MGP INGREDIENTS INC 10-Q

ITEM 1. FINANCIAL STATEMENTS MGP INGREDIENTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except share and per share amounts) Quarter Ended September 30, Year to Date Ended September 30, 2023 2022 2023 2022 Sales $ 211,624 $ 201,146 $ 621,635 $ 591,363 Cost of sales 138,176 142,098 402,068 401,270 Gross profit 73,448 59,048 219,567 190,093 Advertising and promotion expenses 9,505 7,279 25,877 18,848 Selling, general, and administrative expenses 21,570 17,905 65,615 51,995 Impairment of long-lived assets and other 18,334 — 18,334 — Change in fair value of contingent consideration 4,200 — 4,200 — Operating income 19,839 33,864 105,541 119,250 Interest expense, net ( 2,353 ) ( 1,350 ) ( 4,630 ) ( 4,491 ) Other income (expense), net ( 25 ) ( 1,353 ) 5 ( 2,361 ) Income before income taxes 17,461 31,161 100,916 112,398 Income tax expense 4,373 7,533 24,832 26,037 Net income 13,088 23,628 76,084 86,361 Net loss attributable to noncontrolling interest 123 180 324 444 Net income attributable to MGP Ingredients, Inc. 13,211 23,808 76,408 86,805 Income attributable to participating securities ( 129 ) ( 188 ) ( 760 ) ( 688 ) Net income used in earnings per common share calculation $ 13,082 $ 23,620 $ 75,648 $ 86,117 Weighted average common shares Basic 22,066,159 22,008,381 22,056,270 22,000,026 Diluted 22,381,516 22,228,814 22,207,031 22,000,026 Earnings per common share Basic $ 0.59 $ 1.07 $ 3.43 $ 3.91 Diluted $ 0.58 $ 1.06 $ 3.41 $ 3.91 See accompanying notes to unaudited condensed consolidated financial statements 3 MGP INGREDIENTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Dollars in thousands) Quarter Ended September 30, Year to Date Ended September 30, 2023 2022 2023 2022 Net income attributable to MGP Ingredients, Inc. $ 13,211 $ 23,808 $ 76,408 $ 86,805 Other comprehensive income (loss), net of tax: Unrealized loss on foreign currency translation adjustment ( 317 ) ( 467 ) ( 6 ) ( 1,116 ) Change in Company-sponsored post-employment benefit plan 8 ( 76 ) ( 168 ) ( 102 ) Other comprehensive loss ( 309 ) ( 543 ) ( 174 ) ( 1,218 ) Comprehensive income attributable to MGP Ingredients, Inc. 12,902 23,265 76,234 85,587 Comprehensive loss attributable to noncontrolling interest ( 123 ) ( 180 ) ( 324 ) ( 444 ) Comprehensive income $ 12,779 $ 23,085 $ 75,910 $ 85,143 See accompanying notes to unaudited condensed consolidated financial statements 4 MGP INGREDIENTS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands) September 30, 2023 December 31, 2022 Current Assets Cash and cash equivalents $ 28,030 $ 47,889 Receivables (less allowance for credit loss, $ 1,475 at both September 30, 2023, and December 31, 2022) 126,692 109,267 Inventory 342,401 289,722 Prepaid expenses 4,600 2,957 Refundable income taxes 2,193 4,327 Total current assets 503,916 454,162 Property, plant, and equipment 465,746 450,800 Less accumulated depreciation and amortization ( 222,497 ) ( 215,168 ) Property, plant, and equipment, net 243,249 235,632 Operating lease right-of-use assets, net 15,551 15,042 Investment in joint ventures 5,343 5,534 Intangible assets, net 272,520 216,768 Goodwill 321,544 226,294 Other assets 4,242 4,779 Total assets $ 1,366,365 $ 1,158,211 Current Liabilities Current maturities of long-term debt $ 6,400 $ 5,600 Accounts payable 54,403 66,432 Federal and state excise taxes payable 2,719 4,627 Accrued expenses and other 26,586 28,716 Total current liabilities 90,108 105,375 Long-term debt, less current maturities 114,812 29,510 Convertible senior notes 195,465 195,225 Long-term operating lease liabilities 12,606 11,622 Contingent consideration 66,300 — Other noncurrent liabilities 3,888 3,723 Deferred income taxes 65,000 67,112 Total liabilities 548,179 412,567 Commitments and Contingencies (Note 9) Stockholders’ Equity Capital stock Preferred, 5 % non-cumulative; $ 10 par value; authorized 1,000 shares; issued and outstanding 437 shares 4 4 Common stock No par value; authorized 40,000,000 shares; issued 23,125,166 shares at September 30, 2023 and December 31, 2022; and 22,015,196 and 21,994,042 shares outstanding at September 30, 2023 and December 31, 2022, respectively 6,715 6,715 Additional paid-in capital 323,129 318,839 Retained earnings 511,480 443,061 Accumulated other comprehensive loss ( 478 ) ( 304 ) Treasury stock, at cost, 1,109,970 and 1,131,124 shares at September 30, 2023 and December 31, 2022, respectively ( 21,260 ) ( 21,591 ) Total MGP Ingredients, Inc. stockholders’ equity 819,590 746,724 Noncontrolling interest ( 1,404 ) ( 1,080 ) Total equity 818,186 745,644 Total liabilities and equity $ 1,366,365 $ 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) Year to Date Ended September 30, 2023 2022 Cash Flows from Operating Activities Net income $ 76,084 $ 86,361 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 16,272 16,257 Impairment of long-lived assets and other 18,334 — Share-based compensation 5,651 3,086 Equity method investment loss 191 1,036 Deferred income taxes, including change in valuation allowance ( 2,112 ) ( 302 ) Change in fair value of contingent consideration 4,200 — Other, net 376 426 Changes in operating assets and liabilities, net of effects of acquisition: Receivables, net ( 14,980 ) ( 15,582 ) Inventory ( 42,015 ) ( 30,599 ) Prepaid expenses ( 1,517 ) 1,165 Income taxes payable (refundable) 2,134 ( 1,006 ) Accounts payable ( 10,069 ) 12,613 Accrued expenses and other ( 2,471 ) 1,220 Federal and state excise taxes payable ( 1,908 ) ( 2,279 ) Other, net 435 ( 143 ) Net cash provided by operating activities 48,605 72,253 Cash Flows from Investing Activities Additions to property, plant, and equipment ( 42,062 ) ( 29,217 ) Purchase of business, net of cash acquired ( 103,712 ) — Contributions to equity method investment — ( 2,232 ) Other, net ( 916 ) ( 315 ) Net cash used in investing activities ( 146,690 ) ( 31,764 ) Cash Flows from Financing Activities Payment of dividends and dividend equivalents ( 8,006 ) ( 7,984 ) Purchase of treasury stock ( 801 ) ( 714 ) Proceeds from long-term debt 105,000 — Principal payments on long-term debt ( 18,000 ) ( 2,603 ) Net cash provided by (used in) financing activities 78,193 ( 11,301 ) Effect of exchange rate changes on cash and cash equivalents 33 ( 82 ) Increase (decrease) in cash and cash equivalents ( 19,859 ) 29,106 Cash and cash equivalents, beginning of period 47,889 21,568 Cash and cash equivalents, end of period $ 28,030 $ 50,674 See accompanying notes to unaudited condensed consolidated financial statements 6 MGP INGREDIENTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY For Year to Date Ended September 30, 2023 (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 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 — — Balance, June 30, 2023 4 6,715 322,267 500,933 ( 169 ) ( 21,347 ) ( 1,281 ) 807,122 Comprehensive income: Net income (loss) — — — 13,211 — ( 123 ) 13,088 Other comprehensive loss — — — — ( 309 ) — ( 309 ) 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 — — 949 — — — — 949 Stock shares awarded, forfeited, or vested — — ( 87 ) — — 87 — — Balance, September 30, 2023 $ 4 $ 6,715 $ 323,129 $ 511,480 $ ( 478 ) $ ( 21,260 ) $ ( 1,404 ) $ 818,186 See accompanying notes to unaudited condensed consolidated financial statements 7 MGP INGREDIENTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY For Year to Date Ended September 30, 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, 2021 $ 4 $ 6,715 $ 315,802 $ 344,237 $ 354 $ ( 22,357 ) $ ( 490 ) $ 644,265 Comprehensive income: Net income (loss) — — — 37,437 — — ( 66 ) 37,371 Other comprehensive loss — — — — ( 232 ) — — ( 232 ) Dividends and dividend equivalents of $ 0.12 per common share and per restricted stock unit, net of estimated forfeitures — — — ( 2,661 ) — — — ( 2,661 ) Share-based compensation — — 1,373 — — — — 1,373 Stock shares awarded, forfeited or vested — — ( 604 ) — — 604 — — Stock shares repurchased — — — — — ( 711 ) — ( 711 ) Balance, March 31, 2022 4 6,715 316,571 379,013 122 ( 22,464 ) ( 556 ) 679,405 Comprehensive income: Net income (loss) — — — 25,560 — — ( 198 ) 25,362 Other comprehensive loss — — — — ( 443 ) — — ( 443 ) Dividends and dividend equivalents of $ 0.12 per common share and per restricted stock unit, net of estimated forfeitures — — — ( 2,658 ) — — — ( 2,658 ) Share-based compensation — — 1,409 — — — — 1,409 Stock shares awarded, forfeited, or vested — — ( 740 ) — — 740 — — Stock shares repurchased — — — — — ( 2 ) — ( 2 ) Balance, June 30, 2022 4 6,715 317,240 401,915 ( 321 ) ( 21,726 ) ( 754 ) 703,073 Comprehensive income: Net income (loss) — — — 23,808 — ( 180 ) 23,628 Other comprehensive loss — — — — ( 543 ) — ( 543 ) Dividends and dividend equivalents of $ 0.12 per common share and per restricted stock unit, net of estimated forfeitures — — — ( 2,660 ) — — — ( 2,660 ) Share-based compensation — — 363 — — — — 363 Stock shares awarded, forfeited, or vested — — ( 62 ) — — 62 — — Stock shares repurchased — — — — — ( 1 ) — ( 1 ) Balance, September 30, 2022 $ 4 $ 6,715 $ 317,541 $ 423,063 $ ( 864 ) $ ( 21,665 ) $ ( 934 ) $ 723,860 See accompanying notes to unaudited condensed consolidated financial statements 8 MGP INGREDIENTS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, unless otherwise noted) Note 1. Accounting Policies and Basis of Presentation The Company. MGP Ingredients, Inc. (the “Company” or “MGP”) is a Kansas corporation headquartered in Atchison, Kansas and is a leading producer and supplier of premium distilled spirits, branded spirits, and food ingredients. Distilled spirits include premium bourbon, 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. 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: 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 and year to date ended September 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. 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 may not 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. 9 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: September 30, 2023 December 31, 2022 Finished goods $ 53,160 $ 47,073 Barreled distillate (bourbons and other whiskeys) 239,051 199,040 Raw materials 36,319 29,931 Work in process 550 1,645 Maintenance materials 10,528 9,931 Other 2,793 2,102 Total $ 342,401 $ 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 generally 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 Taxes. The Company is responsible for compliance with the Alcohol and Tobacco Tax and Trade Bureau of the U.S. Treasury Department (the “TTB”) regulations, which include making timely and accurate excise tax payments. The Company is subject to periodic compliance audits by the TTB. 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. 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. 10 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. 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 assist in determining 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. 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 September 30, 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 $ 223,030 and $ 150,249 at September 30, 2023 and December 31, 2022, respectively. The financial statement carrying value of total debt (net of unamortized loan fees) was $ 316,677 and $ 230,335 at September 30, 2023 and December 31, 2022, respectively. These fair values are considered Level 2 under the fair value hierarchy. 11 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 10, 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” 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 $ 5,343 and $ 5,534 at September 30, 2023 and December 31, 2022, respectively. During the quarters ended September 30, 2023 and 2022, the Company recorded a gain of $ 388 and a loss of $ 856 , respectively, from its equity method investments, and during the year to date ended September 30, 2023 and 2022, the Company recorded a loss of $ 191 and $ 1,036 , respectively, which is recorded in other income (expense), net on the Condensed Consolidated Statements of Income. During the quarter and year to date ended September 30, 2023, the Company purchased $ 10,223 and $ 30,178 , 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 September 30, 2022, the Company purchased $ 8,265 and $ 28,194 , 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 September 30, 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). 12 Disaggregation of Sales. The following table presents the Company’s sales by segment and major products and services: Quarter Ended September 30, Year to Date Ended September 30, 2023 2022 2023 2022 Distilling Solutions Brown goods $ 73,409 $ 57,423 $ 214,857 $ 175,899 White goods 14,429 20,469 47,199 57,996 Premium beverage alcohol 87,838 77,892 262,056 233,895 Industrial alcohol 9,407 10,761 29,911 35,141 Food grade alcohol 97,245 88,653 291,967 269,036 Fuel grade alcohol 1,509 3,713 5,963 10,307 Distillers feed and related co-products 5,746 9,943 23,053 30,127 Warehouse services 7,353 6,335 20,958 17,821 Total Distilling Solutions 111,853 108,644 341,941 327,291 Branded Spirits Ultra premium 20,107 13,804 43,594 35,836 Super premium 3,637 3,350 9,614 9,522 Premium 7,099 6,013 20,144 17,928 Premium plus 30,843 23,167 73,352 63,286 Mid 17,650 20,834 55,575 63,408 Value 11,049 12,097 36,048 36,304 Other 7,277 6,663 16,343 14,080 Total Branded Spirits 66,819 62,761 181,318 177,078 Ingredient Solutions Specialty wheat starches 17,196 16,241 48,977 47,445 Specialty wheat proteins 11,440 9,697 35,918 29,225 Commodity wheat starches 4,226 3,803 12,870 10,286 Commodity wheat proteins 90 — 611 38 Total Ingredient Solutions 32,952 29,741 98,376 86,994 Total sales $ 211,624 $ 201,146 $ 621,635 $ 591,363 Note 3. 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. During the quarter ended September 30, 2023, the Company finalized the net working capital adjustments, which decreased the cash consideration from $ 105,000 at closing to $ 104,638 at September 30, 2023. 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 6, Corporate Borrowings, for further details. 13 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 $ 104,638 Contingent consideration 62,100 Fair value of total consideration transferred $ 166,738 Recognized amounts of identifiable assets acquired and liabilities assumed: Cash $ 926 Receivables 2,323 Inventory 12,454 Prepaid expenses and other assets 77 Property, plant and equipment, net 253 Intangible assets (a) 57,700 Operating lease right-of-use assets, net 426 Other assets 44 Total assets 74,203 Accounts payable 2,242 Accrued expenses and other 205 Long-term operating lease liabilities 268 Total liabilities 2,715 Goodwill 95,250 Total $ 166,738 (a) Intangible assets acquired included trade names with an estimated fair value of $ 34,000 and distributor relationships with an estimated fair value of $ 23,700 . 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 $ 95,250 , 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 $ 34,000 , and definite-lived intangible assets, distributor relationships, which have an estimated fair value of $ 23,700 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. 14 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 and year to date ended September 30, 2023, the Company incurred $ 314 and $ 1,814 of costs related to 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 $ 62,100 , 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 resulted from changes in the key assumptions between measurement dates, such as projected net sales, discount rates, and volatility rates. During the quarter ended September 30, 2023 there was a $ 4,200 adjustment to the fair value measurement of the contingent consideration obligation. 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 . Note 4. 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 $ 59,530 , net of accumulated amortization of $ 5,570 . The distributor relationships have a useful life of 20 years. The amortization expense for the quarter and year to date ended September 30, 2023 was $ 820 and $ 1,948 , respectively. The amortization expense for the quarter and year to date ended September 30, 2022 was $ 518 and $ 1,553 , respectively. As of September 30, 2023, the expected future amortization expense related to definite-lived intangible assets is as follows: Remainder of 2023 $ 813 2024 3,255 2025 3,255 2026 3,255 2027 3,255 Thereafter 45,697 Total $ 59,530 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. 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 — 95,250 — 95,250 Balance, September 30, 2023 $ — $ 321,544 $ — $ 321,544 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 — 34,000 — 34,000 Balance, September 30, 2023 $ — $ 212,990 $ — $ 212,990 Note 5. 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 decision to 15 close the Atchison Distillery is consistent with the Company’s plan to address profitability headwinds associated with its GNS and industrial alcohol products within the Distilling Solutions segment. As a result of the decision to close the Atchison Distillery, the Company, with the assistance of a third-party valuation specialist, completed a fair value analysis of the assets associated with the Atchison Distillery during the quarter ended September 30, 2023. The fair value of the assets associated with the Atchison Distillery were determined using a combination of the cost and market approach. During the quarter and year to date ended September 30, 2023, the Company recorded a $ 17,112 impairment of assets, which was recorded in impairment of long-lived assets and other on the Condensed Consolidated Statement of Income. The impaired assets were recorded within the Distilling Solution segment. Additionally, the Company recorded $ 1,222 of expenses related to severance costs, contract termination fees, and consulting fees, which were recorded in impairment of long-lived assets and other on the Condensed Consolidated Statement of Income for the quarter and year to date ended September 30, 2023. Note 6. Corporate Borrowings The following table presents the Company’s outstanding indebtedness: Description (a) September 30, 2023 December 31, 2022 Credit Agreement - Revolver, 6.42 % (variable rate) due 2026 $ 91,000 $ — 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 12,800 15,200 Senior Secured Notes, 3.80 % (fixed rate) due 2029 18,400 20,000 Total indebtedness outstanding 323,450 236,450 Less unamortized loan fees (b) ( 6,773 ) ( 6,115 ) Total indebtedness outstanding, net 316,677 230,335 Less current maturities of long-term debt ( 6,400 ) ( 5,600 ) Long-term debt $ 310,277 $ 224,735 (a) Interest rates are as of September 30, 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 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 September 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 September 30, 2023, the Company had $ 91,000 outstanding borrowings under the Credit Agreement, leaving $ 309,000 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 (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 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 16 higher amount). Effective August 23, 2023, the Note Purchase Agreement was amended to increase the total amount of Senior Secured Notes that may be issued under the facility of the Note Purchase Agreement to $ 250,000 . Additionally, the period for issuing senior secured promissory notes under the Note Purchase Agreement was extended from August 23, 2023 to August 31, 2026. 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 September 30, 2023 . As of September 30, 2023, the Company had $ 12,800 of Series A Senior Secured Notes and $ 18,400 of additional Senior Secured Notes outstanding under the Note Purchase Agreement, leaving $ 218,800 available under the Note Purchase Agreement. Note 7. Income Taxes The Company’s tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, the estimated annual effective tax rate is updated and a year to date adjustment is made to the provision. The Company’s quarterly effective tax rate can be subject to significant change due to the effect of discrete items arising in a given quarter. Beginning in the second quarter of 2023, the estimated annual tax rate includes the U.S. entity acquired in the Penelope Acquisition. Income tax expense for the quarter and year to date ended September 30, 2023 was $ 4,373 and $ 24,832 , respectively, for an effective tax rate of 25.0 percent and 24.6 percent, respectively. The effective tax rate for the quarter and year to date ended September 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. As a result of the planned closure of the Atchison Distillery, the Company incurred impairment expenses (see Note 5 for more details on the planned closure). For the quarter ended September 30, 2023, the impairment had an immaterial impact on the effective tax rate; however, it did result in a reduced income tax expense due to the decrease in income before income taxes when using the estimated annual effective rate calculation. Income tax expense for the quarter and year to date ended September 30, 2022 was $ 7,533 and $ 26,037 , respectively, for an effective tax rate of 24.2 percent and 23.2 percent, respectively. The effective tax rate for the quarter and year to date ended September 30, 2022 differed from the 21 percent U.S. federal statutory rate on pretax income primarily due to state and foreign income taxes, partially offset by state and federal tax credits, and the deduction applicable to export activity. The increase in income tax expense for the year to date ended September 30, 2022 was primarily due to higher income before income taxes as compared to the prior year periods. Note 8. Equity and EPS The following table presents computations of basic and diluted EPS: Quarter Ended September 30, Year to Date Ended September 30, 2023 2022 2023 2022 Operations: Net income (a) $ 13,088 $ 23,628 $ 76,084 $ 86,361 Net loss attributable to noncontrolling interest 123 180 324 444 Income attributable to participating securities (unvested shares and units) (b) ( 129 ) ( 188 ) ( 760 ) ( 688 ) Net income used in EPS calculation $ 13,082 $ 23,620 $ 75,648 $ 86,117 Share information: Basic weighted average common shares (c) 22,066,159 22,008,381 22,056,270 22,000,026 Diluted weighted average common shares (d) 22,381,516 22,228,814 22,207,031 22,000,026 Basic EPS $ 0.59 $ 1.07 $ 3.43 $ 3.91 Diluted EPS $ 0.58 $ 1.06 $ 3.41 $ 3.91 (a) Net income attributable to all stockholders. (b) Participating securities included 226,410 and 176,398 unvested restricted stock units (“RSUs”) at September 30, 2023 and 2022, respectively. 17 (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. 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 Issuance of Common Stock — 5,445 Repurchase of Common Stock (a) — — Balance, June 30, 2023 437 22,014,374 Issuance of Common Stock — 822 Repurchase of Common Stock (a) — — Balance, September 30, 2023 437 22,015,196 Shares Outstanding Capital Stock Preferred Common Stock Balance, December 31, 2021 437 21,964,314 Issuance of Common Stock — 29,807 Repurchase of Common Stock (a) — ( 9,021 ) Balance, March 31, 2022 437 21,985,100 Issuance of Common Stock — 7,655 Repurchase of Common Stock (a) — ( 4 ) Balance, June 30, 2022 437 21,992,751 Issuance of Common Stock — 606 Repurchase of Common Stock (a) — ( 2 ) Balance, September 30, 2022 437 21,993,355 (a) The Common Stock repurchases were for tax withholding on equity-based compensation. Note 9. Commitments and Contingencies The Company and its subsidiaries are, from time to time, a party to legal and regulatory proceedings arising in the ordinary course of its business. The Company accrues estimated costs for a contingency when management believes that a loss is probable and can be reasonably estimated. Note 10. 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, 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 2014 Equity Incentive Plan (as amended, the “2014 Plan”) and the 2014 Non-Employee Director Equity Incentive Plan (the “Directors’ Plan”). As of September 30, 2023, 658,081 RSUs had been granted from the 1,500,000 shares approved under the 2014 Plan, and 138,662 shares had been granted from the 300,000 shares approved under the Directors’ Plan. As of September 30, 2023, there were 226,410 unvested RSUs under the Company’s long-term incentive plans, all of which were participating securities (see Note 8). 18 Deferred Compensation 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 and year to date ended September 30, 2023, the Company had a loss on deferred compensation plan investments of $ 118 and a gain on deferred compensation plan investments of $ 272 , respectively. For the quarter and year to date ended September 30, 2022, the Company had a loss on deferred compensation plan investments of $ 103 and $ 931 , 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. Base salary amounts elected for deferral are deposited into the EDC Plan by the Company on a weekly basis and allocated by participants among Company-determined investment options. STI Plan deferral amounts are deposited, at the time of payment, into the EDC Plan by the Company and allocated by participants among Company-determined investment options. At September 30, 2023 and December 31, 2022, the EDC Plan investments were $ 2,878 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 September 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 $ 2,615 and $ 2,191 at September 30, 2023 and December 31, 2022, respectively, and were included in other noncurrent liabilities on the Company’s Condensed Consolidated Balance Sheets. Note 11. Operating Segments At September 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, 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. 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. 19 The following table presents summarized financial information for each segment: Quarter Ended September 30, Year to Date Ended September 30, 2023 2022 2023 2022 Sales to Customers Distilling Solutions $ 111,853 $ 108,644 $ 341,941 $ 327,291 Branded Spirits 66,819 62,761 181,318 177,078 Ingredient Solutions 32,952 29,741 98,376 86,994 Total $ 211,624 $ 201,146 $ 621,635 $ 591,363 Gross Profit Distilling Solutions $ 33,280 $ 25,917 $ 104,986 $ 94,630 Branded Spirits 29,040 25,067 79,636 70,809 Ingredient Solutions 11,128 8,064 34,945 24,654 Total $ 73,448 $ 59,048 $ 219,567 $ 190,093 Depreciation and Amortization Distilling Solutions $ 3,082 $ 2,929 $ 8,803 $ 8,716 Branded Spirits 1,914 1,434 5,063 4,618 Ingredient Solutions 619 613 1,899 1,838 Corporate 167 357 507 1,085 Total $ 5,782 $ 5,333 $ 16,272 $ 16,257 Income (loss) before Income Taxes Distilling Solutions $ 13,930 $ 25,213 $ 84,187 $ 92,332 Branded Spirits 7,199 9,776 25,577 28,016 Ingredient Solutions 9,408 6,822 30,255 21,770 Corporate ( 13,076 ) ( 10,650 ) ( 39,103 ) ( 29,720 ) Total $ 17,461 $ 31,161 $ 100,916 $ 112,398 The following table allocates assets to each segment as of: September 30, 2023 December 31, 2022 Identifiable Assets Distilling Solutions $ 351,154 $ 350,068 Branded Spirits 895,139 698,985 Ingredient Solutions 79,828 63,943 Corporate 40,244 45,215 Total $ 1,366,365 $ 1,158,211 20 Note 12. Subsequent Events Dividend. On November 2, 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 December 1, 2023 to stockholders of record and certain RSU holders on November 17, 2023. Related Party Transaction. The Company leases bottling and warehousing facilities in St. Louis, Missouri from Kemper-Themis, L.L.C. (“Kemper”), which is owned by Donn Lux, a member of the Company’s Board of Directors. On October 31, 2023, the Company’s Audit Committee and Board of Directors approved the purchase of the Kemper bottling and warehousing facilities from Kemper for $ 9,000 . The purchase and sales agreement was entered into by both parties subsequent to approval and the transaction is expected to close during the first quarter of 2024. The transaction was entered into at fair value based on two independent appraisers’ valuation; therefore, the transaction is deemed to have been conducted at an arm’s length. 21