Crimson Wine Group, Ltd - Annual Report: 2015 (Form 10-K)

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

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

   For the fiscal year ended December 31, 2015

OR

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

   For the transition period from ___________ to ___________

 

Commission file number:  000-54866

 

CRIMSON WINE GROUP, LTD.

(Exact Name of Registrant as Specified in its Charter)

 

 

2700 Napa Valley Corporate Drive, Suite B

Napa, California  94558

(800) 486-0503

 

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

Securities registered pursuant to Section 12(b) of the Act:  None.

 

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.01 per share

(Title of Class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes [  ]  No  [x]

 

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  [x]

 

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.    Yes  [x]   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 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).      Yes  [x]   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’s knowledge, 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 definitions of “large accelerated filer," "accelerated filer,” and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b of the Exchange Act).  Yes  [  ]    No  [x]

 

Based upon the closing sales price of the Registrant’s Common Stock as published by the OTC Market Service as of June 30, 2015, the aggregate market value of the Registrant’s Common Stock held by non-affiliates was approximately $186,432,000 on that date.

 

As of March 4, 2016, there were 24,229,846 outstanding shares of the Registrant’s Common Stock, par value $.01 per share.

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EXPLANATORY NOTE

 

Crimson Wine Group, Ltd. qualifies as an “emerging growth company” pursuant to the provisions of the Jumpstart Our Business Startups Act (the “JOBS Act”), enacted on April 5, 2012. For as long as Crimson Wine Group, Ltd. remains an “emerging growth company” as defined in the JOBS Act, we may take advantage of certain exemptions from various reporting requirements that are applicable to other reporting companies which are not “emerging growth companies,”  including reduced disclosure obligations regarding executive compensation in this Annual Report on Form 10−K (“Form 10−K”). Therefore, this Form 10−K does not include certain information regarding executive compensation that may be found in the annual reports of other reporting companies.

 

PART I

 

Item 1.       Business.

 

Our Company

 

Unless the context indicates otherwise, the terms the "Company," "Crimson," "we," "our" or "us" as used herein refer to Crimson Wine Group, Ltd. and its subsidiaries.  Crimson has been conducting business since 1991.  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 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, with cash in lieu of fractional shares, on February 25, 2013. 

 

Crimson is in the business of producing and selling ultra-premium and luxury wines (i.e., wines that retail for $14 to $25 and over $25 per 750ml bottle, respectively).  Crimson is headquartered in Napa, California and through its subsidiaries owns four wineries:  Pine Ridge Vineyards, Archery Summit, Chamisal Vineyards and Seghesio Family Vineyards. In addition, Crimson owns Double Canyon Vineyards which owns land in the Horse Heaven Hills of Washington’s Columbia Valley. 

 

The wine Crimson makes comes from estate grown grapes as well as grapes and bulk wine purchased under contract and on the spot-market. Our business model is a combination of direct to consumer sales and wholesale distributor sales.  References to cases of wine herein refer to nine-liter equivalent cases. 

 

Our Strategy

 

Our  strategy is built on three pillars: Quality, Focus and Growth.

 

Quality. We believe we own some of the highest quality vineyards in the U.S.  We farm our vineyards in a thoughtful, sustainable way with the goal of producing the highest quality grapes and the highest quality wines possible.  As part of executing this strategy, Crimson currently owns or leases approximately 895 plantable acres of vineyard land in California, Oregon and Washington. The Company continues to assess other opportunities to enhance the quality of our vineyard holdings and wine portfolio.

 

Focus. We currently own five complementary estate-based winegrowing operations, with each having a unique varietal focus best suited to its specific appellation and region.    We have a group of accomplished winegrowing teams who are each responsible for crafting benchmark wines from their respective wine regions.  Many of Crimson’s brands are issued ratings or scores by local and national wine rating organizations and we believe our scores are a reflection of our focus on what we do best.

 

Growth.  To support our quality and focus goals, all of our teams, including winegrowing, sales, marketing and administrative are driven towards continuous improvement. Our direct to consumer business continued to grow in 2015, with net sales in this channel increasing 5% as compared to 2014.  The direct to consumer business generally generates higher gross margins and we intend to continue building this distribution channel in order to further our growth. Our wholesale distribution channel also continued to grow in 2015,  with net sales in this channel increasing 7% as compared to 2014.  Our wines are available in all states domestically through our network of 49 distributors, and our export team served customers in over 40 countries through independent importers and brokers during 2015.

 

Recent Developments

 

In December 2015, we opened the Estates Wine Room, an 1,800-square-foot urban tasting room located in Seattle’s historic Pioneer Square. The Estates Wine Room focuses on selling wines from Crimson's Northwest holdings – Double Canyon (Horse Heaven Hills, Washington), Archery Summit (Willamette Valley, Oregon) and in March of 2016 will add wines from Seven Hills Winery (Walla Walla, Washington).

 

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On January 27, 2016, we entered into a purchase agreement pursuant to which we acquired, or have rights in, substantially all of the assets and certain liabilities with respect to Seven Hills Winery, located in Walla Walla, Washington. Seven Hills has established a storied wine program with a strong history of accolades for both Merlot and Bordeaux-style red blends, and the acquisition of Seven Hills Winery provides a strategic opportunity for Crimson to expand its portfolio.

 

Our Wineries and Vineyards

 

The following table summarizes the Company’s acreage as of December 31, 2015:

 

 

 

(a) A lease for 16 plantable acres controlled by Pine Ridge Vineyards expired in February 2016.

 

Pine Ridge Vineyards

 

Pine Ridge Vineyards was acquired in 1991 and has been conducting operations since 1978.  Pine Ridge Vineyards owns acreage in five Napa Valley appellations—Stags Leap District, Rutherford, Oakville, Carneros and Howell Mountain.  The winery facility at Pine Ridge Vineyards has a permitted annual wine production capacity of up to 300,000 gallons, which equates to approximately 126,000 cases of wine; however, current fermentation and processing capacity is limited to approximately 80,000 cases without additional capital investment.  The facility includes areas and equipment for crush, fermentation, aging and bottling processes, and also has a tasting room, hospitality center and administrative offices.  Built into the hillside for wine barrel storage are approximately 34,000 square feet of underground caves with a capacity to store over 4,000 barrels.  In addition, there are special event dining areas both indoors and outdoors as well as in the underground caves.

 

The Pine Ridge Vineyards estate business is focused primarily on the production of high quality Cabernet Sauvignon and Bordeaux-style blends sold by Crimson under the Pine Ridge Vineyards brand name.  Pine Ridge Vineyards also produces Chenin Blanc + Viognier, which is sold by Crimson under the Pine Ridge brand name and is made from purchased grapes and bulk wine juice processed at a third party custom winemaking facility with a contracted capacity of up to 131,000 cases for the 2015 harvest year.  Incremental capacity options are under consideration and available.

 

Archery Summit

 

Crimson started Archery Summit in 1993.  Archery Summit owns acreage in the Willamette Valley appellation in Oregon.  The winery facility at Archery Summit has a permitted annual wine production capacity of up to 50,000 gallons, which equates to approximately 21,000 cases of wine; however, current fermentation and processing capacity is limited to approximately 15,000 cases.  The facility includes areas and equipment for crush, fermentation, aging and bottling processes, and also has a tasting room, hospitality center and administrative offices.  The facility has approximately 8,300 square feet of underground caves for wine barrel storage with a capacity to store over 600 barrels.  In addition, there are special event dining areas indoors as well as in the underground caves.

 

Archery Summit is focused primarily on producing estate grown, expressive single vineyard Pinot Noir from tightly spaced vines sold by Crimson under the Archery Summit brand name.  Archery Summit also produces Vireton Pinot Gris, which is sold by Crimson under the Archery Summit brand name and is made from purchased grapes processed at a third party custom winemaking facility with available contract capacity of up to 5,000 cases for the 2015 harvest year.

 

Chamisal Vineyards

 

Chamisal Vineyards was acquired in 2008 and has been conducting operations since 1973.  The Chamisal Vineyard was the first vineyard planted in the Edna Valley in 1973.  The winery facility at Chamisal has a permitted annual wine production capacity of up to 480,000 gallons which equates to approximately 200,000 cases of wine.  The facility includes areas and equipment for crush, fermentation, aging and bottling processes, as well as a tasting room, hospitality center and administrative offices.  There are special event dining areas outdoors.

 

Chamisal is focused on producing estate grown, benchmark Chardonnay and single vineyard Pinot Noir as well as a Stainless Chardonnay produced from both purchased and estate grown grapes.  The wines are sold by Crimson under the Chamisal Vineyards

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brand name.

 

Seghesio Family Vineyards

 

Seghesio Family Vineyards was acquired in 2011 and has been conducting operations since 1895.  Seghesio Family Vineyards owns acreage in two Sonoma County appellations—Alexander Valley and Russian River Valley.  Seghesio Family Vineyards has a long history of growing and producing Zinfandel and Italian varietal wines in the Sonoma region of California.  The winery facility  at Seghesio Family Vineyards has a permitted annual wine production capacity of up to 404,000 gallons which equates to approximately 170,000 cases of wine.  The facility includes areas and equipment for crush, fermentation, aging, bottling and warehousing processes, as well as a tasting room, private hospitality areas and administrative offices.  There are indoor and outdoor special event dining areas.  In Alexander Valley, Seghesio Family Vineyards also owns a historic non-operating winery, mansion and railroad depot, which Crimson intends to convert into educational, tasting, hospitality and potentially incremental production facilities.

 

Seghesio Family Vineyards is focused on producing estate grown, world class Zinfandel and Italian varietal wines as well as a heritage Old Vine Zinfandel and Sonoma County Zinfandel produced from both purchased and estate grown grapes.  The wines are sold by Crimson under the Seghesio Family Vineyards brand name.

 

Double Canyon Vineyards

 

Double Canyon Vineyards acquired land in 2005 and 2006 in the Horse Heaven Hills appellation in Washington.  Starting with the 2010 vintage, Double Canyon Vineyards produced and bottled its first wine under the Double Canyon brand name. Since the launch of the Double Canyon brand name, Double Canyon Vineyards has developed a growth plan and significantly expanded production.  During 2015, the majority of the grapes from the Double Canyon Vineyards were used for the Double Canyon brand.    All of Double Canyon Vineyard’s production is performed in third-party custom crush facilities. Contracted capacity at Double Canyon Vineyards is up to 24,000 cases for the 2015 harvest year.     

 

Double Canyon Vineyards is focused on producing estate grown, best of class Cabernet Sauvignon as well as a Horse Heaven Hills Cabernet Sauvignon from both purchased and estate grown grapes. The first vintage of the Horse Heaven Hills Cabernet Sauvignon was 2012 and launched in July 2014.  Double Canyon Vineyards continues to increase its focus and volume in the wholesale channel for the Horse Heaven Hills Cabernet Sauvignon, including expansion across all U.S. markets in 2016.

 

Competition

 

The markets for ultra-premium and luxury products in the wine industry are intensely competitive.  Crimson’s wines compete domestically and internationally with premium or higher quality wines produced in Europe, South America, South Africa, Australia and New Zealand, as well as in the United States.  Crimson competes on the basis of quality, price, brand recognition and distribution capability, and the ultimate consumer has many choices of products from both domestic and international producers.  A result of the intense competition has been, and may continue to be, upward pressure on Crimson’s selling and promotional expenses.  Many of Crimson’s competitors are significantly larger with greater financial, production, distribution and marketing resources.  The U.S. is dominated by three large wineries with production largely based in California, representing approximately 50% of the domestic U.S. case sales volume. Further, Crimson’s wines may be considered to compete with all alcoholic and nonalcoholic beverages.

 

Demand for ultra-premium and luxury wines can rise and fall with general economic conditions, and is also significantly affected by grape supply.  Based on industry wide volume increases in these wine categories, Crimson believes more people are drinking wine than in the past.  Crimson’s wines are typically sold at retail price points from $15 to $250 per bottle, however, in the wholesale channel, which represented 89% of Crimson’s case volume in the years ended December 31, 2015 and 2014 and 88% in the year ended December 31, 2013, the majority of volume is in the $15 to $25 range to our wholesale distributors.

 

Business Segments

 

Crimson reports operating results in two segments: Wholesale and Direct to Consumer.  These business segments reflect how the Company’s operations are evaluated by senior management and the structure of its internal financial reporting.  Both financial and certain nonfinancial data are reported and evaluated to assist senior management with strategic planning.  The Company evaluates performance based on the gross profit of the respective business segments. Selling expenses that can be directly attributable to the segment are included, however, centralized selling expenses and general and administrative expenses are not allocated between operating segments. Therefore, net income information for the respective segments is not available.  Based on the nature of the Company’s business, revenue generating assets are utilized across segments.  Therefore, discrete financial information related to segment assets and other balance sheet data is not available and that information continues to be aggregated.  Further information about segments, including sales, cost of sales, gross margin, directly attributable selling expenses, and contribution margin of the segments for the years ended December 31, 2015, 2014 and 2013, can be found in Note 14 to the consolidated financial statements.

 

 

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Sales and Marketing

 

Crimson focuses on brand development and distribution to increase revenues and profitability, which has included acquisitions of vineyards and wineries and the development of new brands with existing assets.

 

Crimson’s sales and marketing team coordinates the sales and distribution of its various brands, maintains domestic and export distributor relationships and oversees the timing and allocation of new releases.  The sales team has employees in major markets in the U.S. and internationally and, where required, as brokers in certain markets.  Crimson’s wines are available through many principal retail channels for premium table wines, including fine wine restaurants, hotels, specialty shops, supermarkets and club stores, in all states domestically, as well as cruise lines and over 40 countries throughout the world.

 

Crimson believes that the quality and locations of its wineries and tasting facilities help to create demand for its brands at the consumer level which positively impacts sales to distributors as well.  Crimson participates in many wine tasting and other promotional events throughout the country in order to increase awareness and demand for its products.  Many of Crimson’s brands are issued ratings or scores by local and national wine rating organizations, and higher scores will usually translate into greater demand and higher pricing.

 

Wholesale

 

Crimson’s wines are primarily sold to distributors, who then sell to retailers and restaurants.  Domestic sales of Crimson’s wines are made through 49 independent wine and spirits distributors.  International sales are made through independent importers and brokers. During 2015, domestic distributor sales represented 54% of net sales and export sales represented 5% of net sales.

 

During 2015, Crimson’s wines were distributed predominantly by two distributors which in aggregate accounted for 25% of net sales.

 

Direct to Consumer

 

As permitted under federal and local regulations, Crimson has been placing increasing emphasis on direct sales to consumers, which it is able to do through the Internet, wine clubs, and at the wineries’ tasting rooms.  During 2015, direct sales to consumers represented 35% of net sales.  Approximately 62% of the direct to consumer net sales were through wine clubs, 24% were through the wineries’ tasting rooms and the balance from e-commerce, special events and reimbursement for freight expense.  Members typically join our wine clubs after visiting our tasting rooms at our various facilities, or after hearing about our wine clubs from other members.  Our tasting rooms are located in vacation areas that typically attract consumers interested in winemaking and touring the area.  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, however, for certain direct sales offers, some of the profit is offset by freight subsidies.

 

Grape Supply

 

Crimson controls approximately 895 acres of vineyards in the Napa Valley, Sonoma County and Edna Valley in California, the Willamette Valley in Oregon and the Horse Heaven Hills in Washington; approximately 740 acres of these vineyards are planted, with the majority of the unplanted acres in Washington.  Crimson expects to continue vineyard development plans for the non-producing California and Oregon properties and there are plans in place to plant additional acres in Washington.    Newly planted vines take approximately four to five years to reach maturity and vineyards can be expected to have a useful life of 25 years before replanting is necessary.  Depending on the site, soil and water conditions and spacing, Crimson’s experience has been that it costs approximately $20,000 to $60,000 per acre over a three year period to develop open land into a producing premium wine grape vineyard, before taking into account the cost of the land.  During 2015 the average cost per acre placed into service was approximately $40,000 per acre.

 

In 2015, approximately 31% of Crimson’s total grape supply came from Crimson controlled vineyards.  Crimson purchases the balance of its supply from approximately 80 independent growers.  The grower contracts range from one-year spot market purchases to intermediate and long term-agreements.  During 2015, one grower represented 10% of Crimson’s grape supply and no other single grower represented 10% or more of Crimson’s grape supply.

 

Winemaking and grape growing are subject to a variety of agricultural risks.  Various diseases, pests and certain weather conditions can materially and adversely affect the quality and quantity of grapes available to Crimson thereby materially and adversely affecting the supply of Crimson’s products and its profitability.

 

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The table below summarizes Crimson’s wine grape supply and production from the last three harvests:

 

 

 

Total cases shipped were approximately 349,000,  321,000 and 309,000 for the years ended December 31, 2015, 2014 and 2013, respectively.  Cases shipped are disclosed for informational purposes, but do not necessarily correspond to the vintage year the grapes are grown and crushed.  Depending on the wine, the production cycle to bottled sales is anywhere from one to three years.  

 

Winemaking

 

Crimson’s winemaking philosophy includes the use of the latest industry winemaking advances to complement making wine in the traditional manner by starting with high quality fruit and handling it as gently and naturally as possible all the way to the bottle.  Each of Crimson’s wineries is equipped with modern crush, fermentation and storage equipment as well as technology that is focused on producing the highest quality wines for each of the varietals it produces.

 

Government Regulation

 

Wine production and sales are subject to extensive regulation by the United States Department of Treasury Alcohol and Tobacco Tax and Trade Bureau (“TTB”), the California Department of Alcohol Beverage Control (“CABC”) and other state and federal governmental authorities that regulate interstate sales, licensing, trade and pricing practices, labeling, advertising and other activities. In recent years, federal and state authorities have required warning labels on beverages containing alcohol.  Restrictions or taxes imposed by government authorities on the sale of wine could increase the retail price of wine, which could have an adverse effect on demand for wine in general. New or revised regulations or increased licensing fees or excise taxes on wine, if enacted, could reduce demand for wine and have an adverse effect on Crimson’s business, negatively impacting Crimson’s results of operations and cash flows.

 

Crimson is also subject to a broad range of federal and state regulatory requirements regarding its agricultural operations and practices.  Crimson’s agricultural operations are subject to regulations governing the storage and use of fertilizers, fungicides, herbicides, pesticides, fuels, solvents and other chemicals.  These regulations are subject to change and conceivably could have a significant impact on operating practices, chemical usage, and other aspects of Crimson’s business.

 

Seasonality

 

There is a degree of seasonality in the growing cycles, procurement and transportation of grapes.  The wine industry in general historically experiences seasonal fluctuations in revenues and net income.  Typically, Crimson has lower sales and net income during the first quarter and higher sales and net income during the fourth quarter due to seasonal holiday buying as well as wine club shipment timing.  Crimson expects these trends to continue.  

 

Employees

 

At December 31, 2015, Crimson employed 169 regular, full-time employees. Crimson also employs part-time and seasonal workers for its vineyard, production and hospitality operations.  None of Crimson’s employees are represented by a collective bargaining unit and Crimson believes that its relationship with its employees is good.

 

Trademarks

 

Crimson maintains federal trademark registrations for its brands, proprietary products and certain logos, motifs and vineyard names.  International trademark registrations are also maintained where it is appropriate to do so.  Each of the United States trademark registrations is renewable indefinitely so long as the Company is making a bona fide usage of the trademark.  The Company believes that its trademarks provide it with an important competitive advantage and has established a global network of attorneys, as well as branding, advertising and licensing professionals, to procure, maintain, protect, enhance and gain value from these registrations.

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Investor Information

 

The Company is subject to the informational requirements of the Securities Exchange Act of 1934 (the “Exchange Act”).  Accordingly, the Company files periodic reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”).  Such reports, proxy statements and other information may be obtained by visiting the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330.  In addition, the SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding the Company and other issuers that file electronically.

 

The Company’s website is http://www.crimsonwinegroup.com.  The Company also makes available through its website without charge its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after such reports are filed with or furnished to the SEC. 

 

Cautionary Statement for Forward-Looking Information

 

Statements in this Report may contain forward-looking statements that are subject to risks and uncertainties.  Forward-looking statements give our current expectations relating to our financial condition, results of operations, plans, objectives, future performance and business.  You can identify forward-looking statements by the fact that they do not relate strictly to current or historical facts.  These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “forecast,” “plan,” “intend,” “believe,” “may,” “should,” “would,” “could,” “likely,” and other words of similar expression.

 

Forward-looking statements give our expectations about the future and are not guarantees.  These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance and achievements to materially differ from any future results, performance and achievements expressed or implied by such forward-looking statements.  We caution you, therefore, not to rely on these forward-looking statements.

 

Factors that could cause actual results to differ materially from any results projected, forecasted, estimated or budgeted that may materially and adversely affect the Company’s actual results include, but are not limited to, those set forth in Item 1A. Risk Factors.

 

These forward-looking statements are applicable only as of the date hereof.  Except as may be required by law, we undertake no obligation to modify or revise any forward-looking statements to reflect events or circumstances occurring after the date of this Report.

 

Item 1A.    Risk Factors.

 

Our business is subject to a number of risks.  You should carefully consider the following risk factors, together with all of the other information included or incorporated by reference in this Report, before you decide whether to purchase our common stock.  The risks set out below are not the only risks we face.  If any of the following risks occur, our business, financial condition and results of operations could be materially adversely affected.  In such case, the trading price of our common stock could decline, and you may lose all or part of your investment.

 

We are dependent on certain key personnel.  Our success depends to some degree upon the continued service of Patrick DeLong, our President and Chief Executive Officer; Craig Williams, our Chief Operating Officer and Chief Winegrower; and our winemakers at our various facilities.  The loss of the services of one or more of our key employees could harm our business and our reputation and negatively impact our profitability, particularly if one or more of our key employees resigns to join a competitor or to form a competing company.

 

We could experience significant increases in operating costs and reduced profitability due to competition for skilled management and staff employees.  We compete with other entities for skilled management and staff employees, including entities that operate in different market sectors than us.  Costs to recruit and retain adequate personnel could adversely affect results of operations.

 

Various diseases, pests and certain weather conditions could affect quality and quantity of grapes.   Various diseases, pests, fungi, viruses, drought, frosts and certain other weather conditions could affect the quality and quantity of grapes, decreasing the supply of our products and negatively impacting our operating results.  Future government restrictions regarding the use of certain materials used in grape growing may increase vineyard costs and/or reduce production.  We cannot guarantee that our grape suppliers will succeed in preventing disease in their existing vineyards or that we will succeed in preventing disease in our existing vineyards or future vineyards we may acquire.  For example, Pierce’s disease is a vine bacterial disease spread by insects which kills grapevines for which there is no known cure.   If our vineyards become contaminated with this or other diseases, operating results would decline, perhaps significantly.

 

The lack of sufficient water due to drought conditions could affect quality and quantity of grapes.  The availability of adequate

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quantities of water for application at the correct time can be vital for grapes to thrive.  Whether particular vineyards are experiencing water shortages depends, in large part, on their location.  We are primarily dependent on wells accessing shared aquifers and shared reservoirs as a water source for our California vineyards and wineries.  The current extended period of drought across much of California may put pressure on the use and availability of water for agricultural uses and in some cases governmental authorities have diverted water to other uses.  The lack of available water could reduce our grape harvest and access to grapes and adversely impact results of operations.  Scarcity of adequate water in our grape growing areas may also result in legal disputes among other land owners and water users causing the Company to expend resources to defend its access to water.

 

We may not be able to grow or acquire enough quality fruit for our wines.  While we believe that we can secure sufficient supplies of grapes from a combination of our own production and from grape supply contracts with independent growers, we cannot be certain that grape supply shortages will not occur.  Grape supply shortages resulting from a poor harvest can be caused by a variety of factors outside our control, resulting in reduced product that is available for sale.  If revenues decline as a result of inadequate grape supplies, cash flows and profitability would also decline.

 

We face significant competition which could adversely affect our profitability.  The wine industry is intensely competitive and highly fragmented.  Our wines compete in several wine markets within the wine industry as a whole with many other domestic and foreign wines.  Our wines also compete with comparably priced generic wines and with other alcoholic and, to a lesser degree, non-alcoholic beverages.  A result of this intense competition has been and may continue to be upward pressure on our selling and promotional expenses.  Many of our competitors have greater financial, technical, marketing and public relations resources than we do.  There can be no assurance that in the future we will be able to successfully compete with our competitors or that we will not face greater competition from other wineries and beverage manufacturers.

 

We compete for shelf space in retail stores and for marketing focus by our independent distributors, most of whom carry extensive product portfolios.   Nationwide we sell our products primarily through independent distributors and brokers for resale to retail outlets, restaurants, hotels and private clubs across the U.S. and in some overseas markets.  Sales to distributors are expected to continue to represent a substantial portion of our net revenues in the future.  A change in our relationship with any of our significant distributors could harm our business and reduce our sales.  The laws and regulations of several states prohibit changes of distributors, except under certain limited circumstances, making it difficult to terminate a distributor for poor performance without reasonable cause, as defined by applicable statutes.  Any difficulty or inability to replace distributors, poor performance of our major distributors or our inability to collect accounts receivable from our major distributors could harm our business.  There can be no assurance that the distributors and retailers we use will continue to purchase our products or provide our products with adequate levels of promotional support.  Consolidation at the retail tier, among club and chain grocery stores in particular, can be expected to heighten competitive pressure to increase marketing and sales spending or constrain or reduce prices.

 

Contamination of our wines could harm our business.  We are subject to certain hazards and product liability risks, such as potential contamination, through tampering or otherwise, of ingredients or products.  Contamination of any of our wines could cause us to destroy our wine held in inventory and could cause the need for a product recall, which could significantly damage our reputation for product quality.  We maintain insurance against certain of these kinds of risks, and others, under various insurance policies.  However, our insurance may not be adequate or may not continue to be available at a price or on terms that are satisfactory to us and this insurance may not be adequate to cover any resulting liability.

 

A reduction in consumer demand for wines could harm our business.  There have been periods in the past in which there were substantial declines in the overall per capita consumption of wine products in our markets.  A limited or general decline in consumption in one or more of our product categories could occur in the future due to a variety of factors, including: a general decline in economic conditions; changes in consumer spending habits; increased concern about the health consequences of consuming alcoholic beverage products and about drinking and driving; a trend toward a healthier diet including lighter, lower calorie beverages such as diet soft drinks, juices and water products; the increased activity of anti-alcohol consumer groups; and increased federal, state or foreign excise and other taxes on alcoholic beverage products.  Reductions in demand and revenues would reduce profitability and cash flows.

 

A decrease in wine score ratings by important rating organizations could have a negative impact on our ability to create greater demand and pricing.   Many of Crimson’s brands are issued ratings or scores by local and national wine rating organizations, and higher scores usually translate into greater demand and higher pricing.  Although some of Crimson’s brands have been highly rated in the past, and Crimson believes its farming and winemaking activities are of a quality to generate good ratings in the future, Crimson has no control over ratings issued by third parties which may not be favorable in the future.

 

Climate change, or legal, regulatory or market measures to address climate change, may negatively affect our business, operations or financial performance, and water scarcity or poor quality could negatively impact our production costs and capacity.    Our business depends upon agricultural activity and natural resources, including the availability of water.  There has been much public discussion related to concerns that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global temperatures, weather patterns and the frequency and severity of extreme weather and natural disasters.  Severe weather events and climate change may negatively affect agricultural productivity in our vineyards.  The quality and quantity of water available for use is important to the supply of grapes and our ability to operate our business.  Adverse weather, measures enacted to

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address climate change, and other environmental factors beyond our control could reduce our grape production and adversely impact our cash flows and profitability.

 

Environmental issues or hazardous substances on our properties could result in us incurring significant liabilities.  We are subject to environmental regulations with respect to our operations, including those related to wastewater, air emissions, and hazardous materials use, storage and disposal.  In addition, we own substantial amounts of real property that are critical to our business.  If hazardous substances are discovered on any of our properties and the concentrations are such that the presence of such hazardous substances presents an unreasonable risk of harm to public health or the environment, we may be held strictly liable for the cost of investigation and remediation of hazardous substances.  The cost of environmental remediation could be significant and adversely impact our financial condition, results of operations and cash flows.

 

Our indebtedness could have a material adverse effect on our financial health.  In November 2015, our subsidiary, Pine Ridge Winery, LLC, entered into a senior secured term loan agreement with American AgCredit, FLCA (“FLCA”) for an aggregate principal amount of $16.0 million.  We are guarantor of the term loan, which is collateralized by certain of our real property.  In March 2013, we entered into a revolving credit facility with FLCA and CoBank, FCB as joint lenders that is secured by substantially all of our assets.  We plan to rely upon the revolving credit facility for potential incremental capital project funding and in the future may use it for acquisitions.  No amounts are currently outstanding under the revolving credit facility.  Both the term loan and the revolving credit facility include covenants that require the maintenance of specified debt and equity ratios, limit the incurrence of additional indebtedness, limit dividends and other distributions to shareholders and limit certain mergers, consolidations and sales of assets.  If we are unable to comply with these covenants, outstanding amounts could become immediately due and/or there could be a substantial increase in the rate of borrowing.

 

Changes in domestic laws and government regulations or in the implementation and/or enforcement of government rules and regulations may increase our costs or restrict our ability to sell our products into certain markets.   Government laws and regulations result in increased farming costs, and the sale of wine is subject to taxation in various state, federal and foreign jurisdictions.  The amount of wine that we can sell directly to consumers outside of California is regulated, and in certain states we are not allowed to sell wines directly to consumers and/or the amount that can be sold is limited.  Changes in these laws and regulations could have an adverse impact on sales and/or increase costs to produce and/or sell wine.  The wine industry is subject to extensive regulation by the “TTB” and various foreign agencies, state liquor authorities, such as the “CABC”, and local authorities.  These regulations and laws dictate such matters as licensing requirements, trade and pricing practices, permitted distribution channels, permitted and required labeling, and advertising and relations with wholesalers and retailers.  Any expansion of our existing facilities or development of new vineyards or wineries may be limited by present and future zoning ordinances, environmental restrictions and other legal requirements.  In addition, new regulations or requirements or increases in excise taxes, income taxes, property and sales taxes or international tariffs, could affect our financial condition or results of operations.  Recently, many states have considered proposals to increase, and some of these states have increased, state alcohol excise taxes.  New or revised regulations or increased licensing fees, requirements or taxes could have a material adverse effect on our financial condition, results of operations or cash flows.

 

We may not be able to insure certain risks economically.  We may experience economic harm if any damage to our properties is not covered by insurance.  We cannot be certain that we will be able to insure against all risks that we desire to insure economically or that all of our insurers will be financially viable if we make a claim.

 

We may be subject to litigation, for which we may be unable to accurately assess our level of exposure and which if adversely determined, may have a significant adverse effect on our consolidated financial condition or results of operations.   Although our current assessment is that there is no pending litigation that could reasonably be expected to have a significant adverse impact, if our assessment proves to be in error, then the outcome of litigation could have a significant impact on our financial condition or results of operations or cash flows.

 

The payment of dividends in the future is subject to the discretion of our board of directors.  We do not have a regular dividend policy and whether or not to pay any dividends will be determined each year by our board of directors.

 

If our intangible assets or goodwill become impaired, we may be required to record significant charges to earnings.  We have substantial intangible assets and goodwill on our balance sheet as a result of acquisitions we have completed, in particular the acquisition of Seghesio Family Vineyards.  We review intangible assets and goodwill for impairment annually or more frequently if events or circumstances indicate that these assets might be impaired.  Application of impairment tests requires judgment.  A significant deterioration in a key estimate or assumption or a less significant deterioration to a combination of assumptions or the sale of a part of a reporting unit could result in an impairment charge in the future, which could have a significant adverse impact on our reported earnings.

 

Our common stock is not listed on any securities exchange; as a result there may be a limited public market for our common stock.   Prices for our common stock are quoted on the Over-The-Counter (OTC) Market.  Securities whose prices are quoted on the OTC Market do not have the same liquidity as securities that trade on a recognized market or securities exchange.  An active trading market for our common stock may not be sustained in the future.  As a result, stockholders may find it more difficult to dispose of or obtain accurate quotations as to the market value of our common stock.

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Our common stock price may experience volatility.  The stock market has from time to time experienced extreme price and volume fluctuations that often have been unrelated to the operating performance of particular companies.  Changes in earnings estimates by analysts, if any, and economic and other external factors may have a significant effect on the market price of our common stock.  Fluctuations or decreases in the trading price of our common stock may also adversely affect the liquidity of the trading market for our common stock.

 

Future sales of our shares could depress the market price of our common stock.  The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market or the perception that these sales could occur.  These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.  Any disposition by any of our large shareholders of our common stock in the public market, or the perception that such dispositions could occur, could adversely affect prevailing market prices of our common stock.

 

Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses.   Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, are creating uncertainty for companies such as ours.  We are committed to maintaining appropriate corporate governance and public disclosure.  As a result, we may see an increase in general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities, which could harm our business prospects.

 

We are an “emerging growth company” and we cannot be certain if we will be able to maintain such status or if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.   We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”), and have taken advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirement of holding a nonbinding stockholder advisory vote on executive compensation, frequency of approval of executive compensation and any golden parachute payments not previously approved.  We will retain emerging growth company status until the earliest of:  (1) the last day of the fiscal year following the fifth anniversary of the date we first sold securities pursuant to an effective registration statement under the Securities Act; (2) the last day of the fiscal year in which we first had total annual gross revenues of $1 billion or more (indexed pursuant to the JOBS Act); (3) the date on which we are deemed to be a “large accelerated filer” as defined in Exchange Act Rule 12b-2 (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 we have, within the previous three years, issued more than $1 billion of nonconvertible debt.  Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies.  However, we have irrevocably elected not to avail ourselves of this extended transition period for complying with new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

 

Additionally, we cannot predict if investors will find our common stock less attractive because we rely on these exemptions.  If some investors find our common stock less attractive as a result of our reduced disclosures, there may be less active trading in our common stock and our stock price may be more volatile.

 

We may not be able to engage in certain corporate transactions after the Distribution.  Under the tax matters agreement that we have entered into with Leucadia, we covenant not to take actions that would jeopardize the tax-free nature of the Distribution.  Additionally, we are required to indemnify Leucadia and its affiliates against all tax-related liabilities caused by the failure of the Distribution to qualify for tax-free treatment for U.S. federal income tax purposes (including as a result of events subsequent to the Distribution that caused Leucadia to recognize gain under Section 355(e) of the Code) to the extent these liabilities arise as a result of actions taken by us or our affiliates (other than Leucadia) or as a result of changes in ownership of our common stock.  If the Distribution is taxable to Leucadia, Leucadia would recognize gain, if any, equal to the difference between Leucadia’s tax basis in our Common Stock distributed in the distribution and the fair market value of our Common Stock.  Leucadia does not expect that there would be significant gain, if any, recognized on the Distribution even if it were found to be taxable.  This covenant (and, to some extent, this indemnification obligation) may limit our ability to pursue certain strategic transactions, including being acquired in a transaction for cash consideration or from engaging in certain tax-free combinations in which our shareholders do not ultimately possess a majority ownership interest in the combined entity.

 

Significant influence over our affairs may be exercised by our principal stockholders.  As of March 4, 2016, the significant stockholders of our company include our directors, Ian M. Cumming (approximately 9.3% beneficial ownership, including ownership by certain family members, but excluding Mr. Cumming’s charitable foundation), Joseph S. Steinberg (approximately 9.7% beneficial ownership, including ownership by trusts for the benefit of his respective family members, but excluding Mr. Steinberg’s private charitable foundation) and John D. Cumming (approximately 0.3% beneficial ownership).  Accordingly, Messrs. Cumming and Steinberg could exert significant influence over all matters requiring approval by our stockholders, including the election or removal of directors and the approval of mergers or other business combination transactions.

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We may not be fully insured against risk of catastrophic loss to wineries, production facilities or distribution systems as a result of earthquakes or other events, which may cause us to experience a material financial loss.  A significant portion of Crimson’s controlled vineyards as well as supplier and other third party warehouses or distribution centers are located in California, which is prone to seismic activity.  If any of these vineyards and facilities were to experience a catastrophic loss, it could disrupt our operations, delay production, shipments and revenue, and result in potentially significant expenses to repair or replace the vineyard or facility. If such a disruption were to occur, we could breach agreements, our reputation could be harmed, and our business and operating results could be adversely affected. Although we carry insurance to cover property damage and business interruption as well as certain production assets in the case of a catastrophic event, certain significant assets are not covered in the case of certain catastrophes as we believe this to be a prudent financial decision.  We take steps to minimize the damage that would be caused by a catastrophic event, but there is no certainty that our efforts would prove successful. If one or more significant catastrophic events occurred damaging our own or third party assets and/or services, we could suffer a major financial loss.

 

Our business and reputation could suffer if we are unable to protect our information systems against, or effectively respond to, cybersecurity incidents or if our information systems are otherwise disrupted.  We depend on information technology, including public websites and cloud-based services, for many activities important to our business, including to interface with our customers and consumers, to engage in digital marketing activities, to enable and improve the effectiveness of our operations, to order and manage materials from suppliers, to maintain financial accuracy and efficiency, to comply with regulatory, financial reporting, legal and tax requirements, to collect and store sensitive data and confidential information, and to communicate electronically with our employees and the employees of our suppliers and other third parties. If we do not allocate and effectively manage the resources necessary to build and sustain our information technology infrastructure, if we fail to timely identify or appropriately respond to cybersecurity incidents, or if our information systems are damaged, destroyed or shut down (whether as a result of natural disasters, fires, power outages, acts of terrorism or other catastrophic events, network outages, software, equipment or telecommunications failures, user errors, or from deliberate cyberattacks such as malicious or disruptive software, denial of service attacks, malicious social engineering, hackers or otherwise), our business could be disrupted and we could, among other things, be subject to: transaction errors; processing inefficiencies; the loss of, or failure to attract new, customers and consumers; the loss of revenues from unauthorized use, acquisition or disclosure of or access to confidential information; the loss of or damage to intellectual property or trade secrets, including the loss or unauthorized disclosure of sensitive data, confidential information or other assets; damage to our reputation; litigation; regulatory enforcement actions; violation of data privacy, security or other laws and regulations; and remediation costs. Further, our information systems and the information stored therein, could be compromised by, and we could experience similar adverse consequences due to, unauthorized outside parties intent on accessing or extracting sensitive data or confidential information, corrupting information or disrupting business processes or by inadvertent or intentional actions by our employees or agents. Similar risks exist with respect to the third-party vendors we rely upon for aspects of our information technology support services and administrative functions, including but not limited to payroll processing and health and benefit plan administration.

 

Item 1B.    Unresolved Staff Comments.

 

None.

 

Item 2.       Properties.

 

Crimson’s vineyards and winemaking facilities are described in Item 1.  During 2014, the Company entered into a lease agreement in Napa, California to lease approximately 13,200 square feet of space for its administrative offices.  The lease commenced July 1, 2014 for a term expiring June 30, 2020.

 

Item 3.       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 4.       Mine Safety Disclosures.

 

Not applicable.

 

 

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PART II

 

 

Market Information

 

The Company’s common stock is traded in the over-the-counter market, OTC Market, under the symbol “CWGL.”  The Company’s common stock is not listed on any stock exchange, and price information for the common stock is not regularly quoted on any automated quotation system.

 

The following table sets forth the high and low sales price of the Company’s common stock, as published by the National Association of Securities Dealers OTC Bulletin Board Service.

 

 

 

On March 4, 2016, the closing sales price for the Company’s common stock was $8.45 per share.  As of that date, there were 1,699 stockholders of record.  The transfer agent for the Company’s common stock is American Stock Transfer & Trust Company, 59 Maiden Lane, New York, New York 10038.

 

The Company and certain of its subsidiaries have net operating losses (“NOLs”) and other tax attributes, the amount and availability of which are subject to certain qualifications, limitations and uncertainties.  In order to reduce the possibility that certain changes in ownership could result in limitations on the use of its tax attributes, the Company's certificate of incorporation contains provisions which generally restrict the ability of a person or entity from acquiring ownership (including through attribution under the tax law) of five percent or more of the common stock and the ability of persons or entities now owning five percent or more of the common stock from acquiring additional common stock.  The restrictions will remain in effect until the earliest of (a) December 31, 2022, (b) the repeal of Section 382 of the Internal Revenue Code (or any comparable successor provision) and (c) the beginning of a taxable year of the Company to which certain tax benefits may no longer be carried forward.

 

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Purchases of equity securities

 

Share repurchase activity under the Company’s share repurchase program, on a trade date basis, as of December 31, 2015, was as follows:

 

 

 

 

 

There have been no sales of unregistered securities by the Company within the past year. As of the last fiscal year end, the Company had not authorized any securities for issuance under any equity plans.

 

Dividend Policy

 

No dividends have been paid since the Distribution.  The Company does not have a regular dividend policy and whether or not to pay dividends will be determined each year by our board of directors.  The payment of dividends will also be subject to the terms and covenants contained in the Company’s revolving credit facility.

 

Stockholder Return Performance Graph

 

Set forth below is a graph comparing the cumulative total stockholder return on the Company’s common stock against the cumulative total return of the Standard & Poor’s 500 Stock Index and a peer group index (the “Peer Group Index”) for the period commencing February 25, 2013 to December 31, 2015. Index data was furnished by Standard & Poor’s Capital IQ. The graph assumes that $100 was invested on February 25, 2013 in each of our common stock, the S&P 500 Index and the Peer Group Index and that all dividends were reinvested.

 

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The Peer Group Index is weighted according to the respective issuer’s stock market capitalization and is comprised of the following companies: Treasury Wine Estates; Truett Hurst, Inc. (included as of 6/20/2013 when it began trading); Vina Concha y Toro; and Willamette Valley Vineyards, Inc.

 

The stock price performance included in this graph is not necessarily indicative of future stock price performance.    The Company neither makes nor endorses any predictions as to future stock performance.

 

Item 6.       Selected Financial Data.

 

The following selected financial data have been summarized from the Company’s consolidated financial statements and are qualified in their entirety by reference to, and should be read in conjunction with, such consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in Item 7 of this Report.  Subsidiaries and operations are reflected in the consolidated results from the date of acquisition, which was May 31, 2011 for Seghesio Family Vineyards.

 

 

 

 

 

 

 

 

 

 

 

 

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Item 7.       Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The purpose of this section is to discuss and analyze the Company’s consolidated financial condition, liquidity and capital resources and results of operations.  This analysis should be read in conjunction with the consolidated financial statements, related footnote disclosures and “Cautionary Statement for Forward-Looking Information,” which appear elsewhere in this Report.

 

Overview of Business

 

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. 

 

Our wines are primarily sold to wholesale distributors, who then sell to retailers and restaurants.  As permitted under federal and local regulations, we have 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 and direct outreach to customers. Direct sales to consumers are more profitable for the Company as it is able to sell its products at a price closer to retail prices rather than the wholesale price sold to distributors. From time to time, we may sell grapes or bulk wine, because the wine does not meet the quality standards for the Company’s products, market conditions have changed resulting in reduced demand for certain products, or because the Company 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 the Company’s controlled vineyards, crush costs, winemaking and processing costs, bottling, packaging, warehousing and shipping and handling costs. For the Company controlled vineyard produced grapes, grape costs include annual farming labor costs, harvest costs and depreciation of vineyard assets. 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 36 months. Reductions to the carrying value of inventories are also included in costs of sales.

 

At December 31, 2015, wine inventory includes approximately 0.8 million cases of bottled and bulk wine in various stages of the aging process.  Cased wine is expected to be sold over the next 12 to 36 months and generally before the release date of the next vintage.

 

Seasonality

As discussed in Item 1 of this Form 10-K, the wine industry in general historically experiences seasonal fluctuations in revenues and net income. The Company typically has lower sales and net income during the first quarter and higher sales and net income during the fourth quarter due to seasonal holiday buying as well as wine club shipment timing.  We anticipate similar trends in the future.

 

Critical Accounting Estimates

 

Crimson’s discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”).  The preparation of these financial statements requires Crimson to make estimates and assumptions that affect the reported amounts in the financial statements and disclosures of contingent assets and liabilities.  On an on-going basis, Crimson evaluates all of these estimates

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and assumptions.  The following areas have been identified as critical accounting estimates because they have the potential to have a significant impact on Crimson’s financial statements, and because they are based on assumptions that are used in the accounting records to reflect, at a specific point in time, events whose ultimate outcome won’t be known until a later date.  Actual results could differ from these estimates.

 

Inventory—Inventories are stated at the lower of cost or market, with cost being determined on the first-in, first-out method.  Costs associated with winemaking, and other costs associated with the manufacturing of products for resale, are recorded as inventory.  In accordance with general practice within the wine industry, wine inventories are included in current assets, although a portion of such inventories may be aged for periods longer than one year.  As required, Crimson reduces the carrying value of inventories that are obsolete or in excess of estimated usage to estimated net realizable value.  Crimson’s estimates of net realizable value are based on analyses and assumptions including, but not limited to, historical usage, future demand and market requirements.  Reductions to the carrying value of inventories are recorded in cost of sales.  If future demand and/or pricing for Crimson’s products are less than previously estimated, then the carrying value of the inventories may be required to be reduced, resulting in additional expense and reduced profitability.  Inventory write-downs of $0.3 million, $0.5 million and $0 were recorded during the years ended December 31, 2015, 2014 and 2013, respectively.

 

Vineyard Development Costs—Crimson capitalizes internal vineyard development costs when developing new vineyards or replacing or improving existing vineyards.  These costs consist primarily of the costs of the vines and expenditures related to labor and materials to prepare the land and construct vine trellises.  Amortization of such costs as annual crop costs is recorded on a straight-line basis over the estimated economic useful life of the vineyard, which can be up to 25 years.  As circumstances warrant, Crimson re-evaluates the recoverability of capitalized costs, and will record impairment charges if required.  Crimson has not recorded any significant impairment charges for its vineyards during the three year period ended December 31, 2015.

 

Review of Long-Lived Assets for Impairment—For intangible assets with definite lives, impairment testing is required if conditions exist that indicate the carrying value may not be recoverable.  For intangible assets with indefinite lives and for goodwill, impairment testing is required at least annually or more frequently if events or circumstances indicate that these assets might be impaired.  Crimson currently has no intangible assets with indefinite lives.  Substantially all of Crimson’s goodwill and other intangible assets result from the acquisition of Seghesio Family Vineyards in May 2011.  Amortization of intangible assets is recorded on a straight-line basis over the estimated useful lives of the assets, which range from 7 to 20 years.  Crimson evaluates goodwill for impairment at the end of each year, and has concluded that goodwill is not impaired.

 

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.  Long-lived assets consist primarily of property and equipment.  Circumstances that might cause the Company to evaluate its long-lived assets for impairment could include a significant decline in the prices the Company or the industry can charge for its products, which could be caused by general economic or other factors, changes in laws or regulations that make it difficult or more costly for the Company to distribute its products to its markets at prices which generate adequate returns, natural disasters, significant decrease in the demand for the Company’s products or significant increases in the costs to manufacture the Company’s products.

 

Recoverability of long-lived assets is measured by a comparison of the carrying amount of an asset group to future net cash flows expected to be generated by the asset group.  If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.  The Company groups its long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (or asset group).  This would typically be at the winery level which is described above.

 

The Company did not recognize any impairment charges associated with long-lived assets during the three year period ended December 31, 2015.

 

Depletion Allowances—Crimson pays depletion allowances to its distributors based on their sales to their customers.  These allowances are estimated on a monthly basis by Crimson, and allowances are accrued as a reduction of revenues.  Subsequently, distributors will bill Crimson for actual depletions, which may be different from Crimson’s estimate.  Any such differences are recognized in revenues when the bill is received.  Crimson has historically been able to estimate depletion allowances without any material differences between actual and estimated expense.

 

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Results of Operations

 

Comparison of Years Ended December 31, 2015 and 2014

 

Net Sales

 

 

Wholesale net sales increased $2.4 million, or 7%, in 2015 as compared to 2014. The increase in the current year was driven by domestic volume growth of 10% and increased pricing, partially offset by a slight decline in export volume of 2% and increased price support.

 

Direct to consumer net sales increased $1.0 million, or 5%, in 2015 as compared to 2014. The increase was primarily driven by price increases and shifts towards higher priced retail channels.  In the current year, wine club net sales increased $1.0 million and tasting room and e-commerce combined net sales increased $0.l million, partially offset by a decrease in special events net sales of $0.1 million.

 

Other net sales include bulk wine and grape sales, event fees and retail sales which had an overall decrease of $0.5 million, or 14%, in 2015 as compared to 2014. The year over year decrease was primarily driven by  a lower priced mix of grape and bulk wine sales. 

 

Gross Profit

 

 

Wholesale gross profit increased $0.8 million, or 5%, in 2015 as compared to 2014. Gross margin percentage, which is defined as gross profit as a percentage of net sales, decreased approximately 120 basis points in the current year driven primarily by shifts in product mix and increased price support.   

 

Direct to consumer gross profit increased $1.0 million, or 7%, in 2015 as compared to 2014. Gross margin percentage increased approximately 136 basis points in the current year, which was driven by price increases, a shift towards higher priced products and channels and lower costs related to the transition to new vintage products that carry a lower average cost.

 

Other gross profit includes bulk wine and grape sales, event fees, non-wine retail sales and inventory write-downs which reflected an overall decrease of $0.1 million, or 140%, in 2015 as compared to 2014. The overall decrease was primarily related to losses on bulk wine sales due to increased volumes of gallons sold at reduced bulk pricing and lower margin on sales of grapes due to mix.

 

Operating Expenses

 

 

*The year ended December 31, 2014 includes $9,000 of fees paid to Leucadia for administrative services.

 

Sales and marketing expenses increased $1.0 million, or 7%, in 2015 as compared to 2014. The increase was primarily driven by increased headcount, which resulted in higher compensation costs, increased promotional and marketing related expense and

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increased travel expenses to accommodate growth and a shift away from outside broker relationships. These increases were partially offset by an overall decrease in discounts and incentives and lower commission expense.

 

General and administrative expenses increased $0.3 million, or 3%, in 2015 as compared to 2014.  The increase in the current year was driven by increased salaries and related recruiting costs to manage growth, costs associated with a new corporate office and related depreciation of leasehold improvements and depreciation and other costs associated with technology enhancements to support planned business growth. These increases were partially offset by a $1.0 million decrease in severance related expense due to severance paid during 2014, $0.8 million of which was paid to the former Chief Executive Officer upon his resignation during the fourth quarter of 2014.

 

Other Income (Expense)

 

 

Interest expense increased $0.1 million, or 66%, in 2015 as compared to 2014.  The increase relates to interest expense incurred on the term loan entered into with American AG Credit during November 2015.

Other income was $0.3 million in 2015.  The overall increase in other income relates to increased rental income and one-time income associated with a vineyard lease recognized in 2015.

Income Tax Provision 

Our income tax provision decreased $1.1 million, or 27%, in 2015 as compared to 2014. The effective tax rate was 35.4% for 2015 as compared to 43.6% for 2014. The decrease was primarily due to the benefit of adjustments to prior period deferred tax liabilities.  Our effective tax rate in 2015 was higher than the federal statutory rate primarily due to state income taxes.

 

Comparison of Years Ended December 31, 2014 and 2013

 

Net Sales

 

 

Total net sales increased $1.6 million in 2014 as compared to 2013 as a result of a 2.2% increase in case sales, a 1.4% increase in revenue per case, due to a shift in product mix across brands and channels, a 6.6% increase in event and other non-wine revenue, slightly offset by a decrease in bulk wine and grape sales.  Wholesale net sales increased $1.2 million in 2014 as compared to 2013, primarily attributable to the domestic market with a partial offset in the export market.  Direct to consumer net sales increased $0.7 million in 2014 as compared to 2013 primarily as a result of a $1.1 million increase in wine revenue from wine club sales, primarily attributable to an increase in wine club membership, an increase in sales volume and an overall increase in price point for wine included in shipments across all brands, and a $0.1 million increase in special events wine revenue, partially offset by a $0.4 million decrease in e-commerce wine revenue and a $0.2 million decrease in tasting room wine revenue, primarily a result of timing of sales initiatives and intentional allocation of available product.  In addition, bulk wine and grape sales decreased $0.4 million, which is partially offset by an increase in non-wine revenue, including tasting fees and special events, of $0.1 million.

 

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Gross Profit

 

 

Gross profit increased $4.2 million in 2014 as compared to 2013 reflecting an increase in wine revenue in conjunction with a decrease in cost of goods per case, improved freight margin as a result of consolidated resources, and increased event margin driven by new events and event structure.

 

Operating Expenses

 

 

*The years ended December 31, 2014 and 2013 include $9,000 and $98,000, respectively, of fees paid to Leucadia for administrative services.

 

Sales and marketing expenses increased $0.4 million in 2014 as compared to 2013, primarily due to increased compensation related expense and travel related expense, to accommodate growth and replace a significant broker in a top 5 U.S. market, partially offset by decreased promotional and marketing related expense.

 

General and administrative expenses increased $1.0 million in 2014 as compared to 2013, primarily due to $1.0 million of severance paid during 2014, $0.8 million of which was paid to the former Chief Executive Officer upon his resignation during the fourth quarter of 2014.  No severance was incurred in 2013.  Other minor increases were in SEC related expense, primarily related to the proxy and annual report costs not incurred in 2013, increase in travel related expense, increase in consulting expense and new costs for lease, depreciation and occupancy related expense pertaining to the corporate office lease commencing during the third quarter of 2014. These increases were partially offset by a decrease in employee compensation, as a result of $0.5 million of executive bonuses paid in June 2013 approved by the Crimson board of directors in relation to the spin-off combined with the resignation of the Chief Executive Officer during the fourth quarter of 2014.

 

Other Income (Expense)

 

 

Interest expense in 2014 and 2013 was comprised of unused line of credit fees related to the Company’s revolving facility with American AG Credit, which ranged from 0.25% to 0.375% during these years. Interest expense in 2013 also includes the costs of funds borrowed from Leucadia, which funds were contributed to capital prior to the Distribution.

Other income of $0.3 million in 2013 was primarily comprised of credits related to the spin-off from Leucadia.

Income Tax Provision

Income tax increased $6.2 million in 2014 as compared to 2013 as a result of the recognition of statutory income taxes combined with the decrease of the amount of the valuation allowance reversed in 2014 as compared to 2013.    

 

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Liquidity and Capital Resources

 

General

 

The Company’s principal sources of liquidity are its available cash, funds generated from operations and its credit facilities. The Company’s primary cash needs are to fund working capital requirements and capital expenditures.

 

Credit Facilities

 

In March 2013, Crimson entered into a $60.0 million 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 $10.0 million of availability in the aggregate for a five year term, and the term revolving credit facility is for up to $50.0 million in the aggregate for a fifteen year term.  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.  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. Effective October 1, 2015 the unused line fees range from 0.15% to 0.25%.    The revolving credit facility can be used to fund acquisitions, capital projects and other general corporate purposes.  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.    No amounts have been borrowed under the revolving credit facility to date. 

 

On November 10, 2015, Pine Ridge Winery, LLC (“Borrower”), a wholly-owned subsidiary of Crimson entered into a senior secured term loan agreement (the “term loan”) with American AgCredit, FLCA (“Lender”) for an aggregate principal amount of $16.0 million. Amounts outstanding under the term loan will bear a fixed interest rate of 5.24% per annum.

 

The term loan will mature on October 1, 2040 (the “Maturity Date”). On the first day of each January, April, July and October, commencing January 1, 2016,  Borrower is required to make a principal payment in the amount of One Hundred Sixty Thousand Dollars ($160,000) and an interest payment equal to the amount of all interest accrued through the previous day. A final payment of all unpaid principal, interest and any other charges with respect to the term loan shall be due and payable on the Maturity Date.

 

Borrower’s obligations under the term loan are guaranteed by the Company. All obligations of Borrower under the term loan are collateralized by certain real property of the Company. Borrower’s covenants include the maintenance of a specified debt service coverage ratio and certain customary affirmative and negative covenants, including limitations on the incurrence of additional indebtedness; limitations on distributions to shareholders; and restrictions on certain investments, sale of assets and merging or consolidating with other persons.

 

The full $16.0 million was drawn at closing and the term loan can be used to fund acquisitions, capital projects and other general corporate purposes. As of December 31, 2015, $16.0 million in principal was outstanding, net of unamortized loan fees of $0.1 million.

 

Consolidated Statements of Cash Flows

The following table summarizes our cash flow activities (in thousands):

 

 

 

Cash provided by operating activities

 

Net cash provided by operating activities was $8.7 million in 2015, consisting primarily of $5.1 million of net income adjusted for non-cash items such as $7.4 million of depreciation and amortization, $2.6 million of deferred income tax provision and $6.7 million of net cash outflow related to changes in operating assets and liabilities.    The change in operating assets and liabilities was primarily due to an increase in inventory,  primarily due to strategic growth initiatives.    

 

Net cash provided by operating activities was $8.9 million in 2014, consisting primarily of $5.0 million of net income adjusted for non-cash items such as $7.1 million of depreciation and amortization, $3.8 million of deferred income tax provision, $1.6 million of net gain related to disposals of property and equipment and $5.8 million of net cash outflow related to changes in operating assets and liabilities. The change in operating assets and liabilities was primarily due to an increase in inventory, primarily due to strategic growth initiatives and increased grape purchases.

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Net cash provided by operating activities was $10.3 million in 2013, consisting primarily of $7.1 million of net income adjusted for non-cash items such as $6.9 million of depreciation and amortization, $2.5 million related to a decrease in our net deferred tax asset valuation allowance, $0.6 million of net gain related to disposals of property and equipment and $1.1 million of net cash outflow related to changes in operating assets and liabilities.  The change in operating assets and liabilities was primarily due to increases in inventory and accounts receivable partially offset by an increase in accounts payable and expense accruals.

 

Cash used in investing activities

 

Net cash used in investing activities was $18.2 million in 2015, consisting primarily of net purchases and redemptions of available for sale investments of $9.8 million and capital expenditures of $8.6 million.  The increase in capital expenditures reflects investment in infrastructure and leasehold improvement projects, including expansion of the fermentation capacity at Seghesio Family Vineyards and technological enhancements related to growth.  The Company expects to spend approximately $7.7 million in 2016 for capital expenditures, and in early 2016 completed $3.0 million in strategic land acquisitions.  We expect to use our available cash and cash flows generated from operating activities to fund capital expenditures.

 

Net cash used in investing activities was $8.9 million in 2014, consisting primarily of capital expenditures of $7.7 million and net purchases and redemptions of available for sale investments of $5.3 million, partially offset by proceeds from disposals of property and equipment of $4.0 million.  Proceeds from disposals of property and equipment in 2014 included $3.9 million received from the sale of a non-strategic parcel of land.

 

Net cash used in investing activities was $15.2 million in 2013, consisting primarily of purchases of available for sale investments of $10.5 million and capital expenditures of $6.5 million, partially offset by proceeds from disposals of property and equipment of $1.8 million.  Proceeds from disposals of property and equipment in 2013 included $1.8 million received from the sale of a non-strategic vineyard.

 

Cash provided by financing activities

 

Net cash provided by financing activities in 2015 was $14.5 million, which reflects gross proceeds of $16.0 million from the issuance of the term loan in 2015 partially offset by the repurchase of 151,812 shares of our common stock at a repurchase price of $1.4 million and payment of loan fees of $0.1 million related to the issuance of the term loan. 

 

Cash provided by financing activities was $12.5 million in 2013 which reflected a capital contribution from Leucadia of $14.2 million partially offset by principal payments of $1.7 million on debt to Leucadia.

 

Share Repurchases

 

In March 2014, the board of directors of the Company authorized a stock repurchase program pursuant to which we may repurchase up to $2.0 million of the Company’s common stock.  The repurchases will be funded by available cash and will depend on market conditions, including the price of the common stock.  At December 31, 2015, we had repurchased 151,812 shares which were constructively retired at a  repurchase price of $1.4 million (See Item 5 in this Report).  On February 29, 2016 the repurchase program was completed. 

 

Contractual Obligations and Commitments

The following is a summary of our contractual obligations and commitments as of December 31, 2015 (in thousands):

 

 

 

 

Off-Balance Sheet Financing Arrangements

 

None.

 

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Item 7A.    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.  As discussed above under Liquidity and Capital Resources, Crimson has a revolving credit facility and a term loan. The revolving credit facility had no outstanding balance as of December 31, 2015, and has interest at floating rates on borrowings.  The term loan had $16.0 million outstanding at December 31, 2015, and is a fixed-rate debt, and therefore is not subject to fluctuations in market interest rates.

 

Item 8.       Financial Statements and Supplementary Data.

 

Financial Statements and supplementary data required by this Item 8 are set forth at the pages indicated in Item 15(a) below.

 

Item 9.       Changes and Disagreements with Accountants on Accounting and Financial Disclosure.

 

None.

 

Item 9A.    Conclusion Regarding Effectiveness of Disclosure 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-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of December 31, 2015.  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 December 31, 2015.

 

Management’s Annual Report on Internal Control over Financial Reporting.

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Also, projections of any evaluation of internal control effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with internal control policies or procedures may deteriorate. Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2015.  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.

 

Changes in 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 December 31, 2015, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

 

Item 9B.    Other Information.

 

Not applicable.

 

 

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PART III

 

Item 10.     Directors, Executive Officers and Corporate Governance.

 

As of March 15, 2016, the directors and executive officers of the Company, their ages, the positions with the Company held by each of them, the periods during which they have served in such positions and a summary of their recent business experience is set forth below.  Each of the biographies of the current directors listed below also contains information regarding such person’s service as a director, business experience, director positions with other public companies held currently or at any time during the past five years, and the experience, qualifications, attributes and skills that the Board of Directors considered in selecting each of them to serve as a director of the Company.

 

Ian M. Cumming, age 75.  Mr. Cumming has served as a director since March 1994 and Chairman of Crimson from April 2008 to June 2015.  He has been a director of Skywest, Inc., a Utah-based regional air carrier, since June 1986, and a director of HomeFed Corporation (“HomeFed”), a California residential real estate development company, since May 1999.  Mr. Cumming currently serves as a director of American Investment Company, a family-owned investment company with diversified holdings.  Mr. Cumming previously served as a director of Leucadia until July 2013 and was Chairman of the Board until March 2013.  He also previously served as a director of Jefferies Group, Inc. (“Jefferies”), a full service global investment bank and institutional securities firm that was acquired by Leucadia in March 2013.  Mr. Cumming also previously served as a director of Fortescue Metals Group Ltd. (“Fortescue”), AmeriCredit Corp. and Mueller Industries, Inc. (“Mueller”), the Chairman of the Board of The FINOVA Group Inc. (“Finova”), and a member of the Board of Managers of Premier Entertainment Biloxi, LLC. (“Premier”).  Mr. Cumming has managerial and investing experience in a broad range of businesses through his more than 30 years as Chairman and Chief Executive Officer of Leucadia.  He also has experience serving on the boards of directors and committees of both public and private entities.

 

Joseph S. Steinberg, age 72, was elected as a director in February 2013.  Mr. Steinberg has been President of Leucadia since January 1979, a director of Leucadia since December 1978 and Leucadia’s Chairman of the Board since March 2013.  Mr. Steinberg has been a director of HomeFed since August 1998 and Chairman of the Board of HomeFed since December 1999.  Mr. Steinberg is also a director of Jefferies.  Mr. Steinberg had previously served as a director of Jordan Industries, Inc., White Mountains Insurance Group, Ltd., Finova, Fortescue and Mueller, and was a member of the Board of Managers of Premier.  Mr. Steinberg has managerial and investing experience in a broad range of businesses through his more than 30 years as President and a director of Leucadia.  He also has experience serving on the boards and committees of both public and private companies.

 

John D. Cumming, age 48.  Mr. Cumming was elected as Chairman of Crimson in June 2015 after serving as a director since February 2013.  Mr. Cumming has been the Chairman, Chief Executive Officer and President of Powdr Corporation, a private company engaged in the development of ski resorts, since 1994.  Mr. Cumming has also been the President of the United States Ski and Snowboard Team Foundation since 2010.  Mr. Cumming previously served in several senior roles at the Park City Foundation, including as a member of the Board of Trustees and Chairman.  Mr. Cumming is also a director of Cumming Investment Company.  Mr. Cumming has managerial and investing experience in a broad range of businesses through his service as a senior executive and director of Powdr, his involvement as a founding shareholder of Mountain Hardwear and his tenure on various boards of directors.  Ian M. Cumming is the father of John D. Cumming.

 

Avraham M. Neikrug, age 46, was elected as a director in February 2013.  Mr. Neikrug has been the Managing Partner of Goldenhill Ventures, a private investment firm that specializes in buying and building businesses in partnership with management, since June 2011.  Mr. Neikrug has served as Vice President in Goldenhill Ventures LLC since June 2011 and Spin Holdings LLC since December 1999.  Mr. Neikrug has managerial and investing experience in a broad range of businesses through his founding and operating of JIR Inc., a company involved in the development of regional cable television throughout Russia, JIRP, a business-to-business internet service provider (ISP) based in Austria, and M&A Argentina, a private equity effort in Argentina.  Avraham M. Neikrug’s father is a first cousin to Joseph S. Steinberg.

 

Douglas M. Carlson, age 59, was elected as a director in March 2013.  Mr. Carlson was elected CEO and Chairman of Tommy's Superfoods, LLC in August 2015. Tommy's is in the frozen vegetables business and is quickly becoming a national brand in the US with 10 different and creative seasoned blends of vegetables.  From October 2013 to July 2015, Mr. Carlson was the Executive Vice President of Digital Content and Marketing of NOOK Media LLC, a subsidiary of Barnes & Noble, Inc.  From April 2010 to September 2013, Mr. Carlson was Managing Partner of Rancho Valencia Resort & Spa, a tennis resort that includes fractional real estate.  Prior to that, Mr. Carlson was Executive Chairman and Managing Director of Zinio, LLC and VIV Publishing, a digital publishing, retail and distribution platform for magazines, since 2005.  Mr. Carlson co-founded FIJI Water Company LLC, Inc. in 1996 and served as its Chief Executive Officer from 1996 to 2005.  Prior to joining FIJI, Mr. Carlson served as the Senior Vice President and Chief Financial Officer for The Aspen Skiing Company, from 1989 to 1996.  Mr. Carlson has managerial and investing experience both within and outside the hospitality industry, as well as having been a certified public accountant.

 

Craig D. Williams, age 65, was elected as a director in March 2013.  Mr. Williams has been owner of Craig Williams Wine Company, a consulting business focused on winemaking and viticulture, since 2008.  From 1976 to 2008, Mr. Williams held a variety of winemaking roles at Joseph Phelps Vineyards, rising to Senior Vice President of Winegrowing, responsible for all viticulture and winemaking

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activities, from 1999 to 2008.  Mr. Williams has managerial experience and experience in multiple aspects of the wine business. In January 2015, Mr. Williams joined Crimson Wine Group as the Chief Winegrower & Chief Operating Officer.

 

Francesca Schuler, age 48, was elected as a director on March 11, 2016.  Ms. Schuler is currently the Chief Marketing Officer (CMO) at In-Shape Health Clubs. Prior to joining In-Shape, Ms. Schuler was the CMO of BevMo!.  She joined BevMo! from Treasury Wine Estates Americas where she was CMO, managing a wine portfolio of over 50 brands.  Prior to this, Ms. Schuler was the head of Marketing for Method Products, Inc., the VP of Global Brand Management at the Gap and a partner at Marakon Associates, a boutique management consulting firm, where she advised consumer and retail companies. Early in her career, she held several marketing and sales positions at the E&J Gallo Winery.  Ms. Schuler has over 20 years of experience leading and managing multi-channel businesses and has focused on brand strategy, portfolio management, product development and innovation, e-commerce and digital strategy, CRM, and sales.

 

Patrick M. DeLong, age 51.  Mr. DeLong has served as President and Chief Executive Officer of Crimson since November 2014 and Chief Financial & Operating Officer of Crimson since July 2007.  Mr. DeLong served as the Senior Vice President & CFO of Icon Estates, which was a fine wine division of Constellation Brands, Inc., from 2004 to 2006.  Mr. DeLong was at the Robert Mondavi Corporation in a variety of roles from 1998 to 2004, including Senior Vice President of Finance & Planning.

 

Shannon B. McLaren, age 39.  Ms. McLaren has served as Chief Financial Officer of Crimson since April 2015.  Ms. McLaren served as the Senior Corporate Controller of Wente Family Estates from 2011 to 2015.  Ms. McLaren held positions in both Financial Planning and Analysis and Corporate Accounting at The Clorox Company from 2007 to 2011.  Ms. McLaren was Senior Internal Auditor at Altera Corporation from 2006 to 2007.  Ms. McLaren was at KPMG from 1999 to 2006 in a variety of roles, including Manager of Assurance.

 

Mike S. Cekay, age 44.  Mr. Cekay has served as Senior Vice President of Global Sales of Crimson since May 2012.  Mr. Cekay served as the Executive Vice President, Global Sales Manager of Don Sebastiani & Sons from 2009 to 2012.  Mr. Cekay was Vice President of Sales at Future Brands LLC from 2007 to 2009.  Mr. Cekay was Divisional Sales Vice President for Beam Wine Estates from 2005 to 2007.

 

Committees of the Board

 

The Board of Directors of the Company has a standing Audit Committee.  It does not have a compensation or nominating committee.  As our common stock is traded on the OTC Market, we are not subject to listing standards that would require us to have a compensation committee or that would require director nominees to be selected or recommended by a majority of independent directors or a nominating committee comprised solely of independent directors.  The Board believes it is appropriate to have all directors involved in setting executive and director compensation and in the process of nominating directors, rather than delegate these responsibilities to a smaller group of directors.  Under the listing standards of the NASDAQ Stock Market, Messrs. Ian Cumming, John Cumming, Steinberg, Carlson and Neikrug and Ms. Schuler are independent directors serving on the Board.  The Company will continue to evaluate the need for a compensation committee and a nominating committee in the future.

 

Procedures for Recommending Nominees

 

A stockholder entitled to vote in the election of directors may nominate one or more persons for election as director at a meeting if written notice of that stockholder’s intent to make the nomination has been given to us, with respect to an election to be held at an annual meeting of stockholders, no earlier than 150 days and no later than 120 days before the first anniversary of our proxy statement in connection with the last annual meeting, and, with respect to an election to be held at a special meeting of stockholders, no earlier than 150 days before such special meeting and no later than 120 days before such special meeting, or if the first public notice of such special meeting is less than 130 days prior to the date of such special meeting, the tenth day following the date on which public notice of the meeting is first given to stockholders.   The notice shall provide such information as required under the Company’s By-laws, including, without limitation, the name and address of the stockholder and his or her nominees, a representation that the stockholder is entitled to vote at the meeting and intends to nominate the person, a description of all arrangements or understandings between the stockholder and each nominee, other information as would be required to be included in a proxy statement soliciting proxies for the election of the stockholder’s nominees, the consent of each nominee to serve as a director of the Company if so elected, information concerning the stockholder’s direct and indirect ownership of securities of the Company, including with respect to any beneficial owner of securities of the Company held by the stockholder, and compensation received by or relationships between such stockholder with respect to the securities of the Company from any beneficial owner of such securities.  We may require any proposed nominee to furnish other information as we may reasonably require to determine the eligibility of the proposed nominee to serve as a director of the Company.

 

Audit Committee

 

The Board of Directors has adopted a charter for the Audit Committee, which is available on our website, www.crimsonwinegroup.com.  The Audit Committee consists of Mr. Carlson, who serves as the Chairman, and Mr. Neikrug.  The

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Board of Directors has determined that Mr. Carlson is qualified as an audit committee financial expert within the meaning of regulations of the SEC and that each of Mr. Carlson and Mr. Neikrug is independent applying the NASDAQ Stock Market’s listing standards for independence and the SEC’s independence requirements for audit committee members.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC.  Based solely upon a review of the copies of such forms furnished to us and written representations from our executive officers, directors and greater than 10% beneficial stockholders, we believe that all persons subject to the reporting requirements of Section 16(a) filed the required reports on a timely basis, except for one late filing on Form 4 by Ian Cumming.

 

Code of Business Practice

 

We have a Code of Business Practice, which is applicable to all of our directors, officers and employees, and includes a Code of Practice applicable to our principal executive officers and senior financial officers.  Both the Code of Business Practice and the Code of Practice are available on our website.  We intend to post amendments to or waivers from our Code of Practice on our website as required by applicable law.

 

Item 11.     Executive Compensation.

 

Introduction

 

As previously stated, the Board does not have a standing compensation committee and, as a result, the Board of Directors in its entirety will perform such functions as would otherwise be performed by a compensation committee.  The Company believes that given the Company’s recent status as an independent public company, it is appropriate for all directors to be involved in the compensation process; however, the Board will continue to evaluate the desirability of forming a compensation committee in the future.

 

Stock Ownership Requirements

 

We do not have a formal stock ownership requirement, although three of our directors, Mr. Steinberg, Ian M. Cumming and John D. Cumming, respectively, beneficially own approximately 9.7%, 9.3% and 0.3% of our outstanding common stock as of March 4, 2016.

 

Accounting and Tax Matters

 

The Company does not currently provide share-based compensation to employees or directors.  In the future, if share-based compensation is provided to employees or directors, the cost of such share-based compensation would be recognized in the Company’s financial statements based on their fair values at the time of grant and would be recognized as an expense over the vesting period of any such award in accordance with GAAP. 

 

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Summary Compensation Table

The following table shows, for fiscal years 2015 and 2014, all of the compensation earned by, awarded to or paid to our principal executive officer and our two other highest paid executive officers.

 

 

 

 

Employment Agreements

 

Patrick DeLong.  On June 27, 2007, we entered into an agreement with Mr. DeLong.  The agreement continues until terminated by us or Mr. DeLong, or due to his death or disability which renders him unable to perform his duties under the agreement for 90 consecutive days in any 12-month period.  Mr. DeLong’s annual base salary under the agreement was $225,000 per year.  On March 1, 2012, Mr. DeLong’s annual base salary was increased to $275,000 per year and on March 1, 2014 to $283,250 per year.  On December 17, 2014, the board of directors appointed Mr. DeLong to serve as President and Chief Executive Officer, increasing his annual base salary to $340,000, effective January 1, 2015.  Mr. DeLong is entitled to an annual bonus opportunity based on performance goals established by the Board of Directors and Mr. DeLong at the beginning of each calendar year.  Mr. DeLong’s target bonus was 40% of his annual base salary for the first full calendar year, 45% for the second full calendar year and 50% for the third full calendar year and subsequent calendar years. We will notify Mr. DeLong if the bonus target becomes different than 50% of his base salary.  Notwithstanding the provisions of the agreement, the board of directors may make a determination as to bonus payable to Mr. DeLong at its discretion.  Pursuant to the agreement, Mr. DeLong is also eligible to participate in and receive any stock option grants and to participate in any standard company benefits.  Mr. DeLong is also eligible to share a percentage of our pre-tax income, subject to terms determined by us pursuant to any long-term incentive or deferred compensation program.  Mr. DeLong is entitled to certain benefits if his employment is terminated or upon other events.  See “Potential Payments on Termination or Change of Control” below.

 

Mike Cekay. On March 26, 2012, we entered into an agreement with Mr. Cekay.  The agreement continues until terminated by us or Mr. Cekay at any time and for any reason or for no reason with or without notice.  Mr. Cekay’s annual base salary under the agreement is $275,000 per year.  Mr. Cekay is eligible for an annual bonus in an amount to be determined by us in our discretion up to 30% bonus target of base salary plus an accelerator, based on sales contribution as compared to target, to be determined annually.  The amount of any annual bonus will be based upon our performance and Mr. Cekay’s performance, as determined by us, against goals mutually agreed upon between Mr. Cekay and us.  Pursuant to the agreement, Mr. Cekay is also eligible to participate in a long term incentive plan, receive a car allowance benefit of $1,400 per month and participate in standard company benefits.  Mr. Cekay is not entitled to any benefits if his employment is terminated or upon other events.

 

Craig D. Williams. On December 31, 2015, we entered into an agreement with Mr. Williams. The agreement continues until terminated by us or Mr. Williams at any time and for any reason or for no reason with or without notice.  Mr. Williams’ annual base salary under the agreement is $225,000 per year.  Mr. Williams is eligible for an annual bonus in an amount to be determined by us in our discretion.  The amount of any annual bonus will be based upon our performance and Mr. Williams’ performance, as determined by us, against goals mutually agreed upon between Mr. Williams and us.    Mr. Williams is also eligible to participate in standard company benefits.  Effective July 1, 2015, Mr. Williams became eligible to receive a car allowance benefit of $1,400 per month.  Mr. Williams is not entitled to any benefits if his employment is terminated or upon other events.

 

Potential Payments on Termination or Change of Control

 

The information below describes and quantifies certain compensation that would become payable under each named executive officer’s employment agreement if, as of December 31, 2015, their employment had been terminated (including termination in connection with a change in control).  Due to the number of factors that affect the nature and amount of any benefits provided upon the events discussed

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below, any actual amounts paid or distributed may be different.  Factors that could affect these amounts include the timing during the year of any such event.

 

Patrick DeLong.  In the event Mr. DeLong’s employment is terminated by us without cause, by him with good reason or by a successor (whether direct, indirect, by purchase, merger, consolidation or otherwise) before a change in control, he shall be entitled to continue to receive as severance, payment, in accordance with our current payroll practices, of his base salary in effect at the time of termination for 12 months.

 

Director Compensation

 

As approved in March 2013, our non-employee directors receive an annual retainer of $25,000 for serving on the Board of Directors and a per meeting fee of $2,500 for each Board or committee meeting attended in person.  Mr. Carlson receives an additional $26,000 annually for serving as Chairman of the Audit Committee, and Mr. Neikrug receives an additional $17,000 annually for serving on the Audit Committee.  Commencing January 1, 2015, Mr. Williams became an employee of the Company and ceased being eligible to receive separate compensation as a director. The Company reimburses directors for reasonable travel expenses incurred in attending board and committee meetings.    The 2015 director compensation for our non-employee directors is set forth below.

 

 

Compensation Policies and Risk Management

 

The Company does not have a formal compensation plan for any of its employees.  Annually, the Board of Directors will consider making incentive compensation awards that are purely discretionary, taking into account the employee’s individual performance as well as the Company’s performance for the particular year.  Accordingly, the Company believes that its compensation policies do not reward employees for imprudent risk taking.

 

Item 12.     Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

Equity Compensation Plan Information

 

In connection with the Distribution, our Board of Directors adopted an equity compensation plan, which allows the Company to grant incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, and other stock-based awards, and performance-based compensation awards to its officers, employees, and non-employee directors.  The equity compensation plan will be administered by our Board of Directors, which is authorized to select the officers, employees and non-employee directors to whom awards will be granted, and to determine the type and amount of such awards.  The maximum number of shares available for issuance under the plan is 1 million.  To the extent permitted by Section 162(m) of the Code, our Board of Directors is authorized to design any award so that the amounts or shares payable or distributed pursuant to such award will be treated as “qualified performance-based compensation” within the meaning of Section 162(m) of the Code and related regulations.  The equity compensation plan was filed as an Exhibit to the Company’s Form 8-K, filed on February 1, 2013.  This summary of the plan is qualified in its entirety by reference to the full text of the plan.  As of the date of this report, no grants have been made under the plan.

 

Present Beneficial Ownership

 

Set forth below is certain information as of March 4, 2016, with respect to the beneficial ownership of common shares, determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as amended, by (1) each person who, to our knowledge, is the beneficial owner of more than 5% of our outstanding common shares, which is our only class of voting securities, (2) each director, (3) each of the executive officers named in the Summary Compensation Table under “Executive Compensation,” (4) charitable foundations established by our directors and (5) all of our executive officers and directors as a group.  The percentage ownership information under the column entitled “Percent of Class” is based on 24,229,846 shares of common stock outstanding as of March 4, 2016.  Unless otherwise stated, the business address of each person listed is c/o Crimson Wine Group, 2700 Napa Valley Corporate Drive, Suite B,

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Napa, CA 94558.

 

 

 

*     Less than .1%.

 

As of March 4, 2016, Cede & Co. held of record 19,980,563 shares of our common stock (approximately 82.5% of our total common stock outstanding).  Cede & Co. held such shares as a nominee for broker-dealer members of The Depository Trust Company, which conducts clearing and settlement operations for securities transactions involving its members.

 

As described herein, our common stock is subject to transfer restrictions that are designed to reduce the possibility that certain changes in ownership could result in limitations on the use of our tax attributes.  Our certificate of incorporation contains provisions that generally

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restrict the ability of a person or entity from acquiring ownership (including through attribution under the tax law) of 5% or more of our common shares and the ability of persons or entities now owning 5% or more of our common shares from acquiring additional common shares.  Stockholders (and prospective stockholders) are advised that, under the tax law rules incorporated in these provisions, the acquisition of even a single share of common stock may be proscribed under our certificate of incorporation, given (among other things) the tax law ownership attribution rules as well as the tax law rules applicable to acquisitions made in coordination with or in concert with others.  The restriction will remain until the earliest of (a) December 31, 2022, (b) the repeal of Section 382 of the Internal Revenue Code (or any comparable successor provision) and (c) the beginning of our taxable year to which these tax attributes may no longer be carried forward.  The restriction may be waived by our Board of Directors.

 

Stockholders are advised to carefully monitor their ownership of our common stock and consult their own legal advisors and/or us to determine whether their ownership of our common shares approaches the proscribed level.  

 

Item 13.     Certain Relationships and Related Transactions and Director Independence.

 

Policies and Procedures with Respect to Transactions with Related Persons

 

The Board has adopted a policy for the review, approval and ratification of transactions that involve “related persons” and potential conflicts of interest (the “Related Person Transaction Policy”).

 

The Related Person Transaction Policy applies to each director and executive officer of the Company, any nominee for election as a director of the Company, any security holder who is known to own of record or beneficially more than five percent of any class of the Company’s voting securities, any immediate family member of any of the foregoing persons, and any corporation, firm, association or other entity in which one or more directors of the Company are directors or officers, or have a substantial financial interest (each a “Related Person”).

 

Under the Related Person Transaction Policy, a Related Person Transaction is defined as a transaction or arrangement involving a Related Person in which the Company is a participant or that would require disclosure in the Company’s filings in accordance with SEC rules.

 

Under the Related Person Transaction Policy, Related Persons must disclose to the Audit Committee any potential Related Person Transactions and must disclose all material facts with respect to such transaction.  All Related Person Transactions will be reviewed by the Audit Committee and, in its discretion, approved or ratified.  In determining whether to approve or ratify a Related Person Transaction the Audit Committee will consider the relevant facts and circumstances of the Related Person Transaction, which may include factors such as the relationship of the Related Person with the Company, the materiality or significance of the transaction to the Company and the Related Person, the business purpose and reasonableness of the transaction, whether the transaction is comparable to a transaction that could be available to the Company on an arms-length basis, and the impact of the transaction on the Company’s business and operations.

 

From time to time, our directors and officers may engage in purchases of our products at substantial discounts (but not below cost) as determined to be reasonable under the circumstances.  Generally, we do not believe any such transactions to be material to the Company or the related person and do not believe that any such transactions would impair the independence of any director.  The Board has considered these possible purchases under the Related Person Transaction Policy and has determined that no such purchase will require prior approval by the Audit Committee.

 

Our Relationship with Leucadia following the Distribution

 

Following the Distribution, Crimson and Leucadia have operated their businesses separately, each as an independent company.  We have entered into certain agreements with Leucadia that are described below.

 

Separation Agreement

 

The separation agreement provides for the allocation among the parties of rights and obligations under existing insurance policies with respect to occurrences prior to the separation and sets forth procedures for the administration of insured claims.  In addition, the separation agreement allocates between the parties the right to proceeds and the obligation to incur certain deductibles under certain insurance policies.  Leucadia is required, subject to the terms of the agreement, to obtain certain directors’ and officers’ insurance policies to apply against pre-separation claims.

 

Other matters governed by the separation agreement include, among others, access to financial and other records and information, intellectual property, legal privilege, confidentiality, access to and provision of records and treatment of outstanding guarantees.

 

Administrative Services Agreement

 

We and Leucadia entered into an administrative services agreement upon spin-off whereby Leucadia or its subsidiaries were to provide

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to us certain administrative services.  The services that Leucadia was to provide to us include SEC and tax filing services, and the fees are intended to allow Leucadia to fully recover the costs directly associated with providing the services, plus out-of-pocket costs and expenses.  The annual fee for these services was to be $180,000, payable in monthly installments of $15,000, with an initial one year term with an evergreen renewal clause for subsequent annual periods, and terminable by either party on six months prior notice.  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 Company began to provide the administrative services that were no longer provided to the Company by Leucadia.  The amendment also provided that the administrative services agreement would terminate in full in February 2014, which it did.

 

Tax Matters Agreement

 

We and Leucadia have entered into a tax matters agreement which governs the parties’ respective rights, responsibilities and obligations with respect to taxes, the preparation and filing of tax returns, the control of audits and other tax proceedings and assistance and cooperation in respect of tax matters (the “Tax Matters Agreement”).  As a former member of Leucadia’s consolidated U.S. federal income tax group, we have joint and several liability with Leucadia for the consolidated U.S. federal income taxes of the Leucadia group relating to the taxable periods in which we were part of the group.  Under the Tax Matters Agreement, however, Leucadia has agreed to indemnify us against this liability and any similar liability for U.S., state or local income taxes that are determined on a consolidated, combined, unitary or similar basis for each taxable period in which we are included in such consolidated, combined, unitary or similar group with Leucadia.  We remain responsible for any income taxes that are not determined on a consolidated, combined, unitary or similar basis with Leucadia.

 

Under the Tax Matters Agreement, we have agreed not to take actions that would jeopardize the tax-free nature of the Distribution.  The Tax Matters Agreement also provides rules for allocating tax liabilities in the event that the Distribution is not tax-free.  We agreed to indemnify Leucadia for such tax liabilities that are attributable to the failure of certain representations made by us or our affiliates to be true when made, certain actions by us or our affiliates or changes in ownership of our common stock.

 

Our obligations under the Tax Matters Agreement are not contractually limited in amount or subject to any cap.  Further, even if we are not responsible for tax liabilities of Leucadia and its subsidiaries under the Tax Matters Agreement, we nonetheless could be liable under applicable tax law for such liabilities if Leucadia were to fail to pay them or to indemnify us under the Tax Matters Agreement.

 

Amounts Due to Leucadia and its Affiliates

 

Amounts due to Leucadia and its affiliates did bear interest at a specified bank prime rate plus 0.125%.  All amounts were payable on demand, except for the $45.0 million note issued to Leucadia in connection with the acquisition of Seghesio Family Vineyards that was due May 13, 2013.  Unpaid interest, if any, was added to the principal balance on a quarterly basis.  Prior to the Distribution, the remaining balance due to Leucadia and its affiliates was contributed to capital.  Interest expense paid to Leucadia and its affiliates was $0 for the years ended December 31, 2015 and 2014 and was $ 0.8 million for the year ended December 31, 2013. On February 25, 2013, the remaining balance of due to affiliates was contributed by Leucadia to capital.

 

Director Independence

 

The Board of Directors has determined that Messrs. Ian Cumming, John Cumming, Steinberg, Neikrug and Carlson and Ms. Schuler are independent applying the NASDAQ Stock Market’s listing standards for independence.

 

Item 14.     Principal Accounting Fees and Services.

 

Prior to formation of the Audit Committee, the Board of Directors adopted a policy for pre-approval by the Audit Committee of all audit and non-audit work performed by the Company’s independent registered public accounting firm, Moss Adams LLP, and has pre-approved (i) certain general categories of work where no specific case-by-case approval is necessary (“general pre-approvals”) and (ii) categories of work which require the specific pre-approval of the Audit Committee (“specific pre-approvals”).  For additional services or services in an amount above the annual amount that has been pre-approved, additional authorization from the Audit Committee is required.  The Audit Committee has delegated to the Chairman of the Audit Committee the ability to pre-approve all of these services in the absence of the full committee.  Any pre-approval decisions made by the Chairman of the Audit Committee under this delegated authority will be reported to the full Audit Committee.  All requests for services to be provided by Moss Adams LLP that do not require specific approval by the Audit Committee must be submitted to the Chief Financial Officer of the Company, who determines whether such services are in fact within the scope of those services that have received the general pre-approval of the Audit Committee.  The Chief Financial Officer reports to the Audit Committee periodically, at a minimum quarterly.

 

Audit Fees

 

In accordance with the SEC’s definitions and rules, Audit Fees are fees paid to Moss Adams LLP for professional services for the audit of the Company’s consolidated financial statements included in the Company’s Form 10-K, the review of financial statements included in the Company’s Form 10-Qs, services that are normally provided in connection with statutory and regulatory filings or engagements,

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assurance and related services that are reasonably related to the performance of the audit or review of our financial statements.  Audit Related Fees include professional services for the audit of the Company’s 401K plan, including compliance with regulatory matters, and consulting with respect to technical accounting and disclosure rules.  Tax Fees are related to the transition of tax related services to an independent tax consulting firm upon spin-off from Leucadia.

 

The following table sets forth the aggregate fees incurred by us for the following periods relating to our independent accounting firm, Moss Adams LLP:

 

 

 

 

 

 

 

 

 

 

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PART IV

 

 

Item 15.  Exhibits and Financial Statement Schedules.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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SIGNATURES 

 

Pursuant 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 its behalf by the undersigned, thereunto duly authorized.

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.