What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-02-24 compared with 2021-02-25 · 299 added, 279 removed, 199 unchanged (74% of the section changed)

7 unchanged sentences

Forward looking statements are made as of the date of this report, and we undertake no obligation to update or revise publicly any forward looking statements, whether because of new information, future events or otherwise.

Recent Developments

Acquisition of Luxco.

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

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 its 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).

Feed Dryer Fire.

During November 2020, we 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.

We estimate that the incident adversely impacted gross profit by $4,461, which includes $3,780 for business interruption and $681 related to the impairment of spare parts and other inventory.

The business interruption impacted Sales and Cost of sales on the Consolidated Statements of Income.

The impairment of spare parts and other inventory is recorded in Cost of sales on the Consolidated Statements of Income for the year ended December 31, 2020.

Additionally, we incurred $486 in losses from the write off of property, plant and equipment, which was recorded as a component of Operating income on the Consolidated Statements of Income for the year ended December 31, 2020.

During December 2020, we recorded a $3,780 partial settlement from our insurance carrier as a reduction of Cost of sales.

We are working to construct a replacement drying system.

Ransomware Cyber-Attack.

In May 2020, we were affected by a ransomware cyber-attack that temporarily disrupted production at our Atchison facilities.

Our financial information was not affected and there is no evidence that any sensitive or confidential company, supplier, customer or employee data was improperly accessed or extracted from our network.

We estimate that the ransomware attack adversely impacted gross profit by $1,728, primarily as a result of the business interruption.

We have insurance related to this event and partially recovered $633 in December 2020 as reduction of Cost of sales.

We are currently seeking further recovery related to this event.

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

On March 11, 2020, the World Health Organization classified the novel strain of coronavirus ("COVID-19") a global pandemic.

Our business is part of the United States' critical infrastructure and thus is deemed to be an "essential business." As such, we are taking necessary and appropriate actions to protect our workforce as we continue our critical operations.

We have created a COVID-19 cross functional team to implement a business continuity plan and address key aspects of COVID-19 as it affects our business, including enhanced workplace safety, supply chain monitoring, and other potential operational challenges the Company could face.

We have continued to operate without any significant negative impacts;

however this could be affected by voluntary or mandatory temporary closures of our facilities, interruptions to our supply chain or additional efforts to protect the health and safety of our employees.

As of the date of this report, our operations, supply chain and customer demand have not been significantly affected by COVID-19;

however, we are monitoring the situation closely.

We have implemented social distancing at each of our facilities, provide health screenings and monitoring for employees, implemented work-from-home policies where we are able, and have restricted travel across the organization.

We have incurred incremental costs for hourly wage bonuses to our production

employees, supplies to implement health screenings, an extended sick leave policy, and additional IT-related expenses to enable employees to work-from-home.

As of December 31, 2020, such incremental costs have been immaterial to the our consolidated financial statements.

We cannot reasonably estimate the length of time or severity of the pandemic.

See Risk Factors for future discussion of the potential adverse impacts of the COVID-19 pandemic on our business.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations is designed to provide a reader of MGP’s consolidated financial statements with a narrative from the perspective of management.

MGP’s MD&A is presented in seven sections:

MGP’s MD&A is presented in nine sections:

• Recent Developments

• Results of Operations

• Distillery Products Segment

• Branded Spirits Segment

• Ingredient Solutions Segment

• Cash Flow, Financial Condition and Liquidity

• Off Balance Sheet Obligations

• Critical Accounting Estimates

• New Accounting Pronouncements

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 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.

We are 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.

We have two reportable segments:

our Distillery Products segment and our Ingredient Solutions segment.

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.

Our Strategic Plan

Our strategic plan is designed to leverage our history and strengths.

We have a long history in the distilling industry.

Our Lawrenceburg facility, which we purchased in 2011, was founded in 1847 and our Atchison facility was opened in 1941.

Through these two distilleries, we are involved in producing some of the finest whiskeys, vodkas, and gins in the world.

Likewise, our history in the food ingredient business stretches back more than 65 years.

Our strategic plan seeks to leverage the positive macro trends we see in the industries where we compete while providing better insulation from outside factors, including swings in commodity pricing.

We believe the successful execution of our strategy will continue to deliver strong operating income growth.

Specifically, our strategic plan is built on five key growth strategies:

Maximize Value, Capture Value Share, Invest for Growth, Operational Excellence, and Build the MGP Brand.

Each of these strategies, along with related 2020 accomplishments, are discussed below.

Maximize Value.

We focus on maximizing the value of our current production volumes, particularly taking advantage of favorable macro trends in our Distillery Products segment, such as the growth of the American whiskey category that has continued to expand over the past several years.

This includes shifting sales mix to higher margin products, such as premium bourbon and rye whiskeys, as well as extending the product range of our GNS, including vodkas and gins.

In our Ingredient Solutions segment, the macro trends include growth in high fiber, high protein, plant-based proteins, and non-GMO products.

Although these macro trends are currently favorable, we have seen competition intensify as industry participants in both of our segments seek to capitalize on consumers' interest in these categories.

While we believe we are well-positioned to benefit from these favorable trends, we may also be negatively affected by the increase in competition in one or both of our segments.

We intend to continue to focus on opportunities that will allow us to achieve the highest value from our production facilities.

Accomplishments

• In our Distillery Products segment, our focus on attracting and developing customers for our premium beverage alcohol continued in 2020.

Some efforts included increases in sales force and providing more tailored product offerings to our craft customers.

Despite the uncertainty related to the pandemic, we were able to add new customers throughout the year.

Our partnerships with new and existing customers helped drive double digit sales growth for our brown goods during 2020.

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 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.

The Company reports three operating segments;

Distillery Products, Branded Spirits and Ingredient Solutions.

Our strategic plan is designed to leverage our history and strengths as well as to leverage the positive macro trends we see in the industries where we compete while providing better insulation from outside factors, including swings in commodity pricing.

Distillery Products Segment

Our Distillery Products segment mission is to cultivate lasting partnerships with customers across all product categories by leveraging our strong sales and operating platform, aging whiskey inventory, and unique project development skills.

The favorable macro trends benefiting our business include the expansion of the distilled spirits’ share within beverage alcohol, particularly growth of the American whiskey category that has continued to expand over the past several years.

This includes shifting sales mix to higher margin products, such as premium bourbon and rye whiskeys, as well as extending the product range of distilled gins and grain neutral spirits (“GNS”), the base component for vodka.

Our Distillery Products segment is also subject to unfavorable macro trends which include increased competition as industry participants seek to capitalize on consumer

Our strategy within the Distillery Products segment is to continue migrating away from industrial alcohol to white beverage alcohol, cultivate additional multi-national and craft customers for brown goods sales, enhance offerings to become a beverage alcohol “solution provider”, develop an export market for our aged brown goods, and attract control label customers to boost overall brown goods growth.

We continued to focus on attracting and developing customers for our premium beverage alcohol products during 2021 as well as shifting our focus from industrial alcohol to white beverage alcohol.

Distillery Products segment sales for 2021 increased 12.5 percent over the prior year.

• In our Ingredient Solutions segment, we continue to provide outstanding customer solutions, taking advantage of our positioning within growing consumer trends.

We further developed our pipeline of wheat-based protein products to support strong customer growth.

In April 2020, we launched our Proterra ® line of textured proteins.

Our sales of specialty wheat starches grew 35.1 percent and our sales of specialty wheat proteins grew 20.6 percent in 2020.

Ingredient Solutions segment sales for 2020 increased 19.2 percent over the prior year.

See the "Distillery Products Segment" and "Ingredient Solutions Segment" discussions.

Capture Value Share.

We work to develop partnerships to support brand creation, long-term growth, and to combine our innovation capabilities and industry expertise to provide unique solutions and offerings to the marketplace.

In that way, we believe we are able to realize full value for our operational capacity, quality, and commitment.

Accomplishments

• In January 2020, we launched our Single Barrel program for George Remus ® Straight Bourbon Whiskey and Rossville Union ® Straight Rye Whiskey.

• In September 2020, we released the Remus Repeal Reserve Series IV Straight Bourbon Whiskey.

Produced to commemorate Prohibition Repeal Day, Series IV is a limited annual release showcasing a medley of two mash bills from 2008.

• In March 2020, we acquired New Columbia Distllers, LLC, based in Washington, D.C.

New Columbia Distillers produces and markets Green Hat ® Gin and operates a distillery with a retail tasting room, bar and gin garden in Northeastern Washington, D.C.

• In October 2020, New Columbia Distillers was named one of the 10 Best Craft Gin Distillers by USA Today.

The top 10 winners were determined by popular vote, resulting in New Columbia Distillers placing fifth in the overall standings.

• The George Remus ® family of brands completed 2020 with significant growth, more than doubling both shipments and depletions.

Invest for Growth.

We are committed to investing to support our growth.

Components of this growth strategy include:

• Capital Expenditures:

Capital expenditures focus largely on supporting innovation and product development, improving operational reliability, and strengthening our ability to support all aspects of growth in the American whiskey category.

• Select Inventories:

As demand grows for American whiskeys, in both the United States and global markets, we continue to put away our inventories of aged premium whiskeys to fully participate in this growth.

This initiative helps us build strong partnerships and open new relationships with potential customers, in addition to supporting the development of our own brands.

• Selling, General, and Administrative Expenses ("SG&A"):

As needed to support our long-term growth objectives, resources and capabilities are being added, particularly in sales and marketing.

• Mergers and Acquisitions :

As we continue to invest in our long-term growth opportunities, we look for strategic acquisitions to strengthen our competitive position.

Accomplishments

• Regarding our Capital Expenditures growth strategy:

In 2020, as part of the implementation of our strategic plan to support growth in the American whiskey category, we completed our current warehouse expansion program.

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

We invested approximately $1,500 of capital expenditures in this program during 2020 and approximately $49,900 since the program’s inception.

• Regarding our Select Inventories growth strategy:

We produce, and will continue to produce barrels of premium bourbon and rye whiskeys for sale in future periods.

Product is barreled and included in our inventory.

Our goal is to maintain inventory levels of premium bourbon and rye whiskeys sufficient to support our own brands, engage in partnerships, and support industry growth.

We increased our premium bourbon and rye whiskey inventory by $1,196, at cost, during 2020.

• Regarding our SG&A growth strategy:

We continued to invest in people and programs to support the development of our brands initiative and our long-term growth objectives

• Regarding our Mergers and Acquisition growth strategy:

In March 2020, we acquired New Columbia Distllers, LLC, based in Washington, D.C.

New Columbia Distillers produces and markets Green Hat® Gin and operates a distillery with a retail tasting room, bar and gin garden in Northeastern Washington, D.C.

Operational Excellence.

We continue a solid commitment to operational excellence across the Company by strengthening our emphasis on excellence in all stages of operations, from sourcing through processing and, ultimately, delivering the finest quality products.

This also means striving to de-risk all aspects of our business.

Accomplishments

• In 2020, we completed a British Retail Consortium ("BRC") audit with outstanding results, again achieving a Grade AA rating for both our Atchison and Lawrenceburg facilities.

Per the BRC standard, a Grade AA is awarded if five or fewer non-conformances are cited out of 256 total audit items.

Each year since undergoing its initial BRC audit in 2013, the Atchison facility’s distillery has achieved BRC’s highest grade.

The same is true with results of annual BRC audits that have been conducted at our Lawrenceburg facility since 2014.

For the Atchison facility’s protein and starch plant, 2020 marked the tenth time in as many years that it had scored the BRC’s highest rating.

• In September 2020, we were recognized by Union Pacific Railroad with a 2019 Pinnacle Award for our commitment to safely transporting chemical products.

The annual award honors select Union Pacific customers who implement release prevention protocols, corrective action plans and have zero non-accident releases of regulated hazardous materials shipments.

Build the MGP Brand.

We continue to build our brand across all stakeholders, including shareholders, employees, partners, consumers, and communities.

We are achieving this by producing consistent growth through an understandable business model, proactively engaging with the investment community, creating a desirable organization for our employees, strengthening our relationship with our customers and vendors, increasing awareness and understanding of MGP with consumers, and supporting the communities in which we operate.

Accomplishments

• In May 2020, MGP's then Chief Executive Officer ("CEO") Gus Griffin retired from the Company and the Company's Board of Directors.

Gus became CEO in July 2014 and under his leadership, the Company developed and successfully implemented a new long-term strategic plan that produced significant improvements in the Company's financial results, while also establishing a strong foundation for future growth.

The Board of Directors named David Colo as the new President and CEO upon Gus's retirement.

David has served on the MGP Board of Directors since 2015.

• In 2020, we continued our unbroken commitment to support our communities by providing strong financial support and donating time and leadership talent.

◦ In April 2020, we helped support the COVID-19 relief efforts with both financial aid and other support to the United States Bartenders' Guild and the Restaurant Workers Community Foundation.

Working with these two partnerships, we assisted in providing assistance to the bar and restaurant community on the local and national level by providing financial aid and other resources for workers who were most impacted by COVID-19 as a result of restaurant and bar closures.

◦ During 2020, in response to the COVID-19 pandemic, we increased our production of industrial alcohol to support an exponential increase in demand for industrial alcohol, used in the production of hand sanitizers and commercial disinfectants.

Additionally, we launched our first ever hand sanitizer production for donations to front line workers in our communities.

• During 2020, MGP's shareholders elected a new member to its Board of Directors, Lori L.S.

She is the fourth generation of the founding Cray family to serve MGP and the Atchison community, where she is a trustee of the Evan C.

Cray Historical Museum and a board member of the Amelia Earhart Foundation.

She also serves on the board of the Cray Medical Research Organization at the University of Kansas Medical Center in Kansas City, Kansas.

Branded Spirits Segment

Our Branded Spirits segment mission is to align our product offering and enhance focus on growing spirits categories and price tiers.

The favorable macro industry trends benefiting our business include growth in high-end whiskey and tequila brands as well as growth across all spirit categories in the high-end price tiers.

Our Branded Spirits segment is also subject to unfavorable macro trends, which include increased competition as industry participants seek to capitalize on consumer trends.

Our strategy for the Branded Spirits segment is to focus on the categories, brands, price points, bottle size and market support that will maximize profit for the Company.

On January 22, 2021, we entered into a definitive agreement to acquire Luxco, Inc.

and its affiliates (“Luxco”), and subsequently completed the merger on April 1, 2021 (the “Merger”).

As a result of the Merger, we have increased our scale and market position in the branded-spirits sector and believe it has strengthened our platform for future growth of higher valued-added products.

The Branded Spirits segment sales for 2021 increased 4,324.3 percent over the prior year.

Ingredient Solutions Segment

Our Ingredient Solutions segment mission is to remain a strategic business partner of choice earning meaningful relationships through collaboration, innovation, and dedication to the best-in-class customer service.

The favorable macro industry trends benefiting our business include growth and focus on high fiber, high protein, meat alternative, plant-based protein, and non-GMO Products.

We continue to provide outstanding customer solutions, taking advantage of our position within growing consumer trends.

Our strategy within the Ingredient Solutions segment is to expand our market share of specialty wheat starch and protein product lines, expand textured plant protein capabilities within specialty wheat proteins, maximize the value of clean label starches, and optimize our customer set, route to market, and channels to drive profitability.

Ingredient Solutions segment sales for 2021 increased 16.1 percent over the prior year, primarily due to increased sales of specialty wheat starches and proteins, and commodity wheat starches.

RECENT DEVELOPMENTS

Merger with Luxco.

On January 22, 2021, we entered into a definitive agreement to acquire Luxco, 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.

Following the Merger, Luxco became a wholly-owned subsidiary of MGP and is included in the Branded Spirits segment.

(See Note 4, Business Combinations, for additional information).

Dryer Fire Incident.

During November 2020, we 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 December 31, 2021, we received a legally binding commitment from our insurance carrier for final settlement of $43,688, $27,363 was related to business interruption and $16,325 was for the damaged dryer.

The business interruption portion of the settlement was recorded as a reduction of Cost of sales on the Consolidated Statement of Income and the insurance recoveries for the replacement of the damaged dryer was recorded as Insurance recoveries on the Consolidated Statement of Income.

We recorded a settlement related to the business interruption from our insurance carrier of $23,583 and $3,780 for the years ended December 31, 2021 and 2020, respectively.

Our insurance provided coverage for business interruption and other losses from damage to property, plant and equipment, less deductibles.

We completed the construction of the replacement dryer and placed the dryer into service during 2021.

As the COVID-19 pandemic continues and new variants are discovered, we are monitoring the guidance from federal, state and local public health authorities and will take the necessary actions to comply with the updated guidelines.

The Company’s business is part of the United States’ critical infrastructure and thus is deemed to be an “essential business.” As such, we continue to take the necessary and appropriate actions designed to protect our workforce as it continues its critical operations.

We have continued to operate without any significant negative impacts;

however continued operations could be affected by voluntary or mandatory temporary closures of our facilities, interruptions to our supply chain or additional efforts to protect the health and safety of our employees.

As of the date of this report, there have been no significant adverse affects to

the Company’s operations, supply chain and customer demand due to COVID-19;

however, we are monitoring the situation closely.

See Risk Factors for additional discussion of the potential adverse impacts of the COVID-19 pandemic on our business.

RESULTS OF OPERATIONS

7 unchanged sentences

Gross margin % 31.7 % 25.0 % 21.1 % 6.7 pp (a)

Advertising and promotion expenses 16,098 2,712 2,827 493.6 (4.1)

SG&A expenses 72,829 41,853 26,463 74.0 58.2

Insurance recoveries (16,325) — — N/A N/A

Operating income 126,363 54,241 47,242 133.0 14.8

Operating margin % 20.2 % 13.7 % 13.0 % 6.5 pp 0.7 pp

Interest expense, net and other (1,640) (1,305) (1,168) 25.7 11.7

Interest expense (4,037) (2,267) (1,305) 78.1 73.7

Other income (loss), net (1,230) 627 — (296.2) N/A

Income before income taxes 121,096 52,601 45,937 130.2 14.5

3 unchanged sentences

Net income margin % 14.5 % 10.2 % 10.7 % 4.3 pp (0.5) pp

Basic and diluted Earnings Per Share $ 2.37 $ 2.27 $ 2.17 4.4 % 4.6 %

Basic EPS $ 4.37 $ 2.37 $ 2.27 84.4 % 4.4 %

Diluted EPS $ 4.34 $ 2.37 $ 2.27 83.1 % 4.4 %

(a) Percentage points (“pp”).

2020 to 2019 - Sales for 2020 were $395,521, an increase of 9.0 percent compared to 2019, which was the result of increased sales in both the Distillery Products and Ingredient Solutions segments.

Within the Distillery Products segment, sales were up 6.8 percent primarily due to an increase in sales of brown goods and white goods within premium beverage alcohol, warehouse services, and industrial alcohol.

2021 to 2020 - Sales for 2021 were $626,720, an increase of 58.5 percent compared to 2020, which was the result of increased sales in the Branded Spirits, Distillery Products and Ingredient Solutions segments.

Total Branded Spirits segment sales increased 4,324.3 percent, due to the additional brands acquired as part of the Merger.

Within the Distillery Products segment, sales were up 12.5 percent primarily due to an increase in sales of brown goods within premium beverage alcohol.

Total Ingredient Solutions segment sales increased 16.1 percent primarily due to increased sales of specialty wheat starches and proteins.

2020 to 2019 - Sales for 2020 were $395,521, an increase of 9.0 percent compared to 2019, which was the result of increased sales in the Distillery Products, Ingredient Solutions and Branded Spirits segments.

Within the Distillery Solutions segment, sales were up 6.5 percent primarily due to an increase in sales of brown goods and white goods within premium beverage alcohol, warehouse services, and industrial alcohol.

Total Ingredient Solutions segment sales increased 19.2 percent due to increased sales of specialty wheat starches and proteins.

2019 to 2018 - Sales for 2019 were $362,745, a decrease of 3.5 percent compared to 2018, which was the result of decreased sales in the Distillery Products segment, partially offset by increased sales in the Ingredient Solutions segment.

Within the Distillery Solutions segment, sales were down 5.4 percent primarily due to a decrease in sales of brown goods within premium beverage alcohol, industrial alcohol and fuel grade alcohol, partially offset by an increase in sales of warehouse services, distillers feed and related co-products and white goods within premium beverage alcohol.

Total Ingredient Solutions sales increased 5.6 percent due to increased sales of specialty wheat starches and proteins, and commodity wheat starches, partially offset by decreased sales of commodity wheat proteins.

Within the Branded Spirits segment, sales were up 38.5 percent due to an increase in sales within the ultra premium category.

2021 to 2020 - Gross profit for 2021 was $198,965, an increase of 101.4 percent compared to 2020.

The increase was driven by an increase in gross profit in both segments.

The increase was driven by an increase in gross profit in Branded Spirits, Distillery Products and Ingredient Solutions segments.

The Branded Spirits segment gross profit increased by $60,457 or 2,764.4 percent.

The Distillery Products segment gross profit increased by $38,333, or 50.6 percent and the Ingredient Solutions segment gross profit increased by $1,369, or 6.6 percent.

2019 to 2018 - Gross profit for 2019 was $76,532, a decrease of 8.5 percent compared to 2018.

The decrease was driven by a decrease in gross profit in both segments.

In the Distillery Products segment, gross profit decreased by $5,841, or 8.1 percent and the Ingredient Solutions segment gross profit decreased by $1,226, or 10.4 percent.

2020 to 2019 - Gross profit for 2020 was $98,806, an increase of 29.1 percent compared to 2019.

The increase was driven by an increase in gross profit in the Distillery Products, Ingredient Solutions and Branded Spirits segments.

The Distillery Products segment gross profit increased by $11,357, or 17.6 percent, the Ingredient Solutions segment gross profit increased by $10,266, or 97.0 percent, and the Branded Spirits Segment increased by $651, or 42.4 percent.

Advertising and promotion expenses

2021 to 2020 - Advertising and promotion expenses for 2021 were $16,098, an increase of 493.6 percent compared to 2020.

The increase in Advertising and promotion expenses were primarily driven by the assumption of Luxco’s advertising and promotion expenses during 2021.

2020 to 2019 - Advertising and promotion expenses for 2020 were $2,712, a decrease of 4.1 percent compared to 2019.

The decrease in Advertising and promotion expenses were driven by a decrease in corporate communications expenses.

SG&A expenses

2021 to 2020 - SG&A expenses for 2021 were $72,829, an increase of 74.0 percent compared to 2020.

The increase in SG&A was driven by the assumption of Luxco’s SG&A, and one-time acquisition related costs.

2020 to 2019 - SG&A expenses for 2020 were $41,853, an increase of 58.2 percent compared to 2019.

The increase in SG&A was due primarily to higher personnel and incentive compensation expense, inclusive of certain incremental costs incurred relating to the transition at the CEO position.

Additionally, the increase was due to an increase related to advisory and other transaction costs.

2019 to 2018 - SG&A expenses for 2019 were $29,290, a decrease of 12.4 percent compared to 2018.

The decrease in SG&A was primarily due to lower incentive compensation expense, partially offset by increased costs related to legal matters and investments to support our brands initiative (personnel costs).

Insurance recoveries

2021 to 2020 - Gain on Insurance recoveries for 2021 was $16,325.

During November 2020, we experienced a fire at the Atchison facility.

The fire damaged certain equipment in the facility’s feed drying operations and caused a temporary loss of production time.

At December 31, 2021, we received a legally binding commitment from our insurance carrier for final settlement for the replacement of the damaged dryer which resulted in a gain of $16,325.

Operating income

1 unchanged sentence

Operating income for 2019 $ 47,242

Decrease in gross profit - Distillery Products segment (a)

Increase in gross profit - Distillery Products segment (a)

11,357 24.0 pp (b)

Decrease in gross profit - Ingredient Solutions segment (a)

Increase in gross profit - Ingredient Solutions segment (a)

10,266 21.7 pp

Decrease in SG&A expenses 4,161 8.3 pp

Increase in gross profit - Branded Spirits segment (a)

Decrease in Advertising and promotion expenses 115 0.2 pp

Increase in SG&A expenses (15,390) (32.5) pp

Operating income for 2020 54,241 14.8 %

Increase in gross profit - Distillery Products segment (a)

Increase in gross profit - Branded Spirits segment (a)

60,457 111.5 pp (b)

Increase in gross profit - Ingredient Solutions segment (a)

Increase in gross profit - Distillery Products segment (a)

38,333 70.7 pp

Increase in gross profit - Ingredient Solutions segment (a)

Increase in Insurance recoveries 16,325 30.1 pp

Increase in Advertising and promotion expenses (13,386) (24.7) pp

Increase in SG&A expenses (30,976) (57.1) pp

2 unchanged sentences

(b) Percentage points (“pp”).

2020 to 2019 - Operating income for 2020 increased to $54,241 from $47,242 for 2019, due to increases in gross profit in both our Distillery Products and Ingredient Solutions segments.

2021 to 2020 - Operating income for 2021 increased to $126,363 from $54,241 for 2020, due to increases in gross profit in the Branded Spirits, Distillery Products and Ingredient Solutions segments as well as the increase from the insurance recovery.

These increases were partially offset by increases in SG&A expenses and Advertising and promotion expenses.

2020 to 2019 - Operating income for 2020 increased to $54,241 from $47,242 for 2019, due to increases in gross profit in our Distillery Products, Ingredient Solutions and Branded Spirits segments.

These increases were partially offset by an increase in SG&A expenses.

2019 to 2018 - Operating income for 2019 decreased to $47,242 from $50,148 for 2018, due to gross profit declines in both our Distillery Products and Ingredient Solutions segments.

These decreases were partially offset by a decrease in SG&A expenses.

Income tax expense

1 unchanged sentence

Income tax expense for 2020 was $12,256, for an effective tax rate for the year of 23.3 percent.

The 7.7 percentage point increase was primarily due to the favorable tax impact of vested share-based awards that occurred during 2019 .

The 1.7 percentage point increase was primarily due to higher Income before income taxes, and its dilutive effect on favorable tax credits and deductions as it concerns our effective tax rate .

2020 to 2019 - Income tax expense for 2020 was $12,256, for an effective tax rate for the year of 23.3 percent.

Income tax expense for 2019 was $7,144, for an effective tax rate for the year of 15.6 percent.

The principal reasons for the 8.3 percentage point decrease in the effective tax rate, year versus year, were an increase in the favorable tax impact of vested share-based awards (which may not continue in future years), a favorable tax impact related to the change in the Company's valuation allowance, higher tax credits, and a change in estimate in 2018 related to the 2017 sale of the Company's equity method investment that did not reoccur in 2019, partially offset by the tax impact of legal matters, and certain compensation being subject to the deduction limit applicable to public companies.

The 7.7 percentage point increase was primarily due to the favorable tax impact of vested share-based awards that occurred during 2019 .

Basic and diluted EPS

Basic and Diluted EPS % Increase (Decrease)

EPS % Increase (Decrease)

Basic and Diluted EPS for 2019 $ 2.27

1 unchanged sentence

0.41 18.1 pp (b)

Change in income attributable to participating securities (c)

Change in weighted average shares outstanding (c)

(0.03) (1.3) pp

Change in weighted average shares outstanding:

share repurchase program (d)

Change in weighted average shares outstanding:

withholding taxes (d)

Change in share-based compensation (0.21) (9.3) pp

Change in discrete items 0.12 5.5 pp

Change in effective tax rate (0.13) (5.7) pp

2 unchanged sentences

3.24 136.7 pp (b)

Change in weighted average shares outstanding:

share repurchase program (c)

Change in weighted average shares outstanding:

withholding taxes (c)

Change in share-based compensation (0.21) (9.3) pp

Change in income attributable to participating securities (c)

Change in interest expense (a)

(0.08) (3.4) pp

Increase in other income (expense), net (a)

(0.08) (3.4) pp

Change in weighted average shares outstanding (d)

(0.98) (41.4) pp

Change in effective tax rate (0.10) (4.2) pp

Basic and diluted EPS for 2020

Change in noncontrolling interest (0.03) (1.3) pp

Basic EPS for 2021

Conversion feature of Convertible Senior Notes (0.03) (1.3) pp

Diluted EPS for 2021

$ 4.34 83.1 %

(a) Items are net of tax based on the effective tax rate for each base year.

1 unchanged sentence

(c) Income attributable to participating securities changes primarily due to the awarding and vesting of the employee RSUs that receive dividend equivalent payments.

Weighted average shares outstanding change primarily due to our repurchases of Common Stock, the vesting of employee RSUs, our purchase of vested RSUs from employees to pay withholding taxes, and the granting of Common Stock to directors.

2020 to 2019 - EPS increased to $2.37 in 2020 from $2.27 in 2019, primarily due to the increase in operations, partially offset by the favorable tax impact of vested share-based awards that occurred during 2019.

2019 to 2018 - EPS increased to $2.27 in 2019 from $2.17 in 2018, primarily due to the tax impacts of vested share-based awards and higher state tax credits in the effective tax rate.

Partially offsetting these increases was a decrease in operations.

(d) Weighted average shares outstanding change primarily due to our repurchases of Common Stock, the vesting of employee RSUs, our purchase of vested RSUs from employees to pay withholding taxes, and the granting of Common Stock to directors.

Additionally, during 2021, the weighted average shares outstanding were impacted by the issuance of shares as part of the Merger consideration.

2021 to 2020 - Basic EPS increased to $4.37 in 2021 from $2.37 in 2020, primarily due to the increase in Operating income, partially offset by an increase in shares outstanding as a result of shares issued as part of the consideration paid for the Merger.

Diluted EPS increased to $4.34 in 2021 from $2.37 in 2020, primarily due the above described changes in Basic EPS, partially offset by the conversion feature of the Convertible Senior Notes.

2020 to 2019 - Basic and Diluted EPS increased to $2.37 in 2020 from $2.27 in 2019, primarily due to the increase in Operating income, partially offset by the favorable tax impact of vested share-based awards that occurred during 2019.

DISTILLERY PRODUCTS SEGMENT

12 unchanged sentences

Change in Year-versus-Year Sales Attributed to:

Total Volume Net Price/Mix

Net Price/Mix (c)

Premium beverage alcohol 28.4% 20.9% 7.5%

3 unchanged sentences

Gross profit $ 114,106 $ 75,773 $ 38,333 50.6 %

Gross margin % 24.6 % 22.2 % 2.4 pp (a)

(a) Percentage points ("pp")

Gross margin % 32.4 % 24.2 % 8.2 pp (d)

(a) Total sales change is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.

(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit.

(c) Price/Mix change is calculated by taking the difference between current period sales-per-unit and prior period sales-per unit, multiplied by current period sales volume.

(d) Percentage points (“pp”).

2021 compared to 2020

Total Distillery Products sales for 2021 increased by $39,195, or 12.5 percent compared to 2020.

Sales of brown goods and white goods within premium beverage alcohol, warehouse services, and industrial alcohol increased, while sales of distillers feed and related co-products and fuel grade alcohol decreased compared to 2019.

The increase in brown goods was due to increased sales volume, partially offset by lower average selling price.

The increase in white goods and industrial alcohol was due to higher average selling prices, partially offset by decreased sales volume.

These increases were slightly offset by decreases in distillers feed and related co-products and fuel grade alcohol due to lower average selling prices.

Sales of brown goods and white goods within premium beverage alcohol, fuel grade alcohol, and warehouse services increased, while sales of industrial alcohol and distillers feed and related co-products decreased compared to 2020.

The increase in brown goods, white goods and fuel grade alcohol was driven by higher sales volume and higher average selling price.

These increases were partially offset by a decrease in sales of industrial alcohol, which was driven by lower sales volume due to the discontinuing of the ICP third party sales and marketing services, partially offset by higher average selling price.

The decrease in sales of distillers feed and related co-products was due to lower average selling price, partially offset by higher sales volume, both of which resulted from the Dryer Fire Incident and the subsequent sale of wet rather than dry distillers grains (see Note 10, Commitments and Contingencies for further details).

Gross profit increased year versus year by $38,333, or 50.6 percent.

Gross margin for 2021 increased to 32.4 percent from 24.2 percent for 2020.

The increase in gross profit was primarily due to higher sales volume on brown goods and higher average selling price on white goods and industrial alcohol.

The increase in gross profit was partially offset by higher costs relating to a reduction in brown goods put-away for aging, lower average selling price on brown goods and increased production costs due to the temporary shutdown of the Atchison facilities as a result of the ransomware cyber-attack.

The increase in gross profit was primarily due to higher sales volume on brown goods as well as higher average selling price on industrial, white goods and fuel grade alcohol.

The increase in gross profit was partially offset by lower average selling price on distillers feed and related co-products and higher input costs of industrial alcohol, white goods and brown goods.

DISTILLERY PRODUCTS SALES

11 unchanged sentences

Change in Year-versus-Year Sales Attributed to:

Total Volume Net Price/Mix

Net Price/Mix (c)

Premium beverage alcohol 10.9% 13.5% (2.6)%

3 unchanged sentences

Gross profit $ 75,773 $ 64,416 $ 11,357 17.6 %

Gross margin % 22.2 % 22.9 % (0.7) pp (a)

(a) Percentage points ("pp")

Gross margin % 24.2 % 21.9 % 2.3 pp (d)

(a) Total sales change is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.

(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit.

(c) Price/Mix change is calculated by taking the difference between current period sales-per-unit and prior period sales-per unit, multiplied by current period sales volume.

(d) Percentage points (“pp”).

2020 compared to 2019

Total Distillery Products sales for 2019 decreased by $16,822, or 5.4 percent compared to 2018.

Sales of premium beverage alcohol were down due to lower volumes, predominantly in brown goods within premium beverage alcohol (mix), partially offset by better pricing in both brown goods and white goods within premium beverage alcohol.

Sales of brown goods, industrial alcohol and fuel grade alcohol decreased, while sales of warehouse services, distillers feed and related co-products and white goods increased.

Sales of brown goods decreased 14.8 percent, due to lower sales volume, partially offset by higher average selling price.

Industrial alcohol product sales decreased primarily driven by lower sales volume, partially offset by slightly favorable pricing.

These decreases were partially offset by an increase in warehouse services sales of 13.4 percent and an increase in sales of distillers feed and related co-product of 4.1 percent, primarily due to an increase in sales volumes.

Gross profit decreased year versus year by $5,841, or 8.1 percent.

Total Distillery Products sales for 2020 increased by $19,071, or 6.5 percent compared to 2019.

The increase in brown goods was due to increased sales volume, partially offset by lower average selling price.

The increase in white goods and industrial alcohol was due to higher average selling prices, partially offset by decreased sales volume.

These increases were slightly offset by decreases in distillers feed and related co-products and fuel grade alcohol due to lower average selling prices.

Gross profit increased year versus year by $11,357, or 17.6 percent.

Gross margin for 2020 increased to 24.2 percent compared to 21.9 percent for 2019.

The increase in gross profit was primarily due to higher sales volume on brown goods and higher average selling price on white goods and industrial alcohol.

BRANDED SPIRITS SEGMENT

BRANDED SPIRITS SALES

Year Ended December 31, Year-versus-Year Sales Change Increase/ (Decrease)

2021 2020 $ Change % Change

Ultra Premium $ 34,030 $ 3,772 $ 30,258 802.2 %

Premium 19,663 334 19,329 5,787.1

Mid 51,890 — 51,890 N/A

Value 58,514 — 58,514 N/A

Other 19,469 43 19,426 45,176.7

Total Branded Spirits $ 183,566 $ 4,149 $ 179,417 4,324.3 %

Change in Year-versus-Year Sales Attributed to:

Net Price/Mix (c)

Branded Spirits 4,324.3% 29,320.4% (24,996.1)%

Other Financial Information

Year Ended December 31, Year-versus-Year Increase/(Decrease)

2021 2020 Change % Change

Gross profit $ 62,644 $ 2,187 $ 60,457 2,764.4 %

Gross margin % 34.1 % 52.7 % (18.6) pp (d)

(a) Total sales change is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.

(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit.

(c) Price/Mix change is calculated by taking the difference between current period sales-per-unit and prior period sales-per unit, multiplied by current period sales volume.

(d) Percentage points (“pp”).

2021 compared to 2020

Total Branded Spirits sales for 2021 increased by $179,417, or 4,324.3 percent compared to 2020.

Sales of value, mid, ultra premium, other and premium increased compared to 2020, primarily due to the additional brands acquired as part of the Merger.

Gross profit increased year versus year by $60,457, or 2764.4 percent.

Gross margin for 2021 decreased to 34.1 percent compared to 52.7 percent for 2020.

The decline in gross profit was primarily due to lower sales volume on brown goods.

Industrial alcohol and white goods gross profits declined as the market remains challenged due to oversupply.

This decline was partially offset by favorable average selling price on brown goods as well as increased gross profits on distillers feed and related co-products and warehouse services.

The increase in gross profit was primarily due to the additional brands acquired as part of the Merger.

The decrease in gross margin was due to sales price, as the vast majority of the Company’s branded spirits sales pre-merger were in the ultra premium category.

Gross profit was reduced during 2021, due to a required step up in value due to purchase accounting related to the Merger.

Of the purchase accounting step up, $2,529 was associated with marking the finished goods inventory to fair value, which fully flowed through in the year and is not expected to recur in the future periods.

BRANDED SPIRITS SALES

Year Ended December 31, Year-versus-Year Sales Change Increase/ (Decrease)

2020 2019 $ Change % Change

Ultra Premium $ 3,772 $ 2,625 $ 1,147 43.7 %

Premium 334 370 (36) (9.7)

Mid — — — N/A

Value — — — N/A

Other 43 — 43 N/A

Total Branded Spirits $ 4,149 $ 2,995 $ 1,154 38.5 %

Change in Year-versus-Year Sales Attributed to:

Net Price/Mix (c)

Branded Spirits 38.5% 49.7% (11.2)%

Other Financial Information

Year Ended December 31, Year-versus-Year Increase/(Decrease)

2020 2019 Change % Change

Gross profit $ 2,187 $ 1,536 $ 651 42.4 %

Gross margin % 52.7 % 51.3 % 1.4 pp (d)

(a) Total sales change is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.

(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit.

(c) Price/Mix change is calculated by taking the difference between current period sales-per-unit and prior period sales-per unit, multiplied by current period sales volume.

(d) Percentage points (“pp”).

2020 compared to 2019

Total Branded Spirits sales for 2020 increased by $1,154, or 38.5 percent compared to 2019, primarily driven by an increase in ultra premium.

The increase in ultra premium sales was due to expanding into more markets and increasing points of distribution, as well as additional brands acquired during 2020.

Gross profit increased year versus year by $651, or 42.4 percent.

Gross margin for 2020 increased to 52.7 percent compared to 51.3 percent for 2019.

The increase in gross profit was primarily due to increased sales of branded spirits and additional brands acquired during 2020.

INGREDIENT SOLUTIONS SEGMENT

8 unchanged sentences

Change in Year-versus-Year Sales Attributed to:

Total Volume Net Price/Mix

Net Price/Mix (c)

Total Ingredient Solutions 16.1% 10.8% 5.3%

3 unchanged sentences

Gross profit $ 22,215 $ 20,846 $ 1,369 6.6 %

Gross margin % 26.7 % 16.2 % 10.5 pp (a)

(a) Percentage points ("pp")

Gross margin % 24.5 % 26.7 % (2.2) pp (d)

(a) Total sales change is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.

(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit.

(c) Price/Mix change is calculated by taking the difference between current period sales-per-unit and prior period sales-per unit, multiplied by current period sales volume.

(d) Percentage points (“pp”).

2021 compared to 2020

Total Ingredient Solutions sales for 2021 increased by $12,587, or 16.1 percent compared to 2020.

This increase was driven by higher sales of specialty wheat starches and proteins, partially offset by a decrease in sales of commodity wheat starches and proteins.

The increase in sales of specialty wheat starches was driven by increased sales volume and higher average selling prices.

The increase in sales of specialty wheat proteins was driven by increased sales volume, partially offset by lower average selling prices.

These increases were partially offset by decreased sales volume of commodity wheat starches and proteins.

Sales of specialty wheat starches and proteins and commodity wheat starches increased, while sales of commodity wheat proteins decreased.

The increase in specialty wheat starches was primarily due to higher sales volume.

The increase in specialty wheat proteins was primarily due to higher sales volume and higher average selling prices.

The increase in commodity wheat starches was due to higher sales volume.

Gross profit increased year versus year by $1,369, or 6.6 percent.

Gross margin for 2020 increased to 26.7 percent from 16.2 percent for 2019.

The increase in gross profit was primarily driven by the increased sales volume and higher average selling prices of specialty wheat starches and proteins and decreased sales volume of commodity wheat starches and proteins (mix).

Additionally, gross profit was positively impacted by the optimization of higher margin specialty products to meet the increased demand of customers' high fiber and high protein products.

These increases in gross profit were partially offset by increased production costs due to the temporary shutdown of the Atchison facilities as a result of the ransomware cyber-attack.

Gross margin for 2021 decreased to 24.5 percent from 26.7 percent for 2020.

The increase in gross profit was primarily driven by higher sales volume of specialty wheat starches and commodity wheat starches, as well as higher sales volume and higher average selling prices of specialty wheat proteins.

These increases were partially offset by higher input costs.

INGREDIENT SOLUTIONS SALES

7 unchanged sentences

Change in Year-versus-Year Sales Attributed to:

Total Volume Net Price/Mix

Net Price/Mix (c)

Total Ingredient Solutions 19.2% 8.5% 10.7%

3 unchanged sentences

Gross profit $ 20,846 $ 10,580 $ 10,266 97.0 %

Gross margin % 16.2 % 19.0 % (2.8) pp (a)

(a) Percentage points ("pp")

Gross margin % 26.7 % 16.2 % 10.5 pp (d)

(a) Total sales change is calculated by taking the difference between current period sales dollars and prior period sales dollars, divided by prior period sales dollars.

(b) Volume change is calculated by taking the difference between current period sales volume and prior period sales volume, multiplied by prior period sales per unit.

(c) Price/Mix change is calculated by taking the difference between current period sales-per-unit and prior period sales-per unit, multiplied by current period sales volume.

(d) Percentage points (“pp”).

2020 compared to 2019

Total Ingredient Solutions sales for 2020 increased by $12,551, or 19.2 percent compared to 2019.

This increase was driven by higher sales of specialty wheat starches and proteins, and commodity wheat starches, partially offset by a decrease in sales of commodity wheat proteins.

The increase in specialty wheat starches was driven by an increase in sales volume and favorable average selling pricing.

The increase in commodity wheat starches was primarily due to favorable pricing, partially offset by a decrease in sales volume.

The increase in specialty wheat proteins was due to an increase in sales volume, partially offset by lower average selling price driven by the loss of a large specialty wheat protein customer.

These increases were partially offset by decreased sales of commodity wheat proteins which was driven by lower sales volume.

Gross profit decreased year versus year by $1,226, or 10.4 percent.

Gross margin for 2019 decreased to 16.2 percent from 19.0 percent for 2018.

The decrease in gross profit was primarily due to the above mentioned specialty wheat protein customer loss, increased production costs resulting from higher input costs, partially offset by increased gross profit of commodity wheat starches and proteins.

This increase was driven by higher sales of specialty wheat starches and proteins, partially offset by a decrease in sales of commodity wheat starches and proteins.

The increase in sales of specialty wheat starches was driven by increased sales volume and higher average selling prices.

The increase in sales of specialty wheat proteins was driven by increased sales volume, partially offset by lower average selling prices.

These increases were partially offset by decreased sales volume of commodity wheat starches and proteins.

Gross profit increased year versus year by $10,266, or 97.0 percent.

Gross margin for 2020 increased to 26.7 percent from 16.2 percent for 2019.

Additionally, gross profit was positively impacted by the optimization of higher margin specialty products to meet the increased demand of customers’ high fiber and high protein products.

These increases in gross profit were partially offset by increased production costs due to the temporary shutdown of the Atchison facilities as a result of the ransomware cyber-attack.

CASH FLOW, FINANCIAL CONDITION AND LIQUIDITY

We believe our financial condition continues to be of high quality, as evidenced by our ability to generate adequate cash from operations while having ready access to capital at competitive rates.

Operating cash flow and borrowings through our Credit Agreement and Note Purchase Agreement (Note 5) provide the primary sources of cash to fund operating needs and capital expenditures.

Operating cash flow and borrowings through our Credit Agreement, Convertible Senior Notes and Note Purchase Agreement (Note 6, Corporate Borrowings) provide the primary sources of cash to fund operating needs and capital expenditures.

These same sources of cash are used to fund shareholder dividends and other discretionary uses.

Going forward, we expect to use cash to implement our invest to grow strategy.

Our overall liquidity reflects our strong business results and an effective cash management strategy that takes into account liquidity management, economic factors, and tax considerations.

We expect our sources of cash, including our Credit Agreement and Note Purchase Agreement, to be adequate to provide for budgeted capital expenditures and anticipated operating requirements for the foreseeable future.

We expect our sources of cash to be adequate to provide for budgeted capital expenditures, potential merger or acquisitions, and anticipated operating requirements for the foreseeable future.

Cash Flow Summary Year Ended December 31, Changes, Year versus Year-Increase / (Decrease)

3 unchanged sentences

Cash used in investing activities (182,619) (19,647) (17,931) (162,972) (1,716)

Cash used in financing activities (15,255) (3,507) (494) (11,748) (3,013)

Cash provided by (used in) financing activities 94,287 (15,255) (3,507) 109,542 (11,748)

Effect of exchange rate changes on cash and cash equivalents (25) — — (25) —

Increase (decrease) in cash and cash equivalents $ (94) $ 18,353 $ (1,716) $ (18,447) $ 20,069

1 unchanged sentence

Cash provided by operating activities were $88,263 during the year ended December 31, 2021.

The cash provided by operating activities during 2021 resulted primarily from net income of $90,817, adjustments for non-cash or non-operating charges of $16,850 including depreciation and amortization, deferred income taxes, share-based compensation, and partially offset by a gain on insurance recoveries, and by uses of cash due to changes in operating assets and liabilities of $19,404.

The primary drivers of the changes in operating assets and liabilities were $14,214 use of cash related to an increase in inventories, primarily barrel distillate, $6,242 use of cash related to income taxes refundable, and $6,031 use of cash related to an increase in receivables, inclusive of insurance receivables, partially offset by $5,301 of cash provided by an increase in accounts payable related to the timing of cash disbursements.

Cash provided by operating activities were $53,255 during the year ended December 31, 2020.

The cash provided by operating activities during 2020 resulted primarily from net income of $40,345, adjustments for non-cash or non-operating charges of $17,050 including depreciation and amortization, share-based compensation, and deferred income taxes, partially offset by uses of cash due to changes in operating assets and liabilities of $4,140.

1 unchanged sentence

Additionally, there was $1,750 provided by cash related to income taxes payable, due to higher than expected income before taxes.

Cash provided by operating activities were $19,722 during the year ended December 31, 2019.

The cash provided by operating activities during 2019 resulted primarily from net income of $38,793, adjustments for non-cash or non-operating charges of $15,012 including depreciation and amortization, share-based compensation and deferred income taxes, partially offset by uses of cash due to change in operating assets and liabilities of $34,083.

The primary drivers of the changes in operating assets and liabilities were $28,162 use of cash related to an increase in inventories driven primarily by barreled distillate and $2,134 use of cash related to an increase in receivables, net primarily related to the timing of sales and cash collections.

Additionally, there was $2,107 provided by cash related to an increase in accounts payable related to the timing of cash disbursements

Cash provided by operating activities were $33,481 during the year ended December 31, 2018.

The cash provided by operating activities during 2018 resulted primarily from net income of $37,284, adjustments for non-cash or non-operating charges of $16,126 including depreciation and amortization, share-based compensation and deferred income taxes, partially offset by uses of cash due to change in operating assets and liabilities of $19,929.

The primary drivers of the changes in operating assets and liabilities were $15,620 use of cash related to an increase in inventories driven primarily by barreled distillate and $4,450 use of cash related to an increase in receivables, net.

The change in receivables, net is primarily related to the timing of sales and cash collections.

Investing Activities.

Cash used in investing activities for year ended December 31, 2021 was $182,619, which primarily resulted from $149,005 related to the Merger with Luxco and additions to property, plant and equipment of $47,389 (see capital spending), partially offset by cash proceeds of $16,325 from property insurance recoveries.

Cash used in investing activities for year ended December 31, 2020 was $19,647, which primarily resulted from additions to property, plant and equipment of $19,701 (see capital spending) and an increase in proceeds from sale of property of $2,906, partially offset by cash of $2,750 used in the acquisition of a business.

Cash used in investing activities for year ended December 31, 2019 was $17,931, which primarily resulted from additions to property, plant and equipment of $16,730 (see capital spending).

Cash used in investing activities for year ended December 31, 2018 was $31,046, which resulted from additions to property, plant and equipment of $31,046 (see capital spending).

Capital Spending.

We manage capital spending to support our business growth plans.

Investments in plant, property and equipment were $19,701, $16,730, and $31,046 for years ended December 31, 2020, 2019, and 2018, respectively.

Adjusted for the change in capital expenditures in accounts payable for years ended December 31, 2020, 2019, and 2018 of $(1,055), $2,041, and $(2,133), respectively, and total capital expenditures were $18,646, $18,771, and $28,913, respectively.

We expect approximately $43,300 in capital expenditures in 2021, excluding any insurance recoveries.

Of the $43,300 expected capital expenditures $29,400 is allocated for the replacement of the feed dryer system.

The remainder is for facility improvement and expansion, facility sustenance projects, and environmental health and safety projects.

As part of our strategic plan to support the growth of the American whiskey category, we previously announced a warehouse expansion project.

As of December 31, 2020, we had incurred approximately $49,900 of the total investment, which completes our current warehouse expansion project.

We have incurred $51,691, $18,646, and $18,771 of capital expenditures and have paid $47,389, $19,701, and $16,730 for capital expenditures for the years ended December 31, 2021, 2020 and 2019, respectively.

The difference between the amount of capital expenditures incurred and amount paid is due to the change in capital expenditures in accounts payable.

The increase in capital expenditures for 2021 as compared to 2020 was primarily due to the replacement of the feed dryer system.

We expect approximately $37,200, in capital expenditures for 2022 which will be used for facility improvement and expansion, facility sustenance projects and environmental health and safety projects.

Financing Activities .

Cash used in financing activities for year ended December 31, 2020 was $15,255, primarily due to payments of dividends and dividend equivalents of $8,188 (see Note 7 for additional information), purchases of treasury stock of $4,411 (see Treasury Purchases) and net debt payments of $2,656 (see Long-Term and Short-Term Debt).

Cash used in financing activities for year ended December 31, 2019 was $3,507, primarily due to payments of dividends and dividend equivalents of $6,856 (see Note 7 for additional information), purchases of treasury stock for tax withholding on share-based compensation of $5,489 (see Treasury Purchases), offset by net proceeds from debt of $8,914 (see Long-Term and Short-Term Debt).

Cash used in financing activities for year ended December 31, 2018 was $494, primarily due to payments of dividends and dividend equivalents of $5,500 (see Note 7 for additional information), purchases of treasury stock for tax withholding on share-based compensation of $2,324 (see Treasury Purchases), partially offset by net proceeds in long-term debt $7,330 (see Long-Term and Short-Term Debt).

Cash provided by financing activities for year ended December 31, 2021 was $94,287, primarily due to net debt proceeds of $192,580 (see Long-Term and Short-Term Debt), primarily resulting from the issuance of the Convertible Senior Notes, partially offset by $87,509 payment on assumed debt as part of the Merger, and payments of dividends and dividend equivalents of $10,017 (see Note 8, Equity and EPS for additional information),

Cash used in financing activities for year ended December 31, 2020 was $15,255, primarily due to payments of dividends and dividend equivalents of $8,188 (see Note 8, Equity and EPS for additional information), purchases of treasury stock of $4,411 (see Treasury Purchases), offset by net proceeds from debt of $2,656 (see Long-Term and Short-Term Debt).

Treasury Purchases.

1 unchanged sentence

31,741 RSUs vested and converted to common shares during year ended December 31, 2020, of which we withheld and purchased for treasury 10,437 shares valued at $358 to cover payment of associated withholding taxes.

80,343 RSUs vested and converted to common shares during year ended December 31, 2018, of which we withheld and purchased for treasury 27,214 shares valued at $2,324 to cover payment of associated withholding taxes.

Share Repurchase.

2 unchanged sentences

This share repurchase program may be modified, suspended, or terminated by the Company at any time without prior notice.

During the year ended December 31, 2020, we purchased approximately 159,104 shares of MGP Common Stock for $4,053, resulting in $20,947 remaining under the share repurchase plan.

During the year ended December 31, 2021, we did not repurchase any shares of MGP Common Stock and have $20,947 remaining under the share repurchase plan.

During the year ended December 31, 2020, we repurchased approximately 159,104 shares of MGP Common Stock for $4,053.

Long-Term and Short-Term Debt.

1 unchanged sentence

Total debt was $233,399 (net of unamortized loan fees of $6,454) at December 31, 2021 and $39,871 (net of unamortized loan fees of $129) at December 31, 2020.

During 2020, 2019, and 2018, we had net borrowings / (payments) on our Credit Agreement of $(300), $(10,700), and $7,702, and net borrowings / (payments) on our long-term debt of $(1,208), $19,614, and $(372), respectively.

During 2020, we incurred $1,148 of loan fees associated with refinancing our credit agreement.

Net borrowings / (payments) on all debt for 2020, 2019, and 2018 were $(2,656), $8,914, and $7,330, respectively (see Note 5 for additional information).

During 2021, we had net borrowings on our Convertible Senior Notes of $201,250, and during 2020, we had net payments on our Credit Agreement of $300.

Additionally, during 2021 and 2020, we had net payments on our long-term debt of $1,620, and $1,208, respectively.

During 2021 and 2020, we incurred $7,050 and $1,148, respectively, of loan fees associated with the issuance of the Convertible Senior Notes and refinancing our credit agreement.

Net borrowings / (payments) on all debt for 2021 and 2020 were $192,580, and $(2,656), respectively (see Note 6, Corporate borrowings for additional information).

Dividends and Dividend Equivalents.

See Note 7 for further discussion.

See Note 8, Equity and EPS for further discussion.

On February 22, 2022, the Board of Directors declared a quarterly dividend payable to stockholders of record as of March 11, 2022, of our Common Stock and a dividend equivalent payable to holders of certain RSUs as of March 11, 2022, of $0.12 per share and per unit.

1 unchanged sentence

Financial Condition and Liquidity

Our principal uses of cash in the ordinary course of business are for input costs used in our production processes, salaries, capital expenditures, and investments supporting our strategic plan, such as the aging of barreled distillate.

Generally, during periods when commodities prices are rising, our operations require increased use of cash to support inventory levels.

Our principal sources of cash are product sales and borrowing on our Credit Agreement and Note Purchase Agreement.

Under our Credit Agreement and Note Purchase Agreement, we must meet certain financial covenants and restrictions, and at December 31, 2020, we met those covenants and restrictions.

Generally, during periods when commodity prices are rising, our operations require increased use of cash to support inventory levels.

Our principal sources of cash are product sales and borrowing on our Credit Agreement, Convertible Senior Notes and Note Purchase Agreement.

Under these agreements, we must meet certain financial covenants and restrictions, and at December 31, 2021, we met those covenants and restrictions.

At December 31, 2021, our current assets exceeded our current liabilities by $278,298, largely due to our inventories, at cost, of $245,944.

At December 31, 2020, our cash balance was $21,662 and we have used our Credit Agreement and Note Purchase Agreement for liquidity purposes, with $300,000 remaining for additional borrowings.

At December 31, 2021, our cash balance was $21,568 and we have used our Credit Agreement, Convertible Senior Notes and Note Purchase Agreement for liquidity purposes, with $400,000 remaining for additional borrowings.

We anticipate being able to support our short-term liquidity and operating needs largely through cash generated from operations.

2 unchanged sentences

In addition, we have strong operating results such that financial institutions should provide sufficient credit funding to meet short-term financing requirements, if needed.

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

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.

The cash portion of the purchase price, plus transaction-related expenses, will be financed by borrowings under our existing revolving credit facility.

We anticipate having sufficient cash flows to support our support our short-term liquidity and operating needs (See Part I, Item 1A - Risk Factors and Note 15 for additional information).

OFF BALANCE SHEET OBLIGATIONS

Industrial Revenue Bonds.

On October 24, 2018, we closed an industrial revenue bond transaction with the City of Williamstown, Kentucky (the "City") in order to receive a 30-year real property tax abatement on our renovated and newly-constructed warehouse buildings near the City.

Pursuant to this transaction, the City issued a principal amount of $10,000 of its industrial revenue bonds to us and then used the proceeds to purchase the land and warehouse from us.

The City then leased the facilities back to us under a capital lease, the terms of which provide for the payment of basic rent in an amount sufficient to pay principal and interest on the bonds.

Our obligation to pay rent under the lease is in the same amount and due on the same date as the City’s obligation to pay debt service on the bonds which we hold.

The lease permits us to present the bonds at any time for cancellation, upon which our obligation to pay basic rent would be canceled.

The bonds’ maturity date is 2047, at which time the facilities will revert to us without costs.

If we were to present the bonds for cancellation prior to maturity, a nominal fee would be incurred.

We recorded the land and buildings as assets in property, plant, and equipment, net, on our Consolidated Balance Sheets.

Because we own all outstanding bonds, have a legal right to set-off, and intend to set-off the corresponding lease and interest payment, we have netted the capital lease obligation with the bond asset.

No amount for our obligation under the capital lease is reflected on our Consolidated Balance Sheet, nor do we reflect an amount for the corresponding industrial revenue bond asset (see Note 9 for additional information).

Contractual Obligations

1 unchanged sentence

Payments due by period

Total 2021 2022-2023 2024-2025 After 2025

Total Short-Term (a)

Long-term debt $ 239,853 $ 3,227 $ 236,626

1 unchanged sentence

Operating leases 10,197 3,032 7,165

Purchase commitments 174,540 136,298 (a) 37,521 721 —

Purchase commitments 199,119 159,874 (b) 39,245

Other 1,118 232 886

Total $ 532,246 $ 171,567 $ 360,679

(a) Includes open purchase order commitments related to raw materials and packaging used in the ordinary course of business of $112,641.

(a) Short-term obligation payments are due within 12 months from the current year end.

(b) Includes open purchase order commitments related to raw materials and packaging used in the ordinary course of business of $148,349.

Industrial Revenue Bonds

We are in various stages of financing projects with industrial revenue bond transactions for our facilities located in Kentucky.

The bonds allow a 30 year real property tax abatement on our renovated and newly-constructed warehouse buildings and distilleries in Kentucky.

We have been approved for $25,000 of industrial revenue bonds with the City of Williamstown Kentucky, and have used approximately $11,000.

Additionally, we have been approved for $50,000 of industrial revenue bonds with Nelson County Kentucky and have used approximately $33,000.

The City of Williamstown and Nelson County issued the industrial revenue bonds to us and then used the proceeds to purchase the land and warehouse from us.

The city then leased the facilities back to us under a capital lease, the terms of which provide for the payment of basic rent in an amount sufficient to pay principal and interest on the bonds.

Our obligation to pay rent under the lease is in the same amount and due on the same date as the city’s obligation to pay debt service on the bonds which we hold.

The lease permits us to present the bonds at any time for cancellation, upon which our obligation to pay basic rent would be canceled.

At the bonds’ maturity the facilities will revert to us without costs.

If we were to present the bonds for cancellation prior to maturity, a nominal fee would be incurred.

We recorded the land and buildings as assets in property, plant, and equipment, net, on our Consolidated Balance Sheets.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles 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 effects related to the COVID-19 pandemic.

For all of these policies, management cautions that future events rarely develop as forecast, and estimates routinely require adjustment and may require material adjustment.

We have identified the most critical accounting policies which involve the most complex and subjective judgments.

These should be read in conjunction with the significant accounting policies discussed in Note 1, Nature of Operations and Summary of Significant Accounting Policies.

Business Combinations.

The merger with Luxco 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, we allocated the consideration paid for a business to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date, with the excess recorded to goodwill.

The fair value measurements of tangible and intangible assets and liabilities were based on significant inputs not observable in the market.

Critical estimates used in determining the fair value include, but are not limited to discount rates that would be used by a market participant in valuing these assets and liabilities, forecasted revenue growth rates, including the terminal growth rates, projected cash flows, distributor attrition rates, royalty rates and market comparable, among others.

The fair value of personal property assets was determined using the market approach and the indirect and direct method of the cost approach, and the fair value of real property was determined using the cost approach and the sales comparison approach.

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.

The trade names and distributor relationships acquired were adjusted to fair value using the relief from royalty method and multi-period excess earnings method, respectively.

Management engaged a third party valuation specialist to assist in the valuation analysis of certain acquired assets including trade name and distributor relationship.

Goodwill and Other Intangible Assets.

The Company tests goodwill and indefinite-lived intangible assets 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.

We have the option to evaluate qualitative factors to assess if goodwill and indefinite-lived intangible assets are impaired before quantifying the fair value of the reporting unit.

Management judgment is required in the evaluation of qualitative factors, 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.

To the extent that the carrying amount exceeds fair value, an impairment of goodwill is recognized and allocated to the reporting units.

Based on the impairment tests performed by the Company during the fourth quarter 2021, we believe none of our goodwill or indefinite-lived intangible assets are impaired and are not currently at risk of impairment.

NEW ACCOUNTING PRONOUNCEMENTS

For information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 1.

For information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 1, Nature of Operations and Summary of Significant Accounting Policies.

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 7. Management’s Discussion and Analysis