Redhook Reports Sales Increase of 3.2% in Second Quarter

Redhook Ale Brewery Incorporated announced today that the company’s shipments
increased 3.2% in the 2005 second quarter to 64,000 barrels compared to 2004 second
quarter shipments of 62,000 barrels.

The company reported sales of $9,741,000 in the second quarter of 2005, a decrease of 14.9% as compared to sales of $11,443,000 in the same quarter in 2004. This discrepancy is due to the company’s investment in Craft Brands Alliance, the joint venture between Redhook and Widmer Brothers Brewing Company. The 2005 second quarter net income includes a $691,000 share in the net profit of Craft Brands.

The sale of Redhook products to Craft Brands in the 2005 second quarter significantly
impacts the comparability of 2005 to 2004 sales. Redhook sells its product to Craft Brands at a price substantially below historical wholesale pricing levels. Craft Brands, in turn, advertises, markets and sells the product to wholesalers in the western United States through a distribution agreement between Craft Brands and Anheuser-Busch. Redhook shares in the profits of Craft Brands with Widmer.

Also impacting comparability of the current quarter’s sales is an increase in fees that the Company pays to A-B on sales in the Midwest and Eastern United States. Redhook continues to sell its products at wholesale pricing levels in the Midwest and East through the A-B distribution network.

It is interesting to note in the company’s financial release, that second quarter wholesale shipments to the Midwest and Eastern United States, which accounted for slightly more than one-third of total Company shipments increased 10.3% compared to 2004 second quarter shipments. Second quarter wholesale shipments in the Western United States, serviced by Craft Brands since July 1, 2004, decreased approximately 6.0%.

“We continue to execute our pricing strategy involving a reduction in discounting and price promotion at the expense of volume in the west compared to prior periods,” reported Paul Shipman, President and Chief Executive Officer, “however, we are pleased with the excellent reception of our new bottle and packaging designs that went to market in the west in the second half of May. The feedback from our wholesalers and retailers has been very positive and the product is selling well, though it’s too early to see quantifiable results.”

Cost of sales improved by $202,000 to $7,277,000 in the second quarter and also improved on a per barrel basis, largely attributable to lower freight costs. Freight costs declined significantly as the cost of shipping Redhook product in the western United States is now the responsibility of Craft Brands.

The Company reported second quarter operating income of $321,000 compared to operating income of $335,000 in last year’s second quarter. Selling, general and administrative expenses declined $694,000 to $1,852,000, driven by the formation of Craft Brands but offset by a modest increase in spending in the Midwest and Eastern