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, 2021 2020 2021 2020 Sales $ 176,611 $ 102,964 $ 459,873 $ 294,606 Cost of sales 119,525 79,802 313,661 227,531 Gross profit 57,086 23,162 146,212 67,075 Selling, general and administrative expenses 24,202 9,510 65,165 28,377 Operating income 32,884 13,652 81,047 38,698 Interest expense, net ( 1,116 ) ( 594 ) ( 2,708 ) ( 1,701 ) Other income (loss), net ( 421 ) 185 ( 479 ) 352 Income before income taxes 31,347 13,243 77,860 37,349 Income tax expense 7,674 2,862 18,701 8,636 Net income 23,673 10,381 59,159 28,713 Net loss attributable to noncontrolling interest 203 — 279 — Net income attributable to MGP Ingredients, Inc. 23,876 10,381 59,438 28,713 Income attributable to participating securities ( 175 ) ( 69 ) ( 471 ) ( 192 ) Net income used in Earnings Per Share calculation $ 23,701 $ 10,312 $ 58,967 $ 28,521 Basic and diluted weighted average common shares 21,981,201 16,916,675 20,293,818 16,943,130 Basic and diluted Earnings Per Share $ 1.08 $ 0.61 $ 2.91 $ 1.68 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, 2021 2020 2021 2020 Net income attributable to MGP Ingredients, Inc. $ 23,876 $ 10,381 $ 59,438 $ 28,713 Other comprehensive income, net of tax: Unrealized loss on foreign currency translation adjustment ( 141 ) — ( 134 ) — Change in Company-sponsored post-employment benefit plan ( 89 ) 74 ( 40 ) 89 Other comprehensive income (loss) ( 230 ) 74 ( 174 ) 89 Comprehensive income attributable to MGP Ingredients, Inc. 23,646 10,455 59,264 28,802 Comprehensive loss attributable to noncontrolling interest 203 — 279 — Comprehensive income $ 23,443 $ 10,455 $ 58,985 $ 28,802 See accompanying notes to unaudited condensed consolidated financial statements 4 MGP INGREDIENTS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands) September 30, 2021 December 31, 2020 Current Assets Cash and cash equivalents $ 16,162 $ 21,662 Receivables (less allowance for credit losses, $ 150 and $ 24 at September 30, 2021, and December 31, 2020, respectively) 92,152 56,966 Inventory 239,312 141,011 Prepaid expenses 2,888 2,644 Refundable income taxes 1,382 — Total current assets 351,896 222,283 Property, plant, and equipment 391,111 313,730 Less accumulated depreciation and amortization ( 193,863 ) ( 181,738 ) Property, plant, and equipment, net 197,248 131,992 Operating lease right-of-use assets, net 8,436 5,151 Investment in joint ventures 5,334 — Intangible assets, net 219,355 890 Goodwill 227,588 2,738 Other assets 7,611 3,521 Total assets $ 1,017,468 $ 366,575 Current Liabilities Current maturities of long-term debt $ 3,227 $ 1,600 Accounts payable 37,004 30,273 Federal and state liquor taxes payable 6,498 107 Income taxes payable — 704 Accrued expenses and other 39,737 20,645 Total current liabilities 86,466 53,329 Long-term debt, less current maturities 36,068 38,271 Credit agreement - revolver 208,382 — Long-term operating lease liabilities 5,999 3,057 Other noncurrent liabilities 5,163 7,094 Deferred income taxes 60,479 2,298 Total liabilities 402,557 104,049 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 23,125,166 shares at September 30, 2021 and 18,115,965 shares at December 31, 2020; and 21,963,574 and 16,915,862 shares outstanding at September 30, 2021 and December 31, 2020, respectively 6,715 6,715 Additional paid-in capital 315,543 15,503 Retained earnings 315,022 262,943 Accumulated other comprehensive income 312 486 Treasury stock, at cost, 1,161,592 and 1,200,103 shares at September 30, 2021 and December 31, 2020, respectively ( 22,406 ) ( 23,125 ) Total MGP Ingredients, Inc. stockholders’ equity 615,190 262,526 Noncontrolling interest ( 279 ) — Total equity 614,911 262,526 Total liabilities and equity $ 1,017,468 $ 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) Year to Date Ended September 30, 2021 2020 Cash Flows from Operating Activities Net income $ 59,159 $ 28,713 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 13,668 9,618 Gain on sale of assets 5 337 Share-based compensation 5,247 2,693 Deferred income taxes, including change in valuation allowance 465 460 Other, net ( 236 ) — Changes in operating assets and liabilities, net of effects of acquisition: Receivables, net ( 5,593 ) ( 11,683 ) Inventory ( 7,588 ) ( 5,673 ) Prepaid expenses 1,206 ( 2,032 ) Income taxes payable ( 2,086 ) ( 673 ) Accounts payable ( 6,678 ) 2,057 Accrued expenses and other 15,859 5,647 Federal and state liquor taxes payable ( 1,961 ) 139 Other, net ( 682 ) ( 146 ) Net cash provided by operating activities 70,785 29,457 Cash Flows from Investing Activities Additions to property, plant, and equipment ( 37,257 ) ( 13,507 ) Purchase of business, net of cash acquired ( 149,613 ) ( 2,750 ) Contributions to equity method investment ( 988 ) — Proceeds from sale of property — 688 Other, net ( 1,308 ) 56 Net cash used in investing activities ( 189,166 ) ( 15,513 ) Cash Flows from Financing Activities Payment of dividends and dividend equivalents ( 7,362 ) ( 6,144 ) Purchase of treasury stock ( 767 ) ( 4,395 ) Loan fees paid related to borrowings ( 666 ) ( 1,148 ) Principal payments on long-term debt ( 813 ) ( 300 ) Proceeds from credit agreement - revolver 242,300 54,700 Payments on credit agreement - revolver ( 32,300 ) ( 40,000 ) Payment on assumed debt as part of the Merger ( 87,509 ) — Net cash provided by financing activities 112,883 2,713 Effect of exchange rate changes on cash ( 2 ) — Increase (decrease) in cash and cash equivalents ( 5,500 ) 16,657 Cash and cash equivalents, beginning of period 21,662 3,309 Cash and cash equivalents, end of period $ 16,162 $ 19,966 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, 2021 (Unaudited) (Dollars in thousands) Capital Stock Preferred Issued Common Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive income Treasury Stock Non-controlling Interest 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 Comprehensive income: Net income — — — 20,135 — — ( 76 ) 20,059 Other comprehensive income — — — — 1 — — 1 Dividends and dividend equivalents of $ 0.12 per common share and per restricted stock unit, net of estimated forfeitures — — — ( 2,653 ) — — — ( 2,653 ) Share-based compensation — — 1,538 — — — — 1,538 Stock shares awarded, forfeited or vested — — ( 705 ) — — 705 — — Stock shares repurchased — — — — — ( 91 ) — ( 91 ) Equity consideration for Merger — — 296,213 — 296,213 Balance, June 30, 2021 4 6,715 315,062 293,800 542 ( 22,469 ) ( 76 ) 593,578 Comprehensive income: Net income — — — 23,876 — ( 203 ) 23,673 Other comprehensive loss — — — — ( 230 ) — ( 230 ) Dividends and dividend equivalents of $ 0.12 per common share and per restricted stock unit, net of estimated forfeitures — — — ( 2,654 ) — — — ( 2,654 ) Share-based compensation — — 480 — — — — 480 Stock shares awarded, forfeited, or vested — — ( 64 ) — — 64 — — Stock shares repurchased — — — — — ( 1 ) — ( 1 ) Equity consideration for Merger — — 65 — — — — 65 Balance, September 30, 2021 $ 4 $ 6,715 $ 315,543 $ 315,022 $ 312 $ ( 22,406 ) $ ( 279 ) $ 614,911 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, 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 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, branded spirits and food ingredients. Distilled spirits include premium bourbon and rye whiskeys and grain neutral spirits, including vodka and gin. Our distilled spirits are either packaged and sold under our own brands to distributors, sold, directly or indirectly, to manufacturers of other branded spirits, or direct to consumer. 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. Our industrial alcohol and ingredients products are sold directly, or through distributors, to manufacturers and processors of finished packaged goods or to bakeries. 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, primarily, from wheat flour. On April 1, 2021, the Company acquired Luxco, Inc. and its affiliated companies (“Luxco”, or “Luxco Companies”) which is a leading branded beverage alcohol company across various categories, with a more than 60-year business heritage. Luxco’s operations predominately involve the producing, importing, bottling and rectifying of distilled spirits. See Note 3, Business Combination, for further details. As a result of the merger with Luxco, during the second quarter 2021, the Company established a new reportable segment structure that separates Branded Spirits from the Distillery Products segment. The Ingredient Solutions segment remains unchanged. The new segment presentation reflects how management is now operating the business and making resource allocations. The Company now reports three operating segments: Distillery Products, Branded Spirits and Ingredient Solutions. Certain amounts in the 2020 consolidated financial statements have been reclassified to conform to the 2021 presentation and prior periods have been revised to reflect the new operating segment structure. 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 and year to date ended September 30, 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. The Company holds 60 percent interest in Dos Primos Tequila, LLC (“Dos Primos”). The Company consolidated Dos Primos activity on the financial statements and backs out the 40 percent non-controlling interest portion on a separate line. 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 as well as bottles, caps, and labels used in the bottling process and certain maintenance and repair items. Bourbon and whiskeys, included in inventory, are normally aged in barrels for several years, following industry practice; all barreled bourbon 9 and whiskey is classified as a current asset. The Company includes warehousing, insurance, and other carrying charges applicable to barreled whiskey in inventory costs. 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, 2021 December 31, 2020 Finished goods $ 44,852 $ 16,414 Barreled distillate (bourbons and whiskeys) 159,897 105,445 Raw materials 22,667 6,954 Work in process 985 1,805 Maintenance materials 9,401 8,634 Other 1,510 1,759 Total $ 239,312 $ 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. 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. For certain international customers, deposits are required in advance of shipment. These deposits are reported as contract liabilities until control passes to the customer and revenue is recognized. 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. Excise Taxes. The Company is responsible for compliance with the Alcohol and Tobacco Tax and Trade Bureau of the U.S. Treasury Department (the “TTB”) regulations which includes making timely and accurate excise tax payments. The Company is subject to periodic compliance audits by the TTB. Individual states also impose excise taxes on alcohol beverages in varying amounts. The Company calculates its Federal and state excise tax expense based upon units shipped and on its understanding of the applicable excise tax laws . 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. 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 Condensed 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 Condensed Consolidated 10 Statements of Income. Legally committed recovery amounts obtained prior to contingencies being resolved are recorded in Accrued expenses and other on the Condensed 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 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. Translation of Foreign Currencies. Assets and liabilities of Niche Drinks Co., Ltd. (“Niche”), a wholly-owned subsidiary of the Company whose functional currency is the British pound sterling, are translated to U.S. dollars using the exchange rate in effect at the condensed consolidated balance sheet date. Results of operations are translated using average rates during the period. Adjustments resulting from the translation process are included as a component of Accumulated other comprehensive income . 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 Indefinite-Lived 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 evaluates 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. 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 Company separately evaluates indefinite-lived intangible assets for impairment. As of September 30, 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 $ 251,053 and $ 44,548 at September 30, 2021 and December 31, 2020, respectively. The financial statement carrying value of total debt was $ 247,677 (including unamortized loan fees) and $ 39,871 (including unamortized loan fees) at September 30, 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. 11 Equity Method Investments. The condensed consolidated financial statements include the results of Luxco and its affiliated companies since April 1, 2021, when the Company obtained control through the Merger. The Company holds 50 percent interests in DGL Destiladores, S.de R.L. de C.V. (“DGL”) and Agricola LG, S.de R.L. de C.V. (“Agricola”) (combined “LMX”), which are accounted for as equity method investments since the date of acquisition. At September 30, 2021, the investment in LMX was $ 5,334 , which is recorded in Investment in joint ventures on the Condensed Consolidated Balance Sheet. During the quarter and year to date ended September 30, 2021, the Company recorded a $ 405 and $ 739 , respectively, loss from our equity method investments, which is recorded in Other income (loss), net on the Condensed Consolidated Statement of Income. Recently Adopted Accounting Standard Updates. The Company did not adopt any new Accounting Standard Updates during the quarter ended September 30, 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 Branded Spirits and Ingredient Solutions segments 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). 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, 2021 2020 2021 2020 Distillery Products Brown goods $ 42,793 $ 32,068 $ 129,600 $ 86,038 White goods 21,187 16,210 56,049 47,922 Premium beverage alcohol 63,980 48,278 185,649 133,960 Industrial alcohol 14,790 19,461 46,896 64,032 Food grade alcohol 78,770 67,739 232,545 197,992 Fuel grade alcohol 3,592 1,274 10,862 3,970 Distillers feed and related co-products 4,016 6,119 13,660 19,889 Warehouse services 4,666 4,041 12,949 11,641 Total Distillery Products 91,044 79,173 270,016 233,492 Branded Spirits Ultra premium 13,118 2,365 23,692 3,049 Premium 6,310 72 12,692 243 Mid 17,107 — 34,894 — Value 19,057 — 40,001 — Other 5,969 12 11,278 29 Total Branded Spirits 61,561 2,449 122,557 3,321 Ingredient Solutions Specialty wheat starches 12,231 11,604 35,051 30,938 Specialty wheat proteins 8,901 7,994 23,299 20,372 Commodity wheat starches 2,626 1,596 7,572 5,247 Commodity wheat proteins 248 148 1,378 1,236 Total Ingredient Solutions 24,006 21,342 67,300 57,793 Total sales $ 176,611 $ 102,964 $ 459,873 $ 294,606 12 Note 3. Business Combination Description of the transaction . On January 22, 2021, the Company entered into a definitive agreement to acquire Luxco, and subsequently completed the merger on April 1, 2021 (the “Merger”). Luxco is a leading branded beverage alcohol company across various categories, with a more than 60-year business heritage. As a result of the Merger, MGP increased its scale and market position in the branded-spirits sector and believes it strengthened its platform for future growth of higher valued-added products. Following the Merger, the Luxco Companies became wholly-owned subsidiaries of MGP and are included within the Branded Spirits segment. 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 represented approximately 22.8 percent of the Company’s outstanding common stock immediately following the closing of the Merger. The Merger Consideration was subject to customary purchase price adjustments related to, among other things, net working capital, acquired cash and assumed debt. The consideration paid at the Closing included a preliminary estimated purchase price adjustment. In September 2021, the parties finalized the purchase price adjustment, which decreased the cash consideration paid by approximately $ 608 and increased stock consideration by an additional 1,373 shares from the preliminary amounts that were paid at closing. The cash portion of the Merger Consideration, the repayment of assumed debt, and transaction-related expenses were financed with borrowings under the Company’s existing Credit Agreement which was drawn down on April 1, 2021. See Note 5, Corporate Borrowings, for further details. For tax purposes, the transaction was 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 Merger was accounted for as a business combination in accordance with Financial Accounting Standards Board Accounting Standard Codification 805, Business Combinations (“ASC 805”), and as such, assets acquired, liabilities assumed, and consideration transferred were recorded at their estimated fair values on the acquisition date. The fair value of the assets acquired and liabilities assumed are based upon a preliminary assessment of fair value and may change as valuations for certain tangible assets, intangible assets and contingent liabilities are finalized and the associated income tax impacts are determined. The Company expects to finalize the purchase price allocation as soon as practicable, but no longer than one year from the acquisition date. 13 Purchase Price Allocation. The following table summarizes the preliminary allocation of the consideration paid for Luxco to the preliminary estimated fair value of the assets acquired and liabilities assumed at the acquisition date, with the excess recorded to goodwill. Consideration: Cash, net of assumed debt $ 150,092 Value of MGP Common Stock issued at close (a) 296,279 Fair value of total consideration transferred $ 446,371 Recognized amounts of identifiable assets acquired and liabilities assumed: Cash $ 479 Receivables 29,675 Inventory 90,854 Prepaid expenses 1,454 Property, plant and equipment, net 41,279 Investments in joint ventures 5,085 Intangible assets (b) 219,500 Other assets 4,257 Total assets 392,583 Current maturities of long-term debt (c) 87,509 Accounts payable 14,453 Federal and state liquor taxes payable 8,352 Accrued expenses and other 2,832 Other noncurrent liabilities 196 Deferred income taxes 57,720 Total liabilities 171,062 Goodwill 224,850 Total $ 446,371 (a) The Company issued 5,007,833 shares of MGP Common Stock which was valued at $ 59.15 per share on April 1, 2021. In September 2021, the parties finalized the purchase price adjustments which increased stock consideration by an additional 1,373 shares from the preliminary amounts that were paid at closing. (b) Intangible assets acquired includes trade names with an estimated fair value of $ 178,100 and distributor relationships with an estimated fair value of $ 41,400 . (c) The fair value of Luxco’s debt that was assumed by MGP in the transaction and repaid on the closing date. In accordance with ASC 805 assets acquired, liabilities assumed, and consideration transferred were recorded at their estimated fair values on the acquisition date. The fair value measurements of tangible and intangible assets and liabilities were based on significant inputs not observable in the market and represent Level 3 measurements within the fair value hierarchy. Level 3 inputs include discount rates that would be used by a market participant in valuing these assets and liabilities, projections of revenues and cash flows, distributor attrition rates, royalty rates and market comparable, among others. The fair value of work-in-process and finished goods inventory was determined using the comparative sales method and raw materials was determined using the replacement cost method. Goodwill of $ 224,850 represents the excess of the consideration transferred over the estimated fair value of assets acquired net of liabilities assumed. No Goodwill is expected to be deductible for tax purposes. The Intangible assets acquired includes indefinite-lived intangible assets, trade names, with an estimated fair value of $ 178,100 and definite-lived intangible assets, distributor relationships, with an estimated fair value of $ 41,400 and a useful life of 20 years. The trade names and distributor relationships acquired by the Company have been adjusted to the estimated fair values using the relief from royalty method and multi-period earnings method, respectively. Management and a third party valuation team performed a preliminarily valuation analysis to determine the fair value of each trade name and distributor relationship. 14 Operating Results . The operating results of Luxco were consolidated with the Company’s operating results subsequent to the merger date. During the quarter and year to date ended September 30, 2021, the Company recorded $ 59,057 and $ 118,355 , respectively, of Sales and $ 6,038 and $ 12,559 , respectively, of Income before income taxes, attributable to Luxco on it’s Condensed Consolidated Statement of Income. During the quarter and year to date ended September 30, 2021, the Company has incurred $ 294 and $ 8,922 , respectively, of transaction related costs, which are included in Selling, general and administrative expenses on the Condensed Consolidated Statements of Income. Pro Forma Information . The following table summarizes the unaudited pro forma financial results for the quarter and year to date ended September 30, 2021 and 2020, as if the Merger had occurred on January 1, 2020: Pro Forma Financial Information Quarter Ended September 30, Year to Date Ended September 30, 2021 2020 2021 2020 Sales $ 176,611 $ 152,090 $ 504,243 $ 441,984 Net income 23,673 14,479 68,934 30,469 Basic and diluted earnings per share 1.08 0.66 3.38 1.39 The pro forma results are adjusted for items that are non-recurring in nature and directly attributable to the Merger, including the income tax effect of the adjustments. Merger related costs incurred by the Company of $ 294 and $ 8,922 for the quarter and year to date ended June 30, 2021, respectively, were excluded and $ 7,032 is assumed to have been incurred on January 1, 2020. Merger related costs incurred by Luxco of $ 3,132 were excluded from the year to date ended September 30, 2021 pro forma results. A non-recurring expense of $ 2,529 for the year to date ended September 30, 2021 related to the fair value adjustment of finished goods inventory estimated to have been sold was removed and included in the results for the year to date ended September 30, 2020. Other acquired tangible and intangible assets are assumed to be recorded at estimated fair value on January 1, 2020 and are amortized or depreciated over their estimated useful lives. The summary pro forma financial information is for informational purposes only, is based on estimates and assumptions, and does not purport to represent what the Company’s consolidated results of operations actually would have been if the Merger had occurred at an earlier date, and such data does not purport to project the Company’s results of operations for any future period. The basic and diluted shares outstanding used to calculate the pro forma net income per share amounts presented above have been adjusted to assume shares issued at the closing of the Merger were outstanding since January 1, 2020. Note 4. Goodwill and Intangible Assets Definite-Lived Intangible Assets The Company has a definite-lived intangible asset which was acquired as a result of the Merger. The distributor relationships have a carrying value of $ 40,365 , net of accumulated amortization of $ 1,035 . The distributor relationships have a useful life of 20 years. The amortization expense for the quarter and year to date ended September 30, 2021 was $ 517 and $ 1,035 , respectively. As of September 30, 2021, the expected future amortization expense related to definite-lived intangibles assets are as follows: Remainder of 2021 $ 518 2022 2,070 2023 2,070 2024 2,070 2025 2,070 Thereafter 31,567 Total $ 40,365 Goodwill and Indefinite-Lived 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. 15 Changes in carrying amount of goodwill by business segment were as follows: Distillery Products Branded Spirits Ingredient Solutions Total Balance, December 31, 2020 $ — $ 2,738 $ — $ 2,738 Acquisitions — 224,850 — 224,850 Balance, September 30, 2021 $ — $ 227,588 $ — $ 227,588 Changes in carrying amount of trade name intangible assets by business segment were as follows: Distillery Products Branded Spirits Ingredient Solutions Total Balance, December 31, 2020 $ — $ 890 $ — $ 890 Acquisitions — 178,100 — 178,100 Balance, September 30, 2021 $ — $ 178,990 $ — $ 178,990 Note 5. Corporate Borrowings The following table presents the Company’s outstanding indebtedness: Description (a) September 30, 2021 December 31, 2020 Credit Agreement - Revolver, 1.34 % (variable rate) due 2025 $ 210,000 $ — Prudential Note Purchase Agreement, 3.53 % (fixed rate) due 2027 19,200 20,000 Prudential Note Purchase Agreement, 3.80 % (fixed rate) due 2029 20,000 20,000 Other long-term borrowings 210 — Total indebtedness outstanding 249,410 40,000 Less unamortized loan fees (b) ( 1,733 ) ( 129 ) Total indebtedness outstanding, net 247,677 39,871 Less current maturities of long-term debt ( 3,227 ) ( 1,600 ) Long-term debt and Credit Agreement - Revolver $ 244,450 $ 38,271 (a) Interest rates are as of September 30, 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 provided for a $ 300,000 revolving credit facility. On May 14, 2021, the Credit Agreement was amended to increase the principal amount to $ 400,000 and to increase the amount of the revolving credit facility by up to an additional $ 100,000 . The Company incurred $ 666 new loan fees related to the Credit Agreement during 2021. The Credit Agreement includes certain requirements and covenants, which the Company was in compliance with at September 30, 2021. As of September 30, 2021, the Company had $ 210,000 outstanding borrowings under the Credit Agreement leaving $ 190,000 available. The cash portion of the Merger Consideration, the repayment of assumed debt, and transaction-related expenses were financed with $ 242,300 borrowings under the Credit Agreement which was drawn down on April 1, 2021. 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, the Second Amendment to Private Shelf Agreement as of September 30, 2020, the Third Amendment to Private Shelf Agreement as of January 25, 2021, and the Fourth Amendment to Private Shelf Agreement as of May 14, 2021, 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 (or any higher amount solely to the extent PGIM, Inc. has provided written notice to the Company of its authorization of such a higher amount) and issuance of $ 20,000 of Senior Secured Notes. On July 29, 2021, PGIM, Inc. (“Prudential”) provided the Company notice pursuant to Section 1.2 of the Note Agreement that Prudential has authorized an increase in the amount of the senior promissory notes that may be issued under the uncommitted shelf facility under the Note Agreement from $ 105,000 to $ 140,000 , effective as of July 29, 2021. The deadline for issuing the notes under the shelf facility is August 23, 2023. 16 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, 2021. Other long-term borrowings. As part of the Merger, the Company acquired additional long-term notes payable to certain counties in Kentucky. 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. Beginning in the second quarter of 2021, the estimated annual effective tax rate includes both domestic and foreign entities acquired in the Merger. See Note 3, Business Combination, for further details. Income tax expense for the quarter and year to date ended September 30, 2021, was $ 7,674 and $ 18,701 , respectively, for an effective tax rate of 24.5 percent and 24.0 percent, respectively. The effective tax rate for quarter and year to date ended September 30, 2021, differed from the 21 percent federal statutory rate on pretax income, primarily due to state taxes, income taxes on foreign subsidiaries acquired as a result of the Merger, nondeductible transaction costs, partially offset by state and federal credits and the deduction applicable to export activity. 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 the quarter ended September 30, 2020 differed from the 21 percent federal statutory rate on pretax income, primarily due to state income 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 the 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. Note 7. Equity and EPS The computations of basic and diluted EPS: Quarter Ended September 30, Year to Date Ended September 30, 2021 2020 2021 2020 Operations: Net income (a) $ 23,673 $ 10,381 $ 59,159 $ 28,713 Less: net loss attributable to noncontrolling interest 203 — 279 — Less: Income attributable to participating securities (b) ( 175 ) ( 69 ) ( 471 ) ( 192 ) Net income used in EPS calculation $ 23,701 $ 10,312 $ 58,967 $ 28,521 Share information: Basic and diluted weighted average common shares (c) 21,981,201 16,916,675 20,293,818 16,943,130 Basic and diluted EPS $ 1.08 $ 0.61 $ 2.91 $ 1.68 (a) Net income attributable to all shareholders. (b) Participating securities included 163,024 and 115,399 unvested restricted stock units (“RSUs”), at September 30, 2021 and 2020, respectively. (c) Under the two-class method, basic and diluted weighted average common shares at September 30, 2021 and 2020 exclude unvested participating securities. Share Issuance. On April 1, 2021, as part of the consideration for the Merger, the Company issued 5,007,833 shares of common stock. The shares issued represented approximately 22.8 percent of the Company’s outstanding stock immediately 17 following the closing of the Merger. In September 2021, the parties finalized the purchase price adjustments, which increased stock consideration by an additional 1,373 shares from the preliminary amounts that were paid at closing. 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 year to date ended September 30, 2021 and has $ 20,947 remaining under the share repurchase plan. During the year to date ended September 30, 2020, the Company repurchased approximately 159,104 shares of MGP Common Stock for $ 4,053 . The Common Stock share activity: Shares Outstanding Capital Stock Preferred Common Stock Balance, December 31, 2021 437 16,915,862 Issuance of Common Stock — 35,114 Repurchase of Common Stock (a) — ( 10,376 ) Balance, March 31, 2021 437 16,940,600 Issuance of Common Stock — 5,022,122 Repurchase of Common Stock (a) — ( 1,489 ) Balance, June 30, 2021 437 21,961,233 Issuance of Common Stock — 2,361 Repurchase of Common Stock (a) — ( 20 ) Balance, September 30, 2021 437 21,963,574 Shares Outstanding Capital Stock Preferred Common Stock Balance, December 31, 2020 437 17,028,125 Issuance of Common Stock — 36,545 Repurchase of Common Stock (b) — ( 169,148 ) Balance, March 31, 2020 437 16,895,522 Issuance of Common Stock — — Repurchase of Common Stock (a) — — Balance, June 30, 2020 437 16,895,522 Issuance of Common Stock — 17,798 Repurchase of Common Stock (a) — ( 7 ) Balance, September 30, 2020 437 16,913,313 (a) The Common Stock repurchases were for tax withholding on equity based compensation (b) 159,104 shares that were repurchased during the quarter ended March 31, 2020 related to the share repurchase program. The remaining shares repurchased were related to tax withholding on equity based compensation 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. Dryer Fire Incident. 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. At September 30, 2021, the Company received a legally binding commitment from their insurance carrier of $ 11,500 that was recorded as Receivables on the Condensed Consolidated Balance Sheet. During the quarter and year to date ended September 30, 2021, the Company recorded $ 6,404 and $ 16,244 , respectively, of partial settlement from its insurance carrier as a reduction of Cost of 18 sales. The Company recorded $ 16,500 related to legally committed insurance recovery amounts obtained prior to contingencies related to the insurance claim being resolved, in Accrued expenses and other on the Consolidated Balance Sheet at September 30, 2021. The Company is working to construct a replacement drying system. The Company’s insurance is expected to provide coverage for 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. 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 is 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. 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 sought 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 alleged 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 sought 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. On August 31, 2021, the court issued a Memorandum and Order granting the Motion to Dismiss dismissing plaintiff’s claims with prejudice. The Plaintiff had until September 30, 2021 to file a notice of appeal and the Plaintiff did not appeal. 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 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, Inc., Case Number: 2020-CV-000609. The Petition alleges that plaintiff commenced the action 19 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 May 13, 2021, the parties stipulated to the voluntary dismissal, with prejudice, of the action. 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 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, but 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 September 30, 2021, 516,861 RSUs had been granted of the 1,500,000 shares approved under the 2014 Plan, and 121,557 shares had been granted of the 300,000 shares approved under the Directors’ Plan. As of September 30, 2021, there were 168,074 unvested RSUs under the Company’s long-term incentive plans and 163,024 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 Other income (loss), net on the Company’s Condensed Consolidated Statements of Income for the quarter and year to date ended September 30, 2021. For quarter ended September 30, 2021, the Company had a loss on deferred compensation plan investments of $ 15 and for year to date ended September 30, 2021, the Company had a gain on deferred compensation plan investments of $ 261 . 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. 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, 2021 and December 31, 2020, the EDC Plan investments were $ 3,555 and $ 2,007 , respectively, which were recorded in Other assets on the Company’s Condensed Consolidated Balance Sheets. The EDC Plan current liabilities were $ 897 at September 30, 2021 and were included in Accrued expenses and other on the Company’s Condensed Consolidated Balance Sheet. The EDC Plan non-current liabilities were $ 3,155 and $ 3,140 at September 30, 2021 and December 31, 2020, respectively, and were included in Other noncurrent liabilities on the Company’s Condensed Consolidated Balance Sheets. Note 10. Operating Segments As discussed in Note 1, the Company established a new reportable segment structure as a result of the Merger and prior periods have been revised to reflect the new operating segments. At September 30, 2021, the Company had three segments: Distillery Products, Branded Spirits, 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. The Branded Spirits segment consists of producing, importing, bottling and rectifying of distilled spirits. 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 20 administrative expenses, interest expense, other special charges, and other general miscellaneous expenses are excluded from segment operations and are classified as Corporate. Receivables, inventories, property, plant and equipment, leases, goodwill and intangible assets have been identified with the segments to which they relate. All other assets are considered as Corporate. Quarter Ended September 30, Year to Date Ended September 30, 2021 2020 2021 2020 Sales to Customers Distillery Products $ 91,044 $ 79,173 $ 270,016 $ 233,492 Branded Spirits 61,561 2,449 122,557 3,321 Ingredient Solutions 24,006 21,342 67,300 57,793 Total $ 176,611 $ 102,964 $ 459,873 $ 294,606 Gross Profit Distillery Products $ 26,981 $ 15,918 $ 87,211 $ 49,832 Branded Spirits 23,217 1,389 41,737 1,727 Ingredient Solutions 6,888 5,855 17,264 15,516 Total $ 57,086 $ 23,162 $ 146,212 $ 67,075 Depreciation and Amortization Distillery Products $ 2,695 $ 2,461 $ 7,900 $ 7,269 Branded Spirits 1,743 30 3,481 70 Ingredient Solutions 531 480 1,487 1,402 Corporate 274 303 800 877 Total $ 5,243 $ 3,274 $ 13,668 $ 9,618 Income (loss) before Income Taxes Distillery Products $ 26,047 $ 15,471 $ 84,225 $ 48,203 Branded Spirits 9,293 236 15,182 $ ( 1,829 ) Ingredient Solutions 6,214 5,191 15,121 13,504 Corporate ( 10,207 ) ( 7,655 ) ( 36,668 ) ( 22,529 ) Total $ 31,347 $ 13,243 $ 77,860 $ 37,349 The following table allocates assets to each segment as of: September 30, 2021 December 31, 2020 Identifiable Assets Distillery Products $ 299,017 $ 281,721 Branded Spirits 652,543 6,348 Ingredient Solutions 44,494 41,276 Corporate 21,414 37,230 Total $ 1,017,468 $ 366,575 Note 11. Subsequent Events Dividend. On November 1, 2021, the Company’s Board of Directors declared a quarterly dividend payable to stockholders of record as of November 19, 2021, of the Company’s Common Stock, and a dividend equivalent payable to holders of certain RSUs as of November 19, 2021, of $ 0.12 per share and per unit, payable on December 3, 2021. 21