 95 136,972 — (25,835) 111,232Issuance of shares under stock plans 105 1 487 — — 488Stock-based compensation, net of shareswithheld for tax payments 38 — 784 — — 784Tax benefit related to stock options — — 298 — — 298Unrealized losses on derivative financialinstruments, net of tax benefit of $191 — — — (312) — (312)Tax payments related to performanceshares issued — — (150) — — (150)Net income — — — — 3,077 3,077Balance at December 31, 2014 19,115 96 138,391 (312) (22,758) 115,417Issuance of shares under stock plans, netof shares withheld for tax payments 18 — 93 — — 93Stock-based compensation, net of shareswithheld for tax payments 46 — 1,157 — — 1,157Tax benefit related to stock options — — 44 — — 44Unrealized losses on derivative financialinstruments, net of tax benefit of $26 — — — (40) — (40)Tax payments related to stock-basedawards — — (151) — — (151)Net income — — — — 2,218 2,218Balance at December 31, 2015 19,179 $96 $139,534 $(352) $(20,540) $118,73839IndexCRAFT BREW ALLIANCE, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Year Ended December 31, 2015 2014 2013Cash flows from operating activities: Net income$2,218 $3,077 $1,959Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization9,722 8,648 8,164Loss on sale or disposal of Property, equipment and leasehold improvements343 213 195Deferred income taxes876 709 374Stock-based compensation1,157 784 549Excess tax benefit from employee stock plans(44) (298) (150)Other(283) (286) 286Changes in operating assets and liabilities: Accounts receivable, net(7,185) (371) (858)Inventories1,295 (2,185) (5,577)Other current assets1,973 (1,011) 407Accounts payable and other accrued expenses3,151 (825) 2,630Accrued salaries, wages and payroll taxes354 498 (651)Refundable deposits(2,015) 958 1,129Net cash provided by operating activities11,562 9,911 8,457Cash flows from investing activities: Expenditures for Property, equipment and leasehold improvements(15,653) (15,783) (9,894)Proceeds from sale of Property, equipment and leasehold improvements412 254 —Expenditures for long-term deposits(933) — —Net cash used in investing activities(16,174) (15,529) (9,894)Cash flows from financing activities: Principal payments on debt and capital lease obligations(1,094) (604) (1,208)Proceeds from capital lease financing— 841 —Net borrowings under revolving line of credit5,737 3,000 —Proceeds from issuances of common stock93 488 244Debt issuance costs(87) — (46)Tax payments related to stock-based awards(151) (150) —Excess tax benefit from employee stock plans44 298 160Net cash provided by (used in) financing activities4,542 3,873 (850)Decrease in Cash and cash equivalents(70) (1,745) (2,287)Cash and cash equivalents: Beginning of period981 2,726 5,013End of period$911 $981 $2,726Supplemental disclosure of cash flow information: Cash paid for interest$629 $540 $601Cash paid for income taxes, net398 1,187 543Supplemental disclosure of non-cash information: Purchases of Property, equipment and leasehold improvements included in Accounts payable at end ofperiod$1,334 $636 $331The accompanying notes are an integral part of these financial statements.40IndexNote 1. Nature of OperationsOverviewCraft Brew Alliance, Inc. was formed in 1981 to brew and sell craft beer. We produce, sell and market, on a national basis, innovative packaged and draftproducts for the Kona, Widmer Brothers, Redhook, Omission and Square Mile brands at our six company-owned breweries and operate five pubs that promoteour products, offer dining and entertainment facilities and sell retail merchandise. Our common stock trades on the Nasdaq Stock Market under the tradingsymbol “BREW.”Our products are distributed domestically in all 50 states. This national footprint was established primarily through a series of distribution agreements withAnheuser-Busch, LLC (“A-B”), a significant shareholder. In 2004, we and A‑B entered into three agreements, an exchange and recapitalization agreement (asamended, the “Exchange Agreement”), a master distributor agreement (as amended, the “A-B Distributor Agreement”) and a registration rights agreement thatcollectively constitute the framework of our existing relationship with A-B.Under the present terms of the A‑B Distributor Agreement, we distribute our products in substantially all of our markets through A‑B’s seamless nationalwholesale distributor network. As a result of this distribution arrangement, we believe that, under alcohol beverage laws in a majority of states, thesewholesalers own the exclusive right to distribute our beers in their respective markets if the A-B Distributor Agreement expires or is terminated. A-B’sdomestic wholesaler network consists primarily of independent wholesalers, together with branches owned by A-B. The A-B Distributor Agreement is subjectto early termination by either party upon the occurrence of certain events. The A‑B Distributor Agreement expires December 31, 2018, but may be renewedautomatically for an additional ten-year period unless A‑B provides written notice to the contrary on or before June 30, 2018.Basis of PresentationThe consolidated financial statements include the accounts of Craft Brew Alliance, Inc. and our wholly owned subsidiaries. All intercompany transactionsand balances are eliminated in consolidation.Note 2. Significant Accounting PoliciesCash and Cash EquivalentsWe maintain cash balances with financial institutions that may exceed federally insured limits. We consider all highly liquid investments with an originalmaturity of three months or less to be cash equivalents. As of December 31, 2015 and December 31, 2014, we did not have any cash equivalents.Under our cash management system, we utilize a controlled disbursement account to fund cash distribution checks presented for payment by the holder.Checks issued but not yet presented to banks may result in overdraft balances for accounting purposes. As of December 31, 2015 bank overdrafts of $2.2million were included in Accounts payable on our Consolidated Balance Sheets. As of December 31, 2014 there were no bank overdrafts. Changes in bankoverdrafts from period to period are reported in the Consolidated Statements of Cash Flows as a component of operating activities within Accounts payableand Other accrued expenses.Accounts ReceivableAccounts receivable primarily consists of trade receivables due from wholesalers and A-B for beer and promotional product sales. Because of state liquor lawsand each wholesaler’s agreement with A-B, we do not have collectability issues related to the sale of our beer products. Accordingly, we do not regularlyprovide an allowance for doubtful accounts for beer sales. We have provided an allowance for promotional merchandise receivables that have been invoicedto the wholesaler, which reflects our best estimate of probable losses inherent in the accounts. We determine the allowance based on historical customerexperience and other currently available evidence. When a specific account is deemed uncollectible, the account is written off against the allowance. Theallowance for doubtful accounts was $25,000 at both December 31, 2015 and 2014.Activity related to our allowance for doubtful accounts was immaterial in 2015, 2014 and 2013.InventoriesInventories, except for pub food, beverages and supplies, are stated at the lower of standard cost or market. Pub food, beverages and supplies are stated at thelower of cost or market.We regularly review our inventories for the presence of obsolete product attributed to age, seasonality and quality. If our review indicates a reduction inutility below the product’s carrying value, we reduce the product to a new cost basis. We record the cost of inventory for which we estimate we have morethan a twelve-month supply as a component of Intangible and other assets on our Consolidated Balance Sheets.41IndexProperty, Equipment and Leasehold ImprovementsProperty, equipment and leasehold improvements are stated at cost, less accumulated depreciation and accumulated amortization. Expenditures for repairsand maintenance are expensed as incurred; renewals and betterments are capitalized. Upon disposal of equipment and leasehold improvements, the accountsare relieved of the costs and related accumulated depreciation or amortization, and resulting gains or losses are reflected in our Consolidated Statements ofIncome.Depreciation and amortization of property, equipment and leasehold improvements is provided on the straight-line method over the following estimateduseful lives:Buildings30 – 50 yearsBrewery equipment10 – 25 yearsFurniture, fixtures and other equipment2 – 10 yearsVehicles5 yearsLeasehold improvementsThe lesser of useful life or term of the leaseValuation of Long-Lived AssetsWe evaluate potential impairment of long-lived assets when facts and circumstances indicate that the carrying values of such assets may be impaired. Anevaluation of recoverability is performed by comparing the carrying value of the assets to projected future undiscounted cash flows. Upon indication that thecarrying value of such assets may not be recoverable, we recognize an impairment loss in the current period in our Consolidated Statements of Income. Wedid not identify indicators of impairment during 2015, 2014 or 2013.Definite-lived intangible assets are amortized using a straight line basis of accounting. Definite-lived intangible assets and their respective estimated lives areas follows:Distributor agreements15 yearsNon-compete agreements5 yearsGoodwillGoodwill is not amortized but rather is reviewed for impairment at least annually, or more frequently if an event occurs or circumstances change that indicatethat the carrying value may not be recoverable. We first make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value isless than its carrying amount before applying the two-step goodwill impairment test. If the conclusion is that it is more likely than not that the fair value of areporting unit is less than its carrying amount, we then perform a two-step goodwill impairment test. Under the first step, the fair value of the reporting unit iscompared to its carrying value, and, if an indication of goodwill impairment exists in the reporting unit, the second step of the impairment test is performed tomeasure the amount of any impairment loss. Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’sgoodwill as determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after thisallocation is the implied fair value of the reporting unit goodwill. If the fair value of the reporting unit exceeds its carrying value, step two does not need tobe performed. We conduct our annual impairment test as of December 31 of each year and have determined there to be no impairment for any of the periodspresented.Indefinite-Lived Intangible AssetsIndefinite-lived intangible assets consist primarily of trademarks, domain name and recipes. We evaluate the recoverability of indefinite-lived intangibleassets annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired, by comparing the carrying amount of theasset to its estimated fair value measured by using discounted cash flows that the asset is expected to generate. We have determined there to be no impairmentfor any of the periods presented.Refundable Deposits on KegsWe distribute our draft beer in kegs that are owned by us and are reflected in our Consolidated Balance Sheets at cost and are depreciated over the estimateduseful life of the keg. When draft beer is shipped to the wholesaler, we collect a refundable deposit, presented as a current liability, Refundable deposits, inour Consolidated Balance Sheets. Upon return of the keg to us, the deposit is refunded to the wholesaler.We have experienced some loss of kegs and anticipate that some loss will occur in future periods due to the significant volume of kegs handled by eachwholesaler and retailer, the homogeneous nature of kegs owned by most brewers, and the relatively small deposit collected for each keg when compared withits market value. In order to estimate forfeited deposits attributable to lost kegs, we periodically use internal records, records maintained by A‑B, recordsmaintained by other third party vendors and42Indexhistorical information to estimate the physical count of kegs held by wholesalers and A-B. These estimates affect the amount recorded as equipment andrefundable deposits as of the date of the consolidated financial statements. The actual liability for refundable deposits may differ from estimates. OurConsolidated Balance Sheets included $6.4 million and $8.0 million at December 31, 2015 and 2014, respectively, in Refundable deposits on kegs and$11.0 million and $10.1 million, respectively, in keg equipment, net of accumulated depreciation, included as a component of Property, equipment andleasehold improvements, net.Concentrations of RiskFinancial instruments that potentially subject us to credit risk consist principally of Accounts receivable. While wholesalers and A-B account forsubstantially all Accounts receivable, this concentration risk is limited due to the number of wholesalers, their geographic dispersion and state lawsregulating the financial affairs of wholesalers of alcoholic beverages.Comprehensive IncomeComprehensive income includes changes in the fair value of interest rate derivatives that are designated as cash flow hedges.Revenue RecognitionWe recognize revenue from product sales, net of excise taxes, discounts and certain fees we must pay in connection with sales to a member of the A-Bwholesale distributor network, when the products are delivered to the member. A member of the A-B wholesale distributor network may be a branch of A‑B oran independent wholesale distributor.We recognize revenue on contract brewing sales when the product is shipped to our contract brewing customer.We recognize revenue on retail sales at the time of sale and we recognize revenue from events at the time of the event.Excise TaxesThe federal government levies excise taxes on the sale of alcoholic beverages, including beer. For brewers producing less than two million barrels of beer percalendar year, the federal excise tax is $7 per barrel on the first 60,000 barrels of beer removed for consumption or sale during the calendar year, and $18 perbarrel for each barrel in excess of 60,000 barrels. Individual states also impose excise taxes on alcoholic beverages in varying amounts. As presented in ourConsolidated Statements of Income, Sales reflects the amounts invoiced to A-B, wholesalers and other customers. Excise taxes due to federal and stateagencies are not collected from our customers, but rather are our responsibility. Net sales, as presented in our Consolidated Statements of Income, are reducedby applicable federal and state excise taxes.Taxes Collected from Customers and Remitted to Governmental AuthoritiesWe account for tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction (i.e., sales, use, value added) on a net(reduction of revenue) basis.Shipping and Handling CostsCosts incurred to ship our product are included in Cost of sales in our Consolidated Statements of Income.Advertising ExpensesAdvertising costs, consisting of television, radio, print, outdoor advertising, on-line and social media, sponsorships, trade events, promotions and printedproduct information, as well as costs to produce these media, are expensed as incurred. The costs associated with point of sale display items and relatedpromotional merchandise are inventoried and charged to expense when first used. For the years ended December 31, 2015, 2014 and 2013, we recognizedcosts for all of these activities totaling $16.2 million, $15.0 million and $12.4 million, respectively, which are reflected as Selling, general and administrativeexpenses in our Consolidated Statements of Income.Advertising expenses frequently involve the local wholesaler sharing in the cost of the program. Reimbursements from wholesalers for advertising andpromotion activities are recorded as a reduction to Selling, general and administrative expenses in our Consolidated Statements of Income. Pricing discountsto wholesalers are recorded as a reduction of Sales in our Consolidated Statements of Income.Stock-Based CompensationThe fair value of restricted stock awards is determined based on the number of shares granted and the quoted price of our common stock on the date of grant.The fair value of stock option awards is estimated at the grant date as calculated by the Black-Scholes-Merton (“BSM”) option-pricing model. The BSMmodel requires various judgmental assumptions including expected volatility and option life.43IndexThe estimated fair value of stock-based awards is recognized as compensation expense over the vesting period of the award, net of estimated forfeitures. Weestimate forfeitures of stock-based awards based on historical experience and expected future activity.The estimated fair value of performance-based stock awards is recognized over the service period based on an assessment of the probability that performancegoals will be met. We re-measure the probability of achieving the performance goals during each reporting period. In future reporting periods, if we determinethat performance goals are not probable of occurrence, no additional compensation expense will be recognized and any previously recognized compensationexpense would be reversed.Legal CostsWe are a party to legal proceedings arising in the normal course of business. We accrue for certain legal costs, including attorney fees, and potentialsettlement claims related to various legal proceedings that are estimable and probable. If not estimable and probable, legal costs are expensed as incurred as acomponent of Selling, general and administrative expenses.Income TaxesDeferred income taxes are established for the difference between the financial reporting and income tax basis of assets and liabilities as well as operating lossand tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not thatsome portion of the deferred tax assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply totaxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax ratesis recognized in income in the period that includes the enactment date.We recognize the benefits of tax return positions when it is determined that the positions are “more-likely-than-not” to be sustained by the taxing authority.Interest and penalties accrued on unrecognized tax benefits are recorded as tax expense in the period incurred. At December 31, 2015 and 2014, we did nothave any unrecognized tax benefits or any interest and penalties accrued on unrecognized tax benefits.Segment InformationOur chief operating decision maker monitors Net sales and gross margins of our Beer Related operations and our Pubs operations. Beer Related operationsinclude the brewing operations and related domestic and international beer and cider sales of our Kona, Widmer Brothers, Redhook and Omission beer brandsand Square Mile cider brand. Pubs operations primarily include our pubs, some of which are located adjacent to our Beer Related operations. We do not trackoperating results beyond the gross margin level or our assets on a segment level.Earnings per ShareBasic earnings per share is computed on the basis of the weighted average number of shares that were outstanding during the period. Diluted earnings pershare include the dilutive effect of common share equivalents calculated under the treasury stock method. Performance-based restricted stock grants areincluded in basic and diluted earnings per share when the underlying performance metrics have been met.Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management tomake estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of thefinancial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and onvarious assumptions that are believed to be reasonable under the circumstances at the time. Actual results could differ from those estimates under differentassumptions or conditions. Note 3. Recent Accounting PronouncementsASU 2016-01In January 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2016-01, “Financial Instruments -Overall (Subtopic 825-10).” ASU 2016-01 enhances the reporting model for financial instruments to provide users of financial statements with more decision-useful information by addressing certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The amendments simplifycertain requirements and also reduce diversity in current practice for other requirements. ASU 2016-01 is effective for public companies for fiscal yearsbeginning after December 15, 2017, including interim periods within those fiscal years. Except for the early application guidance specifically allowed inASU 2016-01, early adoption is not permitted. We do not expect the adoption of ASU 2016-01 to have a material effect on our financial position, results ofoperations or cash flows.44IndexASU 2015-17In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740) - Balance Sheet Classification of Deferred Taxes.” ASU 2015-17 simplifiesthe presentation of deferred income taxes, and requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financialposition. The amendments apply to all entities that present a classified statement of financial position and aligns the presentation of deferred income taxassets and liabilities with International Financial Reporting Standards. ASU 2015-17 is effective for public companies for fiscal years beginning afterDecember 15, 2016, including interim periods within those fiscal years. Early application is permitted. We do not expect the adoption of ASU 2015-17 tohave a material effect on our financial position, results of operations or cash flows.ASU 2015-15In August 2015, the FASB issued ASU 2015-15, “Interest - Imputation of Interest (Subtopic 835-30).” ASU 2015-15 provides guidance as to the presentationand subsequent measurement of debt issuance costs associated with line of credit arrangements. The amendments are effective for financial statements issuedfor fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The amendments are to be applied on a retrospective basis,wherein the balance sheet of each individual period presented is adjusted to reflect the period-specific effects of applying the new guidance. We do notexpect the adoption of ASU 2015-15 to have a material effect on our financial position, results of operations or cash flows.ASU 2015-14In August 2015, the FASB issued ASU No. 2015-14, "Revenue From Contracts With Customers (Topic 606)." The amendments in this ASU defer the effectivedate of ASU 2014-09. Public business entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017,including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning afterDecember 15, 2016, including interim reporting periods within that reporting period. We are still evaluating the effect of the adoption of ASU 2014-09.ASU 2015-11In July 2015, the FASB issued ASU No. 2015-11, "Simplifying the Measurement of Inventory (Topic 330)." ASU 2015-11 simplifies the accounting for thevaluation of all inventory not accounted for using the last-in, first-out ("LIFO") method by prescribing that inventory be valued at the lower of cost and netrealizable value. ASU 2015-11 is effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning afterDecember 15, 2016 on a prospective basis. We do not expect the adoption of ASU 2015-11 to have a material effect on our financial position, results ofoperations or cash flows.ASU 2015-05In April 2015, the FASB issued ASU 2015-05, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)." ASU 2015-05 provides guidanceregarding the accounting for a customer's fees paid in a cloud computing arrangement; specifically about whether a cloud computing arrangement includes asoftware license, and if so, how to account for the software license. ASU 2015-05 is effective for public companies' annual periods, including interim periodswithin those fiscal years, beginning after December 15, 2015 on either a prospective or retrospective basis. Early adoption is permitted. We do not expect theadoption of ASU 2015-05 to have a material effect on our financial position, results of operations or cash flows.ASU 2015-03In April 2015, the FASB issued ASU No. 2015-03, "Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs."The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deductionfrom the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are notaffected by the amendments in this ASU. The amendments are effective for financial statements issued for fiscal years, and interim periods within those fiscalyears, beginning after December 15, 2015. The amendments are to be applied on a retrospective basis, wherein the balance sheet of each individual periodpresented is adjusted to reflect the period-specific effects of applying the new guidance. We do not expect the adoption of ASU 2015-03 to have a materialeffect on our financial position, results of operations or cash flows.ASU 2015-02In February 2015, the FASB issued ASU No. 2015-02, "Consolidation (Topic 810): Amendments to the Consolidation Analysis," which is intended toimprove targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability companies, and securitization structures(collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). The ASU focuses on the consolidationevaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. In addition to reducing the numberof consolidation models from four to two, the new standard simplifies the FASB Accounting Standards Codification and improves current U.S. GAAP byplacing more emphasis on risk of loss when determining a controlling financial interest, reducing the frequency of the application of related-45Indexparty guidance when determining a controlling financial interest in a variable interest entity (“VIE”), and changing consolidation conclusions for companiesin several industries that typically make use of limited partnerships or VIEs. The ASU will be effective for fiscal years, and interim periods within those fiscalyears, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. We do not expect the adoption of ASU 2015-02 to have a material effect on our financial position, results of operations or cash flows.Note 4. InventoriesInventories consisted of the following (in thousands): December 31, 2015 2014Raw materials$5,468 $4,414Work in process3,822 2,781Finished goods6,109 8,986Packaging materials727 627Promotional merchandise1,477 1,531Pub food, beverages and supplies697 632 $18,300 $18,971Work in process is beer held in fermentation tanks prior to the filtration and packaging process.Note 5. Other Current AssetsOther current assets consisted of the following (in thousands): December 31, 2015 2014Deposits paid to keg lessor $— $2,336Prepaid property taxes 393 367Prepaid insurance 411 369Income tax receivable 82 250Other 1,553 1,091 $2,439 $4,413Note 6. Property, Equipment and Leasehold ImprovementsProperty, equipment and leasehold improvements consisted of the following (in thousands): December 31, 2015 2014Brewery equipment $104,284 $101,258Buildings 56,414 55,254Land and improvements 7,606 7,621Furniture, fixtures and other equipment 16,688 12,501Leasehold improvements 8,477 7,058Vehicles 125 72Construction in progress 9,457 4,528 203,051 188,292Less accumulated depreciation and amortization (86,184) (77,942) $116,867 $110,35046IndexNote 7. Goodwill and Intangible and Other AssetsGoodwillGoodwill totaled $12.9 million at both December 31, 2015 and 2014 and there were no changes to the goodwill balance during 2015, 2014 or 2013. Thereare no impairment losses netted against the goodwill balance.Intangible and Other AssetsIntangible and other assets and the related accumulated amortization are as follows (in thousands): December 31, 2015 2014Trademarks and domain name $14,429 $14,429Recipes 700 700 Distributor agreements 2,200 2,200Accumulated amortization (1,100) (953) 1,100 1,247 Non-compete agreements 440 440Accumulated amortization (440) (374) — 66 Other 348 250Accumulated amortization (202) (208) 146 42Intangible assets, net 16,375 16,484 Promotional merchandise 761 1,074Deposits 933 —Intangible and other assets, net $18,069 $17,558Amortization expense was as follows (in thousands): Year Ended December 31, 2015 2014 2013Amortization expense $222 $241 $247Estimated amortization expense to be recorded for the next five fiscal years and thereafter is as follows (in thousands):2016$1922017172201817220191722020170Thereafter368 $1,24647IndexNote 8. Debt and Capital Lease Obligations Long-term debt and capital lease obligations consisted of the following (in thousands): December 31, 2015 2014Term loan, due September 30, 2023 $10,044 $10,421Line of credit, due November 30, 2020 8,777 3,000Promissory notes payable to related parties, all due July 1, 2015 — 600Premium on promissory notes — 63Capital lease obligations for equipment 677 793 19,498 14,877Less current portion (507) (1,157) $18,991 $13,720Required principal payments on outstanding debt obligations as of December 31, 2015 for the next five years and thereafter are as follows (in thousands): Term Loan Line ofCredit CapitalLeaseObligations2016 $391 $— $1342017 408 — 1332018 422 — 1332019 442 — 1332020 459 8,777 133Thereafter 7,922 — 68 10,044 8,777 734Amount representing interest — — (57) $10,044 $8,777 $677Term Loan and Line of CreditWe have a loan agreement (as amended, the “Loan Agreement”) with Bank of America, N.A., which presently comprises a $40.0 million revolving line ofcredit (“Line of Credit”), including provisions for cash borrowings and up to $2.5 million notional amount of letters of credit, and a $10.0 million term loan(“Term Loan”). We may draw upon the Line of Credit for working capital and general corporate purposes until expiration on November 30, 2020. Thematurity date of the Term Loan is September 30, 2023. At December 31, 2015, we had $10.0 million outstanding on our Term Loan and $8.8 millionoutstanding under the Line of Credit.Under the Loan Agreement, interest accrues at an annual rate based on the London Inter-Bank Offered Rate (“LIBOR”) Daily Floating Rate plus a marginalrate. The marginal rate varies from 0.75% to 1.75% for the Line of Credit and Term Loan based on our funded debt ratio. At December 31, 2015, our marginalrate was 0.75% resulting in an annual interest rate of 1.11%.In connection with an amendment to the Loan Agreement on November 15, 2013, we paid down the Term Loan by $0.6 million in order to bring theoutstanding principal balance to $10.8 million to achieve an 80% loan to value ratio on certain property securing the Loan Agreement. Accrued interest forthe Term Loan is due and payable monthly. Principal payments on the Term Loan are due monthly in accordance with an agreed-upon schedule set forth inthe Loan Agreement, with any unpaid principal balance and unpaid accrued interest due and payable on September 30, 2023.The Loan Agreement authorizes acquisitions within the same line of business as long as we remain in compliance with the financial covenants of the LoanAgreement and there is at least $5.0 million of availability remaining on the Line of Credit following the acquisition.Under the Loan Agreement, a quarterly fee on the unused portion of the Line of Credit, including the undrawn amount of the related standby letter of credit,varies from 0.15% to 0.30% based upon our funded debt ratio.48IndexAt December 31, 2015, the quarterly fee was 0.15% and the fee totaled the following (in thousands): Year Ended December 31, 2015 2014 2013Loan Agreement fee $24 $33 $33An annual fee is payable in advance on the notional amount of each standby letter of credit issued and outstanding multiplied by an applicable rate rangingfrom 0.75% to 1.75%. We had no letters of credit outstanding during 2015, 2014 or 2013.We were in compliance with all applicable contractual financial covenants of the Loan Agreement at December 31, 2015. These financial covenants underthe Loan Agreement are measured on a trailing four-quarter basis. We are required to maintain a funded debt ratio of up to 4.0 to 1 and a fixed chargecoverage ratio above 1.20 to 1. The funded debt ratio maximum is reduced to 3.5 to 1 on January 1, 2017 and 3.0 to 1 on January 1, 2018.The Loan Agreement is secured by substantially all of our personal property and fixtures and by our Oregon brewery. In addition, we are permitted to declareor pay dividends, repurchase outstanding common stock or incur additional debt, subject to limitations. We are restricted from entering into any agreementthat would result in a change in control.Promissory Notes Payable to Individual LendersWe assumed an obligation for three promissory notes signed in connection with the acquisition of commercial real estate related to our Portland, Oregonbrewery. These notes were separately executed with three individuals, but with substantially the same terms and conditions. Each promissory note wassecured by a deed of trust on the commercial real estate. The notes bore a fixed interest rate of 24% per annum through June 30, 2010, after which time therate increased to 26.9% per annum as a result of a one-time adjustment reflecting the change in the consumer price index from the date of issue, July 1, 2005,to July 1, 2010. The promissory notes were carried at the total of stated value plus a premium reflecting the difference between our incremental borrowing rateand the stated note rate. The effective interest rate for each note was 6.31%. Each note matured on July 1, 2015 and, accordingly, no amounts wereoutstanding at December 31, 2015. As of December 31, 2014, $200,000 was outstanding on each note.Note with Affiliated PartyIn connection with the acquisition of Kona Brewing Company (“KBC”), we assumed an obligation for a promissory note payable (“Related Party Note”) to acounterparty that was a significant KBC shareholder and remains a shareholder of Craft Brew Alliance, Inc. The Related Party Note was secured by theequipment comprising a photovoltaic cell generation system (“photovoltaic system”) installed at our brewery located in Kailua-Kona, Hawaii. Accruedinterest on the Related Party Note was due and payable monthly at a fixed interest rate of 4.75%, with monthly loan payments of $16,129. Any unpaidprincipal balance and unpaid accrued interest under the Related Party Note was due and payable on November 15, 2014. As of December 31, 2015 and 2014,no amounts remained due pursuant to the Related Party Note.Note 9. Derivative Financial InstrumentsInterest Rate Swap ContractsOur risk management objectives are to ensure that business and financial exposures to risk that have been identified and measured are minimized using themost effective and efficient methods to reduce, transfer and, when possible, eliminate such exposures. Operating decisions contemplate associated risks andmanagement strives to structure proposed transactions to avoid or reduce risk whenever possible.We have assessed our vulnerability to certain business and financial risks, including interest rate risk associated with our variable-rate long-term debt. Tomitigate this risk, effective January 23, 2014, we entered into an interest rate swap contract with Bank of America, N.A. (“BofA”) for 75% of the Term Loanbalance, to hedge the variability of interest payments associated with our variable-rate borrowings under our Term Loan with BofA. The Term Loan contractterminates on September 30, 2023, and had a total notional value of $7.5 million as of December 31, 2015. Through this swap agreement, we pay interest at afixed rate of 2.86% and receive interest at a floating-rate of the one-month LIBOR, which was 0.36% at December 31, 2015.On November 25, 2015, we entered into a $9.1 million notional amount interest rate swap agreement effective January 4, 2016, which expires January 1,2019, to hedge the variability of interest payments associated with our variable-rate borrowings on our line of credit. The notional amount fluctuates basedon a predefined schedule based on our anticipated borrowings. Through this swap agreement, we pay interest at a fixed rate of 1.28% and receive interest at afloating-rate of the one-month LIBOR, which49Indexwas 0.36% at December 31, 2015. Since the interest rate swap hedges the variability of interest payments on variable rate debt with similar terms, it qualifiesfor cash flow hedge accounting treatment.As of December 31, 2015, unrealized net losses of $569,000 were recorded in Accumulated other comprehensive loss as a result of these hedges. The effectiveportion of the gain or loss on the derivatives is reclassified into Interest expense in the same period during which we record Interest expense associated withthe related debt. There was no hedge ineffectiveness during 2015, 2014 or 2013.The fair value of our derivative instruments is as follows (in thousands): December 31, 2015 2014Fair value of interest rate swaps$(569) $(503) The effect of our interest rate swap contracts that were accounted for as derivative instruments on our Consolidated Statements of Operations was as follows(in thousands):Derivatives in Cash FlowHedging Relationships Amount of Gain (Loss)Recognized in Accumulated OCI(Effective Portion) Location of Loss Reclassifiedfrom Accumulated OCI intoIncome (Effective Portion) Amount of Loss Reclassified fromAccumulated OCI intoIncome (Effective Portion)Year EndedDecember 31, 2015 $(66) Interest expense $2092014 $(503) Interest expense $2052013 $219 Interest expense $188Note 10. Fair Value MeasurementsFactors used in determining the fair value of our financial assets and liabilities are summarized into three broad categories:•Level 1 – quoted prices in active markets for identical securities as of the reporting date;•Level 2 – other significant directly or indirectly observable inputs, including quoted prices for similar securities, interest rates, prepayment speeds andcredit risk; and•Level 3 – significant inputs that are generally less observable than objective sources, including our own assumptions in determining fair value.The factors or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.The following tables summarize liabilities measured at fair value on a recurring basis (in thousands):Fair Value at December 31, 2015 Level 1 Level 2 Level 3 TotalInterest rate swap $— $(569) $— $(569) Fair Value at December 31, 2014 Interest rate swap $— $(503) $— $(503)We did not have any assets measured at fair value on a recurring basis at December 31, 2015 or December 31, 2014.The fair value of our interest rate swap was based on quarterly statements from the issuing bank. There were no changes to our valuation techniques during2015, 2014 or 2013.We believe the carrying amounts of Cash and cash equivalents, Accounts receivable, Other current assets, Accounts payable, Accrued salaries, wages andpayroll taxes, and Other accrued expenses are a reasonable approximation of the fair value of those financial instruments because of the nature of theunderlying transactions and the short-term maturities involved.50IndexWe had fixed-rate debt outstanding as follows (in thousands): December 31, 2015 2014Fixed-rate debt on balance sheet$676 $1,456Estimated fair value of fixed-rate debt$706 $1,513We calculate the estimated fair value of our fixed-rate debt using a discounted cash flow methodology. Using estimated current interest rates based on asimilar risk profile and duration (Level 2), the fixed cash flows are discounted and summed to compute the fair value of the debt.Note 11. Segment Results and ConcentrationsNet sales, Gross profit and gross margin information by segment was as follows (dollars in thousands):2015BeerRelated Pubs TotalNet sales$176,343 $27,825 $204,168Gross profit$58,610 $3,586 $62,196Gross margin33.2% 12.9% 30.5% 2014 Net sales$173,687 $26,335 $200,022Gross profit$55,174 $3,536 $58,710Gross margin31.8% 13.4% 29.4% 2013 Net sales$154,830 $24,350 $179,180Gross profit$47,055 $3,206 $50,261Gross margin30.4% 13.2% 28.1% The segments use many of the same assets. For internal reporting purposes, we do not allocate assets by segment and, therefore, no asset by segmentinformation is provided to our chief operating decision maker.In preparing this financial information, certain expenses were allocated between the segments based on management estimates, while others were based onspecific factors such as headcount. These factors can have a significant impact on the amount of Gross profit for each segment. While we believe we haveapplied a reasonable methodology, assignment of other reasonable cost allocations to each segment could result in materially different segment Gross profit.Sales to wholesalers through the A-B Distributor Agreement represented the following percentage of our Sales: Year Ended December 31,2015 2014 201381.2% 82.1% 82.6% Receivables from A-B represented the following percentage of our Accounts receivable balance: December 31,2015 201466.4% 66.8%All of our long-term assets are located in the U.S. and Sales outside of the U.S. are insignificant.51IndexNote 12. Stock-Based Plans and Stock-Based CompensationWe maintain several stock incentive plans under which stock-based awards are, or have been, granted to employees and non-employee directors. We issuenew shares of common stock upon exercise or settlement of the stock-based awards. All of our stock plans are administered by the Compensation Committeeof our Board of Directors, which determines the grantees, the number of shares of common stock for which awards may be exercised or settled and the exerciseor grant prices of such shares, among other terms and conditions of stock-based awards under our stock-based plans.With the approval of the 2014 Stock Incentive Plan (the “2014 Plan”) in May 2014, no further grants of stock-based awards may be made under our 2010Stock Incentive Plan (the “2010 Plan”). However, the provisions of the 2010 Plan will remain in effect until all outstanding awards are exercised, settled orterminated. Shares subject to terminated awards under the 2010 Plan are not added to the pool of shares available for grant pursuant to the 2014 Plan.2014 Stock Incentive PlanThe 2014 Plan provides for grants of stock options, restricted stock, restricted stock units, performance awards and stock appreciation rights, as well as otherstock-based awards. While incentive stock options may only be granted to employees, awards other than incentive stock options may be granted toemployees, non-employee directors and outside consultants. Options granted to our employees have generally been subject to a five-year vesting period.Vested options generally remain exercisable until ten years following the date of grant. The exercise price of stock options must be at least equal to the fairmarket value per share of our common stock on the date of grant. A maximum of 1,000,000 shares of common stock are authorized for issuance under the2014 Plan. As of December 31, 2015, there were 763,121 shares available for future awards pursuant to the 2014 Plan.Terms of awards granted pursuant to the 2002 Plan, the 2007 Plan and the 2010 Plan were similar to the terms of awards granted pursuant to the 2014 Plan.Stock-Based CompensationCertain information regarding our stock-based compensation was as follows (in thousands, except per share amounts): Year Ended December 31, 2015 2014 2013Weighted average per share fair value of stock options granted $7.68 $6.89 $4.90Intrinsic value of stock options exercised 92 932 554Intrinsic value of fully-vested stock awards granted 42 288 1,039Stock-based compensation expense was recognized in our Consolidated Statements of Operations as follows (in thousands): Year Ended December 31, 2015 2014 2013Selling, general and administrative expense$1,074 $666 $464Cost of sales83 118 85Total stock-based compensation expense$1,157 $784 $549We amortize stock-based compensation on a straight-line basis over the vesting period of the individual awards, which is the requisite service period, withestimated forfeitures considered.At December 31, 2015, we had total unrecognized stock-based compensation expense of $2.0 million, which will be recognized over the weighted averageremaining vesting period of 2.8 years.52IndexThe following weighted average assumptions were utilized in determining fair value pursuant to the Black-Scholes option pricing model: Year Ended December 31, 2015 2014 2013Risk-free interest rate 1.87% 2.11% 1.61%Dividend yield —% —% —%Expected life 6.72 years 7.34 years 7.85 yearsVolatility 61.50% 60.20% 58.91%The risk-free rate used is based on the U.S. Treasury yield curve over the estimated term of the options granted. Expected lives were estimated based onhistorical exercise data. The expected volatility is calculated based on the historical volatility of our common stock.Stock-Based Awards Plan ActivityStock Option ActivityStock option activity for the year ended December 31, 2015 was as follows: OptionsOutstanding Weighted AverageExercise PriceOutstanding at December 31, 2014 305,031 $9.35Granted 136,135 12.78Exercised (23,319) 6.38Cancelled (47,207) 10.23Outstanding at December 31, 2015 370,640 10.68Certain information regarding options outstanding as of December 31, 2015 was as follows: OptionsOutstanding OptionsExercisableNumber 370,640 86,826Weighted average exercise price $10.68 $8.94Aggregate intrinsic value $87,000 $42,000Weighted average remaining contractual term 8.2 years 7.2 yearsPerformance-Based Stock GrantsDuring the first quarter of 2015, we granted performance-based common stock awards to selected executives under the 2014 Plan, with vesting contingentupon meeting various company-wide performance goals. During the second quarter of each of 2014, 2013, 2012 and 2011, we granted performance-basedcommon stock awards to selected executives under the 2010 Plan, with vesting contingent upon meeting various company-wide performance goals. Theperformance goals were tied to target amounts of adjusted EBITDA and Net sales for each of the three-year periods ending December 31, 2017, 2015, 2014and 2013, respectively; for the awards granted in 2014, the measurement period is the 11 quarters ending December 31, 2016. The awards earned on the 2015,2014, and 2013 grants will range from zero to 125% of the targeted number of performance shares for the performance periods ending March 31, 2018, 2017,and 2016, respectively. For the 2011 grant, 50% of the targeted number of performance shares were earned for the performance period ended March 31, 2014.For the 2012 grant, 46% of the targeted number of performance shares were earned for the performance period ended March 31, 2015. Awards, if earned, arepaid in shares of common stock.53IndexActivity related to performance-based awards was as follows (in shares): 2015 Awards 2014 Awards 2013Awards 2012 Awards TotalGranted (target amount) 67,200 64,882 33,348 42,450 207,880Vested — — — (19,509) (19,509)Canceled due to termination of employee — — (2,779) — (2,779)Canceled due to failure to meet performance goals — — — (22,941) (22,941)Not expected to vest due to failure to meet performance goals — — (18,869) — (18,869)Expected to vest as of December 31, 2015 67,200 64,882 11,700 — 143,782Stock GrantsOn the date of our Annual Meeting of Shareholders, each non-employee director received an annual grant of fully-vested shares of our common stock with afair value of $35,000 in 2015, $30,000 in 2014 and $25,000 in 2013. The 2015 amount included 3,238 fully-vested shares of common stock granted to eachof our seven non-employee directors for a total of 22,666 shares. In May 2015, a total of 10,782 shares were issued to certain of our full-time non-executiveemployees.Note 13. Earnings Per ShareThe following table reconciles shares used for basic and diluted earnings per share ("EPS") and provides other information (in thousands): Year Ended December 31, 2015 2014 2013Weighted average common shares used for basic EPS19,152 19,038 18,923Dilutive effect of stock-based awards23 88 119Shares used for diluted EPS19,175 19,126 19,042 Stock-based awards not included in diluted per share calculations as they would beantidilutive (in thousands)241 85 1Note 14. Income Taxes All of our income is generated in the U.S. The components of income tax expense were as follows (in thousands): Year Ended December 31, 2015 2014 2013Current federal $491 $1,079 $746Current state 133 234 184 624 1,313 930 Deferred federal 728 595 305Deferred state 148 114 69 876 709 374 $1,500 $2,022 $1,30454IndexIncome tax expense differs from the amount computed by applying the statutory federal income tax rate to income before income taxes as follows (inthousands): Year Ended December 31, 2015 2014 2013Provision at U.S. statutory rate $1,264 $1,734 $1,109State taxes, net of federal benefit 182 217 182Permanent differences, primarily meals and entertainment 250 304 198Domestic production activities deduction (63) (113) (98)Tax credits (133) (120) (87) $1,500 $2,022 $1,304Significant components of our deferred tax assets and liabilities were as follows (in thousands): December 31, 2015 2014Deferred tax assets Net operating losses and alternative minimum tax credit carryforwards $372 $364Accrued salaries and severance 1,396 1,150Other 1,208 1,153 2,976 2,667Deferred tax liabilities Property, equipment and leasehold improvements (14,351) (13,139)Intangible assets (6,153) (6,240)Other (236) (188) (20,740) (19,567) $(17,764) $(16,900)As of December 31, 2015, included in our net operating losses and alternative minimum tax credit carryforwards were the following (in thousands):State NOLs, tax effected$30Federal alternative minimum tax credit carryforwards$343In assessing the realizability of our deferred tax assets, we consider future taxable income expected to be generated by the projected differences betweenfinancial statement depreciation and tax depreciation, cumulative earnings generated to date and other evidence available to us. Based upon thisconsideration, we assessed that all of our deferred taxes are more likely than not to be realized, and, as such, we have not recorded a valuation allowance as ofDecember 31, 2015 or 2014.There were no unrecognized tax benefits as of December 31, 2015 or 2014 and we do not anticipate significant changes to our unrecognized tax benefitswithin the next twelve months.Our major tax jurisdictions include U.S. federal and various U.S. states. Tax years that remain open for examination by the Internal Revenue Service ("IRS")include the years from 2012 through 2015. Tax years remaining open in states where we have a significant presence range from 2011 to 2015. In addition, taxyears 2003 and 2008 are eligible for examination by the IRS and state tax jurisdictions due to our utilization of the NOLs generated in these tax years in ourtax returns.55IndexNote 15. Employee Benefit PlansWe sponsor a defined contribution 401(k) plan for all employees 18 years or older. Employee contributions may be made on a before-tax basis, limited byIRS regulations. For the years ended December 31, 2015, 2014 and 2013, we matched 50% of the employee’s contributions up to 6% of eligiblecompensation. Eligibility for the matching contribution in all years began after the participant had worked a minimum of three months. Our matchingcontributions to the plan vest ratably over five years of service by the employee. During 2014, we used approximately $165,000 of previously forfeitedmatching contributions to fund current matching contributions, which decreased our 2014 expense. We recognized expense associated with matchingcontributions as follows (in thousands): Year Ended December 31, 2015 2014 2013401(k) expense $817 $632 $744Note 16. CommitmentsOperating LeasesWe lease office space, restaurant and production facilities, warehouse and storage space, land and equipment under operating leases that expire at variousdates through the year ending December 31, 2064. Certain leases contain renewal options for varying periods and escalation clauses for adjusting rent toreflect changes in price indices. Certain leases require us to pay for insurance, taxes and maintenance applicable to the leased property. Under the terms of theland lease for our New Hampshire Brewery, we hold a first right of refusal to purchase the property should the lessor decide to sell the property.Minimum aggregate future lease payments under non-cancelable operating leases as of December 31, 2015 are as follows (in thousands):2016$5,98320175,79120182,05020191,93420201,498Thereafter22,607 $39,863Rent expense under all operating leases, including short-term rentals as well as cancelable and noncancelable operating leases, gross, was as follows (inthousands): Year Ended December 31, 2015 2014 2013Rent expense $2,042 $2,323 $2,554We sub-lease corporate office space to an unrelated party pursuant to a 5-year lease that began in February 2011. In December 2014, the lease agreement wasamended to extend the lease through 2025, with an option to cancel in 2020 with 180 days’ written notice and a fee of $150,000. We recognized rentalincome related to the sublease, which was recorded as an offset to rent expense in our Consolidated Statements of Operations, as follows (in thousands): Year Ended December 31, 2015 2014 2013Rental income $369 $269 $26656IndexFuture minimum lease rentals pursuant to this agreement as of December 31, 2015 are as follows (in thousands):2016$3692017369201836920193692020369Thereafter1,850 $3,695We lease our headquarters office space, restaurant and storage facilities located in Portland, land and certain equipment from two limited liability companies,both of whose members include our former Board Chair, who is also a significant shareholder, and a nonexecutive officer. Lease payments to these lessorswere as follows (in thousands) and are included in the Rent expense under all operating leases above:Year Ended December 31,2015 2014 2013$120 $125 $127The lease for the headquarters office space and restaurant facility expires in 2034, with an extension at our option for two 10-year periods, while the lease forthe other facilities, land and equipment expires in 2017 with an extension at our option for two 5-year periods. We hold a right to purchase the headquartersoffice space and restaurant facility at the greater of $2.0 million or the fair market value of the property as determined by a contractually established appraisalmethod. The right to purchase is not valid in the final year of the lease term or in each of the final years of the renewal terms, as applicable. All lease terms areconsidered to be arm’s-length transactions.We hold lease and sublease obligations for certain office space and the land underlying the brewery and pub location in Kona, Hawaii, with a companywhose owners include a shareholder who owns more than 5% of our common stock and a former nonexecutive officer whose employment ended in 2015. Thesublease contracts expire on various dates through 2020, with an extension at our option for two 5-year periods. Lease payments to this lessor were as follows(in thousands) and are included in the Rent expense under all operating leases above:Year Ended December 31,2015 2014 2013$524 $499 $428All lease terms are considered to be arm’s-length transactions. In December 2015, related to the execution of the long-term land lease with an unrelated thirdparty for our new Kona brewery, we also paid approximately $100,000 to the lessor described above to acquire their right of first refusal on the land leasefrom the unrelated third party.Purchase and Sponsorship CommitmentsWe periodically enter into commitments to purchase certain raw materials in the normal course of business. Furthermore, we have entered into purchasecommitments and commodity contracts to ensure we have the necessary supply of malt and hops to meet future production requirements. Certain of the maltand hop commitments are for crop years through 2020. We believe that malt and hop commitments in excess of future requirements, if any, will not have amaterial impact on our financial condition or results of operations. We may take delivery of the commodities in excess of our requirements or make paymentsagainst the purchase commitments earlier than contractually obligated, which means our cash outlays in any particular year may exceed or be less than thecommitment amount disclosed.In certain cases, we have executed agreements with selected vendors to source our requirements for specific malt and hop varieties for the years endingDecember 31, 2016, 2017, 2018, 2019 and 2020; however, either the quantity to be delivered or the full price for the commodity has not been established atthe present time. To the extent the commitment is not measurable or has not been fixed, that portion of the commitment has been excluded from the tablebelow.We have entered into multi-year sponsorship and promotional commitments with certain professional sports teams and entertainment companies. Generally,in exchange for our sponsorship consideration, we post signage and provide other promotional materials at the site or the event. The terms of thesesponsorship commitments expire at various dates through September 30, 2018.57IndexAggregate future payments under purchase and sponsorship commitments as of December 31, 2015 are as follows (in thousands): PurchaseObligations SponsorshipObligations Total2016 $25,679 $1,299 $26,9782017 4,768 589 5,3572018 3,956 464 4,4202019 1,581 — 1,5812020 1,571 — 1,571Thereafter — — — $37,555 $2,352 $39,907Note 17. Related Party TransactionsFor additional related party transactions, see Notes 8 and 16.As of December 31, 2015 and 2014, A-B owned approximately 31.6% and 31.7%, respectively, of our outstanding common stock.A-B Distributor AgreementThe A-B Distributor Agreement requires a $0.25 per case equivalent Margin Fee to be paid to A‑B for beer sold through A-B or the associated A‑Bdistribution network, except for beer sold in qualifying territories, through December 31, 2018. Beer sold through A-B or the associated A-B distributionnetwork in qualifying territories, as defined, was exempt from Margin Fees until September 30, 2013, and thereafter are assessed Margin Fees at the $0.25 percase equivalent through December 31, 2018. In the event the A-B Distributor Agreement is renewed beyond December 31, 2018, the A-B DistributorAgreement sets Margin Fees to be paid to A‑B for the period beginning January 1, 2019 and ending December 31, 2028, at $0.75 per case equivalent.If we purchase additional beer brands, we may distribute those brands outside of the A-B Distributor Agreement while still selling existing brands to A-Baffiliated wholesalers. We would not be obligated to pay margin fees on sales of the new brand.Transactions with A-BTransactions with A-B consisted of the following (in thousands): Year Ended December 31, 2015 2014 2013Gross sales to A-B $179,974 $178,805 $161,010Margin fee paid to A-B, classified as a reduction of Sales 2,594 2,644 2,009Handling, inventory management, royalty and other fees paid to A-B, classified in Cost ofsales 396 393 402Amounts due to or from A-B were as follows (in thousands): December 31, 2015 2014Amounts due from A-B related to beer sales pursuant to the A-B distributor agreement$12,576 $7,846Refundable deposits due to A-B(2,291) (2,629)Amounts due to A-B for services rendered(1,645) (1,821)Net amount due from A-B$8,640 $3,396Note 18. Subsequent EventAgreement with Rainier Brewing CompanyOn January 8, 2016, we entered into brewing agreements with Pabst Northwest Brewing Company, dba Rainier Brewing Company ("Rainier"), a subsidiary ofPabst Brewing Company, under which Rainier will begin brewing selected Rainier brands at our brewery in Woodinville, Washington, in the spring of 2016under an alternating proprietorship or services agreement. We will58Indexcontinue to operate the Woodinville brewery and the adjacent Redhook Forecaster's Pub under the agreements, which expire on December 31, 2018.In conjunction with the brewing agreements, we granted Rainier an option to purchase the Woodinville brewery and adjacent pub, as well as related assets(together, the "Property"), at any time prior to termination of the brewing agreement. The purchase price of the Property will be $25.0 million if Rainierexercises the option during the first year of the agreement, $26.0 million if exercise occurs during the second year of the agreement, and $28.0 million ifRainier exercises the option during the third year of the agreement and on or before the close of business on December 31, 2018. Under the option agreement,Rainier has the right to conduct an additional diligence review of environmental and title issues relating to the Property, and to terminate both the breweryagreements and the option agreement if it is not satisfied with its diligence investigation of those matters at the end of the review period, which is expected toexpire by April 17, 2016. If Rainier does not exercise its option to purchase the Property, it may be required to pay us a termination fee.59IndexItem 9. Changes In and Disagreements With Accountants on Accounting and Financial DisclosureNone.Item 9A. Controls and ProceduresDisclosure Controls and ProceduresOur management, including our Chief Executive Officer and our Principal Financial Officer, carried out an evaluation of the effectiveness of the design andoperation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) or 15d-15(e)) under the Securities Exchange Act of 1934(“Exchange Act”) as of the end of the period covered by this Report. Based upon that evaluation, our Chief Executive Officer and Principal Financial Officerconcluded that, as of the end of the period covered by this report, disclosure controls and procedures were effective to ensure that information required to bedisclosed in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified bythe Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management, including our ChiefExecutive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. While reasonable assurance is a highlevel of assurance, it does not mean absolute assurance. Disclosure controls and internal control over financial reporting cannot prevent or detect all errors,misstatements or fraud. In addition, the design of a control system must recognize that there are resource constraints, and the benefits associated with controlsmust be proportionate to their costs.Changes in Internal Control Over Financial ReportingDuring the fourth quarter of 2015, no changes in our internal control over financial reporting were identified in connection with the evaluation required byExchange Act Rule 13a-15 or 15d-15 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.Report of Management on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting in accordance with Exchange Act Rule13a-15(f). Our internal control system was designed to provide reasonable assurance to our management and Board of Directors regarding the preparation andfair presentation of published financial statements. Because of its inherent limitations, internal control over financial reporting is not intended to provideabsolute assurance that a misstatement of our financial statements would be prevented or detected.Our management assessed the effectiveness of our internal control over financial reporting based on the framework and criteria established in InternalControl — Integrated Framework, issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation,management concluded that our internal control over financial reporting was effective as of December 31, 2015.Moss Adams LLP, an independent registered public accounting firm, has audited the effectiveness of our internal control over financial reporting as ofDecember 31, 2015, as stated in their report, which is included herein.60IndexREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and ShareholdersCraft Brew Alliance, Inc.We have audited Craft Brew Alliance, Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2015, based on criteria establishedin Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’smanagement is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal controlover financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is toexpress an opinion on the Company’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, andtesting and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such otherprocedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.In our opinion, Craft Brew Alliance, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015,based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the TreadwayCommission.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheetsof Craft Brew Alliance, Inc. as of December 31, 2015 and 2014, and the consolidated statements of income, comprehensive income, shareholders’ equity, andcash flows for each of the three years in the period ended December 31, 2015, and our report dated March 2, 2016 expressed an unqualified opinion on thoseconsolidated financial statements. /s/ Moss Adams LLPPortland, OregonMarch 2, 201661IndexItem 9B. Other Information None.PART IIIItem 10. Directors, Executive Officers and Corporate Governance The information required by this Item is contained in part in our definitive proxy statement for our 2016 Annual Meeting of Shareholders to be held on May11, 2016 (the “2016 Proxy Statement”) under the captions “Board of Directors – Nominees for Director,” “Board of Directors – Committees of the Board –Audit Committee,” “Executive Officers,” and “Section 16(a) Beneficial Ownership Reporting Compliance,” and the information contained therein isincorporated herein by reference.Code of ConductWe adopted a Code of Conduct and Ethics (the “Code”) applicable to all employees, including our principal executive officer, principal financial officer,principal accounting officer and directors. The Code and the charters of each of the Board committees are posted on our website at www.craftbrew.com (selectInvestor Relations — Governance — Highlights). Copies of these documents are available to any shareholder who requests them. Such requests should bedirected to Investor Relations, Craft Brew Alliance, Inc., 929 N. Russell Street, Portland, OR 97227. Any waivers of the Code for our directors or executiveofficers are required to be approved by our Board of Directors. We will disclose any such waivers on a current report on Form 8-K within four business daysafter the waiver is approved.Item 11. Executive Compensation Information required by this Item is contained in our 2016 Proxy Statement under the captions “Compensation Committee Report,” “CompensationDiscussion and Analysis,” “Executive Compensation,” “Employment Agreements and Potential Payments Upon Termination or Change-in-Control,”“Director Compensation” and “Board of Directors – Committees of the Board – Compensation Committee” and the information contained therein isincorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersSecurities Authorized for Issuance Under Equity Compensation PlansThe following is a summary as of December 31, 2015 of all of our plans that provide for the issuance of equity securities as compensation. See Note 12 ofNotes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information.Plan Category Number of securitiesto be issued uponexercise ofoutstanding options,warrants and rights (a) Weighted averageexercise price ofoutstanding options,warrants and rights (b) Number of securitiesremaining available for futureissuance under equitycompensation plans(excluding securities reflectedin column (a)) (c)Equity compensation plansapproved by shareholders 514,422(1) $10.68 763,121Equity compensation plansnot approved by shareholders — — —Total 514,422 $10.68 763,121(1)Includes a total of 143,782 performance shares that may vest between March 31, 2016 and March 31, 2018, based on the expected levels ofachievement of financial targets over three separate performance periods. The shares are not included in the calculation of weighted average price incolumn (b).The remaining information required by this Item is contained in our 2016 Proxy Statement under the caption “Security Ownership of Certain BeneficialOwners and Management,” and the information contained therein is incorporated herein by reference.62IndexItem 13. Certain Relationships and Related Transactions, and Director IndependenceThe information required by this Item is contained in our 2016 Proxy Statement under the captions “Transactions with Related Persons” and “Board ofDirectors – Director Independence” and the information contained therein is incorporated herein by reference. Item 14. Principal Accountant Fees and ServicesThe information required by this Item is contained in our 2016 Proxy Statement under the caption “Proposal No. 2 — Ratification of Appointment ofIndependent Registered Public Accounting Firm” and the information contained therein is incorporated herein by reference.PART IVItem 15. Exhibits and Financial Statement Schedules Financial Statements and Schedules PageReport of Moss Adams LLP, Independent Registered Public Accounting Firm35Consolidated Balance Sheets as of December 31, 2015 and 201436Consolidated Statements of Income for the Years Ended December 31, 2015, 2014 and 201337Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2015, 2014 and 201338Consolidated Statements of Common Shareholders’ Equity for the Years Ended December 31, 2015, 2014 and 201339Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 201340Notes to Consolidated Financial Statements41There are no schedules required to be filed herewith.ExhibitsExhibits are listed in the Exhibit Index that appears immediately following the signature page of this report and is incorporated herein by reference, and arefiled or incorporated by reference as part of this Annual Report on Form 10-K.63IndexSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on itsbehalf by the undersigned, thereunto duly authorized, in Portland, Oregon, on March 2, 2016. Craft Brew Alliance, Inc. By:/s/ Joseph K. O’Brien Joseph K. O’Brien Corporate Controller and Principal Accounting OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrantand in the capacities indicated, on March 2, 2016. Signature Title /s/ Andrew J. Thomas Chief Executive OfficerAndrew J. Thomas (Principal Executive Officer) /s/ Joseph K. Vanderstelt Chief Financial Officer and TreasurerJoseph K. Vanderstelt (Principal Financial Officer) /s/ Joseph K. O’Brien Corporate ControllerJoseph K. O’Brien (Principal Accounting Officer) * Chairman of the Board and DirectorDavid R. Lord * DirectorTimothy P. Boyle * DirectorMarc J. Cramer * DirectorKevin R. Kelly * DirectorThomas D. Larson * DirectorJohn D. Rogers, Jr. *By: /s/ Andrew J. Thomas Andrew J. Thomas, as attorney in fact 64IndexEXHIBIT INDEX ExhibitNumber Description3.1 Restated Articles of Incorporation of the Registrant, dated January 2, 2012 (incorporated by reference from Exhibit 3.1 to theRegistrant’s Annual Report on Form 10-K for the year ended December 31, 2011)3.2 Amended and Restated Bylaws of the Registrant, dated December 1, 2010 (incorporated by reference from Exhibit 3.2 to theRegistrant’s Annual Report on Form 10-K for the year ended December 31, 2010 filed on April 1, 2011)10.1* 2010 Stock Incentive Plan (incorporated by reference from Appendix B to the Registrant’s Proxy Statement for its 2010 AnnualMeeting of Shareholders)10.2* Form of Nonqualified Stock Option Agreement (Executive Officer Grants) for the 2010 Stock Incentive Plan (incorporated byreference from Exhibit 10.11 to the Registrant’s Form 10-K for the year ended December 31, 2010)10.3* Form of Performance Share Award Agreement for Executive Officers for the 2010 Stock Incentive Plan (incorporated by referencefrom Exhibit 10.1 to the Registrant’s Form 10-Q for the quarter ended March 31, 2014)10.4* 2014 Stock Incentive Plan (incorporated by reference from Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed onMay 27, 2014)10.5* Form of Nonqualified Option Agreement for the 2014 Stock Incentive Plan (incorporated by reference from Exhibit 10.1 to theRegistrant’s Form 10-Q for the quarter ended June 30, 2015)10.6* Form of Performance Share Award Agreement for Executive Officers for the 2014 Stock Incentive Plan (incorporated by referencefrom Exhibit 10.1 to the Registrant’s Form 10-Q for the quarter ended March 31, 2015)10.7* Transition and Separation Agreement between the Registrant and Mark D. Moreland, dated October 31, 2014 (incorporated byreference from Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on November 5, 2014)10.8* Letter of Agreement between the Registrant and Robert Widmer dated May 26, 2010 (incorporated by reference from Exhibit 10.2to the Registrant’s Form 10-Q for the quarter ended June 30, 2010)10.9* Employment Agreement between the Registrant and Andrew J. Thomas, dated December 30, 201510.10* Employee Noncompetition and Nonsolicitation Agreement between the Registrant and Andrew J. Thomas, dated November 20,2013 (incorporated by reference from Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on November 21, 2013)10.11* Letter of Agreement between the Registrant and J. Scott Mennen dated August 4, 2014 (incorporated by reference from Exhibit10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014)10.12* Letter of Agreement between the Registrant and John W. Glick dated August 5, 2014 (incorporated by reference from Exhibit 10.2to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014)10.13* Letter of Agreement between the Registrant and Kenneth C. Kunze dated August 5, 2014 (incorporated by reference from Exhibit10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014)10.14* Letter of Employment Agreement between the Registrant and Joseph K. Vanderstelt dated April 27, 2015(incorporated by referencefrom Exhibit 10.1 to the Registrant’s Form 10-Q for the quarter ended March 31, 2015)10.15* Letter of Confidentiality/Proprietary Information and Noncompetition Agreement between the Registrant and Joseph K.Vanderstelt dated April 27, 2015 (incorporated by reference from Exhibit 10.1 to the Registrant’s Form 10-Q for the quarter endedMarch 31, 2015)10.16* Summary of Compensation Arrangements for Non-Employee Directors as of January 1, 201610.17* Annual Cash Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on May22, 2015)10.18 Sublease between Pease Development Authority as Sublessor and the Registrant as Sublessee, dated May 30, 1995 (incorporated byreference from Exhibit 10.11 to the Registrant’s Registration Statement on Form S-1, No. 33-94166)10.19 Amended and Restated Credit Agreement, dated November 30, 2015, among Craft Brew Alliance, Inc., its subsidiaries, and Bank ofAmerica, N.A. (incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed on December 3, 2015)65IndexExhibitNumber Description10.20 Amended and Restated Security Agreement, dated November 30, 2015, among Craft Brew Alliance, Inc., its subsidiaries, and Bankof America, N.A. (incorporated by reference from Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on December 3,2015)10.21 Amended and Restated Continuing and Unconditional Guaranty, dated November 30, 2015, among Craft Brew Alliance, Inc., itssubsidiaries, and Bank of America, N.A. (incorporated by reference from Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on December 3, 2015)10.22 Amended and Restated Exchange and Recapitalization Agreement dated as of May 1, 2011 between the Registrant and A-B(incorporated by reference from Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 4, 2011)10.23 Amended and Restated Master Distributor Agreement dated as of May 1, 2011 between the Registrant and A-B (incorporated byreference from Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on May 4, 2011)10.24 Amendment to A-B Master Distributor Agreement dated May 11, 2012 (incorporated by reference from Exhibit 10.1 to theRegistrant’s Quarterly Report on Form 10-Q filed on August 9, 2012)10.25 Amendment to A-B Master Distributor Agreement dated November 20, 2013 (incorporated by reference from Exhibit 10.35 to theRegistrant’s Annual Report on Form 10-K for the year ended December 31, 2013)10.26 Registration Rights Agreement dated as of July 1, 2004 between the Registrant and A‑B (incorporated by reference from Exhibit10.3 to the Registrant’s Current Report on Form 8-K filed on July 2, 2004) (File No. 0-26542)10.27 Master Lease Agreement dated as of June 6, 2007 between Banc of America Leasing & Capital, LLC and Widmer Brothers BrewingCompany (incorporated by reference from Exhibit 10.2 to the Registrant’s Amendment No. 1 to the Registration Statement on FormS-4, No. 333-149908 filed on May 2, 2008 (“S-4 Amendment No. 1”))10.28 Amended and Restated License Agreement dated as of February 28, 1997 between Widmer Brothers Brewing Company andWidmer’s Wine Cellars, Inc. and Canandaigua Wine Company, Inc. (incorporated by reference to Exhibit 10.3 from the S-4Amendment No. 1)10.29 Restated Lease dated as of January 1, 1994 between Smithson & McKay Limited Liability Company and Widmer Brothers BrewingCompany (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 10-Q for the quarter ended September 30, 2010)10.30 Commercial Lease (Restated) dated as of December 18, 2007 between Widmer Brothers LLC and Widmer Brothers BrewingCompany (incorporated by reference to Exhibit 10.5 from the S-4 Amendment No. 1)10.31 Sublease dated as of September 1, 2010 between Manini Holdings, LLC and Kona Brewing Co., LLC. (incorporated by referencefrom Exhibit 10.41 to the Registrant’s Form 10-K for the year ended December 31, 2010)10.32† Amended and Restated Continental Distribution and Licensing Agreement between the Registrant and Kona Brewery LLC datedMarch 26, 2009 (incorporated by reference from Exhibit 10.4 to the Registrant’s Form 10-Q for the quarter ended September 30,2010)10.33 Sublease dated as of March 31, 2011 between Manini Holdings, LLC and Kona Brewing Co., LLC (incorporated by reference fromExhibit 10.43 to the Registrant’s Amendment No. 1 to Form 10-K for the year ended December 31, 2010 filed on April 22, 2011)21.1 Subsidiaries of the Registrant (incorporated by reference from Exhibit 21.1 to the Registrant’s Form 10-K for the year endedDecember 31, 2010 filed on April 1, 2011)23.1 Consent of Moss Adams LLP, Independent Registered Public Accounting Firm24.1 Power of Attorney – Directors of Craft Brew Alliance, Inc.31.1 Certification of Chief Executive Officer of Craft Brew Alliance, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2 Certification of Principal Financial Officer of Craft Brew Alliance, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1 Certification of Form 10-K for the year ended December 31, 2015 pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 200299.1 Press Release dated March 2, 201699.2 Description of Common Stock (incorporated by reference from Exhibit 99.2 to the Registrant’s Form 10-K for the year endedDecember 31, 2012 filed on March 12, 2013)101.INS XBRL Instance Document101.SCH XBRL Taxonomy Extension Schema Document66IndexExhibitNumber Description101.CAL XBRL Taxonomy Extension Calculation Linkbase Document101.DEF XBRL Taxonomy Extension Definition Linkbase Document101.LAB XBRL Taxonomy Extension Label Linkbase Document101.PRE XBRL Taxonomy Extension Presentation Linkbase Document *Denotes a management contract or a compensatory plan or arrangement.†Confidential treatment has been requested with respect to portions of this exhibit. A complete copy of the agreement,including the redacted terms, has been separately filed with the Securities and Exchange Commission.67 EXHIBIT 10.9 December 30, 2015Andrew J. Thomas Craft Brew Alliance, Inc. 929 North Russell Street Portland, OR 97227Re: Employment AgreementDear Andy:This letter amends and supersedes your employment letter dated November 20, 2013 and any prior formal or informalagreement regarding your employment by Craft Brew Alliance, Inc. (the “Company”), with the exception of the EmployeeNoncompetition and Nonsolicitation Agreement, which is reaffirmed as amended and extended in Section 4 below.This letter constitutes your Employment Agreement (the “Agreement”) with the Company, effective January 1, 2016 (the“Effective Date”). You and the Company are collectively referred to in this Agreement as “the Parties.” This Agreement sets forth theterms and conditions of your continued employment with the Company as its Chief Executive Officer (“CEO”) as of the EffectiveDate.1.TermThe term of this Agreement shall be three (3) years, from January 1, 2016 through December 31, 2018 (the “Contract Term”),subject to Section 3 of this Agreement.Andrew J. ThomasDecember 30, 2015Page 22.Compensation and Benefits2.1 Base CompensationAs of the Effective Date, your annual base salary rate will be increased to $439,000 (before standard tax withholdings andother payroll deductions). The Compensation Committee of the Company’s Board of Directors (the “Board”) will review and adjustyour compensation at the end of each calendar year, with salary adjustments, if any, generally made effective as of January 1 of eachcalendar year.2.2 Short-Term Incentive CompensationYou will be eligible for yearly short-term incentive (“STI”) compensation payable following certification of the Company’sfinancial results for the prior fiscal year under the Company’s Annual Cash Incentive Bonus Plan for Executive Officers. For 2016,the STI target amount will equal $350,000. For subsequent years, the performance targets and STI target amounts will be determinedannually by the Compensation Committee. All or a portion of the target bonus amount may be conditioned upon the Board’sdetermination that you have achieved performance targets approved by the Compensation Committee or the Board. You must remainemployed through the payment date to be eligible for payment of STI compensation.2.3Long-Term Incentive CompensationYou will be eligible for long-term incentive compensation, the details of which shall be determined in the first quarter of 2016.2.4Employee BenefitsYou are eligible to participate in employee benefit programs made available to the Company’s executive officers. You willreceive paid time off (“PTO”) consistent with the policies for executive officers of the Company.2.5Retention BonusIf you remain employed as CEO under this Agreement for the entirety of the Contract Term, you will be entitled to a retentionbonus award in the amount of One Hundred Thousand Dollars ($100,000). This retention bonus award shall be paid as follows: (a)Fifty Thousand Dollars ($50,000) drawn in advance in January 2016, subject to the condition that in the event of any breach of thisAgreement or your failure to remain employed with Company throughout the Contract Term, you shall repay the $50,000 within thirty(30) days of the breach or termination of your employment; and (b) Fifty Thousand Dollars ($50,000) paid upon the satisfactorycompletion of the Contract Term.3.Termination & Severance3.1Termination During Contract TermIn the event that the Company terminates effective on a date prior to or as of the end of the Contract Term for any reason otherthan “Cause,” or if you terminate your employment prior to or as of the end of the Contract Term due to “Good Reason,” theCompany will continue to pay you your then current base salary for 12 months from your termination date (“the Severance Period”). Inthe event of a termination by either party without Cause or Good Reason on or before the end of the Contract Term, the terminatingparty shall provide the other party with at least sixty (60) days’ written notice of termination. The severance payments under thisparagraph shall not exceed two times the lesser of (i) the sum of your annualized compensation based upon your annual salary in theyear preceding the year in which your employment is terminated (adjusted for any increaseAndrew J. ThomasDecember 30, 2015Page 3during that year that was expected to continue indefinitely if your employment had not terminated) or (ii) the applicable dollar limitunder Section 401(a)(17) of the Internal Revenue Code for the calendar year in which your employment is terminated.In addition, if you become entitled to severance pay under the first paragraph of this Section 3.1, the Company will also make alump sum payment to you within 45 days of your termination of employment in an amount equal the amount necessary to pay yourCOBRA premiums for continuation of group health insurance coverage during the Severance Period based on such premiums in effecton the date of your termination.3.2Termination at End of Contract TermFollowing the Contract Term, if the parties have not negotiated a new Agreement and if neither party has provided thesixty-day notice described in Section 3.1, this Agreement shall terminate (except with respect to any obligations that expressly extendbeyond termination, including without limitation as set forth in Section 4) and employment may continue on an at-will basis with eitherparty free to end the employment relationship for any reason at any time, with or without Cause, Good Reason or notice, and withoutseverance obligations.3.3Cause & Good ReasonFor purposes of this Agreement, “Cause” shall mean that (i) you have engaged in conduct which has substantially andadversely impaired the interests of the Company, or would be likely to do so if you were to remain employed by the Company; (ii) youhave engaged in fraud, dishonesty or self-dealing relating to or arising out of your employment with the Company; (iii) you haveviolated any criminal law relating to your employment or to the Company; (iv) you have engaged in conduct which constitutes amaterial violation of a significant Company policy or the Company's Code of Ethics, including, without limitation, violation of policiesrelating to discrimination, harassment, use of drugs and alcohol and workplace violence; or (v) you have repeatedly refused to obeylawful directions of the Board, including failing to maintain a residence no further than fifty (50) miles from the Company’s principaloffice within six months after the Board makes such a direction.For purposes of this Agreement, “Good Reason” shall mean the occurrence of one or more of the following events withoutyour consent: (a) a material reduction in your authority, duties or responsibilities as the Company’s Chief Executive Officer; or (b) amaterial reduction in the authority, duties or responsibilities of the person or persons to whom you report (including, if applicable, arequirement that you report to a Company officer or employee instead of reporting directly to the Company’s Board of Directors),provided, however, that “good reason” shall only be deemed to have occurred if: (i) within ninety (90) days after the initial existence ofthe circumstances constituting “Good Reason,” you provide the Company with a written notice describing such circumstances; (ii) theCompany fails to cure the circumstances within thirty (30) days after the Company receives your notice; and (iii) you terminate youremployment with the Company within ninety (90) days of the date of your notice.3.4Release of ClaimsThe Company will have no obligation to pay any severance pay or benefits under this Agreement unless you enter into astandard general release of all legal claims you may have against the Company arising out of or relating to your employment with theCompany within thirty (30) days of receipt of such release of claims.3.5Competition During Severance PeriodIf, during the Severance Period, you become employed or associated with a brewing or other company that the Companydetermines, in its reasonable discretion, is a competitor of theAndrew J. ThomasDecember 30, 2015Page 4Company or the portion of the Company’s business relating to alcoholic beverages, your severance payments and benefits under thisletter agreement will terminate as of the effective date of such employment or association. The foregoing does not supersede or replaceany provision of the Employee Noncompetition and Nondisclosure Agreement between you and the Company dated November 20,2013 and extended as specified in this Section 4.4.Noncompetition and NonsolicitationYou agree that the Employee Noncompetition and Nonsolicitation Agreement (the “Restrictive Covenant Agreement”) datedNovember 20, 2013, which is attached hereto as Attachment A, is hereby extended in light of your continued employment with theCompany. You agree that the noncompetition restriction set forth in Paragraph 3 of the Restrictive Covenant Agreement is extendedand modified such that the noncompetition restrictions set forth in that provision shall extend through the end of your employment forany reason and for a period of twelve (12) months following the termination of your employment with the Company. You furtheragree that the nonsolicitation restrictions set forth in Paragraph 4 of the Restrictive Covenant Agreement are hereby extended andmodified such that the nonsolicitation restrictions set forth in that provision shall extend for a period of twelve (12) months followingthe termination of your employment. You further acknowledge that these restrictions are reasonable given the highly competitivenature of the craft brewing industry and that a failure to comply with these restrictive covenant provisions may cause the Companyirreparable harm. You further acknowledge that your agreement to refrain from competing and soliciting for 12 months followingtermination is a material representation and inducement for the Company to enter into this Agreement. In addition to any otherremedies, the Parties agree that any breach of the Restrictive Covenant Agreement, or any competition or solicitation during the 12-month period following termination of employment, shall cut off any right Employee may otherwise have to severance pay or benefitsunder this Agreement. This Section 4 will survive the termination or expiration of this Agreement.5.NondisclosureAt all times during and after your employment with the Company, you agree that you will not use or disclose any ConfidentialInformation for any purpose, except for the purpose of benefiting the Company consistent with the Company’s instructions orintentions during the course of your employment. For purposes of this Agreement, “Confidential Information” shall be broadlyconstrued to mean all of the Company’s proprietary or non-public business information and all trade secrets. You agree to use thehighest degree of care in safeguarding Confidential Information against loss, theft, inadvertent disclosure or unauthorized access or use.In the event that you receive notice at any time of any legal obligation to disclose any Confidential Information, you agree to notify theCompany immediately in order to provide the Company with an opportunity to protect its interests. You further agree that you willdeliver to the Company immediately upon termination of employment or at any time upon the Company’s request, all ConfidentialInformation, whether or not written, produced or compiled by you and that you will not maintain access to or possession ofConfidential Information following termination of your employment at the Company. This nondisclosure obligation and thisAgreement supplement, and do not supersede, any other confidentiality agreement you have entered into at any time with theCompany.Andrew J. ThomasDecember 30, 2015Page 56.Code Section 409AThe severance payments and other benefits under this letter are intended to be exempt from the requirements of Section 409Aof the Internal Revenue Code by reason of all payments under this letter agreement being either "short-term deferrals" within themeaning of Treasury Regulation Section 1.409A-1(b)(4) or separation pay due to involuntary separation from service under TreasuryRegulation Section 1.409A-1(b)(9)(iii). All provisions of this letter shall be interpreted in a manner consistent with preserving theseexemptions.7.SeverabilityIn the event that a court of competent jurisdiction determines that a provision of this Agreement is unenforceable or not fullyenforceable, the parties agree that this Agreement is severable and should be enforced to the full extent allowed by law to besteffectuate the intentions of the parties.8.Code of ConductYou agree to comply with the Company’s Code of Conduct and Ethics and to be subject to the Company’s policies andprocedures applicable to senior executives of the Company.We appreciate your continued leadership and look forward to continuing our productive and mutually beneficial relationship.Sincerely,/s/ David R. Lord David R. Lord Chairman, Compensation CommitteeAcknowledged and Agreed:/s/ Andrew J. Thomas Date: December 30, 2015 Andrew J. ThomasAttachment: Nov. 20, 2013 Employee Noncompetition and Nonsolicitation Agreement (see Section 4 above) EXHIBIT 10.16 SUMMARY OFCOMPENSATION ARRANGEMENTS FOR NON-EMPLOYEE DIRECTORSAs of January 1, 2016, non-employee directors are entitled to receive stock-based and cash compensation for their service on the Board ofDirectors as follows:Stock-based Compensation:Each non-employee director will receive an annual grant of shares of our common stock with a fair value of $40,000 effective immediately beforethe 2016 Annual Meeting of Shareholders.Cash Compensation:Each non-employee director is entitled to receive an annual cash retainer of $35,000, paid quarterly.The Chair of the Audit Committee is entitled to receive an additional cash retainer of $15,000, while each other member of the Audit Committee isentitled to receive $4,000. The Chairs of each of the Nominating and Governance, Compensation, and Strategic Planning Committees are entitledto receive an additional cash retainer of $10,000, while all other committee members are entitled to receive a payment of $2,000 for eachcommittee position. Committee compensation is paid quarterly. EXHIBIT 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333- -171372 and 333-197251) of our reports dated March 2,2016, relating to the consolidated financial statements of Craft Brew Alliance, Inc. which report expresses an unqualified opinion, and the effectiveness ofinternal control over financial reporting of Craft Brew Alliance, Inc., appearing in this Annual Report (Form 10-K) for the year ended December 31, 2015./s/ Moss Adams LLPPortland, OregonMarch 2, 2016 EXHIBIT 24.1 POWER OF ATTORNEYEach person below designates and appoints ANDREW J. THOMAS and JOSEPH K. VANDERSTELT his true and lawful attorney-in-fact and agent, with fullpower of substitution, to sign the Annual Report on Form 10-K for the year ended December 31, 2015, of Craft Brew Alliance, Inc., a Washington corporation,and any amendments thereto, and to file said report and amendments, with all exhibits thereto, in such form as they or either of them may approve with theSecurities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Each of such attorneys-in-fact is appointed with full power toact without the other.IN WITNESS WHEREOF, this power of attorney has been executed by each of the undersigned as of the 29th day of February, 2016.Signature Title /s/ David R. Lord Chairman of the Board and Director David R. Lord /s/ Timothy P. Boyle Director Timothy P. Boyle /s/ Marc J. Cramer Director Marc J. Cramer /s/ Kevin R. Kelly Director Kevin R. Kelly /s/ Thomas D. Larson Director Thomas D. Larson /s/ John D. Rogers, Jr. Director John D. Rogers, Jr.  EXHIBIT 31.1 CERTIFICATION I, Andrew J. Thomas, certify that:1.I have reviewed this annual report on Form 10−K of Craft Brew Alliance, Inc. (the “Registrant”);2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;4.The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a−15(e) and 15d−15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a−15(f) and15d−15(f)) for the Registrant and we have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recentfiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the Registrant’s internal control over financial reporting; and5.The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theRegistrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controlover financial reporting.Date: March 2, 2016 By:/s/ Andrew J. Thomas Andrew J. Thomas Chief Executive Officer  EXHIBIT 31.2 CERTIFICATIONI, Joseph K. Vanderstelt, certify that:1.I have reviewed this annual report on Form 10−K of Craft Brew Alliance, Inc. (the “Registrant”);2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;4.The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a−15(e) and 15d−15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a−15(f) and15d−15(f)) for the Registrant and we have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recentfiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the Registrant’s internal control over financial reporting; and5.The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theRegistrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controlover financial reporting. Date: March 2, 2016 By:/s/ Joseph K. Vanderstelt Joseph K. Vanderstelt Chief Financial Officer EXHIBIT 32.1 CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES−OXLEY ACT OF 2002 In connection with the Annual Report of Craft Brew Alliance, Inc. (the “Registrant”) on Form 10-K for the year ended December 31, 2015, as filed with theSecurities and Exchange Commission on March 2, 2016 (the “Report”), Andrew J. Thomas, the Chief Executive Officer of the Registrant, and Joseph K.Vanderstelt, the Chief Financial Officer of the Registrant, each hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:1.The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: March 2, 2016 BY:/s/ Andrew J. Thomas Andrew J. Thomas Chief Executive Officer (Principal Executive Officer) BY:/s/ Joseph K. Vanderstelt Joseph K. Vanderstelt Chief Financial Officer (Principal Financial Officer)  EXHIBIT 99.1 FOR IMMEDIATE RELEASECRAFT BREW ALLIANCE REPORTS FINAL 2015 FOURTH QUARTER AND FULL YEAR RESULTS; CONFIRMS2016 GUIDANCEStrong Fourth Quarter Performance Contributes to Net Sales Growth and Record Gross Margin Expansion for the Quarter and Full YearDespite Unprecedented Market Competition, Kona Brewing Delivered Significant Growth, Increasing Depletions by 27% and Shipments by 30% inthe Fourth QuarterPortland, Ore. (March 2, 2016) - Craft Brew Alliance, Inc. (“CBA”) (Nasdaq: BREW), a leading craft brewing company, today announced finalfinancial results for the fourth quarter and full year ended December 31, 2015, in line with preliminary results released February 4, 2016. CBA alsoreconfirmed previously reported guidance for 2016, which reflects continued topline growth and gross margin expansion.Select financial results for the fourth quarter 2015:•Net sales increased by $1.8 million, or 4%, in the fourth quarter, while beer shipments were flat, reflecting higher net revenue per barrel,primarily due to favorable pricing and package mix.•While overall depletions declined 1% from the fourth quarter of 2014, Kona Brewing, as the cornerstone of our portfolio, increaseddepletions by 27% in the fourth quarter and continued to outpace the growth of the overall craft market. Another key contributor to growthin the fourth quarter was our International business.•Gross profit increased by 13%, to $15.5 million, and gross margin increased by 260 basis points to 31.4% in the fourth quarter, reflectingimproved pricing, lower material costs and continued progress advancing our brewery optimization strategy, partially offset by the effect ofchanges in product mix, compared to the same period last year.•Selling, general and administrative expense (“SG&A”) for the fourth quarter was $13.2 million, a 9% increase over the fourth quarter of2014, primarily due to planned increases in sales and marketing spending, as well as increases in employee-related costs.•Diluted net income per share increased to $0.07 for the fourth quarter, compared to $0.04 for the fourth quarter of 2014.Select financial results for the full year 2015:•Net sales increased 2% over the prior year, which reflects net pricing increases, a favorable shift in package mix, and increased sales atour pubs. Shipments declined 1% in 2015 from 2014, despite significant increases in Kona’s shipments, which grew by 17% for the fullyear, as well as increases in our International shipments.•Across CBA’s portfolio, depletions were flat for the year, compared to growth of 7% in 2014, which reflects declines for Redhook Brewery,Resignation Brewery, and Widmer Brothers, offset by growth in our International business, Kona Brewing, Omission Beer, and Square MileCider.•Gross margin expanded by 110 basis points to 30.5% in 2015, compared to 29.4% in 2014, resulting in a gross profit increase of $3.5million, or 6%, underscoring our continued progress in improving our core business health.Craft Brew Reports Final Fourth Quarter and 2015 Results; Confirms 2016 Financial Guidance•SG&A increased $4.9 million to $57.9 million, which is 28% of net sales, or an increase of 190 basis points over 2014, due to plannedincreases in sales and marketing spending, as well as increases in employee-related costs.•Diluted net income per share declined to $0.12 compared to $0.16 in 2014.•Capital expenditures were approximately $15.7 million, compared to $15.8 million in 2014, and primarily represent capacity and efficiencyimprovements, quality initiatives, and pubs enhancements.“I am proud of the results we delivered in 2015. Amidst a market that caught many off guard due to the unprecedented pace and scale of change,our diligence and focus enabled us to make steady forward progress and significantly improve the core health of our business for a secondconsecutive year,” said Andy Thomas, chief executive officer, CBA. “Looking ahead, we are eager to take what we learned in 2015 and use thatenlightened focus to continue fine-tuning our strategy for long-term success. While the current challenges facing our industry show no signs ofslowing down, we are more confident than ever in our unique strengths that combine a growing portfolio of heritage and leading local brands,national scale in brewing, supply chain and distribution, and an exceptional team of beer industry veterans and experts.”Anticipated financial highlights for 2016:•Shipment growth between 1% and 2%, which reflects a planned decrease in shipments during the first quarter due to a temporary closureof our largest-volume brewery in Portland as we complete several key expansion initiatives.•Average price increase of 1% to 2%.•Gross margin rate of 31.0% to 32.5%. [Note: Gross margin on our owned business, which includes beer related and pubs, is expected tobe higher on a rate basis despite the negative influence of contract brewing and alternating proprietorship volume.] Through steadyprogress to optimize our brewing locations and improve capacity utilization and efficiency, we continue to be confident in our gross marginexpansion target of 35% in 2017.•SG&A ranging from $58 million to $59 million as we leverage investments made in prior years and better align with our topline results,offset by rising costs, particularly employee-related expenses.•Capital expenditures of approximately $19 million to $23 million in 2016 as we continue to make investments in capacity and efficiencyimprovements; quality, safety and sustainability initiatives; and restaurant and retail.“CBA delivered a strong end to the year, which underscores our teams’ tremendous focus and resolve despite increasing competition and change,”said Joe Vanderstelt, chief financial officer, CBA. “With 2016 being my first full year on board, I am excited to see us continue strengthening ourfoundation for long-term growth.”Forward-Looking StatementsStatements made in this press release that state the Company’s or management’s intentions, hopes, beliefs, expectations or predictions of thefuture, including shipments and sales growth, price increases, and gross margin rate improvement, the level and effect of SG&A expense andbusiness development, anticipated capital spending, and the benefits or improvements to be realized from strategic initiatives and capital projects,are forward-looking statements. It is important to note that the Company’s actual results could differ materially from those projected in suchforward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the Company’s SEC filings, including, but not limited to, the Company’s report on Form 10-Kfor the year ended December 31, 2015. Copies of these documents may be found on the Company’s website, www.craftbrew.com, or obtained bycontacting the Company or the SEC.About Craft Brew AllianceCBA is a leading craft brewing company, which brews, brands and markets some of the world’s most respected and best-loved American craftbeers.We are home to three of the earliest pioneers in craft beer: Redhook Ale Brewery, Washington’s largest craft brewery founded in 1981; WidmerBrothers Brewing, Oregon’s largest craft brewery founded in 1984; and Kona Brewing Company, Hawaii’s oldest and largest craft brewery foundedin 1994. As part of Craft Brew Alliance, these craft brewing legends have expanded their reach across the U.S. and approximately 30 internationalmarkets.Craft Brew Reports Final Fourth Quarter and 2015 Results; Confirms 2016 Financial GuidanceIn addition to growing and nurturing distinctive brands rooted in local heritage, Craft Brew Alliance is committed to developing innovative newcategory leaders, such as Omission Beer, which is the #1 beer in the gluten-free beer segment, and Square Mile Cider, a tribute to the earlyAmerican settlers who purchased the first plots of land in the Pacific Northwest.Publicly traded on NASDAQ under the ticker symbol BREW, Craft Brew Alliance is headquartered in Portland, OR and operates five breweries andfive pub restaurants across the U.S. For more information about CBA and its brands, please visit www.craftbrew.com.Media Contact:Jenny McLeanCraft Brew Alliance, Inc.(503) 331-7248jenny.mclean@craftbrew.comInvestor Contact:Edwin SmithCraft Brew Alliance, Inc.(503) 972-7884ed.smith@craftbrew.comCraft Brew Alliance, Inc.Condensed Consolidated Statements of Operations(Dollars and shares in thousands, except per share amounts)(Unaudited) Three Months EndedDecember 31, Twelve Months EndedDecember 31, 2015 2014 2015 2014Sales$52,864 $50,993 $218,581 $214,609Less excise taxes3,625 3,556 14,413 14,587Net sales49,239 47,437 204,168 200,022Cost of sales33,754 33,786 141,972 141,312Gross profit15,485 13,651 62,196 58,710As percentage of net sales31.4 % 28.8% 30.5% 29.4%Selling, general and administrative expenses13,219 12,176 57,932 53,000Operating income2,266 1,475 4,264 5,710Interest expense(153) (114) (572) (431)Other income (expense), net6 (129) 26 (180)Income before income taxes2,119 1,232 3,718 5,099Income tax expense860 514 1,500 2,022Net income$1,259 $718 $2,218 $3,077Income per share: Basic and diluted net income per share$0.07 $0.04 $0.12 $0.16Weighted average shares outstanding: Basic19,174 19,093 19,152 19,038Diluted19,186 19,167 19,175 19,126Total shipments (in barrels): Core Brands189,100 188,100 787,600 790,500Contract Brewing8,700 9,700 36,800 39,700Total shipments197,800 197,800 824,400 830,200Change in depletions (1)(1)% 2% 0% 7%(1)Change in depletions reflects the period-over-period change in barrel volume sales of beer by wholesalers to retailers.Craft Brew Alliance, Inc.Condensed Consolidated Balance Sheets(In thousands)(Unaudited) December 31, 2015 2014Current assets: Cash and cash equivalents$911 $981Accounts receivable, net18,926 11,741Inventory, net18,300 18,971Deferred income tax asset, net1,905 1,670Other current assets2,439 4,413Total current assets42,481 37,776Property, equipment and leasehold improvements, net116,867 110,350Goodwill12,917 12,917Intangible and other assets, net18,069 17,558Total assets$190,334 $178,601Current liabilities: Accounts payable$17,100 $12,987Accrued salaries, wages and payroll taxes5,468 5,114Refundable deposits6,559 8,152Other accrued expenses2,009 2,316Current portion of long-term debt and capital lease obligations507 1,157Total current liabilities31,643 29,726Long-term debt and capital lease obligations, net of current portion18,991 13,720Other long-term liabilities20,962 19,738Total common shareholders' equity118,738 115,417Total liabilities and common shareholders' equity$190,334 $178,601Craft Brew Alliance, Inc.Condensed Consolidated Statements of Cash Flows(In thousands)(Unaudited) Twelve Months Ended December 31, 2015 2014Cash flows from operating activities: Net income$2,218 $3,077Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization9,722 8,648Loss on sale or disposal of Property, equipment and leasehold improvements343 213Deferred income taxes876 709Other, including stock-based compensation and excess tax benefit from employee stock plans830 200Changes in operating assets and liabilities: Accounts receivable, net(7,185) (371)Inventories1,295 (2,185)Other current assets1,973 (1,011)Accounts payable and other accrued expenses3,151 (825)Accrued salaries, wages and payroll taxes354 498Refundable deposits(2,015) 958Net cash provided by operating activities11,562 9,911Cash flows from investing activities: Expenditures for Property, equipment and leasehold improvements(15,653) (15,783)Proceeds from sale of Property, equipment and leasehold improvements412 254Expenditures for long-term deposits(933) —Net cash used in investing activities(16,174) (15,529)Cash Flows from Financing Activities: Principal payments on debt and capital lease obligations(1,094) (604)Proceeds from capital lease financing— 841Net borrowings under revolving line of credit5,737 3,000Proceeds from issuances of common stock93 488Debt issuance costs(87) —Tax payments related to stock-based awards(151) (150)Excess tax benefit from employee stock plans44 298Net cash provided by financing activities4,542 3,873Decrease in Cash and cash equivalents(70) (1,745)Cash and cash equivalents, beginning of period981 2,726Cash and cash equivalents, end of period$911 $981Supplemental Disclosures Regarding Non-GAAP Financial InformationCraft Brew Alliance, Inc.Reconciliation of Adjusted EBITDA to Net income(In thousands)(Unaudited) Three Months EndedDecember 31, Twelve Months EndedDecember 31, 2015 2014 2015 2014Net income$1,259 $718 $2,218 $3,077Interest expense153 114 572 431Income tax expense860 514 1,500 2,022Depreciation expense2,460 2,156 9,500 8,407Amortization expense41 60 222 241Stock-based compensation278 135 1,176 940Loss on disposal of assets25 138 343 213Adjusted EBITDA$5,076 $3,835 $15,531 $15,331The Company has presented Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) in these tables to provideinvestors with additional information to evaluate our operating performance on an ongoing basis using criteria that are used by the Company’smanagement. The Company defines Adjusted EBITDA as net income before interest, income taxes, depreciation and amortization, stock compensation andother non-cash charges, including net gain or loss on disposal of property, plant and equipment. The Company uses Adjusted EBITDA, among othermeasures, to evaluate operating performance, to plan and forecast future periods’ operating performance, and as an incentive compensation target for certainmanagement personnel.As Adjusted EBITDA is not a measure of operating performance or liquidity calculated in accordance with generally accepted accounting principles in theUnited States of America (“GAAP”), this measure should not be considered in isolation of, or as a substitute for, net income as an indicator of operatingperformance, or net cash provided by operating activities as an indicator of liquidity. The use of Adjusted EBITDA instead of net income has limitations asan analytical tool, including the inability to determine profitability; the exclusion of interest expense and associated cash requirements, given the level ofthe Company’s indebtedness; and the exclusion of depreciation and amortization which represent significant and unavoidable operating costs, given thecapital expenditures needed to maintain the Company’s operations. We compensate for these limitations by relying on GAAP results. Our computation ofAdjusted EBITDA may differ from similarly titled measures used by other companies. As Adjusted EBITDA excludes certain financial information comparedwith net income and net cash provided by operating activities, the most directly comparable GAAP financial measures, users of this financial informationshould consider the types of events and transactions which are excluded. The table above shows a reconciliation of Adjusted EBITDA to net income.

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