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Crimson Wine to restate 3+ years of financial results after independent review of “unreliable” accounting errors

 

Crimson Wine Group will be  restating “unreliable” financial results for three fiscal years ended December 31, 2017, 2018 and 2019 after an independent review is completed, according to the company’s SEC 8-K Report of Dec. 22, 2020

 

According to the 8-K,  the reviews “relate to the allocation of costs to bulk wine inventory, which, in turn, affect the Company’s reported cost of sales.”

 

The 8-K further notes that  the Crimson Wine”Audit Committee will retain independent accounting advisors to assist in the review process. The Company cannot quantify the amount of the corrections until the Audit Committee has concluded its independent review. ”

 

The results of the review, according to the 8-K, “will result in a decrease in the Company’s net earnings for the periods discussed above as well as an adjustment to increase the opening accumulated deficit balance as of January 1, 2017.”

 

As a result of these errors, the consolidated financial statements for the periods cited above will be restated. The restatements are expected to correct errors that overstated previously reported inventories and understated cost of sales for the three months ended March 31, 2020, the three and six months ended June 30, 2020, the three and Nine months ended September 30, 2020.

 

Because of this, the 8-K states that Crimson Wines’  “audited consolidated financial statements for the years ended December 31, 2017, 2018 and 2019, can no longer be relied upon as the result of material accounting errors identified by management

 

“At this time, however, the Company cannot predict with certainty when the independent review will be completed.”

Wine Industry Insight is awaiting comment from the company.

Complete 8-K text

Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.

(a) On December 22, 2020, the Board of Directors of Crimson Wine Group, Ltd. (the “Company”), based on the recommendation of the Audit Committee of the Board of Directors (the “Audit Committee”) and in consultation with management, concluded that its unaudited interim condensed consolidated financial statements for the three months ended March 31, 2020, the three and six months ended June 30, 2020 and the three and nine months ended September 30, 2020 (collectively, the “Interim 2020 Quarterly Financial Statements”), and its audited consolidated financial statements for the years ended December 31, 2017, 2018 and 2019, can no longer be relied upon as the result of material accounting errors identified by management.

 

The errors relate to the allocation of costs to bulk wine inventory, which, in turn, affect the Company’s reported cost of sales. As a result of these errors, the consolidated financial statements for the periods cited above will be restated. The restatements are expected to correct errors that overstated previously reported inventories and understated cost of sales for the three months ended March 31, 2020, the three and six months ended June 30, 2020, the three and nine months ended September 30, 2020, and for the years ended December 31, 2017, 2018 and 2019. Accordingly, investors should no longer rely on the Company’s historical consolidated financial statements, earnings releases and similar communications relating to these periods.

 

Based on preliminary findings, these errors were identified beginning in vintages prior to 2017. The Company anticipates that the correction of the misstatements described above will result in a decrease in the Company’s net earnings for the periods discussed above as well as an adjustment to increase the opening accumulated deficit balance as of January 1, 2017. The Audit Committee will retain independent accounting advisors to assist in the review process. The Company cannot quantify the amount of the corrections until the Audit Committee has concluded its independent review. The Company does not anticipate that the restatement will cause any changes to the previously reported cash and debt balances as of the end of each of the periods being restated. In addition, the Company expects to maintain compliance with its debt covenants based on a preliminary review of the covenant calculations for all of the impacted periods.

 

The Company’s management is evaluating the implications of the restatements described above on its internal control over financial reporting. Upon completion of the independent review, the Company expects to report one or more material weaknesses in the Company’s internal control over financial reporting.
While the Company is not currently aware of other accounting errors requiring adjustment to any prior period consolidated financial statements, there can be no assurances that the Company or its independent registered public accounting firm will not find additional accounting errors requiring further adjustments in those or earlier periods.

 

At the conclusion of the independent review, the Company intends to file amended Quarterly Reports on Form 10-Q for the first three quarters of the year ending December 31, 2020 and an amended Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”) which will include restated fiscal years ended December 31, 2017, 2018 and 2019. At this time, however, the Company cannot predict with certainty when the independent review will be completed.

 

The Company’s management and the Audit Committee have discussed the matters disclosed in this Current Report on Form 8-K with BPM LLP, the Company’s current independent registered public accounting firm and Moss Adams LLP, the Company’s independent registered accounting firm for the year ended December 31, 2017.