What changed in this filing

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Item 1. Financial Statements

2023-08-03 compared with 2023-05-04 · 215 added, 74 removed, 424 unchanged (41% of the section changed)

3 unchanged sentences

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

Quarter Ended March 31,

Quarter Ended June 30, Year to Date Ended June 30,

2023 2022 2023 2022

Sales $ 209,001 $ 194,982 $ 410,011 $ 390,217

24 unchanged sentences

(Dollars in thousands)

Quarter Ended March 31,

Quarter Ended June 30, Year to Date Ended June 30,

2023 2022 2023 2022

Net income attributable to MGP Ingredients, Inc.

12 unchanged sentences

(Unaudited) (Dollars in thousands)

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Current Assets

Cash and cash equivalents $ 21,959 $ 47,889

Receivables (less allowance for credit loss, $ 1,475 at both March 31, 2023, and December 31, 2022)

Receivables (less allowance for credit loss, $ 1,475 at both June 30, 2023, and December 31, 2022)

147,570 109,267

16 unchanged sentences

Federal and state excise taxes payable 5,946 4,627

Income taxes payable 4,716 —

Accrued expenses and other 21,384 28,716

3 unchanged sentences

Long-term operating lease liabilities 13,568 11,622

Contingent consideration 63,900 —

Other noncurrent liabilities 3,943 3,723

10 unchanged sentences

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

issued 23,125,166 shares at June 30, 2023 and December 31, 2022;

and 22,014,374 and 21,994,042 shares outstanding at June 30, 2023 and December 31, 2022, respectively

Additional paid-in capital 322,267 318,839

1 unchanged sentence

Accumulated other comprehensive income (loss) ( 169 ) ( 304 )

Treasury stock, at cost, 1,116,237 and 1,131,124 shares at March 31, 2023 and December 31, 2022, respectively

Treasury stock, at cost, 1,110,792 and 1,131,124 shares at June 30, 2023 and December 31, 2022, respectively

( 21,347 ) ( 21,591 )

8 unchanged sentences

(Dollars in thousands)

Quarter to Date Ended March 31,

Year to Date Ended June 30,

Cash Flows from Operating Activities

3 unchanged sentences

Share-based compensation 3,637 2,131

Equity method investment loss (income) 260 ( 394 )

Equity method investment loss 579 180

Deferred income taxes, including change in valuation allowance 2,129 125

Other, net 206 ( 98 )

Changes in operating assets and liabilities:

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

Receivables, net ( 35,833 ) ( 13,142 )

9 unchanged sentences

Additions to property, plant, and equipment ( 30,055 ) ( 18,087 )

Purchase of business, net of cash acquired ( 104,398 ) —

Contributions to equity method investment — ( 1,028 )

4 unchanged sentences

Purchase of treasury stock ( 801 ) ( 713 )

Proceeds from long-term debt 105,000 —

Principal payments on long-term debt ( 9,400 ) ( 1,614 )

Net cash used in financing activities ( 4,270 ) ( 4,182 )

Net cash provided by (used in) financing activities 89,462 ( 7,649 )

Effect of exchange rate changes on cash and cash equivalents 41 ( 39 )

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For Quarter to Date Ended March 31, 2023 and 2022

For Year to Date Ended June 30, 2023

(Dollars in thousands)

17 unchanged sentences

4 6,715 320,997 471,471 ( 236 ) ( 21,885 ) ( 1,119 ) 775,947

Comprehensive income:

Net income (loss) — — — 32,126 — — ( 162 ) 31,964

Other comprehensive income — — — — 67 — — 67

Dividends and dividend equivalents of $ 0.12 per common share and per restricted stock unit, net of estimated forfeitures

— — — ( 2,664 ) — — — ( 2,664 )

Share-based compensation — — 1,808 — — — — 1,808

Stock shares awarded, forfeited or vested — — ( 538 ) — — 538 — —

Stock shares repurchased — — — — — — — —

Balance, June 30, 2023

$ 4 $ 6,715 $ 322,267 $ 500,933 $ ( 169 ) $ ( 21,347 ) $ ( 1,281 ) $ 807,122

See accompanying notes to unaudited condensed consolidated financial statements

MGP INGREDIENTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For Year to Date Ended June 30, 2022

(Dollars in thousands)

Preferred Issued Common Additional

16 unchanged sentences

4 6,715 316,571 379,013 122 ( 22,464 ) ( 556 ) 679,405

Comprehensive income:

Net income (loss) — — — 25,560 — — ( 198 ) 25,362

Other comprehensive loss — — — — ( 443 ) — — ( 443 )

Dividends and dividend equivalents of $ 0.12 per common share and per restricted stock unit, net of estimated forfeitures

— — — ( 2,658 ) — — — ( 2,658 )

Share-based compensation — — 1,409 — — — — 1,409

Stock shares awarded, forfeited, or vested — — ( 740 ) — — 740 — —

Stock shares repurchased — — — — — ( 2 ) — ( 2 )

Balance, June 30, 2022

$ 4 $ 6,715 $ 317,240 $ 401,915 $ ( 321 ) $ ( 21,726 ) $ ( 754 ) $ 703,073

See accompanying notes to unaudited condensed consolidated financial statements

12 unchanged sentences

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

On June 1, 2023, the Company acquired Penelope Bourbon LLC (“Penelope”), which, prior to the Company’s acquisition, was a family and founder-owned and operated American whiskey company with a diverse portfolio of high-quality whiskeys in the premium plus price tiers.

See Note 3, Business Combination, for further details.

The Company reports three operating segments:

4 unchanged sentences

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”).

These unaudited condensed consolidated financial statements as of and for the quarter and year to date ended June 30, 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 (the “SEC”).

The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

8 unchanged sentences

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.

For all of these policies, management cautions that future events may not develop as forecast, and estimates routinely require adjustment and may require material adjustment.

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

5 unchanged sentences

Inventory consists of the following:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Finished goods $ 56,807 $ 47,073

7 unchanged sentences

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.

2 unchanged sentences

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.

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:

7 unchanged sentences

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

Excise Taxes.

The Company is responsible for compliance with the Alcohol and Tobacco Tax and Trade Bureau of the U.S.

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.

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

Individual U.S.

states also impose excise taxes on alcohol beverages in varying amounts.

The Company calculates its U.S.

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.

15 unchanged sentences

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.

Business Combinations.

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

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

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

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

Goodwill and Other Intangible Assets.

4 unchanged sentences

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.

As of June 30, 2023, the Company determined that goodwill and indefinite-lived intangible assets were not impaired.

Fair Value of Financial Instruments.

11 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.

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.

Excluding the impact of the conversion feature of the Convertible Senior Notes, the fair value of the Company’s debt was $ 235,270 and $ 150,249 at June 30, 2023 and December 31, 2022, respectively.

The financial statement carrying value of total debt (net of unamortized loan fees) was $ 325,104 and $ 230,335 at June 30, 2023 and December 31, 2022, respectively.

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

The fair value calculation of contingent consideration associated with the acquisition of Penelope uses unobservable inputs, such as estimated net sales over the term of the earn-out period, discount rates, and volatility rates.

The contingent consideration is measured using the Monte Carlo simulation approach.

The inputs used in the calculation of the contingent consideration liability are considered Level 3 under the fair value hierarchy due to the lack of relevant market activity.

See Note 3, Business Combinations, for more information.

Fair value disclosure for deferred compensation plan investments is included in Note 9, Employee and Non-Employee Benefit Plans.

2 unchanged sentences

(“DGL”) and Agricola LG, S.de R.L.

(“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.

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.

(“Agricola” and together with DGL, “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 $ 4,955 and $ 5,534 at June 30, 2023 and December 31, 2022, respectively.

During the quarters ended June 30, 2023 and 2022, the Company recorded a loss of $ 319 and $ 574 , respectively, from its equity method investments, and during the year to date ended June 30, 2023 and 2022, the Company recorded a loss of $ 579 and $ 180 , respectively, which is recorded in other income (expense), net on the Condensed Consolidated Statements of Income.

During the quarter and year to date ended June 30, 2023, the Company purchased $ 11,538 and $ 19,955 , respectively, of finished goods from LMX and bulk beverage alcohol from the other 50 percent owner of DGL.

During the quarter and year to date ended June 30, 2022, the Company purchased $ 11,538 and $ 19,929 , 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.

The Company did not adopt any new Accounting Standard Updates during the quarter ended June 30, 2023.

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.

5 unchanged sentences

The following table presents the Company’s sales by segment and major products and services:

Quarter Ended March 31,

Quarter Ended June 30, Year to Date Ended June 30,

2023 2022 2023 2022

Distilling Solutions

24 unchanged sentences

Total sales $ 209,001 $ 194,982 $ 410,011 $ 390,217

Business Combination

Description of the Transaction .

On May 8, 2023, the Company entered into a definitive agreement to acquire 100 percent of the equity of Penelope, and subsequently completed the acquisition on June 1, 2023 (the “Acquisition”).

Penelope, prior to the Acquisition, was a family and founder-owned and operated American whiskey company with a diverse portfolio of high-quality whiskeys in the premium plus price tiers.

As a result of the Acquisition, the Company enhances its presence in the growing American whiskey category and expands its portfolio of premium plus price tier brands.

Following the Acquisition, Penelope became a wholly owned subsidiary of the Company and its financial results are included within the Branded Spirits segment.

The aggregate consideration paid by the Company in connection with the Acquisition was $ 105,000 in cash paid at closing, with further additional potential earn-out consideration of up to a maximum cash payout of $ 110,800 if certain performance conditions, measured through December 31, 2025, are met.

The consideration is subject to customary purchase price adjustments related to, among other things, net working capital and acquired cash.

The consideration paid at closing included a preliminary estimated purchase price adjustment of $ 324 .

The cash portion of the consideration and transaction-related expenses were paid using both cash on hand and borrowings under the Company’s existing credit agreement.

See Note 5, Corporate Borrowings, for further details.

For tax purposes, the Acquisition was structured as an asset purchase which created additional tax basis in the assets acquired as

a result of valuing the assets at fair market value and the purchase price will be accounted for in accordance with U.S.

federal tax law.

Indefinite-lived intangible assets and goodwill is expected to be deductible for U.S.

income tax purposes.

The Acquisition was accounted for as a business combination in accordance with Financial Accounting Standards Board Accounting Standard Codification 805, Business Combinations (“ASC 805”).

The fair value of the assets acquired and liabilities assumed are based upon a preliminary assessment of fair value and may change as valuations for certain tangible assets, intangible assets, and contingent liabilities are finalized and the associated income tax impacts are determined.

The Company expects to finalize the purchase price allocation as soon as practicable, but no longer than one year from the acquisition date.

Purchase Price Allocation.

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

Consideration:

Cash $ 105,324

Contingent consideration 63,900

Fair value of total consideration transferred $ 169,224

Recognized amounts of identifiable assets acquired and liabilities assumed:

Receivables 2,242

Inventory 12,783

Prepaid expenses and other assets 84

Property, plant and equipment, net 253

Intangible assets (a)

Operating lease right-of-use assets, net 426

Other assets 44

Total assets 72,558

Accounts payable 2,324

Accrued expenses and other 161

Long-term operating lease liabilities 268

Total liabilities 2,753

Goodwill 99,419

Total $ 169,224

(a) Intangible assets acquired included trade names with an estimated fair value of $ 33,700 and distributor relationships with an estimated fair value of $ 22,100 .

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

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

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

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

Goodwill of $ 99,419 , 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 included indefinite-lived intangible assets, trade names, which have an estimated fair value of $ 33,700 , and definite-lived intangible assets, distributor relationships, which have an estimated fair value of $ 22,100 and a useful life of 20 years.

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

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

The operating results of Penelope have been included in the Company’s condensed consolidated financial statements since the June 1, 2023 acquisition date.

The operating results and pro forma results are not disclosed due to the immaterial impact to the Company’s Condensed Consolidated Statements of Income.

During the quarter ended June 30, 2023, the Company incurred $ 1,500 of acquisition related costs for the Acquisition, which are included in selling, general, and administrative expenses on the Condensed Consolidated Statements of Income.

Contingent Consideration.

The estimated fair value of the contingent consideration obligation at the acquisition date was $ 63,900 , which was determined using a Monte Carlo simulation approach.

This approach requires significant assumptions, including projected net sales, discount rates, and volatility rates.

The inputs used in the calculation of the contingent consideration liability are considered Level 3 under the fair value hierarchy due to the lack of relevant market activity.

The contingent consideration liability is measured on a quarterly basis and recorded at fair value.

The changes in fair value of the obligation result from changes in the key assumptions, such as projected net sales, discount rates, and volatility rates.

There were no changes in the fair value measurement of the contingent consideration obligation for the quarter ended June 30, 2023.

The amount payable is based upon achievement of certain net sales targets between the acquisition date and December 31, 2025.

The possible payments range from zero to a maximum payout of $ 110,800 .

Goodwill and Intangible Assets

3 unchanged sentences

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:

The amortization expense for the quarter and year to date ended June 30, 2023 was $ 610 and $ 1,128 , respectively.

The amortization expense for the quarter and year to date ended June 30, 2022 was $ 517 and $ 1,035 , respectively.

As of June 30, 2023, the expected future amortization expense related to definite-lived intangible assets is as follows:

Remainder of 2023 $ 1,587

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.

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.

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

Distilling Solutions Branded Spirits Ingredient Solutions Total

Balance, December 31, 2022

$ — $ 226,294 $ — $ 226,294

Acquisitions — 99,419 — 99,419

Balance, June 30, 2023

$ — $ 325,713 $ — $ 325,713

Changes in carrying amount of trade name intangible assets by business segment were as follows:

Distilling Solutions Branded Spirits Ingredient Solutions Total

Balance, December 31, 2022

$ — $ 178,990 $ — $ 178,990

Acquisitions — 33,700 — 33,700

Balance, June 30, 2023

$ — $ 212,690 $ — $ 212,690

Corporate Borrowings

1 unchanged sentence

Description (a)

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Credit Agreement - Revolver, 6.20 % (variable rate) due 2026

12 unchanged sentences

Long-term debt $ 318,704 $ 224,735

(a) Interest rates are as of March 31, 2023.

(a) Interest rates are as of June 30, 2023.

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

2 unchanged sentences

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 May 14, 2021, the Credit Agreement was amended to increase the principal amount available to $ 400,000 and to permit the Company, subject to obtaining lender approval, 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.

The Credit Agreement includes certain requirements and covenants with which the Company was in compliance at June 30, 2023.

Part of the cash portion of the consideration paid to acquire Penelope and transaction-related expenses were financed with $ 105,000 borrowings under the Credit Agreement.

As of June 30, 2023, the Company had $ 98,000 outstanding borrowings under the Credit Agreement, leaving $ 302,000 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.

On November 16, 2021, the Company issued $ 201,250 in aggregate principal amount of 1.88 % convertible senior notes due in 2041 (the “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

November 15 of each year.

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

The 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 November 15 of each year.

The 2041 Notes mature on November 15, 2041 unless earlier repurchased, redeemed, or converted, per the terms of the Indenture.

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).

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.

The deadline for issuing any new 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.

The Note Purchase Agreement includes certain requirements and covenants with which the Company was in compliance at June 30, 2023 .

As of June 30, 2023, the Company had $ 13,600 of Series A Senior Secured Notes and $ 19,200 of additional Senior Secured Notes outstanding under the Note Purchase Agreement, leaving $ 120,000 available of Senior Secured Notes.

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.

1 unchanged sentence

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.

Beginning in the second quarter of 2023, the estimated annual tax rate includes U.S.

entities acquired in the Penelope acquisition.

Income tax expense for the quarter and year to date ended June 30, 2023 was $ 10,804 and $ 20,459 , respectively, for an effective tax rate of 25.3 percent and 24.5 percent, respectively.

The effective tax rate for the quarter and year to date ended June 30, 2023 differed from the 21 percent U.S.

federal statutory rate on pretax income primarily due to state income taxes and income taxes on foreign subsidiaries, partially offset by U.S.

state and federal tax credits and the deduction applicable to export activity.

The Penelope acquisition had an immaterial impact on the quarter and year to date effective tax rate and deferred taxes, including any valuation allowances related to deferred taxes and reserves for uncertain tax positions.

Income tax expense for the quarter and year to date ended June 30, 2022 was $ 7,339 and $ 18,504 , respectively, for an effective tax rate of 22.4 percent and 22.8 percent, respectively.

The effective tax rate for the quarter and year to date ended June 30, 2022 differed from the 21 percent U.S.

federal statutory rate on pretax income primarily due to state income taxes and income taxes on foreign subsidiaries, partially offset by state and federal tax credits, and the deduction applicable to export activity.

The increase in income tax expense for the quarter and year to date ended June 30, 2022 was primarily due to higher income before income taxes as compared to the prior year periods.

Equity and EPS

The computations of basic and diluted EPS:

Quarter Ended March 31,

The following table presents computations of basic and diluted EPS:

Quarter Ended June 30, Year to Date Ended June 30,

2023 2022 2023 2022

Net income (a)

11 unchanged sentences

Diluted EPS $ 1.44 $ 1.15 $ 2.83 $ 2.84

(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.

(a) Net income attributable to all stockholders.

(b) Participating securities included 226,684 and 189,297 unvested restricted stock units (“RSUs”) at June 30, 2023 and 2022, respectively.

1 unchanged sentence

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.

For the quarter ended June 30, 2023, the average market price per share during the quarter exceeded $ 96.24 per share;

however, the impact to diluted EPS calculation was less than $ 0.01 , which resulted in reported basic and diluted EPS being equal.

For the year to date ended June 30, 2023, the inclusion of the shares had a dilutive impact and were included in the diluted EPS calculation.

There was no dilutive impact for the quarter and year to date ended June 30, 2022.

Common Stock Share Activity.

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Balance, March 31, 2023 437 22,008,929

Issuance of Common Stock — 5,445

Repurchase of Common Stock (a)

Balance, June 30, 2023 437 22,014,374

Shares Outstanding

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Balance, March 31, 2022 437 21,985,100

Issuance of Common Stock — 7,655

Repurchase of Common Stock (a)

Balance, June 30, 2022 437 21,992,751

(a) The Common Stock repurchases were for tax withholding on equity-based compensation.

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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’s share-based compensation plans provide for the awarding of stock options, stock appreciation rights, shares of restricted stock, and RSUs for senior executives and other 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”).

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).

the 2014 Equity Incentive Plan (as amended, the “2014 Plan”) and the 2014 Non-Employee Director Equity Incentive Plan (the “Directors’ Plan”).

As of June 30, 2023, 658,081 RSUs had been granted from the 1,500,000 shares approved under the 2014 Plan, and 137,840 shares had been granted from the 300,000 shares approved under the Directors’ Plan.

As of June 30, 2023, there were 226,684 unvested RSUs under the Company’s long-term incentive plans, all of which were participating securities (see Note 7).

Deferred Compensation Plan.

The Company established an unfunded Executive Deferred Compensation Plan (“EDC Plan”) effective as of June 30, 2018, with a purpose to attract and retain highly-compensated key employees by providing participants with an opportunity to defer receipt of a portion of their salary, bonus, and other specified compensation.

The Company’s obligations under this plan will change in conjunction with the performance of the participants’ investments, along with contributions to and withdrawals from the plan.

The Company established an unfunded Executive Deferred Compensation Plan (the “EDC Plan”) effective 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 the EDC Plan change in conjunction with the performance of the participants’ investments, along with contributions to and withdrawals from the EDC 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.

For the quarter and year to date ended June 30, 2023, the Company had a gain on deferred compensation plan investments of $ 211 and $ 390 , respectively, and for the quarter and year to date ended June 30, 2022, the Company had a loss on deferred compensation plan investments of $ 489 and $ 828 , respectively.

EDC 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.

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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.

At June 30, 2023 and December 31, 2022, the EDC Plan investments were $ 2,979 and $ 2,176 , respectively, which were recorded in other assets on the Company’s Condensed Consolidated Balance Sheets.

The EDC Plan current liabilities were $ 650 and $ 510 at June 30, 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 $ 2,621 and $ 2,191 at June 30, 2023 and December 31, 2022, respectively, and were included in other noncurrent liabilities on the Company’s Condensed Consolidated Balance Sheets.

Operating Segments

At March 31, 2023, the Company had three segments:

At June 30, 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 Distilling Solutions segment also includes warehouse services, such as 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.

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The following table presents summarized financial information for each segment:

Quarter Ended March 31,

Quarter Ended June 30, Year to Date Ended June 30,

2023 2022 2023 2022

Sales to Customers

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The following table allocates assets to each segment as of:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Identifiable Assets

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Subsequent Events

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.

On August 3, 2023, the Company announced a quarterly dividend payable to stockholders of record of the Company’s common stock, resulting in dividend equivalents payable to certain RSU holders, of $ 0.12 per share and per RSU.

The dividend and dividend equivalents are payable on September 1, 2023 to stockholders of record and certain RSU holders on August 18, 2023.

Planned Closure of the Atchison Distillery.

On July 13, 2023, the Company announced the decision by its Board of Directors to approve the closure of the Company’s distillery located in Atchison, Kansas (the “Atchison Distillery”).

The anticipated closure date is January 2024.

The Company currently expects to incur aggregate pre-tax charges of $ 23,000 to $ 31,000 for the year ending December 31, 2023 in connection with the closure of the Atchison Distillery.

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-Q

Item 1. Financial Statements