What changed in this filing

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Item 1A. Risk Factors

2021-02-25 compared with 2020-02-26 · 74 added, 16 removed, 221 unchanged (29% of the section changed)

4 unchanged sentences

RISKS THAT AFFECT OUR BUSINESS AS A WHOLE

An interruption of operations, a catastrophic event at our facilities, or a disruption of transportation services could negatively affect our business.

An interruption of operations or a catastrophic event at our facilities could negatively affect our business.

Although we maintain insurance coverage for various property damage and loss events, an interruption in or loss of operations at either of our production facilities could reduce or postpone production of our products, which could have a material adverse effect on our business, results of operations, or financial condition.

To the extent that our value added products rely on unique or proprietary processes or techniques, replacing lost production by purchasing from outside suppliers would be difficult.

In November 2020 a dryer at our Atchison facility was destroyed in a fire, resulting in an interruption in operations at our Atchison facility.

We had significant property damage.

The Company’s insurance is expected to provide coverage for property damage and business interruption losses, but there can be no assurance as to the amount or timing of possible insurance recoveries if ultimately claimed by the Company.

Our customers store a substantial amount of barreled inventory of aged premium bourbon and rye whiskeys at our Lawrenceburg facility and our nearby warehouses in Williamstown, Kentucky and Sunman, Indiana.

If a catastrophic event were to occur at our Lawrenceburg facility or our warehouses, our customers' business could be adversely affected.

The loss of a significant amount of aged inventory through fire, natural disaster, or otherwise could result in a significant reduction in supply of the affected product or products and could result in customer claims against us and a reduction of warehouse services revenue.

The loss of a significant amount of aged inventory through fire, natural disaster, or otherwise could result in customer claims against us, liability for customer losses, and a reduction of warehouse services revenue.

We also store a substantial amount of our own inventory of aged premium bourbon and rye whiskeys at our Lawrenceburg facility and our nearby warehouses.

If a catastrophic event were to occur at our Lawrenceburg facility or our warehouses, our business, financial condition, or results of operations could be adversely affected.

If a catastrophic event were to occur at our Lawrenceburg facility or our nearby warehouses, our business, financial condition, or results of operations could be adversely affected.

The loss of a significant amount of our aged inventory through fire, natural disaster, or otherwise, could result in a reduction in supply of the affected product or products and could affect our long-term growth.

A disruption in transportation services could negatively affect our business.

A disruption in transportation services could result in difficulties supplying materials to our facilities and impact our ability to deliver products to our customers in a timely manner, and our business, financial condition, or results of operations could be adversely affected.

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and handling other processes necessary to manage our business.

Any failure of our information systems could adversely impact our ability to operate.

Routine maintenance or development of new information systems may result in systems failures, which may have a material adverse effect on our business, financial condition, or results of operations.

Any failure of our IT systems or those of our third party vendors could adversely impact our ability to operate.

Routine maintenance or development of new IT systems may result in systems failures, which may have a material adverse effect on our business, financial condition, or results of operations.

Increased IT security threats and more sophisticated cyber crime pose a potential risk to the security of our IT systems, networks, and services, as well as the confidentiality, availability, and integrity of our data.

This could lead to outside parties having access to our privileged data or strategic information, our employees, or our customers.

Any breach of our data security systems or failure of our information systems may have a material adverse impact on our business operations and financial results.

If the IT systems, networks, or service providers we rely upon fail to function properly, or if we suffer a loss or disclosure of business or other sensitive information due to any number of causes, ranging from catastrophic events to power outages to security breaches, and our disaster recovery plans do not effectively address these failures on a timely basis, we may

suffer interruptions in our ability to manage operations and reputational, competitive, or business harm, which may have a material adverse effect on our business, financial condition, or results of operations.

This could lead to outside parties having access to our privileged data or strategic information or information regarding our employees, suppliers or customers.

Any breach of our data security systems or failure of our IT systems may have a material adverse impact on our business operations and financial results.

If the IT systems, networks or service providers we rely upon fail to function properly, or if we or our third party vendors suffer a loss or disclosure of business or other sensitive information due to any number of causes, including power outages, computer and telecommunications failures, viruses, phishing attempts, cyber-attacks, malware and ransomware attacks, security breaches, natural disasters, and errors by employees, and the disaster recovery plans do not effectively address these failures on a timely basis, we may suffer interruptions in our ability to manage operations and

reputational, competitive, or business harm, which may have a material adverse effect on our business, financial condition, or results of operations.

If our critical IT systems or back-up systems or those of our third party vendors were damaged or ceased to function properly, we might have to make a significant investment to repair or replace them.

If a ransomware attack or other cybersecurity breach occurs, either internally or at our third-party technology service providers, it is possible we could be prevented from accessing our data which may cause interruptions or delays in our business, cause us to incur remediation costs or require us to pay ransom to a hacker which takes over our systems, or damage our reputation.

In addition, such events could result in unauthorized disclosure of material confidential information, and we may suffer financial and reputational damage because of lost or misappropriated confidential information belonging to us or to our partners, our employees, customers, and suppliers.

Although we maintain insurance coverage for various cybersecurity risks, in any of these events, we could also be required to spend significant financial and other resources to remedy the damage caused by a security breach or to repair or replace networks and IT systems.

Additionally, we could be exposed to potential liability, litigation, governmental inquiries, investigations or regulatory enforcement actions and we could be subject to the payment of fines or other penalties, legal claims by our suppliers, customers or employees and significant remediation costs.

Although we maintain insurance coverage for various cybersecurity risks, we may incur costs or financial losses that are either not insured against or not fully covered through our insurance.

Despite the protections we had in place, in May 2020, we were affected by a ransomware attack that temporarily disrupted production at our Atchison facilities.

Our 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’s insurance is expected to provide coverage for business interruption losses, but there can be no assurance as to the amount or timing of possible insurance recoveries if ultimately claimed by the Company.

Following the attack, we implemented a variety of measures to further enhance our cybersecurity protections and minimize the impact of any future attack.

Cyber threats are constantly evolving however, and although we continually assess and improve our protections, there can be no guarantee that a future cyber event will not occur.

Damage to our reputation, or that of any of our key customers or their brands, could affect our business performance.

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In addition, shares issued in connection with future acquisitions could be publicly tradable, which could result in a material decrease in the market price of our Common Stock.

If we consummate the acquisition of Luxco, Inc.

(the "Luxco Acquisition"), we may face significant disruptions and other risks.

If it is completed, the Luxco Acquisition will involve numerous risks, including the following:

• during the period until and after we consummate the Luxco Acquisition, uncertainty and disruptions may negatively impact Luxco’s relationships with their employees, distributors, vendors, and other business partners, which could harm Luxco’s financial condition and results of operations;

• we may fail to realize the anticipated benefits of the Luxco Acquisition, including the level of revenue and profitability and the expected operational, revenue, and cost synergies that we are expecting;

• we may face difficulties in retaining key management and employees, or we may need to attract and retain additional management resources, which could negatively impact the operations of Luxco, disrupt our ongoing operations, and divert our and Luxco’s management’s attention from ongoing operations and opportunities;

• after we acquire Luxco, our management’s attention may be diverted from the daily operations of our existing businesses;

• our financial results may be negatively impacted by cash expenses and non-cash charges incurred in connection with Luxco or in the future if goodwill or other intangible assets we acquire in the Luxco Acquisition become impaired;

• notwithstanding the due diligence we performed in connection with the Luxco Acquisition, Luxco may have liabilities, losses, or other exposures (including regulatory risks) for which we do not have adequate insurance coverage, indemnification, or other protection;

• we expect to incur substantial additional indebtedness to finance the Luxco Acquisition, enhancing our vulnerability to increased debt service requirements should interest rates rise, reducing the amount of expected cash flow available for other purposes, including capital expenditures and acquisitions, and limiting our flexibility in planning for, or reacting to, changes in our businesses and industries.

Any failure of the pending Luxco Acquisition to be completed may adversely affect our business, financial condition, results of operations, and stock price.

Each of our and Luxco’s obligations to complete the Luxco Acquisition is subject to a number of conditions specified in the Merger Agreement, including, among others (i) the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (ii) the absence of any order restraining, enjoining, or otherwise prohibiting the consummation of the Luxco Acquisition, (iii) filing of all required notices, transfers, applications, termination or documentation required under applicable law with the Alcohol and Tobacco Tax and Trade Bureau of the United States, and the licensing boards of the states of Kentucky, Missouri and Ohio such that there is continuity and survival of permits held by Luxco for the operation of the business as of the Closing, (iv) the accuracy of the parties’ respective representations and warranties in the Merger Agreement, subject to specified materiality qualifications, (v) compliance by the parties with their respective covenants in the Merger Agreement in all material respects, and (vi) the absence of a material adverse effect (as defined in the Merger Agreement) with respect to either party on or after the date of the Merger Agreement.

There can be no assurance that these conditions to the completion of the Luxco Acquisition will be satisfied within the timeframe specified in the Merger Agreement or at all.

If the Luxco Acquisition is not completed, our stock price could decline to the extent that our current share price reflects an assumption that the Luxco Acquisition will be completed.

Furthermore, if the Luxco Acquisition is not completed, we may suffer other consequences that could adversely affect our business, financial condition, results of operations, and stock price, including the following:

• we have incurred, and will continue to incur, significant costs and expenses, including fees for professional services and other transaction costs in connection with the Luxco Acquisition, and many of these fees and costs are payable by us regardless of whether the Luxco Acquisition is completed;

• the failure to complete the Luxco Acquisition may result in adverse publicity, negatively impact the reputation of the Company in the capital markets and investment community, and result in critical responses from our customers, partners, and other third parties;

• legal proceedings may be instituted against us, our directors and others relating to the Luxco Acquisition and related transactions;

• any disruptions to our business resulting from the announcement and pendency of the Luxco Acquisition, including any adverse changes to our relationships with customers, vendors, distributors, and employees, may continue or intensify in the event the Luxco Acquisition is not completed;

• we may experience employee departures;

• we may not be able to take advantage of alternative business opportunities or effectively respond to competitive pressures.

The Company will incur significant transaction and acquisition-related costs in connection with the Luxco Acquisition.

We expect to incur a number of non-recurring costs associated with the Luxco Acquisition and combining the operations of Luxco’s with our own.

Some of these costs have already been incurred or may be incurred regardless of whether the Luxco Acquisition is completed.

The Company also will incur transaction fees and costs related to formulating and implementing integration plans with respect to the two companies.

We continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in the Luxco Acquisition and the integration of Luxco’s business with our business.

Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow us to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all.

The outbreak of the coronavirus ("COVID-19") has negatively impacted and could continue to negatively impact the global economy.

In addition, the COVID-19 pandemic could continue to disrupt or otherwise negatively impact global credit markets and could disrupt or otherwise negatively impact our operations, including the demand for our products and our ability to produce and deliver our products.

The significant outbreak of COVID-19 has resulted in a widespread health crisis, which has negatively impacted and could continue to negatively impact the global economy.

In addition, the global and regional impact of the outbreak, including official or unofficial quarantines and governmental restrictions on activities taken in response to the outbreak, could have a negative impact on our operations, including voluntary or mandatory temporary closures of our facilities or offices;

interruptions in our supply chain, which could impact the cost or availability of raw materials;

disruptions or restrictions on our

ability to travel or to market and distribute our products;

reduced consumer demand for our products or those of our customers due to bar and restaurant closures or reduced consumer traffic in bars, restaurants and other locations where our products or those of our customers are sold;

and labor shortages.

More broadly, the outbreak could lead to an economic downturn that could affect future demand for our products and those of our customers.

Furthermore, our facilities and those of our customers and suppliers have been required to comply with additional regulations and may be required to comply with new regulations imposed by state and local governments in response to the COVID-19 pandemic, including COVID-19 safety guidance for production and manufacturing facilities.

Compliance with these measures, or new measures, may cause increases in the cost, or delays or reduction in the volume, of products produced at our facilities or those of our suppliers.

The COVID-19 outbreak has disrupted credit markets, and may continue to disrupt or negatively impact credit markets, which could adversely affect the availability and cost of capital.

Such impacts could limit our ability to fund our operations and satisfy our obligations.

The response to COVID-19 has resulted in social distancing, travel bans, temporary closures of businesses, shelter-in-place orders, and quarantines, among other measures.

Although certain of the restrictions have begun, and may continue, to ease in some places, the ongoing COVID-19 pandemic has limited and may continue to limit access to our facilities, customers, management, support staff, professional advisors and our independent auditors.

These factors, in turn, may not only impact our operations, financial condition and demand for our products but our overall ability to react timely to mitigate the impact of this ongoing event.

Also, these measures may continue to hamper our efforts to comply with our filing obligations with the Securities and Exchange Commission.

The extent and potential short and long-term impact of the ongoing COVID-19 outbreak on our operational and financial performance will continue to depend on future developments, including the duration, severity and spread of the virus, actions that may be taken by governmental authorities and the impact on our supply chain, customers, operations, workforce and the financial markets, all of which remain highly uncertain and cannot be predicted.

These and other potential impacts of an epidemic, pandemic or other health crisis, such as COVID-19, could therefore materially and adversely affect our business, financial condition and results of operations.

RISKS SPECIFIC TO OUR DISTILLERY PRODUCTS SEGMENT

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Warehouse expansion issues could negatively impact our operations and our business.

In 2015, we announced a major expansion in warehousing capacity.

The program includes both the refurbishment of existing warehouse buildings and the construction of new warehouses.

The final phases of the program are expected to be completed by the end of calendar year 2020.

There is the potential risk of completion delays, including risk of delay associated with required permits and cost overruns, which could have a material adverse effect our business, financial condition, or results of operations.

In 2015, we announced a major expansion in warehousing capacity, which we completed during 2020.

Our future business operations may require additional warehouse capacity.

In the event additional warehouse capacity is required, there is the potential risk of completion delays, including risk of delay associated with required permits and cost overruns, which could have a material adverse effect on our business, financial condition, or results of operations.

We may be subject to litigation directed at the beverage alcohol industry .

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Changes in consumer preferences and purchases, and our ability to anticipate or react to them, could negatively affect our business results.

We compete in highly competitive markets, and our success depends on our continued ability to offer our customers and consumers appealing, high-quality products.

We operate in highly competitive markets, and our success depends on our continued ability to offer our customers and consumers appealing, high-quality products.

In recent years there has been increased demand for the products we produce, including, in particular, increased demand for bourbons and rye whiskeys.

4 unchanged sentences

• changes in government regulation and taxation of beverage alcohol products;

• the potential expansion, of legalization of, and increased acceptance or use of, marijuana;

• the expansion of, legalization of, and increased acceptance or use of, marijuana;

• changes in travel, leisure, dining, entertaining, and beverage consumption trends.

37 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors