MGP INGREDIENTS INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. Because of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. With the participation of the Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission. As a result of this assessment, management has concluded that the Company’s internal control over financial reporting as of December 31, 2023 was effective. KPMG, LLP, the independent registered public accounting firm that audited the Company’s financial statements contained herein, has issued an audit report on our internal control over financial reporting as of December 31, 2023, which is included in Item 8 of this Form 10-K. 36 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors MGP Ingredients, Inc.: Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting We have audited the accompanying consolidated balance sheets of MGP Ingredients, Inc. and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and 37 dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Revenue recognition under bill and hold arrangements As discussed in Note 1 to the consolidated financial statements, the Company’s Distilling Solutions segment routinely enters into bill and hold arrangements, whereby the Company produces and sells aged and unaged distillate to customers. As discussed in Note 3 to the consolidated financial statements, brown goods premium beverage alcohol revenue was $289,191 thousand for the year ended December 31, 2023, a portion of which was for bill and hold arrangements. We identified the evaluation of revenue recognized under bill and hold arrangements as a critical audit matter because of the extent of additional audit effort required to test the incremental bill and hold revenue recognition criteria. The incremental bill and hold revenue recognition criteria include the evaluation of: 1) the reason for the bill and hold arrangement; 2) the identification of the product as separately belonging to the customer; 3) the product being currently ready for physical transfer to the customer; and 4) the Company’s inability to use the product or direct it to another customer. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s revenue recognition process, including controls related to bill and hold revenue recognition criteria being met. We examined a sample of bill and hold revenue transactions to assess the incremental bill and hold revenue recognition criteria. Specifically, we inspected documentation received from the customer directing the Company to warehouse distillate after production. Additionally, we observed a sample of customer-owned barrels to determine they were marked with unique identifiers separating them from Company-owned inventory and were ready for physical transfer to the customer upon request. Also, to evaluate that the Company does not have the ability to use the product or direct to another customer, we inspected underlying documentation for the same sample of bill and hold transactions to determine legal title to the product had transferred to the customer. Acquisition-date fair value measurement of contingent consideration liability As discussed in Note 1 and 4 to the consolidated financial statements, on June 1, 2023, the Company acquired Penelope Bourbon LLC (Penelope) in a business combination for cash consideration of $104,638 thousand and contingent consideration of up to $110,800 thousand if the Penelope business achieves certain net sales targets between the acquisition date and December 31, 2025. At the acquisition date, management estimated the fair value of the contingent consideration liability to be $62,100 thousand using a Monte Carlo simulation based on certain assumptions including projected net sales over the term of the earn-out period and volatility rate. We identified the assessment of the acquisition-date fair value measurement of the contingent consideration liability as a critical audit matter. A high degree of subjective auditor judgment was required to evaluate the projected net sales and volatility rate used in the Monte Carlo simulation. Changes in these assumptions could have had a significant impact on the fair value of the contingent consideration liability. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s acquisition-date valuation of the contingent consideration liability, including controls related to the determination of projected net sales and volatility rate. 38 We performed sensitivity analyses over the projected net sales and volatility rate to assess the impact of changes in those assumptions on the Company’s determination of the acquisition-date fair value of the contingent consideration liability. We assessed the projected net sales by comparing them to Penelope’s historical actual results, actual results since the acquisition, and industry data. We also involved valuation professionals with specialized skills and knowledge, who assisted us in evaluating the volatility rate used in the Monte Carlo simulation model by comparing it to comparable companies. /s/ KPMG LLP We have served as the Company’s auditor since 2008. Kansas City, Missouri February 22, 2024 39 MGP INGREDIENTS, INC. CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except share and per share amounts) Year Ended December 31, 2023 2022 2021 Sales $ 836,523 $ 782,358 $ 626,720 Cost of sales 531,811 529,052 427,755 Gross profit 304,712 253,306 198,965 Advertising and promotion expenses 38,213 29,714 16,098 Selling, general, and administrative expenses 91,395 74,627 72,829 Impairment of long-lived assets and other 19,391 — — Change in fair value of contingent consideration 7,100 — — Insurance recoveries — — ( 16,325 ) Operating income 148,613 148,965 126,363 Interest expense, net ( 6,647 ) ( 5,451 ) ( 4,037 ) Other expense, net ( 220 ) ( 3,342 ) ( 1,230 ) Income before income taxes 141,746 140,172 121,096 Income tax expense 34,616 31,300 30,279 Net income 107,130 108,872 90,817 Net loss attributable to noncontrolling interest 345 590 490 Net income attributable to MGP Ingredients, Inc. 107,475 109,462 91,307 Income attributable to participating securities ( 1,074 ) ( 871 ) ( 712 ) Net income used in earnings per common share calculation $ 106,401 $ 108,591 $ 90,595 Weighted average common shares Basic 22,059,816 22,002,990 20,719,663 Diluted 22,173,918 22,053,966 20,719,663 Earnings per common share Basic $ 4.82 $ 4.94 $ 4.37 Diluted $ 4.80 $ 4.92 $ 4.37 See Accompanying Notes to Consolidated Financial Statements 40 MGP INGREDIENTS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in thousands) Year Ended December 31, 2023 2022 2021 Net income attributable to MGP Ingredients, Inc. $ 107,475 $ 109,462 $ 91,307 Other comprehensive loss, net of tax: Unrealized gain (loss) on foreign currency translation adjustment 236 ( 676 ) ( 151 ) Changes in Company-sponsored post-employment benefit plan ( 329 ) 18 19 Other comprehensive loss ( 93 ) ( 658 ) ( 132 ) Comprehensive income attributable to MGP Ingredients, Inc. 107,382 108,804 91,175 Comprehensive loss attributable to noncontrolling interest ( 345 ) ( 590 ) ( 490 ) Comprehensive income $ 107,037 $ 108,214 $ 90,685 See Accompanying Notes to Consolidated Financial Statements 41 MGP INGREDIENTS, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share amounts and par value) December 31, 2023 2022 Current Assets Cash and cash equivalents $ 18,388 $ 47,889 Receivables (less allowance for credit loss of $ 1,475 at both December 31, 2023 and 2022) 144,286 109,267 Inventory 346,853 289,722 Prepaid expenses 3,580 2,957 Refundable income taxes 1,190 4,327 Total current assets 514,297 454,162 Property, plant, and equipment, net 262,303 235,632 Operating lease right-of-use assets, net 13,975 15,042 Investment in joint venture 5,197 5,534 Intangible assets, net 271,706 216,768 Goodwill 321,544 226,294 Other assets 3,326 4,779 Total assets $ 1,392,348 $ 1,158,211 Current Liabilities Current maturities of long-term debt $ 6,400 $ 5,600 Accounts payable 73,594 66,432 Federal and state excise taxes payable 2,251 4,627 Accrued expenses and other 31,861 28,716 Total current liabilities 114,106 105,375 Long-term debt, less current maturities 85,305 29,510 Convertible senior notes 195,544 195,225 Long-term operating lease liabilities 11,292 11,622 Contingent consideration 69,200 — Other noncurrent liabilities 4,763 3,723 Deferred income taxes 63,071 67,112 Total liabilities 543,281 412,567 Commitments and Contingencies – Note 11 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 December 31, 2023 and 2022; 22,016,113 and 21,994,042 shares outstanding at December 31, 2023 and 2022, respectively 6,715 6,715 Additional paid-in capital 325,453 318,839 Retained earnings 539,883 443,061 Accumulated other comprehensive income ( 397 ) ( 304 ) Treasury stock, at cost, 1,109,053 and 1,131,124 shares at December 31, 2023 and 2022, respectively ( 21,166 ) ( 21,591 ) Total MGP Ingredients, Inc. stockholders equity 850,492 746,724 Noncontrolling interest ( 1,425 ) ( 1,080 ) Total equity 849,067 745,644 Total liabilities and equity $ 1,392,348 $ 1,158,211 See Accompanying Notes to Consolidated Financial Statements 42 MGP INGREDIENTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) Year Ended December 31, 2023 2022 2021 Cash Flows from Operating Activities Net income $ 107,130 $ 108,872 $ 90,817 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 22,113 21,455 19,092 Impairment of long-lived assets and other 19,391 — — Gain on insurance recoveries — — ( 16,325 ) Share-based compensation 10,635 5,502 5,555 Equity method investment loss 337 2,220 1,611 Deferred income taxes, including change in valuation allowance ( 4,041 ) 1,011 6,772 Change in fair value of contingent consideration 7,100 — — Other, net 728 194 145 Changes in operating assets and liabilities, net of effects of acquisitions: Receivables, net ( 32,397 ) ( 16,786 ) ( 6,031 ) Inventory ( 46,921 ) ( 44,350 ) ( 14,214 ) Prepaid expenses ( 481 ) ( 1,468 ) 2,586 Income taxes payable (refundable) 3,136 1,212 ( 6,242 ) Accounts payable ( 2,406 ) 10,626 5,301 Accrued expenses and other 348 1,984 738 Federal and state excise taxes payable ( 2,375 ) ( 2,365 ) ( 1,467 ) Other, net 1,486 829 ( 75 ) Net cash provided by operating activities 83,783 88,936 88,263 Cash Flows from Investing Activities Additions to property, plant, and equipment ( 55,267 ) ( 45,323 ) ( 47,389 ) Purchase of business, net of cash acquired ( 103,712 ) — ( 149,005 ) Contributions to equity method investments — ( 2,810 ) ( 1,470 ) Proceeds from property insurance recoveries — — 16,325 Other, net ( 263 ) 320 ( 1,080 ) Net cash used in investing activities ( 159,242 ) ( 47,813 ) ( 182,619 ) Cash Flows from Financing Activities Payment of dividends and dividend equivalents ( 10,675 ) ( 10,646 ) ( 10,017 ) Purchase of treasury stock ( 801 ) ( 715 ) ( 767 ) Loan fees incurred with borrowings — — ( 7,050 ) Principal payments on long-term debt ( 5,600 ) ( 3,403 ) ( 1,620 ) Proceeds from credit agreement - revolver 105,000 — 242,300 Payments on credit agreement - revolver ( 42,000 ) — ( 242,300 ) Proceeds from convertible senior notes — — 201,250 Payment on assumed debt as part of the Merger — — ( 87,509 ) Net cash provided by (used in) financing activities 45,924 ( 14,764 ) 94,287 Effect of exchange rate changes on cash and cash equivalents 34 ( 38 ) ( 25 ) Increase (decrease) in cash and cash equivalents ( 29,501 ) 26,321 ( 94 ) Cash and cash equivalents, beginning of year 47,889 21,568 21,662 Cash and cash equivalents, end of year $ 18,388 $ 47,889 $ 21,568 See Accompanying Notes to Consolidated Financial Statements 43 MGP INGREDIENTS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (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, 2020 $ 4 $ 6,715 $ 15,503 $ 262,943 $ 486 $ ( 23,125 ) $ — $ 262,526 Comprehensive income (loss): Net income (loss) — — — 91,307 — — ( 490 ) 90,817 Other comprehensive loss — — — — ( 132 ) — — ( 132 ) Dividends and dividend equivalents of $ 0.48 per common share and per restricted stock unit, net of estimated forfeitures — — — ( 10,013 ) — — — ( 10,013 ) Share-based compensation — — 5,555 — — — — 5,555 Stock shares awarded, forfeited or vested — — ( 1,535 ) — — 1,535 — — Stock shares repurchased — — — — — ( 767 ) — ( 767 ) Equity consideration for Merger — — 296,279 — — — — 296,279 Balance, December 31, 2021 4 6,715 315,802 344,237 354 ( 22,357 ) ( 490 ) 644,265 Comprehensive income (loss): Net income (loss) — — — 109,462 — — ( 590 ) 108,872 Other comprehensive loss — — — — ( 658 ) — — ( 658 ) Dividends and dividend equivalents of $ 0.48 per common share and per restricted stock unit, net of estimated forfeitures — — — ( 10,638 ) — — — ( 10,638 ) Share-based compensation — — 4,518 — — — — 4,518 Stock shares awarded, forfeited or vested — — ( 1,481 ) — — 1,481 — — Stock shares repurchased — — — — — ( 715 ) — ( 715 ) Balance, December 31, 2022 4 6,715 318,839 443,061 ( 304 ) ( 21,591 ) ( 1,080 ) 745,644 Comprehensive income (loss): Net income (loss) — — — 107,475 — — ( 345 ) 107,130 Other comprehensive loss — — — — ( 93 ) — — ( 93 ) Dividends and dividend equivalents of $ 0.48 per common share and per restricted stock unit, net of estimated forfeitures — — — ( 10,653 ) — — — ( 10,653 ) Share-based compensation — — 7,840 — — — — 7,840 Stock shares awarded, forfeited or vested — — ( 1,226 ) — — 1,226 — — Stock shares repurchased — — — — — ( 801 ) — ( 801 ) Balance, December 31, 2023 $ 4 $ 6,715 $ 325,453 $ 539,883 $ ( 397 ) $ ( 21,166 ) $ ( 1,425 ) $ 849,067 See Accompanying Notes to Consolidated Financial Statements 44 MGP INGREDIENTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, unless otherwise noted) NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company. MGP Ingredients, Inc. (“MGP,” or the “Company”) is a leading producer and supplier of premium distilled spirits, branded spirits, and food ingredients. Distilled spirits include premium bourbon, rye, and other whiskeys and grain neutral spirits (“GNS”), including vodka and gin. The Company’s distilled spirits are either sold directly or indirectly to manufacturers of other branded spirits. MGP was also a producer of high quality industrial alcohol for use in both food and non-food applications, which was primarily produced at the Company’s distillery located in Atchison, Kansas, prior to its closure during December 2023. The Company has a portfolio of its own high quality branded spirits which are produced through the 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. 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 4, Business Combination, for further details. The Company reports three operating segments: Distilling Solutions, Branded Spirits, and Ingredient Solutions. Principles of Consolidation. The 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. Certain amounts in the 2021 and 2022 consolidated financial statements have been reclassified to conform to the 2023 presentation. Use of Estimates. The financial reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”). The preparation of 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. 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. Properties, Depreciation, and Amortization. Property, plant, and equipment are typically stated at cost. Additions, including those that increase the life or utility of an asset, are capitalized and all properties are depreciated over their estimated remaining useful lives. Depreciation and amortization are computed using the straight line method over the following estimated useful lives: Buildings and improvements (a) 10 – 35 years Machinery and equipment 3 – 10 years Office furniture and equipment 5 – 10 years Computer equipment and software 3 – 5 years Motor vehicles 5 years (a) Leasehold improvements are the shorter of economic useful life or life of the lease 45 Maintenance costs are expensed as incurred. The cost of property, plant, and equipment sold, retired, or otherwise disposed of, as well as related accumulated depreciation and amortization, are eliminated from the property accounts with related gains and losses reflected in the Consolidated Statements of Income. The Company capitalizes interest costs associated with significant construction projects. Total interest incurred for 2023, 2022, and 2021 is noted below: Year Ended December 31, 2023 2022 2021 Interest costs charged to expense $ 6,647 $ 5,451 $ 4,037 Plus: Interest cost capitalized 2,349 866 339 Total $ 8,996 $ 6,317 $ 4,376 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 that point control passes to the customer, the customer has legal title and the risk and rewards of ownership have transferred, and the customer has 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 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 the following bill and hold criteria have been 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 service 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 includes 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. Impairment of Long-Lived Assets. The Company reviews long lived assets for impairment when events or changes in circumstances indicate the carrying amount of the asset group may not be fully recoverable. The Company determines the carrying amount of the asset group using the future projected cash flows as well as quantitative and qualitative factors. An impairment loss is recognized when the carrying value exceeds the fair value of the asset group. For the year ended December 46 31, 2023, the Company recognized impairment of long-lived assets and other of $ 19,391 . See Note 6, Closure of the Atchison Distillery, for more information. Recognition of Insurance Recoveries. Estimated loss contingencies are recognized as charges to income when they are probable and reasonably estimable. Insurance recoveries are not recognized until all contingencies related to the insurance claim have been resolved and settlement has been reached with the insurer. Insurance recoveries, to the extent of costs and losses, are reported as a reduction to costs on the Consolidated Statements of Income. Insurance recoveries, in excess of costs and losses, if any, would be reported as a separate caption in operating income on the Consolidated Statements of Income. During November 2020, the Company experienced a fire at the Atchison facility. The fire damaged certain equipment in the facility’s feed drying operations and caused temporary loss of production time. At December 31, 2021, the Company received a legally binding commitment from its insurance carrier for final settlement of $ 43,688 , $ 27,363 related to business interruption and $ 16,325 for the damaged dryer. The Company recorded a settlement related to business interruption from its insurance carrier of $ 23,583 for the year ended December 31, 2021. The business interruption portion of the settlement was recorded as a reduction of cost of sales on the Consolidated Statements of Income and the insurance recoveries for the replacement of the damaged dryer was recorded as insurance recoveries on the Consolidated Statements of Income. The Company finalized the construction of the replacement drying system and placed this dryer into service during 2021. Income Taxes. The Company accounts for income taxes using an asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. A valuation allowance is recognized if it is more likely than not that at least some portion of the deferred tax asset will not be realized. Earnings Per Common Share (“EPS”). Basic and diluted EPS is computed using the two-class method, which is an earnings allocation formula that determines net income per share for each class of Common Stock and participating security according to dividends declared and participation rights in undistributed earnings. Basic EPS amounts are computed by dividing net income attributable to common shareholders by the weighted average shares outstanding during each period. Diluted EPS is computed using the if-converted method by dividing the net income attributable to common shareholders by the weighted average shares outstanding, inclusive of the impact of the Convertible Senior Notes, except for where the result would be anti-dilutive as of the balance sheet date. Translation of Foreign Currencies. Assets and liabilities of Niche Drinks, Co., Ltd. (“Niche”), a wholly-owned subsidiary of the Company whose functional currency is the British pound sterling, are translated to U.S. dollars using the exchange rate in effect at the 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 pounds sterling and it is adjusted for the market exchange rate at the reporting period-end. Any impacts of the adjustment for the exchange rate applied to the financial asset is reported in other expense, net on the Consolidated Statements of Income. Business Combinations. Assets 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 period, which can be up to one year after the acquisition date, the Company can make adjustments to the fair value of the assets acquired and liabilities assumed, with the offset being an adjustment to goodwill. Goodwill and 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 December 31, 2023, the Company determined that goodwill and indefinite-lived intangible assets were not impaired. 47 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 $ 194,440 and $ 150,249 at December 31, 2023 and 2022, respectively. The financial statement carrying value (net of unamortized loan fees) was $ 287,249 and $ 230,335 at December 31, 2023 and 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 4, Business Combination, for more information. Fair value disclosure for deferred compensation plan investments is included in Note 12, Employee Benefit Plans. Derivative Instruments. Certain commodities the Company uses in its production process, or input costs, expose it to market price risk due to volatility in the prices for those commodities. Through the Company’s grain supply contracts, its wheat flour supply contract, and its natural gas contracts, it purchases grain, wheat flour, and natural gas, respectively, for delivery from one to 24 months into the future at negotiated fixed prices. The Company has determined that the firm commitments to purchase grain, wheat flour, and natural gas under the terms of its supply contracts meet the normal purchases and sales exception as defined under ASC 815, Derivatives and Hedging , because the quantities involved are for amounts to be consumed within the normal expected production process. Equity Method Investments. The Company holds 50 percent interest 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. At December 31, 2023 and 2022, the investment in LMX was $ 5,197 and $ 5,534 , respectively, which is recorded in investment in joint ventures on the Consolidated Balance Sheets. During the years ended December 31, 2023 and 2022, the Company recorded a $ 337 and $ 2,220 loss from equity method investments, respectively, which is recorded in other income (expense), net on the Consolidated Statements of Income. Recently Adopted Accounting Standard Updates. The Company did not adopt any new Accounting Standard Updates (“ASU”) during the year ended December 31, 2023. Recently Issued Accounting Pronouncements. ASU 2023-07, Improvements to Reportable Segment Disclosures , which requires improved disclosures related to significant segment expenses. This ASU requires companies to disclose significant segment expenses provided to the chief operating decision maker (“CODM”), a description of other segment items and all existing annual disclosures must be provided on an interim basis. This ASU is effective for annual periods beginning after December 15, 2023. Early adoption is permitted and must be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact to the Company’s financial statements. ASU 2023-09, Improvements to Income Tax Disclosures, requires improved disclosures related to the rate reconciliation and income taxes paid. This ASU requires companies to reconcile the income tax expense attributable to continuing operations to the statutory federal income tax rate applied to pre-tax income from continuing operations. Additionally, this ASU requires 48 companies to disclose the total amount of income taxes paid during the period. This ASU is effective for annual periods beginning after December 15, 2024 with early adoption permitted. The guidance is required to be applied on a prospective basis with the option to apply retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact to the Company’s financial statements. The other recent accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) are not expected to have a significant impact on the Company’s consolidated financial statements and related disclosures. NOTE 2: OTHER BALANCE SHEET CAPTIONS Inventory. December 31, 2023 2022 Finished goods $ 55,463 $ 47,073 Barreled distillate (bourbons and other whiskeys) 250,183 199,040 Raw materials 28,825 29,931 Work in process 1,691 1,645 Maintenance materials 8,355 9,931 Other 2,336 2,102 Total $ 346,853 $ 289,722 Property, plant, and equipment, net. December 31, 2023 2022 Land, buildings, and improvements $ 188,521 $ 155,385 Transportation equipment 844 805 Machinery and equipment 261,354 257,075 Construction in progress 38,927 37,535 Property, plant, and equipment, at cost 489,646 450,800 Less accumulated depreciation and amortization ( 227,343 ) ( 215,168 ) Property, plant, and equipment, net $ 262,303 $ 235,632 Accrued expenses and other. December 31, 2023 2022 Employee benefit plans $ 5,140 $ 2,389 Salaries and wages 16,637 17,862 Property taxes 2,062 1,318 Current operating lease liabilities 3,318 3,807 Other 4,704 3,340 Total $ 31,861 $ 28,716 NOTE 3: 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 are recognized over time. Contracts with customers include a single performance obligation (either the sale of products or the provision of warehouse services and contract bottling service). 49 Disaggregation of Sales. The following table presents the Company’s sales disaggregated by segment and major products and services. Year Ended December 31, 2023 2022 2021 Distilling Solutions Brown Goods $ 289,191 $ 229,523 $ 162,074 White Goods 58,645 74,510 75,818 Premium beverage alcohol 347,836 304,033 237,892 Industrial alcohol 38,010 46,812 62,628 Food grade alcohol 385,846 350,845 300,520 Fuel grade alcohol 7,798 13,681 14,916 Distillers feed and related co-products 28,578 40,354 19,545 Warehouse services 28,632 23,598 17,523 Total Distilling Solutions 450,854 428,478 352,504 Branded Spirits Ultra premium 63,748 48,245 27,722 Super premium 13,424 12,274 8,937 Premium 28,293 24,211 17,626 Premium plus 105,465 84,730 54,285 Mid 75,676 82,530 71,292 Value 47,907 47,395 38,520 Other 24,885 23,284 19,469 Total Branded Spirits 253,933 237,939 183,566 Ingredient Solutions Specialty wheat starches 66,050 62,567 47,758 Specialty wheat proteins 48,291 39,313 31,485 Commodity wheat starch 16,413 14,023 10,014 Commodity wheat protein 982 38 1,393 Total Ingredient Solutions 131,736 115,941 90,650 Total Sales $ 836,523 $ 782,358 $ 626,720 NOTE 4: BUSINESS COMBINATION Acquisition of Penelope 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 enhanced its presence in the growing American whiskey category and expanded 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 year ended December 31, 2023, the 50 Company finalized the net working capital adjustments, which decreased the cash consideration from $ 105,000 at closing to $ 104,638 at December 31, 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 7, 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. Purchase Price Allocation. The Acquisition was accounted for as a business combination in accordance with FASB Accounting Standard Codification 805, Business Combinations (“ASC 805”), and as such, assets acquired, liabilities assumed, and consideration transferred were recorded at their estimated fair values on the acquisition date. The following table summarizes the allocation of the consideration paid for Penelope to the 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. Additionally, the goodwill is representative of the strength of the Penelope brand within the American whiskey category, and the synergies expected to be achieved by the combined company. 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. 51 The operating results of Penelope have been included in the Company’s consolidated financial statements since the date of the Acquisition, June 1, 2023. The operating results and pro forma results are not disclosed due to the immaterial impact to the Company’s Consolidated Statements of Income. During the year ended December 31, 2023, the Company incurred $ 2,060 of costs related to the Acquisition, which are included in selling, general, and administrative expenses on the 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 year ended December 31, 2023, there was a $ 7,100 adjustment to the fair value measurement of the contingent consideration obligation, which was included in the change in fair value of contingent consideration on the Consolidated Statements of Income. 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 . Merger with Luxco Description of the transaction . On January 22, 2021, the Company entered into a definitive agreement to acquire Luxco, Inc. (“Luxco”) and subsequently completed the merger on April 1, 2021 (the “Merger”). Luxco is a leading branded beverage alcohol company across various categories, with a more than 60-year business heritage. As a result of the Merger, MGP increased its scale and market position in the branded-spirits sector and believes it strengthened its platform for future growth of higher valued-added products. Following the Merger, Luxco became a wholly-owned subsidiary of MGP and is included within the Branded Spirits segment. The aggregate consideration paid by the Company in connection with the Merger was $ 237,500 in cash (less assumed indebtedness) and 5,007,833 shares of Common Stock of the Company, subject to adjustment for fractional shares (the “Company Shares,” and together with the cash portion, the “Merger Consideration”). The Company Shares were valued at $ 296,213 and represented approximately 22.8 percent of the Company’s outstanding Common Stock immediately following the closing of the Merger. The Merger Consideration was subject to customary purchase price adjustments related to, among other things, net working capital, acquired cash and assumed debt. The consideration paid at closing included a preliminary estimated purchase price adjustment. In September 2021, the parties finalized the purchase price adjustment, which decreased the cash consideration paid by approximately $ 608 and increased stock consideration by an additional 1,373 shares from the preliminary amounts that were paid at closing. The cash portion of the Merger Consideration, the repayment of assumed debt, and transaction-related expenses were financed with borrowings under the Company’s existing Credit Agreement which was drawn down on April 1, 2021. For tax purposes, the transaction was structured partially as a tax-free reorganization and partially as a taxable acquisition, as defined in the Internal Revenue Code. The Company anticipates the amount transferred in a tax deferred manner, under the tax-free reorganization rules, will not create additional tax basis for the Company. The taxable component of the transaction will create additional tax basis and a corresponding future tax deduction for the Company. Operating Results . The operating results of Luxco were consolidated with the Company’s operating results subsequent to the merger date. During the year ended December 31, 2021, the Company recorded $ 177,607 and $ 17,027 , of sales and income before income taxes, respectively, attributable to Luxco on the Consolidated Statements of Income. During the year ended December 31, 2021, the Company incurred $ 8,927 of transaction related costs, which are included in selling, general and administrative expenses on the Consolidated Statements of Income. 52 Pro Forma Information . The following table summarizes the unaudited pro forma financial results for the year ended December 31, 2021 as if the Merger had occurred on January 1, 2020: Pro Forma Financial Information Year Ended December 31, 2021 Sales $ 671,090 Net income 100,597 Basic earnings per common share 4.84 The pro forma results are adjusted for items that are non-recurring in nature and directly attributable to the Merger, including the income tax effect of the adjustments. Merger related costs incurred by the Company of $ 8,927 for the year ended December 31, 2021 were excluded. Merger related costs incurred by Luxco of $ 3,132 were excluded from the year ended December 31, 2021 pro forma results. A non-recurring expense of $ 2,529 for the year ended December 31, 2021 related to the fair value adjustment of finished goods inventory estimated to have been sold was removed and included in the results for the year ended December 31, 2020. Other acquired tangible and intangible assets are assumed to be recorded at estimated fair value on January 1, 2020 and are amortized or depreciated over their estimated useful lives. The summary pro forma financial information is for informational purposes only, is based on estimates and assumptions, and does not purport to represent what the Company’s consolidated results of operations actually would have been if the Merger had occurred at an earlier date, and such data does not purport to project the Company’s results of operations for any future period. The basic shares outstanding used to calculate the pro forma net income per share amounts presented above have been adjusted to assume shares issued at the closing of the Merger were outstanding since January 1, 2020. NOTE 5: GOODWILL AND OTHER INTANGIBLE ASSETS Definite-Lived Intangible Assets. The Company acquired definite-lived intangible asset in connection with various acquisitions of businesses. The distributor relationships have a carrying value of $ 58,716 , net of accumulated amortization of $ 6,384 . The distributor relationships have a useful life of 20 years. The amortization expense for the years ended December 31, 2023 and 2022 was $ 2,761 and $ 2,070 , respectively. The weighted average amortization period at December 31, 2023 for definite-lived intangible assets is 18.1 years As of December 31, 2023, the expected future amortization expense related to definite-lived intangibles assets are as follows: 2024 $ 3,255 2025 3,255 2026 3,255 2027 3,255 2028 3,255 Thereafter 42,441 Total $ 58,716 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 at December 31, 2022 $ — $ 226,294 $ — $ 226,294 Acquisitions — 95,250 — 95,250 Balance at December 31, 2023 $ — $ 321,544 $ — $ 321,544 53 Changes in carrying amount of trade names by business segment were as follows: Distilling Solutions Branded Spirits Ingredient Solutions Total Balance at December 31, 2022 $ — $ 178,990 $ — $ 178,990 Acquisitions — 34,000 — 34,000 Balance at December 31, 2023 $ — $ 212,990 $ — $ 212,990 NOTE 6: CLOSURE OF THE ATCHISON FACILITY 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 Atchison Distillery ceased operations in December 2023. The decision to 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 year ended December 31, 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 year ended December 31, 2023, the Company recorded a $ 17,112 impairment of assets, which was recorded in impairment of long-lived assets and other on the Consolidated Statement of Income. The impaired assets were recorded within the Distilling Solution segment. Additionally, the Company recorded $ 2,279 of expenses related to severance costs, inventory write offs, contract termination fees, consulting fees, and other miscellaneous expenses, which were recorded in impairment of long-lived assets and other on the Consolidated Statement of Income for the year ended December 31, 2023. NOTE 7: CORPORATE BORROWINGS Indebtedness Outstanding. The following table presents the Company’s outstanding indebtedness: December 31, Description (a) 2023 2022 Credit Agreement - Revolver, 6.46 % (variable rate) due 2026 $ 63,000 $ — Convertible Note, 1.88 % (fixed rate) due 2041 201,250 201,250 Note Purchase Agreement Series A Senior Secured Notes, 3.53 % (fixed rate) due 2027 12,000 15,200 Senior Secured Notes, 3.80 % (fixed rate) due 2029 17,600 20,000 Total indebtedness outstanding 293,850 236,450 Less unamortized loan fees (b) ( 6,601 ) ( 6,115 ) Total indebtedness outstanding, net 287,249 230,335 Less current maturities of long-term debt ( 6,400 ) ( 5,600 ) Long-term debt $ 280,849 $ 224,735 (a) Interest rates are as of December 31, 2023. (b) Loan fees are being amortized over the life of the debt agreements. 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”), which provided for a $ 300,000 revolving credit facility. On May 14, 2021, the Company amended the Credit Agreement to extend the term and 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 provided certain conditions are satisfied and at the discretion of the lender. On August 31, 2022, the Credit Agreement was amended to change the interest rate benchmark from LIBOR to SOFR. The Credit Agreement matures on May 14, 2026. The Credit Agreement is secured by substantially all assets, excluding real property. 54 The Credit Agreement includes certain requirements and covenants, with which the Company was in compliance at December 31, 2023. The Company incurred no new loan fees related to the Credit Agreement during 2023. The unamortized balance of total loan fees related to the Credit Agreement was $ 824 at December 31, 2023. The unamortized loan fees are being amortized over the life of the Credit Agreement. 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 December 31, 2023, the Company had $ 63,000 outstanding borrowings under the Credit Agreement, leaving $ 337,000 available. The interest rate for the borrowings of the Credit Agreement at December 31, 2023 was 6.46 %. 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). 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. The Series A Senior Secured Notes bear interest at a rate of 3.53 percent per year. During 2019, the Company issued $ 20,000 of additional Senior Secured Notes with a maturity date of April 30, 2029. The Senior Secured Notes bear interest at a rate of 3.80 percent per year. As of December 31, 2023, the Company had $ 12,000 of Series A Senior Secured Notes and $ 17,600 of additional Senior Secured Notes outstanding under the Note Purchase Agreement, leaving $ 220,400 available of under the Note Purchase Agreement. The Company did not capitalize any new loan fees related to the Note Purchase Agreement during 2023. The unamortized balance of total loan fees related to the Note Purchase Agreement was $ 71 at December 31, 2023 and is being amortized over the life of the Note Purchase Agreement. The Note Purchase Agreement is secured by substantially all assets, excluding real property. The Note Purchase Agreement includes certain requirements and covenants, with which the Company was in compliance at December 31, 2023. 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 total aggregate principal amount includes $ 26,250 aggregate principal amount of 2041 Notes purchased by the initial purchasers in the offering pursuant to their exercise in full of their option to purchase additional notes under the purchase agreement for the offering. The 2041 Notes were issued pursuant to an indenture, dated as of November 16, 2021 ( the “Indenture”), by and among the Company, as issuer, Luxco, Inc., MGPI Processing, Inc., and MGPI of Indiana, LLC, as subsidiary guarantors, and U.S. 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 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. The Company incurred no new loan fees related to the 2041 Notes during 2023. The unamortized balance of total loan fees related to the 2041 Notes was $ 5,706 at December 31, 2023 and is being amortized over the life of the 2041 Notes. The initial conversion rate for the 2041 Notes is 10.3911 shares of Common Stock per $1 principal amount of the 2041 Notes. Prior to the Maturity Date, holders may convert at their option only in the following circumstances: • During any calendar quarter commencing after the quarter ending March 31, 2022, if the closing sale price of Common Stock for at least 20 trading days in the period of 30 consecutive trading days is more than 130 % of the conversion price; • during the 5 consecutive business days following any 10 consecutive trading day period in which the trading price per $1 principal amount of the notes for each trading day was less than 98 % of the product of the closing sale price of 55 Common Stock on such trading day and the conversion rate on such trading day; • upon the occurrence of specified corporate events, as defined in the Indenture; • if the Company calls the notes for redemption; or • during the period July 15, 2026 ending close of business day immediately preceding November 20, 2026 or the period July 15, 2041 and close of business day immediately preceding the Maturity Date. Debt Maturities. Aggregate amount of maturities for long-term debt as of December 31, 2023 are as follows: 2024 $ 6,400 2025 6,400 2026 69,400 2027 5,600 2028 3,200 Thereafter 202,850 Total $ 293,850 NOTE 8: INCOME TAXES Income tax expense is composed of the following: Year Ended December 31, 2023 2022 2021 Current: Federal $ 32,296 $ 26,107 $ 19,746 State 5,926 4,438 3,489 Foreign 330 ( 223 ) 294 38,552 30,322 23,529 Deferred: Federal ( 4,100 ) 2,870 5,345 State 120 ( 1,821 ) 1,405 Foreign 44 ( 71 ) — ( 3,936 ) 978 6,750 Total $ 34,616 $ 31,300 $ 30,279 Income tax expense also included tax expense allocated to comprehensive income for 2023, 2022, and 2021 of $ 172 , $ 33 , and $ 19 , respectively (see the Consolidated Statements of Comprehensive Income). A reconciliation of income tax expense at the normal statutory federal rate to income tax expense included in the accompanying Consolidated Statements of Income is below: Year Ended December 31, 2023 2022 2021 “Expected” provision at federal statutory rate $ 29,895 $ 29,442 $ 25,435 State income taxes, net 6,545 6,446 5,713 Foreign income taxes 330 ( 223 ) 294 Change in valuation allowance 1,135 416 204 Share-based compensation ( 288 ) ( 34 ) 31 Federal and state tax credits ( 1,685 ) ( 3,506 ) ( 1,363 ) Other ( 1,316 ) ( 1,241 ) ( 35 ) Income tax expense $ 34,616 $ 31,300 $ 30,279 Effective tax rate 24.4 % 22.3 % 25.0 % 56 The tax effects of temporary differences giving rise to deferred income taxes shown on the Consolidated Balance Sheets are as follows: December 31, 2023 2022 Deferred income tax assets: Share-based compensation $ 4,453 $ 2,462 U.S. state and foreign tax credit carryforwards 3,350 3,991 Mexico and U.S. state loss carryforwards 3,890 3,040 Inventories 2,656 1,936 Operating lease liabilities 3,740 3,949 Deferred compensation 848 691 Section 174 timing difference 2,032 — Other 4,279 3,002 Gross deferred income tax assets 25,248 19,071 Less: valuation allowance ( 3,208 ) ( 2,073 ) Net deferred income tax assets 22,040 16,998 Deferred income tax liabilities: Property, plant and equipment ( 24,084 ) ( 25,623 ) Intangibles ( 48,460 ) ( 47,187 ) Inventory ( 2,007 ) ( 2,812 ) Operating lease right-of-use assets ( 3,577 ) ( 3,850 ) Convertible Senior Note ( 4,716 ) ( 2,424 ) Other ( 2,267 ) ( 2,214 ) Gross deferred income tax liabilities ( 85,111 ) ( 84,110 ) Net deferred income tax liability $ ( 63,071 ) $ ( 67,112 ) A schedule of the change in valuation allowance is as follows: Balance at December 31, 2021 $ 1,657 Increase 416 Balance at December 31, 2022 2,073 Increase 1,135 Balance at December 31, 2023 $ 3,208 As of December 31, 2023, the Company’s total valuation allowance of $ 3,208 related to net operating loss in U.S. states and foreign countries in which it is not “more likely than not” to create enough taxable income to fully utilize the carryforwards before expiration of the carryforward periods and certain foreign tax credit carryforwards. As of December 31, 2022, the Company’s total valuation allowance of $ 2,073 , related to net operating loss in U.S. states and foreign countries in which it is not “more likely than not” to create enough taxable income to fully utilize the carryforwards before expiration of the carryforward periods. As of December 31, 2023 and 2022, the Company had $ 23,590 and $ 21,537 in gross U.S. state net operating loss carryforwards, respectively. Due to varying U.S. state carryforward periods, the state net operating loss carryforwards will primarily expire in varying years between calendar years 2024 and 2044. As of December 31, 2023 and 2022, the Company had gross U.S. state tax credit carryforwards of $ 3,890 and $ 5,052 , respectively. U.S. state credits, if not used to offset income tax expense in their respective jurisdictions, will expire in varying years between 2024 and 2040. 57 The Company treats accrued interest and penalties related to tax liabilities, if any, as a component of income tax expense. During 2023, 2022, and 2021, the Company’s activity in accrued interest and penalties was not significant. The following is a reconciliation of the total amount of unrecognized tax benefits (excluding interest and penalties) for 2023, 2022, and 2021: Year Ended December 31, 2023 2022 2021 Beginning of year balance $ 156 $ 113 $ 112 Additions based on prior year tax positions 83 75 — Additions based on current year tax positions 245 2 31 Reduction for prior year tax positions ( 60 ) ( 34 ) ( 30 ) End of year balance $ 424 $ 156 $ 113 For each period presented, substantially all of the amount of unrecognized benefits (excluding interest and penalties) would impact the effective tax rate, if recognized. The Company reasonably expects that the amount of unrecognized tax benefit will not change significantly over the next 12 months. The Company is not under any U.S. federal, state or foreign income tax audits. For U.S. federal tax purpose, all tax years after 2019 remain open to examination. Amounts paid for income tax in foreign jurisdictions are not material to the financial statements. In addition, the Company is subject to examination for its state tax returns for years 2019, and forward, with the exception of certain net operating losses and credit carryforwards originating in years prior to 2019 that remain subject to adjustment. NOTE 9: EQUITY AND EPS Capital Stock. Common stockholders are entitled to elect four of the nine members of the Company’s Board of Directors, while preferred stockholders are entitled to elect the remaining five members. All directors are elected annually for a one year term. Any vacancies on the Board may only be filled by the stockholders and not by the Board. Stockholders who own 10 percent or more of the outstanding Common Stock or Preferred Stock have the right to call a special meeting of stockholders. Common stockholders are not entitled to vote with respect to a merger, dissolution, lease, exchange or sale of substantially all of the Company’s assets, or on an amendment to the Articles of Incorporation, unless such action would increase or decrease the authorized shares or par value of the Common Stock or Preferred Stock, or change the powers, preferences or special rights of the Common Stock or preferred stock so as to affect the Common stockholders adversely. Generally, Common stockholders and Preferred stockholders vote as separate classes on all other matters requiring shareholder approval. 58 EPS. The following table presents the computations of basic and diluted EPS: Year Ended December 31, 2023 2022 2021 Operations: Net income (a) $ 107,130 $ 108,872 $ 90,817 Net loss attributable to noncontrolling interest 345 590 490 Income attributable to participating securities (unvested shares and units) (b) ( 1,074 ) ( 871 ) ( 712 ) Net income used in EPS calculation $ 106,401 $ 108,591 $ 90,595 Share information: Basic weighted average common shares (c) 22,059,816 22,002,990 20,719,663 Diluted weighted average common shares (d) 22,173,918 22,053,966 20,719,663 Basic EPS $ 4.82 $ 4.94 $ 4.37 Diluted EPS $ 4.80 $ 4.92 $ 4.37 (a) Net income attributable to all stockholders. (b) Participating securities included 226,410 , 177,398 , and 163,024 unvested restricted stock units (“RSUs”) for the years ended December 31, 2023, 2022, and 2021, respectively. (c) Under the two class method, basic weighted average common shares exclude outstanding unvested participating securities. (d) The impacts of the Convertible Senior Notes were included in the diluted weighted average common shares if the inclusion was dilutive. The Convertible Senior Notes would only have a dilutive impact if the average market price per share during the quarter and year to date period exceeds the conversion price of $ 96.24 per share. There was no dilutive impact for the year ended December 31, 2021. Share Issuance. On April 1, 2021, as part of the consideration for the Merger with Luxco, the Company issued 5,007,833 shares of Common Stock. Additionally, in September 2021, the Merger parties finalized the purchase price adjustments, which increased stock consideration by an additional 1,373 shares from the preliminary amounts that were paid at closing. Shares Outstanding Activity. The following table presents the Company’s share activity: Shares Outstanding Preferred Stock Common Stock Balance at December 31, 2021 437 21,964,314 Issuance of Common Stock — 38,760 Repurchase of Common Stock — ( 9,032 ) Balance at December 31, 2022 437 21,994,042 Issuance of Common Stock — 30,507 Repurchase of Common Stock — ( 8,436 ) Balance at December 31, 2023 437 22,016,113 59 Dividends and Dividend Equivalents. The following table presents the Company’s dividend and dividend equivalent information: Dividend and Dividend Equivalent Information (per Share and Unit) Declaration date Record date Payment date Declared Paid Dividend payment Dividend equivalent payment (a)(b) Total payment (b) 2023 February 23 March 10 March 24 $ 0.12 $ 0.12 $ 2,640 $ 29 $ 2,669 May 4 May 19 June 2 0.12 0.12 2,641 27 2,668 August 3 August 18 September 1 0.12 0.12 2,642 27 2,669 November 2 November 17 December 1 0.12 0.12 2,642 27 2,669 $ 0.48 $ 0.48 $ 10,565 $ 110 $ 10,675 2022 February 22 March 11 March 25 $ 0.12 $ 0.12 $ 2,638 $ 23 $ 2,661 May 5 May 20 June 3 0.12 0.12 2,638 23 2,661 August 4 August 19 September 2 0.12 0.12 2,639 23 2,662 November 3 November 18 December 2 0.12 0.12 2,639 23 2,662 $ 0.48 $ 0.48 $ 10,554 $ 92 $ 10,646 2021 February 23 March 12 March 26 $ 0.12 $ 0.12 $ 2,033 $ 19 $ 2,052 May 3 May 21 June 4 0.12 0.12 2,635 20 2,655 August 2 August 20 September 3 0.12 0.12 2,635 20 2,655 November 1 November 19 December 3 0.12 0.12 2,635 20 2,655 $ 0.48 $ 0.48 $ 9,938 $ 79 $ 10,017 (a) Dividend equivalent payments on unvested participating securities (see Note 12, Employee Benefit Plans ). (b) Includes estimated forfeitures. NOTE 10: LEASES The Company has operating leases for railcars, computer equipment, office spaces, a bottling facility, a distribution facility, fulfillment center, retail location, and certain equipment. The Company has no finance leases. Leases with terms of twelve months or less are not recorded on the Company’s Consolidated Balance Sheets. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. Lease components are accounted for separately from non-lease components, such as common-area maintenance, based on the relative, observable stand-alone prices of the components. The Company’s leases have remaining lease terms of less than one year to ten years , some of which may include options to extend the lease. Options to renew the Company’s leases were not considered when assessing the value of the right-of-use assets because the Company is not reasonably certain that it will assert the options to renew the leases. As most of the Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. 60 The following table provides supplemental balance sheet classification information related to leases: December 31, Leases Balance Sheet Classification 2023 2022 Assets Operating Operating lease right-of-use-assets, net $ 13,975 $ 15,042 Total leased assets $ 13,975 $ 15,042 Liabilities Current Operating Accrued expenses $ 3,318 $ 3,807 Noncurrent Operating Long-term operating lease liabilities 11,292 11,622 Total operating lease liability $ 14,610 $ 15,429 The following table presents the components of lease costs: Year Ended December 31, 2023 2022 Operating lease costs $ 4,364 $ 4,278 Short-term lease costs 446 415 Net lease costs (a) $ 4,810 $ 4,693 (a) Recorded as a component of operating income on the Company’s Consolidated Statements of Income. The following table presents supplemental cash flow and non-cash activity related to lease information: Year Ended December 31, 2023 2022 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 4,116 $ 4,082 Right-of-use assets obtained in exchange for lease obligations Operating leases $ 4,100 $ 3,417 The following table presents weighted average discount rate and remaining lease term: December 31, 2023 2022 Weighted average discount rate Operating leases 2.95 % 2.03 % Weighted average remaining lease term Operating leases 5.1 years 4.6 years 61 As of December 31, 2023, the future payments under operating leases having initial terms of one year or more were as follows: 2024 $ 3,702 2025 3,638 2026 3,032 2027 2,094 2028 1,463 Thereafter 2,163 Total lease payments 16,092 Less interest ( 1,482 ) Total operating lease liability $ 14,610 NOTE 11: COMMITMENTS AND CONTINGENCIES Commitments. The Company is in the process of completing several projects that have been financed using industrial revenue bonds in the state of Kentucky. Traditionally, industrial revenue bonds have been used as an economic development tool in the state to attract desirable businesses, including business in the bourbon industry, and have allowed a 15 to 40 year real property tax abatement on the Company’s renovated and newly-constructed warehouse buildings and distilleries in Kentucky. As of December 31, 2023, approximately $ 50,000 of the Company’s facilities in Nelson County Kentucky and approximately $ 30,900 of the Company’s facilities in Williamstown Kentucky were financed with industrial revenue bonds. The city then leased the facilities back to the Company under a capital lease, the terms of which provide for the payment of basic rent in an amount sufficient to pay principal and interest on the bonds. The Company’s obligation to pay rent under the lease is in the same amount and due on the same date as the obligation to pay debt service on the bonds which the Company holds. The lease permits the Company to present the bonds at any time for cancellation, upon which our obligation to pay basic rent would be canceled. At the bonds’ maturity the facilities will revert to the Company without costs. If the Company were to present the bonds for cancellation prior to maturity, a nominal fee could be incurred. The Company may not be able to use industrial revenue bonds in the future due to legislative, regulatory, and related changes in the state of Kentucky. The Company recorded the land and building assets as property, plant, and equipment, net, on its Consolidated Balance Sheets under a capital lease. The lease payment on the facilities is sufficient to pay principal and interest on the bonds. Because the Company owns all of the outstanding bonds, has a legal right to set-off, and intends to set-off the corresponding lease and interest payment, the Company netted the capital lease obligation with the bond asset and, in turn, reflected no amount for the obligation or the corresponding asset on its Consolidated Balance Sheets at December 31, 2023 and 2022. Contingencies. The Company and its subsidiaries are, from time to time, a party to legal and regulatory proceedings arising in the ordinary course of business. The Company accrues estimated costs for a contingency when management believes that a loss is probable and can be reasonably estimated. NOTE 12: EMPLOYEE BENEFIT PLANS 401(k) Plans. The Company has established 401(k) plans covering all U.S. employees after certain eligibility requirements are met. Amounts charged to operations for employer contributions related to the plans totaled $ 2,810 , $ 2,517 , and $ 1,826 for 2023, 2022, and 2021, respectively. Post-Employment Benefits. The Company sponsors life insurance coverage as well as medical benefits, including prescription drug coverage, to certain retired employees and their spouses. In 2014, the Company made a change to the plan to terminate post-employment health care and life insurance benefits for retirees and employees, except for a specified grandfathered group. As of December 31, 2023 the total current and non-current benefit obligations are immaterial. Share-Based Compensation Plans. As of December 31, 2023, the Company was authorized to issue 40,000,000 shares of Common Stock and had a treasury share balance of 1,109,053 at December 31, 2023. The Company currently has two active share-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”). The plans were approved by stockholders at the Company’s annual meeting in May 2014. The Company’s share-based compensation plans provide for the awarding of stock options, stock appreciation rights, and shares of restricted stock and RSUs for senior executives and salaried employees, as well as for outside directors. Compensation expense related to RSU awards is based on the market price of the stock on the date the Board of Directors 62 communicates the approved award and is amortized over the vesting period of the restricted stock award. The Consolidated Statements of Income for 2023, 2022, and 2021 reflect total share-based compensation costs and director fees for awarded grants of $ 5,425 , $ 3,487 , and $ 2,346 , respectively, related to these plans. For long-term incentive awards to be granted in the form of RSUs in 2024 based on 2023 results, the Human Resources and Compensation Committee (“HRCC”) determined that the grants would have performance conditions that would be based on the same performance metrics as the Short-Term Incentive Plan (the “STI Plan”). The performance metrics are adjusted operating income, adjusted earnings before interest, taxes, depreciation, and amortization (“EBITDA”), and adjusted EPS. Because management determined at the beginning of 2023 that the performance metrics would more likely than not be met, amortization of the estimated dollar pool of RSUs to be awarded based on 2023 results was started in the first quarter over an estimated 48 month period, including 12 months to the grant date and an additional 36 months to the vesting date. The Consolidated Statements of Income for 2023, 2022, and 2021 reflects share-based compensation costs for grants to be awarded of $ 5,187 , $ 2,018 , and $ 960 , respectively. 2014 Plan. The 2014 Plan, with 1,500,000 shares registered for future grants, provides that vesting occurs pursuant to the time period specified in the particular award agreement approved for that issuance of RSUs, which is to be not less than three years unless vesting is accelerated due to the occurrence of certain events. As of December 31, 2023, 658,081 RSUs had been granted from the 1,500,000 shares approved for under the 2014 Plan. Directors’ Plan. The Director’s Plan, with 300,000 shares registered for future grants, provides that vesting occurs pursuant to the time period specified in the particular award agreement approved for that issuance of equity. As of December 31, 2023, 139,579 shares were granted from the 300,000 shares approved for grants under the Directors’ Plan and all 139,579 shares were vested. RSUs. The following table presents the summary of unvested RSUs under the Company’s share-based compensation plans for 2023, 2022, and 2021: Year Ended December 31, 2023 2022 2021 Units Weighted Average Grant-Date Fair Value Units Weighted Average Grant-Date Fair Value Units Weighted Average Grant-Date Fair Value Unvested balance at beginning of year 179,538 $ 65.11 167,994 $ 61.07 118,855 $ 60.56 Granted 71,728 96.87 69,492 78.08 95,113 65.66 Forfeited ( 2,264 ) 81.76 ( 28,542 ) 61.11 ( 7,915 ) 62.77 Vested ( 22,592 ) 39.47 ( 29,406 ) 76.59 ( 38,059 ) 70.60 Unvested balance at end of year 226,410 $ 77.56 179,538 $ 65.11 167,994 $ 61.07 During 2023, 2022, and 2021, the total grant date fair value of RSU awards vested was $ 892 , $ 2,252 , and $ 2,687 , respectively. As of December 31, 2023, there was $ 2,716 of total estimated unrecognized compensation costs (net of estimated forfeitures) related to granted RSU awards. These costs are expected to be recognized over a weighted average period of approximately 1.0 year. Upon their vesting, the Company purchased restricted stock and RSUs from employees to cover associated withholding taxes. Total treasury stock purchases added 8,437 shares for $ 801 in 2023; 9,031 shares for $ 715 in 2022; and 11,887 shares for $ 767 in 2021. Annual Cash Incentive Plan. Pursuant to the STI Plan, short-term incentive compensation is dependent on the achievement of certain performance metrics, which are established by the HRCC. The degree of achievement of each financial performance metric for each plan year is calculated in accordance with the STI Plan. These calculations are approved by the HRCC, which may adjust results to eliminate unusual items. For 2023, 2022, and 2021, the financial performance metrics were adjusted operating income, adjusted EBITDA, and adjusted EPS. The HRCC also approves the amount of short-term incentive compensation paid for the plan year to officers and employees eligible to participate under the STI Plan. Additionally, certain employees within the Branded Spirits segment participate in incentive plans that are based on performance metrics, including the number of depleted cases and gross profit. Amounts expensed under the STI Plan totaled $ 13,443 , $ 13,370 , and $ 11,155 for 2023, 2022, and 2021, respectively. 63 Deferred Compensation Plan. The Company established an unfunded Executive Deferred Compensation Plan (the “EDC Plan”) effective as of June 30, 2018, with a purpose to attract and retain highly-compensated key employees by providing participants with an opportunity to defer receipt of a portion of their salary, bonus, and other specified compensation. The Company’s obligations under this plan will change in conjunction with the performance of the participants’ investments, along with contributions to and withdrawals from the plan. Realized and unrealized gains (losses) on the EDC plan investments were insignificant and were included as a component of operating income in the Company’s Consolidated Statements of Income, because the Company’s deferred compensation investments consist of mutual funds that are considered trading securities. Plan investments are classified as Level 1 in the fair value hierarchy since the investments trade with sufficient frequency and volume to enable the Company to obtain pricing information on an ongoing basis. The current portion of the EDC Plan deferrals is comprised of estimated amounts to be paid within one year depending on timing of planned disbursements. At December 31, 2023 and 2022, the EDC Plan investments were $ 2,916 and $ 2,176 , respectively, which were recorded in other assets on the Company’s Consolidated Balance Sheets. The EDC Plan current liabilities were $ 74 and $ 510 at December 31, 2023 and 2022, respectively, and were included in accrued expenses and other on the Company’s Consolidated Balance Sheets. The EDC Plan non-current liabilities were $ 3,314 and $ 2,191 as of December 31, 2023 and 2022, respectively, which were recorded in Other non-current liabilities on the Company’s Consolidated Balance Sheets. NOTE 13: CONCENTRATIONS AND RELATED PARTIES Significant customers. For 2023, the Company had sales to one customer that accounted for approximately 11 percent of consolidated sales. For 2022 and 2021, the Company had no sales to an individual customer that accounted for more than 10 percent of consolidated sales. During the years 2023, 2022, and 2021, the Company’s ten largest customers accounted for approximately 44 percent, 38 percent, and 36 percent of consolidated sales, respectively. Significant suppliers. For 2023, the Company had purchases from two grain suppliers that approximated 20 percent of consolidated purchases. In addition, the Company’s ten largest suppliers, accounted for approximately 51 percent of consolidated purchases. For 2022, the Company had purchases from two grain suppliers that approximated 23 percent of consolidated purchases. In addition, the Company’s ten largest suppliers accounted for approximately 49 percent of consolidated purchases. For 2021, the Company had purchases from two grain suppliers that approximated 14 percent of consolidated purchases. In addition, the Company’s ten largest suppliers accounted for approximately 43 percent of consolidated purchases. Related Parties. For the years ended December 31, 2023 and 2022, the Company purchased $ 41,520 and $ 37,274 , respectively, of finished goods from LMX and bulk beverage alcohol from the other 50 percent owner of DGL. The Company holds 50 percent interest in DGL and Agricola, which is accounted for as equity method investments. See Note 1, Nature of Operations and Summary of Significant Accounting Policies. NOTE 14: OPERATING SEGMENTS At December 31, 2023, the Company had three segments: Distilling Solutions, Branded Spirits, and Ingredient Solutions. The Distilling Solutions segment consists of food grade alcohol and distillery co-products, such as distillers feed (commonly called dried distillers grain in the industry) and fuel grade alcohol. The Distilling Solutions segment also includes warehouse services, 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 SG&A, interest expense, and other general miscellaneous expenses are excluded from segment operations and are classified as Corporate. Receivables, inventories, and equipment have been identified with the segments to which they relate. All other assets are considered as Corporate. 64 The following table presents summarized financial information for each segment: Year Ended December 31, 2023 2022 2021 Sales to customers: Distilling Solutions $ 450,854 $ 428,478 $ 352,504 Branded Spirits 253,933 237,939 183,566 Ingredient Solutions 131,736 115,941 90,650 Total (a) $ 836,523 $ 782,358 $ 626,720 Gross profit: Distilling Solutions $ 144,964 $ 126,282 $ 114,106 Branded Spirits 112,781 95,521 62,644 Ingredient Solutions 46,967 31,503 22,215 Total $ 304,712 $ 253,306 $ 198,965 Depreciation and amortization: Distilling Solutions $ 11,833 $ 11,641 $ 10,766 Branded Spirits 6,952 5,909 5,138 Ingredient Solutions 2,574 2,473 2,069 Corporate 754 1,432 1,119 Total $ 22,113 $ 21,455 $ 19,092 Income (loss) before income taxes: Distilling Solutions $ 122,145 $ 121,651 $ 110,317 Branded Spirits 33,829 33,333 20,742 Ingredient Solutions 40,729 27,532 19,194 Corporate ( 54,957 ) ( 42,344 ) ( 29,157 ) Total $ 141,746 $ 140,172 $ 121,096 (a) Sales revenue from foreign sources totaled $ 49,822 , $ 56,719 , and $ 42,593 for the years ended December 31, 2023, 2022, and 2021, respectively, and is largely derived from the United Kingdom, Japan, Canada, Mexico, and Australia. The balance of total sales revenue is from domestic sources. December 31, 2023 2022 Identifiable Assets Distilling Solutions $ 369,241 $ 350,068 Branded Spirits 910,633 698,985 Ingredient Solutions 88,846 63,943 Corporate 23,628 45,215 Total (a) $ 1,392,348 $ 1,158,211 (a) As of December 31, 2023 and 2022, the Company had $ 3,524 and $ 3,042 , respectively, of long-lived assets located in Northern Ireland. 65 NOTE 15: SUPPLEMENTAL CASH FLOW INFORMATION Year Ended December 31, 2023 2022 2021 Non-cash investing and financing activities: Purchase of property, plant, and equipment in accounts payable $ 15,610 $ 9,768 $ 7,232 Additional cash payment information: Interest paid 9,241 5,952 3,457 Income taxes paid 35,144 29,052 29,766 See Note 10, Leases for operating lease supplemental cash flow information. NOTE 16: SUBSEQUENT EVENTS 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 Board approval and the transaction closed in February 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. Dividend Declaration. On February 22, 2024, the Company announced a quarterly dividend payable to stockholders of record of the Company’s Common Stock, resulting in dividend equivalents payable to RSU holders, of $ 0.12 per share and per RSU. The dividend and dividend equivalents are payable on March 29, 2024, to stockholders of record and RSU holders on March 15, 2024. 66 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable.