What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-23 compared with 2022-02-24 · 178 added, 248 removed, 872 unchanged (33% of the section changed)

13 unchanged sentences

As a result of this assessment, management has concluded that the Company’s internal control over financial reporting as of December 31, 2022 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, 2022.

11 unchanged sentences

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022 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

13 unchanged sentences

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;

3 unchanged sentences

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:

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:

(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 matters below, providing a separate opinion on the critical audit matters 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 matter below, providing a separate opinion on the critical audit matter 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 1 to the consolidated financial statements, 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.

As discussed in Note 3 to the consolidated financial statements, brown goods premium beverage alcohol revenue was $229,523 thousands for the year ended December 31, 2022, a portion of which was for bill and hold arrangements.

11 unchanged sentences

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.

13 unchanged sentences

Operating income 148,965 126,363 54,241

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

Interest expense, net ( 5,451 ) ( 4,037 ) ( 2,267 )

Other income (loss), net ( 3,342 ) ( 1,230 ) 627

6 unchanged sentences

Income attributable to participating securities ( 871 ) ( 712 ) ( 261 )

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

Net income used in earnings per common share calculation $ 108,591 $ 90,595 $ 40,084

Weighted average common shares

1 unchanged sentence

Diluted 22,053,966 20,719,663 16,937,125

Earnings Per Share

Earnings per common share

Basic $ 4.94 $ 4.37 $ 2.37

22 unchanged sentences

Cash and cash equivalents $ 47,889 $ 21,568

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

Receivables (less allowance for credit loss of $ 1,475 and $ 150 at December 31, 2022 and 2021, respectively)

109,267 92,537

14 unchanged sentences

Federal and state excise taxes payable 4,627 6,992

Income taxes payable — 704

Accrued expenses and other 28,716 24,869

15 unchanged sentences

authorized 40,000,000 shares;

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

issued 23,125,166 shares at December 31, 2022 and 2021;

21,994,042 and 21,964,314 shares outstanding at December 31, 2022 and 2021, respectively

46 unchanged sentences

Loan fees incurred with borrowings — ( 7,050 ) ( 1,148 )

Proceeds from long-term debt — — 20,000

Principal payments on long-term debt ( 3,403 ) ( 1,620 ) ( 1,208 )

3 unchanged sentences

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

Other, net — — ( 76 )

Net cash provided by (used in) financing activities ( 14,764 ) 94,287 ( 15,255 )

15 unchanged sentences

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

3 unchanged sentences

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:

Net income — — — 40,345 — — — 40,345

Other comprehensive income — — — — 732 — — 732

Comprehensive income (loss):

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

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

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

3 unchanged sentences

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

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

Balance, December 31, 2021

1 unchanged sentence

Comprehensive income (loss):

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

Net income (loss) — — — 109,462 — — ( 590 ) 108,872

Other comprehensive loss — — — — ( 658 ) — — ( 658 )

4 unchanged sentences

Stock shares repurchased — — — — — ( 715 ) — ( 715 )

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

Balance, December 31, 2022

6 unchanged sentences

MGP Ingredients, Inc.

(“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.

(“MGP,” or the “Company”) is a leading producer and supplier of premium distilled spirits, branded spirits and food ingredients.

Distilled spirits include premium bourbon, rye, and other whiskeys and grain neutral spirits (“GNS”), including vodka and gin.

Our distilled spirits are either sold directly or indirectly to manufacturers of other branded spirits.

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

The Company has a portfolio of its own high quality branded spirits which are produce through the distilleries and bottling facilities and sell to distributors.

The Company’s branded spirits products account for a range of price points from value products through ultra premium brands, with a focus on high-end American whiskey, tequila and gin.

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.

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

The Company reports three operating segments:

Distilling Solutions, Branded Spirits and Ingredient Solutions.

During 2022, the Company changed the name of its Distillery Products segment to Distilling Solutions.

Principles of Consolidation.

8 unchanged sentences

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.

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

all barreled bourbon, rye, and other whiskeys is classified as a current asset.

The Company includes warehousing, insurance, and other carrying charges applicable to barreled whiskey in inventory costs.

26 unchanged sentences

This is a faithful depiction of the satisfaction of the performance obligation because, at that 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 Distillery Products segment routinely enters into bill and hold arrangements, whereby the Company produces and sells aged and unaged distillate to customers, and the product is barreled at the customer’s request and warehoused at a Company location for an extended period of time in accordance with directions received from the Company’s customers.

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.

8 unchanged sentences

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.

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.

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

1 unchanged sentence

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

Individual states also impose excise taxes on alcohol beverages

in varying amounts.

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.

5 unchanged sentences

Insurance recoveries, in excess of costs and losses, if any, would be reported as a separate caption in operating income on the Consolidated Statements of Income.

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

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

At 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 Statements of Income and the insurance recoveries for the replacement of the damaged dryer was recorded as insurance recoveries on the Consolidated Statements of Income.

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

Income Taxes.

1 unchanged sentence

A valuation allowance is recognized if it is “more likely than not” that at least some portion of the deferred tax asset will not be realized.

Earnings Per Share (“EPS”).

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 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.

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.

4 unchanged sentences

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

The Company maintains a US bank account denominated in British pound sterling and is adjusted for the market exchange rate at the reporting period-end.

Any impacts of the adjustment for the exchange rate applied to the financial asset is reported in other income (loss), net on the Consolidated Statements of Income.

Business Combinations.

23 unchanged sentences

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 $ 272,971 and $ 44,548 at December 31, 2021 and 2020, respectively.

Excluding the impact of the conversion feature of the convertible note, the fair value of the Company’s debt was $ 150,249 and $ 272,971 at December 31, 2022 and 2021, respectively.

The financial statement carrying value (including unamortized loan fees) was $ 230,335 and $ 233,399 at December 31, 2022 and 2021, respectively.

2 unchanged sentences

Derivative Instruments.

Certain commodities the Company uses in its production process, or input costs, exposes it to market price risk due to volatility in the prices for those commodities.

Certain commodities the Company uses in its production process, or input costs, expose it to market price risk due to volatility in the prices for those commodities.

Through the Company’s grain supply contracts for its Atchison and Lawrenceburg facilities, its wheat flour supply contract for the Atchison facility, and its natural gas contracts for both facilities, it purchases grain, wheat flour, and natural gas, respectively, for delivery from one to 24 months into the future at negotiated fixed prices.

5 unchanged sentences

(“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.

At December 31, 2022 and 2021, the investment in LMX was $ 5,534 and $ 4,944 , respectively, which is recorded in investment in joint ventures on the Consolidated Balance Sheets.

During the years ended December 31, 2022 and 2021, the Company recorded a $ 2,220 and $ 1,611 loss from equity method investments, respectively, which is recorded in other income (loss), net on the Consolidated Statements of Income.

Immaterial Correction to Prior Period Financial Statements.

During the year ended December 31, 2022, the Company identified an immaterial correction related to gross amounts of property, plant and equipment and accumulated depreciation and amortization in the 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 in Note 2, Other Balance Sheet Captions, in this Form 10-K by equal and offsetting amounts, which resulted in no change to the balance of property, plant, and equipment, net.

During the year ended December 31, 2022, the Company identified an immaterial correction related to the calculation of diluted earnings per share within the year ended December 31, 2021 financial statements filed on Form 10-K.

Other than as follows, this correction had no impact on the financial statements for the year ended December 31, 2021.

For the period ended December 31, 2021, diluted earnings per share should have been $ 4.37 instead of $ 4.34 .

As such, the Company corrected the December 31, 2021 diluted earnings per share on the Consolidated Statements of Income in this Form 10-K.

Recently Adopted Accounting Standard Updates.

Accounting Standards Update (“ASU”) No.

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 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 .

1 unchanged sentence

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.

The Company has adopted this standard and it did not have an impact to the Company’s consolidated financial statements and related disclosures.

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

This guidance was effective for all entities as of March 12, 2020 through December 31, 2022.

ASU 2022-06 , Deferral of the Sunset Date of Topic 848, which extends the effective date fro December 31, 2022 to December 31, 2024.

The Company has adopted these standards and it did not have an impact to the Company’s consolidated financial statements and related disclosures.

Recently Issued Accounting Pronouncements.

The other recent accounting pronouncements issued by the FASB are not expected to have a significant impact on the Company’s consolidated financial statements and related disclosures.

OTHER BALANCE SHEET CAPTIONS

Finished goods $ 47,073 $ 35,362

Barreled distillate (bourbons and whiskeys) 174,080 105,445

Barreled distillate (bourbons and other whiskeys) 199,040 174,080

Raw materials 29,931 24,981

18 unchanged sentences

Total $ 28,716 $ 24,869

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

6 unchanged sentences

2022 2021 2020

Distillery Products

Distilling Solutions

Brown Goods $ 229,523 $ 162,074 $ 121,384

6 unchanged sentences

Warehouse services 23,598 17,523 15,631

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

Total Distilling Solutions 428,478 352,504 313,309

Branded Spirits

Ultra premium 48,245 27,722 1,785

Super premium 12,274 8,937 2,196

Premium 24,211 17,626 125

Premium plus 84,730 54,285 4,106

Mid 82,530 71,292 —

19 unchanged sentences

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.

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.

28 unchanged sentences

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 .

(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 .

1 unchanged sentence

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.

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.

Goodwill of $ 223,556 , none 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 include 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.

2 unchanged sentences

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.

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 the Consolidated Statements of Income.

During the year ended December 31, 2021, the Company 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 .

4 unchanged sentences

Net income 100,597 46,200

Basic earnings per share 4.84 2.09

Basic earnings per common 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.

10 unchanged sentences

The distributor relationships have a useful life of 20 years.

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

The amortization expense for the years ended December 31, 2022 and 2021 was $ 2,070 and $ 1,552 , respectively.

As of December 31, 2022, the expected future amortization expense related to definite-lived intangibles assets are as follows:

3 unchanged sentences

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.

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

Distillery Products Branded Spirits Ingredient Solutions Total

Balance at December 31, 2020

$ — $ 2,738 $ — $ 2,738

Acquisitions — 223,556 — 223,556

Balance at December 31, 2021

$ — $ 226,294 $ — $ 226,294

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

The carrying amount of goodwill, which relates to the Branded Spirits segment was $ 226,294 at both December 31, 2022 and 2021.

The carrying amount of indefinite-lived intangible assets, which relates to the Branded Spirits segment was $ 178,990 at both December 31, 2022 and 2021.

CORPORATE BORROWINGS

4 unchanged sentences

Convertible Note, 1.88 % (fixed rate) due 2041

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

201,250 201,250

Prudential Note Purchase Agreement, 3.80 % (fixed rate) due 2029

Note Purchase Agreement

Series A Senior Secured Notes, 3.53 % (fixed rate) due 2027

15,200 18,400

Senior Secured Notes, 3.80 % (fixed rate) due 2029

20,000 20,000

Other long-term borrowings — 203

6 unchanged sentences

(a) Interest rates are as of December 31, 2022.

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

(b) Loan fees are being amortized over the life of the debt agreements.

Credit Agreement.

1 unchanged sentence

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.

On August 31, 2022, the Credit Agreement was amended to change the interest rate benchmark from LIBOR to SOFR.

The Credit Agreement matures on February 14, 2025.

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 is secured by substantially all assets, excluding real property.

The Credit Agreement includes certain requirements and covenants, which the Company was in compliance with at December 31, 2022.

The Company incurred $ 666 new loan fees related to the Credit Agreement during 2021.

The Company incurred no new loan fees related to the Credit Agreement during 2022.

The unamortized balance of total loan fees related to the Credit Agreement was $ 1,177 at December 31, 2022, which were included in other assets, net on the Consolidated Balance Sheet.

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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, 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 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.

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 August 23, 2017, the Company initially issued $ 20,000 of Series A Senior Secured Notes with a maturity date of August 23, 2027.

The Series A Senior Secured Notes bear interest at a rate of 3.53 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.

The Senior Secured Notes bear interest at a rate of 3.80 percent per year.

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

As of December 31, 2022, the Company has $ 15,200 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.

The Company incurred no new loan fees related to the Note Purchase Agreement during 2022.

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

The Note Purchase Agreement includes certain requirements and covenants, which the Company was in compliance with at December 31, 2022.

Convertible Senior Notes .

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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.

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.

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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.

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.

The Company incurred no new loan fees related to the 2041 Notes during 2022.

The unamortized balance of total loan fees related to the 2041 Notes was $ 6,025 at December 31, 2022 and is being amortized over the life of the 2041 Notes.

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• 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.

• 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.

As part of the Merger, the Company acquired additional long-term notes payable to certain counties in Kentucky and during the year ended December 31, 2022, the Company paid off the outstanding balances.

Debt Maturities.

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State ( 1,821 ) 1,405 442

Foreign ( 71 ) — —

978 6,750 140

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Operating lease right-of-use assets ( 3,850 ) ( 2,487 )

Convertible Senior Note ( 2,424 ) ( 411 )

Other ( 2,214 ) ( 1,566 )

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Balance at December 31, 2020

Decrease ( 422 )

Balance at December 31, 2021

Balance at December 31, 2022

As of December 31, 2022, the Company’s total valuation allowance of $ 2,073 related to net operating loss 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, 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.

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.

The Merger with Luxco during 2021 was largely structured as a non-taxable merger for U.S.

income tax purposes.

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As of December 31, 2022 and 2021, the Company had $ 21,537 and $ 19,823 in gross state net operating loss carryforwards, respectively.

Due to varying state carryforward periods, the state net operating loss carryforwards will expire in varying years between calendar years 2022 and 2042.

Due to varying state carryforward periods, the state net operating loss carryforwards will primarily expire in varying years between calendar years 2022 and 2042.

As of December 31, 2022 and 2021, the Company had gross state tax credit carryforwards of $ 5,052 and $ 2,966 , respectively.

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(a) Net income attributable to all shareholders.

(b) Participating securities included RSUs of 163,024 , 110,665 , and 111,365 for the years ended December 31, 2021, 2020, and 2019, respectively.

(b) Participating securities included 177,398 , 163,024 , and 110,665 unvested restricted stock units (“RSUs”) for the years ended December 31, 2022, 2021, and 2020, respectively.

(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.

(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.

There was no dilutive impact for the years ended December 31, 2021, and 2020.

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Under the share repurchase program, the company can repurchase stock from time to time for cash in open market purchases, block transactions, and privately negotiated transactions in accordance with applicable federal securities laws.

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

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 .

The Company did not 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.

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Balance, December 31, 2020

437 16,915,862

Issuance of Common Stock — 5,060,339

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Balance, December 31, 2021

437 21,964,314

Issuance of Common Stock — 38,760

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Balance, December 31, 2022

437 21,994,042

Dividends and Dividend Equivalents.

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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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$ 0.48 $ 0.48 $ 8,133 $ 55 $ 8,188

February 25 March 13 March 29 $ 0.10 $ 0.10 $ 1,701 $ 13 $ 1,714

April 29 May 15 May 31 0.10 0.10 1,702 11 1,713

July 29 August 14 August 30 0.10 0.10 1,703 11 1,714

October 29 November 14 November 26 0.10 0.10 1,703 12 1,715

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

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

(a) Dividend equivalent payments on unvested participating securities (see Note 11, Employee Benefit Plans ).

(b) Includes estimated forfeitures.

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 operating leases for railcars, computer equipment, office spaces, a bottling facility, a distribution facility, fulfillment center, retail location, and certain equipment.

The Company has no finance leases.

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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.

As most of the Company’s leases do not provide an implicit rate, the Company uses its estimated incremental collateralized borrowing rate based on the information available at commencement date in determining the present value of lease payments.

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

As most of the Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

The following table provides supplemental balance sheet classification information related to leases:

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$ 4,693 $ 3,397

(a) Recorded as a component of Operating income on the Company’s Consolidated Statement of Income.

(a) Recorded as a component of operating income on the Company’s Consolidated Statements of Income.

The following table presents supplemental cash flow and non-cash activity related to lease information:

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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.

The bonds allow a 15 or 40 year real property tax abatement on our renovated and newly-constructed warehouse buildings and distilleries in Kentucky.

We have been approved for $ 55,500 of industrial revenue bonds with the City of Williamstown Kentucky, and have used approximately $ 21,000 .

Additionally, we have been approved for $ 175,000 of industrial revenue bonds with Nelson County Kentucky and have used approximately $ 48,000 .

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 City of Williamstown and Nelson County issued the industrial revenue bonds to us.

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

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

Because the Company owns all of the outstanding bonds, has a legal right to set-off, and intends to set-off the corresponding lease and interest payment, the Company netted the capital lease obligation with the bond asset and, in turn, reflected no amount for the obligation or the corresponding asset on its Consolidated Balance Sheet at December 31, 2021 and 2020.

Contingencies.

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

Dryer Fire Incident.

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

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

The Company impaired $ 681 of spare parts and other inventory which was recorded in Cost of sales on the Consolidated Statements of Income for the year ended December 31, 2020.

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.

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 .

In May 2020, the Company was affected by a ransomware cyber-attack that temporarily disrupted production at its Atchison facilities.

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

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

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

The consolidated action is captioned In re MGP Ingredients, Inc.

Securities Litigation and the file is maintained under Master File No.

2:20-cv-2090-DDCJPO.

On July 22, 2020, the Retirement Trust filed a consolidated Amended Complaint.

The Consolidated Complaint 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 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.

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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, Case 2:20-cv-02281.

On June 18, 2020, Alexandra Kearns, a shareholder in MGP, filed an action in the District Court of Atchison County, Kansas, under the caption Kearns, derivatively on behalf of MGP Ingredients v.

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 are certain of the Company’s current and former officers and directors.

The Company is a nominal defendant in each action.

Plaintiffs allege that the Company was damaged as a result of the conduct of the individual defendants alleged in the MGP Ingredients, Inc.

Securities Litigation , the repurchase of company stock at artificially inflated prices, and compensation paid to the individual defendants.

The Complaint in Dorfman asserts claims for violations of Sections 14(a), 10(b), and 20(a) of the Securities Exchange Act of 1934, breach of fiduciary duties, waste of corporate assets, and unjust enrichment.

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

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

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

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

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

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

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

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

City of Wichita.

Herington 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:

2020-CV-000609.

The Petition alleges that plaintiff commenced the action under K.S.A.

17-6510 to enforce his alleged right to inspect books and records of the Company, in order to enable him to evaluate possible misconduct by the Company’s Board of Directors and management.

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

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

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 have initiated, and additional private plaintiffs may initiate, legal proceedings for damages resulting from the Atchsion Chemical Release, but the Company is currently unable to reasonably estimate the amount of any such damages that might result.

The Company’s insurance may provide coverage of any damages to private plaintiffs, subject to a deductible of $ 250 , but certain regulatory fines or penalties may not be covered and there can be no assurance to the amount or timing of possible insurance recoveries if ultimately claimed by the Company.

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.

EMPLOYEE BENEFIT PLANS

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Compensation expense related to restricted stock awards is based on the market price of the stock on the date the Board of Directors communicates the approved award and is amortized over the vesting period of the restricted stock award.

The Consolidated Statements of Income for 2021, 2020, and 2019 reflect total share-based compensation costs and director fees for awarded grants of $ 2,346 , $ 2,723 , $ 2,424 , respectively, related to these plans.

The Consolidated Statements of Income for 2022, 2021, and 2020 reflect total share-based compensation costs and director fees for awarded grants of $ 3,487 , $ 2,346 , and $ 2,723 , respectively, related to these plans.

For long-term incentive awards to be granted in the form of RSUs in 2023 based on 2022 results, the Human Resources and Compensation Committee (“HRCC”) determined that the grants would have performance conditions that would be based on the same performance metrics as the Short-Term Incentive Plan (the “STI Plan”).

The performance metrics are operating income, earnings before interest, taxes, depreciation, and amortization (“EBITDA”), and EPS.

Because management determined at the beginning of 2021 that the performance metrics would most likely be met, amortization of the estimated dollar pool of RSUs to be awarded based on 2021 results was started in the first quarter over an estimated 48 month period, including 12 months to the grant date and an additional 36 months to the vesting date.

Because management determined at the beginning of 2022 that the performance metrics would more likely than not be met, amortization of the estimated dollar pool of RSUs to be awarded based on 2022 results was started in the first quarter over an estimated 48 month period, including 12 months to the grant date and an additional 36 months to the vesting date.

The Consolidated Statements of Income for 2022, 2021, and 2020 reflects share-based compensation costs for grants to be awarded of $ 2,018 , $ 960 , and $ 2,566 , respectively.

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Annual Cash Incentive Plan.

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

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.

Additionally, certain employees within the Branded Spirits segment have an incentive plan that is based on performance metrics of number of depleted cases and gross margin.

Amounts expensed under the STI Plan totaled $ 13,370 , $ 11,155 , and $ 9,732 for 2022, 2021, and 2020, respectively.

2 unchanged sentences

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 insignificant and were included as a component of Operating income in the Company’s Consolidated Statements of Income, because the Company’s deferred compensation investments consist of mutual funds that are considered trading securities.

Realized and unrealized gains (losses) on deferred compensation plan

investments were insignificant and were included as a component of operating income in the Company’s Consolidated Statements of Income, because the Company’s deferred compensation investments consist of mutual funds that are considered trading securities.

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.

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 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.

At December 31, 2022 and 2021, the EDC Plan investments were $ 2,176 and $ 3,072 , respectively, which were recorded in other assets on the Company’s Consolidated Balance Sheets.

The EDC Plan current liabilities were $ 510 and $ 617 at December 31, 2022 and 2021, respectively, and were included in accrued expenses and other on the Company’s Consolidated Balance Sheets.

The EDC Plan non-current liabilities were $ 2,191 and $ 2,981 as of December 31, 2022 and 2021, respectively, which were recorded in Other non-current liabilities on the Company’s Consolidated Balance Sheets.

CONCENTRATIONS AND RELATED PARTIES

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Related Parties.

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

For the years ended December 31, 2022 and 2021, the Company purchased $ 37,274 and $ 23,463 , respectively, of bulk beverage alcohol from LMX.

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

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(“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 Lux Family Group owns approximately 22.8 percent of the outstanding shares of MGP at December 31, 2021.

One member of the Lux Family Group has a relative that was the president of Meier’s and majority owner of Meier’s.

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

In January 2022, Meier’s was sold to Vintage Estates and is no longer considered a related party to the Company.

OPERATING SEGMENTS

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, 2022, 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.

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, barrel storage, and barrel retrieval services.

The Branded Spirits segment consists of a portfolio of high quality branded spirits which are produced through the distilleries and bottling facilities.

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

6 unchanged sentences

Sales to customers:

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

Distilling Solutions $ 428,478 $ 352,504 $ 313,309

Branded Spirits 237,939 183,566 4,149

2 unchanged sentences

Gross profit:

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

Distilling Solutions $ 126,282 $ 114,106 $ 75,773

Branded Spirits 95,521 62,644 2,187

2 unchanged sentences

Depreciation and amortization:

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

Distilling Solutions $ 11,641 $ 10,766 $ 9,816

Branded Spirits 5,909 5,138 100

3 unchanged sentences

Income (loss) before income taxes:

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

Distilling Solutions $ 121,651 $ 110,317 $ 73,533

Branded Spirits 33,333 20,742 ( 2,510 )

2 unchanged sentences

Total $ 140,172 $ 121,096 $ 52,601

(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.

(a) Sales revenue from foreign sources totaled $ 56,719 , $ 42,593 , and $ 23,905 for the years ended December 31, 2022, 2021, and 2020, respectively, and is largely derived from the United Kingdom, Japan, Thailand, Canada, and Mexico.

The balance of total sales revenue is from domestic sources.

Identifiable Assets

Distillery Products $ 314,816 $ 281,721

Distilling Solutions $ 350,068 $ 314,816

Branded Spirits 698,985 658,826

2 unchanged sentences

$ 1,158,211 $ 1,041,467

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

(a) As of December 31, 2022, the Company had $ 14,209 of assets located in Northern Ireland, $ 3,042 of which were long-lived assets.

As of December 31, 2021, the Company had $ 12,758 of assets located in Northern Ireland, $ 2,930 of which were long-lived assets.

SUPPLEMENTAL CASH FLOW INFORMATION

8 unchanged sentences

QUARTERLY FINANCIAL DATA (UNAUDITED)

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

Summary of selected quarterly financial data for years ended December 31, 2022 and 2021:

Year Ended December 31, 2022

7 unchanged sentences

SG&A expenses 22,632 17,905 17,853 16,237

Insurance recoveries ( 16,325 ) — — —

Operating income 29,715 33,864 35,306 50,080

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

Interest expense, net ( 960 ) ( 1,350 ) ( 1,543 ) ( 1,598 )

Other income (loss), net ( 981 ) ( 1,353 ) ( 1,062 ) 54

15 unchanged sentences

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 ( 566 ) ( 594 ) ( 628 ) ( 479 )

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

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

12 unchanged sentences

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