Document

10-Q 1 cwgl-6x30x201910xq.htm 10-Q Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2019

[ ] 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)



Delaware (State or Other Jurisdiction of	13-3607383 (I.R.S. Employer
Incorporation or Organization)	Identification Number)
2700 Napa Valley Corporate Drive, Suite B, Napa, California (Address of Principal Executive Offices)	94558 (Zip Code)

(800) 486-0503

(Registrant’s Telephone Number, Including Area Code)

N/A

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

______________________

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

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 every Interactive Data File required to be submitted 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 such files).



YES	X	NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer ☐		Accelerated filer ☒
Non-accelerated filer ☐		Smaller reporting company ☒
		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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



YES	NO	X

On August 2, 2019 there were 23,526,684 outstanding shares of the Registrant’s Common Stock, par value $0.01 per share.

CRIMSON WINE GROUP, LTD.

TABLE OF CONTENTS



		Page Number
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018	1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018	2
	Condensed Consolidated Statements of Comprehensive Losses and Income for the Three and Six Months Ended June 30, 2019 and 2018	3
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018	4
	Condensed Consolidated Statements of Changes in Equity for the Six Months Ended June 30, 2019 and 2018	5
	Notes to Unaudited Interim Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Interim Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	28
	Signatures	29

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

CRIMSON WINE GROUP, LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts and par value)

(Unaudited)



	June 30, 2019			December 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	12,534		$	9,376
Available for sale debt securities	14,763			19,213
Accounts receivable, net	5,282			7,285
Inventory	74,324			77,267
Other current assets	2,670			1,955
Assets held for sale	1,755			638
Total current assets	111,328			115,734
Property and equipment, net	122,342			126,230
Goodwill	1,262			1,262
Intangible and other non-current assets, net	11,457			11,859
Total non-current assets	135,061			139,351
Total assets	$	246,389		$	255,085
Liabilities
Current liabilities:
Accounts payable and accrued liabilities	$	7,335		$	12,595
Customer deposits	544			375
Current portion of long-term debt, net of unamortized loan fees	1,126			1,125
Total current liabilities	9,005			14,095
Long-term debt, net of current portion and unamortized loan fees	21,617			22,180
Deferred tax liability, net	5,622			5,608
Other non-current liabilities	—			23
Total non-current liabilities	27,239			27,811
Total liabilities	36,244			41,906
Commitments and Contingencies (Note 13)
Equity
Common shares, par value $0.01 per share, authorized 150,000,000 shares; 23,526,684 and 23,714,208 shares issued and outstanding at June 30, 2019 and December 31, 2018	235			237
Additional paid-in capital	277,520			277,520
Accumulated other comprehensive income (loss)	18			(19		)
Accumulated deficit	(67,628		)	(64,559		)
Total equity	210,145			213,179
Total liabilities and equity	$	246,389		$	255,085

See accompanying notes to unaudited interim condensed consolidated financial statements.

CRIMSON WINE GROUP, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net sales	$	16,355		$	17,282		$	31,520		$	30,511
Cost of sales	8,445			8,664			17,153			15,538
Gross profit	7,910			8,618			14,367			14,973
Operating expenses:
Sales and marketing	4,745			4,002			9,069			8,051
General and administrative	3,289			2,623			6,076			5,329
Total operating expenses	8,034			6,625			15,145			13,380
Net loss (gain) on disposal of property and equipment	46			94			(31		)	105
Restructuring charges	—			160			76			592
Impairment charges	1,235			—			1,235			—
(Loss) income from operations	(1,405		)	1,739			(2,058		)	896
Other income (expense):
Interest expense, net	(42		)	(172		)	(363		)	(510		)
Other income, net	130			82			107			77
Total other income (expense), net	88			(90		)	(256		)	(433		)
(Loss) income before income taxes	(1,317		)	1,649			(2,314		)	463
Income tax (benefit) provision	(439		)	478			(731		)	137
Net (loss) income	$	(878	)	$	1,171		$	(1,583	)	$	326
Basic and fully diluted weighted-average shares outstanding	23,538			23,972			23,585			23,985
Basic and fully diluted (loss) earnings per share	$	(0.04	)	$	0.05		$	(0.07	)	$	0.01

See accompanying notes to unaudited interim condensed consolidated financial statements.

໿CRIMSON WINE GROUP, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSES AND INCOME

(In thousands)

(Unaudited)



	Three Months Ended June 30,					Six Months Ended June 30,
	2019			2018		2019			2018
Net (loss) income	$	(878	)	$	1,171	$	(1,583	)	$	326
Other comprehensive income (loss):
Net unrealized holding gains (losses) on investments arising during the period, net of tax	18			—		37			(18		)
Comprehensive (loss) income	$	(860	)	$	1,171	$	(1,546	)	$	308

See accompanying notes to unaudited interim condensed consolidated financial statements.

CRIMSON WINE GROUP, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Six Months Ended June 30,
	2019			2018
Net cash flows from operating activities:
Net (loss) income	$	(1,583	)	$	326
Adjustments to reconcile net (loss) income to net cash provided by operations:
Depreciation and amortization of property and equipment	3,932			3,749
Amortization of intangible assets	643			756
Amortization of loan fees	7			8
Loss on change in fair value of contingent consideration liability	4			6
Loss on write-down of inventory	129			131
Net (gain) loss on disposal of property and equipment	(31		)	105
Restructuring charges	76			592
Impairment charges	1,285			24
Net change in operating assets and liabilities:
Accounts receivable	2,003			(2,110		)
Inventory	2,815			1,797
Other current assets	(715		)	(56		)
Other non-current assets	(241		)	(13		)
Accounts payable and accrued liabilities	(5,670		)	(4,263		)
Customer deposits	169			90
Other non-current liabilities	(23		)	(16		)
Net cash provided by operating activities	2,800			1,126
Net cash flows from investing activities:
Purchase of investments available for sale	(8,000		)	(4,000		)
Redemptions of investments available for sale	12,500			7,750
Acquisition of property and equipment	(2,093		)	(2,666		)
Proceeds from disposals of property and equipment	121			31
Net cash provided by investing activities	2,528			1,115
Net cash flows from financing activities:
Principal payments on long-term debt	(570		)	(570		)
Repurchase of common stock	(1,488		)	(568		)
Payment of contingent consideration liability	(112		)	(141		)
Payment of loan fees	—			(41		)
Net cash used in financing activities	(2,170		)	(1,320		)
Net increase in cash and cash equivalents	3,158			921
Cash and cash equivalents - beginning of period	9,376			9,792
Cash and cash equivalents - end of period	$	12,534		$	10,713
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest, net of capitalized interest	$	758		$	690
Income tax payments, net	$	—		$	—
Non-cash investing activity:
Unrealized holding gains (losses) on investments, net of tax	$	37		$	(18	)
Acquisition of property and equipment accrued but not yet paid	$	444		$	114

See accompanying notes to unaudited interim condensed consolidated financial statements.

CRIMSON WINE GROUP, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands, except share amounts)



								Accumulated
						Additional		Other
	Common Stock					Paid-In		Comprehensive			Accumulated
	Shares		Amount			Capital		(Loss) Income			Deficit			Total
Balance, December 31, 2017	23,997,385		$	240		$	277,520	$	(23	)	$	(64,018	)	$	213,719
Net income	—		—			—		—			326			326
Other comprehensive losses	—		—			—		(18		)	—			(18		)
Repurchase of common stock	(61,377	)	(1		)	—		—			(567		)	(568		)
Balance, June 30, 2018	23,936,008		$	239		$	277,520	$	(41	)	$	(64,259	)	$	213,459

Balance, December 31, 2018	23,714,208		$	237		$	277,520	$	(19	)	$	(64,559	)	$	213,179
Net loss	—		—			—		—			(1,583		)	(1,583		)
Other comprehensive income	—		—			—		37			—			37
Repurchase of common stock	(187,524	)	(2		)	—		—			(1,486		)	(1,488		)
Balance, June 30, 2019	23,526,684		$	235		$	277,520	$	18		$	(67,628	)	$	210,145

See accompanying notes to unaudited interim condensed consolidated financial statements.

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CRIMSON WINE GROUP, LTD.

Notes to Unaudited Interim Condensed Consolidated Financial Statements


1.	Background and Basis of Presentation

Background

Crimson Wine Group, Ltd. and its subsidiaries (collectively, “Crimson” or the “Company”) is a Delaware corporation that has been conducting business since 1991. Crimson is in the business of producing and selling ultra-premium plus wines (i.e., wines that retail for over $16 per 750ml bottle). Crimson is headquartered in Napa, California and through its subsidiaries owns seven primary wine estates and brands: Pine Ridge Vineyards, Archery Summit, Chamisal Vineyards, Seghesio Family Vineyards, Double Canyon, Seven Hills Winery and Malene Wines.

Financial Statement Preparation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. The unaudited interim condensed consolidated financial statements, which reflect all adjustments (consisting of normal recurring items or items discussed herein) that management believes necessary to fairly state results of interim operations, should be read in conjunction with the Notes to Consolidated Financial Statements (including the Significant Accounting Policies and Recent Accounting Pronouncements) included in the Company’s audited consolidated financial statements for the year ended December 31, 2018, as filed with the SEC on Form 10-K (the “2018 Report”). Results of operations for interim periods are not necessarily indicative of annual results of operations. The unaudited condensed consolidated balance sheet at December 31, 2018 was extracted from the audited annual consolidated financial statements and does not include all disclosures required by GAAP for annual financial statements.

Significant Accounting Policies

Except as described below under Recent Accounting Pronouncements and in Note 13 “Commitments and Contingencies,” there were no changes to the Company’s significant accounting policies during the six months ended June 30, 2019. See Note 2 to the 2018 Report for a description of the Company’s significant accounting policies.

Reclassifications

Certain reclassifications have been made to prior period unaudited interim condensed consolidated balance sheets and statements of cash flows to conform to current period presentation. The reclassifications had no impact on previously reported net (loss) income, equity or cash flows.

Recent Accounting Pronouncements

Subsequent to the filing of the 2018 Report there were no accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) that would have a material effect on Crimson’s unaudited interim condensed consolidated financial statements. The following table provides an update of accounting pronouncements applicable to Crimson that are not yet adopted as of June 30, 2019 and a description of accounting pronouncements that were adopted during the six months ended June 30, 2019:

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Standard	Description	Date of adoption	Effect on the financial statements or other significant matters
Standards that are not yet adopted
Accounting Standard Update (“ASU”) 2017-04, Goodwill and Other (Topic 350)	Eliminates Step 2 from the goodwill impairment test. Entities should perform their goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value.	January 1, 2020, early adoption is permitted for the Company.	Management is currently evaluating the potential impact of this guidance on the Company’s unaudited interim condensed consolidated financial statements.
ASU 2018-13, Fair Value Measurement (Topic 820)	Improves the disclosures related to fair value by removing, modifying or adding disclosure requirements related to recurring and non-recurring fair value measurements.	January 1, 2020, early adoption is permitted for the Company.	Management is currently evaluating the potential impact of this guidance on the Company’s unaudited interim condensed consolidated financial statements.
ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)	Aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirement of capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include internal-use software license).	January 1, 2020, early adoption is permitted for the Company.	Management is currently evaluating the potential impact of this guidance on the Company’s unaudited interim condensed consolidated financial statements.
Standards that were adopted
ASU 2016-02, Leases (Topic 842) (Subsequently updated with ASU 2018-01)	Increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief.	January 1, 2019	The Company adopted ASU 2016-02 using the modified retrospective method in Q1 2019. The Company recognized a right-of-use asset and a lease liability associated with its long-term operating leases on the Company’s unaudited interim condensed consolidated financial statements. See Note 13 “Commitments and Contingencies,” for further information.
ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220)	Allows the Company to elect to reclassify the stranded tax effects related to the Tax Cuts and Jobs Act of 2017 from accumulated other comprehensive income into retained earnings.	January 1, 2019	The adoption of this standard did not have an impact on the Company’s unaudited interim condensed consolidated financial statements.

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2.	Revenue

Revenue Recognition

Revenue is recognized once performance obligations under the terms of the Company’s contracts with its customers have been satisfied; this occurs at a point in time when control of the promised product or service is transferred to customers. Generally, the majority of the Company’s contracts with its customers have a single performance obligation and are short term in nature. Revenue is measured in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. The Company accounts for shipping and handling activities as costs to fulfill its promise to transfer the associated products. Accordingly, the Company records amounts billed for shipping and handling costs as a component of net sales, and classifies such costs as a component of costs of sales. The Company’s products are generally not sold with a right of return unless the product is spoiled or damaged. Historically, returns have not been material to the Company.

Wholesale Segment

The Company sells its wine to wholesale distributors under purchase orders. The Company transfers control and recognizes revenue for these orders upon shipment of the wine out of the Company’s third-party warehouse facilities. Payment terms to wholesale distributors typically range from 30 to 120 days. The Company pays depletion allowances to its wholesale distributors based on their sales to their customers. The Company estimates these depletion allowances and records such estimates in the same period the related revenue is recognized, resulting in a reduction of wholesale product revenue and the establishment of a current liability. Subsequently, wholesale 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 material differences between actual and estimated expense.

Direct to Consumer Segment

The Company sells its wine and other merchandise directly to consumers through wine club memberships, at the wineries’ tasting rooms and through the internet.

Wine club membership sales are made under contracts with customers, which specify the quantity and timing of future wine shipments. Customer credit cards are charged in advance of quarterly wine shipments in accordance with each contract. The Company transfers control and recognizes revenue for these contracts upon shipment of the wine to the customer.

Tasting room and internet wine sales are paid for at the time of sale. The Company transfers control and recognizes revenue for this wine when the product is either received by the customer (on-site tasting room sales) or upon shipment to the customer (internet sales).

Other

From time to time, the Company sells grapes or bulk wine because the grapes or wine do 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. Grape and bulk sales are made under contracts with customers which include product specification requirements, pricing and payment terms. Payment terms under grape contracts are generally structured around the timing of the harvest of the grapes and are generally due 30 days from the time the grapes are delivered. Payment terms under bulk wine contracts are generally 30 days from the date of shipment and may include an upfront payment upon signing of the sales agreement. The Company transfers control and recognizes revenue for grape sales when product specification has been met and title to the grapes has transferred, which is generally on the date the grapes are harvested, weighed and shipped. The Company transfers control and recognizes revenue for bulk contracts upon shipment.

The Company provides custom winemaking services at Double Canyon’s state-of-the-art Washington Winemaking Facility. Custom winemaking services are made under contracts with customers which include specific protocols, pricing, and payment terms and generally have a duration of less than one year. The customer retains title and control of the wine during the winemaking process. The Company recognizes revenue when contract specific performance obligations are met.

Estates hold various public and private events for customers and their wine club members. Upfront consideration received from the sale of tickets or under private event contracts for future events is recorded as deferred revenue. The balance of payments are due on the date of the event. The Company recognizes event revenue on the date the event is held.

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Other revenue also includes tasting fees and retail merchandise sales, which are paid for and received or consumed at the time of sale. The Company transfers control and recognizes revenue at the time of sale.

Refer to Note 12, “Business Segment Information,” for revenue by sales channel amounts for the three and six months ended June 30, 2019 and 2018.

Contract Balances

When the Company receives payments from customers prior to transferring goods or services under the terms of a contract, the Company records deferred revenue, which it classifies as customer deposits on its condensed consolidated balance sheets, and represents a contract liability.

The following table reflects changes in the contract liability balance during the six months ended June 30, 2019 and 2018 (in thousands):



	June 30, 2019			June 30, 2018
Outstanding at beginning of period (December 31)	$	375		$	593
Increase (decrease) attributed to:
Upfront payments	27,128			24,092
Revenue recognized	(26,959		)	(24,002		)
Outstanding at end of period	$	544		$	683

Revenue recognized during the six months ended June 30, 2019 and 2018, which was included in the opening contract liability balances for those periods, consisted primarily of wine club revenue, grape and bulk sales and event fees.

Accounts Receivable

Accounts receivable are reported at net realizable value. Credit is extended based upon an evaluation of the customer’s financial condition. Accounts are charged against the allowance to bad debt as they are deemed uncollectable based upon a periodic review of the accounts. In evaluating the collectability of individual receivable balances, the Company considers several factors, including the age of the balance, the customer’s historical payment history, its current credit worthiness and current economic trends. The Company’s accounts receivable balance is net of an allowance for doubtful accounts of $0.1 million at June 30, 2019 and December 31, 2018.


3.	Restructuring

During 2018, the Company committed to various restructuring activities including the termination of a vineyard operating lease agreement in Oregon and certain departmental reorganizations.

Restructuring charges of $0.1 million and $0.6 million were incurred in the six months ended June 30, 2019 and 2018, respectively. The Company has incurred $1.4 million of restructuring charges inception-to-date consisting of $0.4 million of asset impairment charges associated with leasehold improvements under the terminated vineyard operating lease agreement, $0.9 million employee related costs, and $0.1 million of other restructuring costs associated with departmental reorganization activities. The fair value of impaired leasehold improvements was determined using the undiscounted cash flows expected to result from the use and eventual disposition of the assets. The Company’s restructuring activities were substantially complete as of March 31, 2019.

The Company recorded no additional liability for restructuring charges and paid $0.2 million in previously accrued employee related restructuring activities during the six months ended June 30, 2019. The liability related to restructuring activities was $0.4 million and $0.6 million at June 30, 2019 and December 31, 2018, respectively.

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4.	Inventory

A summary of inventory at June 30, 2019 and December 31, 2018 is as follows (in thousands):



	June 30, 2019		December 31, 2018
Finished goods	$	37,031	$	37,447
In-process goods	36,179		38,902
Packaging and bottling supplies	1,114		918
Total inventory	$	74,324	$	77,267


5.	Property and Equipment

A summary of property and equipment at June 30, 2019 and December 31, 2018 and depreciation and amortization expense for the three and six months ended June 30, 2019 and 2018, is as follows (in thousands):

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	Depreciable Lives
	(in years)	June 30, 2019			December 31, 2018
Land and improvements	N/A	$	45,362		$	46,164
Buildings and improvements	20-40	60,349			60,229
Winery and vineyard equipment	3-25	40,615			40,724
Vineyards, orchards and improvements	7-25	36,289			36,458
Caves	20-40	5,639			5,639
Vineyards under development	N/A	3,142			3,943
Construction in progress	N/A	2,650			1,554
Total		194,046			194,711
Accumulated depreciation and amortization		(71,704		)	(68,481		)
Total property and equipment, net		$	122,342		$	126,230



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Capitalized into inventory	$	1,478	$	1,468	$	2,978	$	2,932
Expensed to general and administrative	473		407		954		817
Total depreciation and amortization	$	1,951	$	1,875	$	3,932	$	3,749

During 2018, the Company began actively marketing 36 acres of apple orchards for sale as it does not intend to replant these orchards with vineyards and subsequently recorded $0.6 million of assets held for sale. During the second quarter of 2019, the Company placed 124 acres of land, composed of 15 acres of vineyards and 109 acres of fallow land, for sale which classified an additional $1.2 million of assets as held for sale. As of June 30, 2019, the Company had $1.8 million of assets held for sale classified as current assets on its condensed consolidated balance sheet. In each of the six months ended June 30, 2019 and 2018, the Company recorded an impairment charge of less than $0.1 million to write-down the carrying value of the apple orchards to fair value less cost to sell. This impairment charge was recorded to other income (expense), net in the unaudited interim condensed consolidated statements of operations. The Company expects to complete the sale of both the apple orchards and land within the next twelve months.

In July 2019, the Company authorized plans to list for sale a vineyard consisting of 181.1 acres, of which 92.8 acres are planted to wine grapes, in Klickitat County, Washington. As part of the process in determining the sale price of the property, the Company engaged an appraisal of the property in the second quarter of 2019. As a result, the Company recorded an impairment loss of $1.2 million to write-down the carrying value of the vineyard to the appraised fair value less cost to sell as of June 30, 2019. This impairment was recorded to (loss) income from operations in the unaudited interim condensed consolidated statement of operations. The Company expects to list the property for sale during the third quarter of 2019.

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6.	Financial Instruments

The Company’s material financial instruments include cash and cash equivalents, investments classified as available for sale and short-term and long-term debt. Investments classified as available for sale are the only assets or liabilities that are measured at fair value on a recurring basis. All of the Company’s investments mature within two years or less.

The par value, amortized cost, gross unrealized gains and losses and estimated fair value of investments classified as available for sale as of June 30, 2019 and December 31, 2018 are as follows (in thousands):



June 30, 2019	Par Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Level 1		Level 2		Total Fair Value Measurements
Certificates of Deposit	$	14,750	$	14,750	$	15	$	(2	)	$	—	$	14,763	$	14,763
December 31, 2018	Par Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Level 1		Level 2		Total Fair Value Measurements
Certificates of Deposit	$	19,250	$	19,250	$	—	$	(37	)	$	—	$	19,213	$	19,213

As of June 30, 2019 and December 31, 2018, other than the assets which were impaired in the current period, the Company did not have any assets or liabilities measured at fair value on a nonrecurring basis. For cash and cash equivalents, the carrying amounts of such financial instruments approximate their fair values. For short-term liabilities, the carrying amounts of such financial instruments approximate their fair values. As of June 30, 2019, the Company has estimated the fair value of its outstanding debt to be approximately $22.4 million compared to its carrying value of $22.9 million, based upon discounted cash flows with Level 3 inputs, such as the terms that management believes would currently be available to the Company for similar issues of debt, taking into account the current credit risk of the Company and other factors.

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

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7.	Intangible and Other Non-Current Assets

A summary of intangible and other non-current assets at June 30, 2019 and December 31, 2018, and amortization expense for the six months ended June 30, 2019 and 2018, is as follows (in thousands):



		June 30, 2019						December 31, 2018
	Amortizable lives (in years)	Gross carrying amount		Accumulated amortization		Net book value		Gross carrying amount		Accumulated amortization		Net book value
Brand	15 - 17	$	18,000	$	8,435	$	9,565	$	18,000	$	7,904	$	10,096
Distributor relationships	10 - 14	2,700		1,535		1,165		2,700		1,438		1,262
Customer relationships	7	1,900		1,900		—		1,900		1,900		—
Legacy permits	14	250		144		106		250		135		115
Trademark	20	200		109		91		200		103		97
Total		$	23,050	$	12,123	$	10,927	$	23,050	$	11,480	$	11,570
Other non-current assets						530						289
Total intangible and other non-current assets, net						$	11,457					$	11,859

						Three Months Ended June 30,				Six Months Ended June 30,
Amortization expense						2019		2018		2019		2018
Total amortization expense						$	320	$	366	$	643	$	756

The estimated aggregate future amortization of intangible assets as of June 30, 2019 is identified below (in thousands):



	Amortization
Remainder of 2019	$	643
2020	1,286
2021	1,286
2022	1,286
2023	1,286
Thereafter	5,140
Total	$	10,927

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8.	Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consisted of the following as of June 30, 2019 and December 31, 2018 (in thousands):



	June 30, 2019		December 31, 2018
Accrued compensation related expenses	$	2,954	$	2,935
Accounts payable and accrued grape costs	1,872		7,733
Accrued interest	306		334
Depletion allowance	365		285
Operating lease liability, current	254		—
Production and farming	632		154
Sales and marketing	110		441
Acquisition of property and equipment	263		336
Contingent consideration liability related to Seven Hills Winery	—		146
Other accrued expenses	579		231
Total accounts payable and accrued liabilities	$	7,335	$	12,595


9.	Debt

Details of the Company’s debt as of June 30, 2019 and December 31, 2018 were as follows (in thousands):



	June 30, 2019									December 31, 2018
	Current			Long-term			Total			Current			Long-term			Total			Interest Rate	Maturity Date
2015 Term Loan	$	640		$	13,120		$	13,760		$	640		$	13,440		$	14,080		5.24%	October 1, 2040
2017 Term Loan	500			8,625			9,125			500			8,875			9,375			5.39%	July 1, 2037
Total	1,140			21,745			22,885			1,140			22,315			23,455
Debt issuance costs	(14		)	(128		)	(142		)	(15		)	(135		)	(150		)
Total debt	$	1,126		$	21,617		$	22,743		$	1,125		$	22,180		$	23,305

Revolving Credit Facility

In March 2013, Crimson and its subsidiaries entered into a $60.0 million revolving credit facility (the “2013 Revolving Credit Facility”) with American AgCredit, FLCA, as agent for the lenders identified in the 2013 Revolving Credit Facility, 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. In March 2018, Crimson and its subsidiaries entered into the second amendment to the 2013 Revolving Credit Facility with American AgCredit, FCLA (the “Second Amendment”). The Second Amendment modified certain provisions of the 2013 Revolving Credit Facility, including, among other things, extending the Revolving Loan and Term Revolving Loan termination dates to March 31, 2023, extending the Term Revolving Loan conversion date to March 31, 2023 and extending the Term Revolving Loan maturity date to March 31, 2033.

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. All obligations of Crimson under the 2013 Revolving Credit Facility are collateralized by certain real property, including vineyards and certain winery facilities of Crimson, accounts receivable, inventory and intangible assets. 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 2013 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.

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Term Loans

Term loans consist of the following:

(i) On November 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”) with American 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 on October 1, 2040 (the “2015 Loan Maturity Date”). On the first day of each January, April, July and October, commencing January 1, 2016, PRW Borrower is required to make a principal payment in the amount of $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 2015 Term Loan shall be due and payable on the 2015 Loan Maturity Date.

The Company incurred debt issuance costs of less than $0.1 million related to the 2015 Term Loan. These costs are recorded as a reduction from short-term or long-term debt based on the time frame in which the fees will be expensed, and as such, amounts to be expensed within twelve months shall be classified against short-term debt. The costs are being amortized to interest expense using the effective interest method over the contractual term of the loan.

The full $16.0 million was drawn at closing and the 2015 Term Loan can be used to fund acquisitions, capital projects and other general corporate purposes. As of June 30, 2019, $13.8 million in principal was outstanding on the 2015 Term Loan, and unamortized loan fees were less than $0.1 million.

(ii) On June 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 on July 1, 2037 (the “2017 Loan Maturity Date”). On the first day of each January, April, July and October, commencing October 1, 2017, DCV Borrower is required to make a principal payment in the amount of $125,000 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 2017 Term Loan shall be due and payable on the 2017 Loan Maturity Date.

The Company incurred debt issuance costs of approximately $0.1 million related to the 2017 Term Loan. These costs were recorded using the same treatment as described for the 2015 Term Loan debt issuance costs.

The full $10.0 million was drawn at closing and the 2017 Term Loan can be used to fund acquisitions, capital projects and other general corporate purposes. As of June 30, 2019, $9.1 million in principal was outstanding on the 2017 Term Loan, and unamortized loan fees were $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, sale of assets and merging or consolidating with other entities.

The Company was in compliance with all debt covenants as of June 30, 2019.

A summary of debt maturities as of June 30, 2019 is as follows (in thousands):



Principal due the remainder of 2019	$	570
Principal due in 2020	1,140
Principal due in 2021	1,140
Principal due in 2022	1,140
Principal due in 2023	1,140
Principal due thereafter	17,755
Total	$	22,885

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10.	Stockholders’ Equity

In March 2018, the Company commenced a share repurchase program (the “2018 Repurchase Program”) that provided for the repurchase of up to $2.0 million of outstanding common stock. Under the 2018 Repurchase Program, any repurchased shares were constructively retired, and on September 19, 2018, the 2018 Repurchase Program was completed. Under the total 2018 Repurchase Program, the Company repurchased 217,377 shares at an original repurchase price of $2.0 million.

In December 2018, the Company commenced a share repurchase program (the “2019 Winter Repurchase Program”) that provided for the repurchase of up to $2.0 million of outstanding common stock. Under the 2019 Winter Repurchase Program, any repurchased shares were constructively retired. During the six months ended June 30, 2019, the Company repurchased 187,524 shares at an original purchase price of $1.5 million. On April 30, 2019, the 2019 Winter Repurchase Program was completed. Under the total 2019 Winter Repurchase Program, the Company has repurchased 253,324 shares at an original repurchase price of $2.0 million.

In July 2019, the Company authorized a share repurchase program (the "2019 Summer Repurchase Program") that provided for the repurchase of up to $2.0 million of outstanding common stock. Under the 2019 Summer Repurchase Program, any repurchased shares are constructively retired. Through August 7, 2019, there were no shares repurchased under the plan.


11.	Income Taxes

Consolidated income tax expenses for the three and six months ended June 30, 2019 and 2018 were determined based upon applying the Company’s estimated consolidated effective income tax rates for the years ending December 31, 2019 and 2018, respectively to cumulative profit before taxes adjusted for discrete items which are fully recognized in the period they occur.

The Company’s effective tax rates for the three months ended June 30, 2019 and 2018 were 128.5% and 29.0%, respectively. The Company’s effective tax rates for the six months ended June 30, 2019 and 2018 were 36.9% and 29.6%, respectively. As a result of the Tax Cuts and Jobs Act (Public Law 115-97), the Company revised its estimated annual effective tax rate to reflect the change in the U.S. federal statutory tax rate from 34% to 21%. The difference between the consolidated effective income tax rate and the U.S. federal statutory rate for the six months ended June 30, 2019 is primarily attributable to state income taxes and permanent items, which primarily consisted of meals and entertainment.

The Company does not have any amounts in its condensed consolidated balance sheets for unrecognized tax benefits related to uncertain tax positions as of June 30, 2019 and December 31, 2018.

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12.	Business Segment Information

The Company has identified two operating segments which are reportable segments for financial statement reporting purposes, Wholesale net sales and Direct to Consumer net sales, based upon their different distribution channels, margins and selling strategies. Wholesale net sales include all sales through a third party where prices are given at a wholesale rate, whereas Direct to Consumer net sales include retail sales in the tasting room, remote sites and on-site events, wine club net sales and other sales made directly to the consumer without the use of an intermediary.

The two segments reflect how the Company’s operations are evaluated by senior management and the structure of its internal financial reporting. 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 allocated accordingly. 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.

The following table outlines the net sales, cost of sales, gross profit (loss), directly attributable selling expenses and operating income (loss) for the Company’s reportable segments for the three and six months ended June 30, 2019 and 2018, and also includes a reconciliation of consolidated income (loss) from operations. Other/Non-allocable net sales and gross profit include bulk wine and grape sales, event fees and retail sales. Other/Non-allocable expenses include centralized corporate expenses not specific to an identified reporting segment. Sales figures are net of related excise taxes.



	Three Months Ended June 30,
	Wholesale				Direct to Consumer				Other/Non-Allocable						Total
(in thousands)	2019		2018		2019		2018		2019			2018			2019			2018
Net sales	$	8,080	$	9,956	$	7,011	$	6,127	$	1,264		$	1,199		$	16,355		$	17,282
Cost of sales	4,978		5,469		2,155		1,999		1,312			1,196			8,445			8,664
Gross profit (loss)	3,102		4,487		4,856		4,128		(48		)	3			7,910			8,618
Operating expenses:
Sales and marketing	1,762		1,485		1,960		1,609		1,023			908			4,745			4,002
General and administrative	—		—		—		—		3,289			2,623			3,289			2,623
Total operating expenses	1,762		1,485		1,960		1,609		4,312			3,531			8,034			6,625
Net loss on disposal of property & equipment	—		—		—		—		46			94			46			94
Restructuring charges	—		—		—		—		—			160			—			160
Impairment charges	—		—		—		—		1,235			—			1,235			—
Income (loss) from operations	$	1,340	$	3,002	$	2,896	$	2,519	$	(5,641	)	$	(3,782	)	$	(1,405	)	$	1,739



	Six Months Ended June 30,
	Wholesale				Direct to Consumer				Other/Non-Allocable						Total
(in thousands)	2019		2018		2019		2018		2019			2018			2019			2018
Net sales	$	16,574	$	17,446	$	12,311	$	11,130	$	2,635		$	1,935		$	31,520		$	30,511
Cost of sales	10,303		9,979		3,860		3,652		2,990			1,907			17,153			15,538
Gross profit (loss)	6,271		7,467		8,451		7,478		(355		)	28			14,367			14,973
Operating expenses:
Sales and marketing	3,311		3,165		3,667		3,126		2,091			1,760			9,069			8,051
General and administrative	—		—		—		—		6,076			5,329			6,076			5,329
Total operating expenses	3,311		3,165		3,667		3,126		8,167			7,089			15,145			13,380
Net (gain) loss on disposal of property & equipment	—		—		—		—		(31		)	105			(31		)	105
Restructuring charges	—		—		—		—		76			592			76			592
Impairment charges	—		—		—		—		1,235			—			1,235			—
Income (loss) from operations	$	2,960	$	4,302	$	4,784	$	4,352	$	(9,802	)	$	(7,758	)	$	(2,058	)	$	896

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13.	Commitments and Contingencies

Leases

The Company has leased retail and office space and has entered into various other agreements in conducting its business. At inception, the Company determines whether an agreement represents a lease, and at commencement the Company evaluates each lease agreement to determine whether the lease is an operating or financing lease. Some of the Company’s lease agreements have contained renewal options, tenant improvement allowances and rent escalation clauses.

Pursuant to ASU 2016-02, all of the Company’s leases outstanding on January 1, 2019 continued to be classified as operating leases. With the adoption of ASU 2016-02, the Company recorded an operating lease-right-of use asset and an operating lease liability on its condensed consolidated balance sheet beginning January 1, 2019. Right-of-use lease assets represent the Company’s right to use the underlying asset for the lease term and the lease obligation represents the Company’s commitment to make the lease payments arising from the lease. Right-of-use lease assets and obligations are recognized at the commencement date based on the present value of remaining lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company has used an estimated incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The right-of-use lease asset includes any lease payments made prior to commencement and excludes any lease incentives. The lease term may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectation regarding the terms. Variable lease costs such as common area costs and property taxes are expensed as incurred. For all lease agreements, the Company combines lease and non-lease components, and leases with an initial term of 12 months or less are not recorded on the balance sheet.

Supplemental balance sheet information related to leases were as follows (in thousands):



	June 30, 2019
Other non-current assets	$	211


Accounts payable and accrued liabilities	$	254
Total operating lease liabilities	$	254

Weighted Average Remaining Lease Term
Operating leases	0.98 years
Weighted Average Discount Rate
Operating leases	6.34		%

Base rent expense was $0.1 million for the six months ended June 30, 2019 and 2018. Cash paid for amounts included in the measurement of operating lease liabilities as part of operating cash flows was $0.1 million for the six months ended June 30, 2019.

Litigation

The Company and its subsidiaries may become parties to legal proceedings that are considered to be either ordinary, routine litigation incidental to their business or not significant to the Company’s consolidated financial position or liquidity. Other than as described below, the Company does not believe that there is any other pending litigation that could have a significant adverse impact on its consolidated financial position, liquidity or results of operations.

On May 17, 2017, a former employee filed a class action complaint against one of the Company’s subsidiaries, Pine Ridge Vineyards, alleging various wage and hour violations. On February 5, 2018, the Company settled this class action complaint at mediation for $0.4 million, which was recorded in the consolidated financial statements for the year ended December 31, 2017. The settlement does not contain any admission of liability, wrongdoing, or responsibility by any of the parties. The court granted final approval of the settlement amount and the final payments were issued in the fourth quarter of 2018.

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Other

In October 2017, significant wildfires broke out in Napa, Sonoma, and surrounding counties in Northern California. Operations at two of the Company’s properties, Pine Ridge Vineyards and Seghesio Family Vineyards, were temporarily impacted due to these wildfires and then resumed shortly thereafter. At the time of the wildfires, both properties had already harvested substantially all of their 2017 estate grapes. Certain inventory on hand was impacted by power losses and smoke damage which was covered under existing insurance policies. During 2018, the Company recognized $1.1 million in insurance proceeds of which $0.6 million were offset against inventory losses and $0.5 million was included in other income, net.

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

Statements included in this Report may contain forward-looking statements. See “Cautionary Statement for Forward-Looking Information” below. The following should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and the Company’s audited consolidated financial statements for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K as filed with the SEC (the “2018 Report”).

Quantities or results referred to as “current quarter” and “current three and six-month period” refer to the three and six months ended June 30, 2019.

Cautionary Statement for Forward-Looking Information

This MD&A and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The unaudited interim condensed consolidated financial statements, that include results of Crimson Wine Group, Ltd. and all of its subsidiaries further collectively known as “we”, “Crimson”, “our”, “us”, or “the Company”, have been prepared in accordance with GAAP for interim financial information and with the general instruction for quarterly reports filed on Form 10-Q and Article 8 of Regulation S-X. All statements, other than statements of historical fact, regarding our strategy, future operations, financial position, prospects, plans, opportunities, and objectives constitute “forward-looking statements.” The words “may,” “will,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “potential,” or “continue” and similar types of expressions identify such statements, although not all forward-looking statements contain these identifying words. These statements are based upon information that is currently available to us and our management’s current expectations speak only as of the date hereof and are subject to risks and uncertainties. We expressly disclaim any obligation, except as required by federal securities laws, or undertaking to update or revise any forward-looking statements contained herein to reflect any change or expectations with regard thereto or to reflect any change in events, conditions, or circumstances on which any such forward-looking statements are based, in whole or in part. Our actual results may differ materially from the results discussed in or implied by such forward-looking statements.

Risks that could cause actual results to differ materially from any results projected, forecasted, estimated or budgeted or that may materially and adversely affect our actual results include, but are not limited to, those discussed in Part I, Item 1A. Risk Factors in the 2018 Report. Readers should carefully review the risk factors described in the 2018 Report and in other documents that the Company files from time to time with the SEC.

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 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 we are able to sell our 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 grapes or wine do 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 cost of sales.

As of June 30, 2019, wine inventory includes approximately 0.6 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.

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Seasonality

As discussed in the 2018 Report, 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.

Restructuring

During 2018, the Company committed to various restructuring activities including the termination of a vineyard operating lease agreement in Oregon and certain departmental reorganizations.

Results of Operations

Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018

Net Sales

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	Three Months Ended June 30,
(in thousands, except percentages)	2019		2018		Increase (Decrease)			% change
Wholesale	$	8,080	$	9,956	$	(1,876	)	(19)%
Direct to Consumer	7,011		6,127		884			14%
Other	1,264		1,199		65			5%
Total net sales	$	16,355	$	17,282	$	(927	)	(5)%

Wholesale net sales decreased $1.9 million, or 19%, in the current quarter as compared to the same quarter in 2018. The decrease was primarily driven by a decrease in domestic wine sales and increased price support compared to the same quarter in 2018. The decrease in domestic wine sales was primarily driven by in market price adjustments in the same quarter in 2018.

Direct to Consumer net sales increased $0.9 million, or 14%, in the current quarter as compared to the same quarter in 2018. The increase was primarily driven by timing of wine club shipments and successful strategic e-commerce offers.

Other net sales include bulk wine, grape sales, custom winemaking services, event fees and retail sales and remained relatively flat compared to the same quarter in 2018.

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Gross Profit



	Three Months Ended June 30,
(in thousands, except percentages)	2019			2018			Increase (Decrease)			% change
Wholesale	$	3,102		$	4,487		$	(1,385	)	(31)%
Wholesale gross margin percentage	38		%	45		%
Direct to Consumer	4,856			4,128			728			18%
Direct to Consumer gross margin percentage	69		%	67		%
Other	(48		)	3			(51		)	(1,700)%
Total gross profit	$	7,910		$	8,618		$	(708	)	(8)%
Total gross margin percentage	48		%	50		%

Wholesale gross profit decreased $1.4 million, or 31%, in the current quarter as compared to the same quarter in 2018 primarily driven by lower sales volume. Gross margin percentage, which is defined as gross profit as a percentage of net sales, decreased 668 basis points primarily driven by increased price support.

Direct to Consumer gross profit increased $0.7 million, or 18%, in the current quarter as compared to the same quarter in 2018 driven primarily by an increase in volume. Gross margin percentage increased 189 basis points in the current quarter primarily driven by a shift to wine club released wines on vintages with lower cost of goods sold due to higher crop yields as compared to the same quarter in 2018.

Other gross profit includes bulk wine, grape sales, event fees and non-wine retail sales and remained relatively flat in the current quarter as compared to the same quarter in 2018.

Operating Expenses



	Three Months Ended June 30,
(in thousands, except percentages)	2019		2018		Increase		% change
Sales and marketing	$	4,745	$	4,002	$	743	19%
General and administrative	3,289		2,623		666		25%
Total operating expenses	$	8,034	$	6,625	$	1,409	21%

Sales and marketing expenses increased $0.7 million, or 19%, in the current quarter as compared to the same quarter in 2018. The increase was primarily driven by compensation related expenses and the timing of certain direct-to-consumer sales commissions.

General and administrative expenses increased $0.7 million, or 25%, in the current quarter as compared to the same quarter in 2018 primarily due to compensation expenses related to severance expense and annual merit increases.

Other Income (Expense)



	Three Months Ended June 30,
(in thousands, except percentages)	2019			2018			Increase (Decrease)			% change
Interest expense, net	$	(42	)	$	(172	)	$	(130	)	(76)%
Other income, net	130			82			48			59%
Total other income (expense), net	$	88		$	(90	)	$	(178	)	(198)%

Interest expense, net decreased $0.1 million, or 76%, in the current quarter compared to the same quarter in 2018. The decrease was primarily driven by a higher patronage dividend received and the timing of capitalized interest on vineyard development projects during the current quarter.

Other income increased by less than $0.1 million in the current quarter as compared to the same quarter in 2018. The increase was primarily driven by increased margin on apple consignment sales.

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Income Tax Provision

The Company’s effective tax rates for the three months ended June 30, 2019 and 2018 were 128.5% and 29.0%, respectively. As a result of the Tax Cuts and Jobs Act (Public Law 115-97), the Company revised its estimated annual effective tax rate to reflect the change in the U.S. federal statutory tax rate from 34% to 21%. The difference between the consolidated effective income tax rate and the U.S. federal statutory rate for the three months ended June 30, 2019 was primarily attributable to state income taxes and the effect of certain permanent differences, which primarily consisted of meals and entertainment.

Six Months Ended June 30, 2019 Compared To Six Months Ended June 30, 2018

Net Sales

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	Six Months Ended June 30,
(in thousands, except percentages)	2019		2018		Increase (Decrease)			% change
Wholesale	$	16,574	$	17,446	$	(872	)	(5)%
Direct to Consumer	12,311		11,130		1,181			11%
Other	2,635		1,935		700			36%
Total net sales	$	31,520	$	30,511	$	1,009		3%

Wholesale net sales decreased $0.9 million, or 5%, in the current six month period as compared to the same period in 2018. The decrease was primarily driven by increased price support compared to the prior period.

Direct to Consumer net sales increased $1.2 million, or 11%, in the current six month period as compared to the same period in 2018. The increase was primarily driven by increased wine club shipments and successful strategic e-commerce offers.

Other net sales include bulk wine, grape sales, custom winemaking services, event fees and retail sales and increased $0.7 million, or 36%, in the current six month period as compared to the same period in 2018 primarily due to increased gallons of bulk wine sold in the current period.

Gross Profit



	Six Months Ended June 30,
(in thousands, except percentages)	2019			2018			Increase (Decrease)			% change
Wholesale	$	6,271		$	7,467		$	(1,196	)	(16)%
Wholesale gross margin percentage	38		%	43		%
Direct to Consumer	8,451			7,478			973			13%
Direct to Consumer gross margin percentage	69		%	67		%
Other	(355		)	28			(383		)	(1,368)%
Total gross profit	$	14,367		$	14,973		$	(606	)	(4)%
Total gross margin percentage	46		%	49		%

Wholesale gross profit decreased $1.2 million, or 16%, in the current six month period as compared to the same period in 2018 primarily driven by increased price support and the release of higher cost vintages. Gross margin percentage, which is defined as gross profit as a percentage of net sales, decreased 496 basis points primarily driven by increased price support.

Direct to Consumer gross profit increased $1.0 million, or 13%, in the current six month period as compared to the same period in 2018 driven primarily by an increase in volume. Gross margin percentage increased 146 basis points in the current year primarily driven by a shift to wine club released wines on vintages with lower costs of goods sold due to higher crop yields than the prior period.

Other gross profit includes bulk wine, grape sales, event fees and non-wine retail sales and decreased $0.4 million in the current six month period as compared to the same period in 2018. The decrease in gross profit is primarily driven by lower priced bulk wine sold in the current period.

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Operating Expenses



	Six Months Ended June 30,
(in thousands, except percentages)	2019		2018		Increase		% change
Sales and marketing	$	9,069	$	8,051	$	1,018	13%
General and administrative	6,076		5,329		747		14%
Total operating expenses	$	15,145	$	13,380	$	1,765	13%

Sales and marketing expenses increased $1.0 million, or 13%, in the current six month period as compared to the same period in 2018. The increase was primarily driven by compensation related expenses and the timing of certain direct-to-consumer sales commissions.

General and administrative expenses increased $0.7 million, or 14%, in the current six month period as compared to the same period in 2018 primarily due to compensation expenses related to severance expense and annual merit increases.

Other Expense



	Six Months Ended June 30,
(in thousands, except percentages)	2019			2018			Increase (Decrease)			% change
Interest expense, net	$	(363	)	$	(510	)	$	(147	)	(29)%
Other income, net	107			77			30			39%
Total other expense, net	$	(256	)	$	(433	)	$	(177	)	(41)%

Interest expense, net decreased $0.1 million, or 29%, in the current six month period compared to the same period in 2018. The decrease was primarily driven by a higher patronage dividend received and the timing of capitalized interest on vineyard development projects in the current six month period.

Other income increased by less than $0.1 million in the current six month period as compared to the same period in 2018. The increase was primarily driven by increased margin on apple consignment sales.

Income Tax Provision

The Company’s effective tax rates for the six months ended June 30, 2019 and 2018 were 36.9% and 29.6%, respectively. As a result of the Tax Cuts and Jobs Act (Public Law 115-97), the Company revised its estimated annual effective tax rate to reflect the change in the U.S. federal statutory tax rate from 34% to 21%. The difference between the consolidated effective income tax rate and the U.S. federal statutory rate for the three months ended June 30, 2019 was primarily attributable to state income taxes and the effect of certain permanent differences, which primarily consisted of meals and entertainment.

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.

Revolving Credit Facility

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31, 2023 and extending the Term Revolving Loan maturity date to March 31, 2033.

Term Loans

Term loans consist of the following:

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, sale of assets and merging or consolidating with other entities.

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Consolidated Statements of Cash Flows

The following table summarizes our cash flow activities for the six months ended June 30, 2019 and 2018 (in thousands):



Cash (used in) provided by:	2019			2018
Operating activities	$	2,800		$	1,126
Investing activities	2,528			1,115
Financing activities	(2,170		)	(1,320		)

Cash provided by operating activities

Net cash provided by operating activities was $2.8 million for the six months ended June 30, 2019, consisting primarily of $1.6 million of net loss adjusted for non-cash items such as $6.0 million primarily consisting of depreciation, amortization, and impairment charges, partially offset by $1.7 million of net cash outflow related to changes in operating assets and liabilities. The change in operating assets and liabilities was primarily due to a decrease in accounts payable and accrued liabilities, partially offset by a decrease in inventory and accounts receivable. The decrease in accounts payable and accrued liabilities were primarily due to grower payments made in the current period for the 2018 harvest.

Net cash provided by operating activities was $1.1 million for the six months ended June 30, 2018, consisting primarily of $0.3 million of net income adjusted for non-cash items such as $4.5 million of depreciation and amortization and $0.6 million of restructuring charges, partially offset by $4.6 million of net cash outflow related to changes in operating assets and liabilities. The change in operating assets and liabilities was primarily due to a decrease in accounts payable and expense accruals, partially offset by a decrease in inventory. The decrease in accounts payable and accrued liabilities were primarily due to grower payments made for the 2017 harvest.

Cash provided by investing activities

Net cash provided by investing activities was $2.5 million for the six months ended June 30, 2019, consisting primarily of net redemptions of available for sale investments of $4.5 million, partially offset by capital expenditures of $2.1 million.

Net cash provided by investing activities was $1.1 million for the six months ended June 30, 2018, consisting primarily of net redemptions of available for sale investments of $3.8 million, partially offset by capital expenditures of $2.7 million and the proceeds from disposals of property and equipment of $0.1 million.

Cash used in financing activities

Net cash used in financing activities for the six months ended June 30, 2019 was $2.2 million, which reflects the repurchase of shares of our common stock at a repurchase price of $1.5 million, principal payments on our term loans of $0.6 million and contingent consideration payments of $0.1 million associated with the Seven Hills Winery acquisition.

Net cash used in financing activities for the six months ended June 30, 2018 was $1.3 million which reflects principal payments on our term loans of $0.6 million, the repurchase of shares of our common stock at a repurchase price of $0.6 million and contingent consideration payments of $0.1 million associated with the Seven Hills Winery acquisition.

Share Repurchases

In March 2018, the Company commenced a share repurchase program (the “2018 Repurchase Program”) that provided for the repurchase of up to $2.0 million of outstanding common stock. Under the 2018 Repurchase Program, any repurchased shares were constructively retired and on September 19, 2018 the 2018 Repurchase Program was completed. Under the total 2018 Repurchase Program, the Company repurchased 217,377 shares at an original repurchase price of $2.0 million.

In December 2018, the Company commenced a share repurchase program (the “2019 Winter Repurchase Program”) that provided for the repurchase of up to $2.0 million of outstanding common stock. Under the 2019 Winter Repurchase Program, any repurchased shares were constructively retired. During the three months ended June 30, 2019, the Company repurchased 187,524 shares at an original purchase price of $1.5 million. On April 30, 2019, the 2019 Winter Repurchase Program was completed. Under the total 2019 Winter Repurchase Program, the Company has repurchased 253,324 shares at an original repurchase price of $2.0 million.

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Commitments & Contingencies

There have been no significant changes to our contractual obligations table as disclosed in the 2018 Report.

Off-Balance Sheet Financing Arrangements

None.

Critical Accounting Policies and Estimates

Except as disclosed in Note 1 and Note 13 of this Form 10-Q, there have been no material changes to the critical accounting policies and estimates previously disclosed in the 2018 Report.

Item 3. Quantitative and Qualitative Disclosures 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 two term loans. The revolving credit facility had no outstanding balance as of June 30, 2019, and bears interest at floating rates on borrowings. The term loans had$22.9 million outstanding at June 30, 2019 and are fixed-rate debt and therefore are not subject to fluctuations in market interest rates.

Item 4. Controls and Procedures.

The Company’s management evaluated, with the participation of the Company’s principal executive and principal financial officers, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of June 30, 2019. Based on their evaluation, the Company’s principal executive and principal financial officers concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2019.

There has been no change in the Company's internal control over financial reporting that occurred during the Company's fiscal quarter ended June 30, 2019 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2018 Report, which could materially affect our business, results of operations or financial condition. The risks described in our 2018 Report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may eventually prove to materially adversely affect our business, results of operations or financial condition.

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

Share repurchase activity under the Company’s share repurchase program on a trade date basis, for the three months ended June 30, 2019 was as follows:



Fiscal Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans	Approximate Dollar Value of Shares that May Yet Be Purchased Under Publicly Announced Plans (millions)
April 1-30, 2019	56,838	$	7.59	253,324	-
May 1-31, 2019				253,324	-
June 1-30, 2019				253,324	-
Total	56,838

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

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Item 6. Exhibits.



2.1*	Separation Agreement, dated February 1, 2013, between Crimson Wine Group, Ltd. and Leucadia National Corporation (incorporated by reference to Exhibit 2.1 to Form 8-K filed on February 25, 2013).
3.1*	Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Form 8-K filed on February 25, 2013).
3.2*	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to Form 8-K filed on February 25, 2013).
10.1*	Severance Agreement and Release of all Claims, dated June 9, 2019, between Crimson Wine Group, Ltd. and Patrick DeLong (filed as Exhibit 10.1 to the Company’s Form 8-K, filed on June 11, 2019).*
31.1**	Certification of Interim President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2**	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification of Interim Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**	Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101**	Unaudited financial statements from the Quarterly Report on Form 10-Q of Crimson Wine Group, Ltd. for the quarter ended June 30, 2019, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Loss; (iii) the Condensed Consolidated Statements of Comprehensive Income (iv) the Condensed Consolidated Statements of Cash Flows; and (v) the Notes to Unaudited Interim Condensed Consolidated Financial Statements.

* Incorporated by reference
** Filed herewith

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SIGNATURES

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



			CRIMSON WINE GROUP, LTD.
			(Registrant)

Date:	August 8, 2019	By:	/s/ Karen L. Diepholz
			Karen L. Diepholz
			Chief Financial Officer