Willamette Valley Vineyards(WVVI) - 2021 Q4 - Annual Report

Part I Business Willamette Valley Vineyards produces and sells premium wines, primarily Pinot Noir, through direct and distributor sales, expanding into ultra-premium markets with new brands and facilities - The company operates through two primary segments: direct sales (retail, wine club, online) and distributor sales (wholesale)[17] - The company's main brand is Willamette Valley Vineyards, with Pinot Noir as its flagship varietal, also marketing wines under Griffin Creek, Tualatin Estate, Pambrun, and Maison Bleue labels[16][18] - Strategic initiatives include brand expansion into the ultra-premium market with new wineries and labels, and constructing a new sparkling wine facility, Domaine Willamette, to enhance direct-to-consumer sales[46] Company Vineyard Acreage Summary | Vineyard Type | Total Acres | Producing Acres | Pre-Production Acres | Plantable Acres | Non-Plantable Acres | | :--- | :--- | :--- | :--- | :--- | :--- | | Owned Vineyards | 704 | 239 | 37 | 232 | 196 | | Leased Vineyards | 314 | 265 | 9 | 19 | 21 | | Contracted Vineyards | 381 | 381 | - | - | - | | Total | 1,399 | 885 | 46 | 251 | 217 | Annual Grape Harvest and Wine Production | Harvest Year | Tons of Grapes Grown | Tons of Grapes Purchased | Total Tons Harvested | Cases Produced | | :--- | :--- | :--- | :--- | :--- | | 2021 | 1,550 | 1,522 | 3,072 | 206,954 | | 2020 | 1,031 | 1,470 | 2,501 | 175,357 | | 2019 | 1,572 | 1,046 | 2,618 | 172,869 | - In 2021, sales to a single distributor accounted for approximately 18.1% of total company revenue, a decrease from 24.0% in 2020[91] Risk Factors The company faces agricultural, competitive, and financial risks, including pest and weather impacts, intense market competition, funding needs, and ongoing COVID-19 uncertainties - Agricultural risks include diseases, pests like phylloxera, adverse weather, and potential smoke damage from wildfires[104][107] - The company faces intense competition from larger domestic and foreign wineries with greater financial and marketing resources[113] - Financial risks include reliance on credit facilities, high compliance costs as a public company, and potential liabilities from its Series A Redeemable Preferred Stock offering[110][112][126] - The COVID-19 pandemic continues to pose a risk, potentially impacting direct-to-consumer sales and hospitality demand if restrictive measures are re-imposed[133][134][135] Unresolved Staff Comments The company reports no unresolved staff comments - None[137] Properties The company owns or leases 1,018 acres, including 504 productive vineyard acres, with its Estate Winery producing 258,620 cases annually and additional capacity available - The company owns or leases a total of 1,018 acres, of which 704 are owned and 314 are leased, including 504 productive vineyard acres[138] - The Estate Winery has a production capacity of up to 258,620 cases (615,000 gallons) per year, producing approximately 206,954 cases in 2021[139] - The Tualatin Estate Winery provides an additional 28,000 cases (66,000 gallons) of production capacity, currently unused but available for future expansion[140] Legal Proceedings The company is not a party to any material legal proceedings, nor is management aware of any contemplated actions - There are no material legal proceedings pending against the Company[143] Mine Safety Disclosures This section is not applicable to the company - Not applicable[144] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ under "WVVI" with 2,146 shareholders, and it does not anticipate paying common stock dividends, reinvesting earnings for expansion - The Company's common stock is traded on the NASDAQ Capital Market under the symbol "WVVI"[146] - As of December 31, 2021, there were approximately 2,146 common stock shareholders of record[146] - The Company has not paid dividends on its Common Stock and does not plan to in the foreseeable future, instead reinvesting earnings into expansion[147] Selected Financial Data This section is not required for the company - Not required[151] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2021, net sales increased by 16.4% to $31.8 million, but net income decreased by 28.0% to $2.4 million due to higher costs and SG&A expenses, with gross margin declining to 58.7% Financial Performance Summary (2021 vs. 2020) | Metric | 2021 | 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $31,786,864 | $27,314,852 | $4,472,012 | 16.4% | | Gross Profit | $18,665,673 | $16,729,776 | $1,935,897 | 11.6% | | Income from Operations | $3,690,019 | $5,001,773 | ($1,311,754) | -26.2% | | Net Income | $2,445,463 | $3,394,996 | ($949,533) | -28.0% | | EPS (after preferred dividends) | $0.20 | $0.46 | ($0.26) | -56.6% | Revenue by Sales Channel (2021 vs. 2020) | Sales Channel | 2021 Revenue | 2020 Revenue | % Change | | :--- | :--- | :--- | :--- | | Retail Sales | $13,306,156 | $10,560,913 | 26.0% | | In-state Sales | $5,824,130 | $6,671,743 | -12.7% | | Out-of-state Sales | $12,937,605 | $10,350,708 | 25.0% | - The gross margin percentage decreased to 58.7% in 2021 from 61.2% in 2020, primarily due to higher product costs from recent vintages[185] - Selling, general and administrative (SG&A) expenses increased by 27.7% in 2021, driven by increased selling expenses, shipping, packaging, and administrative costs[186] EBITDA Reconciliation (2021 vs. 2020) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Net Income | $2,445,463 | $3,394,996 | | Depreciation and amortization | $1,952,093 | $1,812,394 | | Interest Expense | $391,272 | $414,061 | | Interest Income | ($12,412) | ($21,022) | | Income tax expense | $1,020,879 | $1,379,654 | | EBITDA | $5,797,295 | $6,980,083 | Quantitative and Qualitative Disclosures about Market Risk This section is not required for the company - Not required[225] Financial Statements and Supplementary Data Audited financial statements for 2021 and 2020 are presented with an unqualified opinion from Moss Adams LLP, showing 2021 total assets of $91.4 million and total liabilities of $26.4 million - The independent registered public accounting firm, Moss Adams LLP, provided an unqualified audit opinion on the financial statements[231][236] Balance Sheet Summary (as of Dec 31, 2021) | Category | Amount | | :--- | :--- | | Total Current Assets | $36,425,857 | | Total Assets | $91,375,110 | | Total Current Liabilities | $11,931,983 | | Total Liabilities | $26,413,116 | | Total Shareholders' Equity | $64,961,994 | Statement of Income Summary (Year Ended Dec 31, 2021) | Category | Amount | | :--- | :--- | | Sales, Net | $31,786,864 | | Gross Profit | $18,665,673 | | Income from Operations | $3,690,019 | | Net Income | $2,445,463 | | Income Applicable to Common Shareholders | $1,001,180 | | EPS (basic and diluted) | $0.20 | - In 2021, sales to one distributor represented approximately 18.1% of total revenue, indicating significant customer concentration[263] - The company has two primary operating segments: Direct Sales (41.8% of net sales in 2021) and Distributor Sales (58.2% of net sales in 2021)[337][340] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[344] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with no material changes - Management concluded that the company's disclosure controls and procedures were effective as of the period end[344] - Based on the COSO framework, management concluded that internal control over financial reporting was effective as of December 31, 2021[347] Other Information The company reports no other information - None[350] Part III Directors, Executive Officers and Corporate Governance This section details the company's directors and executive officers, including James W. Bernau (CEO) and John Ferry (CFO), and highlights the independent audit committee with Craig Smith as financial expert Directors and Executive Officers | Name | Position(s) | Age | | :--- | :--- | :--- | | James W. Bernau | Chairperson of the Board, CEO, President and Director | 68 | | Craig Smith | Secretary and Director | 75 | | John Ferry | Chief Financial Officer | 56 | | James L. Ellis | Director | 77 | | Sean M. Cary | Director | 48 | | Stan G. Turel | Director | 73 | | Leslie Copland | Director | 68 | - The company has a standing audit committee comprised of independent directors: Craig Smith, Sean Cary, and Stan G. Turel[366] - Craig Smith is designated as the Audit Committee's "financial expert"[367] Executive Compensation This section details 2021 executive compensation, with CEO James W. Bernau receiving $573,620 and CFO John Ferry receiving $199,344, alongside director compensation Summary Compensation Table (2021) | Name and Principal Position | Year | Salary | Bonus | Non-equity Incentive Plan Comp. | All Other Comp. | Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | James W. Bernau, President, CEO | 2021 | $285,474 | $233,757 | - | $54,389 | $573,620 | | John Ferry, CFO | 2021 | $170,677 | - | $21,000 | $7,667 | $199,344 | - Mr. Bernau's 2021 bonus is calculated as a percentage of the company's pre-tax net income, not to exceed his base salary[371] - Directors receive compensation including a yearly stipend, fees for meeting attendance, a per diem, and a yearly wine allowance[374] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section discloses common stock beneficial ownership as of March 29, 2022, with CEO James W. Bernau owning 7.2% and all directors and executive officers as a group owning 7.9% Security Ownership of Major Holders and Management | Name | Number of Shares Beneficially Owned | Percent of Class | | :--- | :--- | :--- | | James W. Bernau | 355,502 | 7.2% | | Christopher Riccardi | 385,485 | 7.8% | | Carl D. Thoma | 336,189 | 6.8% | | All Directors and Executive Officers as a group (7 persons) | 394,259 | 7.9% | Certain Relationships and Related Transactions, and Director Independence The company reported no related person transactions exceeding $120,000 in 2021, and most directors are deemed independent by NASDAQ standards - There were no transactions with related persons exceeding $120,000 in 2021[380] - All directors are considered "independent" under NASDAQ rules, except for James W. Bernau (CEO) and James L. Ellis (former executive)[382] Principal Accounting Fees and Services This section details fees paid to Moss Adams LLP for 2021 ($295,918) and 2020 ($250,510), covering audit and tax services Accountant Fees (Moss Adams LLP) | Fee Category | 2021 | 2020 | | :--- | :--- | :--- | | Audit Fees | $241,038 | $198,200 | | Tax Fees | $54,880 | $52,310 | | Total Fees | $295,918 | $250,510 | Exhibits, Financial Statement Schedules This section provides an index of all financial statements, schedules, and exhibits filed as part of the Form 10-K report - This section provides an index of all financial statements, schedules, and exhibits filed with the Form 10-K[386][389]