CRIMSON WINE GROUP, LTD. 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 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, custom winemaking services, special
event fees, tasting fees and other non-wine retail sales such as merchandise
("non-wine sales").
The Company's wines are primarily sold to distributors, who then sell to
retailers and restaurants. As permitted under federal and local regulations, the
Company has also been placing increased emphasis on generating revenue from
direct sales to consumers which occur through wine clubs, at the wineries'
tasting rooms and through the Ecommerce channel. 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, the Company may sell grapes or bulk wine,
because the wine does not meet the quality standards for the its 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's 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.
As of December 31, 2021 , wine inventory
includes approximately 0.7 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.
Impact of COVID-19 on Operations
InMarch 2020 , the COVID-19 outbreak was declared a national public health emergency which continues to affect the world and has adversely impacted global activity and contributed to significant economic declines and volatility in financial markets. The outbreak could have a continued material adverse impact on economic and market conditions and be followed by a period of global economic slowdown. The rapid development and fluidity of this situation precludes any prediction as to the ultimate impact of the coronavirus outbreak. The outbreak has adversely impacted the Company's tasting room visitations, On-Premise business, and special events. The outbreak presents uncertainty and risk with respect to the Company, its future performance and financial results. As ofMarch 16, 2020 , with the exception of key operations personnel, the Company shifted its corporate office staff to remote workstations, which continues to be an effective transition to date. The Company will continue to operate remotely until management determines it is safe for employees to return to offices. The Company has experienced some port shipping delays within its export shipments but does not anticipate significant impact or disruptions to its supply chain network. In order to mitigate against potential logistical challenges, the Company has effectively managed distributor inventory levels for its domestic wholesale business, which accounts for over 90% of the Company's total wholesale shipments. 18 -------------------------------------------------------------------------------- Table of Contents OnMarch 16, 2020 , the Company temporarily closed all of its tasting rooms, which are located inCalifornia ,Oregon , andWashington , in compliance with shelter-in-place orders issued by local government offices. Following months of closures, each of the aforementioned states issued reopening guidelines and metrics that counties must achieve prior to businesses reopening. After remaining closed for nearly all of the second quarter of 2020 and complying with reopening guidelines, the Company's tasting rooms reopened duringJune 2020 in limited capacity and operating hours, and with additional safety measures in place. In the first several weeks ofJuly 2020 , businesses located in severalNorthern California counties were required to shut down indoor dining and winery tasting rooms. In lateJuly 2020 , theState of Washington required the shutdown of wineries, regardless of whether food is served. During this period, while theState of Oregon allowed indoor wine tastings with noted restrictions, the Company'sOregon -based tasting room, Archery Summit, operated almost entirely outdoors. Although outdoor operations were allowed to resume in August, COVID-19 containment measures and the 2020 wildfires limited the amount of traffic at the Company's tasting rooms. Inmid-November 2020 , further government restrictions and shutdown orders were issued for theState of Oregon withCalifornia andWashington following suit inDecember 2020 , resulting in either shutdowns or outdoor-only tastings for all of the Company's tasting rooms. All of the Company's tasting rooms were allowed to reopen in lateJanuary 2021 with varying impacts created by guidelines, restrictions, and tiered structures of each respective state in which the Company operates. The intermittent updates for each state and county caused operating capacity at each tasting room to fluctuate for most of 2021. Although capacity restrictions within the Company's tasting rooms were lifted in the second half ofJune 2021 , the Company continues to maintain a set of operating guidelines to protect the safety of all employees and guests, which may affect capacity and will vary based on estate experience and parameters. All of the Company's tasting rooms have been impacted by government orders and restrictions to significant and varying degrees at times. Management and staff at all estate locations have taken the appropriate steps to ensure a safe and enjoyable experience for all of the Company's guests and staff. In addition to limiting the number of guests and encouraging reservations, the Company has implemented various measures to prevent the spread of the virus including using available forms of PPE, screening employees and vendors before they enter facilities, practicing social distancing, implementing COVID-19 protocols and travel guidelines, and advising employees ofCDC guidelines and recommendations.
The Company has experienced both reductions and increases in consumer demand in
various channels due to the COVID-19 pandemic in the twelve months ended
The Direct to Consumer segment includes retail sales in the tasting rooms, remote sites and on-site events, wine club net sales, direct phone sales, and other sales made directly to the consumer without the use of an intermediary. Tasting room sales have been negatively impacted during periods of closures and operating limitations. As restrictions were gradually lifted throughout 2021, the Company experienced a rebound in visitor counts to its tasting rooms. The Company also sells wine directly to consumers through its website (http://www.crimsonwinegroup.com), third-party websites, direct phone calls, and other online sales ("Ecommerce"). Ecommerce sales in 2020 were favorably impacted as consumers sought to purchase wines through an online platform to minimize human contact. As restrictions eased throughout 2021, Ecommerce sales remained elevated over pre-pandemic levels but declined from the highs of 2020 in favor of consumers returning to traditional channels, including tasting rooms, bars, restaurants, and other hospitality locations. The Wholesale segment includes all sales through a third party where prices are given at a wholesale rate. The Company sells wine (through distributors and directly) to restaurants, bars, and other hospitality locations ("On-Premise"). In 2020, demand for wines at On-Premise locations was reduced due to COVID-19 containment measures restricting consumers from visiting, as well as in many cases both the temporary and permanent closures of On-Premise venues. However, as restrictions continued to be lifted throughout 2021, demand for wines at On-Premise locations started to rebound. The Company also sells wine (through distributors and directly) to supermarkets, grocery stores, liquor stores, and other chains, third-party Ecommerce and independent stores ("Off-Premise"). Demand for premium wines at Off-Premise locations has increased due to their classification as essential businesses that remained open during government imposed closings and/or restrictions due to COVID-19, as well as premiumization of at-home wine consumption. As On-Premise demand continues to recover, other than sales made through third-party Ecommerce, the Company has not observed a reversing trend in Off-Premise demand. Additionally, the Company received loan proceeds of approximately$3.8 million under the Paycheck Protection Program ("PPP") established by the Coronavirus Aid, Relief, and Economic Security ("CARES") Act and amended by the Paycheck Protection Program Flexibility Act of 2020. The Company requested loan forgiveness inApril 2021 and onJune 14, 2021 , the forgiveness application to theU.S. Small Business Administration ("SBA") was approved for the full principal amount including interest. For additional information about the loan, see "Liquidity and Capital Resources-Term Loans". 19 -------------------------------------------------------------------------------- Table of Contents More recently, many news agencies have reported the spread of new variants of COVID-19, such as the Delta and Omicron variants, that are significantly more contagious than previous strains. The spread of these new variants are beginning to cause some government authorities to reimplement restrictions and measures to try to reduce the spread that had become less prevalent. Accordingly, the emergence of these new variants and the prevalence of breakthrough cases of infection among fully vaccinated people adds additional uncertainty to the Company's business and operations and could result in further impacts, such as those discussed above and in Item 1A. Risk Factors. The extent of COVID-19's impact on the Company's financials and results of operations is currently unknown and will depend on future developments, including, but not limited to, the length of time that the pandemic continues, the emergence and severity of new variants, the effect of governmental regulations imposed in response to the pandemic, the availability of vaccines and potential hesitancy to utilize them, the effect on the demand for its products and its supply chain, and how quickly and to what extent normal economic and operation conditions can resume. The Company cannot at this time predict the full impact of COVID-19 on its financial and operational results. Accordingly, the Company's current results and financial condition discussed herein may not be indicative of future operating results and trends. Refer to Item 1A. Risk Factors, for additional risks the Company faces due to the COVID-19 pandemic.
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. The Company anticipates similar trends in the future.
Climate Conditions and Extreme Weather Events
Winemaking and grape growing are subject to a variety of agricultural risks. Various diseases, pests, natural disasters and certain climate 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. Given the risks presented by climate conditions and extreme weather, Crimson regularly evaluates impacts of climate conditions and weather on its business and plan to disclose any material impacts on the business. Along with various insurance policies currently in place, Crimson has made investments to improve our climate resilience and strives to effectively manage grape sourcing to help mitigate the impact of climate change and unforeseen natural disasters. During 2021, Crimson completed upgrades to its facilities to improve water resilience and fire mitigation measures with plans to advance these initiatives through improvements of irrigation and water systems over the next several years. Following a historic wildfire season acrossCalifornia ,Oregon , andWashington in 2020, the 2021 harvest was impacted by drought resulting in lower yields than historical averages. The compounding loss of the 2020 with the lower yields of the 2021 vintage may cause upward pricing pressure on the bulk wine market in addition to increased costs for grapes produced by the Company. Depending on the wine, the production cycle from harvest to bottled sales is anywhere from one to three years. Restructuring During 2020, the Company committed to various restructuring activities (the "2020 Restructuring Program") including the closure of theDouble Canyon Vineyards tasting room, restructuring of management, changes in sales, marketing, and Direct to Consumer organizational structure, and transitioning of information technology services and export fulfillment to outsourced support models. For the year endedDecember 31, 2020 , the Company incurred$1.4 million of restructuring charges, consisting of$1.1 million employee related costs,$0.2 million of asset impairment charges associated with the tasting room assets upon closure, and$0.1 million of other restructuring costs associated with departmental reorganization activities. The 2020 Restructuring Program was completed as ofSeptember 30, 2020 . 20 -------------------------------------------------------------------------------- Table of Contents Critical Accounting Estimates The Company'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 theU.S. ("GAAP"). The preparation of these consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amounts in the financial statements and disclosures of contingent assets and liabilities. On an ongoing basis, the Company evaluates all of these estimates and assumptions. The following areas have been identified as critical accounting estimates because they have the potential to have a significant impact on the Company's consolidated financial statements, and because they are based on assumptions which are used in the accounting records to reflect, at a specific point in time, events whose ultimate outcome will not be known until a later date. Actual results could differ from these estimates. Inventory - Inventory consists of mainly bulk and bottled wine and is stated at the lower of cost or net realizable value, 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, the Company reduces the carrying value of inventories that are obsolete or in excess of estimated usage to estimated net realizable value. The Company'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 the Company'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$1.8 million and$6.4 million were recorded during the years endedDecember 31, 2021 and 2020, respectively. The majority of the decrease in inventory write-downs for the 2021 period as compared to the 2020 period was related to the$3.5 million recognized in the 2020 period for the 2020 vintage with smoke taint exposure from the 2020 wildfires. Vineyard Development Costs - The Company 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 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, the Company re-evaluates the recoverability of capitalized costs, and will record impairment charges if required. The Company recorded$0.6 million of asset disposals related to vineyard development during the year endedDecember 31, 2021 and there were no significant asset disposals related to vineyard development during the year endedDecember 31, 2020 . 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. Other than goodwill, the Company currently has no intangible assets with indefinite lives. All of the Company's goodwill and substantially all definite-lived intangible assets resulted from the acquisitions ofSeghesio Family Vineyards inMay 2011 andSeven Hills Winery inJanuary 2016 . Amortization of definite-lived intangible assets is recorded on a straight-line basis over the estimated useful lives of the assets, which range from 7 to 20 years. The Company evaluates goodwill for impairment at the end of each year or more often if a triggering event occurs, and has concluded that goodwill is not impaired. The Company evaluates long-lived assets, including definite-lived intangible 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 and intangible assets with definite lives. 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 demand for the Company's products or significant increase in the costs to manufacture the Company's products. Recoverability of long-lived assets is measured using a comparison of the carrying amount of an asset group to the fair value or future undiscounted 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 property level which is in the Business section of this Form 10-K. 21
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The Company recorded no impairment charges during the year endedDecember 31, 2021 and recorded$1.3 million of impairment charges during the year endedDecember 31, 2020 to write-down the carrying value of a portion of construction in progress expenses no longer viable to the long-term project related to renovations of tasting rooms and right-of-use lease asset related to the relocation of its administrative offices. Depletion allowances - The Company pays depletion allowances to its distributors based on their sales to their customers. These allowances are estimated on a monthly basis by the Company, and allowances are accrued as a reduction of sales. Subsequently, distributors will bill the Company for actual depletions, which may be different from the Company's estimate. Any such differences are recognized in sales when the bill is received. The Company has historically been able to estimate depletion allowances without any material differences between actual and estimated expense. Results of Operations In this section, we discuss the results of our operations for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 . For a discussion of the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 , please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 .Net Sales Year Ended December 31, Increase (in thousands, except percentages) 2021 2020 (Decrease) % change Wholesale$ 37,049 $ 33,849 $ 3,200 9% Direct to consumer 28,201 26,415 1,786 7% Other 3,668 3,844 (176) (5)% Total net sales$ 68,918 $ 64,108 $ 4,810 8% Wholesale net sales increased$3.2 million , or 9%, in 2021 as compared to 2020. This increase in domestic wine sales was driven by a combination of the Company's execution of its growth strategies and a rebound in certain sales channels throughout 2021. These factors drove an increased rate of sales of our core wines, new distribution in Off-Premise locations, and continued recovery from lower On-Premise sales in the prior year as a result of the reopening of restaurants, bars, and other hospitality locations in 2021. An increase in export wine sales was driven by a rebound in shipments toEurope ,Asia and theCaribbean markets, which were significantly impacted by COVID-19 in 2020. Direct to consumer net sales increased$1.8 million , or 7%, in 2021 as compared to 2020. The increase was primarily driven by higher sales across the tasting rooms and wine clubs compared to 2020. Tasting room sales in 2020 were most negatively impacted by COVID-19 due to temporary closures and operating limitations for a significant portion of the year. Sales increased significantly in 2021 compared to 2020, with higher tasting room traffic due to the phased lifting of COVID-19 containment measures throughout 2021, as well as the Company's premiumization of tasting experiences to capture a higher number of qualified consumers. The increase in wine club sales was driven by price increases and a favorable product mix shift. Ecommerce sales decreased in 2021 compared to 2020 as consumers shifted purchasing and consumption behaviors towards other channels with the reopening of tasting rooms, retail and restaurants. Other net sales, which include bulk wine and grape sales, custom winemaking services, event fees, tasting fees and non-wine retail sales, decreased$0.2 million or 5%, in 2021 as compared to 2020. The decrease was primarily driven by lower volume of bulk wine sold, partially offset by higher sales from tasting fees, event fees, non-wine retail sales and grape sales as compared to 2020. 22 --------------------------------------------------------------------------------
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Gross Profit
Year Ended December 31,
(in thousands, except percentages) 2021 2020 Increase % change
Wholesale $ 13,045 $ 11,155 $ 1,890 17%
Wholesale gross margin percentage 35 % 33 %
Direct to consumer 18,110 16,210 1,900 12%
Direct to consumer gross margin percentage 64 % 61 %
Other (1,102) (7,673) 6,571 86%
Total gross profit $ 30,053 $ 19,692 $ 10,361 53%
Wholesale gross profit increased $1.9 million , or 17%, in 2021 as compared to
2020 driven by an overall increase in wine sales, a significant reduction of
close out sales in the current year as inventory realignment initiatives were
completed. Gross margin percentage, which is defined as gross profit as a
percentage of net sales, increased 220 basis points primarily driven by a
significant reduction of close out sales in the current year.
Direct to consumer gross profit increased $1.9 million , or 12%, in 2021 as
compared to 2020. The increase was a result of higher Direct to Consumer sales
compared to 2020 as discussed above under Net Sales . Direct to consumer gross
margin percentage increased 280 basis points in 2021 primarily driven by
favorable sales mix of wines to vintages with lower costs and shift in sales
channel mix from increased tasting room sales compared to 2020.
"Other" includes a loss on bulk wine and grape sales, custom winemaking
services, event fees, tasting fees and non-wine retail sales. Other gross loss
decreased $6.6 million , or 86%, in 2021 as compared to 2020 and is primarily
driven by non-recurring inventory write-downs related to the 2020 wildfires
recognized in 2020, lower write-downs of excess bulk wine inventory, insurance
proceeds for smoke taint affected inventory from the 2020 vintage recognized in
2021, improved margins on bulk wine sales, and higher tasting fee revenue.
Operating Expenses
Year Ended December 31,
(in thousands, except percentages) 2021 2020 Increase % change
Sales and marketing $ 15,658 $ 14,250 $ 1,408 10%
General and administrative 13,122 11,369 1,753 15%
Total operating expenses $ 28,780 $ 25,619 $ 3,161 12%
Sales and marketing expenses increased $1.4 million , or 10%, in 2021 as compared
to 2020. The increase was primarily driven by higher advertising and promotional
expenses and increased accrued bonuses for the current year performance. The
increase was partially offset by reduced compensation as a result of the 2020
Restructuring Program and lower professional services.
General and administrative expenses increased $1.8 million , or 15%, in 2021
as compared to 2020 primarily due to costs related to the amended 2019 Annual
Report on Form 10-K and amended 2020 Quarterly Reports on Form 10-Q, increased
accrued bonuses related to current year performance, and transition costs of IT
services and software as a service (SaaS) model, partially offset by savings
from the corporate office relocation compared to 2020.
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Other (Expense) Income
Year Ended December 31 ,(in thousands, except percentages) 2021 2020 Change
% change
Interest expense, net $ (1,015) $ (1,094) $ 79 7%
Gain on extinguishment of debt 3,863 - 3,863
100%
Other income, net 359 472 (113)
(24)%
Total other income (expense), net
616%
Interest expense, net, decreased less than
Gain on extinguishment of debt was recognized for$3.9 million in 2021. The gain on extinguishment of debt was related to the PPP loan forgiveness approved by the SBA onJune 14, 2021 . Other income, net, decreased$0.1 million , or 24%, in 2021 as compared to 2020. The decrease was primarily driven by lower investments interest income received and non-recurring insurance proceeds received in the prior period. The decrease was partially offset by a gain on lease modification recognized in the current period.
Income Tax Provision (Benefit)
Our income tax provision increased$3.4 million in 2021 as compared to 2020. The effective tax rate was 8.5% for 2021 as compared to 32.5% for 2020. The difference between the consolidated effective income tax rate and theU.S. federal statutory rate for 2021 was primarily attributable to non-taxable income from PPP loan forgiveness and state income taxes.
Liquidity and Capital Resources
General
The Company's principal sources of liquidity are its available cash and cash equivalents, investments in available for sale securities, funds generated from operations and bank borrowings. The Company's primary cash needs are to fund working capital requirements and capital expenditures. Despite the negative effects of COVID-19 on our business, the Company has maintained adequate liquidity to meet working capital requirements, fund capital expenditures, meet payroll, and repay scheduled principal and interest payments on debt, and maintain compliance with debt covenants. Our capital program is designed to operate within or near operating cash flow and may fluctuate with strategic initiatives and other factors impacting cash flow. This is evidenced by our operating cash flow fully funding capital expenditures in both 2021 and 2020. In response to the current macro-economic environment, we protected our financial position and liquidity as evidenced by the following items: we managed both operating expense and capital expenditure increases closely, limited discretionary spending, and actively managed our working capital, including supporting our business partners most impacted by COVID-19 through extended terms and closely monitoring our customers' solvency and our ability to collect from them. As a result, we believe that cash flows generated from operations and our cash, cash equivalents, and marketable securities balances, as well as our borrowing arrangements, will be sufficient to meet our presently anticipated cash requirements for capital expenditures, working capital, debt obligations and other commitments during the next twelve months. Our 2022 capital expenditure is expected to be approximately$7 million to$9 million , which include reinvestment into developing vineyards, production facilities, hospitality areas, and other company initiatives. For additional information regarding our debt obligations and purchase contracts, refer to Note 11 "Debt" and Note 16 "Commitments and Contingencies". Any projections of future cash needs and cash flows beyond the next twelve months are subject to substantial uncertainty but we believe cash flows generated from operations combined with our sources of liquidity as discussed above will be sufficient to meet our long-term cash requirements. 24 -------------------------------------------------------------------------------- Table of Contents Revolving Credit Facility InMarch 2013 , Crimson and its subsidiaries entered into a$60.0 million revolving credit facility (the "Revolving Credit Facility") withAmerican AgCredit, FLCA , as agent for the lenders. The Revolving Credit Facility is comprised of a revolving loan facility (the "Revolving Loan") and a term revolving loan facility (the "Term Revolving Loan"), which together are secured by substantially all of Crimson's assets. The Revolving Loan is for up to$10.0 million of availability in the aggregate for a five year term, and the Term Revolving Loan is for up to$50.0 million in the aggregate for a fifteen year term. In addition to unused line fees ranging from 0.15% to 0.25%, rates for the borrowings are priced based on a performance grid tied to certain financial ratios and the London Interbank Offered Rate. 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.
Term Loans
Term loans consist of the following:
(i) OnNovember 10, 2015 ,Pine Ridge Winery, LLC ("PRW Borrower"), a wholly-owned subsidiary of Crimson, entered into a senior secured term loan agreement (the "2015 Term Loan") withAmerican AgCredit, FLCA ("Lender") for an aggregate principal amount of$16.0 million . Amounts outstanding under the 2015 Term Loan bear a fixed interest rate of 5.24% per annum. The 2015 Term Loan will mature onOctober 1, 2040 . The term loan can be used to fund acquisitions, capital projects and other general corporate purposes. As ofDecember 31, 2021 ,$12.2 million in principal was outstanding on the 2015 Term Loan, and unamortized loan fees were less than$0.1 million . (ii) OnJune 29, 2017 ,Double Canyon Vineyards, LLC (the "DCV Borrower" and, individually and collectively with the PRW Borrower, "Borrower"), a wholly-owned subsidiary of Crimson, entered into a senior secured term loan agreement (the "2017 Term Loan") with the Lender for an aggregate principal amount of$10.0 million . Amounts outstanding under the 2017 Term Loan bear a fixed interest rate of 5.39% per annum. The 2017 Term Loan will mature onJuly 1, 2037 . The term loan can be used to fund acquisitions, capital projects and other general corporate purposes. As ofDecember 31, 2021 ,$7.9 million in principal was outstanding on the 2017 Term Loan, and unamortized loan fees were less than$0.1 million . Borrower's obligations under the 2015 Term Loan and 2017 Term Loan are guaranteed by the Company. All obligations of Borrower under the 2015 Term Loan and 2017 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, the sale of assets, and merging or consolidating with other entities. Borrower was in compliance with all debt covenants as ofDecember 31, 2021 . (iii) OnApril 22, 2020 , Crimson entered into an unsecured term loan agreement (the "2020 PPP Term Loan") with Lender for an aggregate principal amount of$3.8 million pursuant to a new loan program through the SBA as the result of the PPP established by the CARES Act and amended by the Paycheck Protection Program Flexibility Act of 2020. The Company requested loan forgiveness inApril 2021 and onJune 14, 2021 , the forgiveness application to the SBA was approved for the full principal amount including interest. The SBA has remitted payment to the lender and the Company has been legally released from the loan agreement. InJune 2021 , the Company recorded a gain on extinguishment of debt for approximately$3.9 million , which includes both the full principal and interest amounts. 25
-------------------------------------------------------------------------------- Table of Contents Consolidated Statements of Cash Flows
The following table summarizes our cash flow activities for the years ended
Cash provided by (used in): 2021 2020 Operating activities$ 18,813 $ 13,591 Investing activities (8,300) 342 Financing activities (7,095) 2,395
Cash provided by operating activities
Net cash provided by operating activities was$18.8 million in 2021, consisting primarily of$3.2 million of net income adjusted for$6.9 million of non-cash items and$8.7 million net cash inflows related to changes in operating assets and liabilities. Adjustments for non-cash items primarily consist of depreciation and amortization, loss on disposal of property and equipment, and loss on the write-down of inventory, partially offset by the gain on extinguishment of debt. The change in operating assets and liabilities was primarily due to a decrease in inventory, accounts receivable, and other current assets and increase in accounts payable and accrued liabilities. Net cash provided by operating activities was$13.6 million in 2020, consisting primarily of$6.4 million of net loss adjusted for$15.3 million of non-cash items and$4.7 million of net cash inflows related to changes in operating assets and liabilities. Adjustments for non-cash items primarily consist of depreciation and amortization, loss of the write-down of inventory, restructuring charges, and impairment charges, partially offset by an increase of income tax benefits. The change in operating assets and liabilities was primarily due to a decrease in inventory and accounts receivable, partially offset by a decrease in accounts payable and accrued liabilities and an increase in other current assets.
Cash (used in) provided by investing activities
Net cash used in investing activities was
Net cash provided by investing activities was$0.3 million in 2020, consisting primarily of proceeds from the sale of land inKlickitat County, Washington totaling$1.9 million and the net redemptions of available for sale investments of$1.5 million , partially offset by capital expenditures of$3.1 million .
Cash (used in) provided by financing activities
Net cash used in financing activities was$7.1 million in 2021, which reflects the repurchase of our common stock at a repurchase price totaling$6.2 million and principal payments on our 2015 and 2017 Term Loans of$0.9 million . Net cash provided by financing activities was$2.4 million in 2020, consisting primarily of proceeds of the 2020 PPP Term Loan totaling$3.8 million , partially offset by principal payments on our 2015 and 2017 Term Loans of$1.4 million .
Share Repurchases
OnMay 24, 2021 , with the unanimous written consent of the Board of Directors, the Company repurchased an aggregate of 719,291 shares of its common stock at a purchase price of$8.65 per share for an aggregate purchase price of approximately$6.2 million . The Company's repurchase was funded through cash on hand, and the shares were retired.
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