MGP INGREDIENTS INC 10-Q

ITEM 1. FINANCIAL STATEMENTS MGP INGREDIENTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except share and per share amounts) Quarter Ended September 30, Year to Date Ended September 30, 2020 2019 2020 2019 Sales $ 102,964 $ 90,685 $ 294,606 $ 270,282 Cost of sales 79,802 71,895 227,531 215,310 Gross profit 23,162 18,790 67,075 54,972 Selling, general and administrative expenses 9,510 7,186 28,377 23,981 Operating income 13,652 11,604 38,698 30,991 Interest expense, net and other ( 409 ) ( 364 ) ( 1,349 ) ( 937 ) Income before income taxes 13,243 11,240 37,349 30,054 Income tax expense 2,862 3,025 8,636 4,208 Net income 10,381 8,215 28,713 25,846 Income attributable to participating securities 69 54 192 171 Net income attributable to common shareholders and used in earnings per share calculation $ 10,312 $ 8,161 $ 28,521 $ 25,675 Basic and diluted weighted average common shares 16,916,675 17,027,068 16,943,130 17,006,226 Basic and diluted earnings per common share $ 0.61 $ 0.48 $ 1.68 $ 1.51 See accompanying notes to unaudited condensed consolidated financial statements 3 MGP INGREDIENTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Dollars in thousands) Quarter Ended September 30, Year to Date Ended September 30, 2020 2019 2020 2019 Net income $ 10,381 $ 8,215 $ 28,713 $ 25,846 Other comprehensive income (loss), net of tax: Change in Company-sponsored post-employment benefit plan 74 ( 7 ) 89 ( 9 ) Comprehensive income $ 10,455 $ 8,208 $ 28,802 $ 25,837 See accompanying notes to unaudited condensed consolidated financial statements 4 MGP INGREDIENTS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands) September 30, 2020 December 31, 2019 Current Assets Cash and cash equivalents $ 19,966 $ 3,309 Receivables (less allowance for doubtful accounts at September 30, 2020, and December 31, 2019 - $ 24 ) 52,673 40,931 Inventory 142,798 136,931 Prepaid expenses 3,928 2,048 Refundable income taxes 1,719 987 Total current assets 221,084 184,206 Property, plant, and equipment 323,755 313,958 Less accumulated depreciation and amortization ( 194,112 ) ( 185,539 ) Property, plant, and equipment, net 129,643 128,419 Operating lease right-of-use assets, net 5,362 6,490 Other assets 5,657 3,482 Total assets $ 361,746 $ 322,597 Current Liabilities Current maturities of long-term debt $ 412 $ 401 Accounts payable 29,055 29,511 Accrued expenses 14,938 9,383 Total current liabilities 44,405 39,295 Long-term debt, less current maturities 40,363 40,658 Credit agreement - revolver 13,733 1 Long-term operating lease liabilities 3,226 4,267 Deferred credits 1,035 1,233 Other noncurrent liabilities 4,818 4,170 Deferred income taxes 2,165 1,929 Total liabilities 109,745 91,553 Commitments and Contingencies (Note 7) Stockholders’ Equity Capital stock Preferred, 5 % non-cumulative; $ 10 par value; authorized 1,000 shares; issued and outstanding 437 shares 4 4 Common stock No par value; authorized 40,000,000 shares; issued 18,115,965 shares at September 30, 2020 and December 31, 2019; and 16,913,313 and 17,028,125 shares outstanding at September 30, 2020 and December 31, 2019, respectively 6,715 6,715 Additional paid-in capital 15,284 14,029 Retained earnings 253,354 230,784 Accumulated other comprehensive loss ( 157 ) ( 246 ) Treasury stock, at cost, 1,202,652 and 1,087,840 at September 30, 2020 and December 31, 2019, respectively ( 23,199 ) ( 20,242 ) Total stockholders’ equity 252,001 231,044 Total liabilities and stockholders’ equity $ 361,746 $ 322,597 See accompanying notes to unaudited condensed consolidated financial statements 5 MGP INGREDIENTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) Year to Date Ended September 30, 2020 2019 Cash Flows from Operating Activities Net income $ 28,713 $ 25,846 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 9,618 8,537 Loss (gain) on sale of assets 337 ( 138 ) Share-based compensation 2,693 2,752 Deferred income taxes, including change in valuation allowance 460 952 Changes in operating assets and liabilities: Receivables, net ( 11,683 ) ( 1,757 ) Inventory ( 5,673 ) ( 17,424 ) Prepaid expenses ( 2,032 ) ( 326 ) Refundable income taxes ( 673 ) ( 2,138 ) Accounts payable 2,196 ( 331 ) Accrued expenses 5,647 ( 3,236 ) Deferred credits ( 198 ) ( 249 ) Other, net 52 ( 75 ) Net cash provided by operating activities 29,457 12,413 Cash Flows from Investing Activities Additions to property, plant, and equipment ( 13,507 ) ( 10,375 ) Deferred compensation plan investments — ( 1,189 ) Acquisition of business ( 2,750 ) — Proceeds from sale of property 688 — Other, net 56 — Net cash used in investing activities ( 15,513 ) ( 11,564 ) Cash Flows from Financing Activities Payment of dividends and dividend equivalents ( 6,144 ) ( 5,141 ) Purchase of treasury stock ( 4,395 ) ( 5,470 ) Loan fees paid related to borrowings ( 1,148 ) — Proceeds from long-term debt — 20,000 Principal payments on long-term debt ( 300 ) ( 288 ) Proceeds from credit agreement - revolver 54,700 14,140 Payments on credit agreement - revolver ( 40,000 ) ( 24,640 ) Other, net — ( 78 ) Net cash provided by (used in) financing activities 2,713 ( 1,477 ) Increase (decrease) in cash and cash equivalents 16,657 ( 628 ) Cash and cash equivalents, beginning of period 3,309 5,025 Cash and cash equivalents, end of period $ 19,966 $ 4,397 See accompanying notes to unaudited condensed consolidated financial statements 6 MGP INGREDIENTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY For Year to Date Ended September 30, 2020 (Unaudited) (Dollars in thousands) Capital Stock Preferred Issued Common Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Balance, December 31, 2019 $ 4 $ 6,715 $ 14,029 $ 230,784 $ ( 246 ) $ ( 20,242 ) $ 231,044 Comprehensive income: Net income — — — 9,842 — — 9,842 Other comprehensive loss — — — — ( 6 ) — ( 6 ) Dividends and dividend equivalents of $ 0.12 per common share and per restricted stock unit, net of estimated forfeitures — — — ( 2,059 ) — — ( 2,059 ) Share-based compensation — — 902 — — — 902 Stock shares awarded, forfeited or vested — — ( 567 ) — — 804 237 Stock shares repurchased — — — — — ( 4,395 ) ( 4,395 ) Balance, March 31, 2020 4 6,715 14,364 238,567 ( 252 ) ( 23,833 ) 235,565 Comprehensive income: Net income — — — 8,490 — — 8,490 Other comprehensive income — — — — 21 — 21 Dividends and dividend equivalents of $ 0.12 per common share and per restricted stock unit, net of estimated forfeitures — — — ( 2,041 ) — — ( 2,041 ) Share-based compensation — — 662 — — — 662 Balance, June 30, 2020 4 6,715 15,026 245,016 ( 231 ) ( 23,833 ) 242,697 Comprehensive income: Net income — — — 10,381 — — 10,381 Other comprehensive income — — — — 74 — 74 Dividends and dividend equivalents of $ 0.12 per common share and per restricted stock unit, net of estimated forfeitures — — — ( 2,043 ) — — ( 2,043 ) Share-based compensation — — 258 — — — 258 Stock shares awarded, forfeited, or vested — — — — — 634 634 Balance, September 30, 2020 $ 4 $ 6,715 $ 15,284 $ 253,354 $ ( 157 ) $ ( 23,199 ) $ 252,001 See accompanying notes to unaudited condensed consolidated financial statements 7 MGP INGREDIENTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY For Year to Date Ended September 30, 2019 (Unaudited) (Dollars in thousands) Capital Stock Preferred Issued Common Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Balance, December 31, 2018 $ 4 $ 6,715 $ 15,375 $ 198,914 $ ( 164 ) $ ( 19,403 ) $ 201,441 Comprehensive income: Net income — — — 9,720 — — 9,720 Other comprehensive income — — — — 14 — 14 Dividends and dividend equivalents of $ 0.10 per common share and per restricted stock unit, net of estimated forfeitures — — — ( 1,714 ) — — ( 1,714 ) Share-based compensation — — 1,031 — — — 1,031 Stock shares awarded, forfeited or vested — — ( 3,770 ) — — 3,864 94 Stock shares repurchased — — — — — ( 5,467 ) ( 5,467 ) Adjustment related to Accounting Standards Update 2018-02 adoption — — — ( 69 ) 69 — — Balance, March 31, 2019 4 6,715 12,636 206,851 ( 81 ) ( 21,006 ) 205,119 Comprehensive income: Net income — — — 7,911 — — 7,911 Other comprehensive loss — — — — ( 16 ) — ( 16 ) Dividends and dividend equivalents of $ 0.10 per common share and per restricted stock unit, net of estimated forfeitures — — — ( 1,713 ) — — ( 1,713 ) Share-based compensation — — 481 — — — 481 Stock shares awarded, forfeited, or vested — — — — — 660 660 Balance, June 30, 2019 4 6,715 13,117 213,049 ( 97 ) ( 20,346 ) 212,442 Comprehensive income: Net income — — — 8,215 — — 8,215 Other comprehensive loss — — — — ( 7 ) — ( 7 ) Dividends and dividend equivalents of $ 0.10 per common share and per restricted stock unit, net of estimated forfeitures — — — ( 1,713 ) — — ( 1,713 ) Share-based compensation — — 484 — — — 484 Stock shares repurchased — — — — — ( 1 ) ( 1 ) Balance, September 30, 2019 $ 4 $ 6,715 $ 13,601 $ 219,551 $ ( 104 ) $ ( 20,347 ) $ 219,420 See accompanying notes to unaudited condensed consolidated financial statements 8 MGP INGREDIENTS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, unless otherwise noted) Note 1. Accounting Policies and Basis of Presentation The Company. MGP Ingredients, Inc. (“the Company,” and “MGP”) is a Kansas corporation headquartered in Atchison, Kansas and is a leading producer and supplier of premium distilled spirits and specialty wheat protein and starch food ingredients. Distilled spirits include premium bourbon and rye whiskeys and grain neutral spirits, including vodka and gin. MGP is also a top producer of high quality industrial alcohol for use in both food and non-food applications. The Company’s protein and starch food ingredients provide a host of functional, nutritional, and sensory benefits for a wide range of food products to serve the packaged goods industry. The Company’s distillery products are derived from corn and other grains (including rye, barley, wheat, barley malt, and milo), and its ingredient products are derived from wheat flour. The majority of the Company’s sales are made directly, or through distributors, to manufacturers and processors of finished packaged goods or to bakeries. Basis of Presentation and Principles of Consolidation. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. These unaudited condensed consolidated financial statements as of and for the quarter ended September 30, 2020, should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission (“SEC”). The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Certain amounts in 2019 consolidated financial statements have been reclassified to conform to the 2020 presentation. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal and recurring adjustments) necessary to fairly present the results for interim periods in accordance with U.S. generally accepted accounting principles (“GAAP”). Pursuant to the rules and regulations of the SEC, certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted. Use of Estimates. The financial reporting policies of the Company conform to GAAP. The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The application of certain of these policies places demands on management’s judgment, with financial reporting results relying on estimation about the effects of matters that are inherently uncertain, inclusive of the effects related to COVID-19. For all of these policies, management cautions that future events rarely develop as forecast, and estimates routinely require adjustment and may require material adjustment. Inventory. Inventory includes finished goods, raw materials in the form of agricultural commodities used in the production process and certain maintenance and repair items. Bourbon and whiskeys are normally aged in barrels for several years, following industry practice; all barreled bourbon and whiskey is classified as a current asset. The Company includes warehousing, insurance, and other carrying charges applicable to barreled whiskey in inventory costs. 9 Inventories are stated at lower of cost or net realizable value on the first-in, first-out, or FIFO, method. Inventory valuations are impacted by constantly changing prices paid for key materials, primarily corn. Inventory consists of the following: September 30, 2020 December 31, 2019 Finished goods $ 17,205 $ 16,654 Barreled distillate (bourbons and whiskeys) 108,406 104,249 Raw materials 5,234 4,920 Work in process 2,439 1,766 Maintenance materials 8,054 8,200 Other 1,460 1,142 Total $ 142,798 $ 136,931 Revenue Recognition. Revenue is recognized when control of the promised goods or services, through performance obligations by the Company, is transferred to the customer in an amount that reflects the consideration it expects to be entitled to in exchange for the performance obligations. The term between invoicing and when payment is due is not significant and the period between when the entity transfers the promised good or service to the customer and when the customer pays for that good or service is one year or less. Excise taxes that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer are excluded from revenue. Revenue is recognized for the sale of products at the point in time finished products are delivered to the customer in accordance with shipping terms. This is a faithful depiction of the satisfaction of the performance obligation because, at the point control passes to the customer, the customer has legal title and the risk and rewards of ownership have transferred, and the customer has present obligation to pay. The Company’s Distillery Products segment routinely enters into bill and hold arrangements, whereby the Company produces and sells aged and unaged distillate to customers, and the product is barreled at the customer’s request and warehoused at a Company location for an extended period of time in accordance with directions received from the Company’s customers. Even though the aged and unaged distillate remains in the Company’s possession, a sale is recognized at the point in time when the customer obtains control of the product. Control is transferred to the customer in bill and hold transactions when: customer acceptance specifications have been met, legal title has transferred, the customer has a present obligation to pay for the product, and the risk and rewards of ownership have transferred to the customer. Additionally, all the following bill and hold criteria have to be met in order for control to be transferred to the customer: the customer has requested the product be warehoused, the product has been identified as separately belonging to the customer, the product is currently ready for physical transfer to the customer, and the Company does not have the ability to use the product or direct it to another customer. Warehouse services revenue is recognized over the time that warehouse services are rendered and as they are rendered. This is a faithful depiction of the satisfaction of the performance obligation because control of the aging products has already passed to the customer and there are no additional performance activities required by the Company, except as requested by the customer. The performance of the service activities, as requested, is invoiced as satisfied and revenue is concurrently recognized. Income Taxes. The Company accounts for income taxes using an asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. A valuation allowance is recognized if it is “more likely than not” that at least some portion of the deferred tax asset will not be realized. Earnings Per Share (“EPS”). Basic and diluted EPS are computed using the two-class method, which is an earnings allocation formula that determines net income per share for each class of Common Stock and participating security according to dividends declared and participation rights in undistributed earnings. Per share amounts are computed by dividing net income attributable to common shareholders by the weighted average shares outstanding during each year during the period. 10 Goodwill and Other Intangible Assets. The Company records goodwill and other indefinite-lived intangible assets in connection with various acquisitions of businesses and allocates the goodwill and other indefinite-lived intangible assets to its respective reporting units. The Company tests goodwill for impairment at least annually, in the fourth quarter, or on an interim basis if events and circumstances occur that would indicate it is more likely than not that the fair value of a reporting unit is less than the carrying value. To the extent that the carrying amount exceeds fair value, an impairment of goodwill is recognized and allocated to the reporting units. Judgment is required in the determination of reporting units, the assignment of assets and liabilities to reporting units, including goodwill, and the determination of fair value of the reporting units. The fair value of the reporting units was estimated using third party independent appraisals. The Company separately evaluates indefinite-lived intangible assets for impairment. As of September 30, 2020, the Company determined that goodwill was not impaired. Fair Value of Financial Instruments. The Company determines the fair values of its financial instruments based on a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy is broken down into three levels based upon the observability of inputs. Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value in its entirety requires judgment and considers factors specific to the asset or liability. The Company’s short term financial instruments include cash and cash equivalents, accounts receivables and accounts payable. The carrying value of the short term financial instruments approximates the fair value due to their short term nature. These financial instruments have no stated maturities or the financial instruments have short term maturities that approximate market. The fair value of the Company’s debt is estimated based on current market interest rates for debt with similar maturities and credit quality. The fair value of the Company’s debt was $ 61,698 and $ 42,534 at September 30, 2020 and December 31, 2019, respectively. The financial statement carrying value of total debt was $ 54,508 (including unamortized loan fees) and $ 41,060 (including unamortized loan fees) at September 30, 2020 and December 31, 2019, respectively. These fair values are considered Level 2 under the fair value hierarchy. Fair value disclosure for deferred compensation plan investments is included in Note 8. Recently Adopted Accounting Standard Updates. The Company adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326) and subsequent updates. The accounting standard changes the methodology for measuring credit losses on financial instruments and the timing when such losses are recorded. The Company adopted this standard on January 1, 2020 using the modified retrospective approach, and it had no impact on its consolidated financial statements and disclosures. ASU 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the accounting for goodwill by eliminating the step 2 from the goodwill impairment test. An impairment in goodwill is recognized if the carrying amount of the reporting unit exceeds its fair value. The Company adopted this standard on January 1, 2020 on a prospective basis. The adoption of this standard had no impact on the Company's consolidated financial statements and disclosures. ASU 2018-13, Fair Value Measurement (Topic 820), which modifies the disclosure requirements on fair value measurements. The Company adopted this guidance on January 1, 2020 and it had no impact on its consolidated financial statements and disclosures. ASU 2019-12, Simplifying the Accounting for Income Taxes , which clarifies and simplifies certain aspects of accounting for income taxes. This standard requires certain aspects to be adopted on either a retrospective or modified retrospective basis, while others apply prospectively. This guidance is effective for fiscal years beginning after December 15, 2020 and early adoption is permitted. The Company elected to early adopt this standard on January 1, 2020 and it had no impact on its consolidated financial statements and disclosures. 11 Note 2. Revenue The following table presents the Company’s sales by segment and major products and services: Quarter Ended September 30, Year to Date Ended September 30, 2020 2019 2020 2019 Distillery Products Brown goods $ 34,365 $ 26,606 $ 88,975 $ 79,054 White goods 16,362 15,359 48,306 47,232 Premium beverage alcohol 50,727 41,965 137,281 126,286 Industrial alcohol 19,461 19,525 64,032 60,604 Food grade alcohol 70,188 61,490 201,313 186,890 Fuel grade alcohol 1,274 1,438 3,970 4,337 Distillers feed and related co-products 6,119 6,630 19,889 19,906 Warehouse services 4,041 3,737 11,641 10,762 Total Distillery Products 81,622 73,295 236,813 221,895 Ingredient Solutions Specialty wheat starches 11,604 8,432 30,938 22,523 Specialty wheat proteins 7,994 6,166 20,372 15,884 Commodity wheat starches 1,596 2,300 5,247 7,575 Commodity wheat proteins 148 492 1,236 2,405 Total Ingredient Solutions 21,342 17,390 57,793 48,387 Total sales $ 102,964 $ 90,685 $ 294,606 $ 270,282 The Company generates revenues from the Distillery Products segment by the sale of products and by providing warehouse services related to the storage and aging of customer products. The Company generates revenues from the Ingredient Solutions segment by the sale of products. Revenue related to sales of products is recognized at a point in time whereas revenue generated from warehouse services is recognized over time. Contracts with customers in both segments include a single performance obligation (either the sale of products or the provision of warehouse services). Note 3. Goodwill and Other Intangible Assets The Company records goodwill and indefinite-lived intangible assets in connection with various acquisitions of businesses and allocates the goodwill and indefinite-lived intangible assets to its respective reporting units. Goodwill and indefinite-lived intangible assets are included in Other assets on the Condensed Consolidated Balance Sheets. Changes in carrying amount of goodwill and indefinite-lived intangible assets by business segment were as follows: Distillery Products (a) Ingredient Solutions Total (a) Balance, December 31, 2019 $ 1,850 $ — $ 1,850 Acquisitions 1,739 — 1,739 Balance, September 30, 2020 $ 3,589 $ — $ 3,589 (a) Includes $ 890 and $ 350 of trade names at September 30, 2020 and December 31, 2019, respectively. Trade names are considered indefinite-lived intangible assets. 12 Note 4. Corporate Borrowings The following table presents the Company’s outstanding indebtedness: Description (a) September 30, 2020 December 31, 2019 Credit Agreement - Revolver, 1.16 % (variable rate) due 2025 $ 15,000 $ — Previous Credit Agreement - Revolver, 3.19 % (variable rate) due 2022 — 300 Secured Promissory Note, 3.71 % (fixed rate) due 2022 909 1,208 Prudential Note Purchase Agreement, 3.53 % (fixed rate) due 2027 20,000 20,000 Prudential Note Purchase Agreement, 3.80 % (fixed rate) due 2029 20,000 20,000 Total indebtedness outstanding 55,909 41,508 Less unamortized loan fees (b) ( 1,401 ) ( 448 ) Total indebtedness outstanding, net 54,508 41,060 Less current maturities of long-term debt ( 412 ) ( 401 ) Long-term debt and Credit Agreement - Revolver $ 54,096 $ 40,659 (a) Interest rates are as of September 30, 2020, except for the Previous Credit Agreement which is as of December 31, 2019. (b) Loan fees are being amortized over the life of the Credit Agreement and Note Purchase Agreement. Credit Agreements. On February 14, 2020, the Company entered into a new credit agreement (the "Credit Agreement") with multiple participants lead by Wells Fargo Bank, National Association ("Wells Fargo Bank") that matures on February 14, 2025. The Credit Agreement replaced the Company's $ 150,000 Credit Agreement ("Previous Credit Agreement) with Wells Fargo Bank. The Credit Agreement provides for a $ 300,000 revolving credit facility. The Company may increase the facility from time to time by an aggregate principal amount of up to $ 100,000 provided certain conditions are satisfied and at the discretion of the lenders. The Company incurred $ 1,148 of new loan fees related to the Credit Agreement. The Credit Agreement includes certain requirements and covenants, which the Company was in compliance with at September 30, 2020. As of September 30, 2020, the Company’s total outstanding borrowings under the Credit Agreement were $ 15,000 leaving $ 285,000 available. Note Purchase Agreements. The Company’s Note Purchase and Private Shelf Agreement (the “Note Purchase Agreement”), as amended by the First Amendment to Private Shelf Agreement as of February 14, 2020 and the Second Amendment to Private Shelf Agreement as of September 30, 2020 with PGIM, Inc., an affiliate of Prudential Financial, Inc., and certain affiliates of PGIM, Inc., provides for the issuance of up to $ 105,000 of Senior Secured Notes and issuance of $ 20,000 of Senior Secured Notes. The deadline for issuing the notes under the shelf facility is August 23, 2023. During 2017, the Company issued $ 20,000 of Senior Secured Notes with a maturity date of August 23, 2027. During 2019, the Company issued $ 20,000 of additional Senior Secured Notes with a maturity date of April 30, 2029. The Note Purchase Agreement includes certain requirements and covenants, which the Company was in compliance with at September 30, 2020. Note 5. Income Taxes The Company’s tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, the estimated annual effective tax rate is updated and a year to date adjustment is made to the provision. The Company’s quarterly effective tax rate can be subject to significant change due to the effect of discrete items arising in a given quarter. Income tax expense for the quarter and year to date ended September 30, 2020, was $ 2,862 and $ 8,636 , respectively, for an effective tax rate of 21.6 percent and 23.1 percent, respectively. The effective tax rate for quarter to date ended September 30, 2020 differed from the 21 percent federal statutory rate on pretax income, primarily due to state taxes, partially offset by state and federal tax credits, the release of a portion of the Company's valuation allowance and the deduction applicable to export activity. The effective tax rate for year to date ended September 30, 2020, differed from the 21 percent federal statutory rate on pretax income, primarily due to state taxes, partially offset by federal and state credits, and the deduction applicable to income derived from export activity. Income tax expense for the quarter and year to date ended September 30, 2019, was $ 3,025 and $ 4,208 , respectively, for an effective tax rate of 26.9 percent and 14.0 percent, respectively. The effective tax rate for quarter ended September 30, 2019, differed from the 21 percent federal statutory rate on pretax income, primarily due to state income taxes and the discrete tax 13 impact of previously disclosed legal matters, partially offset by state and federal tax credits. The effective tax rate for year to date ended September 30, 2019, differed from the 21 percent federal statutory rate on pretax income, primarily due to the tax impact of vested share-based awards, the tax impact of state and federal tax credits, partially offset by state taxes, the discrete tax impact of previously disclosed legal matters, and certain compensation being subject to the compensation deduction limitations applicable for public companies. In response to COVID-19, President Donald Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) on March 27, 2020. The CARES Act along with other guidance issued by the IRS provides for numerous tax provisions and other stimulus measures, including temporary suspension of certain payment requirements for the employer portion of Social Security taxes, deferral of income tax payments until July 15, 2020, and technical corrections from prior tax legislation. The Company is in the process of monetizing certain parts of the CARES Act, has resumed making estimated corporate income tax payments, and continues to monitor tax legislation for additional potential benefits available to the Company. Note 6. Equity and EPS The computations of basic and diluted EPS: Quarter Ended September 30, Year to Date Ended September 30, 2020 2019 2020 2019 Operations: Net income (a) $ 10,381 $ 8,215 $ 28,713 $ 25,846 Less: Income attributable to participating securities (b) 69 54 192 171 Net income attributable to common shareholders $ 10,312 $ 8,161 $ 28,521 $ 25,675 Share information: Basic and diluted weighted average common shares (c) 16,916,675 17,027,068 16,943,130 17,006,226 Basic and diluted EPS $ 0.61 $ 0.48 $ 1.68 $ 1.51 (a) Net income attributable to all shareholders. (b) Participating securities included 115,399 and 112,865 unvested restricted stock units (“RSUs”), at September 30, 2020 and 2019, respectively. (c) Under the two-class method, basic and diluted weighted average common shares at September 30, 2020 and 2019, exclude unvested participating securities. Share Repurchase. On February 25, 2019, MGP's Board of Directors approved a $ 25,000 share repurchase authorization commencing February 27, 2019, through February 27, 2022. Under the share repurchase program, the Company can repurchase stock from time to time for cash in open market purchases, block transactions, and privately negotiated transactions in accordance with applicable federal securities laws. This share repurchase program may be modified, suspended, or terminated by the Company at any time without prior notice. During year to date ended September 30, 2020, the Company repurchased approximately 159,104 shares of MGP Common Stock for $ 4,053 , resulting in $ 20,947 remaining under the share repurchase plan. The shares were repurchased in multiple tranches with the final purchase concluding on March 16, 2020. Note 7. Commitments and Contingencies There are various legal and regulatory proceedings involving the Company and its subsidiaries. The Company accrues estimated costs for a contingency when management believes that a loss is probable and can be reasonably estimated. In May 2020, the Company was affected by a ransomware cyber-attack that temporarily disrupted production at its Atchison facilities. The Company's financial information was not affected and there is no evidence that any sensitive or confidential company, supplier, customer or employee data was improperly accessed or extracted from our network. The Company estimates that the ransomware attack adversely impacted gross profit by $ 1,728 , primarily as a result of the business interruption. The Company has insurance related to this event and is seeking to recover a portion, if not all, of any profit impact including the profit associated with any loss of revenue resulting from this event. The Company will record insurance recovery when it is probable of collection. Following the attack, MGP implemented a variety of measures to further enhance our 14 cybersecurity protections and minimize the impact of any future attack. In 2020, two putative class action lawsuits were filed in the United States District Court for District of Kansas, naming the Company and certain of its current and former executive officers as defendants, asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The plaintiffs seek to pursue claims on behalf of a class consisting of purchasers or acquirers of the Company's Common Stock during certain specified periods (the “Class Periods”). On May 28, 2020, the two lawsuits were consolidated and the Court appointed City of Miami Fire Fighters’ and Police Officers’ Retirement Trust as lead plaintiff. The consolidated action is captioned In re MGP Ingredients, Inc. Securities Litigation and the file is maintained under Master File No. 2:20-cv-2090-DDCJPO. On July 22, 2020, the Retirement Trust filed a consolidated Amended Complaint. The Consolidated Complaint alleges that the defendants made false and/or misleading statements regarding the Company’s forecasts of sales of aged whiskey, and that, as a result the Company's Common Stock traded at artificially inflated prices throughout the Class Periods. The plaintiffs seek compensatory damages, interest, attorneys’ fees, costs, and unspecified equitable relief, but have not specified the amount of damages being sought. On September 8, 2020, defendants filed a Motion to Dismiss the Consolidated Amended Complaint. The Motion is pending. The Company intends to continue to vigorously defend itself in this action. On May 11, 2020, Mitchell Dorfman, a shareholder in MGP, filed an action in the United States District Court for the District of Kansas, under the caption Dorfman, derivatively on behalf of MGP Ingredients v. Griffin, et al. , Case 2:20-cv-02239. On June 4, 2020, Justin Carter, a shareholder in MGP, filed an action in the United States District Court for the District of Kansas, under the caption Carter, derivatively on behalf of MGP Ingredients v. Griffin, et al. , Case 2:20-cv-02281. On June 18, 2020, Alexandra Kearns, a shareholder in MGP, filed an action in the District Court of Atchison County, Kansas , under the caption Kearns, derivatively on behalf of MGP Ingredients v. Griffin, et al. , Case 2020-CV-000042 . The defendants are certain of the Company’s current and former officers and directors. The Company is a nominal defendant in each action. Plaintiffs allege that the Company was damaged as a result of the conduct of the individual defendants alleged in the MGP Ingredients, Inc. Securities Litigation , the repurchase of company stock at artificially inflated prices, and compensation paid to the individual defendants. The Complaint in Dorfman asserts claims for violations of Sections 14(a), 10(b), and 20(a) of the Securities Exchange Act of 1934, breach of fiduciary duties, waste of corporate assets, and unjust enrichment. The Complaint in Carter asserts claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, breach of fiduciary duties, waste of corporate assets, and unjust enrichment. The Petition in Kearns asserts claims for breach of fiduciary duties, waste of corporate assets, and unjust enrichment. The pleadings pray for an award of compensatory damages, including interest, in favor of the Company, for equitable relief related to the Company’s corporate governance, for disgorgement of compensation, and for an award of attorneys’ fees and costs. On July 13, 2020, defendants filed a Motion to Dismiss in Dorfman . The Motion is pending. On August 13, 2020, defendants filed a Motion to Stay the Kearns action pending the resolution of Dorfman. The Motion is pending. A chemical release occurred at the Company’s Atchison facility on October 21, 2016, which resulted in emissions venting into the air (“the Atchison Chemical Release”). The Company reported the event to the Environmental Protection Agency (“EPA”), the Occupational Safety and Health Administration (“OSHA”), and to Kansas and local authorities on that date, and has cooperated fully to investigate and ensure that all appropriate response actions were taken. On May 29, 2019, federal charges for alleged violations of the Clean Air Act related to the Atchison Chemical Release were filed against the Company, along with another unaffiliated company. The Company and the Department of Justice resolved the allegations through a Plea Agreement entered with the Court on November 18, 2019, pursuant to which the Company agreed, among other things, to plead guilty to a misdemeanor negligent violation of the Clean Air Act and pay a fine of $ 1,000 . On May 27, 2020, the Court accepted the Plea Agreement and sentenced the Company to pay a fine of $ 1,000 consistent with the terms of the parties’ resolution. The fine has been paid and the matter is terminated. Private plaintiffs have also initiated, and additional private plaintiffs may initiate, legal proceedings for damages resulting from the Atchison Chemical Release, but the Company is currently unable to reasonably estimate the amount of any such damages that might result. The Company’s insurance is expected to provide coverage of any damages to private plaintiffs, subject to a deductible of $ 250 , but certain regulatory fines or penalties may not be covered and there can be no assurance to the amount or timing of possible insurance recoveries if ultimately claimed by the Company. Note 8. Employee and Non-Employee Benefit Plans Equity-Based Compensation Plans . The Company’s equity-based compensation plans provide for the awarding of stock options, stock appreciation rights, shares of restricted stock (“Restricted Stock”), and RSUs for senior executives and salaried employees, as well as non-employee directors. The Company has two active equity-based compensation plans: the Employee Equity Incentive Plan of 2014 (the “2014 Plan”) and the Non-Employee Director Equity Incentive Plan (the “Directors’ Plan”). 15 As of September 30, 2020, 421,220 RSUs had been granted of the 1,500,000 shares approved under the 2014 Plan, and 107,622 shares had been granted of the 300,000 shares approved under the Directors’ Plan. As of September 30, 2020, there were 123,439 unvested RSUs under the Company’s long-term incentive plans and 115,399 were participating securities (Note 6). Deferred Compensation Plan. The Company established an unfunded Executive Deferred Compensation Plan (“EDC Plan”) effective as of June 30, 2018, with a purpose to attract and retain highly-compensated key employees by providing participants with an opportunity to defer receipt of a portion of their salary, bonus, and other specified compensation. The Company’s obligations under this plan will change in conjunction with the performance of the participants’ investments, along with contributions to and withdrawals from the plan. Realized and unrealized gains (losses) on deferred compensation plan investments were included as a component of Interest expense, net and other in the Company’s Condensed Consolidated Statements of Income for the quarter ended September 30, 2020. For quarter and year to date ended September 30, 2020, the Company had a gain on deferred compensation plan investments of $ 185 and $ 352 , respectively. For quarter ended September 30, 2019, the Company had a loss on deferred compensation plan investments of $ 30 and for year to date ended September 30, 2019 a gain on deferred compensation plan investments of $ 50 . Plan investments are classified as Level 1 in the fair value hierarchy since the investments trade with sufficient frequency and volume to enable the Company to obtain pricing information on an ongoing basis. Participants were able to direct the deferral of a portion of their base salary and a portion of their estimated accrued Short-term incentive plan (“STI Plan”) amounts that were paid during first quarter of the following year. Base salary amounts elected for deferral are deposited into the EDC Plan by the Company on a weekly basis and allocated by participants among Company-determined investment options. STI plan deferral were deposited, at the time of payment, into the EDC Plan by the Company and allocated by participants among Company-determined investment options. At September 30, 2020 and December 31, 2019, the EDC Plan investments were $ 1,707 and $ 1,185 , respectively, which were recorded in Other assets on the Company’s Condensed Consolidated Balance Sheets. The EDC Plan non-current liabilities were $ 2,222 and $ 1,337 at September 30, 2020 and December 31, 2019, respectively, and were included in Other noncurrent liabilities on the Company’s Condensed Consolidated Balance Sheets. Note 9. Operating Segments At September 30, 2020 and 2019, the Company had two segments: Distillery Products and Ingredient Solutions. The Distillery Products segment consists of food grade alcohol and distillery co-products, such as distillers feed (commonly called dried distillers grain in the industry) and fuel grade alcohol. The Distillery Products segment also includes warehouse services, including barrel put away, storage, retrieval, and blending services. Ingredient Solutions segment consists of specialty starches and proteins and commodity starches and proteins. Operating profit for each segment is based on sales less identifiable operating expenses. Non-direct selling, general and administrative expenses, interest expense, other special charges, and other general miscellaneous expenses are excluded from segment operations and are classified as Corporate. Receivables, inventories, and equipment have been identified with the segments to which they relate. All other assets are considered as Corporate. 16 Quarter Ended September 30, Year to Date Ended September 30, 2020 2019 2020 2019 Sales to Customers Distillery Products $ 81,622 $ 73,295 $ 236,813 $ 221,895 Ingredient Solutions 21,342 17,390 57,793 48,387 Total $ 102,964 $ 90,685 $ 294,606 $ 270,282 Gross Profit Distillery Products $ 17,307 $ 15,905 $ 51,559 $ 47,647 Ingredient Solutions 5,855 2,885 15,516 7,325 Total $ 23,162 $ 18,790 $ 67,075 $ 54,972 Depreciation and Amortization Distillery Products $ 2,491 $ 2,274 $ 7,339 $ 6,628 Ingredient Solutions 480 384 1,402 1,123 Corporate 303 277 877 786 Total $ 3,274 $ 2,935 $ 9,618 $ 8,537 Income (loss) before Income Taxes Distillery Products $ 15,707 $ 14,180 $ 46,374 $ 42,481 Ingredient Solutions 5,191 2,226 13,504 5,326 Corporate ( 7,655 ) ( 5,166 ) ( 22,529 ) ( 17,753 ) Total $ 13,243 $ 11,240 $ 37,349 $ 30,054 The following table allocates assets to each segment as of: September 30, 2020 December 31, 2019 Identifiable Assets Distillery Products $ 282,504 $ 271,766 Ingredient Solutions 40,442 30,802 Corporate 38,800 20,029 Total $ 361,746 $ 322,597 Note 10. Subsequent Events Dividend. On October 27, 2020, the Company’s Board of Directors declared a quarterly dividend payable to stockholders of record as of November 20, 2020, of the Company’s Common Stock, and a dividend equivalent payable to holders of certain RSUs as of November 20, 2020, of $ 0.12 per share and per unit, payable on December 4, 2020. 17