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Item 8. Financial Statements and Supplementary Data

2022-02-24 compared with 2021-02-25 · 413 added, 166 removed, 707 unchanged (45% of the section changed)

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As a result of this assessment, management has concluded that the Company’s internal control over financial reporting as of December 31, 2021 was effective.

On April 1, 2021, we completed the merger with Luxco, Inc.

and its affiliated companies (“Luxco”).

We are currently integrating Luxco into our operations and internal control process and, pursuant to the Securities and Exchange Commission Staff interpretative guidance that assessment of a recently acquired business may be omitted from the scope of an assessment for a period not to exceed one year from the date of acquisition, the scope of the Company’s assessment of the internal controls over financial reporting at December 31, 2021 does not include Luxco.

At December 31, 2021, the total assets of Luxco, excluding goodwill and intangible assets, represent approximately 21 percent of consolidated assets.

The total revenues of Luxco represents approximately 28 percent of consolidated revenues for the year ended December 31, 2021.

KPMG, LLP, the independent registered public accounting firm that audited the Company’s financial statements contained herein, has issued an audit report on the Company’s internal control over financial reporting as of December 31, 2021.

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Report of Independent Registered Public Accounting Firm

To the the Stockholders and the Board of Directors

To the Stockholders and the Board of Directors

MGP Ingredients, Inc.:

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Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The Company acquired Luxco, Inc.

during 2021, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, Luxco, Inc.’s internal control over financial reporting associated with total assets, excluding goodwill and intangible assets, of approximately 21 percent of consolidated assets and total revenues of approximately 28 percent of consolidated revenues included in the consolidated financial statements of the Company as of and for the year ended December 31, 2021.

Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Luxco, Inc.

Basis for Opinions

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A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

A company’s internal control over financial reporting includes those policies and procedures

that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which it relates.

Revenue recognition under bill and hold arrangements

As discussed in Note 1 to the consolidated financial statements, the Company’s Distillery Products segment routinely enters into bill and hold arrangements, whereby the Company produces and sells aged and unaged distillate to customers.

As discussed in Note 3 to the consolidated financial statements, brown goods premium beverage alcohol revenue was $125,059 thousand for the year ended December 31, 2020, a portion of which was for bill and hold arrangements.

As discussed in Note 3 to the consolidated financial statements, brown goods premium beverage alcohol revenue was $162,074 thousands for the year ended December 31, 2021, a portion of which was for bill and hold arrangements.

We identified the evaluation of revenue recognized under bill and hold arrangements as a critical audit matter because of the extent of additional audit effort required to test the incremental bill and hold revenue recognition criteria.

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Also, to evaluate that the Company does not have the ability to use the product or direct to another customer, we inspected underlying documentation for the same sample of bill and hold transactions to determine legal title to the product had transferred to the customer.

Initial measurement of Luxco distributor relationships and certain trade name indefinite-lived intangible assets

As discussed in Note 4 to the consolidated financial statements, on April 1, 2021, the Company acquired Luxco, Inc.

and its affiliated companies (Luxco) in a business combination.

As a result of the transaction, the Company acquired certain intangible assets, including distributor relationships and trade names with acquisition-date fair values of $41,400 thousands and $178,100 thousands, respectively.

We identified the evaluation of the acquisition-date fair values of distributor relationships and certain trade names as a critical audit matter.

A high degree of subjective auditor judgment was required to evaluate certain significant assumptions used in the valuation models that were applied to determine the fair value of these intangible assets, specifically the forecasted revenue growth rates, including the terminal growth rates, and the royalty rates.

Changes in these assumptions could have had a significant impact on the fair values of these intangible assets.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s acquisition-date valuation process,

including controls related to the development of the above significant assumptions.

We evaluated the reasonableness of the revenue growth rates by comparing the Company’s estimates of forecasted revenue growth to Luxco’s historical actual results and industry reports.

We performed sensitivity analyses over the revenue growth rates to assess the effect of changes in those assumptions on the Company’s determination of fair value.

We involved valuation professionals with specialized skills and knowledge, who assisted in:

• evaluating the revenue terminal growth rates by comparing the forecasted rates to publicly available market and industry data

• evaluating the trade name royalty rates by comparing the rates determined by the Company to publicly available market data for comparable transactions.

We have served as the Company’s auditor since 2008.

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CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share amounts)

(Dollars in thousands, except share and per share amounts)

Year Ended December 31,

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Gross profit 198,965 98,806 76,532

Advertising and promotion expenses 16,098 2,712 2,827

Selling, general, and administrative expenses 72,829 41,853 26,463

Insurance recoveries ( 16,325 ) — —

Operating income 126,363 54,241 47,242

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

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

Other income (loss), net ( 1,230 ) 627 —

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

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Net income 90,817 40,345 38,793

Net loss attributable to noncontrolling interest 490 — —

Net income attributable to MGP Ingredients, Inc.

91,307 40,345 38,793

Income attributable to participating securities ( 712 ) ( 261 ) ( 253 )

Net income attributable to common shareholders and used in Earnings Per Share calculation $ 40,084 $ 38,540 $ 36,576

Basic and diluted weighted average common shares 16,937,125 17,012,288 16,866,176

Basic and diluted Earnings Per Share $ 2.37 $ 2.27 $ 2.17

Net income used in Earnings Per Share calculation $ 90,595 $ 40,084 $ 38,540

Weighted average common shares

Basic 20,719,663 16,937,125 17,012,288

Diluted 20,982,453 16,937,125 17,012,288

Earnings Per Share

Basic $ 4.37 $ 2.37 $ 2.27

Diluted $ 4.34 $ 2.37 $ 2.27

See Accompanying Notes to Consolidated Financial Statements

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2021 2020 2019

Net income $ 40,345 $ 38,793 $ 37,284

Net income attributable to MGP Ingredients, Inc.

$ 91,307 $ 40,345 $ 38,793

Other comprehensive income (loss), net of tax:

Company sponsored benefit plan:

Change in post-employment benefits 732 ( 151 ) 147

Unrealized loss on foreign currency translation adjustment ( 151 ) — —

Changes in Company-sponsored post-employment benefit plan 19 732 ( 151 )

Other comprehensive income (loss) ( 132 ) 732 ( 151 )

Comprehensive income attributable to MGP Ingredients, Inc.

91,175 41,077 38,642

Comprehensive loss attributable to noncontrolling interest ( 490 ) — —

Comprehensive income $ 90,685 $ 41,077 $ 38,642

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CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except par value)

(Dollars in thousands, except share amounts and par value)

Current Assets

Cash and cash equivalents $ 21,568 $ 21,662

Receivables (less allowance for credit loss at December 31, 2020 and 2019 - $ 24 )

Receivables (less allowance for credit loss at $ 150 and $ 24 at December 31, 2021 and 2020, respectively)

92,537 56,966

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Operating lease right-of-use assets, net 9,671 5,151

Investment in joint venture 4,944 —

Intangible assets, net 218,838 890

Goodwill 226,294 2,738

Other assets 7,336 3,521

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Accounts payable 53,712 30,273

Federal and state excise taxes payable 6,992 107

Income taxes payable — 704

Accrued expenses 20,752 9,383

Accrued expenses and other 24,869 20,645

Total current liabilities 88,800 53,329

Long-term debt, less current maturities 35,266 38,271

Credit agreement - revolver — 1

Convertible senior notes 194,906 —

Long-term operating lease liabilities 6,997 3,057

Deferred credits 2,196 1,233

Other noncurrent liabilities 5,132 7,094

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authorized 40,000,000 shares;

issued 18,115,965 shares at December 31, 2020 and 2019;

issued 23,125,166 and 18,115,965 shares at December 31, 2021 and 2020, respectively;

21,964,314 and 16,915,862 shares outstanding at December 31, 2021 and 2020, respectively

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Retained earnings 344,237 262,943

Accumulated other comprehensive loss 486 ( 246 )

Accumulated other comprehensive income 354 486

Treasury stock, at cost, 1,160,852 and 1,200,103 shares at December 31, 2021 and 2020, respectively

( 22,357 ) ( 23,125 )

Total stockholders’ equity 262,526 231,044

Total liabilities and stockholders’ equity $ 366,575 $ 322,597

Total MGP Ingredients, Inc.

stockholders equity 644,755 262,526

Noncontrolling interest ( 490 ) —

Total equity 644,265 262,526

Total liabilities and equity $ 1,041,467 $ 366,575

See Accompanying Notes to Consolidated Financial Statements

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Depreciation and amortization 19,092 12,961 11,572

Gain on insurance recoveries ( 16,325 ) — —

Share-based compensation 5,555 3,002 3,304

Equity method investment loss 1,611 — —

Deferred income taxes, including change in valuation allowance 6,772 593 252

Other, net 145 494 ( 116 )

Changes in operating assets and liabilities:

Changes in operating assets and liabilities, net of effects of acquisitions:

Receivables, net ( 6,031 ) ( 16,173 ) ( 2,134 )

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Accounts payable 5,301 1,817 2,107

Accrued expenses 11,503 ( 4,547 ) 551

Deferred credits 963 ( 332 ) ( 586 )

Accrued expenses and other 738 11,537 ( 4,687 )

Federal and state excise taxes payable ( 1,467 ) ( 34 ) 140

Other, net ( 75 ) 1,597 ( 344 )

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Additions to property, plant, and equipment ( 47,389 ) ( 19,701 ) ( 16,730 )

Acquisition of business ( 2,750 ) — —

Purchase of business, net of cash acquired ( 149,005 ) ( 2,750 ) —

Contributions to equity method investments ( 1,470 ) — —

Proceeds from property insurance recoveries 16,325 — —

Proceeds from sale of property and other — 2,906 —

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Payments on credit agreement - revolver ( 242,300 ) ( 55,000 ) ( 28,140 )

Proceeds from convertible senior notes 201,250 — —

Payment on assumed debt as part of the Merger ( 87,509 ) — —

Other, net — — ( 76 )

Net cash used in financing activities ( 15,255 ) ( 3,507 ) ( 494 )

Net cash provided by (used in) financing activities 94,287 ( 15,255 ) ( 3,507 )

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

Increase (decrease) in cash and cash equivalents ( 94 ) 18,353 ( 1,716 )

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Income (Loss) Treasury

Stock Non-Controlling Interest Total

Balance, December 31, 2018 $ 4 $ 6,715 $ 15,375 $ 198,914 $ ( 164 ) $ ( 19,403 ) $ — $ 201,441

Comprehensive income:

Comprehensive income (loss):

Net income — — — 38,793 — — — 38,793

Other comprehensive income — — — — 147 — 147

Other comprehensive loss — — — — ( 151 ) — — ( 151 )

Dividends and dividend equivalents of $ 0.40 per common share and per restricted stock unit, net of estimated forfeitures

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Stock shares repurchased — — — — — ( 5,489 ) — ( 5,489 )

Adjustment related to Accounting Standards Update 2018-02 adoption — — — ( 69 ) 69 — — —

Balance, December 31, 2019

4 6,715 14,029 230,784 ( 246 ) ( 20,242 ) — 231,044

Comprehensive income (loss):

Comprehensive income:

Net income — — — 40,345 — — — 40,345

Other comprehensive loss — — — — ( 151 ) — ( 151 )

Other comprehensive income — — — — 732 — — 732

Dividends and dividend equivalents of $ 0.48 per common share and per restricted stock unit, net of estimated forfeitures

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Stock shares repurchased — — — — — ( 4,411 ) — ( 4,411 )

Adjustment related to Accounting Standards Update 2018-02 adoption — — — ( 69 ) 69 —

Balance, December 31, 2020

4 6,715 15,503 262,943 486 ( 23,125 ) — 262,526

Comprehensive income:

Comprehensive income (loss):

Net income — — — 91,307 — — ( 490 ) 90,817

Other comprehensive income — — — — 732 — 732

Other comprehensive loss — — — — ( 132 ) — — ( 132 )

Dividends and dividend equivalents of $ 0.48 per common share and per restricted stock unit, net of estimated forfeitures

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Stock shares repurchased — — — — — ( 767 ) — ( 767 )

Equity consideration for Merger — — 296,279 — — — — 296,279

Balance, December 31, 2021

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MGP Ingredients, Inc.

("Company") is a Kansas corporation headquartered in Atchison, Kansas and is a leading producer and supplier of premium distilled spirits and specialty wheat protein and starch food ingredients.

(“Company”) is a Kansas corporation headquartered in Atchison, Kansas and is a leading producer and supplier of premium distilled spirits, branded spirits and food ingredients.

Distilled spirits include premium bourbon and rye whiskeys and grain neutral spirits, including vodka and gin.

The Company’s distilled spirits are either packaged and sold under our own brands to distributors, sold, directly or indirectly to manufactures 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.

The Company's protein and starch food ingredients provide a host of functional, nutritional, and sensory benefits for a wide range of food products to serve the packaged goods industry.

The Company's distillery products are derived from corn and other grains (including rye, barley, wheat, barley malt, and milo), and its ingredient products are derived from wheat flour.

The majority of the Company’s sales are made directly, or through distributors, to manufacturers and processors of finished packaged goods or to bakeries.

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.

The Company’s industrial alcohol and ingredients products are sold directly, or through distributors, to manufacturers and processors of finished packaged goods or to bakeries.

The Company’s distillery products are derived from corn and other grains (including rye, barley, wheat, barley malt, and milo), and its ingredient products are derived primarily from wheat flour.

On April 1, 2021, the Company acquired Luxco, Inc.

and its affiliated companies (“Luxco”) which is a leading branded beverage alcohol company across various categories, with a more than 60-year business heritage.

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

See Note 4, Business Combination, for further details.

As a result of the merger with Luxco, during 2021, the Company established a new reportable segment structure that separates Branded Spirits from the Distillery Products segment.

The Ingredient Solutions segment remains unchanged.

The new segment presentation reflects how management is now operating the business and making resource allocations.

The Company now reports three operating segments:

Distillery Products, Branded Spirits and Ingredient Solutions.

Prior periods have been revised to reflect the new operating segment structure.

Principles of Consolidation.

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.

The consolidated financial statements include the accounts of the Company and its wholly owned and majority owned subsidiaries.

All significant intercompany balances and transactions have been eliminated in consolidation.

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

Inventory includes finished goods, raw materials in the form of agricultural commodities used in the production process, and certain maintenance and repair items.

Bourbons and whiskeys are normally aged in barrels for several years, following industry practice;

Inventory includes finished goods, raw materials in the form of agricultural commodities used in the production process, as well as bottles, caps and labels used in the bottling process, and certain maintenance and repair items.

Bourbons and whiskeys, included in inventory, are normally aged in barrels for several years, following industry practice;

all barreled bourbon and whiskey is classified as a current asset.

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Revenue Recognition.

Revenue is recognized when control of the promised goods or services, through performance obligations by the Company, is transferred to the customer in an amount that reflects the consideration it expects to be entitled to in exchange for the performance obligations.

The term between invoicing and when payment is due is not significant and the period between when the entity transfers the promised good or service to the customer and when the customer pays for that good or service is one year or less.

Excise taxes that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer are excluded from revenue.

Revenue is recognized for the sale of products at the point in time finished products are delivered to the customer in accordance with shipping terms.

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The performance of the service activities, as requested, is invoiced as satisfied and revenue is concurrently recognized.

Contract bottling is recognized over the time contract bottling services are rendered and as they are rendered.

Sales in the Branded Spirits segment reflect reductions attributable to consideration given to customers in incentive programs, including discounts and allowances for certain volume targets.

These allowances and discounts are not estimated, are not for distinct goods, and paid only when the depletion volume targets are achieved.

The amounts reimbursed to customers is determined based on agreed-upon amounts and are recorded as a reduction of revenue.

The Company is responsible for compliance with the Alcohol and Tobacco Tax and Trade Bureau

Treasury Department (the “TTB”) regulations which includes making timely and accurate excise tax payments.

The Company is subject to periodic compliance audits by the TTB.

Individual states also impose excise taxes on alcohol beverages

in varying amounts.

The Company calculates its Federal and state excise tax expense based upon units shipped and on its understanding of the applicable excise tax laws.

Excise taxes that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer are excluded from revenue and expense.

Recognition of Insurance Recoveries.

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Basic and diluted EPS is computed using the two class method, which is an earnings allocation formula that determines net income per share for each class of Common Stock and participating security according to dividends declared and participation rights in undistributed earnings.

Per share amounts are computed by dividing net income attributable to common shareholders by the weighted average shares outstanding during each year or period.

Basic EPS amounts are computed by dividing net income attributable to common shareholders by the weighted average shares outstanding during each year or period.

Diluted EPS is computed using the if-converted method by dividing the net income attributable to common shareholders by the weighted average shares outstanding, inclusive of the impacts of the conversion feature of the Convertible Senior Notes.

Translation of Foreign Currencies.

Assets and liabilities of Niche Drinks, Co., ltd.

(“Niche”), a wholly-owned subsidiary of the Company whose functional currency is the British pound sterling, are translated to U.S.

dollars using the exchange rate in effect at the consolidated balance sheet date.

Results of operations are translated using average rates during the period.

Adjustments resulting from the translation process are included as a component of Accumulated other comprehensive income.

Business Combinations.

Assets and liabilities assumed during a business combination are generally recorded at fair market value as of the acquisition date.

Goodwill is recognized to the extent that the purchase consideration exceeds the value of the assets acquired and liabilities assumed.

The Company uses its best estimate and third party valuation specialists to determine the fair value of the assets acquired and liabilities assumed.

During the measurement period, which can be up to one year after the acquisition date, the Company can make adjustments to the fair value of the assets acquired and liabilities assumed, with the offset being an adjustment to goodwill.

Goodwill and Other Intangible Assets.

The Company records goodwill and other indefinite-lived intangible assets in connection with various acquisitions of businesses and allocates the goodwill and other indefinite-lived intangible assets to its respective reporting units.

The Company tests goodwill for impairment at least annually, in the fourth quarter, or on an interim basis if events and circumstances occur that would indicate it is more likely than not that the fair value of a reporting unit is less than the carrying value.

The Company evaluates goodwill for impairment at least annually, in the fourth quarter, or on an interim basis if events and circumstances occur that would indicate it is more likely than not that the fair value of a reporting unit is less than the carrying value.

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

Judgment is required in the determination of reporting units, the assignment of assets and liabilities to reporting units, including goodwill, and the determination of fair value of the reporting units.

The fair value of the reporting units was estimated with the assistance of third party independent appraisals.

The Company separately evaluates indefinite-lived intangible assets for impairment.

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These fair values are considered Level 2 under the fair value hierarchy.

See Note 4, Business Combination, for discussion related the the fair value of tangible and intangible assets acquired and liabilities assumed as part of the merger with Luxco.

Derivative Instruments.

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The Company has determined that the firm commitments to purchase grain, wheat flour, and natural gas under the terms of its supply contracts meets the normal purchases and sales exception as defined under ASC 815, Derivatives and Hedging , because the quantities involved are for amounts to be consumed within the normal expected production process.

Equity Method Investments.

The consolidated financial statements include the results of Luxco and its affiliated companies since April 1, 2021, when the Company obtained control through the Merger.

The Company holds 50 percent interest in DGL Destiladores, S.de R.L.

(“DGL”) and Agricola LG, S.de R.L.

(“Agricola”) (combined “LMX”), which are accounted for as equity method investments.

At December 31, 2021, the investment in LMX was $ 4,944 , which is recorded in Investment in joint ventures on the Consolidated Balance Sheet.

During the year ended December 31, 2021, the Company recorded a $ 1,611 loss from equity method investments, which is recorded in Other income (loss), net on the Consolidated Statement of Income.

Recently Adopted Accounting Standard Updates.

Accounting Standards Update (“ASU”) No.

2016-13, Financial Instruments - Credit Losses (Topic 326) and subsequent updates, which changes the methodology for measuring credit losses on financial instruments and the timing when such losses are recorded.

The Company adopted this standard on January 1, 2020 using the modified retrospective approach, and it had no impact on its consolidated financial statements and disclosures.

ASU 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the accounting for goodwill by eliminating the step 2 from the goodwill impairment test.

An impairment in goodwill is recognized if the carrying amount of the reporting unit exceeds its fair value.

The Company adopted this standard on January 1, 2020 on a prospective basis.

The adoption of this standard had no impact on the Company's consolidated financial statements and disclosures.

ASU 2018-13, Fair Value Measurement (Topic 820), which modifies the disclosure requirements on fair value measurements.

The Company adopted this guidance on January 1, 2020 and it had no impact on its consolidated financial statements and disclosures.

ASU 2019-12, Simplifying the Accounting for Income Taxes , which clarifies and simplifies certain aspects of accounting for income taxes.

This standard requires certain aspects to be adopted on either a retrospective or modified retrospective basis, while others apply prospectively.

This guidance is effective for fiscal years beginning after December 15, 2020 and early adoption is permitted.

The Company elected to early adopt this standard on January 1, 2020 and it had no impact on its consolidated financial statements and disclosures.

2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , which simplifies the accounting for convertible instruments by eliminating the beneficial conversion feature and cash conversion models.

Certain convertible instruments will be accounted for as a single unit of account, unless the conversion feature requires bifurcation and recognition as a derivative.

Additionally, this ASU simplifies the earnings per share calculation, by eliminating the treasury stock method and requiring entities to use the if-converted method.

This guidance is effective for annual periods beginning after December 31, 2021 with early adoption permitted.

The Company adopted ASU 2020-06 on January 1, 2021.

Recently Issued Accounting Pronouncements.

ASU 2020-04, Facilitation of Effects of Reference Rate Reform on Financial Reporting , which provide optional expedients and exceptions for a period of time to help facilitate the adoption of reference rate reform and the impact on financial reporting.

This guidance is effective immediately upon issuance and may be applied prospectively to contract modifications and transactions affected by reference rate reform before December 31, 2022.

This amendment is not applicable to contract modifications made after December 31, 2022.

The Company is still evaluating the effect that ASU 2020-04 will have on its consolidated financial statements and related disclosures.

ASU 2021-01, Reference Rate Reform - Scope , which provides certain expedients and exceptions when applying the reference rate reform to certain derivative and hedging contracts.

This guidance is effective immediately for all entities on a full retrospective basis subsequent to March 12, 2020 or on a prospective basis to new contracts.

The amendment is not applicable to contract modifications made after December 31, 2020.

ASU 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which requires an entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue Recognition .

This ASU is effective for annual and interim periods beginning after December 15, 2022.

Early adoption is permitted.

The Company is still evaluating the effect that ASU 2021-08 will have on its consolidated financial statements and related disclosures.

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The Company generates revenues from the Distillery Products segment by the sale of products and by providing warehouse services related to the storage and aging of customer products.

The Company generates revenues from the Ingredient Solutions segment by the sale of products.

Revenue related to sales of products is recognized at a point in time whereas revenue generated from warehouse services is recognized over time.

Contracts with customers in both segments include a single performance obligation (either the sale of products or the provision of warehouse services).

The Company generates revenue from the Branded Spirits segment by the sale of products and by providing contract bottling services.

The Company generates revenue from the Ingredient Solutions segment by the sale of products.

Revenue related to sales of products is recognized at a point in time whereas revenue generated from warehouse services and contract bottling services are recognized over time.

Contracts with customers include a single performance obligation (either the sale of products or the provision of warehouse services and contract bottling service).

Disaggregation of Sales.

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Total Distillery Products 352,504 313,309 294,238

Branded Spirits

Ultra premium 34,030 3,772 2,625

Premium 19,663 334 370

Mid 51,890 — —

Value 58,514 — —

Other 19,469 43 —

Total Branded Spirits 183,566 4,149 2,995

Ingredient Solutions

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Total sales $ 626,720 $ 395,521 $ 362,745

BUSINESS COMBINATION

Description of the transaction .

On January 22, 2021, the Company entered into a definitive agreement to acquire Luxco, and subsequently completed the merger on April 1, 2021 (the “Merger”).

Luxco is a leading branded beverage alcohol company across various categories, with a more than 60-year business heritage.

As a result of the Merger, MGP increased its scale and market position in the branded-spirits sector and believes it strengthened its platform for future growth of higher valued-added products.

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

The aggregate consideration paid by the Company in connection with the Merger was $ 237,500 in cash (less assumed indebtedness) and 5,007,833 shares of common stock of the Company, subject to adjustment for fractional shares (the “Company Shares,” and together with the cash portion, the “Merger Consideration”).

The Company Shares were valued at $ 296,213 and represented approximately 22.8 percent of the Company’s outstanding common stock immediately following the closing of the Merger.

The Merger Consideration was subject to customary purchase price adjustments related to, among other things, net working capital, acquired cash and assumed debt.

The consideration paid at closing included a preliminary estimated purchase price adjustment.

In September 2021, the parties finalized the purchase price adjustment, which decreased the cash consideration paid by approximately $ 608 and increased stock consideration by an additional 1,373 shares from the preliminary amounts that were paid at closing.

The cash portion of the Merger Consideration, the repayment of assumed debt, and transaction-related expenses were financed with borrowings under the Company’s existing Credit Agreement which was drawn down on April 1, 2021.

See Note 6, Corporate Borrowings, for further details.

For tax purposes, the transaction was structured partially as a tax-free reorganization and partially as a taxable acquisition, as defined in the Internal Revenue Code.

The Company anticipates the amount transferred in a tax deferred manner, under the tax-free reorganization rules, will not create additional tax basis for the Company.

The taxable component of the transaction will create additional tax basis and a corresponding future tax deduction for the Company.

Purchase Price Allocation.

The Merger was accounted for as a business combination in accordance with Financial Accounting Standards Board Accounting Standard Codification 805, Business Combinations (“ASC 805”), and as such, assets acquired, liabilities assumed, and consideration transferred were recorded at their estimated fair values on the acquisition date.

The following table summarizes the allocation of the consideration paid for Luxco to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date, with the excess recorded to goodwill.

Consideration:

Cash, net of assumed debt $ 149,484

Value of MGP Common Stock issued at close (a)

Fair value of total consideration transferred $ 445,763

Recognized amounts of identifiable assets acquired and liabilities assumed:

Receivables 29,675

Inventory 90,854

Prepaid expenses 1,454

Property, plant and equipment, net 41,279

Investments in joint ventures 5,085

Intangible assets (b)

Other assets 4,257

Total assets 392,583

Current maturities of long-term debt (c)

Accounts payable 14,453

Federal and state excise taxes payable 8,352

Accrued expenses and other 2,832

Other noncurrent liabilities 196

Deferred income taxes 57,034

Total liabilities 170,376

Goodwill 223,556

Total $ 445,763

(a) The Company issued 5,007,833 shares of MGP Common Stock which was valued at $ 59.15 per share on April 1, 2021.

In September 2021, the parties finalized the purchase price adjustments which increased stock consideration by an additional 1,373 shares from the preliminary amounts that were paid at closing.

(b) Intangible assets acquired includes trade names with an estimated fair value of $ 178,100 and distributor relationships with an estimated fair value of $ 41,400 .

In accordance with ASC 805 assets acquired, liabilities assumed, and consideration transferred were recorded at their estimated fair values on the acquisition date.

The fair value measurements of tangible and intangible assets and liabilities were based on significant inputs not observable in the market and represent Level 3 measurements within the fair value hierarchy.

Level 3 inputs include discount rates that would be used by a market participant in valuing these assets and liabilities, projections of revenues and cash flows, distributor attrition rates, royalty rates and market comparable, among others.

The fair value of work-in-process and finished goods inventory was determined using the comparative sales method and raw materials was determined

using the replacement cost method.

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 and the sales comparison approach.

Goodwill of $ 223,556 , all of which is expected to be deductible for tax purposes, represents the excess of the consideration transferred over the estimated fair value of assets acquired net of liabilities assumed.

The Intangible assets acquired includes indefinite-lived intangible assets, trade names, with an estimated fair value of $ 178,100 and definite-lived intangible assets, distributor relationships, with an estimated fair value of $ 41,400 and a useful life of 20 years.

The trade names and distributor relationships acquired by the Company have been recorded at the estimated fair values using the relief from royalty method and multi-period 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.

Operating Results .

The operating results of Luxco were consolidated with the Company’s operating results subsequent to the merger date.

During the year ended December 31, 2021, the Company recorded $ 177,607 and $ 17,027 , of Sales and Income before income taxes, respectively, attributable to Luxco on it’s Consolidated Statement of Income.

During the year ended December 31, 2021, the Company has incurred $ 8,927 of transaction related costs, which are included in Selling, general and administrative expenses on the Consolidated Statements of Income.

Pro Forma Information .

The following table summarizes the unaudited pro forma financial results for the year ended December 31, 2021 and 2020, as if the Merger had occurred on January 1, 2020:

Pro Forma Financial Information

Year Ended December 31,

Sales $ 671,090 $ 592,025

Net income 100,597 46,200

Basic earnings per share 4.84 2.09

The pro forma results are adjusted for items that are non-recurring in nature and directly attributable to the Merger, including the income tax effect of the adjustments.

Merger related costs incurred by the Company of $ 8,927 for the year ended December 31, 2021 were excluded and $ 7,037 is assumed to have been incurred on January 1, 2020.

Merger related costs incurred by Luxco of $ 3,132 were excluded from the year ended December 31, 2021 pro forma results.

A non-recurring expense of $ 2,529 for the year ended December 31, 2021 related to the fair value adjustment of finished goods inventory estimated to have been sold was removed and included in the results for the year ended December 31, 2020.

Other acquired tangible and intangible assets are assumed to be recorded at estimated fair value on January 1, 2020 and are amortized or depreciated over their estimated useful lives.

The summary pro forma financial information is for informational purposes only, is based on estimates and assumptions, and does not purport to represent what the Company’s consolidated results of operations actually would have been if the Merger had occurred at an earlier date, and such data does not purport to project the Company’s results of operations for any future period.

The basic shares outstanding used to calculate the pro forma net income per share amounts presented above have been adjusted to assume shares issued at the closing of the Merger were outstanding since January 1, 2020.

GOODWILL AND OTHER INTANGIBLE ASSETS

Definite-Lived Intangible Assets

The Company has a definite-lived intangible asset which was acquired as a result of the Merger.

The distributor relationships have a carrying value of $ 39,848 , net of accumulated amortization of $ 1,552 .

The distributor relationships have a useful life of 20 years.

The amortization expense for the year ended December 31, 2021 was $ 1,552 .

As of December 31, 2021, the expected future amortization expense related to definite-lived intangibles assets are as follows:

Thereafter 29,498

Total $ 39,848

Goodwill and Indefinite-Lived Intangible Assets

The Company records goodwill and indefinite-lived intangible assets in connection with various acquisitions of businesses and allocates the goodwill and indefinite-lived intangible assets to its respective reporting units.

Goodwill and indefinite-lived intangible assets are included in Other assets on the Consolidated Balance Sheets.

Changes in carrying amount of goodwill and indefinite-lived intangible assets by business segment were as follows:

Distillery Products (a)

Ingredient Solutions Total (a)

Changes in carrying amount of goodwill by business segment were as follows:

Distillery Products Branded Spirits Ingredient Solutions Total

Balance at December 31, 2020

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$ — $ 226,294 $ — $ 226,294

(a) Includes $ 890 and $ 350 of trade names at December 31, 2020 and 2019, respectively.

Trade names are considered indefinite-lived intangible assets.

Changes in carrying amount of indefinite-lived intangible assets by business segment were as follows:

Distillery Products Branded Spirits Ingredient Solutions Total

Balance at December 31, 2020

$ — $ 890 $ — $ 890

Acquisitions — 178,100 — 178,100

Balance at December 31, 2021

$ — $ 178,990 $ — $ 178,990

CORPORATE BORROWINGS

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Credit Agreement - Revolver, 1.09 % (variable rate) due 2025

Previous Credit Agreement - Revolver, 3.19 % (variable rate) due 2022

Secured Promissory Note, 3.71 % (fixed rate) due 2022

Convertible Note, 1.88 % (fixed rate) due 2041

Prudential Note Purchase Agreement, 3.53 % (fixed rate) due 2027

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20,000 20,000

Other long-term borrowings 203 —

Total indebtedness outstanding 239,853 40,000

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Long-term debt $ 230,172 $ 38,271

(a) Interest rates are as of December 31, 2020, except for the Previous Credit Agreement which is as of December 31, 2019.

(a) Interest rates are as of December 31, 2021.

(b) Loan fees are being amortized over the life of the Credit Agreement and Note Purchase Agreement.

Credit Agreement and Note Purchase Agreements.

On February 14, 2020, the Company entered into a new credit agreement (the "Credit Agreement") with multiple participants led by Wells Fargo Bank, National Association ("Wells Fargo Bank").

The Credit Agreement provides for a $ 300,000 revolving credit facility.

The Company may increase the facility from time to time by an aggregate principal amount of up to $ 100,000 provided certain conditions are satisfied and at the discretion of the lender.

Credit Agreement.

On February 14, 2020, the Company entered into a credit agreement (the “Credit Agreement”) with multiple participants led by Wells Fargo Bank, National Association (“Wells Fargo Bank”), which provided for a $ 300,000 revolving credit facility.

On May 14, 2021, the Company amended the Credit Agreement to increase the principal amount to $ 400,000 and to increase the amount of the revolving credit facility by up to an additional $ 100,000 provided certain conditions are satisfied and at the discretion of the lender.

The Credit Agreement matures on February 14, 2025.

The Credit Agreement is secured by substantially all assets, excluding real property.

The Credit Agreement is

secured by substantially all assets, excluding real property.

The cash portion of the Merger Consideration, the repayment of assumed debt, and transaction-related expenses were financed with $ 242,300 borrowings under the Credit Agreement which was drawn on April 1, 2021.

The Credit Agreement includes certain requirements and covenants, which the Company was in compliance with at December 31, 2021.

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The interest rate for the borrowings of the Credit Agreement at December 31, 2021 was 1.1 %.

The Credit Agreement replaced the Company's $ 150,000 Credit Agreement ("Previous Credit Agreement) with Wells Fargo Bank, which was entered into on August 23, 2017.

The Previous Credit Agreement was set to mature on August 23, 2022.

The Previous Credit Agreement was secured by substantially all assets, excluding real property.

The interest rate for borrowings of the Previous Credit Agreement at December 31, 2019 was 3.2 %.

Note Purchase Agreements .

On August 23, 2017, the Company also entered into a Note Purchase and Private Shelf Agreement (the “Note Purchase Agreement”) with PGIM, Inc.

(“Prudential Capital Group”), an affiliate of Prudential Financial, Inc., and certain affiliates of PGIM, Inc.

The Note Purchase Agreement was amended by the First Amendment to Private Shelf Agreement as of February 14, 2020 and the Second Amendment to Private Shelf Agreement as of September 30, 2020.

The amended agreement provides for the issuance of up to $ 105,000 of Senior Secured Notes the shelf facility and issuance of up $ 20,000 Senior Secured Notes.

The Company issued $ 20,000 of Senior Secured Notes with a maturity date of August 23, 2027.

The Note Purchase Agreement was amended by the First Amendment to Private Shelf Agreement as of February 14, 2020, the Second Amendment to Private Shelf Agreement as of September 30, 2020, the Third Amendment to Private Shelf Agreement as of January 25, 2021, and the Fourth Amendment to Private Shelf Agreement as of May 14, 2021.

The amended agreement provides for the issuance of up to $ 105,000 of Senior Secured Notes under the shelf facility and issuance of up $ 20,000 Senior Secured Notes.

On July 29, 2021, PGIM, Inc.

provided the Company notice pursuant to Section 1.2 of the Note Agreement that Prudential has authorized an increase in the amount of the senior promissory notes that may be issued under the uncommitted shelf facility under the Note Agreement from $ 105,000 to $ 140,000 , effective as of July 29, 2021.

The deadline for issuing the notes under the shelf facility is August 23, 2023.

The Company initially issued $ 20,000 of Senior Secured Notes with a maturity date of August 23, 2027.

The Senior Secured Notes bear interest at a rate of 3.5 percent per year.

On April 30, 2019, the Company issued $ 20,000 of additional Senior Secured

Notes with a maturity date of April 30, 2029.

On April 30, 2019, the Company issued $ 20,000 of additional Senior Secured Notes with a maturity date of April 30, 2029.

The Senior Secured Notes bear interest at a rate of 3.8 percent per year.

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The Note Purchase Agreement is secured by substantially all assets, excluding real property.

Convertible Senior Notes .

On November 16, 2021, the Company issued $ 201,250 in aggregate principal amount of 1.875 % convertible senior notes due in 2041 (“2041 Notes”).

The total aggregate principal amount includes $ 26,250 aggregate principal amount of 2041 Notes purchased by the initial purchasers in the offering pursuant to their exercise in full of their option to purchase additional notes under the purchase agreement for the offering.

The 2041 Notes were issued pursuant to an indenture, dated as of November 16, 2021 ( the “Indenture”), by and among the Company, as issuer, Luxco, Inc., MGPI Processing, Inc.

and MGPI of Indiana, LLC as subsidiary guarantors, and U.S.

Bank National Association, as trustee.

The 2041 Notes are senior, unsecured obligations of the Company and interest is payable semi-annually in arrears at a fixed interest rate of 1.875 % on May 15 and November 15 of each year.

The 2041 Notes mature on November 15, 2041 (“Maturity Date”) unless earlier repurchased, redeemed or converted, per the agreement.

The Company will settle conversion by paying or delivering, as applicable, cash, shares of its common stock or a combination of cash and shares at the Company’s election.

The Company incurred $ 6,384 of new loan fees related to the 2041 Notes during 2021.

The unamortized balance of total loan fees related to the 2041 Notes was $ 6,344 at December 31, 2021 and is being amortized over the life of the 2041 Notes.

The initial conversion rate for the 2041 Notes is 10.3911 shares of common stock per $1 principal amount of the 2041 Notes.

Prior to the Maturity Date, holders may convert at their option only in the following circumstances:

• During any calendar quarter commencing after the quarter ending March 31, 2022, if the closing sale price of common stock for at least 20 trading days in the period of 30 consecutive trading days is more than 130 % of the conversion price;

• during the 5 consecutive business days following any 10 consecutive trading day period in which the trading price per $1 principal amount of the notes for each trading day was less than 98 % of the product of the closing sale price of common stock on such trading day and the conversion rate on such trading day;

• upon the occurrence of specified corporate events, as defined in the Indenture;

• if the Company calls the notes for redemption;

• during the period July 15, 2026 ending close of business day immediately preceding November 20, 2026 or the period

July 15, 2041 and close of business day immediately preceding the Maturity Date.

Other long-term borrowings .

As part of the Merger, the Company acquired additional long-term notes payable to certain counties in Kentucky.

Debt Maturities.

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State 3,489 1,291 412

Foreign 294 — —

23,529 12,116 6,838

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Income tax expense also included tax expense allocated to comprehensive income for 2021, 2020, and 2019 of $ 19 , $ 229 , and $ 14 , respectively (see the Consolidated Statements of Comprehensive Income).

In response to COVID-19, President Donald Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") on March 27, 2020.

The CARES Act along with other guidance issued by the IRS provides for numerous tax provisions and other stimulus measures, including temporary suspension of certain payment requirements for the employer portion of Social Security taxes, deferral of income tax payments until July 15, 2020, and technical corrections from prior tax legislation.

The Company is in the process of monetizing certain parts of the CARES Act and continues to monitor tax legislation for additional potential benefits available to the Company.

In addition, President Trump signed a second COVID-19 stimulus bill, the Coronavirus Relief and Government Funding Act, on December 27, 2020.

The Company is in the process of reviewing that legislation.

As of December 31, 2020, to the extent applicable, MGP has reflected both stimulus packages in its consolidated financial statements.

A reconciliation of income tax expense at the normal statutory federal rate to income tax expense included in the accompanying Consolidated Statements of Income is below:

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State income taxes, net 5,713 2,408 1,540

Foreign income taxes 294 — —

Change in valuation allowance 204 ( 422 ) ( 168 )

Share-based compensation 31 56 ( 2,877 )

Compensation limits 125 148 —

Federal and state tax credits ( 1,363 ) ( 1,035 ) ( 1,302 )

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Deferred income tax assets:

Post-retirement liability $ 446 $ 717

Deferred income 250 300

Share-based compensation $ 1,973 $ 2,123

Capital loss carryforwards — 91

State tax credit carryforwards 2,343 2,986

State operating loss carryforwards 1,264 1,529

Operating loss carryforwards 2,416 1,264

Inventories 1,923 2,077

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Deferred income tax liabilities:

Fixed assets ( 12,205 ) ( 10,332 )

Property, plant and equipment ( 24,627 ) ( 12,205 )

Intangibles ( 46,956 ) —

Inventory ( 4,307 ) —

Operating lease right-of-use assets ( 2,487 ) ( 1,318 )

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Balance at December 31, 2020

Decrease ( 422 )

Balance at December 31, 2021

As of December 31, 2021, the Company’s total valuation allowance of $ 1,657 related to net operating loss and tax credits carryforwards in states and foreign countries in which it is not “more likely than not” to create enough taxable income to fully utilize the carryforwards before expiration of the carryforward periods.

As of December 31, 2020, the Company’s total valuation allowance of $ 862 related to net operating loss carryforwards and certain tax credits in states in which it is not “more likely than not” to create enough state taxable income to fully utilize the carryforwards before expiration of the carryforward periods.

As of December 31, 2019, the Company’s total valuation allowance of $ 1,284 related to net operating loss carryforwards in states in which it is not "more likely than not" to create enough state taxable income to fully utilize the carryforwards before expiration of the carryforward periods, and capital loss carryforwards that the Company is not "more likely than not" to use before they expire.

The reduction of the valuation allowance year-over-year is due to certain capital loss carryforwards and the corresponding deferred tax asset and related valuation allowance expiring at the end of 2020, and the reduction of the valuation allowance related to certain state tax attributes.

The increase of the valuation allowance year-over-year is primarily due to the acquisition of certain foreign entities that created the inability to fully utilize certain foreign tax credits and net operating losses.

The Merger with Luxco was largely structured as a non-taxable merger for U.S.

income tax purposes.

This merger required the Company to book an additional $ 57,034 in deferred tax liabilities to its opening balance sheet.

In addition, at December 31, 2021, the Company had book tax differences resulting in a net deferred tax liability balance of $ 66,101 .

This increase in the Company’s deferred tax balances could make the Company more susceptible to the tax impact of tax rate changes and its effect on earnings and earnings per share in the future.

As of December 31, 2021 and 2020, the Company had $ 19,823 and $ 18,697 in gross state net operating loss carryforwards, respectively.

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The Company reasonably expects that the amount of unrecognized tax benefit will not change significantly over the next 12 months.

The Company completed an audit of federal income tax audit for tax year 2016, without significant findings.

The Company is not under any federal, state or foreign income tax audits.

For federal tax purpose, all tax years after 2017 remain open to adjustment.

The Company is subject to examination for its state tax returns for years 2016, and forward, with the exception of certain net operating losses and credit carryforwards originating in years prior to 2016 that remain subject to adjustment.

Amounts paid for income tax in foreign jurisdictions are not material to the financial statements.

In addition, the Company is subject to examination for its state tax returns for years 2017, and forward, with the exception of certain net operating losses and credit carryforwards originating in years prior to 2017 that remain subject to adjustment.

EQUITY AND EPS

11 unchanged sentences

$ 90,817 $ 40,345 $ 38,793

Net loss attributable to noncontrolling interest 490 — —

Income attributable to participating securities (unvested shares and units) (b)

Net income attributable to common shareholders $ 40,084 $ 38,540 $ 36,576

( 712 ) ( 261 ) ( 253 )

Net income used in EPS calculation $ 90,595 $ 40,084 $ 38,540

Share information:

Basic and diluted weighted average common shares (c)

Basic weighted average common shares (c)

20,719,663 16,937,125 17,012,288

Basic and diluted EPS $ 2.37 $ 2.27 $ 2.17

Diluted weighted average common shares (D)

20,982,453 16,937,125 17,012,288

Basic EPS $ 4.37 $ 2.37 $ 2.27

Diluted EPS $ 4.34 $ 2.37 $ 2.27

(a) Net income attributable to all shareholders.

1 unchanged sentence

(c) Under the two class method, basic weighted average common shares exclude outstanding unvested participating securities.

(d) Diluted weighted average common shares included the dilutive effect of Convertible Senior Notes of 262,790 shares for the year end December 31, 2021.

There was no dilutive impact for the years ended December 31, 2020 and 2019.

Share Issuance.

On April 1, 2021, as part of the consideration for the Merger, the Company issued 5,007,833 shares of common stock.

Additionally, in September 2021, the parties finalized the purchase price adjustments, which increased stock consideration by an additional 1,373 shares from the preliminary amounts that were paid at closing.

Share Repurchase.

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, the Company repurchased approximately 159,104 shares of MGP Common Stock for $ 4,053 , resulting in $ 20,947 remaining under the share repurchase plan.

The shares were repurchased in multiple separate tranches with the final purchase concluding on March 16, 2020.

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

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

Common Stock Share Activity.

Shares Outstanding

Capital Stock Preferred Common Stock

Balance, December 31, 2019 437 17,028,125

Issuance of Common Stock — 57,278

Repurchase of Common Stock — ( 169,541 )

Balance, December 31, 2020 437 16,915,862

Issuance of Common Stock — 5,060,339

Repurchase of Common Stock — ( 11,887 )

Balance, December 31, 2021 437 21,964,314

Dividends and Dividend Equivalents.

3 unchanged sentences

February 23 March 12 March 26 $ 0.12 $ 0.12 $ 2,033 $ 19 $ 2,052

May 3 May 21 June 4 0.12 0.12 2,635 20 2,655

August 2 August 20 September 3 0.12 0.12 2,635 20 2,655

November 1 November 19 December 3 0.12 0.12 2,635 20 2,655

$ 0.48 $ 0.48 $ 9,938 $ 79 $ 10,017

February 24 March 13 March 27 $ 0.12 $ 0.12 $ 2,047 $ 13 $ 2,060

April 28 May 22 June 5 0.12 0.12 2,027 14 2,041

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$ 0.40 $ 0.40 $ 6,809 $ 47 $ 6,856

February 21 March 9 March 23 $ 0.08 $ 0.08 $ 1,348 $ 27 $ 1,375

April 30 May 16 June 1 0.08 0.08 1,348 27 1,375

July 31 August 16 August 31 0.08 0.08 1,348 27 1,375

October 30 November 15 November 30 0.08 0.08 1,349 26 1,375

$ 0.32 $ 0.32 $ 5,393 $ 107 $ 5,500

(a) Dividend equivalent payments on unvested participating securities (see Note 11).

(b) Includes estimated forfeitures.

The Company has operating leases for railcars, computer equipment, an office space, and certain equipment.

The Company has operating leases for railcars, computer equipment, office spaces, a bottling facility, a warehouse facility, fulfillment center, retail location, and certain equipment.

The Company has no finance leases.

1 unchanged sentence

The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

For leases beginning in 2019 and later, lease components are accounted for separately from non-lease components, such as common-area maintenance, based on the relative, observable stand-alone prices of the components.

The Company’s leases have remaining lease terms of one year to five years , some of which may include options to extend the lease.

Lease components are accounted for separately from non-lease components, such as common-area maintenance, based on the relative, observable stand-alone prices of the components.

The Company’s leases have remaining lease terms of one year to six years , some of which may include options to extend the lease.

Options to renew the Company’s leases were not considered when assessing the value of the right-of-use assets because the Company was not reasonably certain that it will assert the options to renew the leases.

6 unchanged sentences

Current Operating Accrued expenses $ 2,865 $ 2,112

Noncurrent Operating Long-term operating lease liabilitites 3,057 4,267

Noncurrent Operating Long-term operating lease liabilities 6,997 3,057

Total operating lease liability

22 unchanged sentences

As of December 31, 2021, the maturities of operating lease liabilities were as follows:

Thereafter 321

Total lease payments 10,197

2 unchanged sentences

COMMITMENTS AND CONTINGENCIES

Beginning in October 2018, the Company carries $ 10,000 in industrial revenue bonds with the City of Williamstown, Kentucky (the "City") that mature in 2047, and leases back facilities owned by the City that the Company recorded as property, plant, and equipment, net, on its Consolidated Balance Sheet under a capital lease.

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 Company recorded as property, plant, and equipment, net, on its Consolidated Balance Sheet under a capital lease.

The lease payment on the facilities is sufficient to pay principal and interest on the bonds.

3 unchanged sentences

The Company accrues estimated costs for a contingency when management believes that a loss is probable and can be reasonably estimated.

Feed Dryer Fire.

Dryer Fire Incident.

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

2 unchanged sentences

Additionally, the Company 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, the Company recorded a $ 3,780 partial settlement from its insurance carrier as a reduction of Cost of sales.

The Company is working to construct a replacement drying system.

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

At December 31, 2021, the Company received a legally binding commitment from its insurance carrier for final settlement of $ 43,688 , $ 27,363 related to business interruption and $ 16,325 for the damaged dryer.

As of December 31, 2021, $ 7,188 of the insurance recovery was recorded as Receivables on the Consolidated Balance Sheet.

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

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.

The Company finalized the construction of the replacement drying system and placed this dryer into service during 2021.

Ransomware Cyber-Attack .

1 unchanged sentence

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

The Company has insurance related to this event and partially recovered $ 633 in December 2020 as reduction of Cost of sales.

The Company is currently evaluating if it will seek further recovery related to this event.

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

The Company’s insurance may cover additional losses from this incident, but there can be no assurance as to the amount or timing of any possible insurance recoveries if ultimately claimed by the Company.

The Company has insurance related to this event and partially recovered $ 633 in December 2020 and received a final recovery of $ 230 in December 2021 as a reduction of Cost of sales on the Consolidated Statement of Income.

Shareholder matters.

In 2020, two putative class action lawsuits were filed in the United States District Court for District of Kansas, naming the Company and certain of its current and former executive officers as defendants, asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.

The plaintiffs seek to pursue claims on behalf of a class consisting of purchasers or acquirers of the Company's Common Stock during certain specified periods (the “Class Periods”).

The plaintiffs sought to pursue claims on behalf of a class consisting of purchasers or acquirers of the Company's Common Stock during certain specified periods (the “Class Periods”).

On May 28, 2020, the two lawsuits were consolidated and the Court appointed City of Miami Fire Fighters’ and Police Officers’ Retirement Trust as lead plaintiff.

4 unchanged sentences

The Consolidated Complaint alleges that the defendants made false and/or misleading statements regarding the Company’s forecasts of sales of aged whiskey, and that, as a result the Company's Common Stock traded at artificially inflated prices throughout the Class Periods.

The plaintiffs seek compensatory damages, interest, attorneys’ fees, costs, and unspecified equitable relief, but have not specified the amount of damages being sought.

The plaintiffs sought compensatory damages, interest, attorneys’ fees, costs, and unspecified equitable relief, but did not specify the amount of damages being sought.

On September 8, 2020, defendants filed a Motion to Dismiss the Consolidated Amended Complaint.

The Motion has been fully briefed and remains pending.

Discovery is stayed while the motion is pending.

The Company intends to continue to vigorously defend itself in this action.

On August 31, 2021, the court issued a Memorandum and Order granting the Motion to Dismiss dismissing plaintiff’s claims with prejudice.

The Plaintiff had until September 30, 2021 to file a notice of appeal and the Plaintiff did not appeal.

On May 11, 2020, Mitchell Dorfman, a shareholder in MGP, filed an action in the United States District Court for the District of Kansas, under the caption Dorfman, derivatively on behalf of MGP Ingredients v.

Griffin, et al.

, Case 2:20-cv-02239.

Griffin, et al., Case 2:20-cv-02239.

On June 4, 2020, Justin Carter, a shareholder in MGP, filed an action in the United States District Court for the District of Kansas, under the caption Carter, derivatively on behalf of MGP Ingredients v.

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The Complaint in Carter asserts claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, breach of fiduciary duties, waste of corporate assets, and unjust enrichment.

The Petition in Kearns asserts claims for breach of fiduciary duties, waste of

corporate assets, and unjust enrichment.

The Petition in Kearns asserts claims for breach of fiduciary duties, waste of corporate assets, and unjust enrichment.

The pleadings pray for an award of compensatory damages, including interest, in favor of the Company, for equitable relief related to the Company’s corporate governance, for disgorgement of compensation, and for an award of attorneys’ fees and costs.

On July 13, 2020, defendants filed a Motion to Dismiss in Dorfman .

The Motion has been fully briefed and remains pending.

On August 13, 2020, defendants filed a Motion to Stay the Kearns action pending the resolution of Dorfman .

The Motion has been fully briefed and remains pending.

On November 3, 2020, the court entered an order providing that Defendants’ response to the Carter Complaint shall be due 14 days after a ruling on the Motion to Dismiss filed in Dorfman .

On March 31, 2021, the Dorfman court issued a Memorandum and Order in which it granted defendants’ Motion to Dismiss plaintiff’s federal claims, dismissed those claims without prejudice, denied without prejudice defendants’ Motion to Dismiss

plaintiff’s state claims, and stayed the case pending the Kansas Supreme Court’s decision in Herington v.

City of Wichita.

Herington involved the issue of whether a federal decision that determines federal claims and dismisses pendent state law claims for lack of supplemental jurisdiction precludes the reassertion of the state law claims in state court.

On April 14, 2021, defendants in Carter filed a Motion to dismiss plaintiff’s federal claims and to stay plaintiff’s state claims until fourteen days after the Court rules on the state claims in Dorfman .

On November 9, 2021, the Carter court entered a Memorandum and Order dismissing plaintiff’s federal claims with prejudice, denying the Motion to Dismiss as it applies to plaintiff’s state law claims, and staying the case pending a decision in Herington .

On December 17, 2021, the Kansas Supreme Court issued its decision in Herington .

The court held that where a federal court declines to exercise supplemental jurisdiction over state law claims and dismisses those claims without prejudice, the Kansas common law doctrine of res judicata does not preclude a litigant from bringing those claims in state court.

On January 4, 2022, the Carter court entered a Memorandum and Order directing the clerk of the court to enter Judgment (1) dismissing plaintiff’s federal claims with prejudice (2) dismissing plaintiff’s state law claims without prejudice.

On January 11, 2022, the court entered a Memorandum and Order in Dorfman directing the clerk of the court to enter Judgment (1) dismissing plaintiff’s federal claims without prejudice and (2) dismissing plaintiff’s state law claims without prejudice.

The Judgment has been entered in each case.

On January 10, 2022, the parties filed a joint motion in Dorfman requesting the dismissal of the action without prejudice.

The Kearns court has not yet taken any action in response to the court’s Memorandum and Order in Dorfman .

On November 25, 2020, Kenneth Laury filed an action in the District Court of Shawnee County, Kansas under the caption Laury v.

MGP Ingredients, Inc., Case Number:

MGP Ingredients, Inc.

, Case Number:

2020-CV-000609.

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On January 8, 2021, the Company filed an answer to the Petition, denying that plaintiff has satisfied the statutory requirements for his demand.

On May 13, 2021, the parties stipulated to the voluntary dismissal, with prejudice, of the action.

2016 Atchison Chemical Release.

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The STI Plan was amended and restated as of January 1, 2019.

The STI Plan is designed to motivate and retain the Company’s officers and employees and tie short-term incentive compensation to achievement of certain profitability goals by the Company.

Pursuant to the STI Plan, short-term incentive compensation is dependent on the achievement of certain performance metrics by the Company, established by the Board of Directors.

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The HRCC determines the officers and employees eligible to participate under the STI Plan for the plan year as well as the target annual incentive compensation for each participant for each plan year.

For 2021, the Branded Spirits segment incentive plan was based on performance metrics of number of depleted cases and gross margin.

Amounts expensed under the STI Plan totaled $ 11,155 , $ 9,732 , and $ 461 for 2021, 2020, and 2019, respectively.

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Plan investments are classified as Level 1 in the fair value hierarchy since the investments trade with sufficient frequency and volume to enable the Company to obtain pricing information on an ongoing basis.

The current portion of deferred compensation plan deferrals is comprised of estimated amounts to be paid within one year depending on timing of planned

disbursements.

The current portion of deferred compensation plan deferrals is comprised of estimated amounts to be paid within one year depending on timing of planned disbursements.

At December 31, 2021 and 2020, the EDC Plan investments were $ 3,072 and $ 2,007 , respectively, which were recorded in Other assets on the Company’s Consolidated Balance Sheet.

The EDC Plan liabilities were $ 3,140 and $ 1,337 as of December 31, 2020 and 2019, respectively, which were recorded in Other non-current liabilities on the Company's Consolidated Balance Sheet.

CONCENTRATIONS

The EDC Plan current liabilities were $ 617 at December 31, 2021 and were included in Accrued expenses and other on the Company’s Consolidated Balance Sheet.

The EDC Plan non-current liabilities were $ 2,981 and $ 3,140 as of December 31, 2021 and 2020, respectively, which were recorded in Other non-current liabilities on the Company’s Consolidated Balance Sheet.

CONCENTRATIONS AND RELATED PARTIES

Significant customers.

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For 2019, the Company had purchases from two grain suppliers that approximated 31 percent of consolidated purchases.

The Company also purchased food grade alcohol from Pacific Ethanol of approximately 12 percent of consolidated purchases.

In addition, the Company’s ten largest suppliers, including these three suppliers, accounted for approximately 68 percent of consolidated purchases.

In addition, the Company’s ten largest suppliers accounted for approximately 66 percent of consolidated purchases.

Related Parties.

For the year ended December 31, 2021, the Company purchased $ 23,463 of bulk beverage alcohol from LMX.

The Company holds 50 percent interest in LMX, which is accounted for as equity method investments.

See Note 1, Nature of Operations and Summary of Significant Accounting Policies.

For the year ended December 31, 2021, the Company purchased $ 2,718 of finished goods from Meier’s Wine Cellars, Inc.

(“Meier’s”) and sold $ 2,411 of bulk beverage alcohol to Meier’s.

The Lux Family Group owns approximately 22.8 percent of the outstanding shares of MGP.

One member of the Lux Family Group has a relative that is the president of Meier’s.

The members of the Lux Family Group did not have any involvement in the negotiation of transactions for either party.

OPERATING SEGMENTS

At December 31, 2020 and 2019, the Company had two segments:

Distillery Products and Ingredient Solutions.

As discussed in Note 1, the Company established a new reporting structure as a result of the Merger and prior periods have been revised to reflect the new operating segments.

At December 31, 2021, the Company had three segments:

Distillery Products, Branded Spirits and Ingredient Solutions.

The Distillery Products segment consists of food grade alcohol and distillery co-products, such as distillers feed (commonly called dried distillers grain in the industry) and fuel grade alcohol.

The Distillery Products segment also includes warehouse services, including barrel put away, barrel storage, and barrel retrieval services.

The Branded Spirits segment consists of producing, importing, bottling and rectifying of distilled spirits.

Ingredient Solutions segment consists of specialty starches and proteins and commodity starches and proteins.

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Distillery Products $ 352,504 $ 313,309 $ 294,238

Branded Spirits 183,566 4,149 2,995

Ingredient Solutions 90,650 78,063 65,512

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Distillery Products $ 114,106 $ 75,773 $ 64,416

Branded Spirits 62,644 2,187 1,536

Ingredient Solutions 22,215 20,846 10,580

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Distillery Products $ 10,766 $ 9,816 $ 8,971

Branded Spirits 5,138 100 3

Ingredient Solutions 2,069 1,871 1,554

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Distillery Products $ 110,317 $ 73,533 $ 62,109

Branded Spirits 20,742 ( 2,510 ) ( 2,800 )

Ingredient Solutions 19,194 18,024 8,051

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Total $ 121,096 $ 52,601 $ 45,937

(a) Sales revenue from foreign sources totaled $ 23,905 , $ 19,372 , and $ 19,782 for 2020, 2019, and 2018, respectively, and is largely derived from Japan, Thailand, Mexico, and Canada.

(a) Sales revenue from foreign sources totaled $ 42,593 , $ 23,905 , and $ 19,372 for 2021, 2020, and 2019, respectively, and is largely derived from the United Kingdom, Japan, Thailand, Canada, and Mexico.

The balance of total sales revenue is from domestic sources.

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Distillery Products $ 314,816 $ 281,721

Branded Spirits 658,826 6,348

Ingredient Solutions 43,009 41,276

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$ 1,041,467 $ 366,575

(a) The Company has no assets located in foreign countries.

(a) The Company has $ 12,758 of assets located in Ireland.

SUPPLEMENTAL CASH FLOW INFORMATION

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Income taxes paid 29,766 10,566 7,111

See Note 8 for operating lease supplemental cash flow information.

See Note 9, Leases for operating lease supplemental cash flow information.

QUARTERLY FINANCIAL DATA (UNAUDITED)

Summary of selected quarterly financial data for year ended December 31, 2021 and 2020:

Year Ended December 31, 2021

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Gross profit 52,753 57,086 56,827 32,299

Advertising and promotion expenses 6,210 5,664 3,371 853

SG&A expenses 17,552 18,538 25,793 10,946

Insurance recoveries ( 16,325 ) — — —

Operating income 45,316 32,884 27,663 20,500

Interest expense, net and other ( 291 ) ( 409 ) ( 298 ) ( 642 )

Interest expense ( 1,329 ) ( 1,116 ) ( 1,104 ) ( 488 )

Other income (loss), net ( 751 ) ( 421 ) ( 88 ) 30

Income before income taxes 43,236 31,347 26,471 20,042

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Net income $ 31,658 $ 23,673 $ 20,059 $ 15,427

Basic and diluted EPS data (a)

Basic EPS data (a)

$ 1.44 $ 1.08 $ 0.91 $ 0.90

Diluted EPS data (a)

$ 1.40 $ 1.08 $ 0.91 $ 0.90

Year Ended December 31, 2020

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Gross profit 31,731 23,162 20,702 23,211

Advertising and promotion expenses 878 552 475 807

SG&A expenses 15,310 8,958 8,889 8,696

Operating income 15,543 13,652 11,338 13,708

Interest expense, net ( 368 ) ( 364 ) ( 321 ) ( 252 )

Interest expense ( 566 ) ( 594 ) ( 628 ) ( 479 )

Other income (loss), net 275 185 330 ( 163 )

Income before income taxes 15,252 13,243 11,040 13,066

Income tax expense (benefit) 2,936 3,025 2,642 ( 1,459 )

Income tax expense 3,620 2,862 2,550 3,224

Net income $ 11,632 $ 10,381 $ 8,490 $ 9,842

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SUBSEQUENT EVENTS

Definitive Merger Agreement with Luxco, Inc.

On January 22, 2021, the Company 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, MGP expects to increase it's 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 common stock of the Company.

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

Dividend Declaration

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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 8. Financial Statements and Supplementary Data