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Warner</font><font
 style="margin: 0px; padding: 10px 10px 10px 0px; font-family: 'Verdana'; font-size: 12px; color: rgb(72, 78, 86); line-height: 16px; display: block;">To
the People&#8217;s Republic of
Flying Dog
<br>
<br>
As some of you may have heard, Flying Dog Brewery announced on Tuesday
that we are embarking on the next step in our illustrious, 17 year
history of crafting remarkable beer by concentrating all of our brewing
and production to the brewery in Frederick, MD, where 70% of Flying Dog
Beer is already being brewed. This move will take place in January and
we are working to ensure that our entire production team will be able
to
make this move over to Maryland. Accounting, sales, marketing and other
administrative functions will remain largely unaffected by this change
and our HQ will remain in Denver. <br>
<br>
We decided to make this proactive move as it has become increasingly
important to be extremely nimble in today&#8217;s business environment. Only
those who can quickly adapt in the hyper-Darwinian economy will
survive and in today&#8217;s craft brewing landscape. We are facing
unprecedented cost pressures due in large part to the tremendous hop
and malt cost increases. We have also lost some of the contract brewing
business we had, thereby decreasing capacity utilization at both
breweries (I actually found out AFTER the announcement that one of our
largest contracts was going to switch their production to a lower cost
producer, thereby diminishing our capacity utilization at the Denver
Brewery even further). Concentrating our brewing operations to one
facility will help us become more efficient while maintaining our
exceptionally high brewing standards. This is a smart, proactive move
for our growing company and will allow us to most efficiently use our
resources. This idea was conceived in late summer, and once we
understood the magnitude of the price increases we are facing it became
apparent that this was a necessary step to remain strong. Like most
other craft breweries our costs are going up at least 25%, and we are
only going to be passing on a 15-20% price increase. We expect some
relief on raw materials costs in 2009. Obviously, a huge focus for the
production teams in 2008 will be to discover and implement new ways to
be more efficient, without sacrificing the quality of our award winning
line up. <br>
<br>
The Frederick facility is a state-of-the-art brewery that has already
been producing great beer for Flying Dog and we look forward to ramping
up production and growing our business even more than the +20% trends
we
are experiencing in 2007. The bottling line in Frederick has lower
oxygen uptake at filling than the one in Denver, which translates to
better flavor stability and longer shelf life. It also kicks out
bottles at twice the pace of the line in Denver. The brewhouse in
Maryland is also capable of
brewing a wider range of recipes than the one in Denver. Finally, the
brewery in MD plans on substantial capital expenditures and plant
upgrades (close to a million bucks in 2008 alone) to continue to brew
better beer in an efficient and environmentally friendly way. It was
very important to me, the management team and the owners of the brewery
to take care of the employees who might be impacted by this change.
Everyone in production was offered an opportunity to make the move to
the brewery in Maryland. I&#8217;m proud to say that almost half of
the brewing and bottling line staff is interested and we will be taking
a group trip out to MD in early January so they can see if Frederick is
a place they would like to relocate to. For those that
don&#8217;t make the move, we will be offering a severance package and
outplacement assistance. 14 employees in production are impacted by
this change. When we broke the news Tuesday everyone handled it pretty
well, and as a brewery we decided to go out in style and still have our
holiday party this Friday. Although some could argue the timing was a
little close to the holidays, we also considered that some employees
might be more upset that if they were told after the holidays, having
spent more money than otherwise having not known they were going to
potentially be laid off. There is truly never a good time for such
news. <br>
<br>
We are a family here at Flying Dog and as such it&#8217;s been a
rollercoaster of emotions the last couple of days. Although no one,
myself included, would have chosen to write the script quite this way,
everyone understands this chapter, why it makes sense and why
it&#8217;s good for the future of the brewery. The good news for the
People&#8217;s Republic is that the Flying Dog beers will still be
available wherever you are used to purchasing them. <br>
<br>
Cheers,<br>
Eric Warner<br>
<br>
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~russ~<br>
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