What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2022-02-24 compared with 2021-02-25 · 81 added, 66 removed, 129 unchanged (53% of the section changed)

10 unchanged sentences

METHOD OF PRESENTATION

All amounts in this report, except for shares, par values, bushels, gallons, pounds, mmbtu, proof gallons, per share, per bushel, per gallon, per proof gallon, and percentage amounts are shown in thousands, unless otherwise noted.

All amounts in this report, except for shares, par values, bushels, gallons, pounds, mmbtu, proof gallons, 9-liter cases, per share, per bushel, per gallon, per proof gallon, per 9-liter case, and percentage amounts are shown in thousands, unless otherwise noted.

GENERAL INFORMATION

MGP is a leading producer and supplier of premium distilled spirits and specialty wheat protein and starch food ingredients.

MGP 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 (“GNS”), 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 consumers.

MGP is also a top producer of high quality industrial alcohol for use in both food and non-food applications.

Our 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 distillery products are derived from corn and other grains, and our ingredient products are derived primarily from wheat flour.

The majority of our distillery and ingredient product sales are made directly, or through distributors, to manufacturers and processors of finished packaged goods or to bakeries.

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 consumer 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.

Mission Statement

Our mission is to secure our future by consistently delivering superior financial results by more fully participating in all levels of the alcohol and food ingredients segments for the betterment of our shareholders, employees, partners, consumers, and communities.

Recent Developments

Acquisition of Luxco.

On January 22, 2021, we entered into a definitive agreement to acquire Luxco, Inc., and its affiliated companies ("Luxco").

Merger with Luxco, Inc.

On January 22, 2021, we entered into an Agreement and Plan of Merger to acquire Luxco, Inc.

and its affiliates (“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 Luxco acquisition, we expect to increase our scale and market position in the branded-spirits sector and strengthen our platform for future growth of higher valued-added products.

Under the terms of the agreement, Luxco shareholders will receive $237,500 in cash (less assumed indebtedness) and 5,007,833 shares of MGP Common Stock.

The purchase price is subject to customary purchase price adjustments, including working capital, which adjustments are anticipated to be paid in cash.

The transaction is anticipated to be completed during the first half of 2021, subject to regulatory approvals and customary closing conditions (See Part I, Item 1A - Risk Factors and Note 15 for additional information).

Luxco’s operations involve the producing, importing, bottling and rectifying of distilled spirits.

INFORMATION ABOUT SEGMENTS

As of December 31, 2020, we had two reportable segments:

Distillery Products and Ingredient Solutions.

As a result of the merger with Luxco, during 2021, we established a new reportable segment structure that separates the 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.

We report three operating segments;

Distillery Products, Branded Spirits and Ingredient Solutions.

Distillery Products Segment.

2 unchanged sentences

We have certain contracts with customers to supply distilled products (or “distillate”), as well as certain contracts with customers to provide barreling and warehousing services.

Contracts with customers may be monthly, annual, and multi-year with periodic reviews of pricing.

Sales of fuel grade alcohol are made on the spot market.

Since 2015, our Distillery Products segment includes production and sales of our own branded alcohol products, including sales under the following brands:

TILL ® American Wheat Vodka, George Remus ® Straight Bourbon Whiskey, Remus Repeal Reserve ® Straight Bourbon Whiskey, Tanner’s Creek ® Blended Bourbon Whiskey, Rossville Union ® Straight Rye Whiskey, Eight & Sand Blended Bourbon Whiskey and Green Hat ® Gin.

Contracts with customers may be monthly, annual, or multi-year in term with periodic reviews of pricing.

Sales of co-products are primarily made on the spot market.

During 2021, our five largest Distillery Products customers, combined, accounted for 14.2 percent of our consolidated sales.

5 unchanged sentences

Our GNS is sold in bulk quantities at various proof concentrations.

Our gin is created by redistilling GNS together with proprietary formulations of botanicals or botanical oils.

Our gin is primarily created by redistilling GNS together with proprietary formulations of botanicals or botanical oils.

Food grade industrial alcohol is used as an ingredient in foods (e.g., vinegar and food flavorings), personal care products (e.g., hair sprays and hand sanitizers), cleaning solutions, pharmaceuticals, and a variety of other products.

We sell food grade industrial alcohol in tank truck or rail car quantities direct to a number of industrial processors.

We sell food grade industrial alcohol in tank truck or rail car quantities direct to a number of industrial processing customers.

Fuel grade alcohol - Fuel grade alcohol is sold primarily for blending with gasoline to increase the octane and oxygen levels of the gasoline.

4 unchanged sentences

Distillers feed is principally derived from the mash from alcohol processing operations.

The mash is dried and sold primarily to processors of animal feeds as a high protein additive.

The mash is dried and sold primarily to processors of animal feed as a high protein additive.

In addition, we produce corn oil as a value added co-product through a corn oil extraction process at our Atchison facility.

1 unchanged sentence

Services under warehouse agreements include barrel put away, barrel storage, and barrel retrieval, as well as blending services.

Branded Spirits Segment.

Our Branded Spirits segment consists primarily of producing, importing, bottling and rectifying of distilled spirits through our distilleries and bottling facilities.

Contracts with customers are generally in the form of purchase orders.

MGP’s branded spirits include a wide spectrum of brands across numerous segments.

During 2021, our five largest Branded Spirits customers, combined, accounted for 16.5 percent of our consolidated sales.

Ultra Premium - Ultra Premium includes brands such as Yellowstone ® Select Kentucky Straight Bourbon Whiskey, George Remus ® Straight Bourbon Whiskey, Blood Oath Bourbon, Minor Case ® Straight Rye Whiskey, Rossville Union ® Straight Rye Whiskey, Green Hat ® Gin, Rebel ® 10 Year Single Barrel Kentucky Straight Bourbon Whiskey, and Old Ezra Brooks ® 7 Year Kentucky Straight Bourbon Whiskey.

Premium - Premium branded spirits includes brands such as Everclear ® , The Quiet Man Irish Whiskey, Ezra Brooks ® 99 Proof Kentucky Straight Bourbon Whiskey, and Rebel ® 100 Proof Kentucky Straight Bourbon Whiskey.

Additionally, Premium includes El Mayor Tequila and Dos Primos tm Tequila which is produced with our Joint Ventures;

DGL Destiladores, S.de R.L.

(“DGL”) and Agricola LG, S.de R.L.

(“Agricola”) (combined “LMX”).

Mid - Mid includes brands such as Saint Brendan’s ® Irish Cream Liqueur, Pearl ® Vodka, Ezra Brooks ® 90 Proof Kentucky Straight Bourbon Whiskey, Rebel ® 80 Proof Kentucky Straight Bourbon Whiskey and Lord Calvert ® Canadian Whiskey.

Additionally, Mid includes Exotico ® Tequila, which is produced by our joint venture, LMX.

Value - Value includes brands such as Arrow ® Cordials, Canada House Canadian Whiskey, and Lady Bligh ® Rum.

Additionally, Value includes Juarez Group, which is produced by our joint venture, LMX.

Other - Other includes contract bottling, private and control label products, and retail sales.

Contract bottling is a service provided to a customer to process, bottle and distribute spirits for brands not owned by the Company.

Private label products are distilled, processed, bottled, and distributed by MGP for sales under another company’s brand.

Control label sales are similar to private label, but MGP owns and controls the brand name and enters into sales agreements with certain customers to allow them to exclusively sell a branded spirit.

We operate retail locations at three of our distilleries, including Limestone Branch Distillery in Lebanon, Kentucky, Lux Row Distillers in Bardstown, Kentucky, and Green Hat Gin Distillery in Washington D.C.

Ingredient Solutions Segment.

1 unchanged sentence

Contracts with Ingredient Solutions customers are generally price, volume, and term agreements, which are fixed-term contracts, with very few agreements longer than 12 months in duration.

In effort to best serve our customers and maximize returns to shareholders, we have strategically been migrating our sales towards higher price, higher margin specialty wheat products.

During 2021, our five largest Ingredient Solutions customers, combined, accounted for 9.9 percent of our consolidated sales.

Specialty Wheat Starches - Wheat starch is derived from the carbohydrate-bearing portion of wheat flour.

We produce a premium wheat starch powder by extracting the starch from the starch slurry, substantially free of all impurities and then dry the starch in spray, flash, or drum dryers.

A substantial portion of our premium wheat starch is altered during processing to produce certain unique specialty wheat starches designed for special applications.

Specialty Wheat Starches - Wheat starch is the carbohydrate-bearing portion of wheat flour.

We produce a premium wheat starch powder by extracting the starch from the starch slurry.

We use proprietary processing steps to purify and clean impurities from the starch, and then dry the starch using spray, flash, or drum dryers.

A substantial portion of our premium wheat starch is processed to produce certain unique specialty wheat starches designed for special applications.

We sell our specialty wheat starches on a global basis, primarily to food processors and distributors.

We market our specialty wheat starches under the trademarks Fibersym ® Resistant Starch series, FiberRite ® RW Resistant Starch, Pregel ® Instant Starch series, and Midsol ® Cook-up Starch series.

They are used primarily for food applications as an ingredient in a variety of food products to affect their nutritional profile, appearance, texture, tenderness, taste, palatability, cooking temperature, stability, viscosity, binding, and freeze-thaw characteristics.

Important physical properties contributed by wheat starch include whiteness, clean flavor, viscosity, and texture.

For example, our starches are used to improve the taste and texture of cream puffs, éclairs, puddings, pie fillings, breading, and batters;

to improve the size, symmetry, and taste of angel food cakes;

to alter the viscosity of soups, sauces, and gravies;

to improve the freeze-thaw stability and shelf life of fruit pies and other frozen foods;

to improve moisture retention in microwavable foods;

and to add stability and to improve texture in frostings, mixes, glazes, and sugar coatings.

Our wheat starches, as a whole, generally compete primarily with corn starch, which dominates the United States starch market.

We primarily market our specialty wheat starches under the trademarks Fibersym ® Resistant Starch series, and FiberRite ® RW Resistant Starch.

These flagship brands are FDA approved dietary fibers and are useful in creating lower net carb baked goods for many industrial bakers and pasta makers.

Our other specialty starches are used primarily for food applications to improve their nutritional profile, appearance, texture, tenderness, taste, palatability, cooking temperature, stability, viscosity, binding, and freeze-thaw characteristics.

Important physical properties contributed by specialty wheat starch include whiteness, clean flavor, viscosity, and texture.

For example, our starches improve the taste and texture of cream puffs, éclairs, puddings, frostings, pie fillings, breading, and batters, and can also improve the taste of angel food cakes.

Our other starch ingredients will improve the viscosity of soups, sauces, and gravies.

Additionally, these specialty starches will improve the freeze-thaw stability and shelf life of fruit pies and other frozen foods as well as support moisture retention in microwavable foods.

Our wheat starches, as a whole, generally compete primarily with cornstarch, which dominates the United States starch market.

Additionally, our wheat starches compete with potato and tapioca.

1 unchanged sentence

Specialty Wheat Proteins - We have developed a number of specialty wheat proteins for food applications.

Specialty wheat proteins are derived from vital wheat gluten through a variety of proprietary processes which change its molecular structure.

Specialty wheat proteins are created from vital wheat gluten through a variety of proprietary processes which change its molecular structure.

Specialty wheat proteins for food applications include the products Arise ® and Proterra ® .

3 unchanged sentences

We also offer a Non-GMO Project Verified food ingredients portfolio of Proterra ® 1000, Proterra ® 2000, and plant protein combinations textured and ready for meat replacement applications.

Additionally, we offer gluten free textured pea proteins.

Additionally, we offer gluten-free textured pea proteins within the Proterra ® portfolio of products.

Our specialty wheat proteins generally compete with other ingredients and modified proteins having similar characteristics, primarily soy proteins and other wheat proteins, with differentiation being based on factors such as functionality, price, and, in the case of food applications, flavor.

Commodity Wheat Starches - As is the case with value added wheat starches, our commodity wheat starches have both food and non-food applications, but such applications are more limited than those of value added wheat starches and typically sell for a lower price in the marketplace.

These are clean label starches and are minimally processed.

They have a simple and clean ingredient declaration, which is a benefit for food formulators.

Commodity wheat starches compete primarily with other commodity starches, corn starches and tapioca.

Marketplace prices generally track the fluctuations in the overall commodity markets in this category.

Market place prices generally track the fluctuations in the overall starch market in this category.

However, wheat starch has

unique funtions in wheat based food formulations and provide for a cleaner more neutral flavor profile in finished goods.

Commodity Wheat Proteins - Commodity wheat protein, or vital wheat gluten, is a free-flowing light tan powder which contains approximately 75 percent protein.

6 unchanged sentences

Additionally, our wheat gluten is being used in more vegan and vegetarian food options than in years past.

This is a relatively new application and is generating additional volume opportunities in this segment.

This wheat protein is also the starter material used to create our textured wheat product line branded under Proterra ® .

COMPETITIVE CONDITION

2 unchanged sentences

In our Distillery Products segment, competition is based primarily on product innovation, product characteristics, functionality, price, service, and quality factors, such as flavor.

In our Branded Spirits segment, competition is based primarily on product innovation, price, brand recognition, and quality factors, such as flavor.

In our Ingredient Solutions segment, competition is based primarily on product innovation, product characteristics, price, name, color, flavor, or other properties that affect how the ingredient is being used.

1 unchanged sentence

We are involved in a number of patent-related activities, primarily within our Ingredient Solutions segment.

We have filed patent applications to protect a range of inventions made in our research and development efforts, including inventions relating

to applications for our products.

We have filed patent applications to protect a range of inventions made in our research and development efforts, including inventions relating to applications for our products.

We have trade names on the majority of the brands we produce within our Branded Spirits segment.

We believe our trade names are critical to the success of the brands we produce and the marketing of those products.

Some of these patents or licenses cover significant product formulation and processes used to manufacture our products.

Sales for some of our products, including brown goods, can fluctuate from period to period due to inherent demands and timing of our customers needs;

however, our sales are generally not seasonal.

Sales for some of our products, including brown goods and branded spirits, can fluctuate from period to period due to the inherent demands and timing of our customers and consumer needs.

Within our diversified Branded Spirits portfolio, there are certain product lines, limited offerings and categories that experience higher demand certain periods throughout the year.

However, our sales, on average, are generally not seasonal.

TRANSPORTATION

1 unchanged sentence

We use third party transportation companies to help us manage truck and rail carriers who deliver our products to our North American customers as well as overseas shipments to our international customers.

RAW MATERIALS, PACKAGING MATERIALS, AND FOOD GRADE ALCOHOL

RAW MATERIALS AND PACKAGING MATERIALS

Our principal Distillery Products segment raw materials, or input costs, are corn and other grains (including rye, barley, wheat, barley malt, and milo), which are processed into food grade alcohol and distillery co-products consisting of distillers feed, fuel grade alcohol, and corn oil.

Our principal Branded Spirits segment raw materials, or input costs, include corn and other grains (including rye, barley, wheat, barley malt, and milo), agave, and flavoring.

Our principal Ingredient Solutions segment raw material is wheat flour, which is processed into starches and proteins.

The cost of grain and wheat flour has, at times, been subject to substantial fluctuation.

In 2020, we purchased most of our grain requirements from two suppliers, Bunge Milling, Inc.

("Bunge") and Consolidated Grain and Barge Co.

Our current grain supply contracts with Bunge and CGB expire on December 31, 2021 and December 31, 2023, respectively.

Through these contracts, we purchase grain for delivery into the future at negotiated prices based on several factors.

We also order wheat flour for delivery into the future at negotiated prices based on several factors.

We purchase most of our wheat flour through a supply contract with Ardent Mills, which expires August 20, 2023.

We typically enter contracts for future delivery only to protect margins on contracted alcohol sales, expected ingredient sales, and general usage.

Our principal packaging material for our Distillery Products segment is oak barrels.

1 unchanged sentence

We purchase oak barrels from multiple suppliers and some customers supply their own barrels.

We also source food grade alcohol from Pacific Ethanol Central, LLC ("Pacific Ethanol"), formerly Illinois Corn Processing, LLC ("ICP").

Our packaging for our Branded Spirits segment includes oak barrels, glass bottles, labels, aluminum cans and cartons.

Natural gas is an input cost used to operate boilers to make steam heat.

We procure natural gas for our facilities in the open market from various suppliers.

We have a risk management program whereby we may purchase contracts for the delivery of natural gas for delivery into the future at negotiated prices based on several factors, or we can purchase futures contracts on the exchange.

We have a risk management program whereby we may purchase contracts for delivery of natural gas into the future at negotiated prices based on several factors, or we can purchase futures contracts on the exchange.

Historically, prices of natural gas have been higher in the late fall and winter months than during other periods.

All of our electricity needs for both our Atchison and Lawrenceburg facilities is sourced from renewable wind power.

Through an agreement with a supplier, we purchase renewable energy credits.

The wind energy, equal in value to the credits, will then be sourced from wind farms in Kansas and added to the overall energy grid system.

HUMAN CAPITAL

2 unchanged sentences

A collective bargaining agreement, covering 67 employees at the Lawrenceburg facility, expires on December 31, 2022.

A collective bargaining agreement, covering 69 employees at the St.

Louis facility, expires on February 29, 2024.

We have not experienced any recent work stoppages, and we consider our relationship with our employees to be good.

Headcount by facility is as follows:

• Atchison, Kansas - 237

• Lawrenceburg, Indiana - 120

• Washington, D.C.

We believe our employees are key to achieving our business objectives.

Our key human capital measures include employee safety, turnover, absenteeism and productivity.

We frequently benchmark our compensation practices and benefits programs against those of comparable industries and in the geographic areas where our facilities are located.

We frequently benchmark our compensation practices and benefit programs against those of comparable industries and in the geographic areas where our facilities are located.

We believe that our compensation and employee benefits are competitive and allow us to attract and retain skilled and unskilled labor throughout our organization.

11 unchanged sentences

Our Company strives for workforce retention.

We have programs for continuing education through our MGP University and also provide tuition reimbursement.

We have programs for continuing education and also provide tuition reimbursement.

New and open positions are posted for our current workforce to apply for and internal promotions are encouraged.

26 unchanged sentences

from October 2010 to November 2014.

Rindom 65 Vice President and Chief Administrative Officer for the Company since December 2015.

Vice President, Human Resources for the Company from June 2000 to December 2015.

Mansinne 61 Vice President, Brands for the Company since November 2016.

Managing director at Intercontinental Beverage Capital and President of Tattico Strategies from March 2015 to October 2016.

President of Aveniu Brands from May 2010 to April 2014.

David Bratcher 54 Chief Operating Officer for the Company since July 2021 and President of Branded Spirits for the Company since the merger with Luxco on April 2021.

President of Luxco, Inc.

from 2013 to April 2021.

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

What changed 10-K

Item 1. Business