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 March 31, 2021 2020 Sales $ 108,323 $ 99,082 Cost of sales 76,024 75,871 Gross profit 32,299 23,211 Selling, general and administrative expenses 11,799 9,503 Operating income 20,500 13,708 Interest expense, net and other ( 458 ) ( 642 ) Income before income taxes 20,042 13,066 Income tax expense 4,615 3,224 Net income 15,427 9,842 Income attributable to participating securities 146 66 Net income attributable to common shareholders and used in Earnings Per Share calculation $ 15,281 $ 9,776 Basic and diluted weighted average common shares 16,928,003 17,013,925 Basic and diluted Earnings Per Share $ 0.90 $ 0.57 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 March 31, 2021 2020 Net income $ 15,427 $ 9,842 Other comprehensive income (loss), net of tax: Change in Company-sponsored post-employment benefit plan 55 ( 6 ) Comprehensive income $ 15,482 $ 9,836 See accompanying notes to unaudited condensed consolidated financial statements 4 MGP INGREDIENTS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands) March 31, 2021 December 31, 2020 Current Assets Cash and cash equivalents $ 22,586 $ 21,662 Receivables (less allowance for credit losses, $ 100 and $ 24 at March 31, 2021, and December 31, 2020, respectively) 67,147 56,966 Inventory 136,087 141,011 Prepaid expenses 3,728 2,644 Total current assets 229,548 222,283 Property, plant, and equipment 323,551 313,730 Less accumulated depreciation and amortization ( 184,932 ) ( 181,738 ) Property, plant, and equipment, net 138,619 131,992 Operating lease right-of-use assets, net 4,606 5,151 Other assets 8,329 7,149 Total assets $ 381,102 $ 366,575 Current Liabilities Current maturities of long-term debt $ 2,400 $ 1,600 Accounts payable 28,545 30,273 Income taxes payable 5,941 704 Accrued expenses and other 18,117 20,752 Total current liabilities 55,003 53,329 Long-term debt, less current maturities 37,476 38,271 Long-term operating lease liabilities 2,593 3,057 Deferred credits 1,394 2,196 Other noncurrent liabilities 4,475 4,898 Deferred income taxes 1,650 2,298 Total liabilities 102,591 104,049 Commitments and Contingencies (Note 8) 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 March 31, 2021 and December 31, 2020; and 16,940,600 and 16,915,862 shares outstanding at March 31, 2021 and December 31, 2020, respectively 6,715 6,715 Additional paid-in capital 18,016 15,503 Retained earnings 276,318 262,943 Accumulated other comprehensive income 541 486 Treasury stock, at cost, 1,175,365 and 1,200,103 shares at March 31, 2021 and December 31, 2020, respectively ( 23,083 ) ( 23,125 ) Total stockholders’ equity 278,511 262,526 Total liabilities and stockholders’ equity $ 381,102 $ 366,575 See accompanying notes to unaudited condensed consolidated financial statements 5 MGP INGREDIENTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) Quarter Ended March 31, 2021 2020 Cash Flows from Operating Activities Net income $ 15,427 $ 9,842 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,311 3,125 Loss on sale of assets — ( 9 ) Share-based compensation 3,229 1,139 Deferred income taxes, including change in valuation allowance ( 648 ) 101 Changes in operating assets and liabilities: Receivables, net ( 4,348 ) ( 11,453 ) Inventory 4,924 ( 5,649 ) Prepaid expenses ( 1,084 ) ( 2,339 ) Income taxes payable 5,237 3,100 Accounts payable 509 1,635 Accrued expenses and other ( 8,385 ) 1,003 Deferred credits ( 802 ) ( 81 ) Other, net ( 380 ) 128 Net cash provided by operating activities 16,990 542 Cash Flows from Investing Activities Additions to property, plant, and equipment ( 12,059 ) ( 5,645 ) Acquisition of business — ( 2,750 ) Proceeds from sale of property — 366 Other, net ( 1,281 ) ( 160 ) Net cash used in investing activities ( 13,340 ) ( 8,189 ) Cash Flows from Financing Activities Payment of dividends and dividend equivalents ( 2,052 ) ( 2,060 ) Purchase of treasury stock ( 674 ) ( 4,395 ) Loan fees paid related to borrowings — ( 1,148 ) Principal payments on long-term debt — ( 100 ) Proceeds from credit agreement - revolver — 54,700 Net cash (used in) provided by financing activities ( 2,726 ) 46,997 Increase in cash and cash equivalents 924 39,350 Cash and cash equivalents, beginning of period 21,662 3,309 Cash and cash equivalents, end of period $ 22,586 $ 42,659 See accompanying notes to unaudited condensed consolidated financial statements 6 MGP INGREDIENTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY For Quarter Ended March 31, 2021 and 2020 (Unaudited) (Dollars in thousands) Capital Stock Preferred Issued Common Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive income Treasury Stock Total Balance, December 31, 2020 $ 4 $ 6,715 $ 15,503 $ 262,943 $ 486 $ ( 23,125 ) $ 262,526 Comprehensive income: Net income — — — 15,427 — — 15,427 Other comprehensive income — — — — 55 — 55 Dividends and dividend equivalents of $ 0.12 per common share and per restricted stock unit, net of estimated forfeitures — — — ( 2,052 ) — — ( 2,052 ) Share-based compensation — — 3,229 — — — 3,229 Stock shares awarded, forfeited or vested — — ( 716 ) — — 716 — Stock shares repurchased — — — — — ( 674 ) ( 674 ) Balance, March 31, 2021 $ 4 $ 6,715 $ 18,016 $ 276,318 $ 541 $ ( 23,083 ) $ 278,511 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 See accompanying notes to unaudited condensed consolidated financial statements 7 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 March 31, 2021, 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, 2020, 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. 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. 8 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: March 31, 2021 December 31, 2020 Finished goods $ 18,767 $ 16,414 Barreled distillate (bourbons and whiskeys) 98,736 105,445 Raw materials 6,165 6,954 Work in process 2,017 1,805 Maintenance materials 8,907 8,634 Other 1,495 1,759 Total $ 136,087 $ 141,011 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 receive 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 of the following bill and hold criteria have to be met in order for control to be transferred to the customer: the reason for the bill and hold arrangement is substantive - 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. Recognition of Insurance Recoveries. Estimated loss contingencies are recognized as charges to income when they are probable and reasonably estimable. Insurance recoveries are not recognized until all contingencies related to the insurance claim have been resolved and settlement has been reached with the insurer. Insurance recoveries, to the extent of costs and losses, are reported as a reduction to costs on the Consolidated Statements of Income. Insurance recoveries, in excess of costs and losses, if any, would be reported as a separate caption in Operating income on the Consolidated Statements of Income. Legally committed recovery amounts obtained prior to contingencies being resolved are recorded in Accrued expenses and other on the Consolidated Balance Sheets. 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 9 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. Business Combinations. Assets acquired and liabilities assumed during a business combination are generally recorded at fair market value as of the acquisition date. Goodwill is recognized to the extent that the purchase consideration exceeds the assets acquired and liabilities assumed. The Company uses its best estimate and third party valuation specialists to determine the fair value of the assets acquired and liabilities assumed. During the measurement period, which can be up to one year after the acquisition date, the Company can make adjustments to the fair value of the assets acquired and liabilities assumed, with the offset being an adjustment to goodwill. 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 March 31, 2021, the Company determined that goodwill and indefinite lived intangible assets were 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 $ 44,364 and $ 44,548 at March 31, 2021 and December 31, 2020, respectively. The financial statement carrying value of total debt was $ 39,876 (including unamortized loan fees) and $ 39,871 (including unamortized loan fees) at March 31, 2021 and December 31, 2020, 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 9. Recently Adopted Accounting Standard Updates. The Company did not adopt any new Accounting Standard Updates during the quarter ended March 31, 2021 . Note 2. Revenue 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 include a single performance obligation (either the sale of products or the provision of warehouse services). 10 The following table presents the Company’s sales by segment and major products and services: Quarter Ended March 31, 2021 2020 Distillery Products Brown goods $ 43,415 $ 29,070 White goods 16,853 16,902 Premium beverage alcohol 60,268 45,972 Industrial alcohol 17,336 21,618 Food grade alcohol 77,604 67,590 Fuel grade alcohol 2,517 1,522 Distillers feed and related co-products 4,972 6,989 Warehouse services 4,101 3,901 Total Distillery Products 89,194 80,002 Ingredient Solutions Specialty wheat starches 10,222 10,212 Specialty wheat proteins 6,046 6,365 Commodity wheat starches 2,283 1,877 Commodity wheat proteins 578 626 Total Ingredient Solutions 19,129 19,080 Total sales $ 108,323 $ 99,082 Note 3. Business Acquisition On January 22, 2021, the Company entered into a definitive agreement to acquire Luxco, Inc. and its affiliated companies (“Luxco”, or “Luxco Companies”), and subsequently completed the merger on April 1, 2021. Luxco is a leading branded beverage alcohol company across various categories, with a more than 60-year business heritage. As a result of the Luxco acquisition, MGP expects to increase its scale and market position in the branded-spirits sector and strengthen its platform for future growth of higher valued-added products. Following the merger, the Luxco Companies became wholly-owned subsidiaries of the Company. The aggregate consideration paid by the Company in connection with the merger was $ 237,500 in cash (less assumed indebtedness) and 5,007,833 shares of common stock of the Company, subject to adjustment for fractional shares (the “Company Shares,” and together with the cash portion, the “Merger Consideration”). The Company Shares were valued at $ 296,213 and represent approximately 22.8 percent of the Company’s outstanding common stock immediately following the closing of the merger. The Merger Consideration is subject to customary purchase price adjustments, including working capital, which adjustments are anticipated to be paid in cash. The cash portion of the Merger Consideration, the repayment of assumed debt, and transaction-related expenses were financed with a $ 242,300 borrowing under the Credit Agreement which was drawn down on April 1, 2021. For tax purposes, the transaction is structured partially as a tax-free reorganization and partially as a taxable acquisition, as defined in the Internal Revenue Code. The Company anticipates the amount transferred in a tax deferred manner, under the tax-free reorganization rules, will not create additional tax basis for the Company. The taxable component of the transaction will create additional tax basis and a corresponding future tax deduction for the Company. The Company is currently evaluating the potential effect of this acquisition on its tax profile. MGP does not expect the transaction to have a material effect on the Company’s estimates related to the use of the Company’s existing deferred tax assets or its estimates related to its existing unrecognized tax benefits based on the information available to date. 11 Due to the limited time since the acquisition date and the size and complexity of the transaction, the business combination accounting is still in progress. The Company is currently in the process of finalizing the accounting for this transaction and expects to have preliminary allocation of the purchase consideration to the assets acquired and liabilities assumed by the end of the second quarter of 2021. We expect that this will result in goodwill and intangibles as well as other tangibles assets such as accounts receivable, inventories and property, plant and equipment. The major classes of liabilities assumed include accounts payable, accrued expenses and other long-term liabilities. We are currently in the process of determining the fair values of the acquired assets and assumed liabilities with the assistance of a third party specialist. During the quarter ended March 31, 2021, the Company has incurred $ 1,890 of transaction related costs, which are included in Selling, general and administrative expenses on the Condensed Consolidated Statements of Income. Note 4. 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, 2020 $ 3,628 $ — $ 3,628 Acquisitions — — — Balance, March 31, 2021 $ 3,628 $ — $ 3,628 (a) Includes $ 890 of trade names at March 31, 2021 and December 31, 2020. Trade names are considered indefinite-lived intangible assets. Note 5. Corporate Borrowings The following table presents the Company’s outstanding indebtedness: Description (a) March 31, 2021 December 31, 2020 Credit Agreement - Revolver, 1.12 % (variable rate) due 2025 $ — $ — 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 40,000 40,000 Less unamortized loan fees (b) ( 124 ) ( 129 ) Total indebtedness outstanding, net 39,876 39,871 Less current maturities of long-term debt ( 2,400 ) ( 1,600 ) Long-term debt and Credit Agreement - Revolver $ 37,476 $ 38,271 (a) Interest rates are as of March 31, 2021. (b) Loan fees are being amortized over the life of the Credit Agreement and Note Purchase Agreement. Credit Agreement. On February 14, 2020, the Company entered into a credit agreement (the “Credit Agreement”) with multiple participants led by Wells Fargo Bank, National Association (“Wells Fargo Bank”) that matures on February 14, 2025. 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 Credit Agreement includes certain requirements and covenants, which the Company was in compliance with at March 31, 2021. As of March 31, 2021, the Company had no outstanding borrowings under the Credit Agreement leaving $ 300,000 available. 12 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 March 31, 2021. Note 6. 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 ended March 31, 2021, was $ 4,615 for an effective tax rate of 23.0 percent. The effective tax rate differed from the 21 percent federal statutory rate on pretax income, primarily due to state taxes, nondeductible transaction costs, partially offset by state and federal tax credits and the deduction applicable to income derived from export activity. Income tax expense for the quarter ended March 31, 2020, was $ 3,224 for an effective tax rate of 24.7 percent. The effective tax rate differed from the 21 percent federal statutory rate on pretax income, primarily due to state income taxes, estimated increase in the Company’s valuation allowance related to state income attributes, and the discrete tax impact of vested share-based awards, partially offset by federal and state credits, and the deduction applicable to income derived from export activity. Note 7. Equity and EPS The computations of basic and diluted EPS: Quarter Ended March 31, 2021 2020 Operations: Net income (a) $ 15,427 $ 9,842 Less: Income attributable to participating securities (b) 146 66 Net income attributable to common shareholders $ 15,281 $ 9,776 Share information: Basic and diluted weighted average common shares (c) 16,928,003 17,013,925 Basic and diluted EPS $ 0.90 $ 0.57 (a) Net income attributable to all shareholders. (b) Participating securities included 162,496 and 116,127 unvested restricted stock units (“RSUs”), at March 31, 2021 and 2020, respectively. (c) Under the two-class method, basic and diluted weighted average common shares at March 31, 2021 and 2020 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. The Company did no t repurchase any shares during the quarter ended March 31, 2021 and has $ 20,947 remaining under the share repurchase plan. During the quarter ended March 31, 2020, the Company repurchased approximately 159,104 shares of MGP Common Stock for $ 4,053 . 13 Note 8. 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. Feed Dryer Fire. During November 2020, the Company experienced a fire at the Atchison facility. The fire damaged certain equipment in the facility’s feed drying operations and caused temporary loss of production time. During the quarter ended March 31 2021, the Company received a legally binding commitment from their insurance carrier of $ 8,700 that was recorded as Receivables on the Consolidated Balance Sheet and recorded a $ 3,610 partial settlement from its insurance carrier as a reduction of Cost of sales. Recorded within Accrued expenses and other on the Consolidated Balance Sheet is $ 5,090 related to legally committed insurance recovery amounts obtained prior to contingencies related to the insurance claim being resolved. The Company is working to construct a replacement drying system. The Company’s insurance is expected to provide coverage of any business interruption and other losses from damage to property, plant and equipment, but there can be no assurance to the amount or timing of possible insurance recoveries if ultimately claimed by the Company. Ransomware Cyber-Attack. 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 has insurance related to this event and currently evaluating if it will seek further recovery. Following the attack, MGP implemented a variety of measures to further enhance our cybersecurity protections and minimize the impact of any future attack. The Company’s insurance may cover additional losses from this incident, but there can be no assurance as to the amount or timing of any possible insurance recoveries if ultimately claimed by the Company. Shareholder matters. 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 has been fully briefed and remains pending. Discovery is stayed while 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. On August 13, 2020, defendants filed a Motion to Stay the Kearns action pending the resolution of Dorfman. On November 3, 2020, the court entered an order providing that Defendants’ response to the Carter Complaint shall be due 14 days after a ruling on the Motion to Dismiss filed in Dorfman. On March 31, 2021, the Dorfman court issued a Memorandum and Order in which it granted defendants’ Motion to Dismiss plaintiff’s federal claims, dismissed those claims without prejudice, denied without prejudice defendants’ Motion to Dismiss 14 plaintiff’s state claims, and stayed the case pending the Kansas Supreme Court’s decision in Herington v. City of Wichita. Herington involves the issue of whether a federal decision that determines federal claims and dismisses pendent state law claims for lack of supplemental jurisdiction precludes the reassertion of the state law claims in state court. The Kearns court has not yet taken any action in response to the court’s Memorandum and Order in Dorfman. On April 14, 2021, defendants in Carter filed a Motion to dismiss plaintiff’s federal claims and to stay plaintiff’s state claims until fourteen days after the Court rules on the state claims in Dorfman . On November 25, 2020, Kenneth Laury filed an action in the District Court of Shawnee County, Kansas under the caption Laury v. MGP Ingredients., Case Number: 2020-CV-000609. The Petition alleges that plaintiff commenced the action under K.S.A. 17-6510 to enforce his alleged right to inspect books and records of the Company, in order to enable him to evaluate possible misconduct by the Company’s Board of Directors and management. On January 8, 2021, the Company filed an answer to the Petition, denying that plaintiff has satisfied the statutory requirements for his demand. On February 25, 2021 and March 15, 2021, the court entered Orders under which discovery is to close on May 14, 2021 and a pretrial conference is scheduled for May 18, 2021. 2016 Atchison Chemical Release. 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”). 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 9. 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”). As of March 31, 2021, 507,549 RSUs had been granted of the 1,500,000 shares approved under the 2014 Plan, and 110,505 shares had been granted of the 300,000 shares approved under the Directors’ Plan. As of March 31, 2021, there were 170,336 unvested RSUs under the Company’s long-term incentive plans and 162,496 were participating securities (Note 7). 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 on the Company’s Condensed Consolidated Statements of Income for the quarter ended March 31, 2021. For quarter ended March 31, 2021, the Company had a gain on deferred compensation plan investments of $ 30 . For quarter ended March 31, 2020, the Company had a loss on deferred compensation plan investments of $ 164 . 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 March 31, 2021 and December 31, 2020, the EDC Plan investments were $ 3,299 and $ 2,007 , respectively, which were recorded in Other assets on the Company’s Condensed Consolidated Balance Sheets. The EDC Plan current liabilities were $ 483 at March 31, 2021 and were included in Accrued expenses and other on the Company’s Condensed Consolidated Balance Sheet. The EDC Plan non-current liabilities were $ 2,890 and $ 3,140 at March 31, 2021 and December 31, 2020, respectively, and were included in Other noncurrent liabilities on the Company’s Condensed Consolidated Balance Sheets. 15 Note 10. Operating Segments At March 31, 2021 and 2020, 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. Quarter Ended March 31, 2021 2020 Sales to Customers Distillery Products $ 89,194 $ 80,002 Ingredient Solutions 19,129 19,080 Total $ 108,323 $ 99,082 Gross Profit Distillery Products $ 28,331 $ 18,249 Ingredient Solutions 3,968 4,962 Total $ 32,299 $ 23,211 Depreciation and Amortization Distillery Products $ 2,583 $ 2,401 Ingredient Solutions 475 453 Corporate 253 271 Total $ 3,311 $ 3,125 Income (loss) before Income Taxes Distillery Products $ 25,639 $ 16,233 Ingredient Solutions 3,172 4,214 Corporate ( 8,769 ) ( 7,381 ) Total $ 20,042 $ 13,066 The following table allocates assets to each segment as of: March 31, 2021 December 31, 2020 Identifiable Assets Distillery Products $ 302,622 $ 288,069 Ingredient Solutions 39,093 41,276 Corporate 39,387 37,230 Total $ 381,102 $ 366,575 16 Note 11. Subsequent Events Business Combination. On April 1, 2021, the Company completed the acquisition of Luxco. Luxco is a leading branded beverage alcohol company across various categories. See Note 3, Business Acquisition for further details. As a result of the acquisition of Luxco, the Company will report the Luxco brands in a new reporting segment: Branded Spirits. Beginning in the second quarter 2021, the Company will report three operating segments; Distillery Products, Branded Spirits and Ingredient Solutions. Dividend. On May 3, 2021, the Company’s Board of Directors declared a quarterly dividend payable to stockholders of record as of May 21, 2021, of the Company’s Common Stock, and a dividend equivalent payable to holders of certain RSUs as of May 21, 2021, of $ 0.12 per share and per unit, payable on June 4, 2021.