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 consolidated 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 consolidated 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 consolidated 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 Interim 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, 2024 was effective. KPMG, LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements contained herein, has issued an audit report on our internal control over financial reporting as of December 31, 2024, which is included in Item 8 of this Form 10-K. 37 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, 2024 and 2023, 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, 2024, 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, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2024, 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, 2024 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 dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit 38 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 revenue was $265,873 thousand for the year ended December 31, 2024, 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. Fair value measurement of contingent consideration liability As discussed in Notes 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. As of December 31, 2024, management estimated the fair value of the contingent consideration liability to be $85,300 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 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 fair value measurement of the contingent consideration liability, including controls related to the projected net sales and volatility rate. We performed sensitivity analyses over the projected net sales and volatility rate to assess the impact of changes in those assumptions on the fair value 39 of the contingent consideration liability. We assessed the projected net sales by comparing them to Penelope’s actual results since the acquisition, management’s updated forecasts, 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. Valuation of Branded Spirits goodwill and indefinite-lived intangible assets As discussed in Notes 1 and 5 to the consolidated financial statements, the Company recorded goodwill and intangible assets, net of $247,789 thousand and $268,451 thousand, respectively as of December 31, 2024. For the year ended December 31, 2024, the Company recorded goodwill impairment of $73,755 thousand to adjust the carrying amount of the Branded Spirits reporting unit to fair value. The Company tests goodwill and indefinite-lived intangible assets for impairment at least annually, in the fourth quarter, and 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 carrying value. During the fourth quarter, the Company performed a quantitative assessment of goodwill and its indefinite-lived intangible assets. The estimated fair value of the Branded Spirits reporting unit used in the assessment of goodwill was determined through a combination of an income approach and a market approach. The estimated fair value used in the assessment of the Company’s indefinite-lived intangible assets was determined using the relief from royalty method. These fair value estimates were based on certain assumptions made by the Company, including projected revenue and operating margins, and the respective discount rates and market royalty rates. We identified the evaluation of the fair value of the Branded Spirits reporting unit and indefinite-lived intangible assets within the Branded Spirits reporting unit as a critical audit matter. Subjective and challenging auditor judgment was required to evaluate (1) the revenue growth rates, operating margins and discount rate assumptions used in the determination of the fair value of the Branded Spirits reporting unit, and (2) the revenue growth rates, royalty rates, and discount rates used in the determination of the fair value of certain indefinite-lived intangible assets. A significant degree of auditor judgment was also required in evaluating the guideline public companies used in the market approach for the Branded Spirits reporting unit. Changes to these assumptions could have had a significant effect on the Company’s assessment of the carrying values of the goodwill assigned to the Branded Spirits reporting unit and the associated indefinite-lived intangible assets. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the critical audit matter. This included controls over the revenue growth rates, operating margins, discount rates and royalty rates used to measure the fair value of the Branded Spirits reporting unit and associated indefinite-lived intangible assets. To assess the Company’s ability to forecast, we compared historical forecasts to actual results. We performed sensitivity analyses over the revenue growth rates, operating margins, discount rates, and royalty rates to assess the impact of changes in these assumptions on the estimated fair values. We evaluated the revenue growth rates and operating margin assumptions by comparing them to past and current performance of the Branded Spirits reporting unit and external industry data. We involved professionals with specialized skills and knowledge, who assisted in: • evaluating the Company’s royalty rates by determining that the royalty rates used were supported by the associated margins and consistent with other internal and publicly available data. • evaluating the discount rates used by the Company by comparing the Company’s inputs to the discount rate to publicly available data for comparable entities and assessing the resulting discount rate. • comparing the guideline public companies used in the market approach to available internal and external data. /s/ KPMG LLP We have served as the Company’s auditor since 2008. Kansas City, Missouri February 26, 2025 40 MGP INGREDIENTS, INC. CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except share and per share amounts) Year Ended December 31, 2024 2023 2022 Sales $ 703,625 $ 836,523 $ 782,358 Cost of sales 417,308 531,811 529,052 Gross profit 286,317 304,712 253,306 Advertising and promotion expenses 40,508 38,213 29,714 Selling, general, and administrative expenses 81,391 91,395 74,627 Impairment of long-lived assets and other 137 19,391 — Goodwill impairment 73,755 — — Change in fair value of contingent consideration 16,100 7,100 — Operating income 74,426 148,613 148,965 Interest expense, net ( 8,439 ) ( 6,647 ) ( 5,451 ) Other income (expense), net 2,455 ( 220 ) ( 3,342 ) Income before income taxes 68,442 141,746 140,172 Income tax expense 33,977 34,616 31,300 Net income 34,465 107,130 108,872 Net loss attributable to noncontrolling interest 198 345 590 Net income attributable to MGP Ingredients, Inc. 34,663 107,475 109,462 Income attributable to participating securities ( 373 ) ( 1,074 ) ( 871 ) Net income used in earnings per common share calculation $ 34,290 $ 106,401 $ 108,591 Weighted average common shares Basic 22,015,439 22,059,816 22,002,990 Diluted 22,015,439 22,173,918 22,053,966 Earnings per common share Basic $ 1.56 $ 4.82 $ 4.94 Diluted $ 1.56 $ 4.80 $ 4.92 See Accompanying Notes to Consolidated Financial Statements 41 MGP INGREDIENTS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in thousands) Year Ended December 31, 2024 2023 2022 Net income attributable to MGP Ingredients, Inc. $ 34,663 $ 107,475 $ 109,462 Other comprehensive loss, net of tax: Unrealized gain (loss) on foreign currency translation adjustment ( 188 ) 236 ( 676 ) Changes in Company-sponsored post-employment benefit plan ( 73 ) ( 329 ) 18 Other comprehensive loss ( 261 ) ( 93 ) ( 658 ) Comprehensive income attributable to MGP Ingredients, Inc. 34,402 107,382 108,804 Comprehensive loss attributable to noncontrolling interest ( 198 ) ( 345 ) ( 590 ) Comprehensive income $ 34,204 $ 107,037 $ 108,214 See Accompanying Notes to Consolidated Financial Statements 42 MGP INGREDIENTS, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share amounts and par value) December 31, 2024 2023 Current Assets Cash and cash equivalents $ 25,273 $ 18,388 Receivables (less allowance for credit loss of $ 1,875 and $ 1,475 at December 31, 2024 and 2023, respectively 148,488 144,286 Inventory 364,944 346,853 Prepaid expenses 3,983 3,580 Refundable income taxes 3,448 1,190 Total current assets 546,136 514,297 Property, plant, and equipment, net 316,672 262,303 Operating lease right-of-use assets, net 15,540 13,975 Investment in joint venture 7,024 5,197 Intangible assets, net 268,451 271,706 Goodwill 247,789 321,544 Other assets 4,173 3,326 Total assets $ 1,405,785 $ 1,392,348 Current Liabilities Current maturities of long-term debt $ 6,400 $ 6,400 Accounts payable 66,336 73,594 Federal and state excise taxes payable 5,358 2,251 Accrued expenses and other 14,356 31,861 Total current liabilities 92,450 114,106 Long-term debt, less current maturities 121,277 85,305 Convertible senior notes 195,864 195,544 Long-term operating lease liabilities 11,940 11,292 Contingent consideration 85,300 69,200 Other noncurrent liabilities 2,981 4,763 Deferred income taxes 63,430 63,071 Total liabilities 573,242 543,281 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, 2024 and 2023; 21,194,707 and 22,016,113 shares outstanding at December 31, 2024 and 2023, respectively 6,715 6,715 Additional paid-in capital 332,195 325,453 Retained earnings 563,929 539,883 Accumulated other comprehensive loss ( 658 ) ( 397 ) Treasury stock, at cost, 1,930,459 and 1,109,053 shares at December 31, 2024 and 2023, respectively ( 68,019 ) ( 21,166 ) Total MGP Ingredients, Inc. stockholders equity 834,166 850,492 Noncontrolling interest ( 1,623 ) ( 1,425 ) Total equity 832,543 849,067 Total liabilities and equity $ 1,405,785 $ 1,392,348 See Accompanying Notes to Consolidated Financial Statements 43 MGP INGREDIENTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) Year Ended December 31, 2024 2023 2022 Cash Flows from Operating Activities Net income $ 34,465 $ 107,130 $ 108,872 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 21,989 22,113 21,455 Impairment of long-lived assets and other 137 19,391 — Goodwill impairment 73,755 — — Share-based compensation 4,016 10,635 5,502 Equity method investment loss (gain) ( 1,827 ) 337 2,220 Deferred income taxes, including change in valuation allowance 359 ( 4,041 ) 1,011 Change in fair value of contingent consideration 16,100 7,100 — Other, net 465 728 194 Changes in operating assets and liabilities, net of effects of acquisitions: Receivables, net ( 4,375 ) ( 32,397 ) ( 16,786 ) Inventory ( 18,155 ) ( 46,921 ) ( 44,350 ) Prepaid expenses ( 409 ) ( 481 ) ( 1,468 ) Income taxes payable (refundable) ( 2,258 ) 3,136 1,212 Accounts payable ( 9,099 ) ( 2,406 ) 10,626 Accrued expenses and other ( 15,111 ) 348 1,984 Federal and state excise taxes payable 3,107 ( 2,375 ) ( 2,365 ) Other, net ( 881 ) 1,486 829 Net cash provided by operating activities 102,278 83,783 88,936 Cash Flows from Investing Activities Additions to property, plant, and equipment ( 71,181 ) ( 55,267 ) ( 45,323 ) Purchase of business, net of cash acquired — ( 103,712 ) — Contributions to equity method investments — — ( 2,810 ) Other, net ( 377 ) ( 263 ) 320 Net cash used in investing activities ( 71,558 ) ( 159,242 ) ( 47,813 ) Cash Flows from Financing Activities Payment of dividends and dividend equivalents ( 10,630 ) ( 10,675 ) ( 10,646 ) Repurchase of Common Stock ( 48,773 ) ( 801 ) ( 715 ) Proceeds from long-term debt 125,000 105,000 — Principal payments on long-term debt ( 89,400 ) ( 47,600 ) ( 3,403 ) Net cash provided by (used in) financing activities ( 23,803 ) 45,924 ( 14,764 ) Effect of exchange rate changes on cash and cash equivalents ( 32 ) 34 ( 38 ) Increase (decrease) in cash and cash equivalents 6,885 ( 29,501 ) 26,321 Cash and cash equivalents, beginning of year 18,388 47,889 21,568 Cash and cash equivalents, end of year $ 25,273 $ 18,388 $ 47,889 See Accompanying Notes to Consolidated Financial Statements 44 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, 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 Comprehensive income (loss): Net income (loss) — — — 34,663 — — ( 198 ) 34,465 Other comprehensive loss — — — — ( 261 ) — — ( 261 ) Dividends and dividend equivalents of $ 0.48 per common share and per restricted stock unit, net of estimated forfeitures — — — ( 10,617 ) — — — ( 10,617 ) Share-based compensation — — 9,072 — — — — 9,072 Stock shares awarded, forfeited or vested — — ( 2,330 ) — — 2,330 — — Stock shares repurchased — — — — — ( 49,183 ) — ( 49,183 ) Balance, December 31, 2024 $ 4 $ 6,715 $ 332,195 $ 563,929 $ ( 658 ) $ ( 68,019 ) $ ( 1,623 ) $ 832,543 See Accompanying Notes to Consolidated Financial Statements 45 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 of branded and distilled spirits, as well as food ingredient solutions. Distilled spirits include premium bourbon, rye, and other whiskeys (“brown goods”) 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. The Company has a portfolio of its own high quality branded spirits which are produced through its distilleries and bottling facilities and sold to distributors. The Company’s branded spirits products account for a range of price points from value products through premium plus 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 ingredient products are sold directly, or through distributors, to manufacturers and processors of finished packaged goods or to bakeries. The Company reports three operating segments: Distilling Solutions, Branded Spirits, and Ingredient Solutions. 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 2022 and 2023 consolidated financial statements have been reclassified to conform to the 2024 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 consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated 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. 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 46 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 2024, 2023, and 2022 is noted below: Year Ended December 31, 2024 2023 2022 Interest costs charged to expense $ 8,439 $ 6,647 $ 5,451 Plus: Interest cost capitalized 2,031 2,349 866 Total $ 10,470 $ 8,996 $ 6,317 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 by the Company 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. See Note 6, Closure of the Atchison Distillery, for more information. 47 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. Business Combinations. Assets acquired and liabilities assumed during a business combination are generally recorded at fair market value as of the acquisition date. Goodwill is recognized to the extent that the purchase consideration, including contingent consideration, exceeds the value of the assets acquired and liabilities assumed. The Company uses its internal estimates and third-party valuation specialists to assist in determining the fair value of the assets acquired and liabilities assumed. During the measurement 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 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 other indefinite-lived intangible assets to its respective reporting units. All goodwill and indefinite-lived intangible assets included in the Consolidated Balance Sheet are related to the Branded Spirits reporting unit. 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. See Note 5, Goodwill and other Intangible Assets for more information. 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 $ 249,672 and $ 194,440 at December 31, 2024 and 2023, respectively. The financial statement carrying value (net of unamortized loan fees) was $ 323,541 and $ 287,249 at December 31, 2024 and 2023, respectively. These fair values are considered Level 2 under the fair value hierarchy. 48 The fair value calculation of contingent consideration associated with the acquisition of Penelope Bourbon LLC (“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, 2024 and 2023, the investment in LMX was $ 7,024 and $ 5,197 , respectively, which is recorded in investment in joint ventures on the Consolidated Balance Sheets. During the years ended December 31, 2024 and 2023, the Company recorded a gain of $ 1,827 and a loss of $ 337 from equity method investments, respectively, which is recorded in other income (expense), net on the Consolidated Statements of Income. Recently Adopted Accounting Standard Updates. ASU 2023-07, Improvements to Reportable Segment Disclosures , which requires companies to disclose significant segment expenses provided to the chief operating decision maker (“CODM”) and a description of other segment items. Additionally, all existing annual disclosures must be provided on an interim basis. This ASU is effective for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. This ASU is required to be applied retrospectively to all prior periods presented in the consolidated financial statements. The Company adopted ASU 2023-07 in 2024 and applied the amendment retrospectively to all periods presented in the Company’s consolidated financial statements. See Note 14, Operating Segments, for more information. Recently Issued Accounting Pronouncements. 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 U.S. statutory federal income tax rate applied to pre-tax income from continuing operations. Additionally, this ASU requires 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 consolidated financial statements. The Company is currently evaluating the impact to the Company’s consolidated financial statements. ASU 2024-03, Disaggregation of Income Statement Expenses, requires disaggregated disclosures in the notes to the consolidated financial statements of certain categories of expenses that are included in expense line items on the Consolidated Statement of Income. This ASU is effective for annual periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, 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 consolidated financial statements. The Company is currently evaluating the impact to the Company’s consolidated financial statements. ASU 2024-04, Induced Conversions of Convertible Debt Instruments, clarifies the requirement for determining whether certain settlements of convertible debt instruments should be accounted for as induced conversions or extinguishments. This ASU is effective for annual periods beginning after December 15, 2025. Early adoption is permitted and can be applied either on a prospective basis or retrospective basis. The Company is currently evaluating the impact of this ASU to the Company’s consolidated financial statements, however the Company does not anticipate this guidance having a material impact to the consolidated 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. 49 NOTE 2: OTHER BALANCE SHEET CAPTIONS Inventory. December 31, 2024 2023 Finished goods $ 43,952 $ 55,463 Barreled distillate (bourbons and other whiskeys) 283,119 250,183 Raw materials 25,491 28,825 Work in process 1,673 1,691 Maintenance materials 8,591 8,355 Other 2,118 2,336 Total $ 364,944 $ 346,853 Property, plant, and equipment, net. December 31, 2024 2023 Land, buildings, and improvements $ 211,129 $ 188,521 Transportation equipment 905 844 Machinery and equipment 280,783 261,354 Construction in progress 69,897 38,927 Property, plant, and equipment, at cost 562,714 489,646 Less accumulated depreciation and amortization ( 246,042 ) ( 227,343 ) Property, plant, and equipment, net $ 316,672 $ 262,303 Accrued expenses and other. December 31, 2024 2023 Employee benefit plans $ 467 $ 5,140 Salaries and wages 5,712 16,637 Property taxes 916 2,062 Current operating lease liabilities 4,157 3,318 Other 3,104 4,704 Total $ 14,356 $ 31,861 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). 50 Disaggregation of Sales. The following table presents the Company’s sales disaggregated by segment and major products and services. Year Ended December 31, 2024 2023 2022 Distilling Solutions Brown goods $ 265,873 $ 289,191 $ 229,523 Warehouse services 33,430 28,632 23,598 White goods and other co-products 32,901 133,031 175,357 Total Distilling Solutions 332,204 450,854 428,478 Branded Spirits Premium plus 110,991 105,465 84,730 Mid 63,454 75,676 82,530 Value 42,100 47,907 47,395 Other 24,271 24,885 23,284 Total Branded Spirits 240,816 253,933 237,939 Ingredient Solutions Specialty wheat starches 76,005 66,050 62,567 Specialty wheat proteins 41,768 48,291 39,313 Commodity wheat starch 12,351 16,413 14,023 Commodity wheat protein 481 982 38 Total Ingredient Solutions 130,605 131,736 115,941 Total Sales $ 703,625 $ 836,523 $ 782,358 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 tier. 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 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 was accounted for in accordance with U.S. federal tax law. Indefinite-lived intangible assets and goodwill are deductible for U.S. income tax purposes. 51 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. 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. 52 During the years ended December 31, 2024 and 2023, the Company incurred $ 116 and $ 2,060 , respectively, 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 years ended December 31, 2024 and 2023, there was a $ 16,100 and $ 7,100 adjustment, respectively, 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 . NOTE 5: GOODWILL AND OTHER INTANGIBLE ASSETS Definite-Lived Intangible Assets. The Company acquired definite-lived intangible assets in connection with various acquisitions of businesses prior to 2024. The distributor relationships have a carrying value of $ 55,461 , net of accumulated amortization of $ 9,639 . The distributor relationships have a useful life of 20 years. The amortization expense for the years ended December 31, 2024 and 2023 was $ 3,255 and $ 2,761 , respectively. The weighted average remaining amortization period at December 31, 2024 for definite-lived intangible assets is 17.1 years. As of December 31, 2024, the expected future amortization expense related to definite-lived intangibles assets are as follows: 2025 $ 3,255 2026 3,255 2027 3,255 2028 3,255 2029 3,255 Thereafter 39,186 Total $ 55,461 Goodwill. The Company records goodwill in connection with various acquisitions of businesses and allocates the goodwill to its respective reporting units. The Company tests 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 amount exceeds fair value, an impairment of goodwill is recognized and allocated to the reporting units. During the fourth quarter, the Company experienced a decrease in stock price and market capitalization as well as experienced the effects of the softening alcohol industry which contributed to declines in current year consolidated results and forecasted outlook. Based on these factors, the Company performed a quantitative assessment of goodwill. The Company engaged a third party valuation specialist to assist in comparing the fair value of the Branded Spirits reporting unit to the respective carrying value. The estimate of fair value of the Company’s reporting unit was calculated using equal weighting of the income approach that utilized the discounted cash flow method and the market approach that utilized the guideline public company method. Estimates in the determination of fair value of the reporting unit through the income approach were based on (i) discount rates based on the reporting unit’s weighed average cost of capital, (ii) future expected cash flows including revenue and operating margin projections, and (iii) long-term growth rates based on inflation forecasts, industry growth, and long-term economic growth potential. The market approach compares enterprise values and historical and projected results of public companies that reflect economic conditions and risks that are similar to the reporting unit to calculate an estimated enterprise value. These assumptions are based on historical trends as well as the projections and assumptions used in the Company’s budget and long-range plans. These assumptions reflect the Company’s estimates of future economic and competitive conditions which can be affected by several factors such as inflation, business valuations in the market, the economy, and market competition. Any changes in these assumptions may affect the Company’s fair value estimate and the results of an impairment test. 53 Based on the results of the Company’s impairment analysis, the Company recorded an impairment charge of $ 73,755 to adjust the carrying amount of the Branded Spirits reporting unit to fair value. This goodwill impairment is included as a component of operating income in the Consolidated Statement of Income for the year ended December 31, 2024 and as a reduction of goodwill in the Consolidated Balance sheet as of December 31, 2024. Changes in carrying amount of goodwill by business segment were as follows: Distilling Solutions Branded Spirits Ingredient Solutions Total Balance at December 31, 2022 (a) $ — $ 226,294 $ — $ 226,294 Acquisitions — 95,250 — 95,250 Balance at December 31, 2023 (a) — 321,544 — 321,544 Impairment — ( 73,755 ) — ( 73,755 ) Balance at December 31, 2024 $ — $ 247,789 $ — $ 247,789 (a) There was no accumulated impairment losses recorded at December 31, 2023 and 2022. Indefinite-Lived Intangible Assets. The Company records indefinite-lived intangible assets in connection with various acquisitions of businesses and allocates the indefinite-lived intangible assets to its respective reporting units. During the fourth quarter 2024, in connection with the assessment of the same events and circumstances impacting the Branded Spirit reporting unit, the Company performed a quantitative impairment test of its indefinite-lived assets. The Company values its indefinite-lived intangible assets under the income approach using a relief-from-royalty method, which assumes the value of the asset is the sum of the discounted cash flows of the amount that would be paid by a hypothetical market participant had they not owned the asset and instead licensed it from another company. When estimating the fair value, the Company made certain assumptions for its future revenue projections, market royalty rates, and discount rates. These assumptions reflect the Company’s estimates of future economic and competitive conditions which consider many factors including macroeconomic conditions, industry growth rates, and competition. These factors are subject to change as a result of changing market conditions. The most sensitive assumption used in the analysis was a 10 percent discount rate. The results of the assessment that the estimated fair values for the indefinite-lived intangible assets exceed its carrying value and no impairment loss was recognized for indefinite-lived intangible assets. The carrying amount of trade name indefinite-lived intangible assets, which relates to the Branded Spirit segment, was $ 212,990 at both December 31, 2024 and 2023. As of December 31, 2024, the fair value of the Company’s indefinite-lived trade names exceeded the respective carrying values by a range of 10 percent to 20 percent. While the indefinite-lived trade names were not determined to be impaired, if these brands do not perform as projected or if market factors utilized in the impairment analysis deteriorate, including unfavorable changes in the weighted average cost of capital, these changes could materially affect the expected cash flows, and such impacts could potentially result in a material non-cash impairment charge. 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, for the years ended December 31, 2024 and 2023, the Company recorded $ 137 and $ 2,279 , respectively, 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. 54 NOTE 7: CORPORATE BORROWINGS Indebtedness Outstanding. The following table presents the Company’s outstanding indebtedness: December 31, Description (a) 2024 2023 Credit Agreement - Revolver, 5.52 % (variable rate) due 2026 $ 105,000 $ 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 8,800 12,000 Senior Secured Notes, 3.80 % (fixed rate) due 2029 14,400 17,600 Total indebtedness outstanding 329,450 293,850 Less unamortized loan fees (b) ( 5,909 ) ( 6,601 ) Total indebtedness outstanding, net 323,541 287,249 Less current maturities of long-term debt ( 6,400 ) ( 6,400 ) Long-term debt $ 317,141 $ 280,849 (a) Interest rates are as of December 31, 2024. (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. The Credit Agreement includes certain requirements and covenants, with which the Company was in compliance at December 31, 2024. The Company incurred no new loan fees related to the Credit Agreement during 2024. The unamortized balance of total loan fees related to the Credit Agreement was $ 471 at December 31, 2024. 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 during 2023. As of December 31, 2024, the Company had $ 105,000 outstanding borrowings under the Credit Agreement, leaving $ 295,000 available. The interest rate for the borrowings of the Credit Agreement at December 31, 2024 was 5.52 %. 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, 2024, the Company had $ 8,800 of Series A Senior Secured Notes and $ 14,400 of additional Senior Secured Notes outstanding under the Note Purchase Agreement, leaving $ 226,800 available of under the Note Purchase Agreement. The Company did not capitalize any new loan fees related to the Note Purchase Agreement during 2024. The unamortized 55 balance of total loan fees related to the Note Purchase Agreement was $ 52 at December 31, 2024 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, 2024. 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 2024. The unamortized balance of total loan fees related to the 2041 Notes was $ 5,386 at December 31, 2024 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 five consecutive business days following any ten 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 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, 2024 are as follows: 2025 $ 6,400 2026 111,400 2027 5,600 2028 3,200 2029 1,600 Thereafter 201,250 Total $ 329,450 56 NOTE 8: INCOME TAXES Income tax expense is composed of the following: Year Ended December 31, 2024 2023 2022 Current: Federal $ 28,234 $ 32,296 $ 26,107 State 5,269 5,926 4,438 Foreign 131 330 ( 223 ) 33,634 38,552 30,322 Deferred: Federal 625 ( 4,100 ) 2,870 State ( 238 ) 120 ( 1,821 ) Foreign ( 44 ) 44 ( 71 ) 343 ( 3,936 ) 978 Total $ 33,977 $ 34,616 $ 31,300 Income tax expense also included tax expense allocated to comprehensive income for 2024, 2023, and 2022 of $ 16 , $ 172 , and $ 33 , 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, 2024 2023 2022 “Expected” provision at federal statutory rate $ 14,373 $ 29,895 $ 29,442 State income taxes, net 5,865 6,545 6,446 Foreign income taxes 131 330 ( 223 ) Change in valuation allowance ( 965 ) 1,135 416 Nondeductible goodwill impairment 15,489 — — Share-based compensation ( 362 ) ( 288 ) ( 34 ) Federal and state tax credits ( 2,078 ) ( 1,685 ) ( 3,506 ) Other 1,524 ( 1,316 ) ( 1,241 ) Income tax expense $ 33,977 $ 34,616 $ 31,300 Effective tax rate 49.6 % 24.4 % 22.3 % 57 The tax effects of temporary differences giving rise to deferred income taxes shown on the Consolidated Balance Sheets are as follows: December 31, 2024 2023 Deferred income tax assets: Share-based compensation $ 3,511 $ 4,453 U.S. state and foreign tax credit carryforwards 3,426 3,350 Mexico and U.S. state loss carryforwards 3,165 3,890 Inventories 2,726 2,656 Operating lease liabilities 4,120 3,740 Deferred compensation 935 848 Section 174 timing difference 1,554 2,032 Contingent Consideration 5,939 1,817 Other 2,462 2,462 Gross deferred income tax assets 27,838 25,248 Less: valuation allowance ( 2,243 ) ( 3,208 ) Net deferred income tax assets 25,595 22,040 Deferred income tax liabilities: Property, plant and equipment ( 23,813 ) ( 24,084 ) Intangibles ( 50,518 ) ( 48,460 ) Inventory ( 1,165 ) ( 2,007 ) Operating lease right-of-use assets ( 3,978 ) ( 3,577 ) Convertible Senior Note ( 7,146 ) ( 4,716 ) Other ( 2,405 ) ( 2,267 ) Gross deferred income tax liabilities ( 89,025 ) ( 85,111 ) Net deferred income tax liability $ ( 63,430 ) $ ( 63,071 ) A schedule of the change in valuation allowance is as follows: Balance at December 31, 2022 $ 2,073 Increase 1,135 Balance at December 31, 2023 3,208 Decrease ( 965 ) Balance at December 31, 2024 $ 2,243 As of December 31, 2024, the Company’s total valuation allowance of $ 2,243 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, 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. As of December 31, 2024 and 2023, the Company had $ 18,422 and $ 23,590 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 2025 and 2045. As of December 31, 2024 and 2023, the Company had gross U.S. state tax credit carryforwards of $ 4,336 and $ 3,890 , respectively. U.S. state credits, if not used to offset income tax expense in their respective jurisdictions, will expire in varying years between 2025 and 2041. 58 The Company treats accrued interest and penalties related to tax liabilities, if any, as a component of income tax expense. During 2024, 2023, and 2022, 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 2024, 2023, and 2022: Year Ended December 31, 2024 2023 2022 Beginning of year balance $ 424 $ 156 $ 113 Additions based on prior year tax positions — 83 75 Additions based on current year tax positions — 245 2 Reduction for prior year tax positions ( 235 ) ( 60 ) ( 34 ) End of year balance $ 189 $ 424 $ 156 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 2020 remain open to examination. Amounts paid for income tax in foreign jurisdictions are not material to the consolidated financial statements. In addition, the Company is subject to examination for its state tax returns for years 2020, and forward, with the exception of certain net operating losses and credit carryforwards originating in years prior to 2020 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. 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. 59 EPS. The following table presents the computations of basic and diluted EPS: Year Ended December 31, 2024 2023 2022 Operations: Net income (a) $ 34,465 $ 107,130 $ 108,872 Net loss attributable to noncontrolling interest 198 345 590 Income attributable to participating securities (unvested shares and units) (b) ( 373 ) ( 1,074 ) ( 871 ) Net income used in EPS calculation $ 34,290 $ 106,401 $ 108,591 Share information: Basic weighted average common shares (c) 22,015,439 22,059,816 22,002,990 Diluted weighted average common shares (d) 22,015,439 22,173,918 22,053,966 Basic EPS $ 1.56 $ 4.82 $ 4.94 Diluted EPS $ 1.56 $ 4.80 $ 4.92 (a) Net income attributable to all stockholders. (b) Participating securities included 243,007 , 226,410 , and 177,398 unvested restricted stock units (“RSUs”) for the years ended December 31, 2024, 2023, and 2022, 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 year end exceeds the conversion price of $ 96.24 per share. There was no dilutive impact for the year ended December 31, 2024. Share Repurchase. On February 29, 2024, the Company announced that its Board of Directors approved a $ 100,000 share repurchase program. Under the share repurchase program, the Company can repurchase stock from time to time for cash in open market purchases, privately negotiated transactions, or by other means, in accordance with applicable securities laws and other legal requirements. The repurchase program has no expiration date and may be modified, suspended, or discontinued at any time by the Company without prior notice. During the year ended December 31, 2024, the Company repurchased 886,936 shares of Common Stock for approximately $ 46,588 . As of December 31, 2024, there were approximately $ 53,412 remaining under the share repurchase program. Shares Outstanding Activity. The following table presents the Company’s share activity: Shares Outstanding Preferred Stock Common Stock 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 Issuance of Common Stock — 91,051 Repurchase of Common Stock (a) — ( 912,457 ) Balance at December 31, 2024 437 21,194,707 (a) 886,936 shares were repurchased during the year end December 31, 2024, pursuant to the Company’s share repurchase program. The remaining shares repurchased were related to the tax withholding on equity-based compensation. 60 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) 2024 February 22 March 15 March 29 $ 0.12 $ 0.12 $ 2,641 $ 31 $ 2,672 May 2 May 17 May 31 0.12 0.12 2,642 30 2,672 August 1 August 16 August 30 0.12 0.12 2,639 30 2,669 October 31 November 15 November 29 0.12 0.12 2,588 29 2,617 $ 0.48 $ 0.48 $ 10,510 $ 120 $ 10,630 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 (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, warehouse facilities, a distribution facility, fulfillment center, 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 nine 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. 61 The following table provides supplemental balance sheet classification information related to leases: December 31, Leases Balance Sheet Classification 2024 2023 Assets Operating Operating lease right-of-use-assets, net $ 15,540 $ 13,975 Total leased assets $ 15,540 $ 13,975 Liabilities Current Operating Accrued expenses $ 4,157 $ 3,318 Noncurrent Operating Long-term operating lease liabilities 11,940 11,292 Total operating lease liability $ 16,097 $ 14,610 The following table presents the components of lease costs: Year Ended December 31, 2024 2023 Operating lease costs $ 3,623 $ 4,364 Short-term lease costs 383 446 Net lease costs (a) $ 4,006 $ 4,810 (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, 2024 2023 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 3,612 $ 4,116 Right-of-use assets obtained in exchange for lease obligations Operating leases $ 6,661 $ 4,100 The following table presents weighted average discount rate and remaining lease term: December 31, 2024 2023 Weighted average discount rate Operating leases 4.43 % 2.95 % Weighted average remaining lease term Operating leases 4.4 years 5.1 years 62 As of December 31, 2024, the future payments under operating leases having initial terms of one year or more were as follows: 2025 $ 4,777 2026 4,210 2027 3,966 2028 2,775 2029 552 Thereafter 1,611 Total lease payments 17,891 Less interest ( 1,794 ) Total operating lease liability $ 16,097 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, 2024, approximately $ 50,000 of the Company’s facilities in Nelson County Kentucky and approximately $ 39,300 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, 2024 and 2023. 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. On December 16, 2024, a putative securities class action, captioned Operating Engineers Construction Industry Miscellaneous Pension Fund v. MGP Ingredients, Inc. et al., was filed in the United States District Court for the Southern District of New York against the Company, two of its former Chief Executive Officers and its current Interim Chief Executive Officer and Chief Financial Officer (the “Operating Engineers Action”). The Operating Engineers Action was brought on behalf of a putative class who acquired publicly traded MGP common stock between May 4, 2023 and October 30, 2024. On February 13, 2025, a second putative securities class action, captioned Bronstein v. MGP Ingredients, Inc. et al., was filed in the United States District Court for the Southern District of New York against the same defendants (the “Bronstein Action”). The Bronstein Action was brought on behalf of a putative class who acquired publicly traded MGP securities between May 4, 2023 and October 30, 2024. Both actions assert securities fraud claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, in connection with statements made in the Company’s quarterly earnings releases and on earnings calls during the alleged class period. Motions have been filed to consolidate the actions together with Lead Plaintiff applications. The Company believes there are substantial defenses to the claims asserted and intends to defend the lawsuits vigorously. On January 23, 2025, a putative derivative lawsuit captioned Sebald v. Colo, et al., Case No. 2:25-cv-02034, was filed in the United States District Court for the District of Kansas against two of the Company’s former Chief Executive Officers, its current Interim Chief Executive Officer and Chief Financial Officer, and the members of its Board of Directors. The Company is a “Nominal Defendant” in the lawsuit, which reflects the fact that the lawsuit is maintained by the named plaintiff on behalf of the Company and that the plaintiff seeks damages on the Company’s behalf. The complaint alleges, among other things, that 63 the defendants breached their fiduciary duties and violated federal securities laws by causing the Company to make false and/or misleading statements and/or omissions in public filings during the class period alleged in the securities actions. It also alleges breaches of fiduciary duties by failing to maintain internal controls, seeking shareholder approval of an equity incentive plan, and causing the Company to repurchase its own stock at artificially inflated prices. The complaint brings additional claims for unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets and seeks indemnity and contribution from the named current and former officers. The Company believes there are substantial defenses to the claims asserted and intends to defend the lawsuit vigorously. 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 $ 2,836 , $ 2,810 , and $ 2,517 for 2024, 2023, and 2022, 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, 2024 the total current and non-current benefit obligations are immaterial. Share-Based Compensation Plans. As of December 31, 2024, the Company was authorized to issue 40,000,000 shares of Common Stock and had a treasury share balance of 1,930,459 at December 31, 2024. The Company had 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”), both of which expired in April 2024. At the Company’s annual meeting in May 2024, the stockholders of the Company approved a new equity-based compensation plan, the 2024 Equity Incentive Plan (the “2024 Plan”), which initially authorized 1,319,320 shares for issuance, subject to the adjustment and add-back provision of the 2024 Plan. Similar to prior plans, the 2024 Plan provides for the awarding of stock options, stock appreciation rights, shares of restricted stock, RSUs and other stock-based awards for executive officers and other employees, as well as for non-employee directors and certain consultants and advisors. The 2024 Plan provides that vesting occurs pursuant to the time period specified in the particular award agreement approved for that issuance of RSUs. As of December 31, 2024, 1,323,614 shares remain available for issuance under the 2024 Plan. Compensation expense related to RSU awards is based on the market price of the stock on the date the Board of Directors communicates the approved award and is amortized over the vesting period of the restricted stock award. The Consolidated Statements of Income for 2024, 2023, and 2022 reflect total share-based compensation costs and director fees for awarded grants of $ 4,016 , $ 5,425 , and $ 3,487 , respectively, related to these plans. For long-term incentive awards to be granted in the form of RSUs in 2025 based on 2024 results, the Human Resources and Compensation Committee (“HRCC”) of the Company’s Board of Directors 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 the 2024 performance metrics were not met, there was no amortization of the estimated dollar pool of RSUs to be awarded based on 2024 results, as such there was no share-based compensation costs for grants to be awarded on the Consolidated Statement of Income for the year ended December 31, 2024. The Consolidated Statements of Income for 2023 and 2022 reflect share-based compensation costs for grants to be awarded of $ 5,187 , and $ 2,018 , respectively. 64 RSUs. The following table presents the summary of unvested RSUs under the Company’s share-based compensation plans for 2024, 2023, and 2022: Year Ended December 31, 2024 2023 2022 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 226,410 $ 77.56 179,538 $ 65.11 167,994 $ 61.07 Granted 115,411 84.90 71,728 96.87 69,492 78.08 Forfeited ( 16,872 ) 86.88 ( 2,264 ) 81.76 ( 28,542 ) 61.11 Vested ( 81,942 ) 66.04 ( 22,592 ) 39.47 ( 29,406 ) 76.59 Unvested balance at end of year 243,007 $ 84.29 226,410 $ 77.56 179,538 $ 65.11 During 2024, 2023, and 2022, the total grant date fair value of RSU awards vested was $ 5,411 , $ 892 , and $ 2,252 , respectively. As of December 31, 2024, there was $ 3,085 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 1.2 years. Upon their vesting, the Company purchased restricted stock and RSUs from employees to cover associated withholding taxes. Total treasury stock purchases added 25,521 shares for $ 2,185 in 2024; 8,437 shares for $ 801 in 2023; and 9,031 shares for $ 715 in 2022. 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 2024, 2023, and 2022, 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 , and $ 13,370 for 2023, and 2022, respectively. There were no amounts expensed under the STI Plan for 2024. 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, 2024 and 2023, the EDC Plan investments were $ 3,653 and $ 2,916 , respectively, which were recorded in other assets on the Company’s Consolidated Balance Sheets. The EDC Plan current liabilities were $ 1,520 and $ 74 at December 31, 2024 and 2023, respectively, and were included in accrued expenses and other on the Company’s Consolidated Balance Sheets. The EDC Plan non-current liabilities were $ 2,132 and $ 3,314 as of December 31, 2024 and 2023, respectively, which were recorded in Other non-current liabilities on the Company’s Consolidated Balance Sheets. 65 NOTE 13: CONCENTRATIONS AND RELATED PARTIES Significant customers. For 2024, one customer of the Branded Spirits segment accounted for approximately 13 percent of consolidated sales and one customer of the Ingredient Solutions segment accounted for approximately 12 percent of consolidated sales. For 2023, the Company had sales to one customer that accounted for approximately 11 percent of consolidated sales, respectively. For 2022, the Company had no sales to an individual customer that accounted for more than 10 percent of consolidated sales. During the years 2024, 2023, and 2022, the Company’s ten largest customers accounted for approximately 53 percent, 44 percent, and 38 percent of consolidated sales, respectively. Significant suppliers. For 2024, the Company had purchases from two suppliers that approximated 25 percent of consolidated purchases. In addition, the Company’s ten largest suppliers, accounted for approximately 57 percent of consolidated purchases. 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. Related Parties. For the years ended December 31, 2024, 2023, and 2022 the Company purchased $ 26,345 , $ 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. The Company leased bottling and warehousing facilities in St. Louis, Missouri from Kemper-Themis, L.L.C. (“Kemper”), which was 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. NOTE 14: OPERATING SEGMENTS At December 31, 2024, the Company had three segments: Distilling Solutions, Branded Spirits, and Ingredient Solutions. The Company’s operating segments are based on the financial information the chief operating decision maker uses to allocate resources and evaluate performance of the business. During the year ended December 31, 2024, the chief operating decision maker was the Company’s Chief Executive Officer. The Distilling Solutions segment consists of food grade alcohol (primarily brown goods) and distillery co-products, such as distillers feed (commonly called dried distillers grain in the industry). 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 as well as commodity starches and proteins. Intersegment sales and transfers are recorded at cost and are treated as a transfer of inventory. All intercompany revenues are eliminated in consolidation and are not reviewed when evaluating segment performance. Operating income for each segment is based on sales less identifiable operating expenses. The CODM used the operating income to evaluate the segment profitability and to assess the actual results compared to the budget. Non-direct selling, general, and administrative expenses (“SG&A”), non-direct advertising and promotion expense, interest expense, and other general miscellaneous expenses 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. 66 The following tables present summarized financial information for each segment: Year Ended December 31, 2024 Distilling Solutions Branded Spirits Ingredient Solutions Corporate Total Sales (a) $ 332,204 $ 240,816 $ 130,605 $ — $ 703,625 Cost of Goods Sold 190,277 122,620 104,411 — 417,308 Gross Profit 141,927 118,196 26,194 — 286,317 Advertising and promotion expense 1,352 36,909 1,714 533 40,508 SG&A expense 2,970 39,711 3,949 34,761 81,391 Impairment of long-lived assets and other 137 — — — 137 Goodwill impairment — 73,755 — — 73,755 Change in fair value of contingent consideration — 16,100 — — 16,100 Operating income $ 137,468 $ ( 48,279 ) $ 20,531 $ ( 35,294 ) $ 74,426 Depreciation and amortization $ 7,893 $ 8,035 $ 4,711 $ 1,350 $ 21,989 Year Ended December 31, 2023 Distilling Solutions Branded Spirits Ingredient Solutions Corporate Total Sales (a) $ 450,854 $ 253,933 $ 131,736 $ — $ 836,523 Cost of Goods Sold 305,890 141,152 84,769 — 531,811 Gross Profit 144,964 112,781 46,967 — 304,712 Advertising and promotion expense 1,127 34,463 2,400 223 38,213 SG&A expense 2,301 37,389 3,838 47,867 91,395 Impairment of long-lived assets and other 19,391 — — — 19,391 Change in fair value of contingent consideration — 7,100 — — 7,100 Operating income $ 122,145 $ 33,829 $ 40,729 $ ( 48,090 ) $ 148,613 Depreciation and amortization $ 11,833 $ 6,952 $ 2,574 $ 754 $ 22,113 Year Ended December 31, 2022 Distilling Solutions Branded Spirits Ingredient Solutions Corporate Total Sales (a) $ 428,478 $ 237,939 $ 115,941 $ — $ 782,358 Cost of Goods Sold 302,196 142,418 84,438 — 529,052 Gross Profit 126,282 95,521 31,503 — 253,306 Advertising and promotion expense 959 27,341 1,180 234 29,714 SG&A expense 3,672 34,847 2,791 33,317 74,627 Operating income $ 121,651 $ 33,333 $ 27,532 $ ( 33,551 ) $ 148,965 Depreciation and amortization $ 11,641 $ 5,909 $ 2,473 $ 1,432 $ 21,455 (a) Sales from foreign sources totaled $ 36,240 , $ 49,822 , and $ 56,719 for the years ended December 31, 2024, 2023, and 2022, respectively, and is largely derived from the United Kingdom, Japan, Canada, Mexico, and Australia. The balance of total sales is from domestic sources. 67 The following table allocates assets to each segment as of: December 31, 2024 2023 Identifiable Assets Distilling Solutions $ 382,432 $ 369,241 Branded Spirits 862,458 910,633 Ingredient Solutions 132,003 88,846 Corporate 28,892 23,628 Total (a) $ 1,405,785 $ 1,392,348 (a) As of December 31, 2024 and 2023, the Company had $ 4,042 and $ 3,524 , respectively, of long-lived assets located in Northern Ireland. NOTE 15: SUPPLEMENTAL CASH FLOW INFORMATION Year Ended December 31, 2024 2023 2022 Non-cash investing and financing activities: Purchase of property, plant, and equipment in accounts payable $ 17,590 $ 15,610 $ 9,768 Additional cash payment information: Interest paid 10,569 9,241 5,952 Income taxes paid 36,068 35,144 29,052 See Note 10, Leases for operating lease supplemental cash flow information. NOTE 16: SUBSEQUENT EVENTS Dividend Declaration. On February 26, 2025, 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 28, 2025, to stockholders of record and RSU holders as of March 14, 2025. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable.