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 March 31, 2023 2022 Sales $ 201,010 $ 195,235 Cost of sales 131,186 123,414 Gross profit 69,824 71,821 Advertising and promotion expenses 7,733 5,504 Selling, general, and administrative expenses 20,532 16,237 Operating income 41,559 50,080 Interest expense, net ( 995 ) ( 1,598 ) Other income (expense), net 123 54 Income before income taxes 40,687 48,536 Income tax expense 9,655 11,165 Net income 31,032 37,371 Net loss attributable to noncontrolling interest 39 66 Net income attributable to MGP Ingredients, Inc. 31,071 37,437 Income attributable to participating securities ( 311 ) ( 318 ) Net income used in earnings per common share calculation $ 30,760 $ 37,119 Weighted average common shares Basic 22,040,224 21,989,100 Diluted 22,072,271 21,989,100 Earnings per common share Basic $ 1.40 $ 1.69 Diluted $ 1.39 $ 1.69 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 March 31, 2023 2022 Net income attributable to MGP Ingredients, Inc. $ 31,071 $ 37,437 Other comprehensive income (loss), net of tax: Unrealized gain (loss) on foreign currency translation adjustment 175 ( 219 ) Change in Company-sponsored post-employment benefit plan ( 107 ) ( 13 ) Other comprehensive income (loss) 68 ( 232 ) Comprehensive income attributable to MGP Ingredients, Inc. 31,139 37,205 Comprehensive loss attributable to noncontrolling interest ( 39 ) ( 66 ) Comprehensive income $ 31,100 $ 37,139 See accompanying notes to unaudited condensed consolidated financial statements 4 MGP INGREDIENTS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands) March 31, 2023 December 31, 2022 Current Assets Cash and cash equivalents $ 31,728 $ 47,889 Receivables (less allowance for credit loss, $ 1,475 at both March 31, 2023, and December 31, 2022) 128,611 109,267 Inventory 308,558 289,722 Prepaid expenses 6,542 2,957 Refundable income taxes — 4,327 Total current assets 475,439 454,162 Property, plant, and equipment 461,069 450,800 Less accumulated depreciation and amortization ( 220,100 ) ( 215,168 ) Property, plant, and equipment, net 240,969 235,632 Operating lease right-of-use assets, net 14,698 15,042 Investment in joint ventures 5,274 5,534 Intangible assets, net 216,250 216,768 Goodwill 226,294 226,294 Other assets 5,262 4,779 Total assets $ 1,184,186 $ 1,158,211 Current Liabilities Current maturities of long-term debt $ 6,400 $ 5,600 Accounts payable 66,755 66,432 Federal and state excise taxes payable 7,388 4,627 Income taxes payable 4,716 — Accrued expenses and other 17,056 28,716 Total current liabilities 102,315 105,375 Long-term debt, less current maturities 27,914 29,510 Convertible senior notes 195,305 195,225 Long-term operating lease liabilities 11,252 11,622 Other noncurrent liabilities 3,768 3,723 Deferred income taxes 67,685 67,112 Total liabilities 408,239 412,567 Commitments and Contingencies (Note 7) 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 March 31, 2023 and December 31, 2022; and 22,008,929 and 21,994,042 shares outstanding at March 31, 2023 and December 31, 2022, respectively 6,715 6,715 Additional paid-in capital 320,997 318,839 Retained earnings 471,471 443,061 Accumulated other comprehensive income (loss) ( 236 ) ( 304 ) Treasury stock, at cost, 1,116,237 and 1,131,124 shares at March 31, 2023 and December 31, 2022, respectively ( 21,885 ) ( 21,591 ) Total MGP Ingredients, Inc. stockholders’ equity 777,066 746,724 Noncontrolling interest ( 1,119 ) ( 1,080 ) Total equity 775,947 745,644 Total liabilities and equity $ 1,184,186 $ 1,158,211 See accompanying notes to unaudited condensed consolidated financial statements 5 MGP INGREDIENTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) Quarter to Date Ended March 31, 2023 2022 Cash Flows from Operating Activities Net income $ 31,032 $ 37,371 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,171 5,621 Share-based compensation 1,215 1,373 Equity method investment loss (income) 260 ( 394 ) Deferred income taxes, including change in valuation allowance 573 347 Other, net 99 24 Changes in operating assets and liabilities: Receivables, net ( 19,227 ) ( 9,601 ) Inventory ( 18,707 ) ( 13,696 ) Prepaid expenses ( 3,578 ) 657 Income taxes payable (refundable) 9,043 5,437 Accounts payable 6,498 4,638 Accrued expenses and other ( 10,208 ) ( 8,896 ) Federal and state excise taxes payable 2,761 ( 515 ) Other, net 89 ( 136 ) Net cash provided by operating activities 5,021 22,230 Cash Flows from Investing Activities Additions to property, plant, and equipment ( 16,237 ) ( 10,642 ) Contributions to equity method investment — ( 1,028 ) Other, net ( 708 ) ( 363 ) Net cash used in investing activities ( 16,945 ) ( 12,033 ) Cash Flows from Financing Activities Payment of dividends and dividend equivalents ( 2,669 ) ( 2,661 ) Purchase of treasury stock ( 801 ) ( 714 ) Principal payments on long-term debt ( 800 ) ( 807 ) Net cash used in financing activities ( 4,270 ) ( 4,182 ) Effect of exchange rate changes on cash and cash equivalents 33 ( 288 ) Increase (decrease) in cash and cash equivalents ( 16,161 ) 5,727 Cash and cash equivalents, beginning of period 47,889 21,568 Cash and cash equivalents, end of period $ 31,728 $ 27,295 See accompanying notes to unaudited condensed consolidated financial statements 6 MGP INGREDIENTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY For Quarter to Date Ended March 31, 2023 and 2022 (Unaudited) (Dollars in thousands) Capital Stock Preferred Issued Common Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (loss) Treasury Stock Non-controlling Interest Total Balance, December 31, 2022 $ 4 $ 6,715 $ 318,839 $ 443,061 $ ( 304 ) $ ( 21,591 ) $ ( 1,080 ) $ 745,644 Comprehensive income: Net income (loss) — — — 31,071 — — ( 39 ) 31,032 Other comprehensive income — — — — 68 — — 68 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 — — 2,665 — — — — 2,665 Stock shares awarded, forfeited or vested — — ( 507 ) — — 507 — — Stock shares repurchased — — — — — ( 801 ) — ( 801 ) Balance, March 31, 2023 $ 4 $ 6,715 $ 320,997 $ 471,471 $ ( 236 ) $ ( 21,885 ) $ ( 1,119 ) $ 775,947 Capital Stock Preferred Issued Common Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (loss) 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 See accompanying notes to unaudited condensed consolidated financial statements 7 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, rye, and other whiskeys and grain neutral spirits (“GNS”), including vodka and gin. The Company’s 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 produced through its distilleries and bottling facilities and sold 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 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. Certain amounts in the 2022 consolidated financial statements have been reclassified to conform to the 2023 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 ended March 31, 2023, 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, 2022, 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. For all of these policies, management cautions that future events rarely develop as forecast, and estimates routinely require adjustment and may require material adjustment. Inventory. 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, 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 are classified as a current asset. The Company includes warehousing, insurance, and other carrying charges applicable to barreled whiskey in inventory costs. 8 Inventories are stated at the 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, primarily corn. Inventory consists of the following: March 31, 2023 December 31, 2022 Finished goods $ 50,730 $ 47,073 Barreled distillate (bourbons and other whiskeys) 210,615 199,040 Raw materials 33,524 29,931 Work in process 1,351 1,645 Maintenance materials 10,004 9,931 Other 2,334 2,102 Total $ 308,558 $ 289,722 Revenue Recognition. Revenue is recognized when control of the promised goods or services, through performance obligations by the Company, is transferred to the customer in an amount that reflects the consideration the Company 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 a present obligation to pay. The 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. 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 Tax. 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 include 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, and that are collected by the Company from a customer, are excluded from revenue and expense. 9 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. The Company maintains a U.S. bank account denominated in British pound sterling, which is adjusted for the market exchange rate at the reporting period-end. Any impact of the adjustment for the exchange rate applied to the financial asset is reported in other income (expense), net on the Condensed Consolidated Statements of Income. Goodwill and Other Intangible Assets. The Company records goodwill and other indefinite-lived intangible assets in connection with various acquisitions of businesses and allocates the goodwill and other indefinite-lived intangible assets to its respective reporting units. The Company 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 value 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 March 31, 2023, 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. The Company’s short-term financial instruments include cash and cash equivalents, accounts receivable 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. Excluding the impact of the conversion feature of the Convertible Senior Notes, the fair value of the Company’s debt was $ 141,877 and $ 150,249 at March 31, 2023 and December 31, 2022, respectively. The financial statement carrying value of total debt (net of unamortized loan fees) was $ 229,619 and $ 230,335 at March 31, 2023 and December 31, 2022, 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 8, Employee and Non-Employee Benefit Plans. 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 and are considered affiliates of the Company. The investment in LMX, which is recorded in investment in joint ventures on the Condensed Consolidated Balance Sheets, was $ 5,274 and $ 5,534 at March 31, 2023 and December 31, 2022, respectively. 10 During the quarter ended March 31, 2023 and 2022, the Company recorded a loss of $ 260 and a gain of $ 394 from our equity method investments, respectively, which is recorded in other income (expense), net on the Condensed Consolidated Statements of Income. During the quarter ended March 31, 2023 and 2022, the Company purchased $ 8,417 and $ 8,391 , respectively, of finished goods from LMX and bulk beverage alcohol from the other 50 percent owner of DGL. Recently Adopted Accounting Standard Updates. The Company did not adopt any new Accounting Standard Updates during the quarter ended March 31, 2023. Note 2. Revenue The Company generates revenue 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. The Company generates revenue from the Ingredient Solutions segment by the sale of products. Revenue related to sales of products is recognized at a point in time whereas revenue generated from warehouse services and contract bottling services 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). Disaggregation of Sales. The following table presents the Company’s sales by segment and major products and services: Quarter Ended March 31, 2023 2022 Distilling Solutions Brown goods $ 68,324 $ 62,145 White goods 15,954 20,086 Premium beverage alcohol 84,278 82,231 Industrial alcohol 10,439 11,495 Food grade alcohol 94,717 93,726 Fuel grade alcohol 2,556 3,282 Distillers feed and related co-products 9,092 8,917 Warehouse services 6,858 5,584 Total Distilling Solutions 113,223 111,509 Branded Spirits Ultra premium 9,115 12,597 Super premium 2,847 2,946 Premium 6,784 6,140 Premium plus 18,746 21,683 Mid 20,835 19,273 Value 13,421 11,299 Other 3,881 3,496 Total Branded Spirits 56,883 55,751 Ingredient Solutions Specialty wheat starches 14,686 15,203 Specialty wheat proteins 11,890 9,419 Commodity wheat starches 3,807 3,353 Commodity wheat proteins 521 — Total Ingredient Solutions 30,904 27,975 Total sales $ 201,010 $ 195,235 11 Note 3. Goodwill and Intangible Assets Definite-Lived Intangible Assets. The Company acquired definite-lived intangible assets in connection with various acquisitions of businesses. The distributor relationships have a carrying value of $ 37,260 , net of accumulated amortization of $ 4,140 . The distributor relationships have a useful life of 20 years. The amortization expense was $ 518 for both quarters ended March 31, 2023 and 2022. As of March 31, 2023, the expected future amortization expense related to definite-lived intangible assets are as follows: Remainder of 2023 $ 1,553 2024 2,070 2025 2,070 2026 2,070 2027 2,070 Thereafter 27,427 Total $ 37,260 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. The carrying amount of goodwill, which relates to the Branded Spirits segment, was $ 226,294 at both March 31, 2023 and December 31, 2022. The carrying amount of indefinite-lived intangible assets, which relates to the Branded Spirits segment, was $ 178,990 at both March 31, 2023 and December 31, 2022. Note 4. Corporate Borrowings The following table presents the Company’s outstanding indebtedness: Description (a) March 31, 2023 December 31, 2022 Credit Agreement - Revolver, 5.90 % (variable rate) due 2026 $ — $ — 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 14,400 15,200 Senior Secured Notes, 3.80 % (fixed rate) due 2029 20,000 20,000 Total indebtedness outstanding 235,650 236,450 Less unamortized loan fees (b) ( 6,031 ) ( 6,115 ) Total indebtedness outstanding, net 229,619 230,335 Less current maturities of long-term debt ( 6,400 ) ( 5,600 ) Long-term debt $ 223,219 $ 224,735 (a) Interest rates are as of March 31, 2023. (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 March 14, 2026. 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 with which the Company was in compliance at March 31, 2023. As of March 31, 2023, 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 amount of 1.88 % 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 1.88 % on May 15 and 12 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. 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 Purchase 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 Purchase 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 with which the Company was in compliance at March 31, 2023 . As of March 31, 2023, the Company had $ 14,400 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. Note 5. 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. Income tax expense for the quarter ended March 31, 2023, was $ 9,655 for an effective tax rate of 23.7 percent. The effective tax rate for the quarter ended March 31, 2023 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, the deduction applicable to export activity, and the discrete impact of certain items related to equity compensation. Income tax expense for the quarter ended March 31, 2022, was $ 11,165 for an effective tax rate of 23.0 percent. The effective tax rate for the quarter ended March 31, 2022 differed from the 21 percent federal statutory rate on pretax income primarily due to state income taxes, income taxes on foreign subsidiaries, partially offset by state and federal tax credits, and the deduction applicable to export activity. 13 Note 6. Equity and EPS The computations of basic and diluted EPS: Quarter Ended March 31, 2023 2022 Operations: Net income (a) $ 31,032 $ 37,371 Net loss attributable to noncontrolling interest 39 66 Income attributable to participating securities (unvested shares and units) (b) ( 311 ) ( 318 ) Net income used in EPS calculation $ 30,760 $ 37,119 Share information: Basic weighted average common shares (c) 22,040,224 21,989,100 Diluted weighted average common shares (d) 22,072,271 21,989,100 Basic EPS $ 1.40 $ 1.69 Diluted EPS $ 1.39 $ 1.69 (a) Net income attributable to all shareholders. (b) Participating securities included 227,810 and 189,297 unvested restricted stock units (“RSUs”) at March 31, 2023 and 2022, respectively. (c) Under the two-class method, basic weighted average common shares 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. There was no dilutive impact for the quarter ended March 31, 2022. Common Stock Share Activity. The following table presents the Company’s share activity: Shares Outstanding Capital Stock Preferred Common Stock Balance, December 31, 2022 437 21,994,042 Issuance of Common Stock — 23,324 Repurchase of Common Stock (a) — ( 8,437 ) Balance, March 31, 2023 437 22,008,929 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 (a) The Common Stock repurchases were for tax withholding on equity based compensation. Note 7. 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. Note 8. 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 currently 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”). 14 As of March 31, 2023, 658,081 RSUs had been granted of the 1,500,000 shares approved under the 2014 Plan, and 132,395 shares had been granted of the 300,000 shares approved under the Directors’ Plan. As of March 31, 2023, there were 227,810 unvested RSUs under the Company’s long-term incentive plans, all of which were participating securities (See Note 6). 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 ended March 31, 2023, the Company had a gain on deferred compensation plan investments of $ 179 , and for the quarter ended March 31, 2022, the Company had a loss on deferred compensation plan investments of $ 339 . 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 March 31, 2023 and December 31, 2022, the EDC Plan investments were $ 2,751 and $ 2,176 , respectively, which were recorded in other assets on the Company’s Condensed Consolidated Balance Sheets. The EDC Plan current liabilities were $ 470 and $ 510 at March 31, 2023 and December 31, 2022, respectively, which were included in accrued expenses and other on the Company’s Condensed Consolidated Balance Sheets. The EDC Plan non-current liabilities were $ 2,445 and $ 2,191 at March 31, 2023 and December 31, 2022, respectively, and were included in other noncurrent liabilities on the Company’s Condensed Consolidated Balance Sheets. Note 9. Operating Segments At March 31, 2023, 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, 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. The 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, 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. 15 The following table presents summarized financial information for each segment: Quarter Ended March 31, 2023 2022 Sales to Customers Distilling Solutions $ 113,223 $ 111,509 Branded Spirits 56,883 55,751 Ingredient Solutions 30,904 27,975 Total $ 201,010 $ 195,235 Gross Profit Distilling Solutions $ 33,028 $ 38,933 Branded Spirits 24,593 24,782 Ingredient Solutions 12,203 8,106 Total $ 69,824 $ 71,821 Depreciation and Amortization Distilling Solutions $ 2,851 $ 2,861 Branded Spirits 1,491 1,782 Ingredient Solutions 658 612 Corporate 171 366 Total $ 5,171 $ 5,621 Income (loss) before Income Taxes Distilling Solutions $ 32,301 $ 37,992 Branded Spirits 9,157 10,786 Ingredient Solutions 10,846 7,471 Corporate ( 11,617 ) ( 7,713 ) Total $ 40,687 $ 48,536 The following table allocates assets to each segment as of: March 31, 2023 December 31, 2022 Identifiable Assets Distilling Solutions $ 369,447 $ 350,068 Branded Spirits 706,854 698,985 Ingredient Solutions 72,827 63,943 Corporate 35,058 45,215 Total $ 1,184,186 $ 1,158,211 Note 10. Subsequent Events Dividend. On May 4, 2023, the Company’s Board of Directors declared a quarterly dividend payable to stockholders of record as of May 19, 2023, of the Company’s Common Stock, resulting in dividend equivalents payable to holders of certain RSUs as of May 19, 2023, of $ 0.12 per share and per unit, payable on June 2, 2023. 16