XML 23 R17.htm IDEA: XBRL DOCUMENT v2.4.0.6
COMMITMENTS AND CONTINGENCIES
 12 Months Ended
Dec. 31, 2011
Notes to Financial Statements  
COMMITMENTS AND CONTINGENCIES

 

NOTE 11 – COMMITMENTS AND CONTINGENCIES

 

Litigation – From time to time, in the normal course of business, the Company is a party to legal proceedings. Management believes that these matters will not have a material adverse effect on the Company’s financial position, results of operations or cash flows, but, due to the nature of the litigation, the ultimate outcome cannot presently be determined.

  

Operating leases – The Company entered into a lease agreement for approximately 45 acres of vineyards and related equipment in 1997. In December 1999, under a sale-leaseback agreement, the Company sold a portion of the Tualatin Vineyards property with a net book value of approximately $1,000,000 for approximately $1,500,000 cash and entered into a 20-year operating lease agreement. The gain of approximately $500,000 is being amortized over the 20-year term of the lease. In December 2004, under a new sale-leaseback agreement, the Company sold a 75.3 acres portion of the Tualatin Vineyards property with a net book value of approximately $551,000 for approximately $727,000 cash and entered into a 14-year operating lease agreement for 42.7 acres of the subject sale agreement. Approximately $99,000, relating to the 42.7 acres leased back, of the total gain of $176,000 realized from this 75.3 acre sale/leaseback transaction has been deferred and will be amortized over the life of the lease agreement.

 

The amortization of the deferred gain totals approximately $25,000 per year for the 1999 sale-leaseback agreement and $7,000 for the 2004 sale-leaseback agreement, and is recorded as an offset to the related lease expense in selling, general and administrative expenses.

 

In 2005, the Company entered into a long-term grape purchase agreement with one of its Willamette Valley wine grape growers whereby the Winery agreed to purchase the grape yields at fixed contract prices through 2015, with the first crop received in 2007. In 2006, the Company entered into another long-term grape purchase agreement with the same Willamette Valley wine grape growers whereby the Winery agreed to purchase additional grape yields at fixed contract prices through 2016, with the first crop in 2008. The Company is obligated to purchase 100% of the crop produced within the strict quality standards and crop loads, equating to maximum payments of approximately $1,500,000 per year. The Company cannot calculate the minimum payment as such a calculation is dependent in large part on an unknown – the amount of grapes produced in any given year. If there are no grapes produced in any given year, or if the grapes are rejected for failure to meet contractual quality standards, the Company has no payment obligation for that year.

 

In February 2007 the Company entered into a lease agreement for approximately 60 acres of vineyard land at Elton Vineyards. This lease is for a 10 year term with four five-year renewals at the Company’s option and a first right of refusal in the event of the vineyard’s sale. For 2011, the annual costs of this lease were $113,468. For subsequent years there is an escalation provision tied to the CPI not to exceed 2% per annum. Betty M. O’Brien, a Director of the Company, is a principal owner of Elton Vineyards. The terms of the lease currently call for a monthly payment of $9,442.50 with the annual adjustment ending January 2017 unless renewed.

 

In December 2007 the Company entered into a three-year lease agreement for a small, four-room office space in Wilsonville, Oregon. This space was leased to accommodate the out-of-state sales team. This lease was  cancelled as of January 31, 2011.

 

In July 2008 the Company entered into a 34-year lease agreement with a property owner in the Eola Hills for 108.8 acres adjacent to the existing Elton Vineyards site. These 108.8 acres will be developed into vineyards in the future. Terms of this agreement contain rent escalation that rises as the vineyard is developed. The current terms call for monthly payments of $274.

  

As of December 31, 2011, future minimum lease payments are as follows:

 

Year ending December 31, 2012   $ 384,259  
  2013     364,771  
  2014     343,361  
  2015     349,879  
  2016     356,549  
  Thereafter     1,523,874  
           
  Total   $ 3,322,693  

 

The Company is also committed to lease payments for various pieces of office equipment. Total rental expense for these operating leases amounted to $12,800 and $22,968 in 2011 and 2010, respectively. In addition, payments for the leased vineyards have been included in inventory or vineyard developments costs and aggregate approximately $323,270 and $317,641 for the years ended December 31, 2011 and 2010, respectively.

 

Vineyard development – The Company has approximately 204 acres of undeveloped vineyard land at December 31, 2011. This estimated cost to develop this for grape production is approximately $18,000 per acre or $3.67 million in total. The Company estimates that this acreage will be developed as projected sales demand dictates the need for increased grape supply.