MGP INGREDIENTS INC 10-Q

ITEM 1. FINANCIAL STATEMENTS MGP INGREDIENTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except share and per share amounts) Quarter Ended September 30, Year to Date Ended September 30, 2022 2021 2022 2021 Sales $ 201,146 $ 176,611 $ 591,363 $ 459,873 Cost of sales 142,098 119,525 401,270 313,661 Gross profit 59,048 57,086 190,093 146,212 Advertising and promotion expenses 7,279 5,664 18,848 9,888 Selling, general and administrative expenses 17,904 18,527 52,029 55,266 Other operating (income) expense, net 1 11 ( 34 ) 11 Operating income 33,864 32,884 119,250 81,047 Interest expense, net ( 1,350 ) ( 1,116 ) ( 4,491 ) ( 2,708 ) Other income (expense), net ( 1,353 ) ( 421 ) ( 2,361 ) ( 479 ) Income before income taxes 31,161 31,347 112,398 77,860 Income tax expense 7,533 7,674 26,037 18,701 Net income 23,628 23,673 86,361 59,159 Net (income) loss attributable to noncontrolling interest 180 203 444 279 Net income attributable to MGP Ingredients, Inc. 23,808 23,876 86,805 59,438 Income attributable to participating securities ( 188 ) ( 175 ) ( 688 ) ( 471 ) Net income used in Earnings Per Common Share calculation $ 23,620 $ 23,701 $ 86,117 $ 58,967 Share information: Basic weighted average common shares 22,008,381 21,981,201 22,000,026 20,293,818 Diluted weighted average common shares 22,228,814 21,981,201 22,000,026 20,293,818 Basic Earnings Per Common Share $ 1.07 $ 1.08 $ 3.91 $ 2.91 Diluted Earnings Per Common Share $ 1.06 $ 1.08 $ 3.91 $ 2.91 See accompanying notes to unaudited condensed consolidated financial statements 3 MGP INGREDIENTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Dollars in thousands) Quarter Ended September 30, Year to Date Ended September 30, 2022 2021 2022 2021 Net income attributable to MGP Ingredients, Inc. $ 23,808 $ 23,876 $ 86,805 $ 59,438 Other comprehensive loss, net of tax: Unrealized loss on foreign currency translation adjustment ( 467 ) ( 141 ) ( 1,116 ) ( 134 ) Change in Company-sponsored post-employment benefit plan ( 76 ) ( 89 ) ( 102 ) ( 40 ) Other comprehensive loss ( 543 ) ( 230 ) ( 1,218 ) ( 174 ) Comprehensive income attributable to MGP Ingredients, Inc. 23,265 23,646 85,587 59,264 Comprehensive loss attributable to noncontrolling interest ( 180 ) ( 203 ) ( 444 ) ( 279 ) Comprehensive income $ 23,085 $ 23,443 $ 85,143 $ 58,985 See accompanying notes to unaudited condensed consolidated financial statements 4 MGP INGREDIENTS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands) September 30, 2022 December 31, 2021 Current Assets Cash and cash equivalents $ 50,674 $ 21,568 Receivables (less allowance for credit loss, $ 175 and $ 150 at September 30, 2022, and December 31, 2021, respectively) 107,653 92,537 Inventory 275,478 245,944 Prepaid expenses 5,833 1,510 Refundable income taxes 1,006 5,539 Total current assets 440,644 367,098 Property, plant, and equipment 430,945 404,149 Less accumulated depreciation and amortization ( 210,254 ) ( 196,863 ) Property, plant, and equipment, net 220,691 207,286 Operating lease right-of-use assets, net 14,516 9,671 Investment in joint ventures 6,140 4,944 Intangible assets, net 217,285 218,838 Goodwill 226,294 226,294 Other assets 6,505 7,336 Total assets $ 1,132,075 $ 1,041,467 Current Liabilities Current maturities of long-term debt $ 4,800 $ 3,227 Accounts payable 64,858 53,712 Federal and state excise taxes payable 4,713 6,992 Accrued expenses and other 26,420 24,869 Total current liabilities 100,791 88,800 Long-term debt, less current maturities 31,105 35,266 Convertible senior notes 195,146 194,906 Long-term operating lease liabilities 11,327 6,997 Other noncurrent liabilities 4,047 5,132 Deferred income taxes 65,799 66,101 Total liabilities 408,215 397,202 Commitments and Contingencies (Note 8) Stockholders’ Equity Capital stock Preferred, 5 % non-cumulative; $ 10 par value; authorized 1,000 shares; issued and outstanding 437 shares 4 4 Common stock No par value; authorized 40,000,000 shares; issued 23,125,166 shares at September 30, 2022 and December 31, 2021; and 21,993,355 and 21,964,314 shares outstanding at September 30, 2022 and December 31, 2021, respectively 6,715 6,715 Additional paid-in capital 317,541 315,802 Retained earnings 423,063 344,237 Accumulated other comprehensive income ( 864 ) 354 Treasury stock, at cost, 1,131,811 and 1,160,852 shares at September 30, 2022 and December 31, 2021, respectively ( 21,665 ) ( 22,357 ) Total MGP Ingredients, Inc. stockholders’ equity 724,794 644,755 Noncontrolling interest ( 934 ) ( 490 ) Total equity 723,860 644,265 Total liabilities and equity $ 1,132,075 $ 1,041,467 See accompanying notes to unaudited condensed consolidated financial statements 5 MGP INGREDIENTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) Year to Date Ended September 30, 2022 2021 Cash Flows from Operating Activities Net income $ 86,361 $ 59,159 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 16,257 13,668 Share-based compensation 3,086 5,247 Deferred income taxes, including change in valuation allowance ( 302 ) 465 Other, net 1,462 ( 231 ) Changes in operating assets and liabilities, net of effects of acquisition: Receivables, net ( 15,582 ) ( 5,593 ) Inventory ( 30,599 ) ( 7,588 ) Prepaid expenses 1,165 1,206 Refundable income taxes ( 1,006 ) ( 2,086 ) Accounts payable 12,613 ( 6,678 ) Accrued expenses and other 1,220 15,859 Federal and state excise taxes payable ( 2,279 ) ( 1,961 ) Other, net ( 143 ) ( 682 ) Net cash provided by operating activities 72,253 70,785 Cash Flows from Investing Activities Additions to property, plant, and equipment ( 29,217 ) ( 37,257 ) Purchase of business, net of cash acquired — ( 149,613 ) Contributions to equity method investment ( 2,232 ) ( 988 ) Other, net ( 315 ) ( 1,308 ) Net cash used in investing activities ( 31,764 ) ( 189,166 ) Cash Flows from Financing Activities Payment of dividends and dividend equivalents ( 7,984 ) ( 7,362 ) Purchase of treasury stock ( 714 ) ( 767 ) Loan fees paid related to borrowings — ( 666 ) Principal payments on long-term debt ( 2,603 ) ( 813 ) Proceeds from credit agreement - revolver — 242,300 Payments on credit agreement - revolver — ( 32,300 ) Payment on assumed debt as part of the Merger — ( 87,509 ) Net cash provided by (used in) financing activities ( 11,301 ) 112,883 Effect of exchange rate changes on cash ( 82 ) ( 2 ) Increase (decrease) in cash and cash equivalents 29,106 ( 5,500 ) Cash and cash equivalents, beginning of period 21,568 21,662 Cash and cash equivalents, end of period $ 50,674 $ 16,162 See accompanying notes to unaudited condensed consolidated financial statements 6 MGP INGREDIENTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY For Year to Date Ended September 30, 2022 (Unaudited) (Dollars in thousands) Capital Stock Preferred Issued Common Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income Treasury Stock Non-controlling Interest Total Balance, December 31, 2021 $ 4 $ 6,715 $ 315,802 $ 344,237 $ 354 $ ( 22,357 ) $ ( 490 ) $ 644,265 Comprehensive income: Net income (loss) — — — 37,437 — — ( 66 ) 37,371 Other comprehensive loss — — — — ( 232 ) — — ( 232 ) Dividends and dividend equivalents of $ 0.12 per common share and per restricted stock unit, net of estimated forfeitures — — — ( 2,661 ) — — — ( 2,661 ) Share-based compensation — — 1,373 — — — — 1,373 Stock shares awarded, forfeited or vested — — ( 604 ) — — 604 — — Stock shares repurchased — — — — — ( 711 ) — ( 711 ) Balance, March 31, 2022 4 6,715 316,571 379,013 122 ( 22,464 ) ( 556 ) 679,405 Comprehensive income: Net income (loss) — — — 25,560 — — ( 198 ) 25,362 Other comprehensive loss — — — — ( 443 ) — — ( 443 ) Dividends and dividend equivalents of $ 0.12 per common share and per restricted stock unit, net of estimated forfeitures — — — ( 2,658 ) — — — ( 2,658 ) Share-based compensation — — 1,409 — — — — 1,409 Stock shares awarded, forfeited or vested — — ( 740 ) — — 740 — — Stock shares repurchased — — — — — ( 2 ) — ( 2 ) Balance, June 30, 2022 4 6,715 317,240 401,915 ( 321 ) ( 21,726 ) ( 754 ) 703,073 Comprehensive income: Net income (loss) — — — 23,808 — ( 180 ) 23,628 Other comprehensive loss — — — — ( 543 ) — ( 543 ) Dividends and dividend equivalents of $ 0.12 per common share and per restricted stock unit, net of estimated forfeitures — — — ( 2,660 ) — — — ( 2,660 ) Share-based compensation — — 363 — — — — 363 Stock shares awarded, forfeited, or vested — — ( 62 ) — — 62 — — Stock shares repurchased — — — — — ( 1 ) — ( 1 ) Balance, September 30, 2022 $ 4 $ 6,715 $ 317,541 $ 423,063 $ ( 864 ) $ ( 21,665 ) $ ( 934 ) $ 723,860 See accompanying notes to unaudited condensed consolidated financial statements 7 MGP INGREDIENTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY For Year to Date Ended September 30, 2021 (Unaudited) (Dollars in thousands) Capital Stock Preferred Issued Common Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income Treasury Stock Non-controlling Interest Total Balance, December 31, 2020 $ 4 $ 6,715 $ 15,503 $ 262,943 $ 486 $ ( 23,125 ) $ — $ 262,526 Comprehensive income: Net income — — — 15,427 — — — 15,427 Other comprehensive income — — — — 55 — — 55 Dividends and dividend equivalents of $ 0.12 per common share and per restricted stock unit, net of estimated forfeitures — — — ( 2,052 ) — — — ( 2,052 ) Share-based compensation — — 3,229 — — — — 3,229 Stock shares awarded, forfeited or vested — — ( 716 ) — — 716 — — Stock shares repurchased — — — — — ( 674 ) — ( 674 ) Balance, March 31, 2021 4 6,715 18,016 276,318 541 ( 23,083 ) — 278,511 Comprehensive income: Net income (loss) — — — 20,135 — — ( 76 ) 20,059 Other comprehensive income — — — — 1 — — 1 Dividends and dividend equivalents of $ 0.12 per common share and per restricted stock unit, net of estimated forfeitures — — — ( 2,653 ) — — — ( 2,653 ) Share-based compensation — — 1,538 — — — — 1,538 Stock shares awarded, forfeited, or vested — — ( 705 ) — — 705 — — Stock shares repurchased — — — — — ( 91 ) — ( 91 ) Equity consideration for Merger — — 296,213 — — — — 296,213 Balance, June 30, 2021 4 6,715 315,062 293,800 542 ( 22,469 ) ( 76 ) 593,578 Comprehensive income: Net income (loss) — — — 23,876 — — ( 203 ) 23,673 Other comprehensive loss — — — — ( 230 ) — — ( 230 ) Dividends and dividend equivalents of $ 0.12 per common share and per restricted stock unit, net of estimated forfeitures — — — ( 2,654 ) — — — ( 2,654 ) Share-based compensation — — 480 — — — — 480 Stock shares awarded, forfeited, or vested — — ( 64 ) — — 64 — — Stock shares repurchased — — — — — ( 1 ) — ( 1 ) Equity consideration for Merger — — 65 — — — — 65 Balance, September 30, 2021 $ 4 $ 6,715 $ 315,543 $ 315,022 $ 312 $ ( 22,406 ) $ ( 279 ) $ 614,911 See accompanying notes to unaudited condensed consolidated financial statements 8 MGP INGREDIENTS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, unless otherwise noted) Note 1. Accounting Policies and Basis of Presentation The Company. MGP Ingredients, Inc. (“the Company,” or “MGP”) is a Kansas corporation headquartered in Atchison, Kansas and is a leading producer and supplier of premium distilled spirits, branded spirits and food ingredients. Distilled spirits include premium bourbon and rye whiskeys and grain neutral spirits, including vodka and gin. The Company’s distilled spirits are either packaged and sold under its own brands to distributors, sold, directly or indirectly to manufacturers of other branded spirits, or direct to consumer. MGP is also a top producer of high-quality, industrial alcohol for use in both food and non-food applications. The Company’s protein and starch food ingredients provide a host of functional, nutritional, and sensory benefits for a wide range of food products to serve the 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 3, Business Combination, for further details. The Company reports three operating segments: Distilling Solutions, Branded Spirits and Ingredient Solutions. During 2022, the Company changed the name of its Distillery Products segment to Distilling Solutions. Certain amounts in the 2021 consolidated financial statements have been reclassified to conform to the 2022 presentation. Basis of Presentation and Principles of Consolidation. The unaudited condensed 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. These unaudited condensed consolidated financial statements as of and for the quarter and year to date ended September 30, 2022, should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (“SEC”). The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal and recurring adjustments) necessary to fairly present the results for interim periods in accordance with U.S. generally accepted accounting principles (“GAAP”). Pursuant to the rules and regulations of the SEC, certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted. The Company holds a 60 percent interest in Dos Primos Tequila, LLC (“Dos Primos”). The Company consolidated Dos Primos’ activity on the financial statements and presented the 40 percent non-controlling interest portion on a separate line. Use of Estimates. The financial reporting policies of the Company conform to GAAP. The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The application of certain of these policies places demands on management’s judgment, with financial reporting results relying on estimation about the effects of matters that are inherently uncertain, inclusive of the effects related to 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. 9 Immaterial Correction to Prior Period Financial Statements. During the year to date ended September 30, 2022, the Company identified an immaterial correction related to gross amounts of Property, plant and equipment and Accumulated depreciation and amortization in the Condensed Consolidated Balance Sheet as of December 31, 2021. The Company performed a materiality assessment, considering both quantitative and qualitative factors, which resulted in the determination that the correction to the financial statements was immaterial. As such, the Company corrected the December 31, 2021 gross balances for Property, plant, and equipment and Accumulated depreciation and amortization on the Condensed Consolidated Balance Sheet reported in this Form 10-Q by equal and offsetting amounts, which resulted in no change to the balance of Property, plant, and equipment, net. Inventory. Inventory includes finished goods, raw materials in the form of agricultural commodities used in the production process as well as bottles, caps, and labels used in the bottling process, and certain maintenance and repair items. 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. The Company includes warehousing, insurance, and other carrying charges applicable to barreled whiskey in inventory costs. Inventories are stated at lower of cost or net realizable value on the first-in, first-out, or FIFO, method. Inventory valuations are impacted by constantly changing prices paid for key materials. Inventory consists of the following: September 30, 2022 December 31, 2021 Finished goods $ 49,008 $ 35,362 Barreled distillate (bourbons and whiskeys) 185,681 174,080 Raw materials 27,496 24,981 Work in process 1,581 1,261 Maintenance materials 10,020 9,179 Other 1,692 1,081 Total $ 275,478 $ 245,944 Revenue Recognition. Revenue is recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration it expects to be entitled to receive in exchange for the performance obligations. The term between invoicing and when payment is due is not significant and the period between when the entity transfers the promised good or service to the customer and when the customer pays for that good or service is one year or less. Revenue is recognized for the sale of products at the point in time finished products are delivered to the customer in accordance with shipping terms. This is a faithful depiction of the satisfaction of the performance obligation because, at the point control passes to the customer, the customer has legal title and the risk and rewards of ownership have transferred, and the customer has present obligation to pay. The Company’s Distilling Solutions segment routinely enters into bill and hold arrangements, whereby the Company produces and sells aged and unaged distillate to customers, and the product is barreled at the customer’s request and warehoused at a Company location for an extended period of time in accordance with directions received from the Company’s customers. Even though the aged and unaged distillate remains in the Company’s possession, a sale is recognized at the point in time when the customer obtains control of the product. Control is transferred to the customer in bill and hold transactions when: the customer acceptance specifications have been met, legal title has transferred, the customer has a present obligation to pay for the product, and the risk and rewards of ownership have transferred to the customer. Additionally, all of the following bill and hold criteria have to be met in order for control to be transferred to the customer: the reason for the bill and hold arrangement is substantive - the customer has requested the product be warehoused, the product has been identified as separately belonging to the customer, the product is currently ready for physical transfer to the customer, and the Company does not have the ability to use the product or direct it to another customer. Warehouse services revenue is recognized over the time that warehouse services are rendered and as they are rendered. This is a faithful depiction of the satisfaction of the performance obligation because control of the aging products has already passed to the customer and there are no additional performance activities required by the Company, except as requested by the customer. The performance of the service activities, as requested, is invoiced as satisfied and revenue is concurrently recognized. Contract bottling is recognized over the time contract bottling services are rendered and as they are rendered. 10 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 for distinct goods and are paid only when the depletion volume targets are achieved by the customer. The amounts reimbursed to customers are determined based on agreed-upon amounts and are recorded as a reduction of revenue. Excise Taxes. The Company is responsible for compliance with the Alcohol and Tobacco Tax and Trade Bureau of the U.S. Treasury Department (the “TTB”) regulations which includes making timely and accurate excise tax payments. The Company is subject to periodic compliance audits by the TTB. Individual states also impose excise taxes on alcohol beverages in varying amounts. The Company calculates its Federal and state excise tax expense based upon units shipped and on its understanding of the applicable excise tax laws . Excise taxes that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer are excluded from revenue. Income Taxes. The Company accounts for income taxes using an asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. A valuation allowance is recognized if it is “more likely than not” that at least some portion of the deferred tax asset will not be realized. Earnings Per Common Share (“EPS”). 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. Basic EPS amounts are computed by dividing net income attributable to common shareholders by the weighted average shares outstanding during each 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 impact of the Convertible Senior Notes, except for where the result would be anti-dilutive as of the balance sheet date. Translation of Foreign Currencies. Assets and liabilities of Niche Drinks Co., Ltd. (“Niche”), a wholly owned subsidiary of the Company whose functional currency is the British pound sterling, are translated to U.S. dollars using the exchange rate in effect at the condensed consolidated balance sheet date. Results of operations are translated using average rates during the period. Adjustments resulting from the translation process are included as a component of Accumulated other comprehensive income . Business Combinations. Assets acquired and liabilities assumed during a business combination are generally recorded at fair market value as of the acquisition date. Goodwill is recognized to the extent that the purchase consideration exceeds the 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 Indefinite-Lived Intangible Assets. The Company records goodwill and other indefinite-lived intangible assets in connection with various acquisitions of businesses and allocates the goodwill and other indefinite-lived intangible assets to its respective reporting units. The Company evaluates goodwill for impairment at least annually, in the fourth quarter, or on an interim basis if events and circumstances occur that would indicate it is more likely than not that the fair value of a reporting unit is less than the carrying value. To the extent that the carrying amount exceeds fair value, an impairment of goodwill is recognized. Judgment is required in the determination of reporting units, the assignment of assets and liabilities to reporting units, including goodwill, and the determination of fair value of the reporting units. The Company separately evaluates indefinite-lived intangible assets for impairment. As of September 30, 2022, the Company determined that goodwill and indefinite-lived intangible assets were not impaired. Fair Value of Financial Instruments. The Company determines the fair values of its financial instruments based on a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy is broken down into three levels based upon the observability of inputs. Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value in its entirety requires judgment and considers factors specific to the asset or liability. 11 The Company’s short-term financial instruments include cash and cash equivalents, accounts receivables and accounts payable. The carrying value of the short-term financial instruments approximates the fair value due to their short-term nature. These financial instruments have no stated maturities or the financial instruments have short-term maturities that approximate market. The fair value of the Company’s debt is estimated based on current market interest rates for debt with similar maturities and credit quality. The fair value of the Company’s debt was $ 178,062 and $ 272,971 at September 30, 2022 and December 31, 2021, respectively. The financial statement carrying value of total debt was $ 231,051 (including unamortized loan fees) and $ 233,399 (including unamortized loan fees) at September 30, 2022 and December 31, 2021, respectively. These fair values are considered Level 2 under the fair value hierarchy. Fair value disclosure for deferred compensation plan investments is included in Note 9, Employee and Non-Employee Benefit Plans. See Note 3, Business Combination, for discussion related to the fair value of tangible and intangible assets acquired and liabilities assumed as part of the merger with Luxco. Equity Method Investments. The Company holds 50 percent interests in DGL Destiladores, S.de R.L. de C.V. (“DGL”) and Agricola LG, S.de R.L. de C.V. (“Agricola”) (combined “LMX”), which are accounted for as equity method investments since the date of acquisition and are considered affiliates of the Company. The investment in LMX, which is recorded in Investment in joint ventures on the Condensed Consolidated Balance Sheet, was $ 6,140 and $ 4,944 at September 30, 2022 and December 31, 2021, respectively. During the quarter ended September 30, 2022 and 2021, the Company recorded a loss of $ 856 and $ 405 from our equity method investments, respectively, which is recorded in Other income (expense), net on the Condensed Consolidated Statement of Income. During the year to date ended September 30, 2022 and 2021, the Company recorded a loss of $ 1,036 and $ 739 from our equity method investments, respectively, which is recorded in Other (income) expense, net on the Condensed Consolidated Statement of Income. During the quarter and year to date ended September 30, 2022, the Company purchased $ 8,265 and $ 28,194 , respectively, of bulk beverage alcohol from LMX, and during the quarter and year to date ended September 30, 2021, the Company purchased $ 8,052 and $ 19,724 , respectively, of bulk beverage alcohol from LMX. Recently Adopted Accounting Standard Updates. The Company did not adopt any new Accounting Standard Updates during the quarter ended September 30, 2022 . Note 2. Revenue The Company generates revenues from the Distilling Solutions segment by the sale of products and by providing warehouse services related to the storage and aging of customer products. The Company generates revenues from the Branded Spirits segment by the sale of products and by providing contract bottling services. The Company generates revenues from 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 is recognized over time. Contracts with customers include a single performance obligation (either the sale of products, the provision of warehouse services or contract bottling services). 12 The following table presents the Company’s sales by segment and major products and services: Quarter Ended September 30, Year to Date Ended September 30, 2022 2021 2022 2021 Distilling Solutions Brown goods $ 57,423 $ 42,793 $ 175,899 $ 129,600 White goods 20,469 21,187 57,996 56,049 Premium beverage alcohol 77,892 63,980 233,895 185,649 Industrial alcohol 10,761 14,790 35,141 46,896 Food grade alcohol 88,653 78,770 269,036 232,545 Fuel grade alcohol 3,713 3,592 10,307 10,862 Distillers feed and related co-products 9,943 4,016 30,127 13,660 Warehouse services 6,335 4,666 17,821 12,949 Total Distilling Solutions 108,644 91,044 327,291 270,016 Branded Spirits Ultra premium 13,804 11,363 35,836 19,491 Super premium 3,350 2,798 9,522 6,393 Premium 6,013 5,683 17,928 11,012 Mid 20,834 22,992 63,408 48,399 Value 12,097 12,756 36,304 25,984 Other 6,663 5,969 14,080 11,278 Total Branded Spirits 62,761 61,561 177,078 122,557 Ingredient Solutions Specialty wheat starches 16,241 12,231 47,445 35,051 Specialty wheat proteins 9,697 8,901 29,225 23,299 Commodity wheat starches 3,803 2,626 10,286 7,572 Commodity wheat proteins — 248 38 1,378 Total Ingredient Solutions 29,741 24,006 86,994 67,300 Total sales $ 201,146 $ 176,611 $ 591,363 $ 459,873 Note 3. Business Combination Description of the Transaction . On January 22, 2021, the Company entered into a definitive agreement to acquire Luxco, and subsequently completed the merger on April 1, 2021 (the “Merger”). Luxco is a leading branded beverage alcohol company across various categories, with a more than 60-year business heritage. As a result of the Merger, MGP increased its scale and market position in the branded-spirits sector and believes it strengthened its platform for future growth of higher valued-added products. Following the Merger, 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. 13 The cash portion of the Merger Consideration, the repayment of assumed debt, and transaction-related expenses were financed with borrowings under the Company’s existing Credit Agreement which was drawn down on April 1, 2021. See Note 5, Corporate Borrowings, for further details. For tax purposes, the transaction was structured partially as a tax-free reorganization and partially as a taxable acquisition, as defined in the Internal Revenue Code. The amount transferred in a tax deferred manner, under the tax-free reorganization rules, did not create additional tax basis for the Company. The taxable component of the transaction created 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) 296,279 Fair value of total consideration transferred $ 445,763 Recognized amounts of identifiable assets acquired and liabilities assumed: Cash $ 479 Receivables 29,675 Inventory 90,854 Prepaid expenses 1,454 Property, plant and equipment, net 41,279 Investments in joint ventures 5,085 Intangible assets (b) 219,500 Other assets 4,257 Total assets 392,583 Current maturities of long-term debt (c) 87,509 Accounts payable 14,453 Federal and state 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) On April 1, 2021, the Company issued 5,007,833 shares of MGP Common Stock which was valued at $ 59.15 per share. 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 included trade names with an estimated fair value of $ 178,100 and distributor relationships with an estimated fair value of $ 41,400 . (c) The fair value of Luxco’s debt that was assumed by MGP in the transaction and repaid on the closing date. In accordance with ASC 805 assets acquired, liabilities assumed, and consideration transferred were recorded at their estimated fair values on the acquisition date. The fair value measurements of tangible and intangible assets and liabilities were based on significant inputs not observable in the market and represent Level 3 measurements within the fair value hierarchy. Level 3 inputs include discount rates that would be used by a market participant in valuing these assets and liabilities, projections of revenues and cash flows, distributor attrition rates, royalty rates and market comparables, 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 14 cost approach and the sales comparison approach. Goodwill of $ 223,556 , none of which is 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 included 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 names and distributor relationships. Pro Forma Information . The following table summarizes the unaudited pro forma financial results for the quarter and year to date ended September 30, 2021, as if the Merger had occurred on January 1, 2020: Pro Forma Financial Information Quarter Ended September 30, Year to Date Ended September 30, 2021 2021 Sales $ 176,611 $ 504,243 Net income 23,673 68,934 Basic and diluted earnings per common share 1.08 3.38 The pro forma results are adjusted for items that are non-recurring in nature and directly attributable to the Merger, including the income tax effect of the adjustments. Merger related costs incurred by the Company of $ 294 and $ 8,922 for the quarter and year to date ended September 30, 2021, respectively, were excluded and $ 7,032 is assumed to have been incurred on January 1, 2020. Merger related costs incurred by Luxco of $ 3,132 were excluded from the year to date ended September 30, 2021 pro forma results. A non-recurring expense of $ 2,529 for the quarter and year to date ended September 30, 2021 related to the fair value adjustment of finished goods inventory estimated to have been sold was removed. Other acquired tangible and intangible assets are assumed to be recorded at estimated fair value on January 1, 2020 and are amortized or depreciated over their estimated useful lives. The summary pro forma financial information is for informational purposes only, is based on estimates and assumptions, and does not purport to represent what the Company’s consolidated results of operations actually would have been if the Merger had occurred at an earlier date, and such data does not purport to project the Company’s results of operations for any future period. The basic and diluted shares outstanding used to calculate the pro forma net income per share amounts presented above have been adjusted to assume shares issued at the closing of the Merger were outstanding since January 1, 2020. Note 4. Goodwill and Intangible Assets Definite-Lived Intangible Assets. The Company has a definite-lived intangible asset which was acquired as a result of the Merger. The distributor relationships have a carrying value of $ 38,295 , net of accumulated amortization of $ 3,105 . The distributor relationships have a useful life of 20 years. The amortization expense for the quarter and year to date ended September 30, 2022 was $ 518 and $ 1,553 , respectively, and the amortization expense for the quarter and year to date ended September 30, 2021 was $ 517 and $ 1,035 , respectively. As of September 30, 2022, the expected future amortization expense related to definite-lived intangible assets are as follows: Remainder of 2022 $ 517 2023 2,070 2024 2,070 2025 2,070 2026 2,070 Thereafter 29,498 Total $ 38,295 Goodwill and Indefinite-Lived Intangible Assets. The Company records goodwill and indefinite-lived intangible assets in connection with various acquisitions of businesses and allocates the goodwill and indefinite-lived intangible assets to its respective reporting units. 15 Changes in carrying amount of goodwill by business segment were as follows: Distilling Solutions Branded Spirits Ingredient Solutions Total Balance, December 31, 2021 $ — $ 226,294 $ — $ 226,294 Acquisitions — — — — Balance, September 30, 2022 $ — $ 226,294 $ — $ 226,294 Changes in carrying amount of trade name intangible assets by business segment were as follows: Distilling Solutions Branded Spirits Ingredient Solutions Total Balance, December 31, 2021 $ — $ 178,990 $ — $ 178,990 Acquisitions — — — — Balance, September 30, 2022 $ — $ 178,990 $ — $ 178,990 Note 5. Corporate Borrowings The following table presents the Company’s outstanding indebtedness: Description (a) September 30, 2022 December 31, 2021 Credit Agreement - Revolver, 4.14 % (variable rate) due 2025 $ — $ — Convertible Senior Notes, 1.88 % (fixed rate) due 2041 201,250 201,250 Note Purchase Agreement Series A Senior Secured Notes, 3.53 % (fixed rate) due 2027 16,000 18,400 Senior Secured Notes, 3.80 % (fixed rate) due 2029 20,000 20,000 Other long-term borrowings — 203 Total indebtedness outstanding 237,250 239,853 Less unamortized loan fees (b) ( 6,199 ) ( 6,454 ) Total indebtedness outstanding, net 231,051 233,399 Less current maturities of long-term debt ( 4,800 ) ( 3,227 ) Long-term debt and Credit Agreement - Revolver $ 226,251 $ 230,172 (a) Interest rates are as of September 30, 2022. (b) Loan fees are being amortized over the life of the debt instruments. Credit Agreement. On February 14, 2020, the Company entered into a credit agreement (the “Credit Agreement”) with multiple participants led by Wells Fargo Bank, National Association (“Wells Fargo Bank”) that matures on February 14, 2025. The Credit Agreement provided for a $ 300,000 revolving credit facility. On May 14, 2021, the Credit Agreement was amended to increase the principal amount to $ 400,000 and to increase the amount of the revolving credit facility by up to an additional $ 100,000 . On August 31, 2022, the Credit Agreement was amended to change the interest rate benchmark from LIBOR to SOFR. The Credit Agreement includes certain requirements and covenants, which the Company was in compliance with at September 30, 2022. The cash portion of the Merger Consideration, the repayment of assumed debt, and transaction-related expenses were financed with $ 242,300 borrowings under the Credit Agreement which was drawn down on April 1, 2021. As of September 30, 2022, the Company had no outstanding borrowings under the Credit Agreement leaving $ 400,000 available. Convertible Senior Notes. On November 16, 2021, the Company issued $ 201,250 in aggregate principal of 1.875 % convertible senior notes due in 2041 (“2041 Notes”). 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. Upon conversion, the Company will pay cash up to the aggregate principal amount of the 2041 Notes to be converted and pay or deliver, as the case may be, cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, at its election, in respect to the remainder, if any, of the Company’s conversion obligation in excess of the aggregate principal amount of the 2041 Notes being converted. 16 Note Purchase Agreements. The Company’s Note Purchase and Private Shelf Agreement (the “Note Purchase Agreement”), with PGIM, Inc.,(“Prudential”), an affiliate of Prudential Financial, Inc., and certain affiliates of Prudential, provides for the issuance of $ 20,000 of Series A Senior Secured Notes and the issuance of up to $ 105,000 of additional Senior Secured Notes (or any higher amount solely to the extent Prudential has provided written notice to the Company of its authorization of such a higher amount). On July 29, 2021, Prudential provided the Company notice pursuant to Section 1.2 of the Note Agreement that Prudential has authorized an increase in the amount of additional Senior Secured 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. During 2017, the Company issued $ 20,000 of Series A Senior Secured Notes with a maturity date of August 23, 2027. During 2019, the Company issued $ 20,000 of additional Senior Secured Notes with a maturity date of April 30, 2029. The Note Purchase Agreement includes certain requirements and covenants, which the Company was in compliance with at September 30, 2022 . As of September 30, 2022, the Company has $ 16,000 of Series A Senior Secured Notes and $ 20,000 of additional Senior Secured Notes outstanding under the Note Purchase Agreement leaving $ 120,000 available of Senior Secured Notes. Other long-term borrowings. As part of the Merger, the Company acquired additional long-term notes payable to certain counties in Kentucky and during the quarter ended September 30, 2022, the Company paid off the outstanding balances. Note 6. Income Taxes The Company’s tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, the estimated annual effective tax rate is updated and a year to date adjustment is made to the provision. The Company’s quarterly effective tax rate can be subject to significant change due to the effect of discrete items arising in a given quarter. Beginning in the second quarter of 2021, the estimated annual effective tax rate includes both domestic and foreign entities acquired in the Merger. See Note 3, Business Combination, for further details. Income tax expense for the quarter and year to date ended September 30, 2022, was $ 7,533 and $ 26,037 for an effective tax rate of 24.2 percent and 23.2 percent, respectively. The effective tax rate for the quarter and year to date ended September 30, 2022 differed from the 21 percent federal statutory rate on pretax income primarily due to state and foreign income taxes, partially offset by state and federal tax credits, and the deduction applicable to export activity. The increase in Income tax expense for the year to date ended September 30, 2022 was primarily due to higher Income before income taxes as compared to the prior year periods. Income tax expense for the quarter and year to date ended September 30, 2021, was $ 7,674 and $ 18,701 for an effective tax rate of 24.5 percent and 24.0 percent, respectively. The effective tax rate for the quarter and year to date ended September 30, 2021 differed from the 21 percent federal statutory rate on pretax income primarily due to state taxes, income taxes on foreign subsidiaries acquired as a result of the Merger, nondeductible transaction costs, partially offset by state and federal credits and the deduction applicable to export activity. 17 Note 7. Equity and EPS The computations of basic and diluted EPS: Quarter Ended September 30, Year to Date Ended September 30, 2022 2021 2022 2021 Operations: Net income (a) $ 23,628 $ 23,673 $ 86,361 $ 59,159 Net loss attributable to noncontrolling interest 180 203 444 279 Income attributable to participating securities (unvested shares and units) (b) ( 188 ) ( 175 ) ( 688 ) ( 471 ) Net income used in EPS calculation $ 23,620 $ 23,701 $ 86,117 $ 58,967 Share information: Basic weighted average common shares (c) 22,008,381 21,981,201 22,000,026 20,293,818 Diluted weighted average common shares (c)(d) 22,228,814 21,981,201 22,000,026 20,293,818 Basic EPS $ 1.07 $ 1.08 $ 3.91 $ 2.91 Diluted EPS $ 1.06 $ 1.08 $ 3.91 $ 2.91 (a) Net income attributable to all shareholders. (b) Participating securities included 176,398 and 163,024 unvested restricted stock units (“RSUs”), at September 30, 2022 and 2021, respectively. (c) Under the two-class method, basic and diluted weighted average common shares at September 30, 2022 and 2021 exclude unvested participating securities. (d) The impacts of the Convertible Senior Notes were included in the diluted weighted average common shares if the inclusion was dilutive. The Convertible Senior Notes would only have a dilutive impact if the average market price per share during the quarter and year to date period exceeds the conversion price of $ 96.24 per share. Share Issuance. On April 1, 2021, as part of the consideration for the Merger, the Company issued 5,007,833 shares of common stock. In September 2021, the parties finalized the purchase price adjustments, which increased stock consideration by an additional 1,373 shares from the preliminary amounts that were paid at closing. Share Repurchase. On February 25, 2019, MGP’s Board of Directors approved a $ 25,000 share repurchase authorization commencing February 27, 2019, through February 27, 2022. Under the share repurchase program, the Company could have repurchased stock from time to time for cash in open market purchases, block transactions, and privately negotiated transactions in accordance with applicable federal securities laws. The Company did no t repurchase any shares under the share repurchase program during 2022, prior to its expiration on February 27, 2022. The Company did not renew the share repurchase program upon its expiration. Common Stock Share Activity. Shares Outstanding Capital Stock Preferred Common Stock Balance, December 31, 2021 437 21,964,314 Issuance of Common Stock — 29,807 Repurchase of Common Stock (a) — ( 9,021 ) Balance, March 31, 2022 437 21,985,100 Issuance of Common Stock — 7,655 Repurchase of Common Stock (a) — ( 4 ) Balance, June 30, 2022 437 21,992,751 Issuance of Common Stock — 606 Repurchase of Common Stock (a) — ( 2 ) Balance, September 30, 2022 437 21,993,355 18 Shares Outstanding Capital Stock Preferred Common Stock Balance, December 31, 2020 437 16,915,862 Issuance of Common Stock — 35,114 Repurchase of Common Stock (a) — ( 10,376 ) Balance, March 31, 2021 437 16,940,600 Issuance of Common Stock — 5,022,122 Repurchase of Common Stock (a) — ( 1,489 ) Balance, June 30, 2021 437 21,961,233 Issuance of Common Stock — 2,361 Repurchase of Common Stock (a) — ( 20 ) Balance, September 30, 2021 437 21,963,574 (a) The Common Stock repurchases were for tax withholding on equity based compensation Note 8. Commitments and Contingencies There are various legal and regulatory proceedings involving the Company and its subsidiaries. The Company accrues estimated costs for a contingency when management believes that a loss is probable and can be reasonably estimated. Shareholder matters. On May 11, 2020, Mitchell Dorfman, a shareholder in MGP, filed an action in the United States District Court for the District of Kansas, under the caption Dorfman, derivatively on behalf of MGP Ingredients v. Griffin, et al. , Case 2:20-cv-02239. On June 4, 2020, Justin Carter, a shareholder in MGP, filed an action in the United States District Court for the District of Kansas, under the caption Carter, derivatively on behalf of MGP Ingredients v. Griffin, et al. , Case 2:20-cv-02281. On June 18, 2020, Alexandra Kearns, a shareholder in MGP, filed an action in the District Court of Atchison County, Kansas, under the caption K earns, derivatively on behalf of MGP Ingredients v. Griffin, et al. , Case 2020-CV-000042. The defendants were certain of the Company’s current and former officers and directors. The Company was a nominal defendant in each action. Plaintiffs alleged that the Company was damaged as a result of the commencement of securities litigation against defendants, the repurchase of Company stock at artificially inflated prices, and compensation paid to the individual defendants. The Complaint in Dorfman asserted claims for violations of Sections 14(a), 10(b), and 20(a) of the Securities Exchange Act of 1934, breach of fiduciary duties, waste of corporate assets, and unjust enrichment. The Complaint in Carter asserted 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 asserted claims for breach of fiduciary duties, waste of corporate assets, and unjust enrichment. The pleadings prayed 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 August 31, 2021, the court dismissed with prejudice the securities litigation on which some of the derivative claims were based. On January 4, 2022, the court dismissed the Carter action. On January 11, 2022, the court dismissed the Dorfman action. On February 2, 2022, the plaintiffs and defendants entered into a stipulation of dismissal of the Kearns action. The federal claims alleged in Carter were dismissed with prejudice. All other derivative claims were dismissed without prejudice. 2016 Atchison Chemical Release. A chemical release occurred at the Company’s Atchison facility on October 21, 2016, which resulted in emissions venting into the air (“the Atchison Chemical Release”). Private plaintiffs initiated legal proceedings against the Company for damages resulting from the Atchison Chemical Release. The Company reached a settlement with the plaintiffs in December 2021 and the legal proceedings were dismissed with prejudice in January 2022. Note 9. Employee and Non-Employee Benefit Plans Share-Based Compensation Plans . The Company’s share-based compensation plans provide for the awarding of stock options, stock appreciation rights, shares of restricted stock (“Restricted Stock”), and RSUs for senior executives and salaried employees, as well as non-employee directors. The Company has two active equity-based compensation plans: the Employee Equity Incentive Plan of 2014 (the “2014 Plan”) and the Non-Employee Director Equity Incentive Plan (the “Directors’ Plan”). 19 As of September 30, 2022, 585,353 RSUs had been granted of the 1,500,000 shares approved under the 2014 Plan, and 130,982 shares had been granted of the 300,000 shares approved under the Directors’ Plan. As of September 30, 2022, there were 178,608 unvested RSUs under the Company’s long-term incentive plans and 176,398 were participating securities (Note 7). Deferred Compensation Plan. The Company established an unfunded Executive Deferred Compensation Plan (“EDC Plan”) effective as of June 30, 2018, with a purpose to attract and retain highly-compensated key employees by providing participants with an opportunity to defer receipt of a portion of their salary, bonus, and other specified compensation. The Company’s obligations under this plan will change in conjunction with the performance of the participants’ investments, along with contributions to and withdrawals from the plan. Realized and unrealized gains (losses) on deferred compensation plan investments were included as a component of Other income (expense), net on the Company’s Condensed Consolidated Statements of Income for the quarter and year to date ended September 30, 2022. For quarter and year to date ended September 30, 2022, the Company had a loss on deferred compensation plan investments of $ 103 and $ 931 , respectively. For quarter ended September 30, 2021, the Company had a loss on deferred compensation plan investments of $ 15 and for the year to date ended September 30, 2021, the Company had a gain on deferred compensation plan investments of $ 261 . Plan investments are classified as Level 1 in the fair value hierarchy since the investments trade with sufficient frequency and volume to enable the Company to obtain pricing information on an ongoing basis. Participants were able to direct the deferral of a portion of their base salary and a portion of their estimated accrued Short-term incentive plan (“STI Plan”) amounts that were paid during the first quarter of the following year. Base salary amounts elected for deferral are deposited into the EDC Plan by the Company on a weekly basis and allocated by participants among Company-determined investment options. STI Plan deferral amounts are deposited, at the time of payment, into the EDC Plan by the Company and allocated by participants among Company-determined investment options. At September 30, 2022 and December 31, 2021, the EDC Plan investments were $ 2,510 and $ 3,072 , respectively, which were recorded in Other assets on the Company’s Condensed Consolidated Balance Sheets. The EDC Plan current liabilities were $ 617 at both September 30, 2022 and December 31, 2021, which were included in Accrued expenses and other on the Company’s Condensed Consolidated Balance Sheets. The EDC Plan non-current liabilities were $ 2,310 and $ 2,981 at September 30, 2022 and December 31, 2021, respectively, and were included in Other noncurrent liabilities on the Company’s Condensed Consolidated Balance Sheets. Note 10. Operating Segments At September 30, 2022, the Company had three segments: Distilling Solutions, Branded Spirits, and Ingredient Solutions. The Distilling Solutions 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 Distilling Solutions segment also includes warehouse services, including barrel put away, storage, retrieval, and blending services. The Branded Spirits segment consists of producing, importing, bottling and rectifying of distilled spirits. Ingredient Solutions segment consists of specialty starches and proteins and commodity starches and proteins. Operating profit for each segment is based on sales less identifiable operating expenses. Non-direct selling, general and administrative expenses, interest expense, other special charges, and other general miscellaneous expenses are excluded from segment operations and are classified as Corporate. Receivables, inventories, property, plant and equipment, leases, goodwill and intangible assets have been identified with the segments to which they relate. All other assets are considered as Corporate. 20 Quarter Ended September 30, Year to Date Ended September 30, 2022 2021 2022 2021 Sales to Customers Distilling Solutions $ 108,644 $ 91,044 $ 327,291 $ 270,016 Branded Spirits 62,761 61,561 177,078 122,557 Ingredient Solutions 29,741 24,006 86,994 67,300 Total $ 201,146 $ 176,611 $ 591,363 $ 459,873 Gross Profit Distilling Solutions $ 25,917 $ 26,981 $ 94,630 $ 87,211 Branded Spirits 25,067 23,217 70,809 41,737 Ingredient Solutions 8,064 6,888 24,654 17,264 Total $ 59,048 $ 57,086 $ 190,093 $ 146,212 Depreciation and Amortization Distilling Solutions $ 2,929 $ 2,695 $ 8,716 $ 7,900 Branded Spirits 1,434 1,743 4,618 3,481 Ingredient Solutions 613 531 1,838 1,487 Corporate 357 274 1,085 800 Total $ 5,333 $ 5,243 $ 16,257 $ 13,668 Income (loss) before Income Taxes Distilling Solutions $ 25,213 $ 26,047 $ 92,332 $ 84,225 Branded Spirits 9,776 9,293 28,016 15,182 Ingredient Solutions 6,822 6,214 21,770 15,121 Corporate ( 10,650 ) ( 10,207 ) ( 29,720 ) ( 36,668 ) Total $ 31,161 $ 31,347 $ 112,398 $ 77,860 The following table allocates assets to each segment as of: September 30, 2022 December 31, 2021 Identifiable Assets Distilling Solutions $ 330,487 $ 314,816 Branded Spirits 699,354 658,826 Ingredient Solutions 57,061 43,009 Corporate 45,173 24,816 Total $ 1,132,075 $ 1,041,467 Note 11. Subsequent Events Dividend. On November 3, 2022, the Company’s Board of Directors declared a quarterly dividend payable to stockholders of record as of November 18, 2022, of the Company’s Common Stock, and a dividend equivalent payable to holders of certain RSUs as of November 18, 2022, of $ 0.12 per share and per unit, payable on December 2, 2022. 21