Crimson Wine Group, Ltd - Quarter Report: 2013 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

__________

FORM 10-Q

 

[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

OR

[  ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 000-54866

 

CRIMSON WINE GROUP, LTD.

(Exact name of registrant as specified in its Charter)

                        

 

(800)  486-0503

(Registrant’s Telephone Number, Including Area Code)

 

N/A

(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

______________________

 

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 12 months (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.

                                                

 

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 posted pursuant 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 such files).

                                            

 

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

 

On August 9, 2013, there were 24,458,368 outstanding shares of the Registrant’s Common Stock, par value $.01 per share.

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CRIMSON WINE GROUP, LTD.

Form 10-Q

For the Quarterly Period Ended June 30, 2013

TABLE OF CONTENTS

 

 

 

 

 

 

 

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

 

CRIMSON WINE GROUP, LTD. 

CONSOLIDATED BALANCE SHEETS

June 30, 2013 and December 31, 2012

(In thousands, except par value)

 

 

 

 

 

 

 

 

 

See notes to interim consolidated financial statements.

 

 

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CRIMSON WINE GROUP, LTD. 

Consolidated Statements of Operations

For the three and six months ended June 30, 2013 and 2012

(In thousands, except per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to interim consolidated financial statements.

 

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CRIMSON WINE GROUP, LTD.

Consolidated Statements of COMPREHENSIVE INCOME (LOSS)

For the three and six months ended June 30, 2013 and 2012

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to interim consolidated financial statements.

 

 

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CRIMSON WINE GROUP, LTD.

Consolidated Statements of Cash Flows

For the six months ended June 30, 2013 and 2012

(In thousands)

(Unaudited)

 

 

 

See notes to interim consolidated financial statements.

 

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CRIMSON WINE GROUP, LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the six months ended June 30, 2013 and 2012

(In thousands, except par value)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to interim consolidated financial statements.

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CRIMSON WINE GROUP, LTD.

Notes to Interim Consolidated Financial Statements 

(In thousands)

 

1.  Explanatory Note:

 

Crimson Wine Group, Ltd. (“Crimson”) is a Delaware company that has been operating since 1991.  As used herein, the term “Company” refers to Crimson and its wholly-owned subsidiaries, except as the context may otherwise require.  Prior to February 25, 2013, Crimson was a wholly-owned subsidiary of Leucadia National Corporation (“Leucadia”).  On February 1, 2013, Leucadia declared a pro rata dividend to Leucadia’s common shareholders of all of the outstanding shares of Crimson’s common stock in a manner that was structured to qualify as a tax-free spin-off for U.S. federal income tax purposes (the “Distribution”).  Leucadia’s common shareholders received one share of Crimson common stock for every ten common shares of Leucadia (24,458,368 Crimson common shares in the aggregate), with cash in lieu of fractional shares, on February 25, 2013.    The consolidated financial statements and notes thereto give retroactive effect to the Distribution for all periods presented.

 

Crimson qualifies as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”).  An emerging growth company is defined as a company with total annual gross revenues of less than $1 billion in its most recently completed fiscal year.  An emerging growth company will retain such status until the earliest of: (1) the last day of the fiscal year of the emerging growth company following the fifth anniversary of the date it first sold common equity securities pursuant to an effective registration statement under the Securities Act of 1933, as amended; (2) the last day of the fiscal year in which the emerging growth company first had total annual gross revenues of $1 billion or more (indexed pursuant to the JOBS Act); (3) the date on which the emerging growth company is deemed to be a “large accelerated filer” as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), (i.e., an SEC registered company with a public float of at least $700 million that satisfies other tests); or (4) the date on which the emerging growth company has, within the previous three years, issued more than $1 billion of nonconvertible debt.  Crimson has elected to opt out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.  This election is irrevocable.

 

2.  Significant Accounting Policies:

 

The unaudited interim consolidated financial statements, which reflect all adjustments (consisting of normal recurring items or items discussed herein) that management believes necessary to fairly state results of interim operations, should be read in conjunction with the Notes to Consolidated Financial Statements (including the Significant Accounting Policies) included in the Company’s audited consolidated financial statements for the year ended December 31, 2012, as filed with the Securities and Exchange Commission (the “SEC”) on Form 10-K (the “2012 Report”).  Results of operations for interim periods are not necessarily indicative of annual results of operations.  The consolidated balance sheet at December 31, 2012 was extracted from the audited annual financial statements and does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for annual financial statements.

 

Effective January 1, 2013, the Company adopted amended Financial Accounting Standards Board guidance for indefinite lived intangible asset impairment testing. The amended guidance allows an entity to assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that an indefinite lived intangible asset is impaired. If an entity concludes it is not more likely than not that an indefinite lived intangible asset is impaired, the entity is not required to take further action. If an entity concludes otherwise, then the entity would be required to determine the fair value of the indefinite lived intangible asset and compare the fair value with the carrying amount of the indefinite lived intangible

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asset. The Company was required to adopt this amended guidance for its annual and interim periods beginning January 1, 2013. The adoption of this amended guidance did not have a significant impact on the Company's consolidated financial statements.

 

3.  Inventory:

 

A summary of inventory at June 30, 2013 and December 31, 2012 is as follows (in thousands):

 

 

Bulk wine inventory includes cost of growing grapes not yet harvested as of June 30, 2013 and December 31, 2012, respectively.

 

4.  Property and Equipment:

 

A summary of property and equipment at June 30, 2013 and December 31, 2012 is as follows (in thousands):

 

 

 

For the six months ended June 30, 2013 and 2012, depreciation expense was $2,698,000 and $2,779,000, respectively, with $2,280,000 and $2,379,000, respectively, capitalized into inventory and $418,000 and $400,000, respectively, charged to the statements of operations.

 

In the first quarter of 2013, the Company sold a non-strategic vineyard for net cash consideration of $1,754,000.  The Company recorded a pre-tax gain of $717,000, net of closing costs, during the first quarter of 2013.

5.  Financial Instruments:

 

The Company’s material financial instruments include cash and cash equivalents and investments classified as available for sale; investments classified as available for sale are the only assets or liabilities that are measured at fair value on a recurring basis.  All of the Company’s investments mature within three years or

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less.  The par value, amortized cost, gross unrealized gains and losses and estimated fair value of investments classified as available for sale as of June 30, 2013 and December 31, 2012 are as follows (in thousands):

As of June 30, 2013, the Company did not have any assets or liabilities measured at fair value on a nonrecurring basis.

For cash and cash equivalents, the carrying amounts of such financial instruments approximate their fair values.

The Company does not invest in any derivatives or engage in any hedging activities.

6.   Intangible Assets:

 

A summary of intangible assets at June 30, 2013 and December 31, 2012 is as follows (in thousands):

 

 

 

Amortization expense on intangible assets was $757,000 for each of the six month periods ended June 30, 2013 and 2012.  The estimated aggregate future amortization expense for the intangible assets is $757,000 for the remainder of 2013 and $1,514,000 for each of the four years after 2013.

 

7.   Due to Leucadia and its Affiliates:

 

On February 25, 2013, the remaining balance of $151,043,000 due to Leucadia and its affiliates was contributed by Leucadia to capital.  Interest expense related to Leucadia and its affiliates was $0 and $1,290,000 for the three months ended June 30, 2013 and 2012, respectively, and $783,000 and $2,580,000 for the six months ended June 30, 2013 and 2012, respectively. 

 

Effective March 1, 2013, the Company entered into an administrative service agreement with Leucadia.  Pursuant to this agreement, Leucadia provides certain administrative, SEC, tax filing and accounting services, including providing the services of the Company’s Corporate Secretary, for a monthly fee of $15,000.  Administrative services fees expense was $45,000 and $60,000 for the three and six month period ended June 30, 2013, respectively.  

 

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Effective August 1, 2013, Leucadia and the Company agreed to amend the administrative service agreement to reduce the administrative services provided to the Company by Leucadia and correspondingly reduce the monthly fee from $15,000 to $4,500.  The administrative services that will no longer be provided to the Company by Leucadia will be performed by the Company.  The amendment also provides that the administrative services agreement will terminate in full in February 2014. 

 

In March 2013, pursuant to the separation agreement entered into with Leucadia, Leucadia paid $14,175,000 to Crimson as a capital contribution.  No additional capital contributions from Leucadia are required or anticipated to be made. 

 

8.    Debt:

 

In March 2013, Crimson entered into a $60,000,000 revolving credit facility with American AgCredit, FLCA, as agent for the lenders identified in the revolving credit facility, comprised of a revolving loan facility and a term revolving loan facility, which together is secured by substantially all of Crimson’s assets.  The revolving credit facility is for up to $10,000,000 of availability in the aggregate for a five year term, and the term revolving credit facility is for up to $50,000,000 in the aggregate.  All obligations of Crimson under the revolving credit facility are collateralized by certain real property, including vineyards and certain winery facilities of Crimson, accounts receivable, inventory and intangibles.  Covenants include the maintenance of specified debt and equity ratios, limitations on the incurrence of additional indebtedness, limitations on dividends and other distributions to shareholders and restrictions on certain mergers, consolidations and sales of assets.  In addition to unused line fees ranging from 0.25% to 0.375%, rates for the borrowings are priced based on a performance grid tied to certain financial ratios and the London Interbank Offered Rate, and would have been 2.196% to 2.539% at June 30, 2013.  The revolving credit facility can be used to fund acquisitions and working capital requirements; no amounts have been borrowed under the facility to date.

 

9.   Revenues and Gross Profit:

 

The Company generates revenues from sales of wine to wholesalers and direct to consumers, sales of bulk wine and grapes, special event fees, tasting fees and retail sales.  Revenues and gross profit for the three and six months ended June 30, 2013 and 2012 are as follows (in thousands):

 

 

Excise taxes of $280,000 and $195,000 for the three months ended June 30,  2013 and 2012, respectively, and $506,000 and $394,000 for the six months ended June 30, 2013 and 2012, respectively, were recognized as a reduction to wine sales.

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10.  Subsequent events:

 

Subsequent events are events or transactions that occur after the balance sheet date, but before the financial statements are available to be issued. The financial statements recognize the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing the financial statements. Subsequent events have been evaluated through August 9, 2013, which is the date the financial statements were available to be issued.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Interim Operations. 

 

Statements included in this Report may contain forward-looking statements. See “Cautionary Statement for Forward-Looking Information” below. The following should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2012 Report. 

 

Seasonality

 

As discussed in the 2012 Report, the wine industry in general historically experiences seasonal fluctuations in revenues and net income.  Crimson typically has lower sales and net income during the first quarter and higher sales and net income during the third and fourth quarters.  The Company anticipates similar trends in 2013.

Liquidity and Capital Resources

General

 

Crimson’s principal sources of liquidity are its available cash, funds generated from operations and its revolving credit facility.  In March 2013, Crimson entered into a $60,000,000 revolving credit facility with American AgCredit, FLCA, as agent for the lenders identified in the revolving credit facility, comprised of a revolving loan facility and a term revolving loan facility, which together is secured by substantially all of Crimson’s assets.  The revolving credit facility is for up to $10,000,000 of availability in the aggregate for a five year term, and the term revolving credit facility is for up to $50,000,000 in the aggregate.  All obligations of Crimson under the revolving credit facility are collateralized by certain real property, including vineyards and certain winery facilities of Crimson, accounts receivable, inventory and intangibles.  Covenants include the maintenance of specified debt and equity ratios, limitations on the incurrence of additional indebtedness, limitations on dividends and other distributions to shareholders and restrictions on certain mergers, consolidations and sales of assets.  In addition to unused line fees ranging from 0.25% to 0.375%, rates for the borrowings are priced based on a performance grid tied to certain financial ratios and the London Interbank Offered Rate, and would have been 2.196% to 2.539% at June 30 2013.  The facility can be used to fund acquisitions and working capital requirements; no amounts have been borrowed under the facility to date.

 

Prior to the Distribution, Crimson relied upon Leucadia for debt financing and equity contributions for all of its liquidity needs.  As of February 25, 2013, the aggregate amount payable by Crimson to Leucadia and its affiliates was $151,043,000, all of which was contributed to Crimson capital prior to the Distribution. As a result, in the second quarter of 2013, Crimson did not record interest expense relating to this Leucadia financing. 

 

In March 2013, pursuant to the separation agreement entered into with Leucadia, Leucadia paid $14,175,000 to Crimson as a capital contribution.  No additional capital contributions from Leucadia are required or anticipated to be made.

 

As of June 30, 2013, Crimson’s commitments for capital expenditures were not material.  Crimson expects to spend approximately $6,000,000 for capital expenditures during 2013, of which $2,000,000 is for the expansion of the Seghesio Family Vineyards fermentation and processing capacity and $300,000 is for the increase in Chamisal Vineyard’s permitted capacity.  These expenditures are focused on expanding and improving our facilities for additional growth, and do not relate to required maintenance or similar costs to sustain our existing operations.  The remaining $3,700,000 is for vineyard development, barrel purchases and other winery and facility improvements.  Crimson expects to use its available cash and cash flows generated from operating activities to fund its capital expenditures. 

 

Consolidated Statements of Cash Flows

 

Net cash provided by operating activities was $5,358,000 and $3,870,000 for the six months ended June 30, 2013 and 2012, respectively.  Cash flows from operating activities improved during 2013 as compared to 2012,

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principally due to increased operating income, timing of payment of grape purchase payables, and a higher percentage of sales in the latter part of the six months ended June 30, 2013 as compared to 2012 as a result of distributor incentives.

 

Net cash provided by operating activities also reflects less interest paid to Leucadia.  Interest paid to Leucadia was $122,000 and $764,000 during the six months ended June 30, 2013 and 2012, respectively.

 

Net cash used for investing activities was $8,307,000 and $799,000 for the six months ended June 30, 2013 and 2012, respectively. Acquisition of property, equipment and leasehold improvements increased in the first six months of 2013 as compared to the first six months of 2012, principally due to capital expenditures for capacity expansion at Seghesio Family Vineyards.  Proceeds from disposals of property and equipment include $1,754,000 in 2013 from the sale of a non-strategic vineyard.  In addition, $6,750,000 was used during the six months ended June 30, 2013 for investing in FDIC insured U.S. Certificates of Deposit.

 

Net cash provided by (used for) financing activities reflects $1,700,000 and $1,750,000 of principal payments on debt to Leucadia for the six months ended June 30, 2013 and 2012, respectively, and for 2013, the Leucadia capital contribution of $14,175,000, discussed above.

Results of Operations

Overview

The Company generates revenues from sales of wine to wholesalers and direct to consumers, sales of bulk wine and grapes, special event fees, tasting fees and retail sales.  Revenues,  gross profit and income from operations for the three and six months ended June, 2013 and 2012 are as follows (in thousands):

 

 

 

 

Crimson’s wines are primarily sold to distributors, who then sell to retailers and restaurants.  As permitted under federal and local regulations, Crimson has also been placing increased emphasis on generating revenue from direct sales to consumers which occur through wine clubs, at the wineries’ tasting rooms and through the internet. 

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Direct sales to consumers are more profitable for Crimson as it is able to sell its products at a price closer to retail prices rather than the wholesale price received from distributors.  From time to time Crimson may sell grapes or bulk wine, because the wine does not meet the quality standards for Crimson’s products, market conditions have changed resulting in reduced demand for certain products, or because Crimson may have produced more of a particular varietal than it can use.  When these sales occur they may result in a loss.

 

Cost of sales includes grape and bulk wine costs, whether purchased or produced from Crimson’s controlled vineyards, crush costs, winemaking and processing costs, bottling, packaging, warehousing and shipping and handling costs.  For vineyard produced grapes, grape costs include annual farming costs and amortization of vineyard development expenditures.  For wines that age longer than one year, winemaking and processing costs continue to be incurred and capitalized to the cost of wine, which can range from 3 to 24 months.  Reductions to the carrying value of inventories to estimated net realizable value are also included in costs of sales.

 

At June 30, 2013, wine inventory includes approximately 490,000 cases of bottled and bulk wine in various stages of the aging process.  Case wine is expected to be sold over the next 12 to 24 months and generally before the release date of the next vintage.

 

Statement of Operations

Consolidated Operations – Three months ended June 30, 2013 and 2012

 

Revenues increased for the three months ended June 30, 2013 as compared to 2012 as a result of a 40.7% increase in case sales, increase in bulk wine and grape sales, offset slightly by a shift in product mix across brands and channels.  Wholesale revenues increased $2,818,000 for the three months ended June 30, 2013 as compared to 2012, primarily driven by Seghesio growth of $1,699,000, and the remaining growth contributed by all other brands.  Direct to consumer revenue increased $523,000 for the three months ended June 30, 2013 as compared to 2012 as a result of wine revenue increases of $365,000 in Wine Club, primarily attributable to an increase in wine club membership, offset partially by one less shipment for one brand in the second quarter of 2013 as compared to 2012.  In addition, there was an overall increase in price point for wine included in shipments across all brands, $122,000 increase in Tasting Room revenue, and $134,000 increase in E-Commerce revenue, which were partially offset by a revenue decrease in Special Events, primarily due to timing.  In addition, bulk wine and grape sales increased $318,000.  

 

Gross profit increased $1,388,000 in the three months ended June 30, 2013 as compared to 2012 reflecting an increase in case wine sales and shift in product mix, partially offset by an increase in cost of goods sold per case specific to certain Seghesio wines and a decrease in shipping margin attributable to timing.  In addition to change in revenues, gross profit also reflects net losses on sales of bulk wine and grapes of $460,000 and $100,000 for the three months ended June 30, 2013 and 2012, respectively. 

 

Crimson’s sales and marketing expenses have a variable component that tends to correspond to changes in sales volume.  Sales and marketing expenses increased $122,000 for the three months ended June 30, 2013 as compared to 2012, which includes an increase of $100,000 in fixed cost components and $22,000 in variable cost components.  Variable cost increases resulted from an increase in distributor samples, initiatives and commissions in proportion to volume, partially offset by decreased promotional costs, due to timing of planned initiatives.  Fixed sales and marketing expenses increased primarily due to increased compensation of $53,000, which includes the hire of senior sales and marketing executives during the second quarter of 2012 resulting in a partial quarter of expense in 2012 compared to a full quarter in 2013, and design services primarily for label redesigning of $75,000, offset partially by a $23,000 decrease in travel.

 

General and administrative expenses increased $1,001,000 in the three months ended June 30, 2013 as compared to 2012, principally due to $450,000 in executive bonuses approved by Crimson’s board of directors in relation to the spin-off as previously reported in the Company’s public filings, $306,000 in costs for new services to satisfy standalone SEC requirements, $84,000 in other taxes related to standalone franchise tax requirements, $29,000 in contract services primarily related to technology and software support, $32,000 in property taxes, and $41,000 in insurance expense related to standalone policies. 

 

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Consolidated Operations – Six months ended June 30, 2013 and 2012

 

Revenues increased for the six months ended June 30, 2013 as compared to 2012 as a result of a 27.6% increase in case sales, increase in bulk wine and grape sales offset slightly by a shift in product mix across brands and channels.  Wholesale revenues increased $4,219,000 for the six months ended June 30, 2013 as compared to 2012, of which $471,000 pertains to growth in the export market, primarily related to Seghesio, and $3,748,000 to domestic wholesale where all brands recognized growth.  Direct to consumer revenue increased $1,076,000 for the six months ended June 30, 2013 as compared to 2012 as a result of a wine revenue increases of $877,000 in Wine Club, primarily attributable to an increase in wine club membership and an overall increase in price point for wine included in shipments across all brands, a  $228,000 increase in Tasting Room revenue and a  $69,000 increase in E-Commerce revenue, which were partially offset by a revenue decrease in Special Events, primarily due to timing.  In addition, bulk wine and grape sales increased $214,000.  

 

Gross profit increased $1,847,000 in the six months ended June 30, 2013 as compared to 2012 reflecting an increase in case wine sales and shift in product mix, partially offset by an increase in cost of goods sold per case specific to certain Seghesio wines and a decrease in shipping margin attributable to timing.  In addition to change in revenues, gross profit also reflects net losses on sales of bulk wine and grapes of $481,000 and $145,000 for the six months ended June 30, 2013 and 2012, respectively. 

 

Sales and marketing expenses increased $187,000 for the six months ended June 30, 2013 as compared to 2012, which include a $268,000 increase in fixed cost components offset by an $81,000 decrease in variable cost components.  Variable cost decreases resulted from decreased promotional costs, due to timing of planned initiatives, partially offset by an increase in distributor samples, initiatives and commissions in proportion to volume.  Fixed sales and marketing expenses increased primarily due to increased compensation of $128,000, which includes the hire of senior sales and marketing executives in the second quarter of 2012, design services primarily for label redesigning of $98,000, and travel of $78,000, of which $50,000 pertains to the wholesale domestic and export channel.

 

General and administrative expenses increased $1,260,000 in the six months ended June 30, 2013 as compared to 2012, principally due to $450,000 in executive bonuses approved by Crimson’s board of directors in relation to the spin-off, $330,000 in costs for new services to satisfy standalone SEC requirements, $161,000 increase in accounting fees related to standalone audit and filing requirements, $76,000 in other taxes related to standalone franchise tax requirements, $67,000 in contract services primarily related to technology and software support, $65,000 in property taxes, and $61,000 in insurance expense related to standalone policies. 

 

Interest expense reflects the costs of funds borrowed from Leucadia, which funds were contributed to Crimson capital prior to the Distribution.

 

Historically, Crimson has been included in the consolidated federal income tax return of Leucadia and filed a California state income tax return separate from Leucadia. Crimson has not recorded a federal or state income tax benefit for its pre-tax losses (net operating loss carryforwards), as sufficient evidence does not exist to enable Crimson to conclude that it is more likely than not that it can generate sufficient taxable income in the future to realize such benefits.  As a result, Crimson carries a full valuation allowance against its net deferred tax asset.  In future periods, to the extent Crimson has net operating loss carryforwards available to offset the taxes that would otherwise be due, Crimson will not record a net income tax provision for regular federal or state income taxes.  As Crimson uses these net operating loss carryforwards, it will reverse a portion of its valuation allowance to income tax expense and reduce net income taxes that would otherwise be due.

 

During 2013, the tax provision reflects state income taxes and federal minimum income taxes, as the Company reversed a portion of the net deferred tax valuation allowance to income tax expense to offset regular federal income taxes that would otherwise have been due.  During 2012, the tax provision principally reflects state income taxes, as the Company recorded a full valuation allowance for the net operating loss generated.  These are the principal reasons for the differences between the effective income tax rate and the federal statutory rate.   

 

Cautionary Statement for Forward-Looking Information

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Statements included in this Report may contain forward-looking statements.  Such statements may relate, but are not limited, to projections of revenues, income or loss, case sales, development expenditures and expected sources of funds related thereto, plans for growth and future operations, competition and regulation, as well as assumptions relating to the foregoing.  Such forward-looking statements are made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.

 

Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted or quantified.  When used in this Report, the words “estimates,” “expects,” “anticipates,” “believes,” “plans,” “intends” and variations of such words and similar expressions are intended to identify forward-looking statements that involve risks and uncertainties.  Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements.

 

Factors that could cause actual results to differ materially from any results projected, forecasted, estimated or budgeted or that may materially and adversely affect the Company’s actual results include but are not limited to the following: worsening economic conditions causing a decline in estimated future cash flows; our dependence on certain key personnel; significant increases in operating costs and reduced profitability due to competition for skilled management and staff employees; our reliance on Leucadia to meet certain financial reporting requirements; our inability to establish our own financial, administrative and other support functions to operate as a stand-alone public company; various diseases, pests and weather conditions affecting the quality and quantity of grapes; our inability to grow or acquire enough fruit for our wines; significant competition adversely affecting our profitability; competition for shelf space in retail stores and for marketing focus by our independent distributors; the contamination of our wines; a reduction in consumer demand for our wines; a decrease in wine score rating by important rating organizations; climate change, or legal, regulatory or market measures to address climate change, negatively affecting our business, operations or financial performance, and water scarcity or poor quality negatively impacting our production costs and capacity; environmental issues or hazardous substances on our properties resulting in us incurring significant liabilities; our indebtedness materially affecting our financial health; changes in laws and government regulations or in the implementation and/or enforcement of government rules and regulations increasing our costs or restricting our ability to sell our products into certain markets; our inability to insure certain risks economically; being subject to litigation which may have a significant adverse effect on our consolidated financial condition or results of operations; not paying dividends currently or in the future; impairment of our intangible assets; the limited market for our common stock because our stock is not listed on any securities exchange; volatility in our common stock price; future sales of our common stock depressing the market price of our stock; public company compliance costs; loss of our status as an emerging growth company; restrictions on our ability to enter into certain transactions that could jeopardize our tax free spin-off from Leucadia; and the significant influence of certain principal stockholders.  For additional information see Part I, Item 1A. Risk Factors in the 2012 Report.

 

Undue reliance should not be placed on forward-looking statements, which are applicable only as of the date hereof.  The Company undertakes no obligation to revise or update its forward-looking statements to reflect events or circumstances that arise after the date of this Report or to reflect the occurrence of unanticipated events.

 

Item 3.  Quantitative and Qualitative Disclosure About Market Risk.

 

Crimson does not currently have any exposure to financial market risk.  Sales to international customers are denominated in U.S. dollars; therefore, Crimson is not exposed to market risk related to changes in foreign currency exchange rates.  Prior to the Distribution, Crimson did not have any significant outstanding debt instruments other than amounts due to Leucadia; therefore, Crimson was not exposed to market risk relating to interest rates.  As discussed above under Liquidity and Capital Resources, Crimson has recently entered into a revolving credit facility.  Any amount borrowed is expected to bear interest at floating rates.

 

Item 4. Controls and Procedures.

 

The Company's management evaluated, with the participation of the Company's principal executive and principal financial officers, the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-

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15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2013.  Based on their evaluation, the Company's principal executive and principal financial officers concluded that the Company's disclosure controls and procedures were effective as of June 30, 2013.

 

This Report does not include a report of management's assessment regarding internal control over financial reporting or an attestation report of the company's registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.  In addition, for so long as we qualify as an "emerging growth company" under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting.

 

There has been no change in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the Company's fiscal quarter ended June 30, 2013, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

From time to time, Crimson may be involved in legal proceedings in the ordinary course of its business.  Crimson is not currently involved in any legal or administrative proceedings individually or together that it believes are likely to have a significant adverse effect on its business, results of operations or financial condition.

 

Item 1A. Risk Factors.

 

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2012 Report, which could materially affect our business, results of operations or financial condition.  The risks described in our 2012 Report are not the only risks facing us.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may eventually prove to materially adversely affect our business, results of operations or financial condition.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None

 

Item 3. Defaults Upon Senior Securities.

 

None

 

Item 4. Mine Safety Disclosures.

 

None

 

Item 5. Other Information.

 

None

 

Item 6. Exhibits.

 

 

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SIGNATURES

 

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

 

 

 

 

 

 

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EXHIBIT INDEX

 

 

 

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